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https://www.courtlistener.com/api/rest/v3/opinions/8494705/ | ORDER CONFIRMING DEBTOR’S FIRST AMENDED PLAN FOR ADJUSTMENT OF DEBTS PURSUANT TO CHAPTER 9 OF THE BANKRUPTCY CODE
DAVID R. DUNCAN, Bankruptcy Judge.
This matter is before the Court for confirmation of the First Amended Plan for Adjustment of Debts [Doc. 126] as modified by the Debtor’s Modification to the First Amended Plan for Adjustment of Debts (“Modification”) [Doc. 205] (collectively the “Plan”) filed by Barnwell County Hospital (the “Debtor”). Objections to Debtor’s Plan were filed by Creekridge Capital, LLC, (“Creekridge”), Nexsen Pruet, The United States of America on behalf of the United States Department of Health and Human Services (“HHS”), Palmetto Emergency Care, P.A. and Palmetto Hospitalist Associates (collectively, “Palmetto”), General Electric Company d/b/a GE Healthcare Diagnostic Imaging (“GE”), Robert M. Peeples and certain participants of the Barnwell County Hospital Pension Plan (collectively, “Peeples”), and Intervener Don Alexander (“Alexander”).1 A hearing was held on Debtor’s Plan on April 30, 2012 and May 3, 2012. *853Prior to or at the conclusion of the hearing, all objections to the Plan were consensually resolved except for the objections of Peeples, Alexander and GE. Based on the findings of fact and conclusions of law stated on the record at the hearing and set forth in detail below, Debtor’s chapter 9 Plan is confirmed.
HISTORY AND BACKGROUND OF DEBTOR
The Debtor was created in 1953 by act of the South Carolina Legislature to provide hospital facilities to the residents of Barnwell County (the “County”). The legislature created the Barnwell County Hospital Board (the “Board”) and charged it with the responsibility of constructing a hospital and making all rules and regulations for the operations and management of the Debtor. Debtor operates as a hospital at 811 Reynolds Road, Barnwell, South Carolina. The Debtor also owns and operates two provider-based rural health clinics in the southwestern rural area of South Carolina serving the communities of Blackville and Williston.
The Debtor is and has been unable to pay its debts as they become due. For years, Barnwell County provided funding to keep the Debtor operating, however the Debtor was informed that the County would no longer provide funding. Furthermore, as a rural hospital, Debtor faces numerous business challenges, including a low customer volume and a high number of indigent patients. Consequently, the Debtor has a limited ability to pay for new technology and facilities that larger hospitals in neighboring areas can provide. Such technology and facilities are necessary to attract specialty physicians to work at the hospital in order that, in turn, increase revenue and profit opportunities.
Based upon those factors and others, the Debtor, along with Bamberg County Memorial Hospital (together with the Debtor, being hereafter referred to as the “Hospitals”), sought a third party purchaser to combine the existing primary service areas and healthcare facilities and businesses located in and owned by Bamberg and Barn-well Counties, South Carolina (collectively, the “Counties”), into one regional hospital or health system in order to provide their residents access to efficient and effective healthcare, and to have that care delivered through well-equipped, contemporary facilities designed to meet the specific needs of each community. In order to provide such access, it was decided that a collaborative regional system for healthcare for the residents of the Counties would attract the financial support needed to provide healthcare services that can sustain themselves through changes in medical technology, regulations, and reimbursement, and can support continued upgrades in facilities and services.
To help the Counties find a third party to achieve the Counties’ goals, the Counties engaged Stroudwater Capital (“Stroudwater”) to reach out to all interested people in the region in order to determine what was important to the Counties’ residents and to find potential parties who were interested in developing the regional health system. After an extensive solicitation process, SC Regional Health System, LLC (“RHS”) was identified and approved as the entity best suited to acquire substantially all of the assets of *854the hospitals and to create a regional health system in accordance with the identified goals of the Counties.
On September 29, 2011, the Debtor, along with Bamberg County Memorial Hospital2 and the Counties, executed an Asset Purchase Agreement (“APA”) with RHS for the acquisition of substantially all of the assets of the Hospitals. The parties also executed a Development Agreement. The APA and Development Agreement provide that RHS will develop and operate an integrated healthcare delivery system to be known as the Regional Health System (“Regional Health System”) to serve both Counties. The APA and Development Agreement provide for the construction of a new hospital with at least 23 inpatient beds.
The Plan is based on the APA and contemplates that both the Debtor and Bam-berg County Memorial Hospital will have filed bankruptcy. Both the Debtor and Bamberg County Memorial Hospital must be successful in having their respective plans confirmed, or the APA will not be consummated.
CONFIRMATION OF DEBTOR’S PLAN
The Debtor having:
a.on October 5, 2011 (the “Petition Date”), filed its voluntary petition for relief under chapter 9 of the United States Bankruptcy Code (the “Bankruptcy Code”),3 in the United States Bankruptcy Court for the District of South Carolina (the “Bankruptcy Court”);
b. published notice of the fifing of its chapter 9 petition and request for the entry of an order for relief thereunder in The State and People-Sentinel newspapers, and in addition, mailed notice to all known creditors and parties in interest;
c. filed, on February 10, 2012, a disclosure statement and plan for adjustment of debts;
d. filed, on March 23, 2012, a First Amended Disclosure Statement and First Amended Plan for Adjustment of Debts, which was thereafter supplemented, modified and amended on May 9, 2012, (as such, the “Disclosure Statement” and “Plan”, respectively);
e. distributed solicitation materials consistent with the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), the District of South Carolina Local Bankruptcy Rules (the “Local Bankruptcy Rules”), and the Order (I) Scheduling Hearing on Confirmation of the First Amended Plan for Adjustment of Debts; (II) Approving Solicitation Procedures; (III) Establishing Deadlines; and (IV) Approving Form and Manner of Notice of the Confirmation Hearing [Docket No. 130] (the “Solicitation Procedures Order”);
f. filed, on April 27, 2012, Debtor’s Ballot Tabulation (“Ballot Tally”), detailing the results of the Plan voting process; and
g. filed, on May 4, 2012, the Debtor’s Memorandum in Support of Confirmation of the Plan (“Plan Confirmation Brief’).
The Bankruptcy Court having:
*855a. conducted a hearing on the Disclosure Statement on March 19, 2012 and approved the Disclosure Statement by Order dated March 23, 2012;
b. entered the Solicitation Procedures Order on March 23, 2012;
c. set April 30, 2012 at 10:00 a.m., prevailing Eastern Time, as the date and time for the commencement of the hearing to consider confirmation of the Plan (the “Confirmation Hearing”);
d. reviewed the Plan, the Disclosure Statement, the Ballot Tally, the Plan Confirmation Brief and all filed pleadings, exhibits, statements and comments regarding confirmation of the Plan under the Bankruptcy Code (“Confirmation”), including all objections, statements and reservations of rights;
e. heard the statements, arguments and objections made by counsel in respect of Confirmation;
f. considered all oral representations, testimony, documents, filings and other evidence regarding Confirmation;
g. overruled any and all objections to the Plan and confirmation thereof; and
h. taken judicial notice of the papers and pleadings filed in this chapter 9 Case.
NOW, THEREFORE, it appearing to the Bankruptcy Court that notice of the Confirmation Hearing and the opportunity for any party-in-interest to object to Confirmation have been adequate and appropriate as to all parties affected or to be affected by the Plan and the transactions contemplated thereby, and the legal and factual bases set forth in the documents filed in support of Confirmation and presented at the Confirmation Hearing establish just cause for the relief granted herein; and after due deliberation thereon and good cause appearing therefore, the Bankruptcy Court makes and issues the following Findings of Fact, Conclusions of Law and Orders:
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Jurisdiction AND Venue.
The Bankruptcy Court has jurisdiction over this chapter 9 case pursuant to 28 U.S.C. § 1334. Venue in the Bankruptcy Court was and is proper under 28 U.S.C. §§ 1408 and 1409. The Debtor is an entity eligible for relief under Bankruptcy Code § 109(c). Confirmation of the Plan constitutes a core proceeding under 28 U.S.C. § 157(b)(2), and the Bankruptcy Court has exclusive jurisdiction to determine whether the Plan complies with the applicable provisions of the Bankruptcy Code and should be confirmed.
Judicial Notice.
The Bankruptcy Court takes judicial notice of (and deems admitted into evidence for Confirmation) the docket of this chapter 9 case, including all pleadings and other documents on file, all orders entered, all hearing transcripts and all evidence and arguments made, proffered or adduced at the hearings held before the Bankruptcy Court during the pendency of this case. Any resolutions of objections to Confirmation explained on the record at the Confirmation Hearing are hereby incorporated by reference. All unresolved objections, statements and reservations of rights are hereby overruled on the merits.
Burden of Proof.
Debtor has met its burden of satisfying the confirmation requirements of *856§ 943(b) by a preponderance of the evidence, which is the applicable evidentiary standard. See In re Pierce County Hous. Auth., 414 B.R. 702, 715 (Bankr.W.D.Wash.2009); In re Mount Carbon Metro. Dist., 242 B.R. 18, 31 (Bankr.D.Colo.1999).
Eligibility.
The Court turns to the issue of the eligibility of Debtor for relief under chapter 9 of the Bankruptcy Code. By prior order and after notice and hearing, the Court granted the Motion to Intervene filed by Don A. Alexander, and ordered that the parties submit briefs in support of their arguments. [Doc. No. 131]. Thereafter, Alexander filed a Brief in Objection to Debtor’s Plan for Adjustment of Debts and Objection to Eligibility of Debtor (“Objection”) [ (Doc. No. 145) ] and the Debtor filed a brief in response [Doc. No. 158] to which Alexander then filed a reply [Doc. No. 169]. A hearing on this matter was held on May 3, 2012.
Alexander, a former member of the Board, contends that the Debtor wrongfully filed for chapter 9 relief because members of the Board who instituted this action were holding such positions in violation of the South Carolina Constitution. Alexander claims that the Board members were also members of the Barnwell County Council (“County Council”). Therefore, they were holding dual offices, which is contrary to S.C. Const. Art. VI, § 3 and Art. XVII, § 1A. Debtor argues that it legally filed for chapter 9 relief because the dual offices held by these board members are not the type contemplated by the Constitution. The shared relationship between positions on the County Council and the Board is a vertical duality — the members’ powers were not expanded by becoming Board members and holding the coinciding positions.
In addition, Alexander argues that Debt- or is not eligible for chapter 9 relief because it does not meet the requirements to be a debtor under 11 U.S.C. § 109(c). Specifically, Alexander contends that Debtor was not “specifically authorized ... by State law” to file for bankruptcy relief because Debtor does not constitute one of the entities enumerated in S.C.Code Ann. § 6-1-10, which provides what entities may avail themselves to bankruptcy protection under Title 11. In response, Debtor asserts that because it constitutes a “governmental unit” and “municipality,” as defined by the Code, it falls within the purview of S.C.Code Ann. § 6-1-10, which specifically grants it the authority to file bankruptcy.
Findings of Fact on Eligibility Issues
Debtor was created in 1953 by act of the South Carolina Legislature to provide hospital facilities for Barnwell County. 1953 S.C. Acts 298. The Legislature created the Barnwell County Hospital and Nursing Home Board (“Original Board”) and charged it with the responsibility to construct a hospital and establish all rules and regulations for its operations and management. Id.
Thereafter, the legislature enacted the Home Rule Act of 1975, S.C.Code Ann. § 4-9-10, et seq. (1986 & Supp. 1998). Pursuant to the Act, Barnwell County adopted the pure Council form of government. Under this form of government, both legislative and executive functions are under the purview of the County Council. The citizens of the County select and vote for those who will serve on the County Council, and whose powers and duties are outlined in part in S.C.Code Ann. § 4-9-*85730(5) and (6). Section 4-9-30(6) specifically enumerates the powers of the County Council, which include those necessary and proper to provide and manage services for local public purposes. Section 4-9-30(14) also gives the Council the power to enact ordinances for the implementation and enforcement of the powers so conferred.
The County Council abolished the Original Board, took title to all assets of the Barnwell County Hospital and Nursing Home, and entered a contract with an outside group to manage the hospital. See Ordinance No. 1986-26. (“The Barnwell County Council shall assume responsibility for the operation, management and control of the Barnwell County Hospital and Nursing Home as of the effective date of this ordinance.”) By Ordinance No. 1988-35, as amended by Ordinance Nos. 1993-62, 1999-139, 2003-176, and 2003-178, the County created the Board of Trustees of Barnwell County Hospital. The ordinances provided the Board with the authority and responsibility to make all rules and regulations for the operation and management of the Debtor. The ordinances also require regular reports to the County Council and authorize the Board to adopt budgets subject to the approval of the Council.
Appointments on the Board are made by the County Council. Seven of those representatives are recommended by the County Council members and two representatives are from the Barnwell County Hospital Medical Staff, with one of those two members being appointed by direct election of the medical staff.
Ordinance No. 2003-176 provides that the County Council may remove a board member by majority vote “for any reason or no reason at all.” Any removed board member may be replaced by the nominating procedure set forth in the ordinances.
Rule 6.01 of the Barnwell County Council Rules of Procedure provides the following:
Members of Council have the authority pursuant to various ordinances of the County Council to appoint members from their District to various committees, boards and agencies established by County Council. To the extent that any ordinance of County Council requires that committee appointments of each member to be approved by the remainder of Council, that portion of those ordinances are hereby repealed. Each member of County Council is hereby entitled to appoint qualified electors of their District to committees, boards and agencies of the County, without the advice and consent of the remaining members of Council. If a councilperson seeks to appoint a qualified elector to a committee, board or agency from outside of their District, that appointment is subject to the advice and consent of County Council.
On April 26, 2011, the County Council met in a Special Meeting. Pursuant to Rule 6.01 and Ordinance No. 1988-35, as amended by Ordinance Nos. 1993-62, 1999-139, 2003-176, and 2003-178, by unanimous vote, seven members of the Board were replaced with the County Council members, who appointed themselves to the Board for their respective districts.
On September 27, 2011, the Board adopted a resolution to authorize the commencement and prosecution of this bankruptcy case. [Doc. No. 5].
On October 5, 2011, Debtor filed a voluntary petition seeking relief under chapter 9 of the Bankruptcy Code.
A group of citizens, including Alexander, filed a state court action in the Barnwell *858County Court of Common Pleas against members of the County Council (“State Court Action”). Alexander et al. v. Houston et al, C/A No. 2011-CP-06-476. The State Court Action involved arguments similar to those in the instant case, including challenges to the ability of the County Council members to also serve on the Board of the Debtor.
Thereafter, on March 7, 2012, Alexander filed a Motion to Intervene in the instant case, requesting that the Court stay this case until the State Court Action is ruled on “with finality.” [Doc. No. 111]. On March 19, 2012, the Court granted the Motion to allow Alexander to challenge the Debtor’s eligibility to be a chapter 9 debt- or.
Thereafter, on May 2, 2012, on the motion of the County Council members, the state court dismissed the State Court Action. Relevant to this matter, the state court found that the County Council members did not violate the South Carolina Constitution, which provides, “[n]o person may hold two offices of honor or profit at the same time.” S.C. Const. Art. VI, § 3. The state court reasoned that there is a vertical relationship between the County Council and the Board. While both positions may be considered offices as contemplated by the dual office holding prohibition, “because the Council has the power to perform the duties that they delegated to the Hospital Board without its existence, by removing the members of the Board and installing themselves in their stead the Council members gain no new or additional powers beyond those which they previously possessed.” Alexander, C/A No. 2011-CP-06-476, slip op. at 8 (May 2, 2012). The court further reasoned that because the Board is a “sub-entity” of the County Council, “the County Council could have simply eliminated the Hospital Board and run the hospital based on the aforementioned authority, but instead chose to remove the members of the Board and place themselves in the positions.” Id. at 9. Therefore,
Since the Councilpersons have gained no new power and the Hospital Board is a sub-entity of the County Council, created and disbanded by the Council, the position are [sic] purely symbolic. Thus, the evil sought to be avoided by the constitutional prohibition against dual office holding does not exist in this case.
Id. (footnote omitted).
On May 3, 2012, this Court heard arguments from Alexander and Debtor on both the dual office holding issue and the issue of Debtor’s eligibility under § 109(c).
Discussion and Conclusions of Law on Eligibility Issues
Eligibility Under 11 U.S.C. § 109(C)
Section 109(c) sets forth certain requirements with respect to who may be a debtor under chapter 9. Among those requirements, the debtor must be: (1) a municipality; and (2) “specifically authorized in its capacity as a municipality or by name, to be a debtor under such chapter by State law, or by a governmental officer or organization empowered by State law to authorize such entity to be a debtor under such chapter.” 11 U.S.C. § 109(c)(1), (2). There are three other requirements that an entity must satisfy before it is considered eligible for chapter 9 relief. See 11 U.S.C. § 109(c)(3)-(5). “The burden of establishing eligibility under § 109(c) is on the debtor.” In re City of Vallejo, 408 B.R. 280, 289 (9th Cir. BAP 2009) (quoting In re Valley Health Sys., 383 B.R. 156, 161 (Bankr.C.D.Cal.2008)). However, the *859Court “construe[s] broadly § 109(c)’s eligibility requirements ‘to provide access to relief in furtherance of the Code’s underlying policies.’” Id. (quoting In re Valley Health Sys., 383 B.R. at 163).
A municipality is defined by the Bankruptcy Code as a “political subdivision or public agency or instrumentality of a State.” 11 U.S.C. § 101(40). This is the linchpin of the first requirement. The second requirement, authorization of the filing at the state level, results from the very nature of our federal system and recognizes the balance that must be struck when a political subdivision of a state avails itself of restructuring available only under federal law. In order to satisfy § 109(c)(2), “that explicit authorization must be written, ‘exact, plain, and direct with well-defined limits so that nothing is left to inference or implication.’ ” In re N.Y. City Off-Track Betting Corp., 427 B.R. 256, 267 (Bankr.S.D.N.Y.2010) (quoting In re Timberon Water and Sanitation Dist., No. 9-07-12142 ML, 2008 WL 5170581, at *2 (Bankr.D.N.M. June 18, 2008) (concluding that the Code requires that the municipality be “specifically authorized” to file for bankruptcy)).
In In re Connector 2000 Assoc., Inc., 447 B.R. 752 (Bankr.D.S.C.2011), this Court both applied the § 109 test and the test under the prior Bankruptcy Act to a chapter 9 debtor for determining whether an entity constitutes a municipality under the Code, and is therefore eligible for chapter 9 relief. Id. at 758. The test utilized by the Court was “whether the authority or agency is subject to control by public authority, state or municipal.” Id. (quoting Ex parte York Co. Natural Gas Auth., 238 F.Supp. 964, 976 (D.C.S.C.1965)). Upon a finding that the debtor constituted a “municipality” under this test, the Connector Court then looked to whether the debtor was authorized under South Carolina state law to be a chapter 9 debtor. The Court found that “[b]ecause the Court has determined Debtor is a municipality, S.C.Code § 6-1-10 specifically authorizes it to file bankruptcy.” Id. S.C.Code Ann. § 6-1-10 provides:
The consent of the State is .hereby granted to, and all appropriate powers are hereby conferred upon, any county, municipal corporation ... or other taxing or governmental unit organized under the laws of the State to institute any appropriate action and in any other respect to proceed under and take advantage of and avail itself of the benefits and privileges conferred, and to accept the burdens and obligations created, by any existing act of the Congress of the United States and any future enactment of the Congress of the United States relating to bankruptcy or the composition of indebtedness on the part of the counties, municipal corporations ... and other taxing or governmental units or any of them.
S.C.Code Ann. § 6-1-10.
Therefore, in following the approach of the Connector Court, this Court must first determine whether the Debtor is a municipality as defined by the Bankruptcy Code. If so, then the Debtor is authorized to file for chapter 9 relief, pursuant to S.C.Code Ann. § 6-1-10.
The Court finds that Debtor falls squarely within the definition under § 101(4) because it is an instrumentality of the State.4 Debtor also satisfies the municipality test applied in the Connector *860case because it is subject to control by-public authority. Under the Home Rule Act, S.C.Code § 4-9-310, Barnwell County implemented the Council form of government, in which the County Council has the power to create and disband any county sub-entities or Board. The Debtor is operated by a Board of Directors, which is comprised of members who are appointed by the County Council or are employees of the Debtor. Additionally, the County Council created the Board and conveyed its powers and duties by ordinance. The Board reports to the County Council, and the Hospital’s budget is subject to County Council approval. Therefore, the Debtor is ultimately controlled by the County Council, which is a public authority because its members are elected by the citizens of Barnwell County. Accordingly, Debtor constitutes a “municipality” as defined by the Code and was specifically authorized to file for bankruptcy under S.C.Code Ann. § 6-1-10.
The statutory authorization for seeking bankruptcy relief under S.C.Code Ann. § 6-1-10 is broad. It extends not only to counties and municipal corporations but also to “governmental unit[s] organized under the laws of the State.... ” S.C.Code Ann. § 6-1-10. Alexander argues that this limits Debtor since it, while originally organized under state statute, is a creature of county ordinance. This ignores the source of authority for county action, the Home Rule Act which authorizes counties to create or organize boards and agencies. As a result the Debtor is a governmental unit organized under state law, is a municipality for bankruptcy purposes and was authorized by state law to file this bankruptcy case.
As to the remaining requirements of § 109(c), based upon testimony at the confirmation hearing, the Declaration of Charles Lowell Jowers, Sr. [Docket #4], and the Debtor’s Statement of Qualifications [Docket #2], the Court finds that Debtor is eligible for relief under chapter 9 of the Bankruptcy Code, subject only to the contention that the action of the Board authorizing the filing of the voluntary petition was in violation of the South Carolina Constitution. The Court now turns to that issue.
Dual Office Holding
Alexander and the County Council strongly disagree on the issue of whether the removal of members of the Hospital Board and the replacement of those members with the individual County Council members is a violation of the South Carolina Constitution. This issue spawned litigation in South Carolina’s Court of Common Pleas, as mentioned above. There is sparse appellate authority in the state on the issue, but a multitude of published opinions of the South Carolina Attorney General. The question presented is not definitively answered by easy application of the state jurisprudence. The job of a federal court in answering questions of state law which have not been addressed by the highest court of the state is to anticipate what that state court would do. Roe v. Doe, 28 F.3d 404, 407 (4th Cir.1994) (citing Doe v. Doe, 973 F.2d 237, 240 (4th Cir.1992); Empire Distrib. of N.C. v. Schieffelin & Co., 859 F.2d 1200, 1203 (4th Cir.1988); Wilson v. Ford Motor Co., 656 F.2d 960 (4th Cir.1981)).
The South Carolina Constitution generally prohibits an individual from holding two offices of honor or profit at the same time. S.C. Const. Art. VI, § 3 (“No person may hold two offices of honor or profit *861at the same time. This limitation does not apply to officers in the militia, notaries public, members of lawfully and regularly organized fire departments, constables, or delegates to a constitutional convention.”); S.C. Const. Art. XVII, § 1A (“No person may hold two offices of honor or profit at the same time, but any person holding another office may at the same time be an officer in the militia, member of a lawfully and regularly organized fire department, constable, or a notary public.... ”). These provisions were derived from the common law, which prohibited a person from holding two offices if they were “incompatible.” “Incompatibility meant either that the offices involved ‘such a multiplicity of business’ that one person could not adequately perform both, or that they were ‘subordinate and interfering with each other, inducing a presumption that they cannot be executed with impartiality and honesty.’ ” Richardson v. Town of Mount Pleasant, 350 S.C. 291, 293, 566 S.E.2d 523, 525 (2002) (quoting State v. Buttz, 9 S.C. 156 (1877) (finding that two incompatible offices cannot be performed by the same individual)). However, the 1895 South Carolina Constitution “extended the dual office holding proscription to all persons holding positions of ‘honor or profit’ exempting from the prohibition only notaries public and militia officers.” Id. (citing Art. II, § 2).
The Home Rule Act grants broad powers to the counties of South Carolina. Among these various powers, counties are explicitly authorized:
to establish such agencies, departments, boards, commissions and positions in the county as may be necessary and proper to provide services of local concern for public purposes, to prescribe the functions thereof and to regulate, modify, merge or abolish any such agencies, departments, boards, commissions and positions, except as otherwise provided for in this title.
S.C.Code Ann. § 4-9-30(6) (emphasis added). In addition, counties are granted the specific authority “to enact ordinances for the implementation and enforcement of the powers granted in this section ...” S.C.Code Ann. § 4-9-30(14).
Pursuant to the Home Rule Act, Barn-well County adopted the County Council form of government. Under this form of government, “the responsibility for policy making and administration of county government shall be vested in the county council ... who are qualified electors of the county.” S.C.Code Ann. § 4-9-310. Thereafter, County Council adopted Ordinance No. 1986-26, which created the Barnwell County Hospital Board, and Ordinance No. 1988-35, which sets forth the compensation and powers and duties of the Board members.
“When construing the constitution, the [South Carolina Supreme] Court applies rules similar to those relating to the construction of statutes.” Fraternal Order of Police v. S.C. Dept. of Rev., 352 S.C. 420, 427-28, 574 S.E.2d 717, 721 (2002) (citing Davis v. County of Greenville, 313 S.C. 459, 443 S.E.2d 383 (1994)). In statutory interpretation, the cardinal rule is to determine and effectuate the intent of the legislature. Grimsley v. S.C. Law Enforcement Div., 396 S.C. 276, 281, 721 S.E.2d 423, 426 (2012) (citing Sloan v. Hardee, 371 S.C. 495, 498, 640 S.E.2d 457, 459 (2007)). The legislature’s intent should be ascertained primarily from the plain language of the statute because “[w]hat a legislature says in the text of a statute is considered the best evidence of *862the legislative intent or will.” Jones v. State Farm Mut. Auto. Ins. Co., 364 S.C. 222, 231, 612 S.E.2d 719, 724 (Ct.App.2005) (citing Bayle v. S.C. Dept. of Transp., 344 S.C. 115, 542 S.E.2d 736 (Ct.App.2001)). “When interpreting the plain meaning of a statute, courts should not resort to subtle or forced construction to limit or expand the statute’s operation.” State v. Jacobs, 393 S.C. 584, 587, 713 S.E.2d 621, 622 (2011).
However, “[i]f the language of an act gives rise to doubt or uncertainty as to legislative intent, the construing court may search for that intent beyond the borders of the act itself.” Jones, 364 S.C. at 231, 612 S.E.2d at 724. In addition:
[h]owever plain the ordinary meaning of the words used in a statute may be, the courts will reject that meaning when to accept it would lead to a result so plainly absurd that it could not possibly have been intended by the Legislature or would defeat the plain legislative intention. If possible, the court will construe the statute so as to escape the absurdity and carry the intention into effect.
Hodges v. Rainey, 341 S.C. 79, 91, 533 S.E.2d 578, 584 (2000) (quoting Ray Bell Constr. Co. v. School Dist. of Greenville Co., 331 S.C. 19, 501 S.E.2d 725 (1998)).
The State Constitution provides:
[t]he provisions of this Constitution and all laws concerning local government shall be liberally construed in their favor. Powers, duties, and responsibilities granted local government subdivisions by this Constitution and by law shall include those fairly implied and not prohibited by this Constitution.
S.C. Const. Art. XVII, § 1A. Furthermore, when specifically interpreting the powers bestowed upon counties pursuant to the Home Rule Act, the Court must liberally construe the county’s powers in favor of the county “and the specific mention of particular powers may not be construed as limiting in any manner the general powers of counties.” S.C.Code Ann. § 4-9-25.
While the passage of the State Constitution in 1895 may have “extended the dual office holding proscription to all persons holding positions of ‘honor or profit’ ... ” Richardson, 350 S.C. at 293, 566 S.E.2d at 525, rendering the “incompatible” factor irrelevant, a number of South Carolina Attorney General’s opinions indicate that the prohibition may not be as all-encompassing as Alexander proposes and that there are certain nuances to the proscription. Opinions of the Attorney General are persuasive, if not binding, authority in South Carolina. Each opinion issued by the Attorney General involves a fact-intensive inquiry into the positions held by the inquiring individual.
From a review of the various opinions, it is evident that an individual may not hold a seat on the county council and a county commission when the commission was created directly by state statute. See S.C.A.G. Op. No. 85, 1985 WL 165972 (Jan. 4, 1985) (recommending that a person serving simultaneously on the county council and that county’s Water Resources Commission, which was created by statute and amended by ordinance pursuant to S.C.Code Ann. § 4-9-80, constitutes a dual membership); S.C.A.G. Op. 77, 1977 WL 24441 (Apr. 7, 1977) (advising that a county councilman may not serve as a board member on the Planning Commission of the county where the commission was created by statute and the terms for its members are fixed). In addition, an individual may not be appointed to multi-*863pie positions within the county. See S.C.A.G. Op. No. 77, 1977 WL 24709 (Nov. 18,1977) (recommending that an individual who was appointed to the county recreation commission and then appointed as a deputy coroner by the county coroner would constitute dual office holdings). Finally, it is clear that it is unconstitutional for an individual to be a city councilmem-ber while holding a seat on a county board. See S.C.A.G. Op. (Feb. 26, 2007) (advising that a Barnwell City Council-member may not consider an appointment to the Barnwell County Hospital Board of Trustees).
From these opinions, it is indicative that an individual is considered to hold “dual offices” — and is prohibited from doing so — when there is an expansion of power by holding both offices or the offices cross a “border” (i.e., city and county, county and state-established body, etc.), constituting a “horizontal duality” among the offices. See In re Advisory Opinion, 226 N.C. 772, 778, 39 S.E.2d 217, 221 (1946) (interpreting similar North Carolina constitutional provision and finding that “ ‘[t]he manifest intent is to prevent double office — holding—that offices and places of trust should not accumulate in a single person.’ ” (quoting Smith, C.J., Doyle v. Aldermen of Raleigh, 89 N.C. 133, 136 (1883))).5
A review of the Attorney General’s opinions does not indicate whether a County Councilmember is prohibited from being appointed to a county board when that board is created solely by ordinance adopted by the County Council. However, the Attorney General does clarify that when the ordinance establishing the board grants the County Council the authority to appoint that board’s members, incident to that authority to appoint is the power to remove those board members. S.C.A.G. Op., 2006 WL 1574914 (May 81, 2006) (applied to the Fairfield County Council and the Fairfield County Recreation Commission). Further, if the ordinance sets a fixed term for the board members and the County Council wishes to remove them before expiration of their terms, it must establish cause for doing so.
Alexander suggests that Richardson controls and that the decision of the trial court in his litigation with County Council ignores the clear proscription of all dual office holding, except in the specific instances mentioned in the South Carolina Constitution. Richardson, however, does not turn on the narrow question of proscribed dual office holding but rather turns on the issue of whether a police officer falls within the definition of constable. Nonetheless, the dicta in Richardson suggesting the abrogation of the common law exceptions to a strict application of the doctrine proscribing dual office holding is persuasive. Fortunately for the County *864Council, Richardson is not the last word of the South Carolina Supreme Court on the issue.
More recently, the South Carolina Supreme Court considered the dual office holding issue in a case involving the service of members of the state legislature, which appoints judges to the state bench, on a commission that screens and nominates candidates from which the legislature makes appointment. In Segars-Andrews v. Judicial Merit Selection Comm’n., 387 S.C. 109, 691 S.E.2d 453 (2010) the court held, “Our jurisprudence has a narrow, yet firmly established, exception which provides that ‘double or dual office holding in violation of the constitution is not applicable to those officers upon whom other duties relating to their respective offices are placed by law.’ ” Id. at 125, 691 S.E.2d at 462 quoting Ashmore v. Greater Greenville Sewer Dist., 211 S.C. 77, 92, 44 S.E.2d 88, 95 (1947). This exception is commonly referred to as the “ex officio” or “incidental duties” exception. The Segars-Andrews court went on to hold that membership by a state legislator on the commission, while clearly an office for constitutional purposes, did not violate the proscription on dual office holding because the membership was incidental of the duty to appoint judges. Id. at 127, 691 S.E.2d at 463. That is, the legislature, with the duty to appoint judges, clearly had an interest in ensuring that the pool of nominees was sufficient to produce good judges.
Thus, the state’s jurisprudence thus clearly provides an exception to the dual office holding proscription beyond that contained in Alexander’s interpretation of Richardson. At issue here is not a mere ex officio membership on the Hospital Board. Indeed, the County Council had historically placed one of its own on the Hospital Board in an ex officio capacity. If this narrow exception to the constitutional proscription on dual office holding extends to the case sub judice, which the Court finds it does, it is based in the incidental duties exception. This is consistent with the horizontal and vertical duality approach to dual office holding found in the Attorney General Opinions and in the opinion of the trial court in ruling on the same issue in the State Court Action between these same parties.
County Council has, by ordinance adopted pursuant to the Home Rule Act, responsibility for and ownership of the assets of the Hospital. The testimony at the confirmation hearing clearly established that there was a difference of view between the Hospital Board and County Council over the propriety and need for a bankruptcy filing which would lead to a sale of the Hospital assets to a private company. When the Hospital Board declined to act consistent with the desire of the owner of the asset its members were removed and replaced by County Council members with the clear intent of County Council to move forward with the disposition of assets through a bankruptcy fifing. Nothing could be more an incident of the responsibility for and the ownership of assets than the action of the County Council in the instant matter. Rightly or wrongly, this is a function appropriate to the County Council and is not a violation of the South Carolina Constitution.
Notice, Solicitation and Acceptance.
On March 23, 2012, the Bankruptcy Court approved the Disclosure Statement as containing adequate information in accordance with the Bankruptcy Code, Bankruptcy Rules, and Local Bankruptcy Rules. On March 23, 2012, the Bankrupt*865cy Court entered the Solicitations Procedures Order which: (a) set April 25, 2012, as the Voting Deadline for voting to accept or reject the Plan; (b) fixed April 25, 2012, as the deadline for objecting to the Plan; (c) fixed April 30, 2012 at 10:00 a.m. prevailing Eastern Time as the date and time for the commencement of the Confirmation Hearing; and (d) approved the form and method of notice of the Confirmation Hearing set forth therein.
As evidenced by the Certificates of Service filed by the Debtor, due, adequate and sufficient notice of the Disclosure Statement, Plan and exhibits thereto, together with all deadlines for voting on or objecting to the Plan and the transactions contemplated thereby, has been given to: (a) all classes of creditors entitled to vote on the Plan, (b) parties that requested notice, and (c) all other parties as provided in the Solicitation Procedures Order, in substantial and material compliance with the Solicitation Procedures Order and Bankruptcy Rules 2002(b), 3017 and 3020(b), and no other or further notice is necessary or shall be required.
Based on the record, the Debtor and its respective directors, officers, employees, managers, attorneys, affiliates, agents and professionals (including but not limited to their attorneys, financial advisors, investment bankers, accountants, and other professionals that have been retained by such parties) have acted in “good faith” within the meaning of Bankruptcy Code § 1125(e) and in compliance with the applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules, the Solicitation Procedures Order and applicable non-bankruptcy law in connection with all of their respective activities relating to the tabulations and solicitation of acceptances or rejections of the Plan and their participation in the other activities described in Bankruptcy Code § 1125, and thus are entitled to the protections afforded by Bankruptcy Code § 1125(e) and the exculpation provisions set forth in Article X of the Plan. The Debtor and its respective present and former officers, directors, employees, advisors, attorneys, and agents did not solicit the acceptance or rejection of the Plan by any holders of claims prior to the approval and transmission of the Disclosure Statement. In addition, all procedures used to distribute solicitation packages to holders of claims were fair, and conducted in accordance with, the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules and all other applicable rules, laws and regulations. Such transmittal and service were adequate and sufficient, and no further notice is or shall be required.
Prior to the Confirmation Hearing, the Debtor filed the Ballot Tally. All procedures used to tabulate the Ballots were fair and conducted in accordance with the Solicitation Procedures Order, the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules and all other applicable rules, laws and regulations.
Fed. R. Bank. P. 3016.
The Plan is dated and identifies the parties submitting it, thereby satisfying Bankruptcy Rule 3016(a). The filing of the Disclosure Statement with the clerk of the Bankruptcy Court satisfied Bankruptcy Rule 3016(b). The Plan and Disclosure Statement describe in specific and conspicuous language all acts to be enjoined and identify the entities that would be subject to the injunction; therefore, Bankruptcy Rule 3016(c) is satisfied.
Confirmation Requirements of Section 943(B) are Satisfied.
As set forth in further detail below, the Plan complies with all applicable provisions *866of the Bankruptcy Code, the Bankruptcy Rules, and the Local Bankruptcy Rules, including Bankruptcy Code § 943(b).
Section 943(b)(1) is Satisfied.
Section 943(b)(1) requires that the plan comply with the provisions of the Bankruptcy Code made applicable by §§ 103(f) and 901. Section 901(a) incorporates, among other things, the plan confirmation requirements of §§ 1129(a)(2), (a)(3), (a)(6), (a)(8), (a)(10), (b)(1), (b)(2)(A), and (b)(2)(B). The Debtor’s Plan complies with each of these confirmation requirements.
Debtor Has Complied with § 1129(a)(2).
Section 1129(a)(2) requires that the proponent of the plan comply with the applicable provisions of Title 11. In a chapter 9 case, the particular provisions that require compliance by the Debtor in connection with administration of the case and confirmation of the plan, in addition to those discussed elsewhere in this order, are the provisions of § 1125, which require that the court approve a disclosure statement containing adequate information before acceptances or rejections of a plan may be solicited. By Order dated March 23, 2012, the Bankruptcy Court approved Debtor’s Disclosure Statement. Section 1129(a)(2) is satisfied here.
Section 1129(a)(3) is Satisfied as Debtor’s Plan is Proposed in Good Faith by Lawful Means.
Section 1129(a)(3) requires that the plan be “proposed in good faith and not by any means forbidden by law.” In this case, the Plan maximizes the economic return to the Debtor’s creditors of available funds in the most practicable way given the unusual and complex nature of this Case. The Plan devotes all of the Debtor’s cash, accounts receivables and other assets remaining after the closing of the sale to payment of the Debtor’s creditors. Under the circumstances, the Debt- or has obtained a fair price for its assets; the Plan will therefore result in satisfaction of certain of the Debtor’s secured debts, the payment of Allowed Administrative Claims, and a distribution to unsecured claims, albeit over time. By implementing the APA, the Debtor will be able to convey its hospital assets as a going concern. As a going concern, the value of the Debtor’s assets, although small, is enhanced by several factors, including the experience and talent of employees, the value of assembled contracts and equipment, and the connections of the business to the community and other providers. The Plan allows the Debtor to realize that value and to distribute it to its creditors. To the extent the Peeples’ objections go to the issue of good faith in proposing the plan, they are addressed separately in this order. Section 1129(a)(3) is satisfied.
Section 1129(a)(6) is Not Applicable.
The only material regulatory pre-condition necessary for the implementation of the Plan is the issuance of a certificate of need (“CON”) to RHS for the operation of the new hospital. However, RHS has agreed to waive this requirement. See Notice of Execution of Waiver of Closing Conditions Under Asset Purchase Agreement [Doc. No. 203]. There are no other regulatory pre-conditions to the implementation of the Plan. Therefore, § 1129(a)(6) is not applicable.
The Plan Has Been Accepted by Each Class of Claims Impaired under Plan as Required under § 1129(a)(8).
Section 1129(a)(8) of chapter 11 requires as a condition to confirmation that the plan has been accepted by each class of claims or interests that is impaired under the *867plan. Acceptance of a plan by a class is determined by the standards set in § 1126(c) which require that, of the votes submitted, “at least two thirds in amount and more than one-half in number of the allowed claims” accept a proposed plan. In this case, impaired Classes 2, 4, 6 and 7 affirmatively accepted the Plan in accordance with the voting standards of § 1126(c). Class 1, comprised of the claim of the HHS for Medicare overpayments, did not submit a ballot. However, the Debtor and HHS have reached an agreement regarding its treatment under the Plan, which is set forth in the Modification. Class 3 is not impaired for bankruptcy purposes, as discussed below. Class 5, comprised of Creekridge’s claims, initially voted to reject the Plan. However, Debtor and Creekridge subsequently reached an agreement related to its treatment, the terms of which are set forth in the Modification. Creekridge amended its ballot during the Confirmation Hearing to accept the Plan based upon the Modification.
Therefore, all impaired classes have accepted the Plan. Since section § 1129(a)(8) is satisfied here, the “cramdown” provisions of § 1129(b) do not need to be analyzed in this case.
One Impaired Class Has Accepted the Plan as Required by § 1129(a)(10).
Under § 1129(a)(10), the court may confirm the plan only if, should any class of claims be impaired under the plan, at least one impaired class has accepted the plan. In this case, all impaired classes affirmatively accepted the Plan. Accordingly, § 1129(a)(10) is satisfied.
Debtor Complies with all Chapter 9 Provisions as Required by § 943(B)(2).
Section 943(b)(2) requires as a condition to confirmation that the plan comply with the provisions of chapter 9. The major requirements that are directed toward the plan in a chapter 9 case are those provisions of chapter 11 that are made applicable in chapter 9 cases by § 901(a). These requirements are satisfied in this case, as described above.
Although § 363 is not incorporated into chapter 9 by § 901, chapter 9 does incorporate § 1123(b), which provides in subsection (4) that a plan may “provide for the sale of all or substantially all of the property of the estate,6 and the distribution of the proceeds of such sale among holders of claims or interests.” The Plan is dependent upon the sale of the assets of Debtor, free of all liens, claims and interests, as more fully set forth in the APA.
The Court has considered the reason that Debtor pursued a sale of its assets and the efforts it undertook to identify a purchaser that could help achieve the goal of providing quality medical care to the residents of the Counties. Based upon the testimony and evidence presented, the Court finds that:
a. RHS is a good faith purchaser;
b. The APA was entered into in good faith by the Debtor and RHS;
c. The APA is approved and the Debtor is authorized to transfer the assets as contemplated by the APA to RHS; and
d. The transfer of assets to RHS as contemplated by the APA and the Plan shall be free and clear of claims, liens and interests.
The only other provisions of chapter 9 which are directed toward the plan are *868§ 941, requiring that the plan be proposed and filed by the debtor, and § 942, governing modifications of the plan. Debtor has proposed and filed the Plan, satisfying § 941. On May 9, 2012, Debtor filed the Modification to make certain changes to the Plan which set forth various terms to resolve objections from specific creditors and to modify some administrative provisions in the Plan. The Modification does not adversely impact any creditors. The Plan, as modified by the Modification, meets the requirements of chapter 9. Sections 942 and 943(b)(2) are satisfied.
Debtor has Disclosed Payments for Services and Expenses to be Paid in Accordance with § 943(b)(3).
Section 943(b)(3) requires that all amounts to be paid by the Debtor or other persons for services or expenses in the case or incident to the plan have been fully disclosed and are reasonable. As set forth in the Disclosure Statement, the Debtor disclosed the amounts paid to professionals due and owing as of February 28, 2012. Thereafter, counsel submitted an update of the amounts paid and due through March 31, 2012. There have been no objections to the Plan based upon these disclosures. The foregoing amounts are reasonable and necessary to effectuate the Plan and reorganization in this complex case, and thus § 943(b)(3) is satisfied. Debtor anticipates filing a final report and application to close the case, at which time it will provide an accounting of all fees and expenses incurred by Debtor’s professionals. This finding by the Court as to reasonableness of fees at this time is an interim finding subject to review and modification upon the filing of the final report. Further, to the extent funds are not available to pay fees as of the Effective Date, counsel for Debtor has agreed to defer payment until such time as adequate funds are available.
Debtor is Authorized to Take Actions Proposed in the Plan as Required by § 943(b)(4).
Section 943(b)(4) prevents the court from confirming any plan that requires the debtor to take any action prohibited by law. On September 27, 2011, the Board of Directors of Debtor adopted a resolution authorizing Debtor to do the acts authorized and directed to effect the consummation of the adjustment of Debtor’s debts as provided in the Plan. Debtor is not otherwise prohibited by law from taking any action necessary to carry out the Plan, and § 943(b)(4) is satisfied.
All Administrative Claims Have Been or Will be Paid as Required by § 943(b)(5).
Section 943(b)(5) provides that the court must determine that the plan provides for the payment in full of all claims entitled to administrative expense priority. Throughout the course of the chapter 9 Case, Debt- or has endeavored to satisfy administrative expenses as they became due. Accordingly, Debtor believes that all Claims that otherwise would constitute Allowed Administrative Claims previously have been or will be satisfied in the ordinary course of business prior to or within ten (10) days of the Effective Date of the Plan. To the extent any claims are subsequently allowed as Administrative Claims, Debtor expects to have funds available from future receipts to pay such claims. Therefore § 943(b)(5) is satisfied.
Section 943(b)(6) is Satisfied.
Section 943(b)(6) requires regulatory or electoral approval for any action to be taken under the plan that would require such approval in the absence of the chapter 9 case. With respect to electoral approval, a key element of the Plan is the assumption by Barnwell County of the *869Debtor’s obligations for the Pension Plan. The former employees covered by the Pension Plan are Class 3 creditors and are an unimpaired class based upon the assumption of the Pension Plan obligations by Barnwell County.. The Plan contemplates the approval of an ordinance by Barnwell County to assume this obligation and conditions the Plan upon such approval (“Pension Plan Ordinance”). The Modification clarifies that this condition cannot be waived. The ordinance approving the assumption of the liability was approved by Barnwell County on May 9, 2012. [Doc. No. 208]. There are no regulatory approvals or other electoral approvals needed for any action to be taken under the Plan. Accordingly, § 943(b)(6) is satisfied.
The Plan is in the Best Interest of Creditors and is Feasible in Accordance With § 943(b)(7).
The final requirement for confirmation of a plan in a chapter 9 case is that the plan “is in the best interests of creditors and is feasible.” 11 U.S.C. § 943(b)(7). The analysis included in the Plan, the Plan Confirmation Brief, and the other evidence related thereto, submitted and adduced at or prior to the Confirmation Hearing: (a) are reasonable, persuasive and credible; (b) have not been controverted by other evidence; and (c) establish that the Plan affords all creditors the potential for the greatest economic return from Debtor’s assets. Therefore, it is in the best interest of creditors, especially given the complex nature of this case. It appears that the Debtor has obtained a fair price for its assets under the APA, and the Plan will therefore result in satisfaction of certain of Debtor’s secured debts, the payment of Allowed Administrative Claims, and a distribution to unsecured claims, albeit over time. By implementing the APA, the Debtor will be able to convey its hospital assets as a going concern. As a going concern, the value of the Debtor’s assets, although small, is enhanced by several factors, including the experience and talent of employees, the value of assembled contracts and equipment, and the connections of the business to the community and other providers. The Plan allows the Debtor to realize that value and distribute it to its creditors.
In the absence of the Plan or a change of the Barnwell County Council’s expressed determination to further reduce or eliminate the level of funding support for the Hospital, the Debtor does not have sufficient revenue to keep the hospital operating long term. Therefore the hospital would eventually have to shut its doors and close down completely. Without operating, the value of the Debtor’s assets would consist of only the value of used equipment and receivables, which would likely not be distributed to creditors pro rata. Instead, those creditors able to pursue litigation most quickly would benefit at the expense of others. Finally and of particular importance to the Court is that the Plan preserves the availability of healthcare services to citizens and patients in the County.
Under the Plan, the ability to make the payments required by the Plan turns on the ability of RHS, the Debtor, the Barnwell County Hospital, and the Counties to close the APA, and on collection of the outstanding accounts receivable.
RHS has placed no less than $1,500,000.00 on deposit in escrow, earmarked for its financial obligations relative to closing the APA and has presented evidence at the Confirmation Hearing of the *870financial wherewithal of it and its sponsor, Dobbs Equity Partners, LLC, with respect to funding the ongoing operation of the hospital in accordance with the APA and Development Agreement.
Accordingly, the Plan is in the best interests of creditors and is feasible.
Satisfaction of Confirmation Requirements.
Based on the foregoing, the Plan satisfies the requirements for confirmation set forth in § 943(b) of the Bankruptcy Code.
Likelihood of Satisfaction of Conditions Precedent to Effectiveness.
Each of the conditions precedent to effectiveness, as set forth in Article IX.C. of the Plan, has been satisfied or waived in accordance with the provisions of the Plan, or is reasonably likely to be satisfied.
Modifications to the Plan.
Subsequent to solicitation, the Debtor made certain modifications to the Plan. All modifications to the Plan since the entry of the Solicitation Procedures Order are consistent with all of the provisions of the Bankruptcy Code, including, but not limited to, §§ 942 and 1127(d) of the Bankruptcy Code, the Federal Bankruptcy Rules, including Rule 3019, and the Local Bankruptcy Rules. None of the modifications made since the commencement of solicitation adversely affects the treatment of any creditor or equity security holder under the Plan. Accordingly, pursuant to § 1127(a) of the Bankruptcy Code, none of the modifications require additional disclosure or resolicitation, and under Rule 3019, creditors are deemed to have accepted the Plan as modified.
The Peeples’ Objections.
Rodney A. Peeples, a retired state trial judge, represented his brother Robert Peeples, a Class 2 unsecured creditor and several of the vested participants in the Barnwell Hospital Pension Plan, who are dealt with in Class 3 and assumed by the Barnwell County by County Ordinance No. 2012-5-281, in connection with the confirmation of the plan before the Court. Judge Peeples did so pro bono and in a most genteel and collegial fashion given the politically divisive nature of the very important community healthcare issues involved. In many ways he was the voice for those that disagree with County Council’s decision to reduce and ultimately end funding of the public hospital and for future patients that might prefer a public rather than a private hospital system.
The bankruptcy and business lawyers who, by nature, view cases as another deal to be done sometimes seemed uncertain of the purpose, relevance, or importance of counsel’s wide-ranging objections. On occasion Hospital administrators, County Council members, and representatives of RHS seemed offended by the policy questions posed and by the suggestions of a better way or a different purpose. These witnesses clearly felt they had given their best efforts and devoted their best judgment to problems they viewed as demanding change. The efforts of counsel, however, clearly led to a fuller public airing of the plans for healthcare in the region and exposed the imperfection of systems, current and future, for delivering healthcare services. The decisions are of some moment and there should be no surprise to find differences of opinion about solutions and even the existence of a problem. Public confidence in chapter 9 debt adjustments benefits as a result of the consideration of all of the views.
The objections fall into four principal categories: 1) a lack of documents or in*871formation to support the need for a change and thus the propriety of the proposed plan; 2) the wisdom or fairness of the County Council’s funding decisions over the years by which limited financial resources have been allocated other than to the Debtor; 3) the intentions of those involved in decision making regarding the current status of the Hospital and its assets; and 4) the feasibility of the proposed plan as it affects the continued provision of health services to the citizens.
This case, though pending only seven (7) months, and its companion case, the Bam-berg County Memorial Hospital, Case No. 11-3877, which has been pending slightly more than ten (10) months have generated a large volume of documents. The Disclosure Statements, Plans, APA and assorted schedules or attachments are daunting. Counsel for the objecting parties notes that the APA arrived in three binders. There are 200+ docket entries in each case and numerous exhibits at confirmation. Despite this counsel notes that there are exhibits he requested, both through informal discovery and under the state Freedom of Information Act, that have not been received and considered as a part of confirmation. The Court has carefully considered the Plan and the APA, to the degree it implements the Plan’s proposal for sale of the Hospital, and is satisfied that, based on the information presented at the confirmation hearing, that there is adequate support of the Court’s findings that the confirmation requirements of the Bankruptcy Code are met.
The Peeples’ objections contend that the lack of audited financial statements after 2009, the decisions to purchase expensive medical equipment that will now be transferred to RHS, and the scheduling of 800 or so accounts payable that in large part reflect minor refunds due to former patients belie an effort to paint a dismal financial picture of the Hospital to justify a sale. It is certainly true that audits have not been completed and that large sums have been expended out of operating income to purchase equipment that will be transferred to the purchaser. It is also the case that valuable assets in the form of land, buildings, and equipment will be transferred from Barnwell County into private hands without the usual consideration of the payment of some version of fair market value.
The objection ignores, however, the County Council’s decision to extricate itself from future long-term financial obligations to a Hospital that, for whatever reason, under-serves the citizens of Barnwell County. There was credible testimony that, due to the availability of more specialized care outside the county, the beds at the hospital go unused while the residents seek care elsewhere. This left the Debtor to provide ongoing emergency room care to stabilize critical injury or disease and address the usual visits to the emergency room which are not truly emergency in nature but reflective of an indigent population’s use of the emergency room as a family medicine alternative. The Debtor did also provide on-going diagnostic services of a limited scope but had lost other specialty care emphasis as physicians departed and recruitment of doctors became more difficult.
Finally, the remaining issues largely go to the decisions of the County Council to not fund the Debtor as in prior years and ultimately to the policy decision to remove itself from the healthcare business by transfer of the Hospital’s assets into private hands, even at the cost of fairly significant future financial obligations for infra*872structure in the event a new hospital is built by the purchaser as anticipated by the Plan and APA. The Court views these issues only through the prism of the Bankruptcy Code’s good faith requirements and not to substitute its views for the policy and business decisions made by the local government authority to which they are properly entrusted. The Court makes no determination as to which of the myriad of options for healthcare is best for this community but rather looks to the requirements for plan confirmation imposed by the Bankruptcy Code and met by the Debtor in this case.
The Board and the County Council are properly charged with the duty to make decisions concerning the Hospital. County Council members are elected by the citizens of Barnwell County and are entrusted with the responsibility to govern. The Court’s duty in this case is to ensure that the Debtor has complied with the requirements of the Bankruptcy Code in proposing and advocating a chapter 9 debt adjustment plan, not to substitute its business or political judgment in place of the plan proponent; those the people have elected. Whether healthcare for the residents of Barnwell County is improved by the decisions of County Council rests not simply on the path chosen in the chapter 9 plan but on events yet to unfold. Council exercised its judgment based on present circumstances, tax revenue and local budget projections, and an uncertain healthcare future. The accuracy of the forecast waits for another generation. The plan and the case were filed in good faith.
ORDER
Based on the foregoing findings of fact and conclusions of law, it is Ordered, Adjudged, and Decreed that:
Confirmation of Plan.
The Plan is APPROVED and CONFIRMED under the Bankruptcy Code, the Bankruptcy Rules, and the Local Bankruptcy Rules, including without limitation pursuant to § 943(b) of the Bankruptcy Code. The Plan is valid and enforceable pursuant to its terms and the terms of the Plan are incorporated herein by reference and are an integral part of this Confirmation Order.
Objections.
With respect to the filed objections to confirmation of the Plan, the only objections which remained at the conclusion of the Confirmation Hearing were the objections of Alexander, Peeples, and GE. With respect to the objection filed by Alexander, Alexander challenges only whether Debtor is eligible to be a chapter 9 Debtor. The Court has concluded that Debtor meets the eligibility requirements. With respect to the objection of Peeples, the Court has considered each objection raised therein and the Debtor’s responses thereto including at the Confirmation Hearing. The Bankruptcy Court hereby overrules the Peeples’ objections, and as set forth more fully herein, finds that the Plan satisfies the elements of the Bankruptcy Code as set forth above, including § 943(b), and should be confirmed.
As to the other filed objections:
a. The objection of Nexsen Pruet was withdrawn during the Confirmation Hearing.
b. Counsel for Debtor advised the Court that the objections of Palmetto were resolved and would be addressed in connection with a pending Motion to Assume or Reject the Contracts of Palmetto.
c. The objections of Creekridge and HHS have been previously discussed in *873this Order as being resolved by the Modification.
d. GE opposed confirmation based upon the potential impact on unsecured claims if the Pension Plan Ordinance was not adopted by Barnwell County. This issue has been addressed by the adoption of the Ordinance as previously discussed in this Order. Consequently, the GE objection is overruled.
Findings of Fact and Conclusions of Law.
The findings of fact and the conclusions of law stated in this Confirmation Order shall constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052, made applicable to the proceeding by Bankruptcy Rule 9014. All findings of fact and conclusions of law announced by this Bankruptcy Court on the record in connection with Confirmation of the Plan or otherwise at the Confirmation Hearing are incorporated herein by reference. To the extent any finding of fact shall be determined to be a conclusion of law, it shall be so deemed, and vice versa. To the extent that any of the findings of fact or conclusions of law constitutes an order of this Bankruptcy Court, they are adopted as such.
Approval of Plan Documents.
Upon the Effective Date, all actions contemplated by or in furtherance of the Plan shall be deemed authorized and approved in all respects.
The terms of the Plan and exhibits thereto are incorporated by reference into, and are an integral part of, the Confirmation Order. The form and substance of the Plan (and exhibits thereto), along with such further provisions as are provided herein, are confirmed and approved in each and every respect pursuant to § 943 of the Bankruptcy Code. Except as may be set forth in the Plan, the Debtor is authorized and empowered to make any and all modifications to any and all documents included as part of the Plan that may be agreed to by the parties thereto and that are consistent with and in furtherance of the terms of the Plan and the terms of this Confirmation Order.
Authority.
The Debtor and its respective directors, officers, managers, agents, representatives, and attorneys, are authorized and empowered to (a) issue, execute, deliver, file and record, as appropriate, any contracts, instruments, releases, indentures, bills of sale, assignments, leases or other agreements or documents and (b) perform such other acts and execute and deliver such other documents as are required by, consistent with and necessary or appropriate to implement, effectuate or consummate the Plan and this Confirmation Order and the transactions contemplated thereby and hereby, all without the requirement of further application to, or order of, the Bankruptcy Court.
Injunctions and Releases.
Subject to the occurrence of the Effective Date and pursuant to applicable law and § 944 of the Bankruptcy Code, the discharge of the Debtor and any of its assets or properties, the releases, the injunction provisions and the exculpation provisions each as provided in Article X of the Plan, are (a) deemed incorporated in this Confirmation Order as if set forth in full herein, (b) hereby approved and authorized in their entirety as an integral part of the Plan and (c) hereby deemed and held to be fair, equitable, reasonable and in the best interests of the Debtor and its creditors. Except as otherwise specifically provided in the Plan (and except as *874may be necessary to enforce the provisions of the Plan or remedy a breach of the Plan), this Confirmation Order acts as of the Effective Date as a full and complete discharge of all Claims against the Debtor, the post-Effeetive Date Debtor, or the post-Effeetive Date Debtor’s assets of any nature whatsoever, including, without limitation, any liability of a kind specified in §§ 502(g), 502(h) or 502® of the Bankruptcy Code, that arose or have been asserted against the Debtor at any time before the entry of the Confirmation Order or that arise from any pre-Confirmation conduct of the Debtor whether or not the Claim(s) are known to or knowable by the holder of a Claim.
Notice of Entry of the Confirmation Order.
In accordance with Bankruptcy Rules 2002 and 3020(c), within ten business days of the date of entry of the Confirmation Order, the Debtor shall serve the Notice of Entry of the Confirmation Order (“Notice of Confirmation”) by United States mail, first class postage prepaid, by hand, or by overnight courier service to all parties having been served with the Confirmation Hearing Notice; provided, however, that no notice or service of any kind shall be required to be mailed or made upon any party to whom the Debtor mailed a Confirmation Hearing Notice, but received such notice returned marked “undeliverable as addressed,” “moved, left no forwarding address” or “forwarding order expired,” or similar reason, unless the Debtor has been informed in writing by such party of their new address. Mailing of the Notice of Confirmation in the time and manner set forth in this paragraph shall be good and sufficient notice under the particular circumstances and in accordance with the requirements of the Bankruptcy Code, Bankruptcy Rules, and Local Bankruptcy Rules, including Bankruptcy Rules 2002 and 3020(c), and no other or further notice or publication is necessary.
The Notice of Confirmation shall have the effect of an order of the Bankruptcy Court, shall constitute sufficient notice of the entry of the Confirmation Order to such filing and recording officers, and shall be a recordable instrument notwithstanding any contrary provision of applicable non-bankruptcy law.
References to Plan Provisions.
The failure specifically to include or reference any particular provision of the Plan in this Confirmation Order shall not diminish or impair the effectiveness of such provision, it being the intent of the Bankruptcy Court that the Plan be confirmed in its entirety.
Applicable Non-Bankruptcy Law.
Pursuant to Bankruptcy Code §§ 1123(a) and 944(a), the provisions of this Confirmation Order, the Plan or any amendments or modifications thereto shall apply and be enforceable notwithstanding any otherwise applicable non-bankruptcy law. Debtor is not otherwise prohibited by law from taking any action necessary to carry out the Plan as required by § 943(b)(4).
Governing Law.
Unless a rule of law or procedure is supplied by federal law (including the Bankruptcy Code and Bankruptcy Rules) or unless otherwise specifically stated, the laws of the State of South Carolina, without giving effect to the principles of conflict of laws, shall govern the rights, obligations, construction and implementation of the Plan, any agreements, documents, instruments or contracts executed or en*875tered into in connection with the Plan (except as otherwise set forth in those agreements, in which case the governing law of such agreement shall control), and corporate governance matters.
Effectiveness of All Actions.
Except as set forth in the Plan, all actions authorized to be taken pursuant to the Plan or this Confirmation Order shall be effective on, prior to, or after the Effective Date pursuant to the Confirmation Order as applicable, without further application to, or order of, the Bankruptcy Court, further act or action under applicable law, regulation, order, or rule or vote, consent or authorization, or further action by the respective officers, directors or members of the Debtor and with the effect that such actions had been taken with the consent and by unanimous action of such officers, directors or members. In addition to the authority to execute and deliver, adopt, assign and/or amend, as the case may be, the contracts, instruments, releases and other agreements specifically granted in this Confirmation Order, the Debtor is authorized, and empowered, without necessity of action of their respective officers, directors or members, to take any and all such actions as any of their executive officers may determine are necessary or appropriate to implement, effectuate, and consummate any and all documents and/or transactions contemplated by the Plan, and/or this Confirmation Order.
Waiver of Stay of Bankruptcy Rule 6004(H) and 6006(D).
Notwithstanding Rules 6004(h) and 6006(d) of the Bankruptcy Rules, the Confirmation Order shall be immediately effective, subject to the terms and conditions of the Plan. The Court finds cause to enter this order regarding the stay provided by Rules 6004 and 6006 and finds that the respective stays should not be applicable in this case based upon the showing at the confirmation hearing that the sale and the assumption, rejection, or assignment of unexpired leases and executory contracts should occur upon entry of this order, or as soon thereafter as is practical, given the financial constraints faced by Debtor and the need to expedite the transfer of assets to RHS.
Modification of the Plan Prior to Consummation.
Subject to certain restrictions and requirements set forth in §§ 942 and 1127 of the Bankruptcy Code and Bankruptcy Rule 8019, after the Confirmation Date and prior to consummation of the Plan, the Debtor may: (a) amend or modify the Plan one or more times as may be necessary to carry out the purposes and effects of the Plan so long as such amendment(s) do not materially and adversely affect the treatment of any creditor or equity security holder under the Plan and (b) institute proceedings in the Bankruptcy Court to remedy any defect or omission or reconcile any inconsistencies in the Plan, the Disclosure Statement or this Confirmation Order. Entry of the Confirmation Order means that all modifications or amendments to the Plan since the solicitation thereof are approved pursuant to the Bankruptcy Code, including § 942, the Bankruptcy Rules, and the Local Bankruptcy Rules, and do not require additional disclosure or resolicitation under Bankruptcy Rule 3019.
Final Confirmation Order.
This Confirmation Order is a final order and the period in which an appeal must be filed shall commence upon the entry hereof. Notwithstanding Rule 3020(e) of the Bankruptcy Rules, the Confirmation Order shall be immediately effective, subject to the terms and conditions of the Plan.
*876Retention of Jurisdiction.
This Bankruptcy Court’s retention of jurisdiction as set forth in Article XIII of the Plan is approved. Such retention of jurisdiction does not affect the finality of this Confirmation Order. For the avoidance of doubt, the Bankruptcy Court shall retain jurisdiction over all pending matters.
AND IT IS SO ORDERED.
. While styled as an Objection to Debtor’s Plan, Alexander challenges only whether *853Debtor is eligible to be a chapter 9 Debtor. On May 3, 2012, a separate hearing was held on the issues raised in Alexander's objection related to Debtor’s eligibility as a chapter 9 debtor.
. Bamberg County Memorial Hospital also filed a chapter 9 bankruptcy petition. See Case No. 11-03877-dd, filed June 20, 2011.
. Further references to the Bankruptcy Code (11 U.S.C. §§ 101 et seq.) maybe by section number only.
. Alexander conceded that Debtor constitutes a ''municipality.'' [Docket. No. 145 at 4 n. *86031. However, this concession was later withdrawn at the hearing on this matter.
. The relevant portion of the parallel North Carolina constitutional provision provides:
It is salutary that the responsibilities of self-government be widely shared among the citizens of the State and that the potential abuse of authority inherent in the holding of multiple offices by an individual be avoided. Therefore, no person who holds any office or place of trust or profit under the United States or any department thereof, or under any other state or government, shall be eligible to hold any office in this State that is filled by election by the people. No person shall hold concurrently any two offices in this State that are filled by election of the people. No person shall hold concurrently any two or more appointive offices or places of trust or profit, or any combination of elective and appointive offices or places of trust or profit, except as the General Assembly shall provide by general law.
N.C. Const. Art. VI, § 9(1).
. "Property of the estate” in chapter 9 proceedings means "property of the debtor.” 11 U.S.C. § 902(i). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488637/ | Case: 22-1597 Document: 15 Page: 1 Filed: 11/22/2022
NOTE: This order is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
XILINX, INC., XILINX ASIA PACIFIC PTE. LTD.,
Appellants
v.
ANALOG DEVICES, INC.,
Appellee
______________________
2022-1597
______________________
Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board in No. IPR2020-
01336.
______________________
ON MOTION
______________________
ORDER
Upon consideration of Xilinx, Inc. and Xilinx Asia Pa-
cific Pte. Ltd.’s unopposed motion to voluntarily dismiss
this appeal pursuant to Federal Rule of Appellate Proce-
dure 42(b),
Case: 22-1597 Document: 15 Page: 2 Filed: 11/22/2022
2 XILINX, INC. v. ANALOG DEVICES, INC.
IT IS ORDERED THAT:
(1) The motion is granted to the extent that the appeal
is dismissed.
(2) Each side shall bear its own costs.
FOR THE COURT
November 22, 2022 /s/ Peter R. Marksteiner
Date Peter R. Marksteiner
Clerk of Court
ISSUED AS A MANDATE: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488644/ | 11/21/2022
IN THE SUPREME COURT OF THE STATE OF MONTANA Case Number: DA 22-0540
No. DA 22-0540
STATE OF MONTANA,
Plaintiff and Appellee,
v.
WILLIAM E. HAWKES,
Defendant and Appellant.
GRANT
Pursuant to authority granted under Mont. R. App. P. 26(1), the
Appellant is given an extension of time until December 28, 2022, to
prepare, file, and serve the Appellant’s opening brief.
Electronically signed by:
Bowen Greenwood
Clerk of the Supreme Court
November 21 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488653/ | Matter of Goetz Fitzpatrick LLP v OTR Media Group, Inc. (2022 NY Slip Op 06648)
Matter of Goetz Fitzpatrick LLP v OTR Media Group, Inc.
2022 NY Slip Op 06648
Decided on November 22, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
Before: Renwick, J.P., Manzanet-Daniels, Oing, Moulton, González, JJ.
Index No. 157903/18 Appeal No. 16714-16715-16715A Case No. 2021-02205, 2021-02213, 2021-02950
[*1]In the Matter of Goetz Fitzpatrick LLP, Petitioner-Respondent,
vOTR Media Group, Inc., Respondent-Appellant. Aharon Noe, Nonparty Appellant.
Hagan Coury & Associates, Brooklyn (Paul Golden of counsel), for appellants.
Goetz Fitzpatrick LLP, New York (Scott D. Simon of counsel), for respondent.
Judgment, Supreme Court, New York County (Lynn R. Kotler, J.), entered June 1, 2021, in favor of petitioner, pursuant to an order, same court and Justice, entered May 12, 2021, which, among other things, granted petitioner's motion for sanctions against nonparty Aharon Noe for failure to respond to post-judgment subpoenas, and imposed a $55,355.69 sanction against him in the form of attorneys' fees, plus costs and disbursements (Sanctions Order), and order, same court and Justice, entered on or about July 13, 2021, which, following Noe's noncompliance with a directive in the Sanctions Order to produce additional documents in response to the subpoenas, directed that he be imprisoned for a period of 30 days, unanimously affirmed, with costs. Appeal from May 12 order, unanimously dismissed, without costs, as subsumed in the appeal from the June 1 judgment.
In May 2018, petitioner was awarded a judgment against respondent OTR Media Group, Inc. (OTR) in the sum of $320,372. That judgment has not been paid and, with accrued interest, has grown to approximately $500,000. In an effort to collect on the judgment, petitioner served OTR with post-judgment discovery demands and subpoenas. Petitioner also noticed a deposition of Noe, OTR's president and sole employee. OTR and Noe did not timely produce documents or otherwise respond, and Noe failed to appear for deposition. After several attempts to secure compliance, petitioner commenced the instant special proceeding in Supreme Court, New York County, in August 2018, seeking an order of contempt against OTR and Noe.
Various proceedings were held, including a stay issued in a separate proceeding by Supreme Court, Kings County (lifted in June 2019), during which time Noe purportedly attempted to comply with the subpoenas. In October 2019, Supreme Court, New York County, granted petitioner's contempt application to the extent of holding OTR (but not Noe) in civil contempt (the First Contempt Order). In May 2020, Supreme Court issued a second contempt order, based on OTR's failure to purge. The court held that it could not hold Noe in contempt, however, finding that Noe had not been properly served (the Second Contempt Order).
In March 2021, we unanimously reversed the Second Contempt Order, held Noe in contempt, and remanded the matter to Supreme Court for the imposition of sanctions (see Matter of Goetz v Fitzpatrick LLP v OTR Media Group, Inc., 192 AD3d 474 [1st Dept 2021], lv dismissed 37 NY3d 1080 [2021] ["Goetz I"]).
On remand, Supreme Court reinstated the matter to its calendar and directed the parties to submit briefing on the issue of sanctions. In May 2021, Supreme Court issued a Sanctions Order and held that petitioner was entitled to the sanction of imprisonment if a "full and complete document production is not made . . . or if Noe does not appear for his deposition and fully testify." The court found that Noe had demonstrated that "another order without the threat of imprisonment will just [*2]lead to further noncompliance." Nonetheless, the court granted Noe 10 additional days to comply with the underlying subpoenas, following entry of the Sanctions Order. The court warned Noe that, if he failed to fully comply, it would "issue a warrant, upon an affirmation by petitioner without further notice attesting to Noe's non-compliance, directed to the sheriff or other enforcement officer . . . to imprison Noe." The court reserved decision on the length of Noe's potential imprisonment.
On May 27, 2021, after an extension of time afforded by petitioner's counsel, Noe made a production, consisting almost entirely of blank or nonresponsive documents, which petitioner described as "meaningless." On June 2, 2021, petitioner filed an affirmation of noncompliance in support of its request for a warrant of incarceration.
The court scheduled a hearing for June 8. On the day of the hearing, Noe's counsel filed an affirmation which, inter alia, emphasized that Noe had attested that he had produced additional documents and had nothing else to produce. At the sanctions hearing that same day, Noe testified that OTR had lost documents during an eviction, lost more documents when its computer server crashed in 2015 or 2016, and lost additional documents sometime between 2016 and 2018 during a ransomware attack. No corroboration was proffered.
In July 2021, Supreme Court issued an Imprisonment Order. The court found that petitioner had established Noe's noncompliance with the Sanctions Order by failing to provide responses to 10 of the 12 categories of requested documents, including bank statements, a general ledger, payroll reports, tax returns, and financial records. The court found Noe's excuses for nonproduction to be "incredible and otherwise unsubstantiated." The court ordered that Noe be imprisoned for 30 days, followed by a 14-day opportunity to comply with the Sanctions Order.
Our order in Goetz I established that Noe is in contempt for his failure to respond to the underlying subpoenas (see 192 AD3d at 474) and remanded the matter to
Supreme Court for the imposition of sanctions. No "new contempt" arose from Noe's failure to comply with the Sanctions Order, which simply directed him to comply with the subpoenas. Noe was not entitled to the myriad due process protections that he claims were owed to him at this limited purpose hearing.
The court properly issued the Sanctions Order and judgment, awarding attorneys' fees to petitioner in the amount of $55,355.69 (see e.g. Pace Adv. Agency, Inc. v Manhattan Pac. Mgt. Co., 237 AD2d 131 [1st Dept 1997]). The amount of the fee award, which is reasonable, reflects a voluntary reduction by plaintiff from $86,943.60 to $55,355.69 related to the cost of bringing this action, engaging in significant motion practice, and prosecuting a successful appeal. While Noe might ordinarily be entitled to an evidentiary hearing where he could challenge the value and extent of petitioner's fees, in this case he has [*3]waived such right, given that he "failed to object to the reasonableness of the fees in his opposition papers and did not request a hearing on the issue" (Beal v Beal, 196 AD2d 471, 473 [2d Dept 1993]). Regardless, under the circumstances, the voluntary 30% discount was sufficient to assuage any concerns about the reasonableness of the fees.
Given Noe's continued refusal and failure to fully respond to the underlying subpoenas, the multiple extensions afforded for Noe to comply, and the incredible explanations he advanced before Supreme Court for failing to wholly purge his contempt, we find that Supreme Court providently exercised its discretion in ordering a jail term of 30 days as a sanction appropriately tailored to the contempt (see Judiciary Law §§ 753[A][5], 774[1]; Matter of Weiss v Rosenthal, 195 AD3d 730, 731-732 [2d Dept 2021]; People ex rel Kuby v Warden, Brooklyn House of Detention, 305 AD2d 339, 340 [2d Dept 2003]).
We have considered the remaining arguments and find them unavailing.THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488645/ | Salas-Aleman v Lenox Manor Owners, Inc. (2022 NY Slip Op 06646)
Salas-Aleman v Lenox Manor Owners, Inc.
2022 NY Slip Op 06646
Decided on November 22, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
Before: Renwick, J.P., Manzanet-Daniels, Oing, Moulton, González, JJ.
Index No. 304012/13E Appeal No. 16721 Case No. 2021-02188
[*1]Casimiro Salas-Aleman, Plaintiff,
vLenox Manor Owners, Inc., et al., Defendants. (And a Third-Party Action.)
The Flomenhaft Law Firm, PLLC, Nonparty Appellant,
vWingate, Russotti, Shapiro & Halperin, LLP, Nonparty Respondent.
The Flomenhaft Law Firm, PLLC, New York (Andrew Wanger of counsel), for appellant.
Pollack, Pollack, Isaac & DeCicco, LLP, New York (Brian J. Isaac of counsel), for respondent.
Order, Supreme Court, Bronx County (Theresa Ciccotto, J.), entered on or about May 28, 2021, which, in a dispute between plaintiff's outgoing and incoming counsel as to the division of a contingency fee earned in a personal injury action, granted the motion of Wingate, Russotti, Shapiro & Halperin LLP (Wingate) to the extent of allocating to it 90% of the fee, unanimously affirmed, without costs.
The motion court providently exercised its discretion in allocating total counsel fees based on the proportionate share of work performed (see Lai Ling Cheng v Mondansky Leasing Co., 73 NY2d 454, 458 [1989]). The record shows that Wingate represented plaintiff in this personal injury action for six years and commenced the suit, served various discovery demands, conducted depositions, attended court conferences, filed and argued motions, and attended a mediation during which it informed plaintiff that it could obtain a settlement in the range of $1.5 to $2.1 million, although the settlement offer at the end of the mediation was $150,000. Dissatisfied with that outcome, plaintiff terminated his relationship with Wingate and retained The Flomenhaft Law Firm (FLF). During its one-year representation of plaintiff, FLF opposed defendants' motion for summary judgment, developed a special damages portfolio, prepared a mediation brief, and brokered a $1.725 million settlement offer at mediation. After accepting that offer, plaintiff apparently became unhappy with FLF's representation and rehired Wingate.
Although FLF's legal work might have contributed to the ultimate settlement, there is insufficient evidence to support its contention that its representation was pivotal in resolving the case. On the contrary, the record suggests that a settlement offer between $1.5 million and $2.1 million was already being contemplated at the first mediation, undermining FLF's assertion. Thus, we find no reason to disturb the motion court's award to FLF of 10% of the total counsel fees (see Han Soo Lee v Riverhead Bay Motors, 110 AD3d 436, 436 [1st Dept 2013]).
In light of our determination, we need not address FLF's and Wingate's remaining arguments regarding the hiring of Case Quest, Inc., a litigation support
company owned by Michael Flomenhaft of FLF, which are irrelevant to the allocation of counsel fees in this case. THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488652/ | Matter of Kwestel (2022 NY Slip Op 06639)
Matter of Kwestel
2022 NY Slip Op 06639
Decided on November 22, 2022
Appellate Division, First Department
Per Curiam
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
SUPREME COURT, APPELLATE DIVISION
First Judicial Department
Dianne T. Renwick,J.P.,
Ellen Gesmer
Lizbeth González
Tanya R. Kennedy
Saliann Scarpulla, JJ.
Motion No. 2022-02952 & 2022-03575 Case No. 2017-00228
[*1]In the Matter of Steven J. Kwestel (Admitted as Steven Jeffrey Kwestel), an Attorney and Counselor-at Law: Attorney Grievance Committee for the First Judicial Department, Petitioner, Steven J. Kwestel (OCA ATTY. REG. NO. 2748085) Respondent.
Disciplinary proceedings instituted by the Attorney Grievance Committee for the First Judicial Department. Respondent was admitted to the Bar of the State of New York at a Term of the Appellate Division of the Supreme Court for the Second Judicial Department on June 19, 1996. Appearances:
Jorge Dopico, Chief Attorney, Attorney Grievance Committee, New York (Orlando Reyes, of counsel), for petitioner.
Respondent pro se.
Per Curiam.
Respondent Steven J. Kwestel was admitted to the practice of law in the State of New York by the Second Judicial Department on June 19, 1996, under the name Steven Jeffrey Kwestel. At all times relevant to this proceeding, he maintained an office for the practice of law within the First Department.
On May 23, 2022 (three days before he was sentenced to a 60-day term of imprisonment stemming from a guilty plea to a federal crime of failure to collect or pay over taxes), respondent filed an affidavit asking the Court to accept his non-disciplinary resignation from the New York bar pursuant to Rules for Attorney Disciplinary Matters (22 NYCRR) § 1240.22 (a). At that time, he averred in his affidavit that in 2020 he was reprimanded by the Disciplinary Review Board of the New Jersey Supreme Court, he was not currently the subject of an attorney disciplinary complaint in this court or any other court or jurisdiction, and had pleaded guilty to the federal felony of failing to file payroll taxes. Respondent also revealed that the reason he was resigning was because he has not practiced law in over five years and does not intend to do so in the future.[FN1]
The Attorney Grievance Committee (Committee) opposes respondent's application to resign, arguing that this his guilty plea and sentence to the federal crime of failure to collect or pay over taxes made him no longer eligible for a resignation for non-disciplinary reasons under 22 NYCRR 1240.22. The federal crime of failure to collect or pay over taxes stemmed from a July 20, 2021 information filed in the United States District Court, Eastern District of New York charging respondent with willful failure to collect or pay over tax in violation of 26 USC § 7202, a felony. The information alleged that from 2013 through 2019, respondent, as the sole owner and operator of the ambulance service Courtesy Transportation, failed "to pay over to the IRS approximately $1,302,841 in taxes owed, including approximately $894,685.36 in payroll taxes withheld from the wages paid to employees of Courtesy Transportation and approximately $408,156 in FICA taxes owed by Courtesy Transportation." During this period, respondent withheld employment taxes from his employees' paychecks but rather than pay the taxes due to the IRS, he "used corporate funds to make hundreds of thousands of dollars of expenditures for his and his family's personal benefit."
On July 20, 2021, respondent pleaded guilty to the information admitting that the charges against him were true. On May 26, 2022, respondent was sentenced to a 60-day term of imprisonment, one year of supervised release and restitution in the amount of approximately $1.2 million.
The Committee has filed a cross motion seeking an order determining that the crime of which respondent has been convicted is a "serious crime" as defined by Judiciary Law § 90(4)(d); [*2]immediately suspending him from the practice of law and directing him to show cause before a referee why a final order of censure, suspension or disbarment should not be made, and denying respondent's application seeking a non-disciplinary resignation (see Judiciary Law § 90[4][f] and [g] and 22 NYCRR 1240.12[b][2] and [c][2]).
Respondent pro se does not oppose his immediate suspension. The Committee served respondent with a copy of the cross motion by email (on consent) as well as by first class mail to his home address, however, no response has been submitted.
The crime which respondent was convicted of is a "serious crime" within the meaning of Judiciary Law § 90(4)(d) which defines "serious crime" in pertinent part as follows:
"any criminal offense denominated a felony under the laws of any state, district or territory or of the United States which does not constitute a felony under the laws of this state, and any other crime a necessary element of which, as determined by statutory or common law definition of such crime, includes interference with the administration of justice, false swearing, misrepresentation, fraud, willful failure to file income tax returns."
The crime to which respondent has been convicted, willful failure to collect or pay over taxes in violation of 26 USC § 7202,[FN2] is a "serious crime" insofar as it is a felony under the United States Code and this Court has previously held similar tax convictions constitute a serious crime within the meaning of the statute (see Matter of Seedorf, 190 AD3d 374 [1st Dept 2020]; Matter of Lindenbaum, 165 AD3d 53 [1st Dept 2018]; Matter of Shapiro, 81 AD3d 25 [1st Dept 2011]).
With respect to an immediate suspension, Judiciary Law § 90(4)(f) provides that upon receipt of a record indicating that an attorney has been convicted of a "serious crime," this Court will suspend the attorney until a final order is issued, and under 22 NYCRR 1240.12 (c) (2) (ii), once a "serious crime" determination has been made, "the Court may suspend the respondent pending final disposition unless such a suspension would be inconsistent with the maintenance of the integrity and honor of the profession, the protection of the public and the interest of justice."
We have consistently held that it is appropriate to suspend an attorney, pursuant to Judiciary Law § 90(4)(f), who has been convicted of a felony, during the pendency of a "serious crime" proceeding and until a final order is issued (see Matter of Lindenbaum, 165 AD3d at 55-56; Matter of Freedman, 109 AD3d 151, 153 [1st Dept 2013]). Specifically, we have suspended attorneys convicted of tax evasion under 26 USC § 7201 who are serving a term of probation or imprisonment (see Matter of Shapiro, 81 AD3d at 27; Matter of Ruble, 66 AD3d 48, 49 [1st Dept 2009]).
Finally, we agree with the Committee that respondent's guilty plea and sentence to the federal crime of willful failure to collect or pay over taxes made him no longer eligible for a resignation [*3]for non-disciplinary reasons under 22 NYCRR 1240.22 (see Matter of Paradis, 205 AD3d 88 [1st Dept 2022]; Matter of Shotkin, 174 AD3d 146 [1st Dept 2019]).
Accordingly, respondent's motion to resign should be denied, and the Committee's cross motion should be granted deeming the offense to which respondent has been found guilty to be a "serious crime" within the meaning of Judiciary Law § 90(4)(d); respondent is hereby suspended from the practice of law pursuant to Judiciary Law § 90(4)(f) effective immediately; and respondent is directed to show cause before a referee appointed by the Court, pursuant to Judiciary Law § 90(4)(g), which shall thereupon hold a hearing and issue a report and recommendation to this Court, why a final order of censure, suspension, or disbarment should not be made.
All concur.
IT IS ORDERED that the motion of respondent, Steven J. Kwestel, admitted as Steven Jeffrey Kwestel, for an order pursuant to 22 NYCRR 1240.22, accepting his affidavit of resignation, and based upon that affidavit, removing his name from the roll of attorneys and counselors-at-law in the State of New York, is denied, and
IT IS FURTHER ORDERED that the Attorney Grievance Committee's cross motion to deem the offense of which respondent has been found guilty to be a "serious crime' within the meaning of Judiciary Law § 90(4)(d) is granted, and respondent is suspended from the practice of law pursuant to Judiciary Law § 90(4)(f) and 22 NYCRR 1240.12(b)(2), effective the date hereof, until such time as pending disciplinary matters have been concluded, and until further order of this Court, and,
IT IS FURTHER ORDERED that during the period of suspension, respondent is commanded to desist and refrain from (1) practicing law in any form, either as principal or as agent, clerk, or employee of another, (2) appearing as an attorney or counselor-at-law before any court, Judge, Justice, board, commission, or other public authority, (3) giving to another an opinion as to the law or its application or any advice in relation thereto, and (4) holding himself out in any way as an attorney and counselor-at-law; and
IT IS FURTHER ORDERED that pursuant to Judiciary Law § 90(4)(g) and 22 NYCRR 1240.12(c)(2), respondent is directed to show cause at a hearing before the referee appointed herein, why a final order of censure, suspension, or disbarment should not be made based on his conviction of a serious crime as defined in Judiciary Law § 90(4)(d), and
IT IS FURTHER ORDERED that Mark J. Fitzmaurice, Esq., Fitzmaurice & Walsh, 15 Chester Avenue, White Plains, New York 10601, Telephone No. (212) 938-9057, mfitzwalsh@optonline.net, is appointed as Referee to hold the hearing, and to issue a report and recommendation to this Court, with the report to be submitted within 60 days of the conclusion of the hearing or the submission of post-hearing memoranda.
Order filed. November 22, 2022
Footnotes
Footnote 1: The affidavit failed to reveal that in 2017, respondent and his then law partner, Jay B. Zucker, were suspended for six months, on consent, based on the lawyers' failure to supervise their bookkeeper, who misappropriated approximately $3 million, which the bookkeeper subsequently repaid (see Matter of Zucker, 154 AD3d 29 [1st Dept 2017]).
Footnote 2: 26 USC § 7202 states:
"Willful failure to collect or pay over tax. Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution." | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488651/ | Matter of NYC Org. of Pub. Serv. Retirees, Inc. v Campion (2022 NY Slip Op 06641)
Matter of NYC Org. of Pub. Serv. Retirees, Inc. v Campion
2022 NY Slip Op 06641
Decided on November 22, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
Before: Renwick, J.P., Manzanet-Daniels, Oing, Moulton, González, JJ.
Index No. 158815/21 Appeal No. 16722 Case No. 2022-01006
[*1]In the Matter of NYC Organization of Public Service Retirees, Inc., et al., Petitioners-Respondents-Appellants,
vRenee Campion et al., Defendants-Appellants-Respondents.
Sylvia O. Hinds-Radix, Corporation Counsel, New York (Richard Dearing of counsel), for appellants-respondents.
Walden Macht & Haran LLP, New York (Jacob S. Gardener of counsel), for respondents-appellants.
Judgment (denominated an order), Supreme Court, New York County (Lyle E. Frank, J.), entered on or about March 3, 2022, which, to the extent appealed from, granted the petition to the extent of allowing New York City retirees to have the option of opting out of the Medicare Advantage Plan, enjoining respondents from passing along any costs of the retirees' current plan to the retirees or their dependents except where such plan rises above the H.I.P-H.M.O threshold provided by Administrative Code of City of NY § 12-126, and requiring respondents to ensure that all retirees and their dependents pay the deductible for only one plan for the calendar year 2022, and denied respondents' motion to dismiss the proceeding brought pursuant to CPLR article 78, unanimously affirmed, without costs.
The issue raised on this appeal is one of pure statutory interpretation subject to de novo review, and not one requiring deference to the special expertise of respondent agency (see Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459 [1980]; Matter of City of New York v Commissioner of Labor, 100 AD3d 519, 520 [1st Dept 2012]). Administrative Code § 12-126 (b) (1) provides: "The city will pay the entire cost of health insurance coverage for city employees, city retirees, and their dependents, not to exceed one hundred percent of the full cost of H.I.P.-H.M.O. on a category basis."
The court correctly determined that Administrative Code § 12-126 (b) (1) requires respondents to pay the entire cost, up to the statutory cap, of any health insurance plan a retiree selects. This interpretation comports with the plain language of the provision as well as its legislative history (see Matter of Albany Law School v New York State Off. of Mental Retardation & Dev. Disabilities, 19 NY3d 106, 120 [2012]). Nothing in the statutory text or history supports respondents' interpretation that the provision is satisfied so long as they pay for the costs of one of the health insurance plans offered to retirees, which they have determined to be the Medicare Advantage Plus Plan.
Respondents' contention that they are not required to pay the full cost of $192 per month for the retiree petitioners' current plan, Senior Care, because that cost exceeds the full cost of H.I.P.-H.M.O. "on a category basis" is improperly raised for the first time on appeal. This argument does not raise solely a question of statutory interpretation that may still be addressed (see Aldrich v Northern Leasing Sys., Inc., 168 AD3d 452 [1st Dept 2019]), but involves factual issues that cannot be determined on this record (see Vanship Holdings Ltd. v Energy Infrastructure Acquisition Corp., 65 AD3d 405, 408-409 [1st Dept 2009]). Further evidence is necessary to determine, for example, the meaning of the phrase "on a category basis" and whether, as argued by respondents, coverage for Medicare-eligible individuals constitutes a "category" and costs only $7.50 per month.
We have considered respondents' remaining [*2]arguments and find them unavailing.THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488647/ | People v Dean (2022 NY Slip Op 06643)
People v Dean
2022 NY Slip Op 06643
Decided on November 22, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
Before: Renwick, J.P., Manzanet-Daniels, Oing, Moulton, González, JJ.
Ind. No. 4555/07 Appeal No. 16709 Case No. 2019-5333
[*1]The People of the State of New York, Respondent,
vClarence Dean, Defendant-Appellant.
Caprice R. Jenerson, Office of the Appellate Defender, New York (David Bernstein of counsel), and Orrick, Herrington & Sutcliffe LLP, Washington, DC (Upnit K. Bhatti of counsel), for appellant.
Alvin L. Bragg, Jr., District Attorney, New York (Alice Wiseman of counsel), for respondent.
Judgment, Supreme Court, New York County (Maxwell Wiley, J. at Frye and suppression hearings; Bonnie G. Wittner, J. at jury trial and sentencing), rendered April 17, 2017, convicting defendant of murder in the second degree, and sentencing him to a term of 25 years to life, unanimously affirmed.
The court correctly denied defendant's motion to suppress his statements. After arresting defendant, but before giving him Miranda warnings, the police asked him routine pedigree questions. Defendant told the detectives that he was a resident of another state, and the conversation turned to matters such as how and when he came to New York and where he had been staying. To the extent any of this discussion went beyond the scope of actual pedigree questioning, there was still no interrogation requiring warnings. Although the detectives knew that the homicide at issue occurred at a particular hotel, they did not ask any questions related to the crime and any questions they asked were not "reasonably likely to elicit an incriminating response" (Rhode Island v Innis, 446 US 291, 302 [1980]) under the particular circumstances of the police interaction (see People v Arroyo, 88 AD3d 495 [1st Dept 2011], lv denied 18 NY3d 955 [2012]; People v Burton, 57 AD3d 261 [1st Dept 2008], lv denied 12 NY3d 781 [2009]; People v Man Lee Lo, 118 AD2d 225, 230-231 [4th Dept 1986], lv denied 68 NY2d 814 [1986]). Accordingly, we find no basis for suppression of any of defendant's post-Miranda statements.
The motion and trial courts providently exercised their respective discretion in admitting expert testimony that one of the victim's wounds was a human bite. By way of a Frye hearing and a renewal motion, defendant extensively litigated the issue of the reliability of bite mark comparison, that is, the comparison of a bite mark with a suspect's teeth for the purpose of establishing identity. While there are serious questions about the validity of "bite mark matching" (People v Williams, 35 NY3d 24, 43 [2020][emphasis added]), no such evidence was offered or admitted at defendant's trial. Defendant has not shown that expert testimony simply identifying a wound as a bite mark is so unreliable that it must be excluded. At the Frye hearing, the defense expert did not dispute that a forensic odontologist could recognize an injury as a bite mark, and the studies cited in defendant's renewal motion did little, if anything, to undermine that conclusion. In any event, any error in admitting the limited bite mark evidence at trial was harmless (see People v Crimmins, 36 NY2d 230 [1975]).
The court correctly declined to submit the lesser included offense of manslaughter in the first degree. There was no reasonable view of the evidence, viewed most favorably to defendant, that he committed the lesser offense but not the greater. The number and force of the blows that defendant inflicted on the victim, accompanied by manual choking, and strangling her with some kind of ligature, foreclosed [*2]any reasonable possibility that defendant intended only to inflict serious injury and not death.
Defendant did not preserve his challenges to the prosecutor's summation, and we decline to review them in the interest of justice. As an alternative holding, we find no basis for reversal (see People v Overlee, 236 AD2d 133 [1st Dept 1997], lv denied 91 NY2d 976 [1998]). THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488646/ | People v Girard (2022 NY Slip Op 06645)
People v Girard
2022 NY Slip Op 06645
Decided on November 22, 2022
Appellate Division, First Department
Renwick, J.P.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
SUPREME COURT, APPELLATE DIVISION
First Judicial Department
Dianne T. Renwick
Sallie Manzanet-Daniels Jeffrey K. Oing Peter H. Moulton Lizbeth González
Ind. No. 562/18 Appeal No. 16717 Case No. 2020-00038
[*1]The People of the State of New York, Respondent,
vJanac Girard Defendant-Appellant.
Defendant appeals from a judgment of Supreme Court, New York County (Juan M. Merchan, J.), rendered December 13, 2019, convicting defendant, after a jury trial, of attempted murder in the second degree, assault in the first and second degrees, and criminal possession of a weapon in the fourth degree, and sentencing him to an aggregate term of 15 years.
Robert S. Dean, Center for Appellate Litigation, New York (Allison Haupt of counsel), for appellant.
Alvin L. Bragg, Jr., District Attorney, New York (Patricia Curran and Patrick J. Hynes of counsel), for respondent.
Renwick, J.P.
In this case, defendant is charged with attempted murder and assault based on a stabbing incident. At trial, defendant asserted a justification defense. The incident stemmed from a dispute over loud music emanating from defendant's apartment, which was below the victim's apartment. On appeal, defendant seeks a new trial based on, among other things, improper evidentiary rulings by the court and improper summation comments by the prosecution. Defendant also seeks a new trial based on the denial of his statutory right to be present during a sidebar conference between the court, prosecutor, and defense attorney regarding the justification defense. We conclude that defendant was denied his statutory right to be present during the sidebar conference regarding justification, and, therefore, need not address the remaining issues.Procedural and Factual Background
Prior to the sidebar conference, defendant testified that, as a teenager, he suffered an incident that "changed the course of [his] life" in which his "heart started racing." The People objected to continued questioning about defendant's heart condition, arguing that it was being elicited solely for sympathy. Defense counsel argued that it was relevant to defendant's physical capabilities and perception of danger, and therefore spoke to his justification defense.
The parties initially debated the evidence at sidebar. The court questioned the propriety of the evidence, stating it was its "job to ensure there is not jury nullification." It dismissed the jury so it could hold a continued discussion regarding the evidence's admissibility. The judge asked counsel specifically, "put it clearly for me to help me understand how that health condition in any way plays into the facts of this case. How is it relevant and how is it not going to elicit sympathy?" Counsel began to answer then stopped and asked, "Judge, do you want to excuse my client for this argument?" The court responded, "Yeah, I think we should actually. Sir, would you mind stepping out?" Without hearing from defendant, a court officer said, "go ahead, sir. Step out. Follow me." The court officer directed "outside," and defendant was escorted out.
After both the defense counsel and the prosecutor elaborated on their arguments, there was a brief recess. After the recess, defendant was brought back into the
courtroom. The court started questioning defense [*2]counsel again about the "connection between the heart condition and the way [defendant] acted that day in his doorstep." The prosecutor interjected, "should we have the witness step out again for this?"
The court said, "any objection to having your client step out? Counsel said,
"Perhaps—is there a jury room? No? How about my law student takes him into the
hallway?" Defendant was again escorted out.
Immediately after defendant left, the court started asking counsel
fact-specific questions about the evidence: "how, if at all, will your client's heart
condition in any way add to the state of mind that already existed, which was that he
was outweighed by sixty pounds, many years and age and height? Please tell me." It asked whether defendant "was going to pass out and, therefore, he thought he was
was going to get killed, therefore, he had to kill first," or whether he would
testify that it entered his mind when he used the knife that he had this heart
condition. Counsel then explained the nature of defendant's heart condition, including that it was "serious" and "when his heart beats quickly, he passes out," although "[i]t's not the kind of heart disease that causes sudden death" and defendant was not receiving any treatment for it. Counsel also attempted to tie that condition to defendant's perception of the interaction with the stabbing victim and the panic he experienced as a result but admitted that she did not know exactly what defendant would say on the stand, as it was "not my practice to prepare somebody so they repeat a rote kind of script." The court ruled that testimony regarding the heart condition could not come in unless and until defendant gave testimony establishing a connection between the condition and the interaction with the victim. Defendant then returned to the courtroom and to the stand.
The jury convicted defendant of attempted murder in the second degree, assault in the first and second degrees, and criminal possession of a weapon in the fourth degree. This appeal ensued. For the reasons explained below, we now grant a new trial.Discussion
Pursuant to CPL 260.20, a criminal defendant has a statutory right to be present at all material stages of a trial, including ancillary proceedings, when he may have something valuable to contribute or when his presence would have a substantial effect on the ability to defend against the charges (see People v Fabricio, 3 NY3d 402 [2004]; People v Roman, 88 NY2d 18, 25-26 [1996]; People v Spotford, 85 NY2d 593 [1995]). A key consideration in determining whether a defendant's presence would be useful or would affect his ability to defend is whether the proceeding "involved factual matters about which defendant might have peculiar knowledge that would be useful in advancing the defendant's or countering the People's position" (People v Dokes, 79 NY2d 656, 660 [1992]; see also People v Douglas, 29 AD3d 47 [1st Dept 2006], lv denied 6 NY3d 847 [2006]).
In this case, the subject [*3]of the instant sidebar conference clearly implicated defendant's peculiar factual knowledge such that his participation might have assisted him in advancing his justification defense to the murder and assault counts. The subject of the conference was whether defendant would be permitted to testify as to a medical (heart) condition with regard to his justification defense. During the sidebar conference the court repeatedly implored defense counsel to explain how defendant's serious medical condition impacted his assessment of his physical safety. Defendant's presence at the sidebar conference would have afforded him an opportunity to apprise the court, defense counsel and prosecutor of the exact details of his heart condition in order to demonstrate that it affected his assessment of the circumstances he was confronted with prior to the stabbing incident (see People v Spotford, 85 NY2d at 596-597; People v Douglas, 29 AD3d at 52-53).
While not disputing that the subject sidebar conference was the type of ancillary proceeding that triggered defendant's right to be present, the prosecutor argues that such right was not violated because "he was present for a significant part of the discussion between the court and the parties about his heart condition." Contrary to the People's claim, defendant was absent for the vast majority of the discussion, which included discussion of facts and not just law — many of which had not previously been discussed in defendant's presence. This is thus not a case, like People v Liggins (19 AD3d 324, 325 [1st Dept 2005], lv denied 5 NY3d 853 [2005]), on which the People rely, in which the defendant's presence during "the initial segment of these proceedings provided him with the opportunity for meaningful input." Nor do we find sufficient to remedy the violation the fact that defendant was ultimately called back to the stand to continue his direct testimony, since he was never informed of the nature or resolution of the issues discussed (cf. People v Robinson, 239 AD2d 258, 260-261 [1st Dept 1997] [after sidebar not attended by the defendant, the court advised counsel to tell the defendant what had occurred]).
Alternatively, the People argue that defendant waived his right to be present at the sidebar conference. Although the right to be present at a sidebar conference need not be preserved by an objection (see People v Dokes, 79 NY2d at 662), the right may be waived. Such right may be waived either explicitly or implicitly by defendant (People v Flinn, 22 NY3d 599 [2014]; People v Velazquez, 1 NY3d 44, 49-50 [2003]; People v Keen, 94 NY2d 533, 538-539 [2000]). An implicit waiver occurs when a defendant is consciously aware of his right to be present and does not exercise such right. In other words, a defendant by his conduct voluntarily relinquishes his right to be present and thus gives up appellate review of the issue (see People v Flinn, 22 NY3d at 602). An explicit waiver of defendant's right to be present occurs [*4]when a defendant either personally or through his counsel makes an affirmative statement on the record to the effect that he is waving such right, that is, that he does not wish to attend the sidebar conference (see People v Velazquez, 1 NY3d at 47-50; People v Keen, 94 NY2d at 538-539).
We conclude that, under the circumstances of this case, defendant did not waive the right to be present at the sidebar conference. Contrary to the People's assertion, defendant did not personally waive his right to be present either explicitly or implicitly. At no time did defendant make an affirmative statement on the record that he did not wish to attend the side bar conference. And no one ever asked him directly. On the contrary, at the two relevant occasions, he was commanded to leave the courtroom so that the sidebar conference could take place in his absence. Nor did he implicitly waive the right to be present at the sidebar conference. Indeed, at no time was defendant made aware that he had the right to be present at the sidebar conference (see People v McAdams, 22 AD3d 885 [2d Dept 2005] [No implicit waiver occurred because neither the court nor defense counsel advised defendant of his right to be present at the sidebar conference]); cf. People v Flinn, 22 NY3d at 601-602 ["Defendant waived his . . . right
. . .implicitly when, after hearing the trial judge say that he was 'welcome to attend' the bench conferences, he chose not to do so."]). Thus, by his conduct defendant never voluntarily relinquished his right to be present.
We reject the People's argument that defendant through his counsel explicitly waived his right to be present at the sidebar conference. At no time did the court ask defense counsel whether defendant was waiving his right to be present at the sidebar conference. Nor did counsel otherwise make an affirmative statement on the record to the effect that defendant was waiving such right or that he did not wish to attend the sidebar conference. On the record before this Court, the evidence concerning an alleged waiver consists of defense counsel asking the court whether it wanted to excuse the defendant for the argument and the court, during further arguments, asking counsel whether there was an objection to defendant stepping out again so that the resumed sidebar conference could be conducted in his absence.
While acknowledging the lack of an express statement by defense counsel that his client was waiving his right to be present at the sidebar conference, the People contend that such waiver may be "inferred" from counsel's expression of lack of objection of the removal of his client from the court. This argument is unavailing. In our view, in the absence of any record discussion by the court with counsel and the prosecutor regarding defendant's right to be present at the sidebar conference, defense counsel's expression of lack of objection to his client absence from the sidebar conference is not an affirmative statement by counsel confirming [*5]that defendant himself was waiving his right to be present at the sidebar conference, and it was thus insufficient to establish that defendant waived such rights concerning the sidebar conference (see People v Geddis, 173 AD3d 1724, 1726 [4th Dept 2019] ["[W]ith counsel simply stating to the court, 'I'm okay with [his absence ]', we perceive no basis to conclude" that defendant waived his right to be present at a sidebar conference during questioning of prospective juror]).
We recognize that, because the right to be present at a sidebar conference is statutory, not constitutional, the Court of Appeals has been more flexible regarding the acceptable forms of voluntary waivers by defendants and their lawyers (see People v Velazquez, 1 NY3d at 47-50; People v Keen, 94 NY2d at 538-539). Accordingly, the courts need not engage in any "pro forma inquisition in each case," "to ensure the requisite voluntary and intelligent nature of the waiver" (Velazquez, at 49 [internal quotation marks omitted]). However, the Court of Appeals has never obviated the requirement that an explicit waiver by defendant through his counsel must be done by an affirmative statement on the record to the effect that defendant himself is waving such right (see People v Flinn, 22 NY3d at 602; People v Velazquez, 1 NY3d at 47-50; People v Keen, 94 NY2d at 538-539). Instead, only when an express waiver by counsel, on a client's behalf, takes place is a presumption of regularity to a waiver of the right to be present triggered.
Indeed, the flexible approach to waiving a defendant's statutory right to be present at an ancillary proceeding, like a sidebar conference, is based on "the premise
. . .that a lawyer may be trusted to explain rights to his or her client and [then] to report to the court the result of that discussion" (People v Flinn, 22 NY3d at 602; see also People v Velasquez, 1 NY3d at 47—50; People v Keen, 94 NY2d at 538—539). Accordingly, such a flexible approach can only be triggered by an explicit and affirmative communication to the court that the defendant has indeed waived his right to be present. While it is a defendant's burden to refute the presumption of regularity that attaches to an express waiver of the right to be present, it is the prosecutor's burden in the first place to establish that the presumption of regularity was triggered by an express waiver of the right to be present. Thus, a statement by counsel that does not unequivocally and categorically apprise the court that defendant was waiving his right to be present at a sidebar conference cannot be deemed to be a waiver of a defendant's right.
In sum, because the sidebar conference regarding defendant's proposed testimony in support of his justification defense was a material stage of the trial, his exclusion therefrom was error and requires vacatur of his convictions and a new trial (People v Dokes, 79 NY2d at 662).
Accordingly, the judgment of Supreme Court, New York County (Juan M. Merchan[*6], J.), rendered December 13, 2019, convicting defendant, after a jury trial, of attempted murder in the second degree, assault in the first and second degrees, and criminal possession of a weapon in the fourth degree, and sentencing him to an
aggregate term of 15 years, should be reversed, on the law, and the matter remanded for
a new trial.
Judgment Supreme Court, New York County (Juan M. Merchan, J.), rendered December 13, 2019, reversed, on the law, and the matter remanded for a new trial.
Opinion by Renwick, J.P. All concur.
Renwick, J.P., Manzanet-Daniels, Oing, Moulton, González, JJ.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488674/ | Maffei v A.O. Smith Water Prods. Co. (2022 NY Slip Op 06555)
Maffei v A.O. Smith Water Prods. Co.
2022 NY Slip Op 06555
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Index No. 190378/18 Appeal No. 16680 Case No. 2021-04690
[*1]Romeo Maffei, Plaintiff-Respondent,
vA.O. Smith Water Products Co., et al., Defendants, J-M Manufacturing Company, Inc., Defendant-Appellant.
Manning Gross + Massenburg, LLP, New York (Anna Hwang of counsel), for appellant.
Weitz & Luxenberg, P.C., New York (Jason P. Weinstein of counsel), for respondent.
Order, Supreme Court, New York County (Adam Silvera, J.), entered on or about June 4, 2021, which, to the extent appealed from, denied the motion of defendant J-M Manufacturing Company (JMM) for summary judgment dismissing plaintiff's punitive damages demand, unanimously reversed, on the law, without costs, and the motion granted.
Defendant is a former distributor of asbestos cement pipe (ACP). Plaintiff, a commercial contractor, alleges that he was exposed to asbestos when he worked with ACP sold by defendant. In support of his contention for punitive damages, plaintiff asserts that defendant concealed the hazardous nature of its product by failing to affix warning labels to all the pipes it distributed.
Despite plaintiff's contentions, the demand for punitive damages should have been stricken. "Even where there is gross negligence, punitive damages are awarded only in 'singularly rare cases' such as cases involving an improper state of mind or malice or cases involving wrongdoing to the public" (Anonymous v Streitferdt, 172 AD2d 440, 441 [1st Dept 1991], quoting Rand & Paseka Mfg. Co. v Holmes Protection, 130 AD2d 429, 431 [1st Dept 1987], lv denied 70 NY2d 615 [1988]). This is not such a singularly rare case (see Matter of New York City Asbestos Litig., 225 AD2d 414, 415 [1st Dept 1996], affd 89 NY2d 955 [1997]; see also Matter of Eighth Jud. Dist. Asbestos Litig., 92 AD3d 1259 [4th Dept 2012], lv denied 19 NY3d 803 [2012]). There is no evidence of a concerted effort to suppress information about the dangers of asbestos. To the contrary, the product came with multiple warnings that it could not safely be worked with using dry saws or the like. To the extent that those warnings were not present on each piece of pipe might evidence negligence, it does not evidence malice (compare Matter of 91st St. Crane Collapse Litig., 154 AD3d 139 [1st Dept 2017]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488658/ | Chris Grant Brohawk Films v Digital Seven LLC (2022 NY Slip Op 06635)
Chris Grant Brohawk Films v Digital Seven LLC
2022 NY Slip Op 06635
Decided on November 22, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
Before: Renwick, J.P., Oing, Singh, Kennedy, Mendez, JJ.
Index No. 656790/19 Appeal No. 16630-16630A Case No. 2021-03527, 2021-03539
[*1]Chris Grant Brohawk Films, Plaintiff-Respondent,
vDigital Seven LLC, et al., Defendants-Appellants.
Sweetbaum & Sweetbaum, Lake Success (Joel A. Sweetbaum of counsel), and Edward W. Hayes, New York (Edward W. Hayes of counsel), for appellants.
Fox Rothschild LLP, New York (Philip Z. Langer of counsel), for respondent.
Judgment, Supreme Court, New York County (Arlene P. Bluth, J.), entered August 30, 2021, in favor of plaintiff and against defendants in the amount of $47,361.78, unanimously reversed, on the law, without costs, the judgment vacated and the prior order that vacated the default judgment, compelled arbitration, and stayed the action pending arbitration reinstated. Appeal from order, same court and Justice, entered on or about February 22, 2021, which granted plaintiff's motion for leave to renew defendants' motion to vacate a default judgment against them and compel arbitration, unanimously dismissed, without costs, as subsumed in the appeal from the judgment.
Plaintiff moved under CPLR 2221(e) for leave to renew defendants' motion to vacate the default and compel arbitration. In support of its motion, plaintiff submitted public court filings showing that the prior attorney was not incapacitated as he claimed between September 18, 2020 and December 31, 2020 and that the prior attorney had appeared in at least one hearing during that time. Plaintiff argued that the prior attorney's explanation for his failure to appear on behalf of defendants, on which Supreme Court relied upon to vacate the default, contained material misrepresentations and that these new facts were sufficient to warrant renewal. In opposition, defendants submitted an affirmation from the prior attorney essentially reasserting the circumstances of his default. Supreme Court granted renewal, vacated the prior order, and reinstated the default judgment.
The record demonstrates that the court filings plaintiff relies on, which are matters of public record, existed at the time it submitted opposition to defendants' vacatur motion. Plaintiff, however, did not provide in the renewal motion a "reasonable justification for the failure to present such facts on the prior motion" (CPLR 2221[e][3]; see NRZ Pass-Through Trust IV v Rouge, 199 AD3d 466, 466 [1st Dept 2021]; Foley v Roche, 68 AD2d 558, 568 [1st Dept 1979]). Accordingly, Supreme Court should not have granted plaintiff's motion for leave to renew.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488648/ | People v Batts (2022 NY Slip Op 06644)
People v Batts
2022 NY Slip Op 06644
Decided on November 22, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
Before: Renwick, J.P., Manzanet-Daniels, Oing, Moulton, González, JJ.
Ind. No. 4706/17, 2486/19 Appeal No. 16707-16707A Case No. 2020-04310
[*1]The People of the State of New York, Respondent,
vDarius Batts, Defendant-Appellant.
Robert S. Dean, Center for Appellate Litigation, New York (Jody Ratner of counsel), for appellant.
Alvin L. Bragg, Jr., District Attorney, New York (Stephen J. Kress of counsel), for respondent.
Judgments, Supreme Court, New York County (Guy H. Mitchell, J. at first plea; Maxwell Wiley, J. at second plea and sentencing), rendered September 23, 2017, convicting defendant of two counts of robbery in the second degree, and sentencing him to concurrent terms of four years, unanimously modified, as a matter of discretion in the interest of justice, to the extent of vacating the mandatory surcharge and fees imposed at sentencing on Indictment No. 4706/17, and otherwise affirmed
Based on our own interest of justice powers and the People's consent, we vacate the surcharge and fees imposed at sentencing for defendant's conviction of a crime committed when he was 19 years old (see People v Chirinos, 190 AD3d 434 [1st Dept
2021]).
We perceive no basis for reducing the sentence.THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488673/ | Matter of Makhani v Kiesel (2022 NY Slip Op 06556)
Matter of Makhani v Kiesel
2022 NY Slip Op 06556
Decided on November 17, 2022
Appellate Division, First Department
HIGGITT, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
SUPREME COURT, APPELLATE DIVISION
First Judicial Department
Dianne T. Renwick
David Friedman Anil C. Singh Martin Shulman John R. Higgitt
Ind No. 1420/21 Appeal No. 16444 Case No. 2022-03338
[*1]In the Matter of Joseph Makhani, Petitioner,
vThe Honorable Diane Kiesel, etc. et al., Respondents.
In this original proceeding pursuant to article 78 of the Civil Practice Law and Rules, petitioner seeks a writ of prohibition to enjoin and prohibit respondents from directing that the indictment against petitioner proceed to trial.
Friedman Kaplan Seiler & Adelman LLP, New York (Robert S. Smith and Philip J. Biegler, of counsel), and NechelesLaw LLP, New York (Gedalia M. Stern and Susan R. Necheles of counsel), for petitioner.
Letitia James, Attorney General, New York, (Melissa Ysaguirre and Elizabeth Figueira0 of counsel), for Letitia James, respondent.
HIGGITT, J.
This CPLR article 78 proceeding seeking a writ of prohibition raises an issue of apparent first impression: whether the Attorney General may criminally prosecute an individual based on an Executive Law § 63(3) referral from the Chief Administrative Judge of the Unified Court System. Executive Law § 63(3) authorizes the Attorney General of the State of New York, "[u]pon request of the governor, comptroller, secretary of state, commissioner of transportation, superintendent of financial services, commissioner of taxation and finance, commissioner of motor vehicles, or the state inspector general, or the head of any other department, authority, division or agency of the state," to investigate and prosecute criminality relating to any matter connected with the referring entity. Petitioner, the subject of the criminal prosecution initiated and maintained by the AG based on the purported Executive Law § 63(3) referral by an officer within the Unified Court System, commenced this special proceeding for a writ of prohibition challenging the validity of the referral and the legality of the AG's authority to prosecute him. We hold that an Executive Law § 63(3) referral can come only from an agency within the executive branch. Therefore, a referral from an officer within the Unified Court System that is, the judicial branch of government is not permitted by the statute, and, for the reasons discussed below, we grant prohibition relief to petitioner.
I.
The issues presented in this proceeding emanate from a January 4, 2016 letter a special counsel in the AG's Criminal Division sent to the Unified Court System's Inspector General's Office. The letter regarded "[f]orgery and [o]ther [c]rimes committed on New York State Courts." The special counsel advised that he was investigating allegations of forgery, attempted larceny, and deed theft, and that one of the targets of the investigation was petitioner. The special counsel wrote that petitioner had forged signatures on deeds that were recorded in the Office of the City Register, and that petitioner had used the forged deeds as exhibits in real property actions in New York State courts. Petitioner's conduct was directed primarily at the elderly and other vulnerable members of society. The special counsel also advised that petitioner had "committed additional frauds upon the courts and the citizens of New York State": petitioner [*2]filed motions in New York State courts in an effort to fraudulently obtain unclaimed or abandoned funds to which he had no right. The penultimate paragraph of the letter stated that the AG "respectfully requests a referral pursuant to New York Executive Law Section 63(3) to investigate and, if appropriate, prosecute the alleged commission by [petitioner] for any indictable offense arising out of a violation of the Penal Law or any other applicable state law or regulation promulgated thereunder."
On February 1, 2016, Chief Administrative Judge Lawrence K. Marks responded to the AG's January 4, 2016 letter. Judge Marks requested that the AG accept his February 1 letter as a request under Executive Law § 63(3) that the AG investigate petitioner's alleged offenses relating to forged deeds and fraudulent court filings. A second letter from Judge Marks to the AG followed on March 18, 2016. The March letter was substantially similar to the February letter and included the additional request that the AG prosecute petitioner for any relevant crimes or offenses.
The AG subsequently presented the matter to a New York County grand jury, that, in June 2021, returned a seven-count indictment against petitioner. The indictment charged petitioner with criminal possession of stolen property in the first degree (Penal Law § 165.54), criminal possession of stolen property in the second degree (Penal Law § 165.52), residential mortgage fraud in the first degree (Penal Law § 187.25), residential mortgage fraud in the second degree (Penal Law § 187.20), scheme to defraud in the first degree (Penal Law § 190.65[1][b]), and two counts of falsifying business records in the first degree (Penal Law § 175.10). The charges related to petitioner's efforts to fraudulently obtain title to two Manhattan properties.
In the ensuing criminal proceeding People v Makhani (NY County indictment No. 1420/21) petitioner made an omnibus motion seeking, among other things, dismissal of the indictment on various grounds; however, petitioner did not raise any issue in his omnibus motion regarding the AG's authority to prosecute the proceeding. Supreme Court (Kiesel, J.) denied most of the relief requested in the omnibus motion, and the prosecution continued.
In March 2022, petitioner again sought dismissal of the indictment, this time arguing that the purported referral from Chief Administrative Judge Marks did not confer on the AG the requisite jurisdiction to serve as a prosecuting authority. According to petitioner, Executive Law § 63(3), the authority on which the AG relied to serve as the prosecutor, did not permit a referral from the Unified Court System. Further, petitioner asserted that even if a referral could come from the Unified Court System, the referral had to come from the Chief Judge of the Court of Appeals (then-Chief Judge DiFiore), not Chief Administrative Judge Marks.
The AG opposed the second motion to dismiss, arguing, among other things, that the [*3]Unified Court System can make a valid referral to the AG under Executive Law § 63(3), and that Chief Administrative Judge Marks was empowered to make the referral.
By a June 10, 2022 decision and order, Supreme Court (Kiesel, J.) denied petitioner's second motion to dismiss.
II.
After the denial of his second motion to dismiss, petitioner brought the present special proceeding in this Court seeking a writ of prohibition against the AG and Justice Kiesel (see CPLR 506[b], 7804[b]). Petitioner requests that we vacate Justice Kiesel's June 10, 2022 decision and order, prohibit her from continuing to exercise jurisdiction over his criminal proceeding, prohibit the AG from continuing to prosecute him, and dismiss the indictment. The crux of petitioner's special proceeding is that the AG lacks the power to prosecute him, and is thus acting without jurisdiction (as is Justice Kiesel by permitting his continued prosecution). Prohibition is warranted, asserts petitioner, because the prosecution of the criminal proceeding by one without the power to do so is a jurisdictional deficiency that implicates the legality of the entire proceeding.
Petitioner stresses that, absent a grant of prosecutorial power by statute, the AG lacks criminal jurisdiction over a matter, and argues that Executive Law § 63(3) does not confer upon the AG jurisdiction to prosecute him. As he did in his second motion to dismiss before Supreme Court, petitioner maintains that the Unified Court System is not authorized to make a referral; rather, only departments, authorities, divisions, and agencies within the executive branch are permitted to make such referrals. Petitioner repeats his contention that, even assuming that an Executive Law § 63(3) referral could come from the Unified Court System, Chief Administrative Judge Marks could not issue a valid referral because he is not the "head" of the Unified Court System and was not delegated the power to make the referral by the Chief Judge of the Court of Appeals.
In opposition to the petition, the AG contends that petitioner failed to show a clear legal right to a writ of prohibition, and, in any event, that petitioner has an adequate remedy at law: an appeal from any resulting judgment of conviction. With respect to the former argument, the AG maintains that the Unified Court System is a "department, authority, division or agency of the state" (Executive Law § 63[3]) and, therefore, a valid referral can come from it. The AG observes that nothing in Executive Law § 63(3) suggests that a referral can come only from an agency within the executive branch. The AG also maintains that, while the Chief Judge of the Court of Appeals is the chief judicial officer of the State (see NY Const, art VI, § 28[a]; Judiciary Law § 210), Chief Administrative Judge Marks was delegated the requisite authority to make referrals by various constitutional, statutory, and regulatory provisions (see NY Const, art VI, § 28[b]; Judiciary Law § 212[[*4]1]; 22 NYCRR part 80).
Regarding petitioner's remedies, the AG notes that petitioner could raise his jurisdictional challenge on a direct appeal from any judgment of conviction, and that no compelling reason exists to permit petitioner to avail himself of the extraordinary remedy of prohibition.
III.
A.
We cannot examine the merits of petitioner's claim without first determining whether the issue presented by the petition is the type for which the extraordinary remedy of prohibition may lie (see Matter of B.T. Prods. v Barr, 44 NY2d 226, 231 [1978]; see also Matter of Dondi v Jones, 40 NY2d 8, 12 [1976]).
The remedy of prohibition, a common-law device now codified in CPLR 7803(2), prevents or controls extra-jurisdictional judicial or quasi-judicial action. "[P]rohibition lies only where there is a clear legal right and only when the body or officer acts or threatens to act without jurisdiction in a matter over which it has no power over the subject matter or where it exceed[ed] its authorized powers in a proceeding over which it has jurisdiction" (Dondi v Jones, 40 NY2d at 13; see Matter of Holtzman v Goldman, 71 NY2d 564, 569 [1988]; Matter of Rush v Mordue, 68 NY2d 348, 352 [1986]; Matter of Schumer v Holtzman, 60 NY2d 46, 51 [1983]). "To demonstrate a clear legal right to the extraordinary writ of prohibition, a petitioner is required to show that the challenged action was 'in reality so serious an excess of power incontrovertibly justifying and requiring summary correction'" (Matter of Soares v Carter, 25 NY3d 1011, 1013 [2015], quoting LaRocca v Lane, 37 NY2d 575, 580 [1975]).
"A public prosecutor is a quasi-judicial officer, who performs important duties within our judicial system, and is subject to prohibition under proper circumstances not alone confined to double jeopardy situations" (Dondi v Jones, 40 NY2d at 13; see Rush v Mordue, 68 NY2d at 353 n 3; Schumer v Holtzman, 60 NY2d at 52; Matter of McGinley v Hynes, 51 NY2d 116, 123 [1980]; B.T. Prods., Inc. v Barr, 44 NY2d at 232). This includes the AG when that Office is exercising or threatening to exercise an ultra vires prosecutorial function (Matter of Haggerty v Himelein, 89 NY2d 431, 435 [1997]).
The discretionary remedy of prohibition is not available to correct procedural or substantive errors of law, no matter how egregious an error may be (Rush v Mordue, 68 NY2d at 353; LaRocca v Lane, 37 NY2d at 579; see Schumer v Holtzman, 60 NY2d at 51; Matter of Steingut v Gold, 42 NY2d 311, 315 [1977]; see also Dondi v Jones, 40 NY2d at 13). Rather, prohibition is available only when a court or prosecuting authority exceeds its jurisdiction or power in such a manner as to implicate the legality of the entire criminal proceeding (Rush v Mordue, 68 NY2d at 352-353; see Steingut v Gold, 42 NY2d at 315 [writ of prohibition lies "only where the very jurisdiction and power of the court are in issue"]). "Although the distinction between legal errors and actions in excess of power is not [*5]always easily made, abuses of power may be identified by their impact upon the entire proceeding as distinguished from an error in a proceeding itself" (Holtzman v Goldman, 71 NY2d at 569; see Matter of State of New York v King, 36 NY2d 59, 64 [1975]).
Here, petitioner demonstrated a clear legal right to be free from prosecution by one without the jurisdiction to prosecute and alleges that the AG is acting without jurisdiction as the prosecuting authority and Supreme Court is exceeding its powers by permitting the continued prosecution of the criminal proceeding. Moreover, petitioner's claim does not raise a mere error of procedural or substantive law; instead, petitioner's claim goes to the legality of the entire criminal proceeding: without valid authority to prosecute this matter, the AG lacked jurisdiction from the inception of (and throughout) the criminal proceeding.
Requiring petitioner to wait until he is convicted and seek redress on an appeal from an ensuing judgment of conviction is not appropriate. Of course, petitioner's jurisdictional argument could be pressed on an appeal from a judgment of conviction (see e.g. People v Gilmour, 98 NY2d 126 [2002]; People v Romero, 91 NY2d 750 [1998]), but the availability of an appellate remedy does not invariably foreclose the remedy of prohibition. When the remedial effectiveness of prohibition is superior to that of an appellate remedy, prohibition may be employed (see Rush v Mordue, 68 NY2d at 354; Dondi v Jones, 40 NY2d at 14; see also Matter of Lee v County Ct. of Erie County, 27 NY2d 432, 437 [1971] [writ of prohibition "is not available ordinarily as a method of premature appeal. Nevertheless, where the lower court is exceeding its jurisdiction and the writ . . . furnishes a more effective remedy, it may be availed of although the error might be corrected by appeal."]).
As the Court of Appeals has stated,
"[w]hen the validity of the appointment of a prosecutor is in question, the question should where possible be given a prompt and definite answer. It is not in the public interest to allow a prosecutor to carry out a lengthy investigation [and prosecution] when there is doubt that his or her appointment is valid, and to run the risk that the process will have to start all over again with a different prosecutor" (Matter of Working Families Party v Fisher, 23 NY3d 539, 544 [2014]).
Indeed, permitting a potentially improper prosecutor to proceed with a criminal proceeding may result in duplication of expense and effort in prosecuting the defendant (Schumer v Holtzman, 60 NY2d at 54). Additionally, resolution of the jurisdictional question posed by petitioner has import outside the confines of the underlying criminal proceeding: the legal issue of whether a valid referral may come from the Unified Court System may impact other prosecutions (see Dondi v Jones, 40 NY2d at 14 ["In the exercise of discretion, a court may consider the desirability of the prompt settlement of an [*6]important jurisdictional question so that a multiplicity of void proceedings in other cases will be prevented."]).
Thus, this special proceeding seeking a writ of prohibition is a proper vehicle for deciding the merits of petitioner's claim that the AG has no valid prosecutorial authority in the criminal proceeding (see Working Families Party v Fisher, 23 NY3d at 545; see also Schumer v Holtzman at 51-52; B.T. Prods., Inc. v Barr at 232; Dondi v Jones at 14).
B.
Having concluded that a writ of prohibition may, in the exercise of our discretion, lie in this matter, we turn to the merits of petitioner's jurisdictional claim.
The legislature has delegated the primary responsibility for prosecuting persons accused of crimes to district attorneys, the public officers entrusted with the general prosecutorial authority for the crimes occurring within their respective counties (Della Pietra v State of New York, 71 NY2d 792, 796 [1988]). In contrast, the AG has no general criminal prosecutorial authority. Instead, the AG's authority to prosecute is limited strictly to those matters permitted by statute (id.; see People v Cuttita, 7 NY3d 500, 507 [2006]; People v Gilmour, 98 NY2d at 131; People v Romero, 91 NY2d at 754). Therefore, the AG has no prosecutorial power other than that given to it by the legislature (Della Pietra v State, 71 NY2d at 796-797; see People v Gilmour, 98 NY2d at 132).
Whether the AG has the power to prosecute the underlying criminal proceeding turns on the meaning and scope of Executive Law § 63(3), and the primary issue of statutory interpretation before us is whether a valid referral can come from the Unified Court System under that provision. In resolving that issue, we start with the statute's text.
Executive Law § 63(3) states that the AG shall,
"[u]pon request of the governor, comptroller, secretary of state, commissioner of transportation, superintendent of financial services, commissioner of taxation and finance, commissioner of motor vehicles, or the state inspector general, or the head of any other department, authority, division or agency of the state, investigate the alleged commission of any indictable offense or offenses in violation of the law which the officer making the request is especially required to execute or in relation to any matters connected with such department, and to prosecute the person or persons believed to have committed the same and any crime or offense arising out of such investigation or prosecution or both, including but not limited to appearing before and presenting all such matters to a grand jury."
Neither the Unified Court System nor any of the officers therein (e.g., the Chief Judge of the Court of Appeals, the Chief Administrative Judge) is specifically enumerated in the statute. Thus, a valid referral can come from the Unified Court System only if it is a "department, authority, division or agency of the state," within the meaning of Executive Law § 63(3), whose "head[*7]" is authorized to make such a referral.
In determining whether the Unified Court System is a "department, authority, division or agency of the state," we are guided by cardinal principles of statutory interpretation. First, we give primacy to the intention of the legislature (People v Galindo, 38 NY3d 199, 203 [2022]; Riley v County of Broome, 95 NY2d 455, 463 [2000]; McKinney's Cons Laws of NY, Book 1, Statutes § 92[a], at 176-177; see McKinney's Cons Laws of NY, Book 1, Statutes § 191, at 352-353), the clearest indicator of which is the statutory text (Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577, 583 [1998]; see Riley v County of Broome, 95 NY2d at 463; McKinney's Cons Laws of NY, Book 1, Statutes §§ 92[b], 191, at 182, 352). Second, we enforce the plain meaning of the statutory text, giving the text its ordinary and accepted meaning (see Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d at 583; McKinney's Cons Laws of NY, Book 1, Statutes §§ 94, 232, at 188, 392), and interpreting the words thereof according to their ordinary and popular significance (see McKinney's Cons Laws of NY, Book 1, Statutes § 232, at 392-393).
Giving the operative text "department, authority, division or agency of the state" its ordinary and accepted meaning, the legislature's intention is clear: an agency within the executive branch may make a referral, but the judicial branch cannot. The words chosen by the legislature are, based on their ordinary and popular significance, the nomenclature of executive branch administrative agencies (see e.g. Executive Law §§ 31 [listing divisions within the executive branch], 40 [Department of Audit and Control], 60 [Department of Law], 90 [Department of State], 180 [Division of Budget], 210 [Division of State Police], 260 [Division of Housing and Community Renewal], 270 [Division of Alcoholic Beverage Control, State Liquor Authority], 709 [Division of Homeland Security and Emergency Services], 803 [Adirondack Park Agency], 836 [Division of Criminal Justice Services]).
Moreover, Executive Law § 63(3) requires that a referral come from "the head" of a department, authority, division or agency (see People v Gilmour, supra). A "head" in this context plainly refers to an officer within the executive branch (see e.g. NY Const, article V, § 4 ["Department heads"]; Executive Law §§ 30, 40[1], 52[1], 60, 90, 155, 180, 200, 210, 240, 260, 293[1], 351, 500[1], 652). The Chief Judge of the Court of Appeals is "the chief judge of the state" and "the chief judicial officer of the unified court system" (NY Const, article VI, § 28[a]; Judiciary Law § 210[1]); neither the Chief Judge nor the Chief Administrative Judge is characterized in the Constitution or the Judiciary Law as "the head" of the Unified Court System.
The Unified Court System the judicial branch of New York State government (see NY Const, article VI, § 1; Canales-Jacobs v New York State Off. of Ct. Admin., 640 F Supp2d 482, 488 [SDNY 2009])[*8] is not, in common parlance, a department, authority, division or agency. Had the legislature intended to permit the Unified Court System to make a referral it would have done so in language reflecting such an intent (see generally People v Gilmour, 98 NY2d 133). The legislature knows how to refer to the judiciary when it intends to do so (see e.g. Executive Law § 63[2] ["supreme court"], [7] ["court of record"], [12] ["supreme court"]).[FN1] We cannot expand the plain meaning of the text of Executive Law § 63(3) to force the law to say something that it does not (see McKinney's Cons Laws of NY, Book 1, Statutes § 94, at 190-191; see also Matter of Butler v New York City Health & Hosps. Corp., 82 AD2d 136, 143 [1st Dept 1981]; Matter of Agioritis, 52 AD2d 128, 135 [1st Dept 1976]). Similarly, we cannot expand the statute to cover something that the legislature could have easily expressed had it intended to do so (see McKinney's Cons Laws of NY, Book 1, Statutes§§ 74, 94, at 157, 194; see also People v Gray, 2 AD3d 275 [1st Dept 2003]; Butler v New York City Health & Hosps. Corp., 82 AD2d at 143).
The legislature's omission of the Unified Court System and any specified officers thereof in Executive Law § 63(3) is telling: "the failure of the Legislature to include a matter within the scope of an act may be construed as an indication that its exclusion was intended" (McKinney's Cons Laws of NY, Book 1, Statutes § 74, at 157; see Matter of Diegelman v City of Buffalo, 28 NY3d 231, 237 [2016]; People v Tychanski, 78 NY2d 909, 911-912 [1991]; Pajak v Pajak, 56 NY2d 394, 397 [1982]). This principle has particular force where, as here, an expansive interpretation of the statute to include that which is not expressly mentioned in it would result in a significant practical change to an established rule of law (McKinney's Cons Laws of NY, Book 1, Statutes, § 74, at 158; see Morell v Balasubramanian, 70 NY2d 297, 302-303 [1987]; PB-7 Doe v Amherst Cent. Sch. Dist., 196 AD3d 9, 12 [4th Dept 2021]). If we interpreted Executive Law § 63(3) in the manner suggested by the AG, the statute would, for the first time, allow for a referral from the Unified Court System.[FN2] We cannot impute to the legislature an intention to make a significant change to a long-established rule (particularly one relating to the criminal jurisdiction of a prosecuting authority) in the absence of a clear manifestation of such an intention (see McKinney's Cons Laws of NY, Book 1, Statutes § 153, at 332; see also Town of Aurora v Village of E. Aurora, 32 NY3d 366, 375 [2018]; see generally McKinney's Cons Laws of NY, Book 1, Statutes § 191, at 353). Thus, the legislature's failure to include the Unified Court System or any specified officers thereof in Executive Law § 63(3) indicates that the exclusion was intentional.
Our reading of the plain meaning of Executive Law § 63(3) is confirmed by the statute's legislative history (see Riley v County of Broome, 95 NY2d at 463-465).[FN3] Executive [*9]Law § 63(3) was enacted in 1951, and provided that the following executive branch officers could make a referral to the AG: the Governor, the Secretary of State, the Comptroller, the Superintendent of Public Works, and the Commissioner of Taxation and Finance (L 1951, ch 800). From 1955 to 1968, the legislature added additional executive branch agencies to Executive Law § 63(3) (see L 1955, ch 586 [Superintendent of Insurance]; L 1956, ch 118 [Superintendent of Banks]; L 1965, ch 790 [Commissioner of Motor Vehicles]; L 1968, ch 420 [Commissioner of Transportation]).[FN4]
In 1969, the legislature, at the prompting of the AG, amended Executive Law § 63(3) "to include the head of any department, authority, division or agency of the State among the officers of the State" who may make a referral to the AG (Memo of State Dept. of Law, 1969 McKinney's Session Laws of NY, at 2460). According to then-AG Louis J. Lefkowitz's Office,
"[w]hatever may have been the earlier reasons for limiting the [AG's] authority in such matters to offenses reported by the officers now named in the statute, experience in recent years has demonstrated the wisdom of expanding the [AG's] jurisdiction to include offenses called to [the AG's] attention by the head of any State department or agency. And by including all departments and agencies there will be no future need to amend the statute on a piece-meal basis to add other State agencies" (id.).
Neither the AG, nor the Judicial Conference of the State of New York (which was asked to comment on the amendment), nor the Division of Budget (which prepared a budget report relating to the amendment) indicated in their respective legislative memoranda that the result of the amendment would be to include the Unified Court System among the State entities that could make a referral (Memo of State Law Dept., Letter from State Judicial Conference, Budget Rpt on Bill, Bill Jacket, L 1969, ch 814). Thus, nothing in the legislative history of Executive Law § 63(3) supports the notion that the Unified Court System can make a referral (see generally People v Romero, 91 NY2d at 756-757]).
The purpose of the 1969 amendment, which is an important indicator of the legislature's intention in passing it (see McKinney's Cons Laws of NY, Book 1, Statutes § 96, at 202; People v Thomas, 33 NY3d 1, 5-6 [2019]; see also Riley v County of Broome, 95 NY2d at 463; McKinney's Cons Laws of NY, Book 1, Statutes § 191, at 353), was to provide every agency within the executive branch the ability to make a referral to the AG, not expand to the judiciary the ability to make such a referral. The history underlying Executive Law § 63(3), which is another important indicator of the legislature's intention in passing the 1969 amendment (see McKinney's Cons Laws of NY, Book 1, Statutes §§ 124, 191, at 251-255, 353; see also Consedine v Portville Cent. School Dist., 12 NY3d 286, 290-292 [2009]), reflects that the prerogative to make referrals was always enjoyed by [*10]entities within the executive branch, and the course of the legislation relating to that provision a series of amendments incrementally expanding those entities within the executive branch empowered to make referrals, culminating in the 1969 amendment demonstrates that the legislature did not intend to authorize the Unified Court System to make referrals (see McKinney's Cons Laws of NY, Book 1, Statutes § 124, at 255; see also People v Nuccio, 78 NY2d 102, 104-105 [1991]; Ferres v City of New Rochelle, 68 NY2d 446, 451-454 [1986]).
The rule of statutory construction ejusdem generis further buttresses the conclusion that the legislature did not intend to empower the Unified Court System to make a referral. Under that rule, a court should limit the meaning of general language of a statute by the specific phrases that preceded the general language, provided such a construction does not contradict the intention of the legislature (McKinney's Cons Laws of NY, Book 1, Statutes § 239[b], at 407; see People v Bartkow, 96 NY2d 770, 772 [2001]; Avella v City of New York, 131 AD3d 77, 85 [2015]). Thus, the meaning of general language may be ascertained by reference to the specific company it keeps (People v Illardo, 48 NY2d 408, 416 [1979]). "Where[, as here,] a statute enumerates several classes of things, and immediately following and classed with such enumeration the clause embraces 'other' persons or things, the word 'other' will generally be read as 'other such like,' so that persons or things therein comprised may be read as ejusdem generis with, and not of a quality superior to or different from, those specifically enumerated" (McKinney's Cons Laws of NY, Book 1, Statutes § 239[b], 409-410; People v Panitz, 251 AD 276, 278 [1st Dept 1937]). Because the specific agencies enumerated in Executive Law § 63(3) are all within the executive branch, it is reasonable to infer that the "the other department[s], authorit[ies], division[s] or agenc[ies]" must lie within that branch as well.
Accordingly, because the Unified Court System could not make the referral, the AG lacks the power to prosecute petitioner in the criminal proceeding, and we are, in light of the manner in which the parties have litigated this special proceeding, constrained to dismiss the indictment (see People v Gilmour at 132; People v Romero at 758; see also People v Cuttita at 507; People v Leahy, 72 NY2d 510 [1988]; cf. People v Codina, 297 AD2d 539 [1st Dept 2002]).
In light of our conclusion that the Unified Court System cannot make an Executive Law § 63(3) referral to the AG, we need not and do not pass on petitioner's contention that the referral was infirm because it did not come from "the head" of the Unified Court System.
The parties have not addressed whether any appropriate prosecuting authority could subsequently prosecute petitioner for the charged crimes (see generally People v Di Falco, 44 NY2d 482 [1978]; People v Fox, 253 AD2d 192 [3d Dept 1999], lv denied 93 [*11]NY2d 1018 [1999]). Accordingly, we take no position on that issue.
Accordingly, the petition pursuant to CPLR article 78 for a writ of prohibition should be granted to the extent that respondent Attorney General of the State of New York be prohibited from continuing to prosecute petitioner in the criminal proceeding entitled People v Makhani (N.Y. County Ind. No. 1420/21), respondent Hon. Diane Kiesel should be prohibited from continuing to exercise jurisdiction over that criminal proceeding, and the indictment is dismissed.
Finally, we note that Justice Kiesel has elected, pursuant to CPLR 7804 (i), not to appear in this proceeding.
Opinion by Higgitt, J. All concur.
Writ granted and indictment dismissed.
Renwick, J.P., Friedman, Singh, Shulman, Higgitt, JJ.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022
Footnotes
Footnote 1: Given that the legislature has "delineate[d] meticulously the prosecutorial power of the Attorney General" (People v Gilmour, 98 NY2d at 132; see People v Romero, 90 NY2d at 757-758), it strains credulity that the legislature would refer to the Unified Court System in an oblique manner if it intended to permit the judiciary to make referrals.
Footnote 2: The AG has identified no case, reported or otherwise, in which that Office has served as the prosecuting authority in a criminal proceeding based on a referral from the Unified Court System.
Footnote 3: In People v Gilmour, the Court of Appeals traced the origins of the AG's prosecutorial powers from colonial to modern times, and reviewed certain aspects of Executive Law § 63(3)'s legislative history (98 NY2d at 129-132).
Footnote 4: Executive Law § 63(3) was amended several times to reflect changes to the makeup and organization of the executive branch (e.g., elimination of Departments of Public Works, Insurance, and Banks, and creation of Department of Financial Services). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488655/ | MFP 933 Broadway LP v 933 Broadway, LLC (2022 NY Slip Op 06640)
MFP 933 Broadway LP v 933 Broadway, LLC
2022 NY Slip Op 06640
Decided on November 22, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
Before: Renwick, J.P., Manzanet-Daniels, Oing, Moulton, González, JJ.
Index No. 651879/20 Appeal No. 16719 Case No. 2021-03575
[*1]MFP 933 Broadway LP, Plaintiff-Appellant,
v933 Broadway, LLC, Defendant-Respondent, Old Republic National Title Insurance Company etc., Defendant.
Zuckerman Gore Brandeis & Crossman, LLP, New York (John K. Crossman of counsel), for appellant.
Wachtel Missry LLP, New York (Joseph Lee Matalon of counsel), for respondent.
Order, Supreme Court, New York County (Louis L. Nock, J.), entered on or about September 1, 2021, which denied plaintiff's motion for summary judgment and granted defendant 933 Broadway, LLC's motion for summary judgment dismissing the complaint and as to liability on its counterclaims, unanimously affirmed, without costs.
The motion court correctly construed General Construction Law §§ 19 and 20 to calculate two business days before the parties' scheduled closing of Monday, May 11, 2020 to be Thursday, May 7, 2020. Although plaintiff-purchaser maintains it was entitled to terminate the agreement based on defendant-seller's purported failure to deliver the tenant estoppel certificates by the deadline of two business days before the closing, that deadline had not yet expired when plaintiff sent its May 7, 2020 letter, delivered by email at 1:56 p.m., declaring the parties' agreement terminated and demanding the return of its deposit. Given defendant's right under section 7(a)(xv) of the agreement to extend the closing date to obtain the estoppel certificates, plaintiff's letter constituted a clear and unequivocal repudiation of its obligations under the agreement before the deadline for defendant's performance had passed (see e.g. Jacobs Private Equity, LLC v 450 Park LLC, 22 AD3d 347, 347 [1st Dept 2005] [a repudiation requires "a definite and final communication . . . of [an] intention to forgo . . . obligations" under the agreement], lv denied 6 NY3d 703 [2006]). Contrary to plaintiff's assertion, its unilateral attempt to terminate the agreement before the deadline for defendant to deliver the tenant estoppel certificates or seek an extension of time to do so constituted a repudiation, because "[a] party cannot prevent the fulfillment of a contractual condition and then argue failure of that condition as a defense to a claim that it breached the contract" (RSB Bedford Assoc., LLC v Ricky's Williamsburg, Inc., 91 AD3d 16, 23 [1st Dept 2011]).
As the motion court correctly determined, plaintiff's assertion that defendant could not deliver proper tenant estoppel certificates even if it exercised its right to extend the time to do so is unavailing. Under section 7(a)(xiv) of the agreement, the tenant estoppel certificates were required to disclose defendant's defaults but not the tenant's own. Alternatively, the tenants could use the form of estoppel certificate attached to their respective leases, which also did not require the tenants to disclose their own defaults. To the extent plaintiff maintains that whether a tenant was in default was information that could be "reasonably requested" under the tenants' leases, section 7(a)(xv) states that the tenants were not required to disclose "reasonably requested" information, even if their respective leases required it.
Although section 6(a)(ix) required defendant to warrant that there were no tenant defaults as of the agreement's effective date of March 11, 2020, plaintiff does not deny that a tenant's [*2]refusal to pay rent and another tenant's bankruptcy petition occurred in April and May 2020 respectively. Section 7(c)(iv) specifically enumerates the section 6(a)(ix) representation as subject to "seller's representations update," which permitted defendant to disclose, as of the closing date, "any changed facts or circumstances not within Seller's reasonable control, but subject to the other provisions of this Agreement," which would be "deemed modified and amended" under section 6(c) of the agreement.
We have considered plaintiff's remaining contentions and find them unavailing.THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488650/ | Matter of Tucker v City of New York (2022 NY Slip Op 06647)
Matter of Tucker v City of New York
2022 NY Slip Op 06647
Decided on November 22, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
Before: Gische, J.P., Kern, Gesmer, Scarpulla, Rodriguez, JJ.
Index No. 155933/22 Appeal No. 16509&M-3320 Case No. 2022-03313
[*1]In the Matter of Tamara Tucker et al., Petitioners-Respondents,
vThe City of New York et al., Respondents-Appellants. New York Civil Liberties Union Foundation, Amicus Curiae.
Sylvia O. Hinds-Radix, Corporation Counsel, New York (Richard Dearing of counsel), for appellants.
Advocates For Justice, New York (Arthur Z. Schwartz and Laura D. Barbieri of counsel), for respondents.
New York Civil Liberties Union Foundation, New York (Stephanie D. Coyle of counsel), for Amicus Curiae.
Judgment (denominated order), Supreme Court, New York County (Lyle E. Frank), entered August 5, 2022, which granted the petition brought pursuant to CPLR article 78, vacated so much of respondent The City of New York's budget for fiscal year 2023 as it relates to funding of The New York City Department of Education (DOE) and ordered spending levels to revert to prior levels pending a new vote on the fiscal year 2023 budget by the Mayor and the New York City Council, unanimously modified, on the law, to the extent of reinstating The City of New York's budget for fiscal year 2023 as it relates to funding the DOE and declaring that DOE's Violations of Education Law §§ 2590-g and 2590-q are unlawful and that, going forward, respondents are ordered to comply with these statutes, and otherwise affirmed, without costs.
This proceeding arises from the passage of the fiscal year 2023 (FY23) DOE budget through the City Council without prior approval of the Board of Education, known as the Panel for Education Policy (PEP), and before the DOE Chancellor provided estimated expenses of the school district to the Mayor. Petitioners-respondents successfully proved in the motion court their claim that respondents-appellants failed to comply with lawful procedures set out in Education Law §§ 2590-g and 2590-q (see CPLR 7803[3]). A plain reading of the statutes show that the PEP has a statutory duty to consider and approve the estimated budget before the Chancellor of the DOE provides it to the Mayor (Education Law §§ 2590-g[1], [7], [8], 2590-q[4]; see Matter of New York Pub. Interest Research Group Straphangers Campaign v Reuter, 293 AD2d 160, 164 [1st Dept 2002]). Read in conjunction with the City Charter, the law provides that the DOE's estimated budget should be incorporated into the Mayor's preliminary or executive budget (NYC Charter §§ 231, 236, 249). Indeed, the Assembly's memorandum in support of the 2009 Education Law amendments explains that "[t]he items that require a Board of Education vote prior to implementation are significantly expanded to include . . . the school district budget and capital plan," while "[a] new extensive public review process is created to provide information and require a Board of Education response to public comments prior to the adoption of major proposals including . . . budget" (Assembly Mem in Support of A08903A [2009]). These statutes are clearly intended to provide the public a thorough review process, with maximum community involvement and transparency, before the allocation of education dollars in the City of New York's budget. Thus, the DOE must comply with the procedural requirements set out in the statutes (see e.g. Williamsburg Around the Bridge Block Assn. v Giuliani, 223 AD2d 64, 74 [1st Dept 1996]). In implementing the FY23 budget before the PEP held its hearing, took comments from community members and voted on the estimated budget, respondents failed to follow lawful procedure.
We reject the DOE's contention [*2]that the Chancellor's emergency declaration was a valid exercise of his emergency authority (see Education Law § 2590-g[9]). The admission that virtually identical declarations have been used in at least 11 of the past 13 years supports the conclusion that the DOE is simply avoiding its statutory obligations (cf. Matter of Board of Visitors-Marcy Psychiatric Ctr. v Coughlin, 60 NY2d 14, 19-20 [1983] [upholding one-time emergency declaration that psychiatric facility be converted into correctional facility]).
Contrary to respondents-appellants' contention, this matter is justiciable because petitioners-respondents do not seek intervention in the budget process that would require substitution of the court's judgment "on matters of discretion" (Matter of Korn v Gulotta, 72 NY2d 363, 369 [1988]). Laches also does not bar this proceeding, as petitioners-respondents brought it well within the four-month limitations period and otherwise did not inordinately delay its commencement (see CPLR 217[1]; cf. Matter of Schultz v State of New York, 81 NY2d 336, 348-350 [1993] [11-month delay]). Nor do we find that petitioners lack standing, as "the interest or injury asserted fall[s] within the zone of interests protected by the statute invoked" (Society of Plastics Indus. v County of Suffolk, 77 NY2d 761, 773 [1991]).
Nevertheless, Supreme Court erred in ordering that spending levels revert to prior levels pending a new vote on the FY23 budget by the New York City Council. It is settled that "courts should not act so as to cause disorder and confusion in public affairs even though there may be a strict legal right" (Matter of King v Cuomo, 81 NY2d 247, 256-257 [1993][internal quotation marks omitted]). While respondents have violated Education Law §§ 2590-g and 2590-q, to require a new vote on the FY23 budget at this point would "have a broad unsettling effect" on the DOE's operations and be detrimental to students and teachers alike (King, 81 NY2d at 256 [internal quotation marks omitted]). We also note that PEP ultimately voted in favor of approving the FY23 budget, even though that vote was taken after the FY23 budget had already been approved by the New York City Council.
Under these circumstances, prospective relief is proper here (see King, 81 NY2d at 256-257; Nichols v Hochul, 206 AD3d 463 [1st Dept 2022]). Accordingly, we declare that the DOE's violations of Education Law §§ 2590-g and 2590-q are unlawful and that, going forward, respondents are ordered to comply with these statutes.M-3320 — In the Matter of Tamara Tucker et al. v The City of New York
et al.
Motion for leave to file an amicus curiae brief, granted.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488675/ | Lanzetta v Montefiore Med. Ctr. (2022 NY Slip Op 06554)
Lanzetta v Montefiore Med. Ctr.
2022 NY Slip Op 06554
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 27712/19E Appeal No. 16701-,16701A-,16701B Case No. 2021-01401, 2021-03674
[*1]Joseph Lanzetta, as Executor of the Estate of Pasquale Lanzetta, Deceased, Plaintiff-Appellant,
vMontefiore Medical Center et al., Defendants-Respondents.
Lazar Grunsfeld Elnadav, LLP, Brooklyn (Gerald Grunsfeld of counsel), for appellant.
Wilson Elser Moskowitz Edelman & Dicker LLP, New York (Judy C. Selmeci of counsel), for Montefiore Medical Center and Robert Potenza, M.D., respondents.
Garson & Jakub LLP, New York (Andrew Harrison of counsel), for Howard Hochster, M.D., respondent.
Order, Supreme Court, Bronx County (John R. Higgitt, J.), entered on or about March 17, 2021, which granted defendant Howard Hochster, M.D.'s motion for summary judgment dismissing the complaint and cross claims as against him, unanimously reversed, on the law, without costs, and the motion denied.
Judgment, Supreme Court, Bronx County (Doris M. Gonzalez, J.) entered September 1, 2021, granting codefendants Montefiore Medical Center (Montefiore) and Robert Potenza, M.D.'s motion for summary judgment dismissing the complaint and cross claims as against them, unanimously reversed, on the law, without costs, the judgment vacated, and the complaint reinstated as to these defendants. Appeal from order, same court and Justice, entered July 22, 2021, unanimously dismissed, without costs, as subsumed in the appeal from the judgment.
For the reasons set forth in Greenberg v Montefiore New Rochelle Hosp. (205 AD3d 47 [1st Dept 2022]), plaintiff has a cognizable claim to pursue a medical malpractice action against these defendants for pain and suffering of the decedent on the theory that their failure to follow decedent's directives in his living will and health care proxy was a departure from the standard of care, and a proximate cause of his pain and suffering.
In December 1993, decedent Pasquale Lanzetta signed a health care proxy, which appointed his wife as his health care agent, and his son, plaintiff executor Joseph Lanzetta, as an alternate. The health care proxy directed his agents to adhere to his wishes as set forth in the attached living will. In the event decedent became terminally ill, the living will directed the attending physician to withhold or withdraw treatment that serves only to prolong death; limited treatment to pain relief and other measures to maintain comfort; and declined cardiac resuscitation, mechanical respiration, antibiotics, and feeding tubes for nutrition or hydration. The living will authorized the agents listed in the health care proxy to make decisions on decedent's behalf. In July 2016, decedent sought treatment at Montefiore and completed a new healthcare proxy appointing his daughter as his health care agent, and his son as an alternate. That health care proxy directed the agent to "use any means necessary to save [his] life".
On April 7, 2017, after decedent was at Montefiore for another 20 days for treatment of another medical incident, decedent's son and attending physician defendant Dr. Hochster completed and signed a "Forgoing Life-Sustaining Treatment Including DNR" ("FLST") form. The form advised medical staff of decedent's wishes to not be resuscitated or intubated. Allegedly plaintiff was told by the defendants that decedent's condition was terminal on April 15, 2017. Decedent received medical treatment until he died on May 6, 2017.
Plaintiff commenced an action against defendants alleging medical malpractice based on the various health proxies and forms. Plaintiff claims that defendants breached their [*2]agreement with the decedent by administering antibiotics and IV Hydration from April 15, 2017 onwards that prolonged his life.
Here, there are issues of fact that preclude summary judgment. It is unclear whether the 1993 healthcare proxy (and the living will), the 2016 healthcare proxy or the 2017 FLST governed this dispute and whether the 2016 health care proxy was revoked by decedent through conversations with his agents, pursuant to Public Health Law § 2985(a). Significantly, it is not clear from the record whether the treatment prolonged decedent's life, as neither side submits an expert affidavit. There is also a question as to whether decedent's health care agents approved the very treatment for which they now seek to hold defendants liable.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488662/ | Rivera v City of New York (2022 NY Slip Op 06566)
Rivera v City of New York
2022 NY Slip Op 06566
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 160599/18 Appeal No. 16697 Case No. 2021-01830
[*1]Carmen Rivera, Plaintiff-Appellant,
vCity of New York, Defendant, Acacia Gardens Housing Development Fund Company Inc. et al., Defendants-Respondents.
Parker Waichman LLP, Port Washington (Jay L.T. Breakstone of counsel), for appellant.
Winget, Spadafora & Schwartzberg, LLP, New York (Kenneth A. McLellan of counsel), for Lettire Construction Corp., respondent.
Order, Supreme Court, New York County (Lyle E. Frank, J.), entered May 18, 2021, which, to the extent appealed from, granted defendant Acacia Gardens Housing Development Fund Company, Inc.'s motion for summary judgment dismissing the complaint as against it and searched the record to grant defendant Lettire Construction Corp. summary judgment dismissing the complaint as against it, unanimously affirmed, without costs.
In this action to recover damages for an injury resulting from a trip and fall that allegedly occurred on October 18, 2017, at approximately 9:30 p.m., on the "roadway" "in front of 413 East 120th Street," in Manhattan, plaintiff testified during her General Municipal Law § 50-h hearing that prior to stepping up onto the sidewalk, her leg twisted. After the incident, she looked down and observed a "dent" on the street, which she described as "not level."
The court correctly found that Acacia established prima facie entitlement to summary judgment based on plaintiff's 50-h testimony, as well as the affidavit of its senior project manager, which indicated that it had contracted with Lettire to construct an apartment building at its property located at 409 East 120th Street, which shared a common property line with 413 East 120th Street. At no time did Acacia create or cause to be created a temporary sidewalk at or near the subject premises or perform or cause to be performed any work in the roadway where plaintiff alleged that her accident occurred (see Johnson v City of New York, 106 AD3d 664, 664-665 [1st Dept 2013]). Defendants Promesa Inc., individually and doing business as Acacia Network and East Harlem Counsel for Community Improvements, Inc. joined in Acacia's arguments and moved for summary judgment dismissing the complaint as against them; plaintiff did not oppose their motion.
Plaintiff failed to raise a triable issue of fact in opposition. Plaintiff's argument as to any alleged special use of the subject roadway is based on speculation and conjecture, which is insufficient to defeat summary judgment (Smith v Johnson Prods. Co., 95 AD2d 675, 676, 676 [1st Dept 1983]). Plaintiff's argument that the motion is premature as depositions have not been held, without more, is unavailing. Plaintiff failed to demonstrate that facts essential to justify opposition to the motion may lie within the movants' exclusive knowledge or control (see Barreto v City of New York, 194 AD3d 563, 563-564 [1st Dept 2021]). The court was further empowered to search the record and grant summary relief to Lettire (CPLR 3212[b]).
We have considered plaintiff's remaining arguments and find them unavailing.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488649/ | Pala Assets Holding Ltd. v Rolta, LLC (2022 NY Slip Op 06642)
Pala Assets Holding Ltd. v Rolta, LLC
2022 NY Slip Op 06642
Decided on November 22, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Index No. 652798/18 Appeal No. 16684 Case No. 2022-01578
[*1]Pala Assets Holding Ltd., et al., Plaintiffs-Respondents,
vRolta, LLC, et al., Defendants, Rolta India Ltd., et al., Defendants-Appellants.
Thompson Hine, New York (Emily J. Mathieu of counsel) and Thompson Hine LLP, Atlanta, GA (John C. Allerding, of the bar of the State of Georgia and the State of Ohio, admitted pro hac vice, of counsel) for appellants.
Kobre & Kim, LLP, New York (Leif T. Simonson of counsel), for respondents.
Order, Supreme Court, New York County (Andrea Masley, J.), entered on or about March 25, 2022, which, to the extent appealed from, granted plaintiffs' motion for discovery and production of all communications between defendants Rolta India Ltd., Rolta U.K. Ltd., Rolta Middle East FZ-LLC, and Rolta Global BV and their various legal counsel from May 2016 to the date of the order, as well as all Rolta-related emails sent or received by the CEO of the corporate parent in the same time frame, including personal emails and messages of the CEO on his various electronic accounts, unanimously modified, on the law and the facts, to begin the production period's commencement date to June 7, 2018, limit the scope of the emails to be produced to issues relating to post-judgment enforcement, and otherwise affirmed, without costs.
Deposition testimony by the CEO and Chairman of defendants' corporate parent, Rolta India, waived defendants' attorney-client privilege as to communications had with various counsel representing them in New York courts and in India. The CEO's testimony that defendants did not comply with post-judgment orders calling for a turnover of assets to a receiver because the turnover and receivership orders had yet to be domesticated in India in accordance with Indian law affirmatively placed the subject matter of their privileged communications in litigation (see generally U.S. Bank N.A. v Lightstone Holdings LLC, 196 AD3d 445, 447 [1st Dept 2021], lv denied 38 NY3d 913 [2022]; Metropolitan Bridge & Scaffolds Corp. v New York City Hous. Auth., 168 AD3d 569, 571-572 [1st Dept 2019]). The CEO testified, among other things, that defendants' counsel in India advised noncompliance with the post-judgment orders pending domestication of such orders in India, and that defendants' U.S. counsel would yield to the advice of its Indian counsel on the matter. Thus, invasion of the privilege was required for plaintiffs to adequately contest the validity of defendants' defense in failing to comply with the turnover and receivership orders (see generally Lightstone Holdings LLC, 196 AD3d at 447), particularly inasmuch as contempt proceedings had already been brought against the president of Rolta India's primary subsidiary, and additional contempt proceedings were in the process of being commenced against other principals.
Insofar as defendants argue that the CEO only testified on behalf of Rolta India, and that any purported waiver of privileged communications had to be restricted to communications between Rolta India and its counsel, and not to any attorney communications had by the other defendants, the argument is unavailing. In the context of disclosure, a showing of common interest between parties, as might hold various parties mutually bound to the requirements of a disclosure order, may be evidenced by dual representation or a shared defense or strategy between defendants, notwithstanding that the parties might be separately represented (see American [*2]Re-Insurance Co. v United States Fid. & Guar. Co., 40 AD3d 486, 491 [1st Dept 2007]). Here, there is both dual representation and evidence of a defense strategy shared by defendants.
In addition, the record reflected that the CEO was the founder and decision maker for the Rolta entities, that the CEO transferred monies through his privately owned companies to financially assist Rolta India, and that not only were defendants engaged in obstructive measures to deflect collection efforts on the judgments, but also the evidence suggested that assets were being stripped from defendants. Therefore, the court providently exercised its discretion in ordering the CEO to disclose Rolta related communications he had in his corporate email account, private Gmail account, and other electronic accounts identified by the court (see generally CPLR 5223; U.S. Bank N.A. v APP Intl. Fin. Co., B.V., 100 AD3d 179, 183 [1st Dept 2012]).
Nevertheless, the time frame and general subject matter of the ordered disclosure — all Rolta-related communications, regardless of subject matter, predating the entry of judgment by more than four years —was impermissibly overbroad. The production period should instead commence from the action's filing date, by summons, of June 7, 2018 and end on the court's order date of March 25, 2022. Further, the communications
that defendants must produce should be limited to those connected to, or reflecting the issues raised, in the post-judgment enforcement proceeding.
We have considered defendants' remaining arguments and find them unavailing.THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488661/ | Stewart v Petrolite Inc. (2022 NY Slip Op 06568)
Stewart v Petrolite Inc.
2022 NY Slip Op 06568
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, JJ.
Index No. 36402/17E Appeal No. 16686 Case No. 2022-00508
[*1]Jennifer Stewart, Plaintiff-Respondent,
vPetrolite Incorporated et al., Defendants-Appellants.
Mark A. Bonilla, Bellmore, for appellants.
The Licatesi Law Group, LLP, Uniondale (Michael Licatesi of counsel), for respondent.
Order, Supreme Court, Bronx County (Doris M. Gonzalez, J.), entered on or about September 10, 2021, which denied defendant Petrolite Incorporated's motion to vacate a prior order, same court (John R. Higgitt, J.), entered on or about November 22, 2019, striking its answer pursuant to 22 NYCRR 202.27, unanimously affirmed, with costs.
The motion court providently exercised its discretion in denying the motion of defendant Petrolite Incorporated (Petrolite) to vacate its default, as it failed to demonstrate a reasonable excuse (see LePatner & Assoc., LLP v Horowitz, 81 AD3d 472 [1st Dept 2011]). Counsel was still representing Petrolite when he failed to appear at two preliminary conferences on its behalf, and he was aware of his obligation to do so. A claim of law office failure should be rejected where "the record shows that defense counsel was fully aware of his obligations and intentionally and repeatedly failed to attend to them" (Imovegreen, LLC v Frantic, LLC, 139 AD3d 539 [1st Dept 2016]; see also Agosto v Western Beef Retail, Inc., 175 AD3d 1192, 1192 [1st Dept 2019]).
Moreover, Petrolite's new counsel failed to explain the reason for its delay in bringing this motion, nearly 18 months after the default order was entered (see Agosto, 175 AD3d 1192; see also Youni Gems Corp. v Bassco Creations Inc., 70 AD3d 454 [1st Dept 2010]). In light of Petrolite's failure to provide a reasonable excuse, it is unnecessary to address whether it had a meritorious defense (see Gonzalez v Praise the Lord Dental, 79 AD3d 550 [1st Dept 2010]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488666/ | People v Dilligard (2022 NY Slip Op 06564)
People v Dilligard
2022 NY Slip Op 06564
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Ind. No. 3755/16 Appeal No. 16702 Case No. 2019-2566
[*1]The People of the State of New York, Respondent,
vShamon Dilligard, Defendant-Appellant.
Justine M. Luongo, The Legal Aid Society, New York (Susan Epstein of counsel), for appellant.
Darcel D. Clark, District Attorney, Bronx (T. Charles Won of counsel), for respondent.
Judgment, Supreme Court, Bronx County (Miriam R. Best, J. at motions; Robert E. Torres, J. at plea; Marsha Michael, J., at sentencing), rendered February 6, 2019, convicting defendant of manslaughter in the first degree, and sentencing him to a term of 19 years, unanimously affirmed.
Assuming without deciding that the waiver of the right to appeal was invalid, defendant forfeited review of his request for a Wade hearing by pleading guilty prior to any final suppression ruling (see People v Fernandez, 67 NY2d 686, 688 [1986]). In determining defendant's motion, the court granted a Rodriguez hearing regarding the extent of a witness's familiarity with defendant, to be followed by a Wade hearing in the event the People failed to establish the requisite familiarity. By its express terms, this order did not constitute "[a]n order finally denying a motion to suppress evidence" (CPL 710.70[2]; see People v Wilson, 167 AD3d 478, 478-479 [1st Dept 2018], lv denied 33 NY3d 955 [2019]). Defendant then chose to plead guilty rather than proceeding to any hearing.
We perceive no basis for reducing the sentence.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488656/ | Hudson Spring Partners, L.P. v P & M Design Consultants, Inc. (2022 NY Slip Op 06637)
Hudson Spring Partners, L.P. v P & M Design Consultants, Inc.
2022 NY Slip Op 06637
Decided on November 22, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
Before: Renwick, J.P., Manzanet-Daniels, Oing, Moulton, González, JJ.
Index No. 652648/21 Appeal No. 16716 Case No. 2022-00118
[*1]Hudson Spring Partners, L.P., Plaintiff-Respondent,
vP & M Design Consultants, Inc., et al., Defendants-Appellants.
Law Offices of Edward Weissman, New York (Edward Weissman of counsel), for appellants.
Law Office of Allan J. Berlowitz, New York (Joshua E. Fingold of counsel), for respondent.
Order, Supreme Court, New York County (Laurence Love, J.), entered October 22, 2021, which denied defendants' motions to dismiss the complaint, unanimously affirmed, with costs.
The complaint states a cause of action for liability against defendants Richard Poulin and Douglas Morris (together, the individual defendants) as alter egos of P+M Design Consultants, Inc., since a prior action has a res judicata effect on their alter ego liability in this action. In an earlier related action for unpaid rent, which resulted in the judgments underlying this action, this Court found that the complaint stated sufficient facts showing that defendant Poulin + Morris, Inc. and the individual defendants, who were the sole shareholders of Poulin + Morris, exercised complete dominion and control over P+M Design Consultants and used that control to perpetrate a fraud against plaintiff, thus abusing the privilege of doing business in the corporate form (Hudson-Spring Partnership, L.P. v P+M Design Consultants, Inc., 112 AD3d 419, 420 [1st Dept 2013]; see also Fern, Inc. v Adjmi, 197 AD2d 444, 445 [1st Dept 1993]). As a result, we found that plaintiff had stated a sufficient basis for piercing the corporate veil and imposing liability on Poulin + Morris and the individual defendants (Hudson-Spring Partnership, L.P., 112 AD3d at 420).
Given that P+M Design Consultants and Poulin + Morris, of which the individual defendants are the sole shareholders, were parties to that action, the doctrine of res judicata applies to compel a finding that plaintiff states a sufficient basis for piercing the corporate veil in this action; there is no one else who would have controlled the prior action on those companies' behalf (Buechel v Bain, 97 NY2d 295, 308 [2001], cert denied 535 US 1096 [2002]; Avilon Auto. Group v Leontiev, 168 AD3d 78, 85 [1st Dept 2019]). Further, the same law firm representing the defendants in this action also represented them in the prior lawsuit, further militating in favor of applying res judicata (see Watts v Swiss Bank Corp., 27 NY2d 270, 278 [1970]).
The complaint also states causes of action against Poulin + Morris for violations of former Debtor and Creditor Law §§ 273, 273-a, 274, and 276 (see Miller v Doniger, 28 AD3d 405, 405 [1st Dept 2006]). First, we note that only Debtor and Creditor Law § 276, which addresses actual fraud, is subject to the pleading requirements of CPLR 3016(b) (see e.g. Carlyle, LLC v Quik Park 1633 Garage LLC, 160 AD3d 476, 477 [1st Dept 2018]). The other relevant Debtor and Creditor Law sections, which address constructive fraud, are not subject to those requirements (see Gateway I Group, Inc. v Park Ave. Physicians, P.C., 62 AD3d 141, 149-150 [2d Dept 2009]).
As to former Debtor and Creditor Law § 273, the complaint sufficiently states a cause of action by alleging that Poulin + Morris is insolvent by reason of fraudulent conveyances, and that as of April 5, 2018, the company had only $721.29 in its bank account yet [*2]also has judgments totaling more than $500,000 against it. Thus, the complaint states not only that Poulin + Morris's insolvency arose through fraudulent conveyances, but that the fair salable value of Poulin + Morris's assets is less than the amount that will be required to pay its probable liabilities (see Debtor and Creditor Law § 271 [former (1)]); (Matter of Wimbledon Fin. Master Fund, Ltd. v Wimbledon Fund, SPC, 162 AD3d 433, 434 [1st Dept 2018]).
With respect to former Debtor and Creditor Law § 273-a, the complaint states a claim under that section by alleging that while Poulin + Morris was a defendant in an action for money damages, it made conveyances without fair consideration and that it has not satisfied the judgment in that action. For example, the complaint alleges that the individual defendants paid themselves "inflated" salaries in 2017, suggesting that Poulin + Morris did not receive a fair equivalent value (see Debtor and Creditor Law § 272 [former (a)]) for the salaries it paid the individual defendants. Similarly, the complaint alleges that Poulin + Morris made salary payments to the principals of the company even though the company was no longer operating.
Insofar as former Debtor and Creditor Law § 274 is concerned, plaintiff states a claim by alleging that the conveyances left Poulin + Morris with unreasonably small capital, and also alleges, more specifically, that the balance in Poulin + Morris' bank account decreased from $548,240.95 in September 2017 (four months before the trial in the prior action) to $721.29 in April 2018 (after the trial). These allegations are sufficient to allow the cause of action to withstand a motion to dismiss, and defendants' assertions that the amount in Poulin + Morris's bank account was not unreasonably small because the company ceased operations in 2017 will have to be addressed in discovery (see Cortlandt St. Recovery Corp. v Bonderman, 31 NY3d 30, 38 [2018]).
With respect to former Debtor and Creditor Law § 276, sufficient "badges of fraud" (Boyd v 254 PAS Prop. LLC, 185 AD3d 428, 429 [1st Dept 2020]) are present, such as a close relationship between Poulin + Morris (the transferor) and the individual defendants (the transferees), as well as the transferees' awareness of plaintiff's claim. Moreover, plaintiff's allegation that the individual defendants "took excessive distributions" implies that the distributions were not in the usual course of business. The complaint also includes the dates and amounts of the transfers, and therefore satisfies the requirements of CPLR 3016(b) (see e.g. Sargiss v Magarelli, 12 NY3d 527, 530-531 [2009]).
Finally, the complaint states a claim that the individual defendants aided and abetted Poulin + Morris' fraudulent conveyances by alleging a violation of the Debtor and Creditor Law — namely, the allegedly fraudulent conveyances — by Poulin + Morris; the individual defendants' knowledge that Poulin + Morris's conveyances were wrongful; and the individual [*3]defendants' misuse of corporate funds — for example, using the funds to make excessive contributions to their retirement accounts(see Chemtex,
LLC v St. Anthony Enters., Inc., 490 F Supp 2d 536, 546 [SD NY 2007] [analyzing New
York State DCL]).THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488657/ | Fuentes v YJL Broadway Hotel, LLC (2022 NY Slip Op 06636)
Fuentes v YJL Broadway Hotel, LLC
2022 NY Slip Op 06636
Decided on November 22, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 22, 2022
Before: Renwick, J.P., Manzanet-Daniels, Oing, Moulton, González, JJ.
Index No. 160915/17 Appeal No. 16708 Case No. 2022-01882
[*1]Santos S. Sanchez Fuentes, Plaintiff-Appellant,
vYJL Broadway Hotel, LLC, et al., Defendants-Respondents.
YJL Broadway Hotel, LLC, et al., Third-Party Plaintiffs,
vBMNY Contracting Corp., Third-Party Respondent-Respondent.
William Schwitzer & Associates, P.C., New York (Christopher W. Drake of counsel), for appellant.
Gallo Vitucci Klar LLP, New York (C. Briggs Johnson of counsel), for YJL Broadway Hotel, LLC, LG Broadway Management, Inc., and Flintlock Construction Services, LLC, respondents.
Gorton & Gorton, LLP, Garden City (John T. Gorton of counsel), for BMNY Contracting Corp., respondent.
Order, Supreme Court, New York County (Lewis J. Lubell, J.), entered November 30, 2021, which denied plaintiff's motion for summary judgment on liability on his Labor Law § 240(1) claim, unanimously reversed, on the law, without costs, and the motion granted.
Plaintiff's testimony that a beam fell on him as he was securing a scaffold on which his coworker was standing to strip concrete formwork beams from the ceiling, along with the unrebutted affidavit of his expert concluding that the beam was not properly secured, established his entitlement to summary judgment on liability on the Labor Law § 240(1) claim (see Diaz v Raveh Realty LLC, 182 AD3d 515, 516 [1st Dept 2020]). That plaintiff was unable to explain how the beam fell did not preclude summary judgment in his favor (see Viruet v Purvis Holdings LLC, 198 AD3d 587, 587 [1st Dept 2021]; Pados v City of New York, 192 AD3d 596, 596 [1st Dept 2021]).
We have considered defendants and third-party defendant's remaining contentions and find them unavailing.THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488804/ | NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except
in the limited circumstances allowed under Rule 23(e)(1).
2022 IL App (3d) 210259-U
Order filed November 22, 2022
____________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
THIRD DISTRICT
2022
PARA DYNAMIC ENTERPRISES, LLC, ) Appeal from the Circuit Court
as assignee of Purple Shovel, LLC, ) of the 12th Judicial Circuit,
) Will County, Illinois
Plaintiff-Appellant, )
)
v. )
)
COLLEEN LAMB-FERRARA, as )
Administrator of the Estate of Matthew J. ) Appeal No. 3-21-0259
Lamb, deceased, ) Circuit No. 20-CH-502
)
Defendant-Appellee, )
)
and )
)
MATT LAMB STUDIOS, LLC, ) Honorable
) John C. Anderson,
Defendant. ) Judge, Presiding
____________________________________________________________________________
PRESIDING JUSTICE O’BRIEN delivered the judgment of the court.
Justices Daugherity and Hauptman concurred in the judgment.
____________________________________________________________________________
ORDER
¶1 Held: Trial court erred in granting summary judgment where a genuine issue of material
fact exists as to whether the court should pierce the corporate veil.
¶2 Plaintiff Para Dynamic Enterprises, LLC, and defendant Colleen Lamb-Ferrara, as
administrator of the Estate of Matthew J. Lamb, deceased, filed cross-motions for summary
judgment in Para Dynamic’s action to pierce the corporate veil of Matt Lamb Studios, LLC and
reach the assets in Lamb’s estate. The trial court denied Para Dynamic’s summary judgment
motion and granted the Estate’s summary judgment motion. Para Dynamic appealed. We reverse
and remand.
¶3 I. BACKGROUND
¶4 Matt Lamb Studios, LLC (Studios) was incorporated on September 26, 2007. An amended
operating agreement was executed in January 2009 providing for two member classes: A and B.
Class A members were Sheila Lamb Gabler and David Sabin, who were designated the managers
of Studios and in charge of operations. The Class B member was Matt Lamb, Ltd., which was to
contribute assets in the form of pieces of Matt Lamb’s artwork. Matt Lamb was a renowned artist
who showed his artwork around the world. Gabler and Colleen Lamb-Ferrara were his daughters.
Lamb died on February 18, 2012, and an estate was opened and remained pending in Florida.
Lamb-Ferrara was designated the estate’s personal representative after Gabler was removed as
executor.
¶5 On July 31, 2012, Studios entered into a contract with Purple Shovel, LLC, a logistics
services company, to transport, secure and store Lamb’s artwork. Gabler executed the contract.
Studios did not pay for the services rendered by Purple Shovel. Purple Shovel assigned its rights
to Studios’ receivables to Para Dynamic in December 2017. It also assigned any interest, title or
right to Lamb’s artwork that Purple Shovel held as collateral, of which Para Dynamic took control
in January 2018. Para Dynamic filed a complaint in February 2019 against Studios and obtained a
$1,178,003.31 judgment by default in September 2019.
2
¶6 Para Dynamic filed a citation to discover assets against Studios, which Studios did not
answer. A citation examination deposition took place with Gabler in December 2019. She testified
that she was Lamb’s daughter and the sole owner of Studios. Studios was a “shell company” set
up during Lamb’s lifetime “just in case.” Gabler explained that no one used Studios; it was an
“empty company” with “no reason for it.” She was the company’s registered agent “to hold it.”
Studios currently had no assets, never had any assets, and never generated any revenue. Gabler
denied that Studios owned any of the trademarks identified as purportedly owned by Studios. To
her recollection, there were no managers or members of Studios. Documents provided by the
Secretary of State’s office listed her as the manager and she agreed she was the manager. The
documents also indicated Studios was not in good standing as of September 1, 2019, and Gabler
did not know if it was in good standing prior to that date. Gabler did not know she was listed as a
contact on the MattLamb.com website.
¶7 Gabler and Lamb operated Studios together during his lifetime. They handled the tax
returns together and she managed them after his death. She continued to manage Studios after
Lamb died. Lamb had contracted with Purple Shovel before he died to transport his artwork from
Spain to Ireland but the art was stolen in transit. She did not know if Lamb had negotiated with
Purple Shovel for himself or on behalf of Studios. She did not know if Lamb, and subsequently
the Estate, owned Lamb’s artwork. Gabler was the initial executor of Lamb’s estate prior to being
removed. At that time, the estate owned more than 5000 pieces of artwork.
¶8 Para Dynamic recorded the $1,178,003.31 judgment against Studios on February 20, 2020.
Para Dynamic then filed the instant action the same month, seeking to pierce the corporate veil
and satisfy the judgment against Studios from the assets of the Estate. In the complaint, Para
Dynamic alleged, in part, that “Following Matt Lamb’s death *** Studios contracted with Purple
3
Shovel.” The complaint further alleged that Gabler and Lamb managed Studios. The Estate
answered the complaint and attached a copy of the contract between Gabler and Purple Shovel
indicating a $45,750 fee for Purple Shovel’s services with 18% interest per year on unpaid
balances. Studios was involuntarily dissolved on March 13, 2020. In July 2020, the trial court
entered a default judgment against Studios.
¶9 Para Dynamic and the Estate both moved for summary judgment in March 2021. In its
summary judgment motion, Para Dynamic argued that the Estate was the sole beneficiary of
Studios’s operation and Studios’s entire business was to transport and store Lamb’s artwork, which
became assets of the Estate, which became the sole beneficiary of Studios’s actions. Para Dynamic
argued these facts established Lamb’s equitable ownership in Studios. In support of its motion,
Para Dynamic attached the transcripts from Gabler’s deposition.
¶ 10 In its summary judgment motion, the Estate argued that the contract with Purple Shovel
was executed after Lamb’s death, Lamb was not a member or owner of Studios and was not an
alter ego of Studios. Attached to the Estate’s summary judgment motion was a list of pieces of
artwork and the rights to them that Matt Lamb, Ltd. was to contribute to Studios as an initial capital
contribution per the amended operating agreement. Also attached to the Estate’s summary
judgment motion was an affidavit from David Para, the sole and managing member of Para
Dynamic, which held a 47% interest in Purple Shovel. The affidavit, dated October 4, 2018, was
submitted in the federal case Para Dynamic initially filed against Gabler and Studios, which was
dismissed for lack of jurisdiction. Para Dynamic Enterprises, LLC v. Gabler, No. 18-CV-04579
(N.D. IL 2018). In the affidavit, Para attested that it was after Lamb’s death that Gabler and Purple
Shovel executed the contract for Purple Shovel to secure and transport Lamb’s artwork to several
exhibitions held to honor his legacy. Para further attested that the negotiations began around Spring
4
2012 and the communications were mainly with Gabler and Jonathan Daudell, whom Para
described as the executive director of Studios.
¶ 11 The Estate responded to Para Dynamic’s summary judgment motion, arguing that Studios
was formed in 2007 to market and sell artwork, enter into licensing agreements, and use the
intellectual property rights associated with the artwork, and was not an alter ego of Lamb or the
Estate. Para Dynamic responded to Gabler’s summary judgment motion, arguing that Gabler said
Lamb contacted Purple Shovel; Studios was formed as a shell company with equitable ownership
held for Lamb and subsequently, the Estate; Studios failed to observe corporate formalities; and
Studios was inadequately capitalized.
¶ 12 Both parties submitted statements of material facts. Para Dynamic’s statement provided, in
part, that Gabler and Lamb operated Studios; that Studios had no assets or revenue and was a shell
company; that Lamb owned his artwork; that Lamb contracted with Purple Shovel to transport
paintings from Spain to Ireland; and that the Estate owned the artwork after Lamb’s death.
Attached to Para Dynamic’s statement of facts was a second affidavit of Para, dated April 17,
2021. In that affidavit, Para attested that he was not involved in the contract negotiations between
Purple Shovel and Studios. He recanted his earlier statement that the contract was executed after
Lamb’s death, a fact he said he had surmised but did not know. He changed his statement after
hearing Gabler’s answers in the citation deposition and deferred to her testimony that Lamb was
involved in the contract negotiations. He references a third affidavit, dated September 5, 2019,
which he submitted in the breach of contract action as a prove-up for damages. In that affidavit,
Para attested that Purple Shovel was engaged by Studios after Lamb’s death. Attached to the
Estate’s statement of material facts was Studios’s 2009 amended operating agreement. Attached
to the agreement was a schedule listing Lamb’s paintings meant to capitalize Studios, a
5
compensation schedule for Sabin and Gabler indicating Gabler was to receive $160,000 plus
expenses annually, and spousal consents.
¶ 13 The Estate’s statement of material facts provided, in part, that Studios was incorporated in
2007; its members entered into an operating agreement; Studios had Class A and Class B members;
the Class A members were Gabler and Sabin, who were managers of Studios; Matt Lamb, Ltd.
was the Class B member and contributed collateral; Lamb did not operate and was not involved in
Studios and he was not an owner or member of Studios. Attached to the statement of material facts
was Para Dynamic’s proof of claim in the bankruptcy action and attached to the proof of claim
was the July 2012 email correspondence between Purple Shovel and Gabler setting forth the terms
of the contract. The contractual provisions provided, in part, that Purple Shovel was to move 500
paintings from storage in Spain to the United Kingdom, where some artwork would be stored and
other pieces would be shipped to Dubai. The contract requested staff persons from Studios assist
in the packing and documentation process in Spain. Another provision stated that Gabler warranted
the paintings belonged to her or Studios. Finally, the contract indicated Gabler obtained transit
insurance in the amount of $250,000.
¶ 14 Purple Shovel’s invoice to Studios was also attached to the proof of claim. It indicated that
the initial billing was dated June 22, 2012, in the amount of $219,130, and referenced a number of
job and/or invoice numbers. Although the contract specified transport of Lamb’s artwork from
Spain to England. Gabler stated in her deposition that Purple Shovel provided transport of artwork
from Spain to Ireland. Para attested to several transports provided by Purple Shovel, including
artwork moved from Wisconsin to Dubai.
¶ 15 A hearing took place on the cross-motions for summary judgment. Following the hearing,
the court noted that it was not sure summary judgment was appropriate but had not yet determined
6
whether there was a genuine issue of material fact. After taking the matter under advisement, the
trial court denied Para Dynamic’s summary judgment motion and granted the Estate’s motion for
summary judgment. The trial court stated that there was no evidence of fraud presented; that the
use of a “corporate form is not inherently fraudulent’; and that it had considered the standards to
pierce the corporate veil and that Para Dynamic had “not satisfied those requirements.” Para
Dynamic appealed.
¶ 16 II. ANALYSIS
¶ 17 Para Dynamic argues that the trial court should have granted summary judgment in its
favor. It submits that it presented sufficient evidence to warrant the trial court to pierce the
corporate veil and allow it to pursue its judgment against the Estate. According to Para Dynamic,
the trial court did not address the applicable factors to determine whether to pierce the corporate
veil, and if it had, it would have found the factors in support of its request to pierce the corporate
veil. Para Dynamic further contends that the Estate’s arguments in favor of summary judgment
were contradicted by the record and, in the alternative, that the evidence was insufficient to support
the finding. Para Dynamic urges this court to reverse the grant of summary judgment in favor of
the Estate and grant summary judgment in its favor. It seeks remand for the trial court to enter an
order piercing the corporate veil and entering judgment against the Estate in the amount of
$1,178,003.31.
¶ 18 Summary judgment is appropriate when the pleadings, depositions, admissions on file and
affidavits, if any, show that no genuine issue of material fact exists and the moving party is entitled
to judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 2020). The purpose of summary
judgment is not to try a question of fact but to determine whether one exists. Forsythe v. Clark
USA, Inc., 224 Ill. 2d 274, 280 (2007). Summary judgment is not appropriate and “ ‘should not be
7
allowed unless the moving party’s right to judgment is clear and free from doubt.’ ” Id. (quoting
Jackson v. TLC Associates, Inc., 185 Ill. 2d 418, 424 (1998)). Where cross-motions for summary
judgment are filed, the parties agree the facts are not in dispute, and the court rules on the motions
as a matter of law. RDC Case Creek Trails, LLC v. Metropolitan Airport Authority, 2020 IL App
(3d) 190083, ¶ 14. “However, the mere filing of cross-motions for summary judgment does not
establish that there is no issue of material fact, nor does it obligate a court to render summary
judgment.” Pielet v. Pielet, 2012 IL 112064, ¶ 28. The function of the reviewing court is to decide
whether the trial court correctly found no genuine issue of material fact existed and that summary
judgment was properly granted for one party and the cross-motion was properly denied for the
other party. Id. ¶ 16. We review the trial court’s determination on summary judgment motions
de novo. RDC Case Creek Trails, LLC, 2020 IL App (3d) 190083, ¶ 14.
¶ 19 Illinois Supreme Court Rule 191 (eff. Jan. 4, 2013) instructs regarding affidavits submitted
in support or oppositions of motions for summary judgment. It provides that the affidavits:
“shall be made on the personal knowledge of the affiants; shall set forth with
particularity the facts upon which the claim counterclaim, or defense is based; shall
have attached thereto sworn or certified copies of all documents upon which the
affiant relies; shall not consist of conclusions but of facts admissible in evidence; and
shall affirmatively show that the affiant, if sworn as a witness, can testify competently
thereto.” Ill. S. Ct. Rule 191(a) (eff. Jan. 4, 2013).
Affidavits filed in support or opposition of a summary judgment motion cannot merely state legal
conclusions or opinions without a factual basis. F.H. Paschen/S.N. Nielsen, Inc. v. Burnham
Station, LLC, 372 Ill. App. 3d 89, 92 (2007) (citing Steiner Electric Co. v. NuLine Technologies,
Inc., 364 Ill. App. 3d 876, 881 (2006)).
8
¶ 20 The affidavits of Para on which Para Dynamic relies to support its motion for summary
judgment include facts upon which he admittedly had no personal knowledge, particularly
regarding Lamb’s role in the contract between Purple Shovel and Studios. Para’s affidavits reveal
that he was not involved in the negotiations between Purple Shovel and Studios and did not know
whether Lamb was involved. Rather, he based his statements on inferences and Gabler’s deposition
testimony, attesting that he had no contact with Lamb, Gabler or anyone else at Studios but
deferred to Gabler. We thus decline to consider the statements he surmised or inferred based on
information he did not personally know, including that Lamb negotiated with Purple Shovel.
Because these statements are not based on Para’s personal knowledge, we will not consider them
in our analysis. See National Union Fire Insurance Co. of Pittsburgh, PA v. DiMucci, 2015 IL
App (1st) 122725, ¶ 68 (“ ‘Unsupported assertions, opinions, and self-serving or conclusory
statements do not comply with the rule governing summary judgment affidavits.’ ” (quoting
Gassner v. Raynor Manufacturing Co., 409 Ill. App. 3d 995, 1005 (2011))). The remainder of
Para’s attestations are based on personal knowledge but do not concern facts material to whether
the corporate veil should be pierced. See People ex rel. Vuagniaux v. City of Edwardsville, 284 Ill.
App. 3d 407, 412 (1996) (where improper material is included in an affidavit filed with a summary
judgment motion, the court excises only the tainted portion, not the entirety of the affidavit).
¶ 21 We next turn to the issue of whether the trial court erred when it denied Para Dynamic’s
motion for summary judgment, granted summary judgment in favor of the Estate, and rejected
Para Dynamic’s request to pierce the corporate veil of Studios and satisfy its judgment from the
Estate’s assets. Although generally cross-motions for summary judgment take the factual disputes
out of contention and we determine the propriety of the trial court’s grant and denial of the motions
as a matter of law, we are not bound by the conclusion of the parties or the court that there is no
9
genuine issue of material fact. Our role as a reviewing court is to decide whether the trial court
properly found there was no general issue of material fact. Where, as discussed below, the material
facts are in dispute, summary judgment is precluded even in light of the cross-motions filed by the
parties.
¶ 22 A corporation has an existence that is separate and distinct from its shareholders, directors
and officers. Benzakry v. Patel, 2017 IL App (3d) 160162, ¶ 64. The shareholders, directors and
officers are generally exempt from liability for the obligations of the corporation. Id. However,
under the doctrine of piercing the corporate veil, a corporation’s liability may be extended to the
shareholders, directors and officers. Id. It may also extend to persons who are not shareholders,
directors or officers. Fontana v. TLD Builders, Inc., 362 Ill. App. 3d 491, 502-03 (2005) (status as
nonshareholder president of corporation does not preclude liability based on pierced corporate
veil).
¶ 23 The doctrine of piercing the corporate veil is an equitable remedy. Benzakry, 2017 IL App
(3d) 160162, ¶ 30. To pierce the corporate veil, it must be established that the corporation to be
pierced is “so organized and controlled by another entity that maintaining the fiction of separate
identities would sanction a fraud or promote injustice.” Buckley v. Abuzir, 2014 IL App (1st)
130469, ¶ 12. The corporate veil should be pierced “where: (1) there is such a unity of interest and
ownership that the separate personalities of the corporations and the parties who compose it no
longer exist, and (2) circumstances are such that adherence to the fiction of a separate corporation
would promote injustice or inequitable circumstances.” Tower Investors, LLC v. 111 E. Chestnut
Consultants, Inc., 371 Ill. App. 3d 1019, 1033-34 (2007).
¶ 24 To determine the first prong, courts look at the following factors: (1) inadequate
capitalization; failure to (2) issue stock, (3) observe corporate formalities, and (4) pay dividends;
10
(5) the debtor corporation’s insolvency; (6) other officers and directors in nonfunctioning roles;
(7) lack of corporate records; (8) commingling of funds; (9) corporate assets diverted by or to a
shareholder or another to creditors’ detriment; (10) failure to maintain arm’s-length relationships
among entities that are related; and (11) whether the corporation is merely a façade for the
dominant shareholders’ operation. Buckley, 2014 IL App (1st) 130469, ¶ 15 (citing Gass v. Anna
Hospital Corp., 392 Ill. App. 3d 179, 186 (2009)). To determine the second prong, the court
determines “whether the circumstances are such that adherence to the fiction of a separate
corporation would promote injustice or inequitable circumstances.” Id. ¶ 34.
¶ 25 The first factor to determine unity of interest and ownership is inadequate capitalization.
In her deposition, Gabler said that Studios never had any assets or earned any revenue and was
insolvent at all times. In contrast, the amended operating agreement provided that both Gabler and
Sabin would contribute $500,000 in exchange for 500 shares each and that Matt Lamb, Ltd. would
contribute a number of pieces of artwork and the rights to the artwork. The list of contributed
paintings was attached to the amended operating agreement, which was attached to the Estate’s
statement of material facts. Gabler said no transfer of the artwork took place, and if any artwork
was transferred, it had no value. Gabler was not aware of the various trademarks Studios held on
pieces of Lamb’s artwork. Studios was organized in 2007 and the operating agreement was
amended in 2009, suggesting that the corporation was an ongoing entity. The amended operating
agreement also provided that Gabler be paid an annual salary of $160,000, further suggesting
Studios had capital. The adequacy of capitalization is a genuine issue of material fact that is in
dispute.
¶ 26 The second factor is the failure to issue stock. Per the amended operating agreement, stock
was issued. The operating agreement provided that Class A members, Gabler and Sabin, each held
11
500 units in exchange for their capital contribution to Studios. Gabler, however, testified that
Studios was never capitalized and it was always a shell company. This is another fact in dispute.
The third factor, observation of corporate formalities, is no longer a matter of consideration.
Westmeyer v. Flynn, 382 Ill. App. 3d 952, 960 (2008) (“failure to observe the corporate formalities
is not a ground for imposing personal liability on members of an LLC”). Nevertheless, Studios
was governed by an amended operating agreement, registered with the Secretary of State, and per
the amended operating agreement had members and managers, and was supposed to be capitalized
with $500,000 each from Gabler and Sabin and with a large number of pieces of Lamb’s artwork.
Aside from the amended operating agreement, which, according to Gabler was not operative, no
other corporate documents were included in the record. There was no evidence of financial records,
bank accounts or corporate meetings. Gabler apparently brought a few tax returns and tax
documents but stated there were no other corporate documents. We find this question of observing
corporate formalities also to be a genuine issue of material fact.
¶ 27 There is no information regarding whether Studios paid dividends, the fourth factor. Gabler
offered no knowledge of the workings of Studios at her deposition. The fifth factor is the
insolvency of the debtor corporation. While Gabler has filed personal bankruptcy, Studios has not.
There is no indication of Studios’ finances and record is devoid of any information whether it was
insolvent. The discrepancy between Gabler’s claim that Studios was never capitalized and the
amended operating agreement, as well as Gabler’s assertion that she owned, operated, and
managed Studios raises a dispute regarding a genuine issue of material fact.
¶ 28 The next factor is nonfunctioning officers and directors. Gabler operated Studios, either
alone or with Lamb or Sabin, depending on what facts are considered. Per the amended operating
agreement, Gabler and Sabin were to operate Studios and Lamb was not involved. Sabin
12
apparently departed soon after the company was established. Gabler was the signatory for Studios
and the point person on the correspondence with Purple Shovel. Thus, a genuine issue of material
fact exists concerning who were the officers and directors of Studios and whether they were
functioning in their roles or not.
¶ 29 The seventh factor, lack of corporate records, also raises factual issues. Although there are
no corporate documents in the appeal record, Gabler brought tax returns to her deposition,
establishing that some records are in existence. She attested she did not attempt to locate any
documents requested by Para Dynamic because she claimed there were “no documents pertaining
to any of these.” It is unclear from Gabler’s testimony whether corporate documents exist and she
merely determined they were not relevant or whether there are not any corporate documents. Facts
pertinent to factors eight and nine, whether funds were commingled between Studios and Lamb or
whether assets were diverted, are also in dispute. According to Para Dynamic, Studios existed for
the sole benefit of Lamb, and ultimately, the Estate, arguing that Lamb and the Estate solely
benefited from Para Dynamic’s services. In addition, the amended operating agreement called for
an infusion of capital into Studios with the contribution of numerous pieces of Lamb’s artwork.
The record is unclear where this artwork is located, who owns it, and how much it is worth.
¶ 30 Similarly, while there was a family relationship between Gabler and Lamb, the evidence is
unclear whether the relationship caused them to fail to maintain an arm’s length relationship.
Gabler says Lamb always ran Studios, there is no other evidence to support her claim. Per the
operating agreement, Lamb had no role in Studios. The contract between Studios and Purple
Shovel was not executed until after his death. The record includes various correspondence between
Purple Shovel and Gabler suggesting that Gabler directed and managed the contract with Purple
Shovel. This factor, too, is in dispute.
13
¶ 31 Finally, there is a question of fact whether Studios was a façade for an operation of Gabler,
Sabin or Matt Lamb, Ltd. Gabler testified that it was a shell company at all times, while the stated
purpose of Studios was to handle the logistics of exhibiting and storing artwork. As discussed
above, the amended operating agreement suggested Studios was a viable entity. It was incorporated
in 2007 and executed a contract with Purple Shovel in 2012.
¶ 32 An analysis of the applicable first prong factors demonstrates there is a genuine issue of
material fact in dispute. In dispute is whether Studios was capitalized, issued stock and paid
dividends, whether it was insolvent, whether the officers and directors were nonfunctioning,
whether corporate records were maintained, funds were comingled, or assets diverted, whether
there was a failure to maintain an arms-length relationship between Studios and Lamb, and whether
Studios was merely a façade of Lamb. The genuine issue of material fact precludes us from
reaching the second prong of the piercing analysis to determine whether adhering to the fiction
that Studios was a separate corporation from the Estate would promote an injustice. That a genuine
issue of material fact is in dispute also precludes a grant of summary judgment to either party.
¶ 33 The parties’ statements of material facts themselves demonstrate that material facts are in
dispute. These facts included whether Lamb was involved with or operated Studios and whether
Studios was an operating entity. Para Dynamic’s facts include that Lamb contracted with Purple
Shovel to transport paintings from Spain to Ireland, while the documents supporting the Estate’s
statement of facts indicate the contract was transport the artwork from Spain to London and store
some pieces and send others to Dubai, and the attached contract was executed by Gabler on behalf
of Studios. The trial court itself initially opined that summary judgment might not be appropriate
but ultimately based its ruling on its finding that Para Dynamic did not present any evidence
providing an adequate basis for a finding of fraud or to pierce the corporate veil. The order does
14
not address the factual disputes, although it does state that it considered the factors necessary to
pierce the corporate veil and that Para Dynamic did not satisfy them.
¶ 34 We conclude that the instant facts and the right of either party to summary judgment is not
free and clear from doubt. Whether the trial court could pierce Studios’s corporate veil and reach
the Estate’s assets involves a determination of material fact. As such, a grant of summary judgment
to either party is precluded. At this stage in the proceedings, it is unclear whether Studios was an
operating entity or a shell company, whether Lamb was an equitable owner, and whether Studios
was an alter ego of Lamb, and after his death, the Estate. See Pielet, 2012 IL 112064, ¶ 54
(“standard for summary judgment is a formidable one”). The genuine issue of material fact that
exists should have precluded the trial court from granting summary judgment to either party,
despite that cross-motions were filed.
¶ 35 Lastly, although both parties presented argument regarding the applicability of the Dead-
Man’s Act (735 ILCS 5/8-201 (West 2020)) on the admission of Gabler’s deposition testimony,
the argument is not properly before this court as the Estate failed to raise it in its response to Para
Dynamic’s summary judgment motion. See Kinzer v. Fidelity and Deposit Company of Maryland,
273 Ill. App. 3d 211, 217 (1995), modified upon denial of reh’g (June 30, 1995) (issue not
presented in opposition to summary judgment motion waived on appeal). In addition, the record
does not indicate that the trial court determined the issue, leaving us nothing to review. See People
v. Rowland, 36 Ill. 2d 311, 313 (1967) (court of review does not rule on issue trial court did not
decide).
¶ 36 III. CONCLUSION
¶ 37 For the foregoing reasons, the judgment of the circuit court of Will County is reversed and
remanded.
15
¶ 38 Reversed and remanded.
16 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488803/ | NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except
in the limited circumstances allowed under Rule 23(e)(1).
2022 IL App (3d) 210379-U
Order filed November 22, 2022
____________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
THIRD DISTRICT
2022
THE PEOPLE OF THE STATE OF ) Appeal from the Circuit Court
ILLINOIS, ) of the 10th Judicial Circuit,
) Peoria County, Illinois,
Plaintiff-Appellee, )
) Appeal No. 3-21-0379
v. ) Circuit No. 11-CF-619
)
ISIAH FOSTER III, ) Honorable
) Katherine S. Gorman,
Defendant-Appellant. ) Judge, Presiding.
____________________________________________________________________________
JUSTICE PETERSON delivered the judgment of the court.
Justices Daugherity and Hauptman concurred in the judgment.
____________________________________________________________________________
ORDER
¶1 Held: Defendant’s second-stage postconviction petition made a substantial showing of a
constitutional violation.
¶2 Defendant, Isiah Foster III, appeals the denial of his postconviction petition at the second
stage of proceedings. Defendant contends that his petition made a substantial showing that he
received ineffective assistance, where counsel failed to investigate an alibi witness that defendant
provided him with the contact information. We reverse and remand for further proceedings.
¶3 I. BACKGROUND
¶4 Defendant was charged by indictment with aggravated battery with a firearm (720 ILCS
5/12-4.2(a)(1) (West 2010)), aggravated discharge of a firearm (id. § 24-1.2(a)(2)), and unlawful
possession of a weapon by a felon (id. § 24-1.1(a)). The charges relate to the 2011 shooting of
Robert Norris. After a bench trial, the court found defendant guilty of all charges. On appeal, this
court affirmed defendant’s sentence. People v. Foster, 2015 IL App (3d) 130500-U, ¶ 12.
¶5 Defendant filed a postconviction petition that alleged he received ineffective assistance
because his counsel failed to adequately investigate potential alibi witness, Christy Burns.
Defendant’s petition alleged that Burns would have testified that defendant was at her house on
the day of the shooting. Defendant told counsel that Burns was willing to speak to him and
provided counsel with her contact information. The petition further alleged that counsel told
defendant that he attempted to contact Burns and was unable to locate her.
¶6 Defendant’s petition advanced to the second stage. Postconviction counsel amended the
petition to include an affidavit signed by Burns confirming she could have provided alibi
testimony. If Burns had been called to testify, her testimony would have included that she invited
defendant to her home on the morning of June 21, 2011, and that he arrived at approximately
7 a.m. Defendant spent the rest of the morning at Burns’s house and did not leave until they
heard that a shooting had occurred earlier that day and defendant was wanted in connection with
it. Burns further stated that defense counsel never contacted her.
¶7 The State filed a motion to dismiss arguing that defendant failed to establish the deficient
performance prong to prove ineffective assistance of counsel. The court granted the State’s
motion. Defendant appeals.
2
¶8 II. ANALYSIS
¶9 Defendant argues that the circuit court erred in dismissing his postconviction petition at
the second stage of proceedings because he made a substantial showing of ineffective assistance
of counsel. Specifically, counsel was ineffective for failing to investigate defendant’s alibi, even
after defendant allegedly provided him with the name and contact information for an alibi
witness who could testify that she was with defendant at her home at the time of the shooting.
¶ 10 Under the Post-Conviction Hearing Act (725 ILCS 5/122-1 et seq. (West 2020)) persons
imprisoned in the penitentiary may file petitions challenging their convictions on grounds of
constitutional violations. When, as in the instant case, a petition is advanced to the second stage
of postconviction proceedings, the petitioner must make a substantial showing of a constitutional
violation to avoid dismissal. People v. Domagala, 2013 IL 113688, ¶ 34. This “substantial
showing” is a measure of the legal sufficiency of the petition. Id. ¶ 35. At this stage, all well-pled
facts will be regarded as true unless positively rebutted by the record. People v. Pendleton, 223
Ill. 2d 458, 473 (2006). We review a second-stage dismissal de novo. Id. The operative inquiry is
whether the facts pled by defendant, along with facts contained in supporting affidavits, if proven
true at an evidentiary hearing, would entitle him to relief. Domagala, 2013 IL 113688, ¶ 35.
¶ 11 In the context of an ineffective assistance of counsel claim, a postconviction petition must
make a substantial showing that (1) counsel’s performance was so deficient that it fell below an
objective standard of reasonableness, and (2) there is a reasonable probability that but for
counsel’s unprofessional errors, the result of the proceeding would have been different.
Strickland v. Washington, 466 U.S. 668, 687 (1984). To satisfy the deficient performance prong
under Strickland, defendant must show that counsel’s performance was so inadequate “that
counsel was not functioning as the ‘counsel’ guaranteed by the sixth amendment.” People v.
3
Evans, 186 Ill. 2d 83, 93 (1999). If a defendant can establish deficient performance, the second
prong requires defendant to show that he was prejudiced as a result. People v. Dupree, 2018 IL
122307, ¶ 44. To satisfy the prejudice prong, defendant must show “ ‘reasonable probability that,
but for counsel’s unprofessional errors, the result of the proceeding would have been different.’ ”
People v. Petrenko, 237 Ill. 2d 490, 496-97 (2010) (quoting Strickland, 466 U.S. at 694).
¶ 12 Decisions concerning which witnesses to call are matters of trial strategy and are
generally immune from claims of ineffective assistance of counsel. People v. Wilborn, 2011 IL
App (1st) 092802, ¶ 79. However, the failure to investigate an alibi witness may constitute
ineffective assistance of counsel. People v. Bolden, 2014 IL App (1st) 123527, ¶ 45. Defense
counsel has a duty to conduct reasonable investigations. Domagala, 2013 IL 113688, ¶ 38.
Failing to interview a witness indicates deficient representation when the witness is known to
counsel and the anticipated testimony may be exonerating. People v. Coleman, 183 Ill. 2d 366,
398 (1998); see also People v. Ashford, 121 Ill. 2d 55, 74-75 (1988) (the failure to call a witness
will not support an ineffectiveness claim unless it is unreasonable for counsel to believe that the
anticipated testimony would have no probative value to guilty or innocence).
¶ 13 In the present case, accepting the facts set forth in the petition and Burns’s affidavit as
true, defendant has made a substantial showing that defense counsel was ineffective for failing to
investigate and/or present the alibi witness. In his petition, defendant states that he presented
counsel with the contact information for his alibi witness, Burns, and that counsel failed to make
any attempt to contact her or to otherwise investigate defendant’s alibi. Burns’s affidavit, taken
as true at this stage, would have supported defendant’s claim of innocence. The record reflects
that no subpoena was issued for Burns to appear and testify at trial. The record does not reflect
that counsel made a strategic decision not to call the alibi witness, as there was no apparent
4
reason not to do so. See People v. Tate, 305 Ill. App. 3d 607, 612 (1999) (there was no reason
not to call alibi witnesses when witness affidavits supported defendant’s theory of
misidentification). Further, if Burns was found credible, we cannot say that there is no
reasonable probability that the result of the trial would have been different. Accordingly,
defendant is entitled to an evidentiary hearing on his claim. See id.
¶ 14 III. CONCLUSION
¶ 15 The judgment of the circuit court of Peoria County is reversed and remanded for further
proceedings.
¶ 16 Reversed and remanded for further proceedings.
5 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488801/ | NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except
in the limited circumstances allowed under Rule 23(e)(1).
2022 IL App (3d) 210271-U
Order filed November 22, 2022
____________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
THIRD DISTRICT
2022
THE PEOPLE OF THE STATE OF ) Appeal from the Circuit Court
ILLINOIS, ) of the 13th Judicial Circuit,
) La Salle County, Illinois,
Plaintiff-Appellee, )
) Appeal No. 3-21-0271
v. ) Circuit No. 18-CF-549
)
WILLIE A. MOLINA JR., ) Honorable
) Cynthia M. Raccuglia,
Defendant-Appellant. ) Judge, Presiding.
____________________________________________________________________________
PRESIDING JUSTICE O’BRIEN delivered the judgment of the court.
Justices Hauptman and Peterson concurred in the judgment.
____________________________________________________________________________
ORDER
¶1 Held: The court did not substantially comply with Rule 605(c).
¶2 Defendant, Willie A. Molina Jr., appeals following this court’s summary remand for
counsel to file a certificate in compliance with Illinois Supreme Court Rule 604(d) (eff. July 1,
2017). Defendant argues that a second remand is required for new postplea proceedings because
the La Salle County circuit court failed to properly admonish him under Illinois Supreme Court
Rule 605(c) (eff. Oct. 1, 2001). Defendant also argues that counsel failed to comply with Rule
604(d). We reverse and remand with directions.
¶3 I. BACKGROUND
¶4 Defendant entered a guilty plea to possession of a stolen vehicle (625 ILCS 5/4-103(a)(1)
(West 2018)) and residential burglary (720 ILCS 5/19-3(a) (West 2018)). The plea included an
agreed sentencing cap of 18 years’ imprisonment and the State’s dismissal of several other charges.
The court provided the Illinois Supreme Court Rule 402(a) admonishments but did not inform
defendant of his appeal rights. Following the entry of his plea, defendant filed a motion to vacate
his guilty plea, alleging that at the time of his plea he was “under duress” and “did not understand
clearly.” The court continued the matter for a hearing on defendant’s motion to vacate his guilty
plea and sentencing.
¶5 Prior to sentencing, defendant withdrew the motion to vacate his guilty plea. The court
sentenced defendant to 16 years’ imprisonment. The court admonished defendant “your only
option is to file that motion again to vacate your guilty plea 30 days from today’s date, or you
waive any further appeal rights.”
¶6 Defendant filed, as a self-represented litigant, a “motion for reduction of sentence.” The
court appointed counsel to represent defendant. On a later date, counsel informed the court that
defendant did not wish to proceed on a motion to vacate his guilty plea. The court inquired of
defendant whether he wanted to vacate his guilty plea or proceed on a motion to reconsider his
sentence to perfect his appeal. The court stated, “you have an absolute right to have this court hear
the motion to reconsider sentence and your motion to vacate your guilty plea” and confirmed that
defendant wanted to file a motion to reconsider his sentence. Counsel filed a motion to reconsider
sentence and a Rule 604(d) certificate. Again, counsel informed the court that defendant did not
2
want to proceed with a motion to vacate his guilty plea. The court denied defendant’s motion to
reconsider sentence.
¶7 On appeal, we granted defendant’s unopposed motion to remand the cause to the circuit
court for compliance with Rule 604(d). People v. Molina, No. 3-20-0527 (2021) (unpublished
minute order).
¶8 On remand, counsel filed a new Rule 604(d) certificate and motion to reconsider sentence.
The court denied the motion, stating “[a]nd now that you have perfected that in this court, you
have a right to appeal to the Third District Appellate Court your sentence.” Defendant appealed.
¶9 II. ANALYSIS
¶ 10 Defendant argues that the cause should be remanded for a second time for new postplea
proceedings where the circuit court failed to provide a substantially compliant Rule 605(c)
admonishment. Defendant also argues that counsel failed to comply with Rule 604(d).
¶ 11 Following the entry of a negotiated guilty plea, Rule 605(c) requires the court to admonish
defendant of the Rule 604(d) requirements that must be satisfied to preserve defendant’s right to
appeal. People v. Jamison, 181 Ill. 2d 24, 27 (1998); Ill. S. Ct. R. 604(d) (eff. July 1, 2017). Rule
605(c) states the court shall advise defendant
“(1) that the defendant has a right to appeal;
(2) that prior to taking an appeal the defendant must file in the trial court,
within 30 days of the date on which sentence is imposed, a written motion asking
to have the judgment vacated and for leave to withdraw the plea of guilty, setting
forth the grounds for the motion;
3
(3) that if the motion is allowed, the plea of guilty, sentence and judgment
will be vacated and a trial date will be set on the charges to which the plea of guilty
was made;
(4) that upon the request of the State any charges that may have been
dismissed as a part of a plea agreement will be reinstated and will also be set for
trial;
(5) that if defendant is indigent, a copy of the transcript of the proceedings
at the time of the defendant’s plea of guilty and sentence will be provided without
cost to the defendant and counsel will be appointed to assist the defendant with the
preparation of the motions; and
(6) that in any appeal taken from the judgment on the plea of guilty any
issue or claim of error not raised in the motion to vacate the judgment and to
withdraw the plea of guilty shall be deemed waived.” Ill. S. Ct. R. 605(c) (eff. Oct.
1, 2001).
¶ 12 Rule 605(c) is a necessary companion to Rule 604(d) where strict compliance with Rule
604(d) is a prerequisite for an appeal. People v. Little, 318 Ill. App. 3d 75, 79 (2001). Thus,
fundamental fairness requires that “[w]hen the trial court fails to properly admonish a defendant
how to perfect an appeal from a negotiated guilty plea, and defendant fails to follow Rule 604(d),
it is appropriate to remand the cause to the trial court for proceedings consistent with Rule 605(c).”
People v. Pressey, 357 Ill. App. 3d 887, 890 (2005); see also Little, 318 Ill. App. 3d at 79.
¶ 13 A court may substantially comply with Rule 605(c) so long as the court’s admonishment
imparts “to a defendant largely that which is specified in the rule, or the rule’s ‘essence’ as opposed
to ‘wholly’ what is specified in the rule.” People v. Dominguez, 2012 IL 111336, ¶ 19. An improper
4
admonishment alone will not automatically require a remand. People v. Williams, 344 Ill. App. 3d
334, 338 (2003). Instead, remand or reversal is dependent upon “ ‘whether real justice has been
denied or whether [the] defendant has been prejudiced by the inadequate admonishment.’ ”
(Emphases in original.) Id. (quoting People v. Davis, 145 Ill. 2d 240, 250 (1991)). We review a
court’s compliance with supreme court rules de novo. People v. Dismuke, 355 Ill. App. 3d 606,
608 (2005).
¶ 14 In the present case, the court admonished defendant that to appeal his sentence defendant’s
“only option” would be to file a motion to vacate within 30 days or risk waiving his appeal rights.
However, Rule 605(c) required the court to also impart that defendant (1) had the right to appeal,
(2) that prior to appealing his sentence he must file a written motion and set forth grounds in a
motion to vacate the judgment and withdraw his guilty plea, (3) that if the court grants that motion,
his judgment and sentence would be vacated and a trial date would be set on the charges that he
pled to and the charges that the State dismissed pursuant to that plea, and (4) that if defendant is
indigent, a copy of the transcript of the proceedings would be provided and counsel would be
appointed to assist the defendant with the preparation of the motions. See Ill. S. Ct. R. 605(c) (eff.
Oct. 1, 2001). The court’s omission of a majority of the Rule 605(c) admonishment did not impart
“largely that which is specified in the rule.” Cf. Dominguez, 2012 IL 111336, ¶ 19. Further, the
court’s initial admonishments were undermined by it later informing defendant that he could also
file a motion to reconsider his sentence to perfect his appeal and that his motion to reconsider
sentence did perfect his appeal. Supra ¶¶ 5, 6, 8. The procedure advised by the court deprived
defendant of his right to appeal his conviction as it did not comply with the requirements under
Rule 604(d) and, thus, does not substantially comply with Rule 605(c). Accordingly, fundamental
fairness requires that we reverse the ruling on defendant’s motion to reconsider sentence and
5
remand the cause for compliance with Rule 605(c). On remand, we direct the court to admonish
defendant in accordance with Rule 605(c) before defendant proceeds on any new postplea motions.
As our ruling on the first issues requires reversal of defendant’s postplea motion and de novo
proceedings, his second issue is rendered moot and we need not address it.
¶ 15 III. CONCLUSION
¶ 16 The judgment of the circuit court of La Salle County is reversed and remanded with
directions.
¶ 17 Reversed and remanded with directions.
6 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488805/ | 2022 IL App (1st) 220209-U
SECOND DIVISION
November 22, 2022
No. 1-22-0209
NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent
except in the limited circumstances allowed under Rule 23(e)(1).
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST JUDICIAL DISTRICT
______________________________________________________________________________
ALI ALI MUSA, MONIR AHMED and ) Appeal from the
SALAAM PROPERTIES, LLC, a limited liability ) Circuit Court of
company, ) Cook County.
)
Plaintiffs/Counter-Defendants-Appellees, )
)
v. ) No. 17 CH 12357
)
HAIL SAEED, individually and on behalf of )
SALAAM PROPERTIES, LLC, a limited liability )
company, ) Honorable
) Michael T. Mullen,
Defendants/Counter-Plaintiffs-Appellants. ) Judge Presiding.
______________________________________________________________________________
JUSTICE HOWSE delivered the judgment of the court.
Presiding Justice Fitzgerald Smith and Justice Ellis concurred in the judgment.
ORDER
¶1 Held: We affirm the judgment of the circuit court of Cook County awarding damages
for the parties’ respective breaches of fiduciary duties based on the parties’ individual
contributions to the limited liability corporation (LLC), damages in favor of plaintiffs and
counter-plaintiffs individually, and declining to award damages on plaintiff’s derivative
claim, punitive damages, or attorney fees.
¶2 This suit involves the parties’ creation of an LLC and the subsequent breakdown of their
ability to cooperate in its operation. Following a bench trial, the trial court found each party
violated their fiduciary duties owed to both the LLC and each other as members-managers of the
LLC. The court declined to grant relief on the derivative claim on behalf of the LLC but did
1-22-0209
award damages on claims by the members of the LLC individually. The court declined the
requests for punitive damages and attorney fees in light of the respective multiple breaches of
fiduciary duties by all of the parties. For the following reasons, we affirm.
¶3 BACKGROUND
¶4 On September 12, 2017, plaintiffs, Ali Ali Musa, Monir Ahmed, and Salaam Properties,
LLC, filed a complaint for injunctive relief, breach of fiduciary duty, and an accounting against
defendants, Hail Saeed and Sufwan Laundries, Inc. (hereinafter the “initial complaint”). The
initial complaint alleged, in pertinent part, as follows: Musa, Ahmed, and Saeed were members
of Salaam Properties, LLC, an Illinois limited liability company formed in May 2010. Salaam is
a member-managed LLC with an Operating Agreement. Musa, Ahmed, and Saeed as members
have equal voting rights, and unanimous consent is required for business decisions. In June 2010,
Salaam purchased property in Chicago “to operate *** in a manner profitable to all members”
using contributions of money from each member. The property is a “strip mall” divided into two
units. The initial complaint alleges Salaam operated a laundromat in “Unit 1” of the property and
leased “Unit 2” to third parties. The complaint also alleges the members formed Sufwan to be a
corporate entity and licensee operating on the premises with each member being an equal
shareholder in Sufwan. The members agreed to “take turns at agreed-upon times to operate the
laundromat” and that each member who was not onsite would receive a minimum payment from
the profits from the laundromat. That arrangement lasted until October 2012, when Saeed “began
and has continued to act alone” in operating the laundromat onsite.
¶5 The initial complaint alleges that during the time Saeed has acted alone to operate the
laundromat onsite, he has, inter alia, “refused to consult with [Musa and Ahmed] or share
information *** necessary for [them] to participate in the business,” has “unilaterally made
-2-
1-22-0209
business decisions including leasing or attempting to lease the property,” and “indicated an
unwillingness and continued refusal to step away from the onsite operation of the premises” and
failed and refused to honor their agreement and the law. Count I of the initial complaint for
injunctive relief alleges Saeed had “continued to seek to and/or execute leases to third parties
without the authority and consent of” Musa and Ahmed and that injunctive relief was needed to
prevent further damage to Musa and Ahmed. The initial complaint states: “Because of the
impasse in management among [Musa, Ahmed, and Saeed,] and in order to avoid further
jeopardy to the rights and investments of all parties, *** [Musa and Ahmed] request that the
subject premises should either be managed and operated under court supervision until rights are
settled, or the property should be sold under court supervision.”
¶6 Count II of the initial complaint is for breach of fiduciary duty. Count II alleges Saeed
breached his fiduciary duties under Illinois law and the Illinois Limited Liability Act (LLC Act)
to Musa and Ahmed by, inter alia, “refusing [Musa and Ahmed] their rights to unanimous
participation and consent on business decisions and making decisions unilaterally and *** for his
own profit to the detriment of [Musa and Ahmed]” and “seeking to exclude them from
ownership and participation in Sufwan.” Count II sought damages and punitive damages from
Saeed. Count II of the initial complaint is for an accounting, and Count IV is titled as a
Shareholders’ Derivative Action. The derivative action in the initial complaint alleges Saeed was
an officer and/or director of Sufwan and while acting in those capacities Saeed committed certain
acts that “have been detrimental to the financial and other health of the corporation” including,
but not limited to, conducting Sufwan business in a manner disallowed by law, failing in his
duties to Musa and Ahmed, and otherwise acting in a manner detrimental to the corporation.
-3-
1-22-0209
¶7 On June 17, 2019, Musa, Ahmed, and Salaam filed a motion to dissolve Salaam and
liquidate its assets. The motion to dissolve argues that the fact Musa and Ahmed do not want
Saeed to operate the property due to the several allegations against Saeed illustrates “the fact that
the parties clearly cannot agree in any manner to continue operating the business.” The motion to
dissolve notes that under the LLC Act, the court may dissolve the business where “it is not
otherwise reasonably practicable to carry on the company’s business in conformity with the
articles of organization and the operating agreement.” The motion asserts that it was clear that
“the members cannot reasonably carry on the business when the members are in deadlock.”
¶8 On November 7, 2019, Saeed, individually and on behalf of Salaam, filed a one-count
counterclaim for breach of fiduciary duties (count I) (“counterclaim”). The counter claim alleges
Musa, Ahmed, and Saeed are the sole members of Salaam, that Salaam is member-managed, and
each member owns an equal one-third share of the LLC and are parties to the LLC’s operating
agreement. The Operating Agreement “requires the unanimous consent of the members on all
operating decisions, including leasing” the property that is the subject of this case. The
counterclaim alleges Musa and Ahmed breached their fiduciary duties to Saeed and Salaam by,
including but not limited to, refusing to lease the subject property and failing to pay their share of
the LLC’s financial obligations.
¶9 Specifically the counterclaim alleges that in February 2014 Saeed leased a portion of the
subject property, Unit 2, to MK Fast Food and Martha A. Barerra. Musa and Ahmed allegedly
encouraged the lessee “to breach its lease to drive down the value of the LLC as part of an effort
to acquire Saeed’s membership interest in the LLC for a reduced price.” The counterclaim
alleges that in response to Saeed signing a second lease with Sufwan, which operated the
laundromat on the largest portion of the subject property and in which Saeed owned an interest,
-4-
1-22-0209
Musa and Ahmed sued to evict Sufwan “to drive down the value of the LLC as part of an effort
to acquire Saeed’s membership interest in the LLC for a reduced price.” The counterclaim also
alleges that in October 2016 Saeed leased Unit 2 of the subject property to Lancaster Drive, Inc.
and Muath Ibrahim Abu Ghose (“Lancaster”), after one year Musa advised Lancaster the lease
was invalid and advised Lancaster to stop paying rent, which it did, and in the face of Saeed’s
filing a suit against Lancaster for unpaid rent, Musa and Ahmed executed a document
terminating Lancaster’s lease “for essentially no consideration.” Saeed similarly alleged Musa
and Ahmed did this to drive down the value of the LLC and obtain Saeed’s interest. Finally, the
counterclaim alleges that by November 2017, Musa and Ahmed had caused all of the lessees of
the subject property to vacate the property, sealed the property leaving it inaccessible to Saeed,
and for over five years refused to pay the LLC’s financial obligations, which required Saeed “to
cover with his personal funds the LLC’s debt service and other ordinary operating expenses.”
Saeed alleged Musa and Ahmed’s conduct breached their fiduciary duties and that Saeed had
been damaged as a result. The counterclaim sought damages and punitive damages.
¶ 10 The case proceeded to a bench trial on Musa and Ahmed’s initial complaint and motion
to dissolve and liquidate Salaam and Saeed’s counterclaim. On September 1, 2021, the trial court
issued an extensive written opinion and order.
¶ 11 As it pertains to this appeal, the trial court made the following findings of fact: Although
Musa, Ahmed, and Saeed agreed to be equal partners with equal financial obligations when
Salaam purchased the subject property, Musa made a financial contribution to the purchase that
was greater than Ahmed’s, and Saeed’s contribution was greater than Ahmed’s. On June 3, 2020,
Musa caused Salaam to execute a promissory note to him to repay Musa in equal installments
-5-
1-22-0209
over the course of one year. The promissory note was for $75,000 but Musa’s excess financial
contribution had been only $50,000.
¶ 12 In July 2020 Musa asked Salaam to take out a loan so that he could be repaid
immediately. In October 2010, Salaam applied for and received a loan. The loan was secured by
a mortgage on the subject property. In connection with the loan Musa, Ahmed, and Saeed
executed a written agreement setting forth terms for repaying Musa, the status of the loan, and
the consequences for the members if the loan was not repaid (none of which are directly
germane to the issues in this appeal). Later in 2010 Ahmed wrote checks disbursing all of the
loan proceeds for Musa and Ahmed’s sole benefit. The trial court found that “there was no
disbursement directly to Saeed and the loan proceeds were never used to pay any of Saeed’s
creditors.” The trial court further found that Musa and Ahmed orchestrated the loan for their own
personal benefit and to Saeed’s detriment.
¶ 13 The trial court found that Saeed and Ahmed were shareholders in Sufwan, which
operated the laundromat and was the only tenant to ever occupy Unit 1 of the subject property.
The court’s next finding of fact is highly meaningful to our disposition, so we set it out in full:
“[I]n September 2011 Saeed returned from a two-month trip to Yemen.
*** Saeed complained about the poor condition of both Sufwan’s equipment, as
well as the overall condition of Unit 1 ***. At that time, Musa and Ahmed told
Saeed that Sufwan was far too labor intensive and that it was clearly unprofitable.
Musa and Ahmed *** made it clear to Saeed that they no longer wanted to be
involved with Sufwan. Musa and Ahmed then went further and informed Saeed
that in their opinion, that as the entire Salaam venture was and would be
unprofitable, that the Property should be sold.
-6-
1-22-0209
Musa and Ahmed also stated that if Saeed did not agree to sell the
Property that Saeed would alone be responsible for the management of both
Sufwan, as well as Salaam. As Saeed made clear that he did not want to sell the
Property, he agreed to solely manage the Property ***. *** [T]he oral agreement
did change, at least initially, the requirement for the unanimous consent of each of
the three members on all operating decisions, including the leasing of the
Property. Separately, Ahmed orally agreed with Saeed to forfeit any ownership
rights that he had in Sufwan to Saeed.”
¶ 14 Also in September 2011 Musa wanted Sufwan to enter a five-year lease for Unit 1 at a
rate of $1,500 per month. The trial court specifically found this amount was not below market
rates and that the amount of rent was fair and reasonable. Musa’s bookkeeper drew up the
September 2011 Sufwan lease and Musa and Ahmed signed it. Saeed later signed an amendment
to Sufwan’s lease that shifted responsibility for Sufwan’s water bills and other expenses to
Salaam. The court found Saeed executed this amendment unilaterally and that Saeed had no right
to do so.
¶ 15 The trial court found that beginning in February 2011 Saeed leased Unit 2 on the subject
property to three different restaurants. The court found that all three tenants were “procured
through Saeed’s individual efforts as neither Musa nor Ahmed made any effort to lease the
Property.” The first tenancy ran from February 2011 until November 2011. Musa and Ahmed
had knowledge of and consented to this lease. The second tenancy lasted from February 17, 2014
until June 2016. The trial court found that neither Musa nor Ahmad had knowledge of the lease
and did not consent to it, they had “authorized Saeed to act on their behalf and on behalf of
Salaam and by doing so fully consented to Saeed to enter the lease.” The court found Musa and
-7-
1-22-0209
Ahmed “forfeited any right to manage the Property by their verbal agreement with Saeed that he
would manage the Property.” During the tenancy, Musa had informed the tenant that their lease
was invalid, which caused the tenant to make partial rent payments before eventually moving to
a different location. The third tenancy was from October 2016 until October 2017. Again, neither
Musa nor Ahmed had knowledge of, consented to, or would have consented to this lease.
¶ 16 In October 2016, Musa informed the tenant its lease was invalid and instructed it to stop
paying rent, which it did a year later but the tenant did not vacate Unit 2 until April 2018. Saeed,
on behalf of Salaam, unilaterally and without Musa and Ahmed’s knowledge sued the third
tenant, Lancaster, but on April 4, 2018, Musa and Ahmed executed a release of the tenant
relative to its financial obligations and obligations under the lease. As a result of the release
Saeed’s suit was dismissed. The trial court found that by intentionally causing the second and
third tenants to break their leases and not seeking a replacement, Salaam was harmed. The trial
court found the motive for the conduct was Musa and Ahmed’s desire to sell the property and
their strategy was to “ ‘do away with any tenants’ ” and increase Saeed’s operating deficit so that
he would accede.
¶ 17 Sufwan paid rent to Salaam but Saeed did not deposit that rent into a Salaam account.
Instead, Saeed took the rent payments and used them to “pay Salaam’s bills that he [(Saeed)]
unilaterally decided should be paid by Salaam.” The trial court found that in doing so Saeed
failed to recognize or simply ignored his duty to Salaam to collect rent and deposit it in Salaam’s
account.
¶ 18 The trial court found that the parties’ oral agreement that Saeed would solely manage
Salaam was temporary and that by early 2016, Musa and Ahmed made clear efforts to revoke the
oral agreement. The court found that Saeed refused to acknowledge Musa and Ahmed’s right to
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object to Saeed’s management of Salaam or his continued role in its management and that Musa
and Ahmed both wanted to sell the subject property while Saeed did not.
¶ 19 On September 27, 2016, Musa and Ahmed’s attorney informed Saeed that Salaam would
not renew Sufwan’s lease. Nonetheless, on October 1, 2016, Saeed renewed Sufwan’s lease for a
period of 15 years for the same rent as existed before. Saeed signed the lease on behalf of Salaam
but he had no authority to do so. Neither Musa nor Ahmed was aware of the October 2016 lease
and neither would have approved of it. Saeed also caused Salaam to pay Sufwan’s water bill. The
trial court found that by doing so Saeed “was confusing his obligations to Sufwan with those
duties that he owed to Salaam.” The court ruled that Saeed could not receive a contribution from
Musa and Ahmed for Saeed’s use of his personal funds on behalf of Salaam to pay Sufwan’s
water bills; rather, those bills were “Saeed’s personal obligation to be paid to Salaam.”
¶ 20 Musa and Ahmed also did not have authority to make any decisions regarding Unit 1 of
the subject property without Saeed’s consent, but they caused Salaam to file an eviction
complaint against Sufwan. Subsequently, in June 2017, Salaam obtained an eviction judgment
against Sufwan and Sufwan stopped paying rent. As a consequence, Salaam assumed
responsibility for the utilities for Unit 1 of the subject property. The trial court found Musa and
Ahmed’s conduct was detrimental to Salaam because Sufwan had been paying rent and no
replacement tenant was available or being sought. Unit 1 has remained vacant since 2017.
¶ 21 Although Salaam could have received $62,000 in rent from late 2010 until September
2012, which it did not, the trial court found Salaam could not have realized a profit from that rent
given its fair and reasonable expenses.
¶ 22 While the subject property was intentionally left vacant the property suffered vandalism,
theft, and damages from a general lack of maintenance. In November 2017 Musa and Ahmed
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welded the property shut with metal sheeting. The trial court found that Musa and Ahmed’s
failure to secure and repair the property resulted in injury to Salaam but sealing the property with
metal sheeting was in the best interest of Salaam to keep the property safe from further
vandalism and theft.
¶ 23 In October 2018 Saeed hired his son to perform security and maintenance of the subject
property without Musa and Ahmed’s knowledge or consent. The trial court found Saeed did not
have authority to hire anyone without Musa and Ahmed’s consent after 2016. The trial court
found it was reasonable and necessary to hire someone to perform security and maintenance and
Saeed’s son’s fees were fair and reasonable, therefore Musa and Ahmed failed to establish any
damage relative to the hiring.
¶ 24 The trial court found that Salaam has not received any rental income since the third
tenant left in 2018 but Saeed paid all expenses through 2021. Saeed used his personal funds to
pay Salaam’s operating deficit either by loaning or advancing the money to Salaam. Saeed
requested Musa and Ahmed pay their share of expenses but, the trial court found, “Saeed’s
requests for additional funds *** were received and ignored by both Musa and [Ahmed.]” The
trial court determined the amount of Salaam’s losses from 2012 through 2021. During that period
Salaam lost money each year. The court found that Saeed loaned or advanced Salaam “100% of
the funds it needed to cover its operating deficits during 2012-21.”
¶ 25 The trial court also made the following pertinent conclusions of law: First, with regard to
the request to dissolve Salaam, the trial court found that “after many years of acrimonious and
costly litigation, Musa, Saeed and Ahmed clearly have been and will be unable to continue the
business operations of Salaam.” The court noted that Salaam’s operating agreement requires a
unanimous vote for all significant decisions and concluded that, because “Musa, Ahmed and
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Saeed ultimately recognized that Salaam could not continue to operate due to their acrimony and
inability to agree as to how to continue the operate Salaam, the parties have agreed to dissolve
Salaam.” Regardless of the parties’ agreement, the court found that it was clear that “the
economic purpose of Salaam has been unreasonably frustrated and that it is not reasonably
practicable to carry on Salaam’s business in conformity with Salaam’s articles of organization
and its operating agreement.” The court noted that the question remained as to how to wind up
Salaam with Musa and Ahmed seeking a sale of the subject property (and dissolution of Salaam)
and Saeed seeking disassociation of Musa and Ahmed from Salaam with an order granting him
the right to buy out their interests. The court found that the proper remedy required a close
examination of the parties’ overall conduct.
¶ 26 To that end the trial court found, in pertinent part, that each member of Salaam, Musa,
Ahmed, and Saeed, breached their fiduciary duties on several occasions. Specifically, the trial
court found that Musa and Ahmed breached their fiduciary duty to Salaam by obtaining the loan
(ostensibly to repay Musa) for their personal benefit and not for the benefit of Salaam, by failing
to pay their fair share of Salaam’s financial obligations, and their various acts surrounding the
leasing of the subject property; Musa and Ahmed breached their fiduciary duty to Saeed by
disbursing the loan proceeds for their own benefit only and by failing to advance their share of
Salaam’s expenses to Saeed causing him to personally fund payment.
¶ 27 The trial court found that Saeed breached his fiduciary duties to Salaam, Musa, and
Ahmed by, in October 2016 entering into the second Sufwan lease without Musa and Ahmed’s
knowledge or consent, hiring his son without Musa and Ahmed’s knowledge or consent,
obligating Salaam to pay Sufwan’s business expenses, and failing to deposit rent paid to Salaam
directly into Salaam’s accounts.
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¶ 28 Next, the trial court noted that the appropriate remedy for a breach of fiduciary duty “is
left to the equitable discretion of the Court.” (Emphasis added.) The court found that Musa and
Ahmed sought damages for, inter alia, the rent the tenants paid Saeed but which Saeed did not
deposit directly into a Salaam account. The trial court found that although Saeed breached his
fiduciary duty in that regard, “it was clear from the testimony and evidence, that all of the rental
money that had been collected by Saeed was used to pay Salaam’s expenses and not for
[Saeed’s] own personal expenses, and therefore the court rejected the argument Salaam suffered
damage from this breach. The court further found Salaam did not incur damage from Musa and
Ahmed’s termination of the second Sufwan lease or the third Unit 2 tenant’s lease “as they were
not unanimously agreed to by all Salaam’s members. The court found that Musa and Ahmed
breached their duties by causing the termination of the second Unit 2 tenant’s lease, of which
they did have knowledge and to which they did consent, and that this breach caused damage to
Salaam; however, the court found that Saeed’s failure to deposit those rents, when balanced
against Musa and Ahmed’s breach, “extinguish each other’s respective damages.” The court
stated that it would “not make any award based on these mutual breaches.”
¶ 29 The trial court awarded Musa and Ahmed damages for their respective individual
contributions to Salaam, damages individually in favor of Saeed and against Musa and Ahmed
for payments on the loan that was for Musa and Ahmed’s personal benefit, and damages in favor
of Musa and Ahmed for the water bills Salaam paid for Sufwan. The trial court also awarded
Saeed his initial contribution to Salaam. The court denied Saeed’s request for a derivative award
in favor of Salaam.
¶ 30 Musa, Ahmed, and Saeed requested punitive damages and an award of attorney fees. The
trial court concluded that after “a careful review of the identified conduct in light of the remedies
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that are being otherwise ordered and the unlikelihood that the parties will commit similar acts of
wrongdoing in the future, the Court denies the parties’ request for punitive damages.” The court
similarly found that “[i]n light of the multiple breaches of the Operating Agreement by all the
parties almost from the date of execution, the Court denies all requests for attorney’s [sic] fees
and expenses and each party will bear his own costs.” The trial court’s judgment dissolved
Salaam and ordered the liquidation of its assets, and awarded the parties’ respective damages.
¶ 31 On September 30, 2021, Saeed filed a posttrial motion arguing, in pertinent part, that (1)
the record contains unrefuted evidence that Saeed did deposit rent paid by the second and third
tenants into Salaam’s bank account and, therefore, the trial court had no basis to refuse to award
Salaam damages for Musa and Ahmed’s interference with those leases; (2) the trial court’s
finding that in 2016 Musa and Ahmed revoked the parties’ oral agreement that Saeed would
solely manage the property is not supported by the record and is immaterial because regardless
whether they revoked the oral agreement or not Musa and Ahmed’s conduct harmed Salaam with
regard to the third tenant and in keeping Unit 2 vacant; (3) the trial court should enter an order
disassociating Musa and Ahmed from Salaam and permit Saeed to buy out their interests but no
evidence supports the trial court’s exercise of its discretion to order the sale of the property and
dissolving Salaam.
¶ 32 In January 2022, the trial court entered an order granting Saeed’s posttrial motion in part
and denying it in part. As is pertains to this appeal, the trial court denied Saeed all of the relief
requested above.
¶ 33 On February 15, 2022, Saeed filed a notice of appeal from the September 1, 2021 order
and the January 19, 2022 order denying Saeed’s posttrial motion in part. The notice of appeal
specified that on appeal, “Saeed seeks entry of an Order that vacated the Orders to the extent
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they denied Saeed’s request for derivative relief *** in connection with [Musa and Ahmed’s]
preventing the leasing of the subject premises (based on the trial court [sic] incorrect finding that
Saeed had breached his fiduciary duties) ***” and, “in the event such relief is granted,” an order
vacating the trial court’s judgment dissolving Salaam (as opposed to ordering [Musa and
Ahmed] to be disassociated) any denying Saeed’s requests for awards of attorney’s [sic] fees and
punitive damages” or remands for the trial court to reconsider those rulings.
¶ 34 This appeal follows.
¶ 35 ANALYSIS
¶ 36 “A shareholder derivative action is a vehicle by which an individual shareholder brings
suit to enforce a corporate cause of action against officers, directors, and third parties.” Biefeldt
v. Wilson, 2022 IL App (1st) 210336, ¶ 19. “It was intended as a vehicle to allow shareholders to
protect a corporation’s interests from faithless directors and managers. [Citation.]” (Internal
quotation marks omitted.)” Id. The standard by which we review the trial court’s judgment
depends on the nature of the order being appealed. See, e.g., Biefeldt, 2022 IL App (1st) 210336,
¶ 18 (reviewing de novo order dismissing shareholder derivative action under section 2-615);
Tufo v. Tufo, 2021 IL App (1st) 192521, ¶ 71 (reviewing application of doctrine of unclean hands
in shareholder derivative action for abuse of discretion).
¶ 37 This appeal raises questions about (1) the trial court’s findings of fact—particularly the
trial court’s finding that Saeed breached his fiduciary duties by renewing the Unit 1 lease or
entering the lease for Unit 2 with the third tenant because no evidence reflects that Musa and
Ahmed revoked the parties’ oral agreement and the court’s finding that Saeed’s breaches, if they
occurred, materially harmed Salaam such that the trial court’s “offsetting breach of fiduciary
duties” rationale crumbles; and, should Saeed prevail on the first question, (2) the trial court’s
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failure to award attorney fees, and (3) the trial court’s choice of remedies to dissolve Salaam
rather than disassociate Musa and Ahmed.
¶ 38 We review the trial court’s findings of fact in a shareholder derivative action under the
manifest weight of the evidence standard. Goldberg v. Astor Plaza Condominium Ass’n, 2012 IL
App (1st) 110620, ¶ 60 (“In deciding a case based on the evidence, our standard of review is
manifest weight of the evidence.”). Under this standard, we will not disturb a trial court’s
findings of fact unless the opposite conclusion is apparent or the trial court’s findings are
unreasonable, arbitrary, or not based on evidence. Id. (citing Bazydlo v. Volant, 164 Ill. 2d 207,
215 (1995)). For the reasons discussed below, we find that the trial court’s findings of fact are
not against the manifest weight of the evidence. Therefore, we have no need to and will not
address Saeed’s remaining claims. Chinlund v. Heffernan Builders, LLC, 2020 IL App (1st)
191528, ¶ 17 (“Generally, this court will not decide moot questions, render advisory opinions, or
consider issues where the result will not be affected regardless of how those issues are
decided.”).
¶ 39 I
¶ 40 Saeed argues the trial court’s rationale for not awarding Salaam damages on Saeed’s
derivative claim, that the parties committed “mutual breaches” negating damages, is against the
manifest weight of the evidence. In support of that argument, Saeed asserts (1) he did not commit
the breaches of fiduciary duty that led the trial court to decline to award Salaam damages on the
derivative claim; to wit, (a) renewing the lease on Unit 1 and entering the lease on Unit 2 with
the third tenant (both of which occurred in October 2016) without Musa and Ahmed’s
knowledge and consent (hereinafter, collectively the “2016 leases”) and (b) failing to deposit the
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rents he collected under the 2016 leases into Salaam’s account; and (2) if he did breach his
fiduciary duty to Salaam, his breach did not materially harm Salaam.
¶ 41 Turning first to Saeed’s argument he did not breach his fiduciary duties by entering into
the 2016 leases without Musa and Ahmed’s knowledge and consent Saeed argues that the
parties’ oral agreement permitted him to enter the leases unilaterally and that no evidence reflects
that Musa and Ahmed revoked that agreement prior to Saeed entering the leases at issue.
¶ 42 The trial court “specifically reject[ed] the argument that Salaam incurred damages due to
the termination of either the second [Unit 1] lease or the [third tenant’s] lease as they were not
unanimously agreed to by all Salaam’s members.” The court based that conclusion on its finding
that “it was clear from the testimony and evidence, that all of the rental money that had been
collected by Saeed’ was used to pay Salaam’s expenses and not for his own personal expenses.
These expenses were legal obligations that Musa and Ahmed repeatedly refused to honor.”
¶ 43 Saeed concedes the trial court made the following express written finding:
“With these findings being made, it needs to be made clear that this oral
agreement relative to the management of Salaam was not intended to be for an
infinite time period as Saeed implied during the trial. In fact, it was clear that by
early on in 2016, Musa and Ahmed had made clear efforts to revoke their prior
oral agreements, as they no longer wanted Saeed to further manage Salaam.”
¶ 44 But Saeed argues that “nothing in the trial record supports this finding of fact.” In
response, Musa and Ahmed argue that the record shows the second Unit 1 lease was against
Musa and Ahmed’s authorization as they evicted the tenant from Unit 1. We disagree with
Saeed.
¶ 45 The trial court’s written order also found as follows, first with regard to Unit 1:
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“On September 27, 2016, attorney William Cooley, who was counsel for
Musa and Ahmed, mailed Saeed a notice which reflected that Salaam would not
be renewing [Unit 1’s] Lease and that [it] had to vacate Unit 1. [Citation.] Despite
this notice, on October 1, 2016, Saeed, who was clearly acting on behalf of [the
laundromat in Unit 1,] renewed the *** lease for Unit 1 with Salaam at the
existing rental rate for an additional 15-year term. Saeed also signed the lease on
behalf of Salaam. [Citation.]
It was very clear that Saeed had no authority to bind Salaam to this second
[Unit 1] lease and that neither Musa nor Ahmed were aware of the second [Unit
1] lease nor would they have approved of it had Saeed made them aware of it.”
¶ 46 As previously stated, this court will only find that the trial court’s findings of fact are
against the manifest weight of the evidence when the opposite conclusion is apparent or when
the trial court’s findings are unreasonable, arbitrary, or not based on the evidence. Goldberg,
2012 IL App (1st) 110620, ¶ 60. This rule has been applied to mean that “when applying a
manifest weight of the evidence standard, a reviewing court will not substitute its judgment for
that of the trial court on such matters as witness credibility, the weight to be given evidence, and
the inferences to be drawn from the evidence, even if the reviewing court would have reached a
different conclusion.” Dore v. Quezada, 2017 IL App (1st) 162142, ¶ 25. The reason for this
level of deference to the trial court’s findings is that the trial court “is in the best position to
observe the conduct and demeanor of the parties and witnesses and achieves a degree of
familiarity with the evidence that a reviewing court cannot possibly obtain.” Granville Tower
Condominium Ass’n v. Escobar, 2022 IL App (1st) 200362, ¶ 27. Moreover, “the trial court’s
judgment will be affirmed provided the record contains any evidence supporting it.” Id.
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¶ 47 First, we note Saeed does not argue that Musa and Ahmed could not rescind the parties’
oral agreement that Saeed would have sole authority over the management of the subject
property. This court has long recognized that: “Just as contracts may be implied from the conduct
of the parties, so may a rescission of contracts be implied therefrom. Words amount to very little
where actions are conclusive.” (Internal quotation marks omitted.) Volk v. Kendall, 71 Ill. App.
3d 211, 213 (1979) (quoting Julius Levin Co., Inc. v. Rosenfield, 230 Ill. App. 126, 138 (1923)).
¶ 48 Second, we find that it is not “clearly apparent” that Musa and Ahmed did not rescind
that agreement. Admittedly, Musa and Ahmed do not direct this court to any facts specifically
demonstrating their revocation of the parties’ oral agreement other than their actions concerning
Unit 1 before Saeed entered the second lease on that unit. Nonetheless, we do not find the
opposite conclusion apparent and the circumstantial evidence supports the trial court’s finding of
fact.
¶ 49 Prior to the execution of the leases in question, Musa and Ahmed’s conduct was wholly
inconsistent with a “hands off” approach to the subject property. The trial court had evidence that
Musa and Ahmed were communicating with the tenants of the property to convince them to
move out. It is not unreasonable to conclude from their conduct that Musa and Ahmed no longer
reposed sole authority over the subject property in Saeed. In addition to the letter concerning
Unit 1, the evidence reflects that Musa and Ahmed were also exerting their rights as equal
members with regard to Unit 2 prior to the execution of the lease with the third tenant. Moreover,
at trial, Saeed testified that the second tenant’s proprietor told Saeed that the reason it was
leaving before its lease expired was because “Musa’s attorney called her, [and] told her that
[Saeed] was not the owner or the landlord.” The trial court admitted that testimony over
objection because the testimony was “closing up the impeachment that was started *** when
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[Musa] denied any conversation with [the proprietor.]” Musa had denied talking to any of the
tenants in Unit 2 about being upset that Saeed had leased Unit 2 to them and denied ever telling
any of the tenants to leave the space. Saeed’s arguments about the timing of the letter from Musa
and Ahmed’s attorney and his receipt of it notwithstanding, the record reflects evidence on
which the trial court could reasonably rely in support of its judgment.
¶ 50 This court does not reweigh the evidence as Saeed suggests we should; instead, our
inquiry is whether the trial court’s judgment is unreasonable, arbitrary, or not based on evidence.
Here, based on our review of the facts in the record, Saeed has not demonstrated that the trial
court’s conclusions are unreasonable or that the opposite conclusion is clearly apparent.
Accordingly, we must find that the trial court’s judgment is not against the manifest weight of
the evidence.
¶ 51 Finally, we note Saeed’s argument that Musa and Ahmed should not be “permitted to
both argue that the second [Unit 1] lease and the [third tenant’s Unit 2] lease are invalid because
they never consented to them while they also let stand the trial court’s ruling that they breached
their fiduciary duties by ‘[r]efusing to consent to any decision’ related to the leasing of the
Property.” Rather than a convincing argument that the trial court erred in declining to award any
damages based on the parties’ respective conduct, we find Saeed’s statement to be a clear,
concise, and convincing explanation for exactly why the offending conduct is offsetting.
¶ 52 The trial court’s conclusions are not arbitrary but are based on evidence and the trial
court had the opportunity to observe the demeanor and manner of the witnesses while testifying.
(We note that at one point in his testimony Musa apologized for raising his voice but stated he
did so out of frustration with the entire situation, which he and Ahmed wanted out of.) The
witnesses attitudes, apparent from even the cold record, support the trial court’s conclusion that
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“Musa and Ahmed had made clear efforts to revoke their prior oral agreements, as they no longer
wanted Saeed to further manage Salaam” because “both Musa and Ahmed wanted to sell the
Property” when he entered the leases at issue. Because there is evidence supporting the trial
court’s findings and those findings are reasonable based on that evidence, we cannot say the trial
court’s findings of fact are against the manifest weight of the evidence.
¶ 53 II
¶ 54 Next, Saeed argues that it was against the manifest weight of the evidence to find that
Saeed failed to deposit all of the rental income he received. Saeed argues that the record reflects
that Saeed did deposit all rent payments into Salaam’s account. “A trial court’s finding is against
the manifest weight of the evidence only where the ‘opposite conclusion is clearly evident.’
[Citation.] Thus, ‘[i]f the record contains any evidence to support the trial court’s judgment, the
judgment should be affirmed.’ [Citation.]” InsureOne Independent Insurance Agency, LLC v.
Hallberg, 2012 IL App (1st) 092385, ¶ 29. Further, an action for a breach of fiduciary duty
sounds in equity.
“Illinois courts have recognized that an action seeking damages for breach
of a fiduciary duty is an equitable action. [Citation.] The court in Borse noted that
our supreme court rejected the Restatement’s view that an action for breach of
fiduciary duty is a tort; instead, a claim for breach of fiduciary duty is controlled
by the substantive laws of agency, contract and equity. [Citations.]’ ” Wolinsky v.
Kadison, 2013 IL App (1st) 111186, ¶ 109 (citing Bank One, N.A. v. Borse, 351
Ill. App. 3d 482, 488 (2004)).
Equitable remedies “must suit the facts of the particular case in question.” Perry v. Estate of
Carpenter, 396 Ill. App. 3d 77, 87 (2009). “[I] it is the function of a court of equity to do
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justice.” Carlyle v. Jaskiewicz, 124 Ill. App. 3d 487, 499 (1984). See also Heberlein v. Wendt, 99
Ill. App. 506, 508 (1902) (“A court of equity is governed mainly by considerations of right and
justice between the parties.”) “A court of equity is a court of conscience, and will exercise its
extraordinary powers only to enforce the requirements of conscience.” American University v.
Wood, 294 Ill. 186, 195 (1920). “In fashioning a remedy, courts have broad discretion to grant
the relief that equity requires. [Citation.]” (Internal quotation marks omitted.) GX Chicago, LLC
v. Galaxy Environmental, Inc., 2015 IL App (1st) 133624, ¶ 72 (quoting Westcon/Dillingham
Microtunneling v. Walsh Construction Co. of Illinois, 319 Ill. App. 3d 870, 878 (2001)).
Additionally, “courts may consider the relative benefits and hardships to the parties in crafting an
appropriate remedy. [Citation.]” Westcon/Dillingham Microtunneling, 319 Ill. App. 3d at 878.
“Relevant considerations include both what is fair and what is workable. [Citation.]’ “ GX
Chicago, LLC, 2015 IL App (1st) 133624, ¶ 72 (quoting Westcon/Dillingham Microtunneling,
319 Ill. App. 3d at 878).
¶ 55 Saeed directs this court’s attention to bank statements that purportedly show deposits of
the second tenant’s rents into Salaam’s bank account. We admit those record items reflect
numerous deposits in an amount that is roughly the amount of rent to be paid by the second
tenant of Unit 2. (At trial, Saeed testified the tenant informed him they could not pay the full
rent.) But we give credence to Musa and Ahmed’s argument that the exhibits provided “show
that the amount of bank statements provided don’t even cover the amount of monthly rent
payment [Saeed] alleged [the second tenant] paid *** at trial.” 1 Saeed provides, nor can we
1
Saeed provided bank statements showing $2000 deposits, which he claims reflect the second
tenant’s rent payments, in May, June, July, August, October (twice), and November 2014, January,
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glean, no evidence to explain these discrepancies beyond his own testimony at trial2, which the
trial court was free to accept, reject, and weigh as it saw fit. Northwestern Memorial Hospital v.
Sharif, 2014 IL App (1st) 133008, ¶ 26 (it is a “well-established legal principal that the trier of
fact, in this case an experienced trial judge, is free to accept or reject testimony and give
whatever weight it deems appropriate to the evidence submitted. Under a manifest weight of the
evidence review, we give the trial court’s decision great deference because ‘[t]he trial court is in
a far better position to determine the credibility of witnesses.’ [Citations.]”).
¶ 56 The trial court’s conclusion is bolstered by Saeed’s own testimony regarding the rent
from Unit 1: that Saeed sometimes paid Salaam’s bills directly rather than depositing the rent
into Salaam’s account first. The trial court could reasonably infer Saeed followed the same
procedure with the rent from Unit 2, thus accounting for the shortfall in the documentation of
some deposits and varying amounts. Thus, the evidence on which Saeed relies does not
demonstrate that the trial court’s judgment regarding the deposit of rental payments is against the
manifest weight of the evidence. See Benford v. Everett Commons, LLC, 2014 IL App (1st)
131231, ¶ 32 (citing Foutch v. O’Bryant, 99 Ill. 2d 389, 391-92 (1984)). Moreover, “[a]ny
doubts arising from the incompleteness of the record are resolved against *** the appellant in
this case. Therefore, plaintiff’s claim that the verdict was against the manifest weight of the
evidence fails on this basis as well.” Larkin v. George, 2016 IL App (1st) 152209, ¶ 21.
February, April, May ($1,500), June ($1,500) July ($3,000), August through October, and December
2015, January through March, April ($3,000), May, and December ($1,250) 2016.
2
Saeed asserts the bank entries “are consistent with Saeed’s rent summary table [citation] and
testimony.”
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¶ 57 We also find that the trial court’s judgment is not against the manifest weight of the
evidence because “we may affirm the trial court’s judgment on any basis in the record, regardless
of the trial court’s reasoning” (Bell Leasing Brokerage, LLC v. Roger Auto Service, Inc., 372 Ill.
App. 3d 461, 469 (2007)) and “[a]n award of damages is not against the manifest weight or
manifestly erroneous if there is an adequate basis in the record to support the trial court’s
determination of damages (1472 N. Milwaukee, Ltd. v. Feinerman, 2013 IL App (1st) 121191, ¶
13).
¶ 58 The trial court could look at all of the facts and circumstances of the case, and was not
limited to the respective breaches related to the individual units or the same conduct related to
the individual units, to find that it would “not make any award based on these mutual breaches.”
See generally Westerfield v. Redmer, 310 Ill. App. 246, 249 (1941) (“Supreme Court Rule 10
provides in substance that *** all matters which prior to January 1, 1934, *** within the
jurisdiction of a court of equity, whether directly or as an incident to other matters before it, or
which the equity court could have heard so as to do complete justice between the parties, might
be regarded thereafter as a single equitable cause of action and when so treated *** should be
heard and decided in the manner heretofore practiced in courts of equity.”). We so find because
“[i]n an equitable proceeding, the trial court may examine all relevant factors to ensure that
complete justice is done; the determination of what equity requires in a particular case.” 88
Causes of Action 2d 1, Cause of Action for Breach of Fiduciary Duty by Manager or
Controlling Member of Limited Liability Company, Causes of Action Second Series September
2022 Update (Originally published in 2019). See also In re Estate of Zagaria, 2013 IL App (1st)
122879, ¶ 67 (Cunningham, J., dissenting) (“When all of the facts are reviewed and the case is
analyzed as a whole, the equities do not lie with the attorneys and Corlett but rather with
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Zagaria. While I agree that equitable principles do not preclude the application of statutorily
based attorney fee obligations, I believe that the equitable principles have been incorrectly
applied by the majority in this case.” (Emphasis added.)).
¶ 59 The trial court could rely on Saeed’s failure to deposit the rent from Unit 1 or from Unit 2
to find that Saeed’s breach, specifically a “failure to deposit the [Unit 1] collected rental monies
into Salaam’s account and/or transmit said monies to Salam when balanced against Musa and
Ahmed’s conduct which led to MK Fast Foods’ breach of its lease with Salaam extinguish each
other’s respective damages.” In this case the evidence is clear that Saeed used the rent from Unit
1 to pay Salaam’s bills that Saeed selected rather than depositing the Unit 1 rent into Salaam’s
account. The evidence supporting that finding came from Saeed. When asked how he would pay
the rent on Unit 1, Saeed testified that he “would pay the bills depending on what comes in and
what has to go out.” Saeed continued, “Sometimes I would *** deposit it into the bank.
Sometimes I would have to pay for repairs ***. Some would have to cover the bills and whatever
was left ***.” Saeed explained that if Salaam did not have the money he would pay the bills out
of Unit 1’s funds and deduct that amount from the rent due Salaam. Saeed agreed he did not
deposit the rent into Salaam’s account then pay Salaam’s bills. Notably, when asked what bills
he was referring to, Saeed testified: “Mortgage, insurance, water, maintenance, cleaning, repairs,
water bill, insurance, property insurance, mortgage to the building.” With the exception of the
water bills, these bills (specifically the mortgage and insurance) are bills for Unit 2 as well as for
Unit 1.
¶ 60 The trial court’s decision not to award damages on Saeed’s derivative claim is not against
the manifest weight of the evidence.
¶ 61 III
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¶ 62 Saeed argues alternatively that even having committed a breach of his fiduciary duties as
found by the trial court, the trial court erred in denying Salaam relief in Saeed’s derivative claim
against Musa and Ahmed because the finding that the respective breaches “were comparable and
offsetting” is against the manifest weight of the evidence. Saeed claims “[n]o evidence suggests
the two sides acted comparably and that the misconduct of one offset the misconduct of the
other.” Saeed argues that while Musa and Ahmed’s conduct only harmed Salaam by denying it
income, Saeed’s conduct, even though it was a breach of his fiduciary duties, actually “benefitted
Salaam by providing Salaam with some income.” (Emphasis omitted.) We disagree with Saeed’s
assessment that no evidence supports the trial court’s judgment concerning the deposit of the rent
payments or the “offsetting” breaches of fiduciary duty.
¶ 63 We begin by noting that the trial court expressly rejected the contention Salaam suffered
any damage due to the termination of either of the 2016 leases because those leases “were not
unanimously agreed to by all Salaam’s members.” This judgment is not against the manifest
weight of the evidence in light of our finding that the trial court’s judgment that Saeed breached
his fiduciary duties in entering those leases must stand. Musa and Ahmed did deprive Salaam of
the rent the tenants had been paying and, by their conduct, any rental income. However, in
weighing the respective breaches the trial court also relied on “Saeed’s failure to deposit ***
collected rental monies into Salaam’s account and/or transmit said monies to Salaam.” Although
not expressly relied upon by the trial court3, we note that Saeed also wrongfully bound Salaam to
receive the same rent from the tenant in Unit 1 for the next 15 years. Although the trial court
3
“Under the manifest weight standard, an appellate court will affirm the trial court’s ruling if there
is any basis in the record to support the trial court’s findings.” In re Custody of G.L., 2017 IL App (1st)
163171, ¶ 24.
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refused to find this rent was below market rate the court could have considered the length of the
lease terms without any provision for increasing the rent over time (just as Saeed did with the
2016 lease on Unit 2) as at least somewhat detrimental to Salaam and to Musa and Ahmed. The
detrimental impact of this lease on Musa and Ahmed is compounded by the fact, supported by
ample evidence, that Musa and Ahmed did not want to be involved in the property at all and
clearly not want to be for another 15 years.
¶ 64 The trial court could consider more than “the numbers” in assessing the relative impact of
the respective breaches of fiduciary duty and take the impact on the parties into consideration.
See supra § II. In this particular case, the trial court could reasonably find, based on the facts
before it, that it would be unjust to allow Saeed to completely escape the consequences of the
fact, as expressly found by the trial court and supported by the evidence as stated above, that
“Saeed defiantly refused to acknowledge that Musa and Ahmed had a right to object to his
management of Salaam or that they had any right to object to his continued role in Salaam’s
management.”
¶ 65 We further find the evidence supports the trial court’s finding that “Saeed was well aware
that both Musa and Ahmed wanted to sell the Property.” The trial court reasonably found that
Saeed’s breach required some remedy for Musa and Ahmed to do justice between the parties and
could reasonably find that any such damages offset the harm to Salaam from Musa and Ahmed’s
breaches. The trial court’s findings are not unreasonable, arbitrary, or not based on the evidence,
nor is the opposite conclusion, that Musa and Ahmed’s breach so far outweighed Saeed’s breach
that the trial court improperly considered Saeed’s breach in fashioning its damages award,
apparent. Goldberg, 2012 IL App (1st) 110620, ¶ 60. The trial court’s judgment declining to
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award damages for the parties’ respective breaches of fiduciary duties is not against the manifest
weight of the evidence.
¶ 66 IV
¶ 67 Next, Saeed argues that in the event he prevails on his derivative claim, then he is entitled
to an award of attorney fees under the operating agreement or the case should be remanded for
the trial court to consider an award of attorney fees under the LLC Act. Saeed also argues that in
the event any breach of fiduciary duty ruling against him is vacated, then the case should be
remanded for the trial court to consider disassociation and a forced buyout as an appropriate
remedy as opposed to dissolving Salaam.
¶ 68 Saeed forfeited any argument he is entitled to attorney fees or that dissolution is not the
proper remedy if the trial court’s judgment stands.4 “The supreme court rules are not merely
suggestions, but are necessary for the proper and efficient administration of the courts. [Citation.]
This court will not *** complete legal research to support an argument, and issues that are
4
Saeed argued in his opening brief as follows:
“Saeed prevailed on all his claims. Saeed recovered *** damages in connection
with Musa and Ahmed breaching their fiduciary duties to his and depending on how this
Court rules, potentially another $223,245 damages on his derivative claim in connection
with Musa and Ahmed breaching their fiduciary duties to Salaam. Accordingly, it was an
abuse of discretion for the trial court not to consider Saeed to be the prevailing party.”
(Emphases omitted and emphasis added.)
In reply, Saeed argues:
“Should Saeed prevail, no basis would then exist to have denied Saeed an award
of fees on the basis that he committed ‘multiple breaches’ of his fiduciary duties.”
This is in effect a concession that should Saeed fail in his effort, a basis would exist to
deny him an award of fees, Saeed’s alternative argument should he not prevail in his reply
notwithstanding. Furthermore, “an appellant's arguments must be made in the appellant's opening
brief and cannot be raised for the first time in the appellate court by a reply brief.” In re Marriage
of Winter, 2013 IL App (1st) 112836, ¶ 29.
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insufficiently presented do not satisfy the rule[s] and are considered waived. [Citation.]”
(Internal quotation marks omitted.) Northern League of Professional Baseball Teams v.
Gozdecki, Del Giudice, Americus & Farkas, LLP, 2018 IL App (1st) 172407, ¶ 62. For all of the
reasons discussed above the trial court’s judgment must be affirmed in all respects. Accordingly,
we decline to address Saeed’s alternative arguments concerning attorney fees or the dissolution
of Salaam.
¶ 69 V
¶ 70 Finally, Saeed argues the trial court erred in refusing to award him punitive damages.
Unlike his argument concerning the proper remedy of attorney fees, Saeed did not make this
argument contingent upon success on his prior argument. In this regard, Saeed argues the trial
court erred because Musa and Ahmed “intentionally,” not due to mistake, violated their fiduciary
duties including taking a loan for their sole personal benefit with the goal of forcing Saeed to
agree to sell the property, with the result of causing Saeed to cover all of Salaam’s operating
expenses including debt service on the loan. Saeed calls this conduct “indefensible” that must be
“deterred and punished.”
¶ 71 Saeed asserts that based on the trial court’s findings, “reasonable minds cannot seriously
differ as to whether Musa and Ahmed’s conduct was outrageous due to an ‘evil motive’ and
‘reckless indifference’ to the rights of Salaam and Saeed.” We disagree.
“Punitive damages are not awarded as compensation, but serve instead to
punish the offender and to deter that party and others from committing similar
acts of wrongdoing in the future. [Citations.] They may be awarded when the
defendant’s tortious conduct evinces a high degree of moral culpability, that is,
when the tort is committed with fraud, actual malice, deliberate violence or
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oppression, or when the defendant acts willfully, or with such gross negligence as
to indicate a wanton disregard of the rights of others. *** [B]ecause they are
penal in nature, punitive damages are not favored under the law, and courts must
take caution to ensure that they are not improperly or unwisely awarded.
[Citation.]” (Internal quotation marks omitted.) Flynn v. Maschmeyer, 2020 IL
App (1st) 190784, ¶ 76.
¶ 72 “In reviewing a trial court’s decision to award punitive damages, this court takes a three-
step approach.” Caparos v. Morton, 364 Ill. App. 3d 159, 178 (2006). We consider whether
punitive damages are available for the particular cause of action, using a de novo standard;
whether, under a manifest weight of the evidence standard, the defendant or defendants acted
fraudulently, maliciously or in a manner that warrants such damages; and whether the trial court
abused its discretion in imposing punitive damages. Id. Pertinent in this appeal, “we review the
trial court’s reasons for imposing punitive damages to determine if its judgment *** was
contrary to the manifest weight of the evidence” and we will only find that the trial court abused
its discretion if no reasonable person could assume its view. Id.
¶ 73 Here, we find that trial court’s reasons not to award punitive damages are not against the
manifest weight of the evidence and, accordingly, the trial court did not abuse its discretion in
declining to award punitive damages. The trial court found as follows with regard to punitive
damages:
“Based upon a careful review of the identified conduct in light of the
remedies that are being otherwise ordered and the unlikelihood that the parties
will commit similar acts of wrongdoing in the future, the Court denies the parties’
request for punitive damages.”
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¶ 74 As stated earlier, a judgment is against the manifest weight of the evidence only where
the opposite conclusion is apparent or the trial court’s findings are unreasonable, arbitrary, or not
based on evidence. Goldberg, 2012 IL App (1st) 110620, ¶ 60. The trial court’s judgment on its
face establishes that the judgment is based on the evidence. Nor can we say the opposite
conclusion is apparent or that the trial court’s findings are unreasonable. The facts are that all of
the parties to this case violated one or more fiduciary duties owed to the corporation and each
other beginning shortly after the inception of the corporation; the trial court compensated the
parties for their individual losses caused by the various breaches of fiduciary duties; and in light
of the trial court’s judgment dissolving the corporation, which we have affirmed, it is impossible
for the parties to commit similar acts of wrongdoing in the future.
¶ 75 We disagree with Saeed that no reasonable person would take the view that Musa and
Ahmed’s conduct in this case does not reflect a high degree of moral culpability because it was
“committed with fraud, actual malice, deliberate violence or oppression,” or that they did not
“indicate a wanton disregard of the rights of others” sufficient to overcome the disfavor of
punitive damages. Musa and Ahmed did not find the business venture profitable or worthwhile
as Saeed clearly did. This is a simple business disagreement. Their tactic to extricate themselves
from the business may have been ruthless; but, the evidence is also that Saeed would not budge
from his position and, therefore, Musa and Ahmed may have thought, even unreasonably, they
had no other choice. Regardless of our or Saeed’s personal views, we cannot say that no
reasonable person would take the view adopted by the trial court. Therefore, the trial court’s
judgment regarding punitive damages must be affirmed.
¶ 76 CONCLUSION
¶ 77 For the foregoing reasons, the judgment of the circuit court of Cook County is affirmed.
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¶ 78 Affirmed.
- 31 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488802/ | 2022 IL App (2d) 210186-U
No. 2-21-0186
Order filed November 22, 2022
NOTICE: This order was filed under Supreme Court Rule 23(b) and is not precedent
except in the limited circumstances allowed under Rule 23(e)(l).
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
______________________________________________________________________________
THE PEOPLE OF THE STATE ) Appeal from the Circuit Court
OF ILLINOIS, ) of Lake County.
)
Plaintiff-Appellee, )
)
v. ) No. 16-CF-3018
)
WILLIE C. JACKSON, ) Honorable
) George D. Strickland,
Defendant-Appellant. ) Judge, Presiding.
______________________________________________________________________________
JUSTICE JORGENSEN delivered the judgment of the court.
Justices McLaren and Hutchinson concurred in the judgment.
ORDER
¶1 Held: (1) Defendant did not establish the mitigating factors to reduce his conviction from
first-degree murder to second-degree murder. (2) The trial court did not err in
denying defendant’s motion to suppress his statements, where defendant did not
invoke his right to counsel. (3) The trial court did not fail to consider mitigating
evidence in sentencing defendant to 36 years’ imprisonment. Affirmed.
¶2 After a jury trial, defendant, Willie C. Jackson, was convicted of first-degree murder (720
ILCS 5/9-1(a)(2) (West 2016)) and sentenced to 36 years’ imprisonment. He appeals, arguing that
his: (1) conviction should be reduced to second-degree murder, because he had an actual, albeit
unreasonable, belief that he had to shoot the victim to save his own life; (2) motion to suppress his
2022 IL App (2d) 210186-U
statements to police should have been granted, because he invoked his right to counsel during the
interview; and (3) sentence was excessive, where the trial court did not find in mitigation that
defendant acted under strong provocation. We affirm.
¶3 I. BACKGROUND
¶4 The victim, Daviontay Jackson (Daviontay), age 17, was killed on November 11, 2016, in
Waukegan. Afterwards, around January 2017, defendant, age 18 and no relation to Daviontay,
was arrested in Tennessee.
¶5 A. Defendant’s Statements to Police
¶6 On January 3, 2017, Waukegan police sergeant Scott Thomas and detective Jaroslaw
Grzeda drove to Tennessee to interview defendant. In Tennessee, they learned that defendant had
waived extradition, and they asked him if he wished to speak with them in Tennessee or Waukegan.
Defendant chose Waukegan.
¶7 On January 4, 2017, officers interviewed defendant at the Waukegan police station. The
interview was recorded. In the video, Sergeant Thomas told defendant that he wanted to get his
side of the story. He Mirandized defendant and led the questioning. Defendant stated that he knew
there was a warrant for his arrest. He related that, on November 11, 2016, he had gone to “Ace’s”
(Aaron Kinzer’s) house and was in the room when Daviontay was killed. Defendant next asked,
“Can I call my grandma, cuz she said [indiscernible],” and Thomas replied that he could, but
Thomas wanted “to get through some of this, what was going on” and to get defendant’s side of
the story.
¶8 Defendant stated that he and his uncle Jeremiah went to Ace’s house, and Daviontay said
that he was going to kill defendant. Ace, “D’tay” (Javante Kinzer, Aaron’s brother) and “Shorty”
(Daviontay) were there. Daviontay, according to defendant, was playing with a rifle, acting crazy,
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and waving it around. Defendant told Daviontay to stop playing with the rifle and to put it down.
Daviontay talked back angrily, and defendant told him to calm down. Daviontay responded, “I’ll
smoke you.” Defendant replied, and Daviontay “kept talking.” They wrestled over the rifle, and
defendant got it. After that, defendant “blanked out.”
¶9 When asked what he meant by “blanked out,” defendant asked a second time to call his
grandmother, “because she told me ***” Thomas interrupted, saying yes, “100%”, and that
defendant could make as many calls as he wanted and that his grandmother could even come down
to the station. Defendant responded, “No, it’s like.” Thomas continued, noting that they were
“halfway there,” and he wanted to ask defendant a few more questions. Defendant responded, “all
right.”
¶ 10 Defendant stated that, after he blanked out, he ran outside of the Kinzer house and into the
middle of the street. Defendant had not spoken to Jeremiah or the Kinzers since the shooting.
Prior to the shooting, he had been to Ace’s house “a lot” or about three times. However, he had
never seen Daviontay before. The day before the shooting, defendant was at the Kinzers’ house,
and they took pictures together with the rifle. Defendant knew the gun was loaded. Defendant
stated that the rifle was at the home when he arrived, and he believed it was the Kinzers’ uncle’s
rifle.
¶ 11 Sergeant Thomas asked if defendant’s fingerprints would also be on the .40-caliber
handgun that had also been in the room and noted that forensics personnel could assist in
determining whether there were fingerprints on the gun. Thomas noted that people lie to the police
all of the time. No one was saying that defendant was a bad guy, but sometimes stupid things
happened.
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¶ 12 Defendant stated that he was confused. He asked a third time to call his grandmother: “I
wanna call my grandma, cuz she told me not to even talk to y’all without, like calling her, cuz she
got a lawyer.” Defendant stated that his grandmother was in Chicago. Thomas asked if she was
going to be able to help defendant. Defendant replied that she was “trying to send a lawyer” and
“she says she got a lawyer.” Defendant confirmed for Thomas that his grandmother answered her
phone. Thomas asked for her phone number, and defendant gave it to him. The officers left the
room.
¶ 13 Detective Grzeda returned, stating that Thomas was calling the number that defendant
provided. He noted that defendant’s demeanor had changed from the car ride. Grzeda stated that
people make mistakes and that defendant was a good kid, so he should explain what happened.
He reviewed photographs with defendant, who identified Ace, D’Tay, Daviontay, the AR-15 rifle,
and a handgun. Defendant stated that he believed that the handgun belonged to Daviontay.
¶ 14 Addressing the rifle with which defendant had taken a photo the day before, defendant
stated that he knew that it was loaded because he had taken out the clip and saw bullets in it.
However, when Grzeda asked how a bullet had entered the chamber, defendant stated that he did
not know, and he did not know what it meant to “rack” a rifle.
¶ 15 Defendant explained that Daviontay was “messing with” the rifle and waving it around.
Defendant told him to calm down, but Daviontay started talking crazy, stating that defendant did
not know him, and called defendant a “bitch.” Defendant told Daviontay to put it down. Daviontay
said that he was going to kill defendant. Everyone in the room said stop. Defendant grabbed the
gun, and Daviontay pulled on it as well. Defendant got the trigger end and pulled the trigger. He
did not know how many times.
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¶ 16 Defendant stated that he told Daviontay to stop, but that Daviontay pointed the rifle and so
defendant got up and wrestled with him. “And I grabbed it and shot him.” After being shot in the
face, Daviontay got up and rushed at defendant, and, so, defendant continued shooting. The first
shots were to Daviontay’s face or neck, and Daviontay came at defendant, who moved out of the
way. Daviontay fell at the front door, and defendant left out the back door. Afterwards, outside,
a dog ran up and scared defendant, causing him to shoot the rifle. Defendant dropped the rifle and
ran off.
¶ 17 B. Motion to Suppress
¶ 18 On October 19, 2017, defendant moved to suppress his statements to police, arguing that
they were made after he invoked his right to counsel. He asserted that, during the police interview,
he told police on several occasions that he wanted to speak with his grandmother and, finally, that
she had hired him an attorney and that he believed the attorney was going to come to the police
station. He also told police that he was not supposed to speak with them until he spoke to his
grandmother because she got him an attorney. In the motion, defendant argued that his statements
reflected a clear desire to cease communication with the officers until he could speak to his
grandmother and his attorney. Thus, his statements were elicited in violation of his constitutional
rights and in violation of Miranda v. Arizona, 3384 U.S. 436 (1966).
¶ 19 At the hearing on defendant’s motion, Detective Grzeda testified that, while in Tennessee,
he and Sergeant Thomas gave defendant the opportunity to speak to them there or to do so in
Illinois. Defendant did not tell the detectives that he wanted to return to Waukegan because he
had spoken to his grandmother and had an attorney. Grzeda further testified that at no time while
he and Thomas spoke to defendant in the jail in Tennessee did defendant ask to speak to an
attorney. Sergeant Thomas also denied that defendant told the detectives in Tennessee that his
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grandmother had hired an attorney and that is why he wanted to return to Waukegan. During the
interrogation, when he stepped out of the interview room, Thomas tried to call defendant’s
grandmother but could not reach her. An attorney eventually arrived at the police department, but
it was after the interview with defendant had concluded.
¶ 20 Defendant testified that he called his grandmother from the Tennessee jail. She instructed
him not to say anything and that she had an attorney for him. The next day, he met the Waukegan
detectives, who asked him if he wanted to speak there or in Waukegan. According to defendant,
he responded that he wanted to go back to Illinois because his grandmother had an attorney for
him. He did not state that he was not going to speak to the detectives because he had an attorney.
Defendant never said to the police that he wanted a lawyer, but that is what he intended/meant.
“When I said I was going to call my grandma, that’s what I meant.”
¶ 21 Dorothy Jackson, defendant’s grandmother, testified that, in early January 2017, she
learned that defendant had been arrested in this case and that the police were looking for him.
Multiple times, they came to her house, looking for defendant. After this and before defendant
was arrested, Dorothy spoke to an attorney. After defendant was arrested, defendant called
Dorothy from the Tennessee jail. Dorothy told defendant not to speak to anyone and informed
him that someone, i.e., police, was going to come get him and bring him back to Illinois. She told
him not to speak to anyone until she brought his attorney. Dorothy told defendant that she got him
an attorney. Dorothy testified that she did not give defendant the name and phone number of the
attorney that she had hired for him. “I just told him that I had a lawyer.” She did not pay the
attorney or meet him in person. She spoke to him on the phone the day defendant arrived back in
Illinois. Dorothy paid the attorney when they met at the police station. The attorney was in
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2022 IL App (2d) 210186-U
Chicago, and his name was “David.” She could not recall his last name. Dorothy spoke to the
attorney both before and after defendant was arrested.
¶ 22 The trial court denied defendant’s motion, finding that his statements were not
unambiguous requests for an attorney or to terminate the interview. It found that, even if defendant
wanted to return to Illinois because Dorothy had an attorney, that was not necessarily inconsistent
with the detectives’ testimony that defendant did not request an attorney while in Tennessee.
¶ 23 C. Trial
¶ 24 1. State’s Case-in-Chief
¶ 25 Trial commenced on May 8, 2019. The State’s theory of the case was that defendant, who
was with his uncle, went to visit his friends, Ace and D’tay, and Daviontay was present at the
home. There was an AR-15 rifle and handgun in the home, and the friends were taking Snapchat
videos of themselves with the guns. Defendant and Daviontay got into a verbal altercation,
defendant took the rifle, and he shot Daviontay 10 times. Defense counsel argued that defendant
acted in self-defense, because Daviontay was pointing the rifle at him and threatening to kill him.
¶ 26 a. Detectives Chris Llenza and Joshua Amann
¶ 27 Detective Chris Llenza played his bodycam video of his arrival at the scene (415 McKinley
in Waukegan) on November 11, 2016, at about 8:21 p.m. In the video, Daviontay’s body is at the
foot of an interior staircase that is just inside the front entrance to the house. Detective Joshua
Amann took photographs at the scene. They depicted splatters and pools of blood around the
living room and a bloody handprint smear on the wall between the living room and the doorway
where Daviontay’s body was found. Shell casings were recovered from the living room, dining
room, and under Daviontay’s legs in the stairwell. The rifle was recovered in a yard behind a
home across and down the street from the scene at 408 McKinley. There was a bullet hole in the
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driveway pavement. Llenza testified that, when he first arrived at the scene, Daviontay’s wounds
appeared to be smoking from gunshots. The body laid about 10.56 feet from a red chair.
¶ 28 b. Forensic Testimony
¶ 29 Sarah Pendley, a deputy coroner in Lake County, took photographs of Daviontay’s body
at the scene. They depicted a bullet fragment on the wall, blood spatter in the living room and
stairwell, brain matter on the stairs, and two cartridges below Daviontay’s feet.
¶ 30 Kristen Alvarenga, a medical examiner/forensic pathologist employed by the State, a
subcontractor for various coroners’ offices, and an assistant medical examiner at the Cook County
medical examiner’s office, testified as an expert in forensic pathology. She performed Daviontay’s
autopsy. Daviontay sustained gunshot wounds, including to the back of his head (fatal), left side
of his jawline, his chin, and his back. In total, he sustained five shots to the front and five to the
back, along with three graze wounds. Four of the wounds were considered fatal injuries. Two of
the three head and face wounds showed stippling, i.e., abrasions on the skin caused by unburned
powder, which is a sign that the gun was fired from very close range, i.e., between six inches and
two feet. Only one of the shots below the chin showed stippling, but clothing might have prevented
its appearance.
¶ 31 Gary Lind, a forensic firearm examiner, testified that all of the casings recovered from the
scene were .223-caliber and fired from the recovered AR-15 rifle. The rifle in the video had an
empty magazine well, and, in order to fire from it more than one shot, the magazine would have
been inserted. When fired, the rifle would eject casings that fly out at variable lengths and different
directions based on the direction of the rifle.
¶ 32 Maria Salazar, a forensic scientist at the Northeastern Illinois Regional Crime Laboratory,
testified that Daviontay’s DNA was present on swabs taken from the AR-15 bolt release, but
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defendant’s DNA was excluded. There were four DNA profiles on the rifle’s grip, but no
individual was identified.
¶ 33 c. Stipulation and Surveillance Video
¶ 34 The parties stipulated that, on November 11, 2016, at 8:04 p.m., Daviontay’s Snapchat
account posted a video depicting Daviontay pointing forward an AR-15 rifle without a magazine
at the camera. Daviontay was silent in the video. However, in the background, defendant and his
uncle discussed which type of bullet might be preferable to be shot with.
¶ 35 Nelson Campos, a neighbor who lived two doors down from the scene, presented
surveillance video from his home from the evening of the shooting, at around 8:15 p.m. The video
showed a male running and a dog following behind him.
¶ 36 d. Eileen Thomas
¶ 37 Eileen Thomas, an accountant, lived at 415 McKinley, with her three sons. On the night
of the shooting, which occurred on the first floor of her residence, she was upstairs with her
brother-in-law. Her sons, Javante and Aaron, were on the first floor. Thomas heard gunshots and
initially thought the sounds came from outside. Prior to hearing the shots go off, Thomas heard
arguing downstairs. She then heard more shots and ran to the stairs. She saw a young man with a
rifle standing over Daviontay, who was on the stairs. Thomas said, “I know you’re not about to
shoot this mother fucker up in my crib.” The man lowered his gun and shot Daviontay. The young
man wore a hoodie and was brown skinned. Thomas did not see his face. When Thomas started
coming down the stairs, the man ran out the back of the house. Aaron and Javante were not the
shooters.
¶ 38 In November 2016, Thomas had just lost her husband and was going through hard times.
She used narcotics and had some drug-related convictions. “[A]t the time[,] I was in my
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addiction.” That day, Thomas used drugs, but she had not yet used them at the time of the shooting.
However, she also testified that she told an investigator that “I had been using drugs that morning.
I was sick.” She was waiting for her supplier to arrive so that she could purchase the drugs.
Thomas used heroin.
¶ 39 Thomas pleaded guilty to retail theft in April 2017. She was placed on probation and had
two separate charges of possession of a controlled substance that were dismissed, as well
obstruction of justice and another retail theft charges that were dismissed.
¶ 40 e. Detective Grzeda
¶ 41 Detective Grzeda testified about the interrogation of defendant that he and Thomas
conducted. A recording of the interview was played for the jury.
¶ 42 The State rested. Defendant’s motion for a directed verdict was denied.
¶ 43 2. Defendant’s Case-in-Chief
¶ 44 a. Sergeant Thomas
¶ 45 Sergeant Scott Thomas testified during defendant’s case-in-chief that he interviewed
Eileen Thomas on November 11, 2016, at 9 p.m. A portion of the interview was recorded. She
told Sergeant Thomas that she heard gunshots and ran to the stairs. Eileen never told Sergeant
Thomas that she said to the shooter, “I know you’re not about to shoot no mother fuckers in my
crib.”
¶ 46 b. Lynch Evidence
¶ 47 Defense counsel entered several pieces of Lynch evidence. People v. Lynch, 104 Ill. 2d
194 (1984) (addressing admissibility of character evidence where self-defense is raised). By
stipulation, counsel entered videos from Daviontay’s phone posted to the internet. An exhibit
depicted Daviontay pointing a revolver at the camera and asking if “one of y’all wants a war.”
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Another exhibit depicted him in a car pointing a semi-automatic gun at the camera and saying,
“What’s up?” A photo from Daviontay’s phone of him pointing a gun at the camera was entered,
as were his juvenile adjudications for mob action and aggravated battery in 2013 and aggravated
battery in 2014. Dennis Gillespie testified to a 2014 battery in which Daviontay started a fight
with him.
¶ 48 c. Defendant
¶ 49 Defendant testified that, in November 2016, he lived in Chicago with his grandmother. He
had relatives in both Chicago and Waukegan. He was in Waukegan in November 2016 for a job
interview that his aunt had arranged. Prior to November 11, 2016, he had been in Waukegan for
about one week. The day before the shooting, defendant went to his friends’, Ace and D’Tay’s
house. There, he saw the rifle. He touched it and took a photo of it, which he sent to his cousin.
Daviontay was not at the house that day.
¶ 50 On November 11, 2016, defendant and his uncle went from his aunt’s house to the Kinzers’
house. They talked with Ace and D’Tay. Daviontay, whom he had never seen before, was also
there. They were in the living room on the first floor. Daviontay held the rifle, and Ace held the
handgun. The magazines were in the guns. Everyone talked about the guns and passed them
around. At one point, they were unloaded by the Kinzers. Everyone talked about the bullets.
¶ 51 Daviontay loaded the rifle. He sat in a red chair. The others talked about how defendant
had been gone for a while. Daviontay started playing with the gun, i.e., pointing it at the others
and waving it around. Defendant, Ace, and D’Tay told Daviontay to stop. (Jeremiah was not in
the room.) Daviontay waived them off, and defendant told him to stop. According to defendant,
Daviontay became angry and cursed at defendant. “[Daviontay] said stuff like who the fuck is
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you, fuck you, shit like -- stuff like that.” Defendant said, “bro, just stop, fuck you, stop playing
with the gun.” They continued to argue and curse back and forth.
¶ 52 At one point, Daviontay yelled, “I’ll smoke your ass, bitch” and pointed up the rifle
(parallel to the ground). Defendant was scared. Defendant replied, “you don’t even know me,
stop. I just told him, bro, stop, basically.” Daviontay became madder. He said, “I’ll kill you in
this bitch” and raised the gun (parallel to the ground). Defendant believed that Daviontay was
going to kill him. Defendant jumped up and grabbed the rifle and pushed the barrel away to the
left. With his right hand, he grabbed the gun and pushed it toward Daviontay’s chest. They each
then pulled on the gun. Defendant got the butt of the rifle, and a shot went off. Defendant had
pulled the trigger, but not on purpose. After being shot in the face, Daviontay jumped up and
grabbed the rifle. Defendant believed that Daviontay was going to kill him, so he started pulling
the trigger. He did not know how many times he pulled it.
¶ 53 They struggled around the room, and defendant stopped shooting when he felt like
Daviontay was no longer a threat. Defendant ran out the back, and a dog came by. He fired
another shot in the driveway, dropped the rifle, and ran. Defendant ran to the Metra station in
North Chicago and went to his grandmother’s house in Chicago. He did not turn himself in because
his family wanted to get money to hire an attorney. He stayed in Chicago for about 20 days and
then his mother drove him to Tennessee to his grandfather’s house.
¶ 54 About one month later, defendant was arrested in Tennessee. From the jail there, he called
his grandmother, who told him not to say anything because she had a lawyer. During his statement
to police, defendant was torn between telling his side of the story and wanting to listen to his
grandmother.
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¶ 55 On cross-examination, defendant testified that he did not know how many total times he
shot Daviontay. Defendant shot Daviontay four times in the front. When the first shot, which hit
Daviontay in the face, went off, Daviontay’s hands were still on the rifle. He then took off his
hands from the rifle, but then stood up, grabbed the barrel again. Defendant started pulling the
trigger.
¶ 56 Defendant denied that he went to the stairs and shot Daviontay point blank in the head. He
did not know how brain matter ended up above the stairs near Daviontay’s body.
¶ 57 d. Investigator Marilu Serrato
¶ 58 Marilu Serrato, an investigator for the defense, testified that, in January 2019, she had a
cell phone conversation with Eileen Thomas, who told her that, on the night of the shooting, she
was upstairs in the bedroom listening to YouTube videos and doing drugs.
¶ 59 The defense rested and renewed its request for a directed verdict on first-degree murder
and to only send second-degree murder for deliberation. The trial court denied the motion.
¶ 60 3. Verdict & Sentencing
¶ 61 During deliberations, the jury sent a question, asking if the mitigating factor must be
present for the entirety of the shooting. The court, after conferring with the parties, instructed the
jury to continue deliberating. The jury found defendant guilty of first-degree murder and personal
discharge of a firearm causing death.
¶ 62 Defense counsel filed a motion, arguing that, under Miller v. Alabama, 567 U.S. 460
(2012), and People v. Buffer, 2019 IL 122327, the 25-year firearm enhancement was
unconstitutional as applied to defendant. A defense expert psychologist, James Garbarino, testified
on brain development of 18-year-olds and defendant’s psychological history and development.
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The trial court found that Buffer did not apply, but that the enhancement statute was
unconstitutional as applied under Miller.
¶ 63 At sentencing, the court received the presentence investigation report (PSI), victim impact
statements, defendant’s family statements, and a transcript of the psychologist’s testimony.
¶ 64 Garbarino, a developmental psychologist, testified as an expert that his area of expertise is
developmental psychology, with an emphasis on the impact of trauma. He is not a clinical
psychologist. He met with defendant for two hours and reviewed the PSI, police reports, and other
materials. Garbarino explained that, in developmental psychology, adolescence begins around age
10 or 11 and continues up to about age 21. The brain is fully developed at age 25. An 18-year-
old does not have a fully developed mature brain. The brain’s limbic system, which controls
emotion, and the prefrontal cortex, which controls reasoning, both mature through the adolescent
period. Fully mature adults who have not experienced an injury can coordinate the two systems
effectively, whereas immature people do not. An 18-year-old’s executive function deteriorates in
situations of hot cognition, i.e., the ability to perform in an intense situation.
¶ 65 Defendant exhibited traits of impulsivity more similar to an adolescent than an adult. The
crime itself included elements of a highly aroused situation, dramatic violent behavior, and
impulsive efforts to escape, which reflect adolescent impulsiveness rather than adult deliberative
maturity.
¶ 66 Defendant scored a 9 out of 10 on the Adverse Childhood Experience Scale, which assesses
how adversity predicts certain social conditions/behaviors, including violence. Only 1 out of 1000
individuals score an 8, 9, or 10. Defendant had suffered physical assault/punishment, two sexual
abuse incidents, and he witnessed someone being shot when he was five years old. These
childhood experiences have a strong correlation with suicidal behaviors, substance abuse,
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depression, and violent behavior. Defendant had a “war zone mentality.” One element that
emerges is a hypervigilance, i.e., hypersensitivity to threat, and a belief about when it is legitimate
to use violence, i.e., preemptive assault. Defendant’s childhood experiences and his stage of brain
development at age 18 affected his ability to appropriately perceive, and react to, a threatening
situation. Defendant, however, did not show signs of incorrigibility, lack of empathy, or
psychopathy.
¶ 67 Lake County sheriff’s lieutenant Nick Kalfas, worked in the corrections division and
testified that he was aware of notifications of any inmate rule violations. Defendant came into the
Lake County jail on January 5, 2017, and remained in its custody through the date of the sentencing
hearing (April 1, 2021). There were seven incidents with the defendant during his stay where he
was taken to the administrative segregation unit (ASU). The ASU is a housing unit within the jail
for inmates who violate the in-custody rules and commit major rule infractions. They can spend
between 1 and 60 days in the unit, depending on the seriousness of the infraction. In the ASU,
inmates receive one hour outside their single cell per day.
¶ 68 The incidents that let to defendant going to the ASU included: (1) him exposing himself to
female officers in the jail (following a hearing, defendant was sentenced to 15 days’ disciplinary
lockdown); (2) twice failing to immediately lock down and threatening harm to others (defendant
accepted a settlement for 14 days in the ASU for the first infraction and 25 days for the second);
(3) fighting with two other inmates (settlement for 45 days); (4) fighting with an inmate (60 days
in the ASU); (5) insubordination and profanity (settlement for 21 days); (6) and fighting and
interference with staff duties (settlement for 45 days). Defendant also had 70 violations for minor
incidents.
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¶ 69 Sara Price, a social worker for the Lake County Public Defender’s office, testified that she
met with defendant over 150 times in the jail to assess how he was doing. Defendant told Price
that he was concerned about his family members’ health and his relationship with his younger
brother. Many times, defendant expressed remorse for the shooting. They discussed impulsivity
and controlling his decision-making process, and, over time, defendant understood that he needed
support to process the things he was dealing with in order to respond. Over his time in
incarceration, he grew and matured.
¶ 70 Defendant, in allocution, apologized for his actions. The State sought a sentence of 50
years’ imprisonment, and defense counsel argued that a sentence in the “low 20’s” was appropriate.
¶ 71 The trial court sentenced defendant to 36 years’ imprisonment. It noted that it had
considered counsels’ arguments, the testimony and exhibits, the Miller factors, the PSI,
Garbarino’s testimony, the jail disciplinary records, victim impact statements, Price’s testimony,
and defendant’s statement in allocution, along with all the evidence in aggravation and mitigation.
¶ 72 The court found that defendant was an “extremely impulsive, immature person[.]” In
assessing the trauma defendant experienced, the neighborhood in which he grew up, and his
family, the court found that the factors were mixed. He had a home, had the ability to obtain an
education of which he did not take advantage, and a loving family. However, he was on probation
for burglary at the time of the offense.
¶ 73 Defendant did not load the rifle, the court determined, but caused it to discharge. His trip
to Tennessee constituted flight and reflected his consciousness of guilt. The court further found
that Daviontay did not provoke the shooting. Defendant and Daviontay were “kids playing with
weapons that belong in the hands of S.W.A.T. teams and the military. Very dangerous weapons.”
They were not “serious” and were just acting “cool.”
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¶ 74 The court also determined that Daviontay did not threaten defendant and that defendant did
not believe that Daviontay was going to shoot him. He “was angry that the gun was pointed at
him[.]” If defendant was actually worried, he could have walked out the door. The court found
that defendant did not act in self-defense or in the unreasonable belief in self-defense. Rather, he
was angry at Daviontay, and Daviontay was angry at him for telling him to stop. Defendant’s
actions were immature and impulsive. The court also noted that defendant “kept on shooting,”
and this was triggered by his anger.
¶ 75 The trial court found “particularly aggravating” the circumstances of the final shot in the
stairway. Noting Thomas’s testimony concerning her observations of defendant by the stairway,
which it found credible, the court determined that defendant’s actions constituted “an execution”
and a “very brutal act.” The court did not find the evidence sufficient to find one way or the other
that defendant could be rehabilitated.
¶ 76 Subsequently the court denied defendant’s motions for a new trial and to reconsider
sentence. Defendant appeals.
¶ 77 II. ANALYSIS
¶ 78 A. Second-Degree Murder
¶ 79 Defendant argues first that this court should reduce his conviction (Ill. S. Ct. R. 615(b)(3)
(eff. Jan. 1, 1967)) to second-degree murder, because he had an actual, albeit unreasonable, belief
that he had to shoot Daviontay to save his own life. For the following reasons, we decline
defendant’s request.
¶ 80 The question whether a defendant unreasonably believed that circumstances justifying the
lethal use of force were present is a factual one. People v. Castellano, 2015 IL App (1st) 133874,
¶ 144. We will reverse a determination that a defendant failed to prove the presence of a mitigating
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factor by a preponderance of the evidence when, after viewing the evidence in the light most
favorable to the prosecution, any rational trier of fact could have found that the mitigating factors
were not present. Id. A preponderance of the evidence is that amount of evidence that leads a trier
of fact to find that the fact at issue is more probable than not. People v. Terrell, 2022 IL App (1st)
192184, ¶ 46.
¶ 81 Second-degree murder is a lesser mitigated offense of first-degree murder. People v.
Brown, 2014 IL App (4th) 120887, ¶ 24. A person is guilty of second-degree murder when the
elements of first-degree murder are established but there also exists a statutory mitigating factor.
Id. Defendant raised the imperfect self-defense form of second-degree murder. Under this form
of second-degree murder, an offense of first-degree murder is lessened to second-degree murder
when, “at the time of the killing [the defendant] believes the circumstances to be such that, if they
existed, would justify or exonerate the killing under the principles stated in Article 7 of [the
Criminal Code of 2012], but [the defendant’s] belief is unreasonable. 720 ILCS 5/9-2(a)(2) (West
2016).
¶ 82 Once a defendant affirmatively raises self-defense, the burden shifts to the State to prove,
in addition to the elements of first-degree murder, that the use of force was not justified beyond a
reasonable doubt. Castellano, 2015 IL App (1st) 133874, ¶ 149. If the State negates the
defendant’s self-defense claim (by proving beyond a reasonable doubt that at least one of the six
self-defense elements below is not present), the trier of fact must then find the defendant guilty of
either first-degree or second-degree murder. People v. Jeffries, 164 Ill. 2d 104, 127-28 (1995). To
be guilty of second-degree murder based on an unreasonable belief in self-defense, the defendant
must prove by preponderance of the evidence that the first five of the following six elements of
self-defense existed: (1) force is threatened against the person; (2) the person threatened is not the
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aggressor; (3) the danger of harm was imminent; (4) the threatened force was unlawful; (5) the
defendant actually and subjectively believed a danger existed that required the use of force applied;
and (6) the person’s beliefs were objectively reasonable. 720 ILCS 5/9-2(c) (West 2016);
Castellano, 2015 IL App (1st) 133874, ¶¶ 149, 153.
¶ 83 Defendant argues that he established by at least a preponderance of the evidence the
mitigating factor that he subjectively believed he needed to act in his own self-defense and that no
rational trier of fact could have found otherwise. Defendant asserts that it was unrebutted that the
shooting arose in self-defense. He notes that he tried to stop Daviontay from carelessly playing
with and pointing the loaded semiautomatic rifle, that Daviontay threatened to kill him with it, and
that he shot Daviontay in a struggle over the rifle after they argued. Defendant also notes that
Daviontay told him that “I’ll smoke your ass, bitch,” and “I’ll kill you in this bitch.” Defendant
was scared and believed that Daviontay was going to kill him, so he jumped up and grabbled the
rifle. Daviontay, defendant notes, pushed the rifle around so it was pointing at him, they struggled
over the gun, and a shot went off while Daviontay held the rifle with the barrel pointed at him.
Daviontay, according to defendant, jumped up and grabbed the rifle again. Defendant was scared
and believed that Daviontay would kill him, so he pulled the trigger again and continued pulling
multiple times. They struggled around the room, and the rifle continued firing. Defendant pulled
the trigger until he no longer felt threatened by Daviontay.
¶ 84 Defendant allows that it might have been a bad idea to grab a loaded rifle from someone
making threats, but maintains that he was not in a position to hesitate. Daviontay was a stranger
to him, and it was not unreasonable to believe that Daviontay would make good on his threat when
the rifle was to defendant’s face. There was also a handgun somewhere nearby, and defendant
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believed that it was Daviontay’s gun. Even if Daviontay did not have control of the rifle, he
suggests, he might have had, or taken, control of the gun to make good on his threats.
¶ 85 Further, defendant argues that there was no testimony that countered his version of how
the shooting and struggle transpired in the living room. This includes, he contends, Eileen
Thomas’s testimony. He asserts that Thomas, who testified that she saw Daviontay shot once on
the stairwell, was substantially impeached. The police, he contends, testified that Thomas did not
tell them that she saw the shooter point the gun at Daviontay lying at the bottom of the stairs and
shout that there would be no shooting going on in her house. Defendant also points to Thomas’s
testimony that she was “in her addiction” at the time of the shooting and while giving her statement.
Her perception and memory were not very good, and it was difficult for her to recall the events.
Thus, defendant argues, he had a subjective belief in the need to defend himself and, to the extent
that his continued shooting exceeded reasonable self-defense beyond the threat actually posed by
Daviontay, the State did not rebut the contention that defendant did, in fact, have a belief in the
continued need for self-defense through the struggle, even if that belief was unreasonable.
¶ 86 Viewing the evidence in the light most favorable to the prosecution, we conclude that no
rational jury could have found that the mitigating factors were present. That is, no reasonable jury
could have found that defendant held a belief, even an unreasonable one, that he was in imminent
danger and that he actually and subjectively believed that had to shoot Daviontay to save his own
life.
¶ 87 Defendant’s statements and testimony did not reflect that he believed that Daviontay was
going to kill him. Defendant, Daviontay, and the Kinzer brothers took turns playing with the rifle
and shot videos of themselves showing off with it. Even if Daviontay and defendant argued over
Daviontay pointing the rifle toward defendant and the others, it is not plausible that defendant
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would believe, even unreasonably, that his life was in danger when Daviontay allegedly stated that
he was going to kill him. Defendant never tried to leave the Kinzer home, but grabbed the rifle
and shot Daviontay. The shooting reflected defendant’s impulsiveness, not his subjective belief
that there was an imminent threat of harm to him.
¶ 88 We find further support for our conclusion in the fact that defendant shot Daviontay 10
times (9 times after which Daviontay no longer held the rifle), which reflects a passion born of
anger and impulsiveness rather than fear of impending death. Indeed, five shots hit Daviontay in
the back, which does not reflect that Daviontay was a threat or support defendant’s claim of self-
defense, but rather, that he likely tried to escape.
¶ 89 During the police interview, defendant told Sergeant Thomas and Detective Grzeda that,
the day before the shooting, he went to the Kinzer home and took photos with the rifle. The next
day, November 11, 2016, defendant and his uncle Jeremiah went to the Kinzer home. Daviontay,
whom defendant did not know, was there, playing with the rifle, acting crazy, and waiving it
around. He became angry when defendant told him to stop playing with the rifle and to put it
down. Daviontay allegedly told defendant, “I’ll smoke you,” called defendant a “bitch,” and stated
that he was going to kill defendant. At this point, defendant claimed, he grabbed the rifle, which
he knew was loaded, and he and Daviontay wrestled over it. Defendant told police that he grabbed
the trigger end and, contrary to his initial statement that the “blanked out” after this, told them that
he pulled the trigger, shooting Daviontay in the face. Next, defendant claimed that, after being
shot in the face, Daviontay was able to stand and come at defendant. Defendant continued
shooting. Daviontay fell at the front door, and defendant left out the back door.
¶ 90 At trial, defendant testified that, before he grabbed the rifle, Daviontay yelled, “I’ll smoke
your ass, bitch” and pointed up the rifle. Defendant testified that he was scared, told Daviontay to
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stop, but that Daviontay became madder, stating, “I’ll kill you in this bitch” and raised the gun
again. Defendant testified that he believed that Daviontay was going to kill him, and he jumped
up and grabbed the rifle. Defendant shot Daviontay. Daviontay took his hands off the rifle but
then stood up and grabbed the barrel again. Defendant pulled the trigger again. They struggled
around the room, and defendant stopped shooting when he felt like Daviontay was no longer a
threat. He denied knowing how many times he shot Daviontay and denied that he went to the
stairs and shot Daviontay point blank in the head. Defendant also claimed that he did not know
how brain matter ended up above the stairs near Daviontay’s body.
¶ 91 Eileen Thomas, Javante and Aaron’s mother, testified that she was on the second floor of
the Kinzer home on the night of the shoot and ran to the stairs when she heard gunshots. She saw
a young man with a rifle standing over Daviontay, who was on the stairs. The man lowered his
rifle and shot Daviontay. The jury heard that Eileen used heroin and that she had told an
investigator that she had been using drugs that morning. The jury also heard investigator Serrato’s
testimony that Eileen told her that, on the night of the shooting, she was upstairs doing drugs.
However, contrary to defendant’s assertion here, Sergeant Thomas was not asked whether Eileen
told him that she saw the shooter at the bottom of the stairs, pointing the gun at Daviontay. He did
testify that Eileen stated that she heard gunshots and ran to the stairs and that she did not tell
Sergeant Thomas that she spoke to the shooter.
¶ 92 The physical evidence reflected that the Daviontay tried to escape from defendant but that
defendant kept shooting at him. Daviontay’s body was located at the foot of the staircase just
inside the front entrance to the Kinzer home. There were splatters and pools of blood in the living
room, a bloody smear handprint on the wall between the living room and doorway/stairs where
Daviontay’s body was found, blood spatter in the stairwell, and brain matter on the stairs. Shell
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casings from the rifle were recovered from the living room, dining room, and two from under
Daviontay’s legs in the stairwell. The medical examiner testified that Daviontay sustained five
shots to the front and five to the back, along with three graze wounds. Four of the wounds were
considered fatal, and two of the head and face wounds showed stippling, which reflected that the
rifle was fired from very close range .
¶ 93 Any rational jury would have discounted much of defendant’s testimony and found
implausible his explanations for his actions. For example, defendant denied going to the stairs and
shooting Daviontay in the head. However, when asked to explain the presence of brain matter
above Daviontay’s body in the stairway area, defendant responded that he did not know how it got
there. Also, defendant framed his version of the events as a continued struggle over the rifle.
However, a rational jury could have determined that Daviontay sought to escape from the home,
which goes toward explaining how his body ended up at the stairway near the front door and
explains the five shots to his back. Also, about 20 days after the shooting, defendant fled to
Tennessee. Flight is indicative of guilt. See People v. Harmon, 2015 IL App (1st) 122345, ¶ 59
(flight from scene of crime, as well as disposal of the firearm, is “competent circumstantial
evidence that refutes the theory that [a] defendant acted in self-defense,” even under an
unreasonable-belief theory); People v. Seiber, 76 Ill. App. 3d 9, 14 (1979) (noting that the
defendant’s flight from the scene was evidence of consciousness of guilt, which negated a claim
of self-defense).
¶ 94 In summary, viewing the evidence in the light most favorable to the prosecution, no rational
jury could have found that the mitigating factors for second-degree murder were present.
¶ 95 B. Suppression Motion
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¶ 96 Next, defendant argues that the trial court erred in denying his motion to suppress his
statements to police, where he invoked his right to counsel during the interview. He requests that
we vacate his conviction and remand for a new trial. For the following reasons, we reject
defendant’s argument.
¶ 97 Reviewing courts apply a mixed standard of review when examining a ruling on a motion
to suppress evidence. People v. Heritsch, 2017 IL App (2d) 151157, ¶ 8. The trial court’s factual
findings are afforded great deference and are reversed only if they are against the manifest weight
of the evidence. Id. A finding is against the manifest weight of the evidence where it is
unreasonable. Terrell, 2022 IL App (1st) 192184 ¶ 51. The court’s ultimate decision to grant or
deny the motion is reviewed de novo. People v. Close, 238 Ill. 2d 497, 504 (2010).
¶ 98 Under Miranda, and as a means to protect the fifth amendment right against self-
incrimination, an individual subjected to custodial interrogation or under the imminent threat of
interrogation is entitled to have retained or appointed counsel present during the questioning.
Miranda, 384 U.S. at 444-45; People v. Schuning, 399 Ill. App. 3d 1073, 1081-82 (2010). If the
accused requests counsel at any time during the interview, he or she cannot be subject to further
questioning until a lawyer has been made available or the individual reinitiates conversation.
Edwards v. Arizona, 451 U.S. 477, 484-85 (1981); In re Christopher K., 217 Ill. 2d 348, 376
(2005). In applying this rigid prophylactic rule developed in Edwards, courts must determine
whether the accused actually invoked his or her right to counsel. Davis v. United States, 512 U.S.
452, 458 (1994); Christopher K., 217 Ill. 2d at 376. This is an objective inquiry, which, at a
minimum, requires some statement that reasonably can be construed as an expression of a desire
for counsel. Davis, 512 U.S. at 459; Christopher K., 217 Ill. 2d at 378. “[[S]imply referring to an
attorney *** does not automatically constitute an invocation of the right to counsel.” People v.
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Summerville, 193 Ill. App. 3d 161, 169-70 (1990) (no invocation of right to counsel where the
defendant claimed that he asked the person in whose apartment he was found, and in the arresting
officers’ presence, to call his attorney). A reference to an attorney that is ambiguous or equivocal,
according to a reasonable officer in the circumstances, does not require cessation of questioning.
Davis, 512 U.S. at 459; Christopher K., 217 Ill. 2d at 378, 381. That is, the invocation must be
sufficiently free from indecision or double meaning so as to reasonably inform authorities that the
accused wishes to speak to counsel. Christopher K., 217 Ill. 2d at 382; People v. Tackett, 150 Ill.
App. 3d 406, 418 (1986). See, e.g., Christopher K., 217 Ill. 2d at 383-84 (no invocation of right
to counsel, where the above-average-intelligence 14-year-old defendant asked, “Do I need a
lawyer?”); People v. Krueger, 82 Ill. 2d 305, 311-12 (1980) (no invocation of right to counsel,
where the defendant stated, “Maybe I need a lawyer” and “Maybe I ought to talk to an attorney”).
¶ 99 Here, in denying defendant’s motion, the trial court found that defendant’s statements to
police were not unambiguous requests for an attorney or to terminate the interview. It also
determined that, even if defendant wanted to return to Illinois because his grandmother had an
attorney, that was not inconsistent with the detectives’ testimony that defendant did not request an
attorney while in Tennessee.
¶ 100 1. Defendant’s First Two Requests to Call His Grandmother
¶ 101 As to his first two requests to call his grandmother, defendant argues that they were
sufficient invocations of his right to counsel. In his first request, defendant stated, “Can I call my
grandma, cuz she said [indiscernible].” During his second request, he asked to call his
grandmother, “because she told me ***” Defendant concedes that he did not explicitly mention
that his grandmother had engaged an attorney on his behalf, but maintains that the police ignored
the substance of his request, cut off any further articulation of his request, and distracted him from
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his attempt to reach his attorney. Defendant contends that the detectives “understood that in asking
to call his grandmother, [defendant] was attempting to contact the attorney she had for him.”
Defendant relies on his assertion that he had previously told the detectives in Tennessee that his
grandmother had retained an attorney for him. The detectives denied this, but defendant contends
that they demonstrated by their behavior that they understood that defendant was requesting an
attorney on the first two occasions he requested to call his grandmother, where they interrupted his
invocation with encouragement to continue giving a statement. He also contends that the trial
court did not reject his testimony. We find unavailing defendant’s argument concerning the first
two statements.
¶ 102 At the hearing on defendant’s suppression motion, Detective Grzeda denied that defendant
told the detectives in Tennessee that he wanted to return to Waukegan because he had spoken to
his grandmother and had an attorney. He also denied that defendant stated that his grandmother
had hired an attorney and that is why he wanted to return to Waukegan. Defendant testified,
however, that he told the detectives that he wanted to go back to Illinois because his grandmother
had an attorney for him. He also testified that he told the detectives he would talk to them in
Illinois because his grandmother got him a lawyer.
¶ 103 Defendant contends that the trial court misremembered the testimony when it found that
defendant’s testimony that he wanted to speak to them in Illinois because his grandmother had
obtained an attorney for him was not inconsistent with the detectives’ testimony that he did not
ask for an attorney. According to defendant, the trial court ignored that the detectives also testified
that defendant did not tell them that his grandmother had hired him an attorney.
¶ 104 We believe that the trial court did not misremember the testimony, that it credited the
detectives’ testimony, and that it discounted defendant’s testimony. The court first noted the
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substance of defendant’s testimony, i.e., that his grandmother told him not to say anything, that
she had a lawyer for him, and that he told the officers that he wanted to talk to them in Waukegan
because his grandmother had a lawyer for him. The court then noted that the testimony was not
inconsistent with the detectives’ testimony that defendant never asked for a lawyer in Tennessee.
However, the court also noted the detectives’ testimony that they gave defendant the opportunity
to speak to them in either Tennessee or Waukegan and he, according to the court, “just said” that
he wanted to come back to Illinois. The final statement, which defendant does not address, reflects,
in our view, that the court found credible the detectives’ version of the events—that defendant did
not mention that his grandmother had hired him an attorney and that he merely wanted to return to
Waukegan to speak to them there. Thus, in the context of this finding, defendant clearly did not
invoke his right to counsel during his first two requests to call his grandmother, because they
contained no references to an attorney.
¶ 105 2. Defendant’s Third Request to Call His Grandmother
¶ 106 Turning to defendant’s third statement concerning his grandmother, defendant stated, “I
wanna call my grandma, cuz she told me not to even talk to y’all without, like calling her, cuz she
got a lawyer.” Defendant told the detectives that his grandmother was in Chicago, and Thomas
asked if she was going to be able to help defendant. Defendant replied that she was “trying to send
a lawyer” and “she says she got a lawyer.”
¶ 107 Defendant argues that his third statement to police that he wanted to call his grandmother,
who had “got a lawyer” and/or was “trying to send a lawyer,” was an unambiguous request for an
attorney. He maintains that the context of his statement made it reasonably clear the attorney he
referenced was to represent him during the interrogation.
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¶ 108 Defendant relies on several cases that he contends support his argument. In People v.
Hammock, 121 Ill. App. 3d 874 (1984), the 41-year-old murder defendant stated during the
interrogation that his family (“my people”) had a lawyer, he did not know if he could reach the
attorney on a Sunday, but his family would produce a lawyer at the police station. Later, the
defendant stated that he would not say anything to police until he had his lawyer. The court held
that the defendant asserted his right to counsel on each of these two occasions. Id. at 876. In
People v. Harris, 2012 IL App (1st) 100678, the 39-year-old murder defendant asked if it was
“possible” to “have a few days to get an attorney,” the request was denied, she was asked if she
was requesting an attorney (in which case they were “done talking”), and she responded that she
did not have her phone contacts. Id. ¶ 70. The defendant was then asked if she no longer wanted
to answer questions and responded that she wanted to answer them. The court held that the
defendant unequivocally invoked her right to counsel under Miranda when she asked if it was
“possible” to have a few days to hire an attorney. Id. ¶ 72. “Any ambiguity in her statement was
with regard to how long it would take and the process of acquiring an attorney, not with regard to
whether [the] defendant wanted one.” Id. The detective’s response that the defendant could not
have a few days to hire an attorney and his lack of response to her query about how she could
secure her telephone contacts, the court noted, gave the “defendant the erroneous impression that
counsel could not be made available or appointed then or in the near future.” Id. The defendant
answered further questions only at the detective’s prompting. Id. ¶ 74.
¶ 109 Defendant contends that his statement that his grandmother had an attorney that she would
send was substantially similar to the Hammock defendant’s statement that his family would do the
same and that a reasonable officer would have been sufficiently clearly apprised by defendant’s
statement that he was requesting the presence of his attorney. He also argues that his statement
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was as unequivocal as the defendant in Harris and that any ambiguity in his statement was in how
he would reach his attorney and that he needed to call his grandmother to do so, not whether he
wanted one.
¶ 110 Defendant notes that, after he made his request, the police asked him for his grandmother’s
phone number and left the room to call her. Yet, Detective Grzeda returned less than five minutes
later to continue the interrogation. He told defendant that Sergeant Thomas was calling his
grandmother while simultaneously re-initiating the interrogation. This created the erroneous
impression that counsel could not be obtained, according to defendant.
¶ 111 The State responds that defendant’s third request to speak to his grandmother was
ambiguous and insufficient to invoke his right to counsel. It notes that defendant stated both that
his grandmother “got a lawyer” and that she was “trying to send a lawyer.” The State maintains
that any reasonable police officer could have interpreted these statements as defendant inquiring
about the ability of his family members to retain an attorney rather than an unambiguous request
for counsel.
¶ 112 The State relies on People v. Polk, 407 Ill. App. 3d 80, 98 (2010). In Polk, the reviewing
court held that the 17-year-old murder defendant did not unambiguously invoke his right to counsel
when he stated he did not want an appointed attorney but wanted to speak to his aunt on the phone
to see if she had money to hire a lawyer. The court concluded that a reasonable officer could have
interpreted the defendant’s statements as “inquiring about the ability of his family to retain a
private attorney rather than an unambiguous request for counsel.” Id. The defendant’s statements
were equivocal. Id. at 99. Here, the State asserts that defendant used ambiguous language when
referencing counsel, stating that his grandmother was “trying” to send a lawyer. Any reasonable
officer, the State contends, would have interpreted defendant’s request to speak to his grandmother
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so that he could try to get a lawyer as an inquiry about the ability to retain a private attorney rather
than an unambiguous request for counsel.
¶ 113 We conclude that defendant’s third request to speak to his grandmother was ambiguous
and equivocal and did not constitute an invocation of his right to counsel. Defendant stated both
that his grandmother “got” an attorney and that she was “trying to send” one, which overall lacks
clarity as to whether defendant’s grandmother had actually retained an attorney and/or would
actually be sending one to represent defendant and, further, whether defendant wanted the attorney
to represent him during the interview. In contrast, in Hammock, upon which defendant relies, the
defendant stated that his family would be sending an attorney and any ambiguity concerned
whether the defendant could reach the attorney on a Sunday. Hammock, 121 Ill. App. 3d at 876.
Also in contrast, in Harris, the defendant’s statement reflected that she was going to retain an
attorney and the ambiguity, the court noted, was how long it would take to retain one. Harris,
2012 IL App (1st) 100678, ¶ 72.
¶ 114 This case is closer to Polk. Like the defendant in Polk, who asserted that he was trying “to
get me a lawyer” and going to “see if [his aunt] got money for it first” (Polk, 407 Ill. App. 3d at
98), defendant’s statement here that his grandmother was “trying to send a lawyer” was equivocal
(on its own and in combination with his statement that his grandmother “got” an attorney) and
would not have indicated to a reasonable officer that an attorney was retained for defendant and/or
that defendant wanted one to come to represent him during the interrogation. Cf. Mays v. Clark,
807 F.3d 968, 978 (9th Cir. 2015) (“ ‘My—my step-dad got a lawyer for me.... I’m going to—
can—can you call him and have my lawyer come down here?’ ” was “plainly a request for a
lawyer”). Also, defendant never indicated that he wished to stop answering questions until he
spoke to his grandmother or until an attorney arrived. Cf. State v. Bell, 2007-1124, p. 1-2 (La.
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2022 IL App (2d) 210186-U
6/29/07), 958 So. 2d 1173, 1174 (“ ‘I’d rather wait until my mom get me a lawyer then’ ” was
sufficient invocation of right to counsel).
¶ 115 In summary, the trial court did not err in denying defendant’s motion to suppress his
statements.
¶ 116 C. Sentence
¶ 117 Defendant’s final argument is that the trial court’s 36-year sentence was excessive, because
the court failed to properly consider the mitigating factor of strong provocation. Specifically,
defendant points to the court’s finding at sentencing that Daviontay was not serious and merely
joking around when he pointed the loaded rifle and threatened to “smoke” defendant. He asks that
we reduce his sentence or remand for a new sentencing hearing. For the following reasons, we
reject defendant’s argument.
¶ 118 Generally, where a sentence is within the statutory limits permitted for the felony of which
the defendant was convicted, we will not disturb the sentence absent an abuse of discretion by the
trial court. People v. Powell, 2013 IL App (1st) 111654, ¶ 31. A court abuses it discretion where
its sentence is unreasonable. People v. Sutherland, 223 Ill. 2d 187, 272-73 (2006).
¶ 119 The Illinois Constitution requires that penalties be determined both according to the
seriousness of the offense and with the objective of restoring the offender to useful citizenship.
Ill. Const.1970, art. I, § 11; People v. Center, 198 Ill. App. 3d 1025, 1032-33 (1990). The
constitutional mandate calls for the balancing of the retributive and rehabilitative purposes of
punishment. Center, 198 Ill. App. 3d at 1033. This balancing process requires careful
consideration of all factors in aggravation and mitigation, including, inter alia, the defendant’s
age, demeanor, habits, mentality, credibility, criminal history, general moral character, social
environment, and education, as well as the nature and circumstances of the crime and of the
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defendant’s conduct in the commission of it. Id. The trial court is not required to detail precisely
for the record the exact process by which it determined the penalty, nor is it required to articulate
its consideration of mitigating factors or to make an express finding that the defendant lacked
rehabilitative potential. People v. Redmond, 265 Ill. App. 3d 292, 307 (1994). The seriousness of
the crime is the most important factor in determining an appropriate sentence, not the presence of
mitigating factors, and the Unified Code of Corrections does not mandate that the absence of
aggravating factors requires that the minimum sentence be imposed. Id.
¶ 120 Defendant, who was 18 years old at the time of the offense, was convicted of first-degree
murder. The sentencing range for that offense for an adult offender is 20 to 60 years’
imprisonment. 730 ILCS 5/5-4.5-20(a) (West 2016). The trial court’s 36-year sentence was 4
years below the midpoint of the sentencing range. 1
¶ 121 In announcing its sentence, the court noted that defendant was an “extremely impulsive,
immature person[.]” Daviontay, it further found, did not provoke the shooting; rather, he and
defendant were “kids playing with weapons that belonged in the hands of S.W.A.T. teams and the
military. Very dangerous weapons.” Defendant and Daviontay were not “serious,” were merely
acting “cool,” and were angry at each other. Daviontay was angry at defendant for telling him to
stop. Defendant was angry at Daviontay, and the fact that he “kept on shooting” reflected his
anger.
1
Defendant was also found to have personally discharged a firearm and, thus, subject to a
25-year firearm enhancement. 730 ILCS 5/5-8-1(a)(1)(d)(iii) (West 2016). However, the court
found that the enhancement was unconstitutional as applied under Miller.
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¶ 122 Section 5-5-3.1 of the Unified Code of Corrections (730 ILCS 5/5-5-3.1 (West 2016)) sets
forth the mitigating factors that a trial court is to consider in imposing a sentence, including that
the defendant acted under a strong provocation (id. § 5-5-3.1(a)(3) (noting that one ground that
“shall be accorded weight in favor of withholding or minimizing a sentence of imprisonment” is
that “[t]he defendant acted under a strong provocation”)) and that there were substantial grounds
tending to excuse or justify his or her conduct (id. § 3.1(a)(4) (“[t]here were substantial grounds
tending to excuse or justify the defendant’s criminal conduct, though failing to establish a
defense”)).
¶ 123 The term “strong provocation” is not defined in the Unified Code of Corrections. However,
the term “serious provocation,” which is relevant to reduce an offense of first-degree murder to
second-degree murder, encompasses substantial physical injury or assault, mutual quarrel or
combat, illegal arrest, and spousal adultery. People v. Merritte, 242 Ill. App. 3d 485, 492 (1993).
“[S]trong provocation as a mitigating factor at sentencing encompasses a wider range of conduct
than that defined as serious provocation under the second[-]degree murder statute.” Id. at 493.
However, the strong provocation must be direct and immediate. Powell, 2013 IL App (1st)
111654, ¶ 36. “Mere words, no matter how abusive or indecent, are not considered serious
provocation.” Id. at 492.
¶ 124 Defendant maintains that the trial court should have considered as a mitigating factor in
favor of a lower sentence Daviontay’s threatening behavior and gunplay. The court, he contends,
ignored the extreme and aggressive nature of Daviontay’s provocative behavior. It also
erroneously determined that defendant did not believe that Daviontay was going to shoot him.
There was no support in the record, defendant argues, to determine that Daviontay was not serious
or that defendant had any reason to doubt Daviontay’s threats. They were strangers to each other
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who had been hanging out for a few hours at most. Daviontay was aggressive, prone to picking
fights, and enjoyed playing with guns. With the gun pointed at him, defendant was not in a position
to doubt Daviontay’s threats. Further, defendant argues that the court igored Garbarino’s
testimony on defendant’s ability to discern and respond to threats.
¶ 125 We reject defendant’s argument. The court imposed a sentence four years below the
midpoint of the 20-to-60-year sentencing range. The trial court noted that it had considered the
parties’ arguments, the trial testimony and exhibits, the PSI, Garbarino’s testimony, the evidence
in aggravation and mitigation, the jail disciplinary records, the victim impact statements, the
defendant’s statement in allocution, and Price’s testimony. At the time of the present offense, the
court noted, defendant was on probation for burglary (“a situation which was ill-conceived to say
the least which was where [defendant] basically saw a car that was running and just stole it without
thinking about it, without any real reason for doing it and then crashed the car and ran off”). It
was “an impulsive decision.” The court further found that defendant did not load the rifle but
caused it to discharge. It did not find credible the testimony that defendant fled to Tennessee to
wait for an attorney. The court considered defendant’s actions to constitute flight and to reflect
“consciousness of guilt.”
¶ 126 Daviontay, the court determined, did not provoke or incite his own death. The court noted
that there was no gang relationship or motive for defendant and Daviontay “to get tangled up with
each other.” They were “kids” playing with dangerous weapons. The court noted that it did not
take seriously the videos and statements made while Daviontay and defendant posed with the
weapons. “Suffice is to say that these guys here in this house, this wasn’t serious. Nobody was
discussing using any of these weapons.” Rather, “[i]t was like it’s really cool that we’ve got this
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stuff here, and I’m a gangster and I’m a killer and I’m an assassin and I’m this and I’m that and
this should be my nickname and things like that.”
¶ 127 Daviontay was not threatening defendant, the court found. He pointed the rifle at defendant
at some point, but it was not done in any serious way as if he was really going to shoot. The court
found that defendant was angry that the gun was pointing at him. Daviontay’s response that he
would “smoke” defendant was not serious. “Did [defendant] really think just because he told
[Daviontay] not to point the gun at him, did he really think that [Daviontay] was going to blast
him, that he was going to assassinate him? No, that’s not reasonable, as so—and it’s not just a
matter of that [defendant] was too immature to realize that it wasn’t reasonable, I don’t believe it.
I don’t think that’s what he thought.” Both Daviontay and defendant were angry. If defendant
was worried, the court noted, he could have walked out the door, not wrestled the rifle away from
someone. It was not self-defense or an unreasonable belief in self-defense. Nor was it a mitigating
factor. Defendant was an immature and impulsive person “who acted in a very reactionary fashion
to attempt to resolve the matter.”
¶ 128 Defendant, the court continued, shot Daviontay. Daviontay was “no threat to” defendant,
and he attempts to exit the house. Defendant “kept on shooting.” The fact that defendant kept on
shooting, including many shots to the back and multiple “kill shots,” reflected not provocation but
anger. The court found “[p]articularly aggravating” the final shot in by the stairs, which the court
characterized as “an execution” and “very brutal act.” As to rehabilitative potential, the court
found that the evidence did not weigh one way or the other.
¶ 129 The foregoing findings reflect that the court thoroughly considered and completely
discounted the mitigating factor of strong provocation. Its determination was reasonable.
Daviontay was not alone in handling the weapons in the Kinzer house. Both on the day of the
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shooting and the day before, defendant and the other individuals in the Kinzer house handled,
played, and posed with the weapons. Further, on the day of the shooting, Daviontay posted a video
on Snapchat, wherein defendant can be heard speaking to his uncle in the background about which
type of bullet might be preferable to shoot with. Any claim of shock or surprise that Daviontay
pointed the rifle at defendant is not well taken, nor is his claim that he felt threatened or that his
life was in danger. Daviontay’s alleged statements to defendant that “I’ll smoke your ass, bitch”
and “I’ll kill you in this bitch” reasonably reflected Daviontay’s bravado in the context of the
activities on that and the previous day, not a threat of violence.
¶ 130 The circumstances of the shooting supported the court’s sentencing determination and
showed that the court appropriately considered the mitigating and aggravating factors. Critically,
the evidence showed that defendant shot Daviontay 10 times, including 5 shots to the back, which
reasonably reflected that Daviontay tried to escape. Eileen Thomas, whose testimony the court
found credible, related how defendant lowered the rifle and shot Daviontay the final time, an act
that the court reasonably characterized as “an execution” and “very brutal act.”
¶ 131 In summary, the trial court did not err in sentencing defendant to 36 years’ imprisonment.
¶ 132 III. CONCLUSION
¶ 133 For the reasons stated, we affirm the judgment of the circuit court of Lake County.
¶ 134 Affirmed.
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https://www.courtlistener.com/api/rest/v3/opinions/8494707/ | MEMORANDUM
SHELLEY D. RUCKER, Bankruptcy Judge.
On August 5, 2011, Grant, Konvalinka & Harrison, P.C. (“GKH”) filed this lawsuit in the Circuit Court of Hamilton County, Tennessee against C. Kenneth Still (“Trustee”), Richard L. Banks (“Banks”), Rich*888ard Banks & Assoc., P.C. (“Banks P.C.”)1 and Steve A. McKenzie (“Debtor”) alleging malicious prosecution and abuse of process (“Hamilton County M/P Lawsuit”). The malicious prosecution and abuse of process allegedly occurred in a lawsuit brought in Bradley County, Tennessee against GKH and others in which malpractice and conflicts of interest were alleged (“Malpractice Lawsuit”). The Trustee removed the proceeding to this court, and GKH has filed this motion requesting remand and/or alternatively for abstention. GKH also requests consolidation of this adversary proceeding with Adversary Proceeding No. 11-1118 (“Bankruptcy M/P Lawsuit”) containing identical factual allegations and parties which GKH filed in this court also on August 5, 2011.2 [Doc. No. 3].3
There are other adversary proceedings filed by other parties pursuing malicious prosecution and abuse of process suits against the Hamilton County Defendants arising from the Malpractice Lawsuit.4 In addition, the court has before it multiple motions related to the disposition of this adversary proceeding which are interrelated. First, the Trustee has filed a Motion for Contempt. [Bankr.Case No. 08-16378, Doc. No. 1395, filed August 12, 2011]. It seeks the dismissal of this adversary proceeding as a sanction for acts of contempt by GKH in bringing and maintaining this suit in a state court without leave of this court. Contemporaneously with the issuance of this memorandum, the court has ruled that GKH was in contempt but denies that dismissal is the appropriate sanction.
Then there is this Motion for Remand which challenges this court’s jurisdiction as to the Hamilton County Defendants and seeks to terminate this proceeding by remand or abstention. As discussed in this memorandum, the court finds that the malicious prosecution and abuse of process claims against the Trustee are core proceedings which have arisen in the case, and it denies GKH’s motion for remand and/or abstention with respect to its claims against the Trustee. Having found that this court has jurisdiction over the Trustee, the court has before it a motion to dismiss this proceeding filed by the Trustee. [Doc. No. 5]. By separate memoranda and orders the court is granting the Trustee’s motion to dismiss GKH’s claims *889against the Trustee in both this adversary-proceeding and its twin the Bankruptcy M/P Lawsuit.
Those decisions leave the Banks Defendants as the only party opposing the Motion for Remand addressed in this Memorandum. The Trustee, the Banks Defendants and Debtor failed to file timely responses to the Motion for Remand. The Trustee filed a response opposing the Motion for Remand on September 15, 2011 relying primarily on its Motion to Dismiss. [Doc. No. 7]. The Banks Defendants filed a response in opposition to the Motion for Remand on November 2, 2011, incorporating the contentions contained in the Trustee’s response by reference. [Doc. No. 9]. The Banks Defendants did not address then-role as counsel for the Debtor in the response, and the Debtor has not responded at all.
GKH filed a motion to strike the Trustee’s and the Banks Defendants’ responses as untimely. [Doc. No. 10]. The Trustee opposed the motion to strike. [Doc. No. 12]. In the event the court declined to grant GKH’s motion to strike, GKH asked that the court review its reply brief filed with the motion to strike. [Doc. No. 10-1]. The court has reviewed the motion to strike and agrees with the Trustee that his opposition to the remand was evidenced by his removal of the action from state court. The court will thus DENY the motion to strike, but will GRANT GKH’s motion to consider its reply. The court has considered GKH’s Reply filed in support of its Motion for Remand. [Doc. No. 10 — 1].
On February 29, 2012, GKH filed a Supplemental Document seeking to have the court consider additional pleadings that have been filed by the Trustee and the Banks Defendants in the Bowers BK M/P Lawsuit and the Anderson BK M/P Lawsuit. [Doc. No. 13]. In those suits, they allege that the claims and defenses involved in two other adversary proceedings should not be addressed separately. [Adv. Proc. No. 11-1169, Doc. Nos. 44, 45; Adv. Proc. No. 11-1170 Doc. No. 35]. The court has taken those comments into consideration in its decision to abstain.
With respect to the Motion for Remand, the court has reviewed the briefing filed by GKH, the response of the Banks Defendants, the pleadings at issue, and the applicable law and makes findings of fact and conclusions of law pursuant to Fed. R. Bankr.P. 7052 set out in the remainder of this memorandum. Based on those findings and analysis, the court concludes that it has non-core jurisdiction over the Debt- or, but finds that mandatory abstention applies to GKH’s claims against the Debt- or. The court will GRANT GKH’s motion for mandatory abstention with respect to the Debtor. With respect to the Banks Defendants, the court’s jurisdiction over them is core in their role as counsel to the Trustee but non-core as to their role as counsel to the Debtor. Based on the factors considered in Section II.B.2. below, the court will GRANT GKH’s motion for permissive abstention with respect to GKH’s claims against the Banks Defendants. In addition, the court will GRANT GKH’s request to consolidate the Hamilton County M/P Lawsuit and the Bankruptcy M/P Lawsuit under the adversary proceeding no. 11-1121. Finally, the consolidated proceeding will be remanded to the Circuit Court of Hamilton County, Tennessee.
I. Background Facts
The court has summarized facts involving these same parties in several other *890memoranda filed in both the main bankruptcy case and in various adversary proceedings involving similar allegations. See, e.g., [Adv. Proc. No. 11-1016, Doc. No. 68; Adv. Proc. No. 11-1110, Doc. No. 25; Bankr.Case No. 08-16378, Doc. Nos. 1354, 1388]. However, for ease of reference, the court will summarize the relevant background facts here.
A. Bankruptcy Case
On November 20, 2008, a group of petitioning creditors filed an involuntary petition in bankruptcy against the Debtor in this court. See [Bankr.Case No. 08-16378, Doc. No. 1], On December 20, 2008, the Debtor filed a Chapter 11 voluntary petition in bankruptcy, [Bankr.Case No. OS-16987, Doc. No. 1]. On January 16, 2009, this court consolidated the two bankruptcy cases. [Bankr.Case No. 08-16878, Doc. No. 33],
The court appointed C. Kenneth Still to be the Chapter 11 trustee for the Debtor on February 20, 2009. [Bankr.Case No. 08-16378, Doc. No. 140]. The court converted the case to a Chapter 7 case on June 14, 2010, and the Trustee continued as the Chapter 7 trustee. [Bankr.Case No. 08-16378, Doc. No. 789]. On April 29, 2010, Banks filed a motion on behalf of the Debtor to restore his status as a debtor in possession and to remove the Trustee. [Bankr.Case No. 08-16378, Doc. No. 675]. That motion was withdrawn on May 17, 2010. [Bankr.Case No. 08-16378, Doc. No. 708].
On May 24, 2010, the Debtor amended Schedule B to include causes of action against GKH and Nelson Bowers, II, among others. [Bankr.Case No. 08-16378, Doc. No. 721], On June 2, 2010, the Trustee filed an application to employ Banks P.C. as special litigation counsel to pursue the “listed cases [sic] of action against certain individuals and law firms on amendments to Schedule B. The Trustee and Debtor, with Special Counsel, made [sic] pursue these and possibly other causes of action. Any further cases [sic] of action or avoidance actions will be lifted [sic] as they are identified.” [Bankr.Case No. 08-16378, Doc. No. 749, Application to Employ Special Litigation Counsel at 2 (“Banks Application”) ]. The Banks Application also represented that the Banks Defendants did not have any connections with any parties in interest and did not have an interest adverse to the estate that would disqualify them from employment. It specifically represented that Banks was “disinterested.” Id No party objected to the employment, and the court entered an order on July 1, 2010, authorizing the employment of Banks P.C. to act as special litigation counsel to the Trustee to pursue those actions. [Bankr.Case No. 08-16378, Doc. No. 806, Order Authorizing Employment of Special Litigation Counsel at 1]. The Banks Defendants were to be compensated from the estate after approval of the fees based on a 50% contingency fee of the total recovery from any state court actions authorized by the Trustee. [Bankr.Case No. 08-16378, Doc. No. 749, Banks Application at 2],
B. Malpractice Lawsuit
The Trustee and the Debtor, both represented by the Banks Defendants, filed the Malpractice Lawsuit against GKH and other defendants in the Bradley County Chancery Court. See [Doc. No. 1-3]. This court has reviewed the facts alleged in the Malpractice Lawsuit in previous opinions. See, e.g., [Bankr.Case No. OS-16378, Doc. Nos. 1387, 1199; Adv. Proc. 11-1016, Doc. No. 68]. The Malpractice *891Lawsuit alleged claims against GKH for breach of fiduciary duty/conflict of interest and civil conspiracy related to GKH’s involvement in transactions culminating in a “post-petition transfer of ... real estate located in Bradley County, Tennessee.” [Bankr.Case No. 08-16378, Doc. No. 1387, p. 5]. The Trustee and the Debtor described their roles as plaintiffs in the actions as follows:
Steve A. “Toby” McKenzie (“McKenzie”) brings this case in an individual capacity for the damages he has sustained after the filing of his bankruptcy, which are not part of his bankruptcy estate. He joins with the Plaintiff, C. Kenneth Still, Trustee in seeking relief and damages against the defendants for all the pre-petition acts of the defendants.
[Doc. No. 1-3, Complaint, Bradley County Chancery Court, No. 2010-CV-251 at 2],
In a parallel action, the Trustee, represented by the Banks Defendants and F. Scott LeRoy, filed an adversary proceeding in this court (Adv. Proc. No. 10-1407 (“50 Acre Lawsuit”))5 seeking the recovery of 50 acres of real property located in Bradley County, Tennessee that was the subject of the transaction on which the Malpractice Lawsuit was based. Judge Cook dismissed the 50 Acre Lawsuit, on December 16, 2010. [Adv. Proc. No. 10-1407, Doc. No. 67]. Following that dismissal, GKH filed an adversary proceeding in this court, alleging malicious prosecution and abuse of process against the Trustee and his counsel based on the Trustee’s filing of the 50 Acre Lawsuit. See [Adv. No. 11-1016, Doc. No. 1]. The court dismissed that adversary proceeding against the Trustee and counsel for the Trustee on grounds of immunity. See [Adv. No. 11-1016, Doc. Nos. 68, 69].
As this court has explained:
Based on filings with the Tennessee Secretary of State and the Register’s Office of Bradley County which were attached to the Trustee’s Complaint and on which Judge John C. Cook relied in his dismissal, [Adv. No. 10-1407, Doc. No. 1]; [Transcript, Adv. No. 10-1407 at pp. 8-9], the transferor was Cleveland Auto Mall, LLC whose members were the debtor and Mr. Nelson E. Bowers, II. The transferee company was Exit 20 Auto Mall, LLC, formed December 10, 2008, organized by Wayne Grant, who also served as registered agent with an address at 633 Chestnut Street, Chattanooga, TN. The deed was dated December 10, 2008, approximately twenty days after the involuntary filing. The deed reflects that it was “Prepared by and [to be returned] to Grant, Konvalinka & Harrison, P.C., Ninth Floor-Republic Centre, 633 Chestnut Street, Chattanooga, TN 37450-0900.” See [Adv. No. 10-1407, Doc. No 1, p. 47]. The Affidavit of Value on the deed was signed by Nelson E. Bowers, II as Chief Manager and showed a value of $4,000,000. The Trustee’s Complaint also had attached a Deed of Trust from Cleveland Auto Mall, LLC to SunTrust Bank dated February 24, 2006, securing approximately $3,800,000 in debt.
[Bankr.Case No. 08-16378, Memorandum Denying Leave of Court to File Action in Circuit Court of Bradley County, Tennessee, Doc. No. 1387, pp. 5-6].
Returning to the history of the Malpractice Lawsuit, this court has previously *892found in the Memorandum Denying Leave of Court to File Action in Circuit Court of Hamilton County:
In addition to the 50 Acre Lawsuit, on August 6, 2010, the Trustee also joined the Debtor in filing the Malpractice Lawsuit seeking damages for breach of fiduciary duty, conflicts of interest and conspiracy by GKH and Nelson Bowers and the transferee of the 50 acres. Like the 50 Acre Lawsuit, the complaint in Bradley County alleged that Cleveland Auto Mall, LLC (“CAM”) was owned by Mr. Bowers and the Debtor, that CAM owned 50 acres in Bradley County, Tennessee, that the property was worth $250,000 an acre, that ten acres had been transferred to NBR TOY Properties, LLC for $1,002,000 but CAM had not received payment for the transfer, that the Debtor was suffering severe health problems in December of 2009, that GKH which had been counsel for the Debtor and his entities had drafted the documents that transferred those acres to a limited liability company owned by Mr. Bowers, and that Mr. McKenzie signed a deed as a member of CAM conveying the 50 acres to Exit 20 Auto Mall, LLC, an entity owned at least in part by Mr. Bowers. Like the 50 Acre Lawsuit, the only allegation about the debt of CAM was that it owed $8,000,000 to SunTrust Bank. There was no allegation specifically addressing the value of the debtor’s equity at the time of the transfer.
The Trustee and his counsel fared no better in the Malpractice Lawsuit than they had in the 50 Acre Lawsuit. The complaint was met with motions to dismiss from GKH and Nelson Bowers. GKH first raised the defense of the statute of limitations. It argued that “if McKenzie suffered a legally cognizable injury resulting from the events described in the complaint as occurring on December 10, 2008, clearly McKenzie either knew, or should have known, the facts sufficient to give notice of the injury at that time since the allegations of the complaint admit that McKenzie was intimately involved.” [Doc. No. 1248-1, Motion to Dismiss by GKH, at 11]. On November 2, 2010, Mr. Bowers also filed a motion to dismiss the first two counts based on the failure of the complaint to state a viable cause of action, the expiration of the statute of limitations, and lack of any fiduciary duty owed by Mr. Bowers. The motion sought dismissal of the third count of conspiracy between the defendants based on there having been no violation of the stay and the plaintiffs’ failure to state a viable cause of action with respect to fraudulent transfer, fraudulent misrepresentation or fraudulent concealment. [Doc. No. 1248-2, Motion to Dismiss by Nelson Bowers at 2-3]. On January 4, 2010, GKH joined the Bowers motion to dismiss.
The Trustee and the Debtor responded on January 5, 2010 with a Memorandum of Authorities and a Motion for Joinder of an Indispensable Party. The indispensable party was CAM. GKH contends that these January filings, made after the bankruptcy court’s December ruling that the 50 acres was not property of the estate, give rise to additional damages. GKH contends that the Trustee failed to acknowledge the “clear preclusive effect” of the bankruptcy court’s ruling in the 50 Acre Lawsuit. [Doc. No. 1307, Brief in Support of GKH’s Motion for Leave to File Action in Bradley County at 17]. On January 26, 2011, the Chancellor found that the affidavit filed by the Debtor and the *893Trustee was “not sufficient to raise the issue of tolling of the Statute of Limitations under the case law in Tennessee.” [Doc. No. 1248-5, Chancellor’s Order, January 25, 2011]. The Chancellor granted the motion to dismiss with respect to causes of action related to breaches of fiduciary duty and conflicts of interest based on his finding that those two causes of action had a one year statute of limitations. Id.
On February 22, 2011, the Trustee and the Debtor announced in open court that they were going to submit an order which would provide that the January 25, 2011 Order would be a final dismissal as to all defendants and all counts. That announcement was memorialized in an order entered on March 4, 2011. [Doc. No. 1200-2, Ex. B, Chancellor’s Agreed Order].
[Bankr.Case No. 08-16378, Doc. No. 1387, pp. 7-8].
C. Motion for Leave to File Suit in Bradley County
Following the dismissal of the Malpractice Lawsuit by the Chancellor, GKH filed in the Debtor’s main bankruptcy case, a motion for leave to file suit in Bradley County. [Bankr.Case No. 08-16378, Doc. No. 1200, (“Bradley Leave Motion”) ]. In its motion, GKH sought leave to file claims of malicious prosecution and abuse of process in Bradley County Circuit Court against the “Trustee and his attorneys” for their pursuit of the Malpractice Lawsuit. In supplemental briefing filed in support of its motion, GKH again clarified that “GKH seeks leave of this Court to file a state court cause of action against C. Kenneth Still (‘Still’) and his attorneys for malicious prosecution, abuse of process and other related claims/remedies relative to Still and his attorneys’ filing and/or continued prosecution, of a meritless case that Still and his attorneys chose to file in Bradley County Chancery Court against GKH and others ...” [Bankr.Case No. 08-16378, Brief in Support of Bradley Leave Motion, Doc. No. 1307, p. 1].
D. Motion for Leave to File a Malicious Prosecution Suit in Hamilton County
GKH also filed a motion in the main bankruptcy case on February 18, 2011, requesting leave to file suit in Hamilton County, Tennessee, in order to allege malicious prosecution and abuse of process against the Trustee and other attorneys acting on behalf of the Trustee in filing an adversary proceeding, Adversary Proceeding 10-1397, in this court. [Bankr.Case No. 08-16378, Doc. No. 1031 (“Hamilton Leave Motion”)6],
While the Bradley Leave Motion was still pending, this court issued a memorandum and order on July 21, 2011, denying the Hamilton Leave Motion based on the application of the Barton Doctrine. [Bankr.Case No. 08-16378, Doc. Nos. 1354, 1355]. Following denial of the Hamilton Leave Motion, on July 22, 2011, GKH filed an adversary proceeding in this court alleging malicious prosecution and abuse of process against the Trustee and his counsel for their pursuit of Adversary Proceeding No. 10-1397 in this court. [Adv. Proc. No. 11-1110, Doc. No. 1]. The defendants in that case filed motions to dismiss on the grounds of immunity and preemption. [Adv. Proc. No. 11-1110, Doc. Nos. 18, 21], *894The court granted the motions to dismiss. [Adv. Proc. No. 11-1110, Doc. Nos. 25, 26]. GKH has appealed that decision to district court. [Adv. Proc. No. 11-1110, Doc. No. 29],
E. Institution of Hamilton County M/P Lawsuit
Before this court issued its ruling on the Bradley Leave Motion, on August 5, 2011, at 1:59 p.m., GKH filed the Hamilton County M/P Lawsuit in Hamilton County Circuit Court against the Hamilton County Defendants alleging malicious prosecution and abuse of process for bringing the Malpractice Lawsuit. See [Doc. No. 1-2]; see also, [Bankr.Case No. 08-16378, Doc. No. 1395]. Also on August 5, 2011, GKH filed the Bankruptcy M/P Lawsuit [Adv. Proc. No. 11-1118, Doc. No. 1]. Only minutes after the filing of GKH’s second lawsuit against the Hamilton County Defendants, this court issued its ruling on the Bradley Leave Motion that denied GKH leave to file suit in state court based on the allegations raised in the Hamilton County M/P Lawsuit. [Bankr.Case No. 08-16378, Doc. Nos. 1387, 1388]. The court’s opinion echoed its earlier opinion denying GKH leave to file suit in Hamilton County based on the Barton Doctrine. See id.
F. Motion for Contempt and Motion to Alter or Amend
Following GKH’s refusal voluntarily to non-suit the Hamilton County M/P Lawsuit, the Trustee filed a motion for contempt on August 12, 2011. [Bankr.Case No. 08-16378, Doc. No. 1395]. On August 19, 2011, GKH filed a motion to alter or amend the judgment that asked the court to reconsider its denial of the Bradley Leave Motion. [Bankr.Case No. 08-16378, Doc. No. 1406 (“Motion to Alter or Amend”) ]. In that motion GKH informed the court for the first time of its decision to file suit against the Debtor and his counsel in addition to the Trustee and his counsel. GKH argued that it had determined that the Debtor was a necessary party for its causes of action against the Trustee; however, GKH provided no specific facts or issues that would require the addition of the Debtor as a defendant in order to resolve its claims against the Trustee. GKH also argued that the Trustee’s actions were ultra vires and that the Barton Doctrine did not apply. The court denied the Motion to Alter or Amend on the basis that GKH had provided no new evidence nor had it provided any change in the law that would justify the court’s altering or amending its decision denying leave. [Bankr.Case No. 08-16378, Doc. Nos. 1474, 1475],
With respect to the Motion for Contempt, this court issued a show cause order on September 13, 2011. [Bankr.Case No. 08-16378, Doc. No. 1440]. The show cause hearing was held, and contemporaneously with the issuance of this memorandum, the court is issuing its order finding GKH in contempt. The Trustee asked for dismissal of the Hamilton County M/P Lawsuit as a sanction, but the court is denying that request.
G. Motion for Dismissal of Bankruptcy M/P Lawsuit
The Trustee moved for dismissal of the Bankruptcy M/P Lawsuit as well as the Hamilton County M/P Lawsuit on September 13, 2011. [Adv. Proc. No. 11-1118, Doc. No. 17]; [Doc. No. 5]. The court will dismiss the Trustee from both lawsuits for the reasons stated in separate memoranda related to those motions.
H. Motion to Remand/Abstain or in the Alternative to Consolidate
In this motion GKH has moved for remand and/or abstention and/or consolida*895tion of this proceeding with the Bankruptcy M/P Lawsuit. [Doc. No. 3]. In the Hamilton County M/P Lawsuit and its twin, the Bankruptcy M/P Lawsuit, GKH has named as defendants the Debtor and the Banks Defendants as the Debtor’s counsel, in addition to the Trustee and the Banks Defendants as Trustee’s counsel. GKH argues that the inclusion of the Debtor as a defendant, as well as GKH’s exclusively state law claims leave only the state court as the court with jurisdiction to hear “the indistinguishably interconnected claims involved in GKH’s cause of action without having to address ... the irresolvable jurisdictional problems presented by the removal....” [Doc. No. 10-1, GKH Reply at 3]. GKH has also cited statements made by the Hamilton County Defendants in the Bowers BK M/P Lawsuit that all of the actions are interrelated. GKH has also asked for a jury trial and requests that this court abstain from hearing this matter on both mandatory and permissive abstention grounds. The Trustee and the Banks Defendants rely on their briefs in support of their Motions to Dismiss in which they state that all of the matters are core because they relate to the administration of the estate. Further, they argue that the Trustee is immune and the court should dismiss both the Bankruptcy M/P Lawsuit and the Hamilton County M/P Lawsuit. If the court has jurisdiction over the Trustee and if the claims against him are dismissed, the remand issue is moot as to the Trustee. However, the other Hamilton County Defendants have not filed a motion to dismiss at this time. Therefore, the court must still address the issues related to this court’s jurisdiction over all of the Hamilton County Defendants and the issue of remand and abstention with respect to the Banks Defendants and the Debtor.
II. Analysis
A. Motion for Remand
In order to determine whether this court has jurisdiction over the Hamilton County Defendants, the court must review the causes of action in the Hamilton County M/P Lawsuit and determine how they relate to the bankruptcy case pending before it. 28 U.S.C. § 1452(a) provides for the removal of actions relating to bankruptcy cases. A party may remove such an action to the district court where the state court action is pending “if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.” 28 U.S.C. § 1452(a). The court to which such claim or cause of action is removed may remand such claim on any equitable ground. The removing party bears the burden of demonstrating federal court jurisdiction. See Coyne v. American Tobacco Co., 183 F.3d 488, 493 (6th Cir.1999). The court will address whether it has jurisdiction over the claims brought by GKH against the parties and then whether there are reasons that the court should abstain.
1. No Estoppel to Defendants’ Claim of “Core” Jurisdiction.
As a preliminary matter, GKH argues that the Hamilton County M/P Lawsuit does not contain any “core” dispute as that term is defined in the relevant case law interpreting the Bankruptcy Code. GKH argues that, as the Hamilton County Defendants admitted in the Malpractice Lawsuit that the claims against GKH and the other defendants were “non-core,” they are estopped from claiming that GKH’s claims against the Hamilton County Defendants are core. As a preliminary matter, the court does not find that *896this allegation by the Hamilton County Defendants in the Malpractice Lawsuit is determinative. It is the court that determines whether a proceeding is a core proceeding under subsection (a) of section 157. 28 U.S.C. § 157(b)(3). Prior contentions of the parties are not determinative. Family Medical Associates, LLC v. Alongi (In re Alongi), 272 B.R. 156, 158 (Bankr.D.Md.2001)(party granted remand had previously claimed the action was a core proceeding). The court has also addressed that the statements of whether the malpractice action was a “core proceeding” for bankruptcy jurisdiction over the defendants is not a determination of whether a malicious prosecution action against a trustee and his counsel is a core proceeding. See [Bankr.Case No. 08-16378, Doc. No. 1387, Memorandum Denying Bradley Leave Motion, p. 14 (“The categorization of an action as ‘core’ or ‘non core’ for purposes of bankruptcy court jurisdiction may be determinative of what forum the trustee must use to obtain jurisdiction over the party from whom he is seeking the recovery. It is not determinative of whether the filing of that suit is inside or outside the scope of the trustee’s duties”) ].
2.Bases for Jurisdiction
28 U.S.C. § 1334 defines the scope of district court jurisdiction over cases under Title 11. The statute states in part:
(a) Except as provided in subsection (b) of this section, the district courts shall have original and exclusive jurisdiction of all cases under title 11.
(b) Except as provided in subsection (e)(2), and notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.
28 U.S.C. § 1334(a)-(b).
Courts examining 28 U.S.C. § 1334 have concluded that there are four categories of cases created by the statute:
1. “cases under title 11”,
2. “proceedings arising under title 11”,
3. “proceedings ‘arising in’ a case under title 11, and[”]
4. “proceedings ‘related to’ a case under title ll.[”]
Simmons v. Johnson, Curney & Fields, P.C. (In re Simmons), 205 B.R. 834, 837 (Bankr.W.D.Tex.1997) (citing 28 U.S.C. §§ 1334(a), (b); Wood v. Wood (In re Wood), 825 F.2d 90, 92 (5th Cir.1987)); Beneficial Nat’l Bank USA v. Best Receptions Systems, Inc. (In re Best Reception Sys., Inc.), 220 B.R. 932, 942 (Bankr.E.D.Tenn.1998). The first category applies to the actual bankruptcy petition. In re Best Reception Sys., Inc., 220 B.R. at 942; In re Simmons, 205 B.R. at 837 (citing In re Wood, 825 F.2d at 92). With respect to “arising under” proceedings, in In re Simmons the bankruptcy court reviewed the relevant case law and noted that “[t]he few courts that have addressed ‘arising under’ have held that the category provides jurisdiction to courts for causes of action that are created by Title 11.” 205 B.R. at 839 n. 9. In In re Simmons, the court relied on In re Wood and the Fifth Circuit’s treatment of the murkier definition of “arising in” and determined that the phrase included those proceedings “ ‘that are not based on any right expressly created by title 11, but nevertheless, would have no existence outside the bankruptcy.’ ” In re Simmons, 205 B.R. at 839 *897(quoting In re Wood, 825 F.2d at 97); In re Best Reception Sys., Inc., 220 B.R. at 943. As the In re Simmons court explained it,
[w]hile we cannot — and need not — define the precise parameters of “arise in” jurisdiction, we do conclude that matters falling into the category must at the very least be of a sort that could not have occurred but for the bankruptcy. For example, an ordinary contract made between a debtor and another party during the pendency of a bankruptcy could have occurred whether the bankruptcy had been filed or not.
205 B.R. at 840 (footnote omitted).
In Sanders Confectionery Products the Sixth Circuit explained that “[a] core proceeding either invokes a substantive right created by federal bankruptcy law or one which could not exist outside of the bankruptcy.” Sanders Confectionery Products, Inc. v. Heller Financial, Inc., 973 F.2d 474, 483 (6th Cir.1992). Further,
[i]n non-core proceedings that are “related to” the bankruptcy case, the bankruptcy judge may hear the matter and “submit proposed findings of fact and conclusions of law to the district court,” but without the parties!’] consent the bankruptcy court may not make a final decision on the matter.
Id. (quoting 28 U.S.C. § 157(c)). The Sixth Circuit also noted that claims will not be considered to “arise under title 11” where the “causes of action are not created or determined by a statutory provision of title 11.” Id. at 483 n. 4 (citations omitted). In addition, claims such as “lender liability, common law fraud, securities fraud, and RICO claims against [the defendants] are not ones which ‘arise in’ a title 11 case because they could arise in cases other than bankruptcy proceedings.” Id.
The concept of “related to” jurisdiction in the fourth category of cases as explained in Lindsey v. O’Brien, Tanski, Tanzer and Young Health Care Providers (In re Dow Corning Corp.) is broad. 86 F.3d 482 (6th Cir.1996). In In re Dow Coming the Sixth Circuit explained that it had adopted a test for “related to” jurisdiction first explained by the Third Circuit in Pacor, Inc. v. Higgins, 743 F.2d 984, 988 (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)). 86 F.3d at 489. The Sixth Circuit provided that:
[a]s stated in [Pacor, Inc.], the “usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.” An action is “related to bankruptcy if the outcome could alter the debtor’s rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.” A proceeding “need not necessarily be against the debtor or against the debt- or’s property” to satisfy the requirements for “related to” jurisdiction. However, “the mere fact that there may be common issues of fact between a civil proceeding and a controversy involving the bankruptcy estate does not bring the matter within the scope of section [1334(b) ].” ... Instead, “there must be some nexus between the ‘related’ civil proceeding and the title 11 case.”
Id. (internal citations omitted). In addition, the Sixth Circuit noted that “[o]ur Circuit has held that Section 1334(b) ‘does not require a finding of definite liability of *898[an] estate as a condition precedent to holding an action related to a bankruptcy proceeding.’ ” Id. at 491 (quoting In re Salem Mortgage Co., 783 F.2d 626, 635 (6th Cir.1986)). In addition, “[t]he matter need not directly involve the debtor, as long as it ‘could alter the debtor’s rights [or] liabilities,’ but an ‘extremely tenuous connection’ will not suffice.” Sanders Confectionery Products, 973 F.2d at 482 (quoting Michigan Employment Sec. Comm’n v. Wolverine Radio Co., Inc. (In re Wolverine Radio Co. Inc.), 930 F.2d 1132, 1142 (6th Cir.1991)).
28 U.S.C. § 157 provides for district court referral of cases under Title 11 to the bankruptcy courts. The statute states:
(a) Each district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district.
(b)(1) Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section....
28 U.S.C. § 157(a) and (b)(1).
Section 157(b)(2) provides guidance on matters that are considered core proceedings. With respect to the issues in this case, the statute provides that: “core proceedings include, but are not limited to— (A) matters concerning the administration of the estate; .... and (0) other proceedings affecting the liquidation of the assets of the estate....” 28 U.S.C. § 157(b)(2)(A) and (0). It further states that:
[t]he bankruptcy judge shall determine, on the judge’s own motion or on timely motion of a party, whether a proceeding is a core proceeding under this subsection or is a proceeding that is otherwise related to a case under title 11. A determination that a proceeding is not a core proceeding shall not be made solely on the basis that its resolution may be affected by State law.
28 U.S.C. § 157(b)(3).
The district court for the Eastern District of Tennessee has referred cases under 28 U.S.C. § 1334 to bankruptcy courts. See Kirk v. Hendon (In re Heinsohn), 231 B.R. 48, 56 (Bankr.E.D.Tenn.1999). In In re Heinsohn the bankruptcy court explained the difference between the scope of district court jurisdiction over bankruptcy matters in 28 U.S.C. § 1334 and the core/non-core distinction made in 28 U.S.C. § 157(b):
A statement designating a proceeding as core or non-core does not fall within this category of information because a proceeding’s core/non-core status only becomes pertinent after it has been established that the proceeding falls within the district court’s bankruptcy jurisdiction. “If a district court has bankruptcy jurisdiction over a case, 28 U.S.C. § 157(a) allows the court to refer the case to the bankruptcy court.” Upon such referral, § 157(b) “provides guidance as to what matters within § 1334 jurisdiction may be heard and determined by bankruptcy judges, who are not Article III judges.” ... Therefore, while the core/non-core statement is relevant in ascertaining the extent of the bankruptcy court’s authority ...; it has no bearing on whether the district court has jurisdiction.
In re Heinsohn, 231 B.R. at 53 (quoting Sanders Confectionery Prod., Inc., 973 F.2d at 482).
It is possible for an action to “encompass both core and non-core issues.” *899In re Best Reception Sys., Inc., 220 B.R. at 945. In In re Best Reception Sys., Inc., the court further explained that “[e]ach claim must, on its own, satisfy the requirements of § 157(b).” Id. at 946. A court “must examine each cause of action separately to determine if it is core or non-core.” Id.
GKH has brought two causes of action-malicious prosecution and abuse of process-against four defendants, two of whom have been sued in two capacities. With respect to the causes of action, they are both tort actions based on state law arising from the Malpractice Lawsuit. One cause of action is based on the initiation of the Malpractice Lawsuit while the other cause of action is based on the continued prosecution of that lawsuit after certain rulings were made by this court. Since both causes of action are related to the Hamilton County Defendants’ actions in the one suit, the court does not see that separate analysis of each cause of action is necessary; however, the court does believe a separate analysis is required for each defendant, and, with respect to the Banks Defendants, for each of the roles they played in the Malpractice Lawsuit. The court will examine whether GKH’s claims against each defendant are core or non-core. If the causes of action are non-core, then the court will also consider whether those causes of action are “related to” the bankruptcy case.
(a) Causes of Action Against the Trustee
The bankruptcy court in In re Heinsohn examined whether a claim of malicious prosecution against a bankruptcy trustee is a core or non-core matter. 231 B.R. at 55. With respect to a bankruptcy court’s jurisdiction, the court explained:
... the district court’s and bankruptcy court’s subject matter jurisdiction is coextensive with respect to core proceedings. However, absent consent of the parties, a bankruptcy court does not have subject matter jurisdiction over non-core, ie., “related,” proceedings although such proceedings are still within a district court’s jurisdiction.
Id. at 56 (citation omitted). The bankruptcy court determines whether a matter is core or non-core pursuant to 28 U.S.C. § 157(b)(3), and it must “look at both the form and the substance of the proceeding.” Id. Further,
[a]s a general rule, ‘a core proceeding either invokes a substantive right created by federal bankruptcy law or one which could not exist outside of the bankruptcy.’ The fact that the claim raises issues of state rather than federal law does not by itself determine that it is not a core proceeding.
Id. at 56-57 (quoting Sanders, 973 F.2d at 483 and citing In re Hildebrand, 205 B.R. 278, 283 (Bankr.D.Colo.1997)). The bankruptcy court concluded that the malicious prosecution action was a core proceeding.
The plaintiff in In re Heinsohn raised very similar arguments to the arguments GKH makes in the Motion for Remand. For example, the plaintiff claimed that his malicious prosecution case against the trustee had no relationship with the closed bankruptcy estate and was a claim that could exist outside of bankruptcy. 231 B.R. at 57. After reviewing case law analyzing similar claims against a bankruptcy trustee, the court in In re Hein-sohn determined that the malicious prosecution action against the trustee involved the administration of the estate, a core matter under 28 U.S.C. § 157. The court *900especially relied on the decision of the Ninth Circuit Bankruptcy Appellate Panel in Honigman, Miller, Schwartz & Cohn v. Weitzman (In re DeLorean Motor Co.), 155 B.R. 521 (9th Cir. BAP 199B). It noted that:
[i]t was not happenstance that the complained of events took place while the defendant was a bankruptcy trustee.... Thus, a trustee who makes a criminal referral is simply carrying out his administrative duties, no different than the trustee in DeLorean who filed the fraudulent conveyance action or the trustee in Harris Pine Mills who sold estate property. Although the plaintiffs causes of action for malicious prosecution and defamation would exist outside bankruptcy, they would not have arisen but for the defendant’s obligations and conduct as a trustee. Accordingly, this is a core proceeding.
Id. at 59 (citing In re DeLorean Motor Co., 155 B.R. 521; Maitland v. Mitchell (In re Harris Pine Mills, 44 F.3d 1481, 1436 (9th Cir.1995))).
The district court affirmed the bankruptcy court’s decision, noting:
The Court agrees the action in this case was a core proceeding. From all indications, Defendant made the referral in this case in the course of his duties as trustee of the relevant bankruptcy estate. The Court realizes Plaintiff challenges this assertion, however, ... the Court finds this argument without merit. Had there been no bankruptcy proceeding, the referral which Plaintiff contends was maliciously instituted, would not have taken place. The referral concerned bankruptcy fraud and was made pursuant to 18 U.S.C. § 3057 concerning bankruptcy investigations. Thus the referral, on which Plaintiffs case turns, arises under the bankruptcy laws and would not exist independent of these laws. Accordingly, the proceeding is core.
Kirk v. Hendon (In re Heinsohn), 247 B.R. 237, 244 (E.D.Tenn.2000)(footnote omitted) (emphasis in original).
This court has already explained in its Memorandum Denying the Bradley Leave Motion why GKH’s proposed malicious prosecution and abuse of process claims against the Trustee should remain in this court. See [Bankr.Case No. 08-16378, Doc. No. 1387]. The court further explained how the actions of the Trustee in filing the Malpractice Lawsuit were within the scope of his duties. See id. at pp. 13-17. The court also addressed at length how the Trustee’s actions in pursuing an adversary proceeding in this court based on the same operative facts as the Malpractice Lawsuit were within the scope of his duties in its memorandum accompanying the order of dismissal of Adversary Proceeding No. 11-1016. [Adv. Proc. No. 11-1016, Doc. No. 68, pp. 7-19], The court declines to repeat this lengthy analysis here, but based on the reasoning discussed in those opinions, and the authority of In re Heinsohn and In re DeLorean, the court concludes that the Trustee’s actions in filing the Malpractice Lawsuit were within the scope of his duties, and therefore, any malicious prosecution and abuse of process claims against him are core proceedings. In re Heinsohn, 231 B.R. at 59; In re Heinsohn, 247 B.R. at 244; In re DeLorean Motor Co., 155 B.R. 521.
As noted by this court in its prior opinion on this issue:
11 U.S.C. § 704 requires the trustee to “collect and reduce to money the property of the estate for which such trustee *901serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest.” 11 U.S.C. § 704(a)(1). The trustee must further “investigate the financial affairs of the debtor,” as well as “if a purpose would be served, examine proofs of claims and object to the allowance of any claim that is improper.” 11 U.S.C. § 704(a)(4)-(5).
[Adv. Proc. No. 11-1016, Doc. No. 68, p. 8 (quoting 11 U.S.C. § 704) ]. The court concludes that the Trustee was attempting to collect assets of the estate and to investigate the financial affairs of the Debtor when he filed the Malpractice Lawsuit. Thus, any malicious prosecution or abuse of process claim involves the administration of the bankruptcy estate and is a core proceeding. See In re Heinsohn, 281 B.R. at 55.
(b) Banks and Banks P.C. as counsel for the Trustee
As the court also explained in its prior opinions, immunity analysis for a trustee’s actions also applies to counsel for the trustee. See, e.g., [Adv. Proc. 11-1016, Doc. No. 68, pp. 13-14]; In re Heinsohn, 231 B.R. at 63; Lowenbraun v. Canary (In re Lowenbraun), 453 F.3d 314, 322 (6th Cir.2006). The Banks Defendants filed a response adopting the Trustee’s Response to the Motion for Remand. [Doc. No. 9]. Therefore, for the same reasons that the court has concluded that GKH’s claims against Trustee are core matters, it finds that the claims against the Banks Defendants, in their capacity as counsel for the Trustee, are also core proceedings.
(c) Jurisdiction over the Debtor
In addition to the Trustee and his counsel, GKH has also sued the Debtor. The court must now determine what jurisdiction it has, if any, over claims of malicious prosecution and abuse of process arising from the Debtor’s pursuit of “damages he has sustained after the filing of his bankruptcy, which are not part of his bankruptcy estate.” [Doc. No. 1-1, Complaint, Bradley County Chancery Court, No. 2010-CV-251 at 2 (emphasis added) ].
As stated supra, 28 28 U.S.C. § 1334(a) and (b) define the scope of the bankruptcy court’s jurisdiction. 28 U.S.C. § 1334(a)-(b). The Sixth Circuit has explained that proceedings are “core” for bankruptcy jurisdictional purposes where they meet the “arising under title 11” or “arising in a case under title 11” language of 28 U.S.C. § 1334(a)-(b). Amedisys, Inc. v. Nat’l Century Finan. Enterps., Inc. (In re National Century Finan. Enterps., Inc.), 423 F.3d 567, 574 (6th Cir.2005). Cases “related to” a case under title 11 are non-core proceedings. Id. (citing In re Combustion Engineering, Inc., 391 F.3d 190, 225-26 (3d Cir.2004)). This court does not have any jurisdiction over matters that are not covered in 28 U.S.C. § 1334(a)-(b). See In re Best Reception Sys., Inc., 220 B.R. at 949.
As noted supra, under In re Heinsohn, GKH’s claims of abuse of process and malicious prosecution against the Trustee and the Banks Defendants for actions taken as counsel for the Trustee are core proceedings. This core jurisdiction is based on the rulings that have found that actions against a trustee for malicious prosecution and abuse of process affect the administration of the bankruptcy case. 28 U.S.C. § 157(b)(2)(A). These courts have noted that they have core jurisdiction because actions against a trustee call into question the manner in which a trustee and his counsel have carried out their duties. *902These types of actions raise the concern that subjecting a trustee to liability will have a chilling effect on a trustee’s willingness to pursue actions in that particular case and on trustees’ willingness to pursue actions generally. See In re Heinsohn, 231 B.R. at 59; In re Heinsohn, 247 B.R. at 245; Traina v. Blanchard, No. 97-0348, 1998 WL 483485, at *2 (E.D.La. Aug. 13, 1998); Picard v. Chais, et al. (In re Bernard L. Madoff Investment Securities, LLC), 440 B.R. 282, 286 (Bankr.S.D.N.Y. 2010); Weissman v. Hassett, 47 B.R. 462, 467 (S.D.N.Y.1985). In these cases, the courts have read 28 U.S.C. § 157(b)(2)(A) broadly and have found core jurisdiction even where a determination of the proceeding in question will not create either a liability or a recovery for the estate. For example, in In re Heinsohn, the estate had already been closed when the malicious prosecution case was brought and the plaintiff was seeking only damages from the trustee individually. 247 B.R. at 242. This court must determine whether the core category of administration of the estate is broad enough to support core jurisdiction for the Debtor’s pursuit of his damages arising post petition under the facts of this case.
In determining whether the cause of action against the Debtor should be considered to be a core proceeding, GKH relies on the Debtor’s allegation in the Malpractice Lawsuit Complaint that he is pursuing damages that would not be property of the estate. In addition, the court notes that only the Debtor pursued punitive damages for his benefit in the Malpractice Lawsuit complaint. Based on those allegations, GKH argues that the court cannot find that core jurisdiction exists over the claims against the Debtor. The Debtor has not responded to the Motion for Remand, so he has provided no basis for the court’s finding that his actions fell within one of the core proceedings listed in 28 U.S.C. § 157(b)(2). At the time he brought the Malpractice Lawsuit, the Debtor was not the representative of the estate, although he had tried to regain his status as a debtor in possession only a few months before the Malpractice Lawsuit was filed. The court sees no basis for expanding core jurisdiction through an even broader reading of administration of the estate to include a party who alleges he is proceeding on his own behalf and who is no longer responsible for the administration of the estate. Based on the Debtor’s allegation in the Malpractice Lawsuit Complaint and the Debtor’s failure to respond showing how his involvement in the Malpractice Lawsuit related to administration of the estate, the court agrees with GKH. It finds that the causes of action against the Debtor are not core proceedings.
The court must now determine whether those same causes of action are “related to” the bankruptcy case. The test as expressed in Dow Coming is whether “the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.” In re Dow Coming, 86 F.3d at 489. GKH’s claims are against a debtor, although that fact alone is not enough for a finding of “related to” jurisdiction. GKH has cited several cases that hold that a bankruptcy court does not have jurisdiction over the litigation between a debtor and third parties that will benefit only the debtor. In Family Medical Assoc., LLC v. Alongi, the bankruptcy court addressed the remand of a civil action requesting an injunction to enforce the restrictive covenants of an employment agreement between the plaintiff employer and the employee debt- *903or. 272 B.R. 156, 158 (Bankr.D.Md.2001). The court concluded that the action was not “related to” the debtor’s bankruptcy action as the actions pertaining to the plaintiffs claim occurred post-petition and were not property of the estate. Id. at 160. The court granted the plaintiffs motion for remand, noting that: “whether or not [the plaintiff] successfully enforces the covenants at issue, such relief would not affect compliance with a plan of reorganization, nor would it change the character or amount of any claim against [the debt- or’s] bankruptcy estate.” Id.
In In re Johnson, another case cited by GKH, the bankruptcy court addressed “related to” jurisdiction over a post-petition loan that a creditor made to the debtors and a refusal of the debtors to surrender title to the vehicle serving as collateral following satisfaction of another creditor’s lien. No. 04-82274C-7D, 2006 WL 2462823, at *1 (Bankr.M.D.N.C. Aug. 23, 2006). The court determined it had no jurisdiction over the plaintiffs claims and denied its motion to reopen the debtors’ bankruptcy case. Id. at *2. The court found that the loan and alleged wrongdoing occurred post-petition and could not give rise to a claim against the estate or affect its administration. Id. at *1.
Applying the “claim against the estate” analysis, the connection between GKH’s claims and the bankruptcy estate is not strong. In this case, GKH argues that a judgment in its favor would not affect its claim against the estate. It would be a post petition claim against a debtor who has waived his discharge. There is no plan of reorganization since this is a Chapter 7 liquidation. By the same token, if GKH is not successful and a court were to find that the Debtor had probable cause to pursue claims that are not property of the estate, GKH’s loss would not benefit the estate.
Two other cases cited by GKH focus on the interrelation of the state court issues with the bankruptcy case. In Delphi Automotive Sys., LLC v. Segway, Inc., the court granted a motion to remand, concluding that state law breach of contract claims were only “indirectly related to [debtor’s] bankruptcy case” and that state law claims predominated over bankruptcy issues. 519 F.Supp.2d 662, 670 (E.D.Mich.2007). In Rhiel v. Central Mortgage Co. (In re Kebe), the bankruptcy court determined that it lacked jurisdiction over a third-party complaint brought by a non-debtor, who jointly owned a house with the debtor, against a mortgage closing company for negligence in the manner in which the mortgage company notarized the mortgage. 444 B.R. 871 (Bankr.S.D.Ohio 2011). The negligence allegedly gave the trustee grounds to avoid the mortgage in the debtor’s bankruptcy case. In In re Kebe the bankruptcy court found that the trustee’s ability to avoid the mortgage was “in no way dependent on, or intertwined with” the non-debtor’s third-party negligence complaint against the mortgage closing company. 444 B.R. at 877.
The connection for jurisdictional purposes is much stronger when the issue is whether the bankruptcy case is intertwined with the state law issues. An analysis of the probable cause elements of malicious prosecution and abuse of process will require an analysis of the bankruptcy law on property of the estate as it relates to the preclusive effect of the decision in the 50 Acre Lawsuit and as it relates to ownership of the causes of action in the Malpractice Lawsuit. The statute of limitations defenses raised in the Malpractice Lawsuit complaint are also based on the *904tolling effect of a bankruptcy provision, 11 U.S.C. § 108, and the Debtor’s incapacity due to illness, which was an issue raised in the bankruptcy case with respect to the appointment of a Trustee. The facts which the Debtor alleged as the basis of his causes of action in the Malpractice Complaint are the same as those alleged by the Trustee. Bankruptcy law and the specific rulings of the bankruptcy court in this case will be central to the prosecution and defense of the malicious prosecution and abuse of process causes of action. In addition, GKH has argued in its Motion to Alter or Amend that the Debtor is an indispensable party to its claims against the Trustee. It repeats this contention in its brief in support of the Motion for Remand. [Doc. No. 3-1, p. 11]. It cited the other defendant’s contentions that the matters should all be heard together in its Supplement to its Supplemental Response. [Doc. No. 13, pp. 1-2]. Although GKH did not specify why the Debtor is indispensable in either pleading, GKH’s position that the Debtor is an indispensable party to its claims against the Trustee is inconsistent with its current position that its claims against the Debtor can have no conceivable effect on the Trustee’s liability and administration of the estate.
In another case cited by GKH, Franklin Life Ins. Co. v. Rousselle (In re Rousselle), the bankruptcy court addressed a plaintiff company’s claims for injunctive relief based on tortious interference by the debt- or with business relationships under state law. 259 B.R. 409 (Bankr.M.D.Fla.2001). The alleged wrongful tortious actions occurred post-petition. The court analogized the claims of the plaintiff to a car accident occurring post-petition that can have no possible effect on the administration of the estate. Id. at 412. The court found that it had no jurisdiction over the plaintiffs
claims. Id. at 413. In explaining its conclusion, it noted:
[a]sking the Court to enjoin future behavior and to award damages in the instant case is no different than asking the Court to enjoin a Chapter 7 debtor from driving negligently in the future or asking the Court to award damages stemming from a car accident a debtor caused post-petition. In both cases, there is no possibility that the bankruptcy estate might be affected, because the unfettered administration of the estate by a Chapter 7 trustee is not affected and because no valid claim against the Chapter 7 estate could possibly be grounded on the postpetition behavior.
Id. at 412.
GKH argues in its response that the Debtor’s involvement in this case is like the debtors’ involvement in the In re Rousselle case. However, the court cannot adopt GKH’s view that this court has no more interest in GKH’s claims and this estate’s involvement in that litigation than it would have in the Debtor’s involvement in a postpetition fender bender. Here, the claims alleged in the original Malpractice Lawsuit pertain to allegations of wrongdoing arising from the Debtor’s involvement in and allegations of the other parties’ desire to remove the 50 acres project from the reach of the Debtor’s bankruptcy. [Doc. No. 1-3, Malpractice Complaint, ¶¶ 11-27]. The alleged actions were taken by GKH, the Debtor’s former counsel and a significant creditor in the case. Those actions were taken in the gap period between the involuntary petition and the Debtor’s becoming the debtor in possession in his own voluntary Chapter 11 bankruptcy. In In re Alongi, the plaintiffs claims had nothing to do with the debtor’s conduct at a time when he was in posses*905sion and in control of the estate, but rather related to his postpetition employment agreement which was found not to be property of the estate.
Finally, the context in which the Malpractice Lawsuit arose is more closely connected to the administration of a bankruptcy case than the facts in the cases cited by GKH. The malicious prosecution and abuse of process arose in response to a case in which the Debtor was a co-plaintiff with the Trustee where the lines of ownership of the malpractice claims and the standing to bring them were blurry.7 Headrick v. Bradley County Memorial Hospital, 208 S.W.3d 395 (Tenn.Ct.App.2006). In the context of this case and with respect to an interpretation of whether GKH’s claim may have an effect on the “unfettered administration of the estate by a Chapter 7 trustee,” a broad reading of administration of the estate is more appropriate in the context of “related to” jurisdiction. In re Rousselle, 259 B.R. at 412.
The importance of bankruptcy law and events in the bankruptcy case to the Hamilton County M/P Lawsuit and the relationship of the Malpractice Lawsuit to the administration of the estate are connections to the bankruptcy case that make the Hamilton County M/P Lawsuit related to the Debtor’s bankruptcy case. This court finds that it has noncore jurisdiction over GKH’s claims against the Debtor.
(d) Banks Defendants as Counsel for the Debtor or Separately Liable
Based on the findings with respect to the court’s jurisdiction over the Trustee and the Debtor, the court finds that it has core jurisdiction over the Banks Defendants in one capacity and noncore jurisdiction in the other. GKH has treated the Banks Defendants as a third defendant in the Hamilton County M/P Lawsuit and is seeking damages based on joint or several liability. The parties have not directed this court’s attention to cases that directly address the factual situation present here — i.e., jurisdiction over malicious prosecution claims against a debtor and a trustee and their joint counsel arising from a lawsuit based on state law claims brought in one lawsuit by that debtor and trustee.
The court has located only one case that has similarly unusual circumstances that culminate in a malicious prosecution case against the debtors’ counsel. The issue addressed in that case is whether the court has jurisdiction over the malicious prosecution case removed to the bankruptcy court by the debtors’ counsel. The debtors’ counsel had even served in a dual role for the debtors and the trustee at one point in the underlying case. In that unpublished California decision, the district court addressed the appeal of a bankruptcy court’s order remanding a removed action to state court. See Snider v. Sherman, No. CVF-03-6605, 2007 WL 1174441 (E.D.Cal. Apr. 19, 2007). Although the facts are not identical to the situation at hand, there are some similarities, and the court finds that a review of the district court’s decision is useful here.
In Snider the debtors filed a chapter 7 bankruptcy petition and identified an investment group as creditors on their bank*906ruptcy schedules. 2007 WL 1174441 at *1. The schedules did not disclose that the debtors maintained a claim against the same investment group. A trustee was appointed, and the debtors retained a new attorney. Id. The debtors, through their counsel, filed an adversary proceeding in bankruptcy court against the investment group and a bank claiming that the adversary proceeding related to property of the estate of the debtors and potential assets of the debtors. However, the complaint did not name the trustee as a plaintiff. The debtors’ claims in the adversary included, among other claims, specific performance, quiet title, and damages for an alleged failure to honor contractual obligations under which the investment group had “primary liability for a $100,000 loan secured by a deed of trust on the [debtors’] residence.” Id.
The parties then entered into a stipulation of dismissal of the adversary proceeding in the bankruptcy court. Id. The stipulation stated: “each of the parties to the pending action and the [t]rustee either desire or have no objection to dismissal of the within action so that it can be refiled and prosecuted in the Superior Court for the County of San Joaquin, State of California.” Id. at *2. Although the stipulation was dated in 1992, the parties did not file it with the bankruptcy court until January of 1995.
In March of 1992, the counsel for the debtors, acting on behalf of the debtors and the trustee, filed a complaint in the San Joaquin Superior Court. Id. at *3. The complaint sought declaratory relief against the investment group and the bank, as well as alleged claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, deceit, and conspiracy to defraud. Id. at *6.
In June of 1993, the parties filed a stipulation of dismissal of the trustee. The trustee had retained new counsel by that point in the case. Although the stipulation indicated the trustee’s lack of any further interest in the case, the trustee never filed a motion in the bankruptcy court to abandon his interest in the state court case and did not obtain an order from the bankruptcy court disclaiming his interest. Id. at *7. The debtors filed an amended complaint in September of 1993 and a second amended complaint in June of 1994. The trustee filed a final report and account in the bankruptcy court in May of 1994. In March of 1995, the bankruptcy court closed the bankruptcy case. Id. In February of 1997, the state court judge granted the investment group’s and the bank’s motion for non-suit. The state court relied on the debtors’ failure to list their claim against the investment group on their bankruptcy schedules as a reason to justify the imposition of judicial estoppel. Id. at *8-10. The state court of appeals affirmed that superior court judgment. Id. at *10.
Following the dismissal of the state court lawsuit, in November of 1999, the investment group defendants filed a complaint alleging malicious prosecution against the debtors and their attorney, as well as Does 1-50 in state court. Snider, 2007 WL 1174441 at *10. The state court lawsuit alleged that the debtors and their attorney acted without probable cause when the debtors did not truthfully complete their bankruptcy schedules. Id. at *11.
The bankruptcy court granted the debtors’ attorney’s motion to reopen the bankruptcy case, and the debtors’ attorney removed the malicious prosecution action from state court to the bankruptcy court. Id. at *12. The notice of removal alleged *907that the bankruptcy court had jurisdiction because the matter was a core proceeding involving administration of the estate and affected liquidation of assets of the estate. The notice also alleged that the action involved “a suit against a legal representative of the Chapter 7 Trustee regarding post-petition representation of the Trustee, filed without leave of the bankruptcy court ...” Id. at * 12. The debtors’ attorney then filed a motion to dismiss the malicious prosecution action, and the investment group filed a motion to remand. Id. at *13. The bankruptcy court issued a decision striking the motion to dismiss and granting the motion to remand. The bankruptcy court remanded the case for lack of jurisdiction. Id.
The bankruptcy court found that the investment group did not seek to challenge any action taken by the trustee or by the debtors’ counsel acting as counsel for the trustee, but instead sought relief solely against the debtors and their counsel. The bankruptcy court concluded that the debtors had no standing to pursue the superior court ease as an asset of the estate because the trustee had never formally abandoned his interest. The court further found that the debtors were thus not administering an asset of the estate because they had no standing. Id. at *13-14.
On appeal of the order of remand and striking of the motion to dismiss, the district court reversed the bankruptcy court’s decision on the issue of remand and remanded the case to the bankruptcy court. Id. at *45. The court reviewed at length the preemption of certain state law claims pursuant to MSR Exploration v. Meridian Oil, 74 F.3d 910, 913 (9th Cir.1996). Id. at *18-32. The court concluded that preemption did apply to the malicious prosecution complaints because the actions were in pursuit of property of the estate. Snider, 2007 WL 1174441 at *31.
After reviewing the issue of preemption, the district court also reviewed whether the bankruptcy court had jurisdiction over the malicious prosecution action. The court found that core jurisdiction existed. Snider, 2007 WL 1174441 at *32-33. It first noted that “ ‘[resolution turning on the interpretation of a prior court order, which in turn interpreted and applied a specific provision of Title 11 ... is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (O) ...’” Id. at *32 (quoting First City Natl Bank of Houston v. Cooley (In re Cooley), 88 B.R. 788, 789 (Bankr.S.D.Tex.1988)). The court explained its reasoning:
As [the debtors’ counsel] argues, the Bankruptcy Court erred in concluding that the Malicious Prosecution Action is not a “core” proceeding because it requires interpretation of the Bankruptcy Court’s Order approving the 1992 stipulation which allowed dismissal of the Adversary Proceeding filed by the [debtors] and the refiling of that action in the San Joaquin Superior Court.
The terms and existence of that Order and the stipulation the Order approved are critical to the resolution of the Malicious Prosecution Action, in part because one who acts pursuant to the Stipulation and Order does not violate the law and one who consents to conduct cannot later claim to be aggrieved by it. In order to address and resolve the probable cause and malice elements of the Malicious Prosecution Action, the Order of the Bankruptcy Court approving the 1992 stipulation must be interpreted ....
Snider, 2007 WL 1174441 at *33. Further, the court concluded that the mali*908cious prosecution complaint challenged the debtors’ attorney’s “conduct in his capacity as counsel for the debtors, and as counsel for the bankruptcy trustee in pursuing the [investment group’s] claims. These facts establish core jurisdiction based on the authority cited above.” Id. at *36. The court also found that the malicious prosecution action was a core proceeding “because it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case under bankruptcy law.” Id. (citing Matter of Southmark Corp., 163 F.3d 925 (5th Cir.), cert. denied 527 U.S. 1004, 119 S.Ct. 2339, 144 L.Ed.2d 236 (1999)). The court noted that the action arose out of an adversary proceeding that was moved to state court by the agreement of the parties. It determined that “[e]very aspect of this action exists solely because of what was done or not done in a bankruptcy proceeding.” Snider, 2007 WL 1174441 at *36. The district court reversed the bankruptcy court’s rulings on striking the motion to dismiss and on remanding the malicious prosecution action to state court. Id. at *45.
Although this case is not completely analogous to Snider, there are similarities. First, it involves the removal of a state court action of malicious prosecution filed against the debtors’ attorney. The debtors’ attorney also represented the trustee at least part of the time during the state court lawsuit which gave rise to the malicious prosecution action. In this case, the Banks Defendants represented both the Debtor and the Trustee in the Malpractice Lawsuit. The analysis of the basis for the Hamilton County Malpractice M/P Lawsuit and the Banks Defendants role as counsel for both the Trustee and the Debt- or is closely intertwined with bankruptcy issues involved in the case. The significant difference between this case and Snider is that the underlying action was brought to recover property of the estate, even though the debtors thought that they were pursuing the claims for their own benefit until the district court determined that the claims had never been abandoned by the trustee.
The district court concluded:
The Bankruptcy Court erred in ruling that preemption does not apply to the Malicious Prosecution Action and that the Malicious Prosecution Action is not within the exclusive jurisdiction of the Bankruptcy Court. There is no question that the Superior Court Action was commenced by the [debtors] and the trustee to litigate claims which were retained property of the bankruptcy estate, which had never been scheduled property of the estate. As a matter of bankruptcy law, the Superior Court Action against [the investment group] was and remained an asset of the [debtors’] bankruptcy estate because of the trustee’s failure to abandon that property as required by bankruptcy law.
Snider, 2007 WL 1174441 at *31.
In this case, the Debtor and the Trustee chose to specify that the Debtor was pursuing recoveries that were not property of the estate. As this court found with respect to jurisdiction over the Debtor, that difference makes GKH’s claims against the Bank Defendants, to the extent their actions were on behalf of the Debtor, non-core. However, the entanglement with bankruptcy law and the representation of the Trustee, in addition to representing the Debtor, leads the court to find that these same claims are related to the bankruptcy case.
B. Motion for Abstention
In its motion GKH also asks this court to abstain from hearing this adversary *909proceeding under the doctrine of mandatory abstention. GKH further requests that, to the extent that the court concludes that mandatory abstention does not apply, the court should abstain from hearing this matter under the doctrine of permissive abstention. The court will review both the mandatory and permissive abstention doctrines as they govern the claims brought against each of the Hamilton County Defendants.
28 U.S.C. § 1334(c) governs abstention:
(1) Except with respect to a case under chapter 15 of title 11, nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.
(2) Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction....
28 U.S.C. § 1334(c)(l)-(2). 28 U.S.C. § 1334(c)(1) covers permissive abstention and 28 U.S.C. § 1334(c)(2) describes mandatory abstention.
1. Mandatory Abstention
In In re Dow Coming, the Sixth Circuit articulated a test for mandatory abstention:
a proceeding must: (1) be based on a state law claim or cause of action; (2) lack a federal jurisdictional basis absent the bankruptcy; (3) be commenced in a state forum of appropriate jurisdiction; (4) be capable of timely adjudication; and (5) be a non-core proceeding.
86 F.3d at 497.
The bankruptcy court in In re Heinsohn also addressed the plaintiffs argument that mandatory or discretionary abstention applied. 231 B.R. at 59. It found that mandatory abstention under 28 U.S.C. § 1334(c)(2) did not apply because the suit for malicious prosecution against the trustee who was acting on behalf of the estate was a core proceeding. 231 B.R. at 60. Furthermore, the court found that “[b]e-cause this case presents a peculiar issue concerning the extent of immunity enjoyed by a bankruptcy trustee, the court concludes that this issue dominates the state law issues and the court will not abstain.” Id.
As in In re Heinsohn, this court concludes that the mandatory abstention doctrine does not apply to GKH’s claims against the Trustee and the Banks Defendants as the Trustee’s counsel. The court has core jurisdiction over those claims. The court has also concluded that GKH’s claims against the Debtor and the Banks Defendants in their role as his counsel are also non-core proceedings related to the bankruptcy case. Thus, the court will address the application of the mandatory abstention doctrine to those non-core claims and begins by finding that the fifth Dow Coming factor is present.
The court also finds that the first Dow Coming factor is present. GKH’s claims are state law claims. The second factor is present. There is no federal claim or di*910versity jurisdiction present absent this bankruptcy case with respect to those claims.
No evidence has been presented regarding the fourth factor, timely adjudication in state court. Claims of malicious prosecution and abuse of process are routinely handled by Tennessee state courts. The court has some concern that a state court, especially the Hamilton County Circuit Court, has had no previous experience with this particular case and its adjudication would necessarily require a review of a myriad of facts and prior litigation history between these parties to rule on GKH’s claims. In Parmalat Capital Finance Ltd. v. Bank of America Corp. the Second Circuit created a four factor test for determining whether bankruptcy proceedings can be timely adjudicated in state court. 671 F.3d 261, 266 (2d Cir.2012) (citing its previous opinion in Parmalat, 639 F.3d 572, 580 (2d Cir.2011)). The Court noted that “[wjhether an action can be timely adjudicated in state court is a mixed question of law and fact.” 639 F.3d at 580. The court examined four factors affecting timeliness, including: “(1) the backlog of the state court’s calendar relative to the federal court’s calendar; (2) the complexity of the issues presented and the respective expertise of each forum; (3) the status of the title 11 bankruptcy proceeding to which the state law claims are related; and (4) whether the state court proceeding would prolong the administration or liquidation of the estate.” Id.
In this action the parties have not supplied the court with any fact-specific information regarding the backlog, if any, at the Hamilton County Circuit Court. However, the court can conclude that the state law issues of malicious prosecution and abuse of process could be addressed in a reasonable period of time. The second factor slightly favors the state court because of the expertise of this court with respect to the bankruptcy issues involved and its familiarity with the underlying allegations in the Malpractice Lawsuit. Weighing against that fact, the state court has substantial expertise with the causes of action of malicious prosecution, abuse of process and attorney malpractice. While the events leading up to the Hamilton County M/P Lawsuit are quite complicated, the matters to be remanded will involve mainly an analysis of the Debtor’s causes of action since the Trastee has been dismissed. With the Trustee dismissed, the possibility of the state court’s having to address bankruptcy policies regarding the administration of the estate is minimal. The most complicated issue will be the consideration of the Banks Defendants. The Hamilton County M/P Lawsuit seeks damages against them jointly with the other Hamilton County Defendants or individually. To the extent that the Banks Defendants raise the defense of immunity, the state court will have to address bankruptcy policy in considering to what extent that defense is available to the Banks Defendants. Because of their dual representation, the court cannot find that immunity based on the Banks Defendants’ association with the Trustee is a complete shield, and their liability under state law will have to be considered in any event. That consideration is within the state court’s areas of expertise.
With respect to the third and fourth Parmalat factor-status of this case and whether a state court proceeding would prolong the administration, this case is a Chapter 7 in the final stages of liquidation. Consequently, concerns about the need for a final resolution of GKH’s claims against the Debtor are less important. In re Pre*911mier Hotel Devel. Group, 270 B.R. 243, 255 (Bankr.E.D.Tenn.2001). Any claims resulting from a judgment in favor of GKH will not result in additional claims against the estate. GKH’s request for a jury trial and its lack of consent to this court’s rendering of a final ruling on the non-core matters are two additional facts weighing in favor of finding that a state court is the appropriate forum. Id. at 254-55. This court could not conduct the jury trial, and the matter would have to be sent to another court in any event for trial. In addition, GKH’s co-defendants have already started other state court actions involving these claims against the Debtor and the Banks Defendants as the Debtor’s counsel. The court finds that with respect to “timely adjudication” GKH has carried its burden of demonstrating the fourth Dow Coming factor of timely adjudication. See In re Nat'l Century Fin. Enterps., Inc., 323 F.Supp.2d 861, 881 (S.D.Ohio 2004) (noting that “[t]he party seeking mandatory abstention bears the burden of demonstrating that each of the requirements are satisfied”).
The most difficult factor for GKH to satisfy is the third Dow Coming factor and that is only with respect to the Banks Defendants. Mandatory abstention requires that the claim be commenced in a state forum of appropriate jurisdiction. In this case, the commencement and continued existence of the state court action on which GKH relies is highly unusual. The court has ruled that GKH’s filing of its claims against the Trustee and counsel for the Trustee in Hamilton County Circuit Court was an act of contempt. See In re Lowenbraun, 453 F.3d 314, 321-22 (6th Cir.2006). The court found the filing of the suit without leave violated the Barton Doctrine. This court has already written extensively regarding the Barton Doctrine in the main bankruptcy case. See [Bankr. Case No. 08-16378, Doc. Nos. 1354, 1355, 1387, 1388]. To the extent that GKH named the Banks Defendants who were representatives of the Trustee, those claims also violated the Barton Doctrine. In re DeLorean Motor Co., 991 F.2d 1236, 1241 (6th Cir.1993).
There is another unusual circumstance present in this case. Not only did GKH file the Hamilton County M/P Lawsuit, GKH filed an almost identical lawsuit against the same defendants — Adversary Proceeding No. 11-1118 in this court — on the same day. GKH’s current motion seeks to have the two adversary proceedings consolidated.
The court concludes that the only action “commenced in state court” was one which was filed in contempt of this court as to the Trustee and as to the Banks Defendants and the fact of that contempt calls into question the appropriateness of that jurisdiction. Those same actions were commenced in this forum. See [Adv. Proc. No. 11-1118, Doc. No. 1; Adv. Proc. No. 11-1121, Doc. No. 1-2], Although it had filed a motion for leave to file the lawsuit in this court, it did not wait until this court’s ruling to file the Hamilton County M7P Lawsuit. In addition, GKH’s statute of limitations argument as the reason for the filing without leave of this court is flawed. The court analyzed that defense and the other defenses raised in GKH’s pleadings in its memorandum granting the Trustee’s Motion for Contempt, filed simultaneously with this memorandum. Further, in its original motion for leave to file suit in Bradley County, GKH never mentioned its intention to sue the Debtor or his attorney. [Bankr.Case No. OS-16378, Doc. No. 1200]. The court first had notice of GKH’s intention to sue the Debt- *912or and his attorney when GKH filed Adversary Proceeding 11-1118. GKH first argued to this court about its need to sue the Debtor in its motion to alter or amend this court’s judgment pertaining to the denial of the motion for leave. See [Bankr. Case No. 08-16378, Doc. No. 1406, 1474, 1475]. The Debtor’s counsel was added only when the Hamilton County M/P Lawsuit and the Bankruptcy M/P Lawsuit were filed. In both lawsuits, GKH refers to the Banks Defendants as “their attorneys” throughout the complaints and does not allege separate counts against the Banks Defendants in their separate roles. [Adv. Proc. No. 11-01118, Doc. No. 1; Adv. Proc. No. 11-01121, Doc. No. 1-2].
Thus, under the facts as presented in this particular case, the court concludes that GKH did not bring its state law claims against the Banks Defendants in a forum of appropriate jurisdiction with respect to the Banks Defendants because that filing was brought without leave of this court. There was no similar prohibition against suing the Debtor. Therefore, all five of the Dow Coming factors have been met only with respect to the Debtor.
2. Permissive Abstention
GKH requests that, even if this court does not find the mandatory abstention doctrine applicable, this court abstain from hearing this proceeding pursuant to the permissive abstention doctrine under 28 U.S.C. § 1334(c)(1). 28 U.S.C. § 1334 also permits bankruptcy courts to abstain from hearing a matter. See 28 U.S.C. § 1334(c)(1). A bankruptcy court may abstain from both core and non-core proceedings. See In re Best Reception Sys., Inc., 220 B.R. at 952.
Bankruptcy courts in this Circuit have outlined a list of twelve factors to consider when determining whether to abstain under the permissive abstention doctrine.
(1) the effect or lack thereof on the efficient administration of the estate if a court recommends abstention; (2) the extent to which state law issues predominate over bankruptcy issues; (3) the difficulty or unsettled nature of the applicable law; (4) the presence of a related proceeding commenced in state court or other non-bankruptcy court; (5) the jurisdictional basis, if any, other than 28 U.S.C.A. § 1334; (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; (7) the substance rather than 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 of the bankruptcy 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 in the proceeding of non-debt- or parties.
In re Best Reception Systems, Inc., 220 B.R. at 953 (referencing the factors first enumerated by Judge Mahoney in Republic Readers Serv., Inc. v. Magazine Serv. Bureau, Inc. (In re Republic Reader’s Service, Inc.), 81 B.R. 422, 429 (Bankr.S.D.Tex.1987)) (other citations omitted).
In light of this court’s accompanying ruling with respect to the Trustee’s Motion to Dismiss and its holding that mandatory abstention applies to the Debtor, the court will address the considerations for permissive abstention only as to GKH’s claims against the Banks Defendants.
*913
(a) Efficient Administration of the Estate
Having found that the Trustee is immune, the resolution of the remaining Hamilton County Defendants’ claims will have a minimal effect on the administration of the estate. The Banks Defendants were only special counsel and took the case on a contingent fee basis. They have made no claim for reimbursement of their costs, and they have no ongoing representation of the Trustee which might be hindered by their involvement in a state court suit. Their involvement as counsel for the Trustee does raise the issue of how their liability may affect the administration of the estate generally and whether the policies favoring immunity as stated in In re Heinsohn and Lowenbraun would be affected by a finding of liability by a state court. The court views the impact of a ruling imposing liability on the Trustee’s counsel for the administration of a bankruptcy case to be minimized by the unusual facts of this case — i.e., counsel representing the Trustee also chose to represent the Debtor and pursued both property of the estate and recoveries for a Chapter 7 Debtor. Because of the court’s concern about the chilling effect of a trustee’s liability for the pursuit of estate assets, the court finds that this factor favors retention of the claims against the Banks Defendants. Because of the particular facts of this case, the extent of that favor is only slight.
(b) The Extent to Which State Law Claims Dominate over Bankruptcy Issues
The second factor asks the court to analyze the extent to which state law claims dominate the bankruptcy issues. Malicious prosecution and abuse of process are state law claims; however, they are state law claims predicated on acts taken by the Banks Defendants within the context of the Debtor’s bankruptcy. One of the elements of their successful prosecution is whether the Trustee or the Debtor had probable cause to bring the actions. An analysis of probable cause in their decision to bring causes of action for the Trustee will require a review of the bankruptcy law related to property of the estate as defined by 11 U.S.C. § 541 and possibly §§ 348 and 1115(a). Whether there was probable cause for bringing a conflicts or breach of fiduciary obligation claim after one year will require an analysis of 11 U.S.C. § 108 and the bankruptcy cases construing it. Finally, the state court may have to address an immunity defense. However, these bankruptcy issues will not be involved in the consideration of their role in representing the Debtor. Since the state court will be looking at both, the court does not find that the state law claims dominate over the bankruptcy issues. This factor is neutral.
(c) The Difficulty or Unsettled Nature of the Applicable Law
As to the third factor, the court also determines that the state law claims of malicious prosecution and abuse of process are not particularly difficult, but the underlying questions of attorney malpractice and conflicts of interest are complicated. There are also bankruptcy issues related to property of the estate that are less settled, and the issues of immunity, preemption and the tolling of the statute of limitations are complicated. This factor favors retention of the claims in this court.
(d) Presence of Related Proceeding Commenced in State Court
Mr. Anderson and Mr. Bowers, co-defendants with GKH in the 50 Acre Lawsuit *914and the Malpractice Lawsuit, have brought individual suits in this court against the Trustee and his counsel. They have also represented to the court that they have already bifurcated their claims against the Banks Defendants in their role as counsel for the Debtor by also filing suits regarding the Malpractice Lawsuit in state court against the Debtor and Mr. Banks. Complaint, n. 1; [Adv. Proc. No. 1169, Doc. No. 1; Adv. Proc. No. 11-1170, Doc. No. 1]. These new bankruptcy and state court actions are also based on malicious prosecution and abuse of process. Neither the Debtor nor the Banks Defendants have chosen to remove these lawsuits to this court as of the date of this memorandum. Given that the actions are on parallel tracks regardless of this court’s determination, this factor appears to be neutral with respect to the Banks Defendants in their capacity as counsel for the Trustee. Abstention would remove the risk that there may be inconsistent verdicts between this court and a state court related to GKH’s claims against the Banks Defendants in their role as the Debtor’s counsel in the pursuit of property that was not property of the estate. The existence of related state court proceedings involving the Debt- or favors abstention.
(e)Jurisdictional Basis Other Than § im
The fifth factor regarding the existence of a jurisdictional basis other than 28 U.S.C. § 1334 weighs in favor of state court adjudication of the claims against the Banks Defendants as Debtor’s counsel. There is core jurisdiction for the claims of GKH against the Banks Defendants as counsel to the Trustee, but there is no other federal jurisdictional basis for retaining the claims. The court finds this factor slightly favors retention because of the independent basis for jurisdiction.
(f) The Degree of Remoteness or Relatedness to the Case
The court has previously found that the actions against the Banks Defendants are both core and non-core matters related to the case. However, having found that mandatory abstention applies to the Debt- or and that a state court proceeding only minimally affects the administration of the estate, this factor weighs in favor of abstention.
(g) The Substance as Opposed to the Form of an Asserted Core Proceeding
The application of this factor is more awkward in the context of this case than in some cases in which the parties are attempting to find some remote connection to the bankruptcy case to obtain federal bankruptcy jurisdiction. In determining whether a malicious prosecution and/or abuse of process claim against a representative of a Trustee is a core proceeding, the courts look not to the malicious prosecution/abuse of process case but rather to the underlying lawsuit to determine whether the action is core or non-core. In re Heinsohn, 247 B.R. at 242-45, The court has already found that GKH’s claims are core with respect to the Banks Defendants as counsel for the Trustee. As for their role as Debtor’s counsel, taking at face value the allegations of the Malpractice Lawsuit that the representation of the Debtor was to pursue damages that were not property of the estate, GKH’s claims against the Banks Defendants in this capacity appear to be non-core proceedings. While the court has expressed some concerns that the representation was not that clear cut, neither the Debtor nor the Banks Defendants have offered any further explanation to *915alter the specific language in those allegations. There is substance to find both core and non-core proceedings involved in the claims against the Banks Defendants. This factor is neutral.
(h) Feasibility of Severing State Law Claims
The court finds that it is feasible to separate the claims against the Trustee from the claims against the Debtor. It is much more difficult to separate the claims against the Banks Defendants to the extent that those claims and the defenses to those claims may depend on which role the Banks Defendants were playing at any time during the Malpractice Lawsuit litigation. However, the court could sever the proceeding into those two roles — (1) Banks’ role as counsel for the Trustee and (2) Banks’ role as counsel for the Debtor— and perhaps a third role. The third role would be the Banks Defendants being held liable separate and apart from either the Trustee or the Debtor. Since it is only the Banks Defendants the court must consider in its permissive abstention analysis, the court concludes that it could sever GKH’s remaining claims for malicious prosecution and abuse of process from only the Banks Defendants’ actions as counsel for the Trustee. To the extent that the Banks Defendants may wish to raise the bankruptcy defense of immunity, they could do so, but would have to demonstrate what actions were taken on behalf of the Trustee and could address the bankruptcy issues related to probable cause. Any other defense would be related to their representation of the Debtor and could be severed from the bankruptcy adversary proceeding. This factor favors severing claims against the Banks Defendants into two parts and retaining jurisdiction over those claims that relate to representation of the Trustee.
(i) Burden on this Court’s Docket
With respect to the consideration of the burden on this court’s docket, there have been no allegations that this case will take an undue amount of time for this court. To the extent that the court has other malicious prosecution matters pending before it, retaining this matter will not provide any efficiencies because those malicious prosecution actions are based on other lawsuits brought by the Trustee without the complicating participation by the Debtor. To the extent this case reflects the first adversary proceeding in which the Debtor was pursuing recovery for himself, it will help this court’s docket to abstain and send those claims related to the representation of the Debtor to the state court.
0) Request for a Jury Trial
An additional factor is the existence of a request for a jury trial. This court cannot conduct a jury trial without the parties’ consent. No such consent exists. From a review of the complaints in both the Hamilton County M/P Lawsuit and the Bankruptcy M/P Lawsuit, GKH is seeking only money damages for two torts. These claims appear to be actions at law for which a jury trial is appropriate. The defendants have not addressed whether there are reasons that GKH is not entitled to a jury trial. As the court in Snider found, this court finds that the request for a jury trial may not be reason, in and of itself, to abstain from hearing this matter; however, the court finds it is a factor in favor of abstention.
(k) Evidence of Forum Shopping
Unlike the litigants in In re Best Reception, whom the court found were shopping *916for the bankruptcy court as their court of preference, as explained supra, GKH appears to be making every effort to have its issues addressed in the state court. GKH added the Debtor after the Bradley County Leave Motion was denied. It is the Debtor’s involvement that creates the jurisdictional difficulties. GKH added the Debtor and contended that he was a necessary party for its suit against the Trustee, while also arguing that its claims against the Debtor could have no conceivable impact on the administration of the estate. GKH filed the Hamilton County M7P Lawsuit in violation of this court’s order, and then used its commencement to argue the applicability of mandatory abstention. Finally, GKH has recently filed two more state court suits bifurcating the plaintiffs claims against the Banks Defendants, creating related proceedings in state court, one of the factors for this court to consider in addressing permissive abstention. Based on the foregoing, the court finds that there is a likelihood that GKH is forum shopping and is seeking to create a basis on which to have this court abstain from hearing matters related to the Trustee and his counsel. This factor favors retention of the claims against the Banks Defendants since they were counsel for the Trustee.
(1) Non-debtor Parties
Finally, the only non-debtor party in the case is GKH. All of the other parties are or have been the representative of the estate or counsel for that representative. Even GKH was the Debtor’s former counsel. It has filed a substantial claim in the case and his been involved in the case on its own behalf and on the behalf of other clients. Thus, all of the parties have been enmeshed in the Debtor’s bankruptcy case for quite some time. This factor is neutral.
After reviewing all of the pertinent factors, the court acknowledges it is a close question but concludes that the facts that (a) it must abstain from the proceeding against the Debtor, (b) two trials related to the Banks Defendants would be inefficient and (c) GKH’s right to a jury trial tip the scales in favor of abstention. Those factors outweigh the presence of bankruptcy issues that may be involved in the litigation of the related claims as a result of the Banks Defendants’ dual role. The court concludes that it will abstain from hearing the claims against the Banks Defendants.
C. Consolidation
As a last request in its motion, GKH asks this court to consolidate this adversary proceeding with Adversary Proceeding No. 11-1118 if the court declines to remand or abstain from the proceeding. Although the court has determined to abstain from hearing the remaining claims in this proceeding, the court finds that consolidation is still warranted to avoid the duplication of efforts arising from the existence of two identical lawsuits. The court will grant GKH’s request to consolidate this adversary proceeding with Adversary Proceeding No. 11-1118 for the reasons given herein.
III. Conclusion
The court finds that the proceeding was properly removed to this court. It finds that the claims against the Trustee and the Banks Defendants for actions taken on behalf of the Trustee are core proceedings. The claims against the Debtor and the Banks Defendants as Debtor’s counsel or against them separately are not core, but those claims are related to the bankruptcy case. The court finds that mandatory abstention applies to the claims against the *917Debtor. Further, the court concludes it will abstain from hearing claims against the Banks Defendants under permissive abstention. GKH’s motion will be granted, and this court will consolidate the remaining claims in this adversary proceeding with Adversary Proceeding No. 11-1118.
A separate order will enter.
. Banks and Banks P.C. will be referred to as the “Banks Defendants.” The Trustee, the Banks Defendants and Debtor are collectively referred to as the "Hamilton County Defendants.”
. The court will refer to the Motion for Remand and/or Alternatively For Abstention and/or Consolidation as the "Motion for Remand”.
. All citations to docket numbers pertain to docket entries filed in Adversary Proceeding No. 11-1121, unless otherwise noted.
. Nelson E. Bowers, II v. Richard L. Banks, Andrew B. Morgan, Richard Banlcs & Assoc., P. C., F. Scott LeRoy d/b/a LeRoy & Bickerstaff, F. Scott LeRoy, LeRoy & Bickerstaff PLLC, LeRoy, Hurst & Bickerstaff, PLLC, C. Kenneth Still, Steve A. "Toby” McKenzie, Adv. Proc. No. 11-1169, Doc. No. 33, pp. 7-8 ("Bowers BK M/P Lawsuit”); John Anderson v. Richard L. Banks, Andrew B. Morgan, Richard Banks & Assoc., P. C., F. Scott LeRoy d/b/a LeRoy & Biclcerstaff, F. Scott LeRoy, LeRoy & Bickerstaff PLLC, LeRoy, Hurst & Bickerstaff, PLLC, C. Kenneth Still, Steve A. "Toby" McKenzie, Adv. Proc. No. 11-1170 ("Anderson BK M/P Lawsuit”). Both of these bankruptcy adversary proceedings state that there are similar actions instituted in state court against the Debtor and the Banks Defendants P.C. in their capacity as counsel for the Debtor. Bowers BK M/P Complaint, Adv. Proc. No. 11-1169, Doc. No. 1, p. 3, n. 1; Anderson BK M/P Complaint, Adv. Proc. No. 11-1170, Doc. No. 1, p. 3, n. 1. These two additional malicious prosecution complaints do not specify in which state court the companion action is pending.
. Although the Complaint refers to a transfer of sixty acres, the transaction in which the Debtor and Trustee alleged a transfer involved only fifty acres.
. Adversary Proceeding 10-1397 was a suit brought by the Trustee to require GKH to turnover documents in its possession. It was dismissed by an agreed order.
. The court has been given no other explanation other than the statement in the Malpractice Lawsuit Complaint for the reason that the Trustee and the Debtor were both plaintiffs in the Malpractice Lawsuit. The Chancellor in the Malpractice Lawsuit never made a determination of what damages belonged to which party because she determined that the actions for malpractice had expired regardless of which party had the right to pursue them. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494708/ | *918
MEMORANDUM OPINION ON DEBTOR’S MOTION TO EXTEND AUTOMATIC STAY
JACK B. SCHMETTERER, Bankruptcy Judge.
This case was filed by Amy Hijjawi (“Debtor”) under Chapter 11 of the Bankruptcy Code but was converted into Chapter 7. In the original Chapter 11 case, the secured creditor Five North Wabash Condominium Association (“Association”) moved for relief from the automatic stay to allow the Association to enforce its non-bankruptcy rights and remedies by dispossessing Debtor from three condominium units. As the Association’s motion was granted, Debtor’s motion to voluntarily convert the failed Chapter 11 case to Chapter 7 was also granted. Debtor has filed her own motion to extend the automatic stay contending that the creditor should not be allowed to collect pre-bank-ruptcy debt that is about to be discharged in Chapter 7.
The parties have briefed the legal issues. There are no material fact issues. For reasons stated below, Debtor’s Motion to Further Extend the Automatic Stay will be denied by separate order.
JURISDICTION
Jurisdiction lies under 28 U.S.C. § 1334 and Internal Operation Procedure 15(a) of the District Court for the Northern District of Illinois. This is a core proceeding under 28 U.S.C. § 157(b)(2)(G). Venue is properly fixed in this District pursuant to 28 U.S.C. § 1409.
BACKGROUND
Debtor owns three (3) condominium units at Five N. Wabash in Chicago, Illinois (“Units”). In 2011, in violation of the Association’s Declaration of Condominium, dated November 13, 2003 (“Declaration”) and the Chicago Vacation License Ordinance (“Ordinance”), Debtor began renting the Units on a short-term basis.1 After issuing a written violation and holding a hearing, the Association fined Debtor and demanded that Debtor cease and desist all short-term rentals of the Units by June 30, 2011.
When Debtor failed to comply, the Association filed a Verified Complaint for In-junctive Relief in the Circuit Court of Cook County, seeking, among other things, *919an injunction preventing Debtor from renting her units on a short-term basis (“Injunction Action”).2 On the same day that it filed the Injunction Action, the Association also filed a Motion for a Temporary Restraining Order (the “TRO Motion”). On July 11, 2011, Circuit Court Judge Mary L. Mikva granted the Association’s TRO Motion and issued a Temporary Restraining Order (“TRO”), which barred Debtor effective immediately from accepting any more short-term rental reservations. Judge Mikva also ordered Debtor to shut down her rental business by August 1, 2011, provided that the Association obtained a surety bond by that date. That bond was provided on July 29, 2011.
On July 29, 2011 (“Petition Date”), Debt- or commenced this case by filing a petition for relief under Chapter 11 of the Bankruptcy Code. Debtor continued to rent the Units on a short-term basis, in violation of the Declaration, the Ordinance and the TRO. On September 1, 2011, the Association’s Motion to Lift the Automatic Stay (Dkt. 16) was granted to permit the injunction proceeding to proceed and to enable the Association to enforce the TRO until January 1, 2012 (“TRO Lift Stay Order”).3 (Dkt. 31)
On November 9, 2011, the Association filed another Motion to Lift Stay (“Association’s Lift Stay Motion”) under § 362(d)(1) and (2), this time to allow the Association to enforce its non-bankruptcy rights and remedies by dispossessing Debtor from the Units pursuant to the Illinois Condominium Property Act and the Illinois Forcible Entry and Detainer statute. (Dkt. 39) The Association alleged that Debtor was delinquent in paying her post-petition common element expenses, including monthly assessments and legal fees incurred by the Association in its effort to police Debtor’s compliance with the prohibition against short-term rentals. The Association also argued that Debtor had no equity in the Units and there was no reasonable possibility of a successful reorganization in Chapter 11 within a reasonable time.
Debtor subsequently filed a motion to convert the case to one under chapter 7 of the Bankruptcy Code, which was granted on January 9, 2012 (“Conversion Date”). On the same day the motion to convert was granted, the Association’s Lift Stay Motion was granted so as to allow the Association to proceed with its state law remedies with regard to the Units. (Dkt. 75) The Order lifting the stay was made effective February 10, 2012 to allow the Chapter 7 Trustee an opportunity to assess whether or not to administer the assets in question, i.e., the three condominium units and the rents derived from the possession thereof, before the Order became effective.
On January 31, 2012, Debtor filed her Motion to Extend Automatic Stay (“Debt- or’s Motion”). The Association filed its objection to Debtor’s Motion on February 9, 2012. On oral motion of the Chapter 7 Trustee and after a hearing on February 10, 2012, the automatic stay was extended and supplemental briefing ordered on the issues, including the issue as to whether the post-petition pre-conversion assessments were dischargeable.
*920Debtor filed her response to the Association’s objection on February 16, 2012. The Association filed its reply on February 24, 2012. The Association supplemented its reply on February 28, 2012 to bring to the Court’s attention that CitiMortgage had been granted stay relief enabling it to foreclose on the same property that is the subject of Debtor’s Motion.4 Debtor filed her sur-replies in response to the Association’s supplement on February 29, 2012 and March 1, 2012.
After a hearing on March 2, 2012, over the objection of the Association, the stay was again extended and supplemental briefing ordered. The Association filed its supplemental brief in support of its objection on March 8, 2012. Debtor filed her response to the Association’s supplemental brief on March 14, 2012.
After a hearing on March 16, 2012, an oral ruling in favor of the Association was indicated. However, an order was not entered and the stay extended so that the Association could file a statement with a detailed accounting of post-petition pre-conversion assessments and fees, which the Association filed on March 25, 2012 (“Statement”). The case was set for status on March 27, 2012.
At the March 27, 2012 status hearing an order was entered allowing Debtor to file a response to the Statement regarding the amount of the assessments and fees and providing for the Association to file a reply, with a hearing set for April 20, 2012. The court again extended the stay to that date. Debtor filed her response on April 10, 2012, and the Association filed its reply on April 16, 2012.
The intent of the foregoing was to determine all of the non-dischargeable claims of the Association and ascertain whether Debtor is prepared or not bring them current.
DISCUSSION
In its Motion for Relief from the Automatic Stay, the Association contended that it was not adequately protected because Debtor was delinquent in paying her post-petition common element expenses, including monthly assessments and legal fees. Also, at the time of the Association’s Motion, Debtor had failed to comply with a prohibition against short-term rentals. The Association also argued that Debtor did not have equity in the Units, which Debtor conceded, and therefore the Units were not necessary to an effective reorganization. With conversion to Chapter 7, of course, no reorganization was possible.
As described above, the Association’s Lift Stay Motion was granted, but the effect stayed because of the conversion of the Chapter 11 case to Chapter 7 case. During the period the Order was stayed, Debtor filed her Motion to Extend the Stay, contending that as a result of the conversion to Chapter 7, the unpaid post-petition assessments and fees up to the date of conversion are dischargeable despite 11 U.S.C. § 523(a)(16) and, thus, can no longer be a valid basis for the Association’s Lift Stay Motion. This appears to be a case of first impression as to the effect of the conversion of a case to Chapter 7 on § 523(a)(16) and the discharge-ability of post-petition pre-conversion condominium association assessments and fees.
*921
Authority to Extend the Stay
Pursuant to § 362(e)(1) of the Bankruptcy Code, the automatic stay terminates thirty (30) days after a request is presented for relief from stay under subsection (d) with respect to the requesting party unless the court orders continuation of the stay after notice and a hearing or as a result of a final hearing and determination of the matter. However, where the chapter 7, 11, or 13 debtor is an individual, § 362(e)(2) the automatic stay is terminated 60 days after the request, unless a final decision is rendered within that period or such 60-day period is extended by agreement of all parties in interest or by the court for such specific period of time as the court finds is required for good cause.
The Association’s Lift Stay Motion was filed on November 9, 2011. A final hearing on the Association’s Lift Stay Motion was held on Monday, January 9, 2012. Under Bankruptcy Rule 9006(a), any period of time due to expire on a Saturday, Sunday or legal holiday runs until the end of the next day which is not a Saturday, Sunday or legal holiday. Sixty days from November 9, 2011 was Sunday, January 8, 2012. Monday, January 9 was the next business day and the date upon which the 60-day period was due to expire absent an order extending it.
On that day, the court granted the Association’s Lift Stay Motion, but stayed the effect of the Order until February 10, 2012. On the same day, Debtor’s motion to convert the case from Chapter 11 to Chapter 7 was granted. Before the stay on the Order expired, Debtor filed her Motion to Extend Automatic Stay. The Court subsequently extended the 60-day period under § 362(e)(2) for specified for good cause periods before rendering this final decision, in particular: (1) to allow the parties to develop the facts in support of and in opposition to Debtor’s motion, (2) to allow the parties to brief the important and novel legal issues that arose as a result of the case conversion, (3) to allow the Chapter 7 Trustee to review the case and determine her position on the matter and the converted case, and (4) to give Debtor an opportunity to reconcile and cure all post-petition debts due to the Association after those debts were specified and defined.
Pre-Petition v. Post-Petition Debt
This matter turns on whether the discharge provision of Chapter 7 of the Bankruptcy Code applies to homeowner association assessments and fees that became due and payable after the filing of a Chapter 11 petition (“post-petition”), but before conversion of the Chapter 11 case to Chapter 7 case (“pre-conversion”). Although Debtor concedes that she failed to pay certain post-petition pre-conversion assessments, fines and other fees during that period, she contends that such debts owed to the Association are dischargeable to the extent that they were incurred prior to the Conversion Date, in which case the Association is adequately protected as of the Conversion Date and there is no longer a basis for the Association’s Lift Stay Motion to enable collection of any debts that came due prior to the Conversion Date.
Section 727 generally provides that a Chapter 7 debtor may be discharged from all debts, except for those specified in § 523, that arose before the date of the order for relief under Chapter 7. Section 727(b) specifically provides in relevant part that “[ejxcept 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 chap-*922ter_” 11 U.S.C. § 727(b) (emphasis added).
In an initial Chapter 7 case the “order for relief under this chapter” refers to the filing of the Chapter 7 petition pursuant to 11 U.S.C. § 801(b). Where a Chapter 11 case is converted to a case under Chapter 7, determination of the date of the “filing of the petition,” the “commencement of the case” and the “order for relief’ in the Chapter 7 case is made pursuant to § 348 of the Bankruptcy Code. Rock River Production Credit Assoc, v. Langholf (In re Langholf), 37 B.R. 414, 418-419 (Bankr. N.D.Ill.1984). Section 348(a) provides that “[c]onversion of a case ... constitutes an order for relief under the chapter to which the case is converted, but, except as provided in subsections (b) and (c) of this section, does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief.” 11 U.S.C. § 348(a). In other words, subject to certain exceptions, the filing of the petition, commencement of the case, and order for relief in a Chapter 7 case that has been converted from a case under Chapter 11 are all deemed to have occurred on the same date upon which those events occurred in the original Chapter 11 case. Id. at 419. In Langholf, the Opinion determined that none of the exceptions referred to in § 348(a) were applicable in that case and the analysis ended there. However, in this case, one of the exceptions is applicable.
Section 348(b) provides in pertinent part that “[ujnless the court for cause orders otherwise, in sections ... 727(b) ... of this title, ‘the order for relief under this chapter’ in a chapter to which a case has been converted under section ... 1112 ... of this title means the conversion of such case to such chapter.” 11 U.S.C. § 348(b). That provision means that the “order for relief’ refers to the date the case is converted to Chapter 7, and not the original petition date under another Chapter. Therefore, reading §§ 727(b) and 348(b) together, all debts that arose after the filing of the Chapter 11 petition but before the conversion (except those listed in § 523) are treated as pre-petition debts, and are therefore dischargeable. Pickling v. Flower, Medalie & Markowitz, Esqs. (In re Fickling), 361 F.3d 172, 174 (2nd Cir.2004) (because claims for attorneys’ fees and expenses were incurred post-petition, but pre-conversion, and no exemption applied, such claims were dischargeable).
However, it is the exception set forth in § 727(b) that comes into play in this case. Debts that are otherwise dischargeable may be excepted from discharge under § 523, which exempts designated claims from discharge. Those include homeowner association assessments and fees that are the subject of the dispute here. Specifically, § 523(a)(16) of the Bankruptcy Code provides in relevant part:
A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
(16) for 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, ..., for as long as the debtor or the trustee has a legal, equitable, or posses-sory ownership interest in such unit, ..., 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 *923pending or subsequent bankruptcy case[J
11 U.S.C. § 523(a)(16) (emphasis added).
Section 523(a)(16) thus creates an express exception to discharge for certain condominium association assessments and fees that become due and payable after the Chapter 11 filing and “order for relief’ where a debtor continues to have a legal, equitable or possessory interest in a condominium unit. The provision was added to the Code to resolve a conflict in the courts about whether condo association fees accruing post-petition in a Chapter 7 case are nevertheless discharged because the contract establishing the fees was entered into pre-petition. See In re Barr, 457 B.R. 733, 736-37 (Bankr.N.D.Ill.2011). The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPC-PA”) amended § 523(a)(16), substantially narrowing the ability to discharge condominium fees. In re Barr, 457 B.R. 733, 736-37 (Bankr.N.D.Ill.2011). Pre-BAPC-PA, § 523(a)(16) provided that a post-petition condominium fee or assessment was excepted from discharge if the debtor physically occupied the unit or, as here, rented the unit to a tenant and received payments from the tenant. The amended version of § 523(a)(16) was intended “to broaden the protection accorded to community associations with respect to fees or assessments arising from the debtor’s interest in a condominium.... ” H.R. REP. NO. 109-31, at 68 (2005), reprinted in 2005 U.S.C.C.A.N. 88,154.
Debtor’s position is predicated on the argument that the operative date is the Conversion Date, not the initial Petition Date in the Chapter 11 case. Debtor cites In re Barr, 457 B.R. 733 (Bankr.N.D.Ill.2011) (Squires, J.) for the proposition that the assessments and legal fees in this case are pre-petition and dischargeable. In In re Barr, the debtor filed a motion for sanctions against the condominium association for attempting to collect a special assessment from the debtor in violation of 11 U.S.C. § 524(a). The issue in that case was whether the special assessment was a pre-petition debt, in which case the association would be in violation of § 524(a), or post-petition debt, in which case it would be dischargeable under § 523(a)(l 6). However, Barr is not helpful in that it did not involve and, therefore, did not address how a case conversion impacted § 523(a)(16).
Where a statute is unambiguous, its plain language must be followed. Cam-inetti v. U.S., 242 U.S. 470, 485-487, 37 S.Ct. 192, 194-195, 61 L.Ed. 442 (1917); People v. Patterson, 308 Ill.App.3d 943, 947, 242 IlLDec. 518, 721 N.E.2d 797 (1999). The phrase “order for relief’ used in both the beginning and end of § 523(a)(16) is not the same as the phrase “order for relief under this chapter” used in § 727(b). Whereas, § 348(b) specifically refers to § 727(b) in determining that the meaning of the phrase “the order for relief under this chapter” means the date of conversion, § 348(b) makes no reference to § 523, which is the exception at issue here. Section 523(a)(16) refers only to “the order for relief,” not “the order for relief under this chapter” addressed by § 348(b). In such cases § 348(a) governs the impact of the conversion of a case and provides specifically that a conversion “does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief.” As a result, the “order for relief’ referred to in § 523(a)(16) means the original date that the bankruptcy case was filed on July 29, 2011.
*924Accordingly, the term “order for relief’ used in § 523(a)(16) is the date Debtor filed her petition in the original Chapter 11 case, i.e., the Petition Date, not the Conversion Date. As a result, such unpaid post-petition association assessments and fees that came due pre-conversion are non-dischargeable and provide sufficient basis for the Association’s Lift Stay Motion.
Pursuant to § 362(a), a petition filed under §§ 301, 302, or 303 triggers the automatic stay of certain actions against the debtor or the debtor’s property. Under § 348(a), a conversion order does not change the date of the filing of a petition, and a conversion of a bankruptcy case from one Chapter to another Chapter under the Bankruptcy Code does not reestablish an automatic stay previously lifted by a court order during the Chapter 11 proceeding. Agri-Best Holdings, LLC v. Atlanta Cattle Exchange, Inc., 812 F.Supp.2d 898, 902 (N.D.Ill.2011); In re T.S.P. Industries, Inc., 117 B.R. 375, 378 (Bankr.N.D.Ill.1990); In re State Airlines, Inc., 873 F.2d 264 (11th Cir.1989). Therefore, the Association was entitled to lift stay relief to enable it to exercise its post bankruptcy creditor rights limited only by continued stay protection against it for bankruptcy debt that can be discharged in the Chapter 7 case.
In its most recent brief filed without leave of court, Debtor argues that the statutory exceptions to discharge should be construed narrowly so as to help Debt- or obtain a fresh start, citing two Opinions construing some of those exceptions. Nunnery v. Rountree (In re Rountree), 478 F.3d 215 (4th Cir.2007); Foley & Lardner v. Biondo (In re Biondo), 180 F.3d 126 (4th Cir.1999). Those cases each stand for the proposition that exceptions to the discharge found in § 523 must be narrowly construed in favor of the debtor’s discharge. Each of those Opinions, however, relies on the language of the applicable statute. In one case, a plain reading of the statute worked to the debtor’s favor. In the other, however, a plain reading worked against the debtor’s discharge. The statutory exception applied here is not ambiguous, and the holding herein relies on the statutory text.
Post-Petition Amount Due
There remains the question of what the Debtor owes for the period ending with her conversion to Chapter 7.
On March 25, 2012, the Association filed its Statement Regarding Debtor’s Post-Petition, Non-Dischargeable Obligations (“Statement”). The Statement indicates that, as of March 22, 2012, the post-petition (from 8/1/2011 to 3/22/2012), non-dischargeable amounts owed by Debt- or totaled $42,659.14, consisting of the following:
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The Association is entitled to its legal fees and costs under both the governing Declaration and Illinois law. Section 14.1 of the Declaration applicable to Debtor provides, in relevant part:
All expenses of the Board in connection with such actions or proceedings, including court costs and attorneys’ fees and other fees and expenses, and all dam*925ages, liquidated or otherwise, together with interest thereon at the rate of twelve percent (12%) per annum until paid, shall be charged to and assessed against such defaulting Unit Owner, and shall be added to and deemed part of his respective share of Common Expenses and the Board shall have a lien for all of the same upon the Unit Ownership of such defaulting Unit Owners and upon all of his additions and improvements thereto and upon all of his personal property in his Unit or located elsewhere on the Condominium Property. Any such rights and remedies may be exercised at any time and from time to time cumulatively or otherwise by the Board.
Section 9.2 of the Illinois Condominium Property Act provides in relevant part that “[a]ny attorneys’ fees incurred by the Association arising out of a default by any unit owner, his tenant, invitee or guest in the performance of any of the provisions of the condominium instruments, rules and regulations or any applicable statute or ordinance shall be added to, and deemed a part of, his respective share of the common expense.” 765 ILCS 605/9.2. See also 765 ILCS 605/9(g)(l).
At the hearing herein held on March 27, 2012, Debtor tendered payment for the assessments on her Units for the months of January, February, and March 2012 in the total amount of $5,825.55. Since that payment was not credited on the Association’s Statement, the total owed by Debtor must be reduced by that amount.
Debtor’s Response filed on April 10, 2012, argues that the Association failed to credit her for the August 2011 assessments on all the Units that she paid pre bankruptcy on July 15, 2011 (prior to the filing the Chapter 11 bankruptcy case) that is found to have been in the total amount of $1,908.81.5 The Association, upon receiving that pre-bankruptcy payment, followed its policy and normal procedure to apply payments to past-due amounts regardless of the category. Therefore, the Association applied the July 15, 2011 pre-bank-ruptcy payments to past due assessments, including attorney fees, incurred prepetition. That is not an issue that need be decided here, because even if such payments should have been applied for some reason to Debtor’s post-bankruptcy debts claimed due here they would not make a difference to the present ruling.
Debtor has also argued that the Association’s attorney’s fees are excessive. However, Debtor failed until recently to provide any specific objection to any part of the fees claimed, although given the *926prior opportunity to do so, Debtor’s original general and vague objection to the amount of the attorney’s fees claimed as “excessive” would have been overruled.
In her tardy specifications of objections to fees, the objection to a “fine” of $1500 imposed without leave of court during the bankruptcy case is allowed as a violation of the automatic stay.
As to the other objections, a few may have partial merit and some are facially insufficient to pinpoint particular objections. Giving a generous and unlikely assumption, Debtor might in a fully litigated (and very expensive) evidentiary hearing over fees be able to show valid objections to up to one-third of the fees claimed by experienced counsel. For our purposes here that possibility is assumed but not decided.
The post-bankruptcy claim of the Association, which would not be dischargeable and is steadily increasing each month, is therefore shown below.
The post-bankruptcy assessments and added attorneys’ fees now due stand at minimum as follows:
Unpaid monthly assessments and late fees $ 8,325.61
Minimum Legal fees and costs due $32,829.69 (less one-third)6 21,886.41
$ 30,212.02 (less March 27, 2012 payment) $ 5,825.557
Minimum due: $ 24,386.47
Thus, even if the July 15, 2011 payments were credited, Debtor still owes a substantial post bankruptcy debt that is increasing. Debtor has no equity, Debtor does not offer or show ability to pay any part of the non-dischargeable debt now due nor the future debt accruing, and the creditor’s interests in the Units are not protected.
CONCLUSION
For the foregoing reasons, by separate order:
1. The Association’s Motion to Lift the Stay, granted by a Final Order on January 9, 2012 to allow the Association to enforce all its non-bankruptcy rights and remedies by dispossessing debtor and to collect amounts due to it that accrued since Debtor’s bankruptcy was filed on July 20, 2011 will no longer be stayed. Jurisdiction is reserved to enlarge that Order to allow collection of the pre-bankruptcy debt if this case is dismissed or if discharge is denied;
2. The provisions of Rule 4001(a)(3) Fed. R. Bankr.P. will not be applicable to this Order granting the Association relief from the automatic stay or to this Order; and
3. Debtor’s Motion to Further Extend Automatic Stay will be denied.
. The Declaration prohibits leasing of units for a term less than six (6) months. The Ordinance covers rentals for a period of 30 or fewer consecutive days.
. Five N. Wabash Condominium Association v. Hijjawi, Case No. 11 CH 23830.
. The 14-day stay provided by Bankruptcy Rule 4001(a)(3) was waived. On December 12, 2011, this court extended the TRO Lift Stay Order indefinitely to allow the Injunction Action to proceed to final resolution.
. CitiMortgage’s Motions for Relief from Stay on the Units were granted on February 23, 24, and 28, 2012.
. Debtor's most recent brief, filed on May 2, 2012, alleges that "[t]he Association has insisted on not giving the Debtor credit for her pre-petition payment of assessment for the post-petition month of August, 2011, in the sum of approximately $8,329.45.” (Resp. of Debtor to Claim of Five North Wabash Condominium Assoc. ¶ 15) Debtor does not state therein how she arrived at that amount. In an earlier Response to the Association's Statement, filed on April 10, 2012, Debtor supplied an Owner Ledger for each condominium unit owned by the Debtor that details charges and payments made by the Debtor for fees. Debt- or's pre-petition payment for August 2011 assessments was made on July 15, 2011. (Resp. of Debtor to Five North Wabash Condominium Assoc. Statement Regarding its Claim Incurred After the Petition Date Exs. 1-3) Those payments are as follows:
Unit 1401 Payment $703.29 Check No. 146209718 Unit 1402 Payment $510.67 Check No. 146207885 Unit 1001 Payment $689.82 Check No. 146217720
Total: $1903.81
Therefore, it appears Debtor paid only $1903.81 on July 15, 2011.
. Assumed but not decided. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494709/ | Opinion Sustaining In Part And Denying In Part Debtor’s Objection To Proof Of Claim of Flagstar Bank, FSB
PHILLIP J. SHEFFERLY, Bankruptcy Judge.
Introduction
Flagstar Bank, FSB (“Flagstar”) filed a proof of claim in the Debtor’s Chapter 13 case in the amount of $520,160.20. The Debtor filed an objection, first arguing that Flagstar is not the holder of any claim against the Debtor. In the alternative, the Debtor argues that if Flagstar does hold a claim against him, the claim should only be allowed in an amount that is substantially less than the amount set forth in Flags-tar’s proof of claim. For the reasons set forth in this opinion, the Court holds that Flagstar does hold a claim against the Debtor, but sustains the Debtor’s objection to the amount of the proof of claim and allows Flagstar’s claim in a reduced amount.
Jurisdiction
This is a core proceeding under 28 U.S.C. § 157(b)(2)(B), over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157(a).
Facts
The following facts are undisputed.
Michigan & Lonyo Ultimate Service Center, Inc. (“Michigan & Lonyo”) owned and operated a gas station and service center located at 8258 Michigan Avenue, Detroit, Michigan. On June 30, 2005, Flagstar made a loan to Michigan & Lonyo in the amount of $807,500.00 (“Michigan & Lonyo Loan”). The Michigan & Lonyo Loan was evidenced by an agreement *3(“Business Loan Agreement”), a promissory note (“Promissory Note”), a mortgage (“Mortgage”) on Michigan & Lonyo’s real property (“Michigan Avenue Property”), and various other documents. The Business Loan Agreement also required the execution and delivery of three separate personal guaranties of the loan. Kalid Kaid (“Debtor”) signed one of the guaranties (“Guaranty”).
When Michigan & Lonyo defaulted on the Promissory Note, Flagstar took a number of actions. On April 7, 2010, Flagstar filed a lawsuit against the Debtor in Wayne County Circuit Court to enforce the Guaranty. While that lawsuit was pending, Flagstar entered into an Agreement of Purchase and Sale of Notes and Loan Documents (“AFT Agreement”) on August 12, 2010 pursuant to which Flags-tar agreed to sell to AFT Investments, LLC (“AFT”) a bundle of various loans that it had made, including the Michigan & Lonyo Loan. The AFT Agreement allocated a specific amount of AFT’s purchase price to each loan in the bundle, and also fixed a “Maximum Foreclosure Amount” for each loan. As for the Michigan & Lonyo Loan, the AFT Agreement expressly stated that the loan documents being sold by Flagstar to AFT “specifically exclude” the Debtor’s Guaranty of the Michigan & Lonyo Loan. The AFT Agreement further provided that Flagstar “is not selling, assigning or otherwise conveying to [AFT] the right to pursue a deficiency judgment or other claim” against the Debtor under the Guaranty. Three separate amendments to the AFT Agreement were later made by Flagstar and AFT. On December 27, 2010, Flagstar and AFT closed the sale of the loans described in the AFT Agreement. The Michigan & Lonyo Loan, as well as the other loans bundled together in the AFT Agreement, were sold by Flagstar to AFT at the closing, but Flagstar retained all of its rights against the Debtor under the Guaranty. The Debtor was not a party to the AFT Agreement nor to any of its amendments.
After the AFT Agreement was made on August 12, 2010, but before it closed on December 27, 2010, Flagstar continued to prosecute its lawsuit against the Debtor to enforce the Guaranty. On October 4, 2010, the Wayne County Circuit Court granted Flagstar’s motion for summary disposition against the Debtor and granted Flagstar a judgment (“Judgment”) against the Debtor in the amount of $830,303.39, plus interest, costs and attorney fees, based upon the Guaranty.
On February 22, 2011, the Debtor filed a motion in the Wayne County Circuit Court to set aside the Judgment. The Debtor’s motion asserted that Flagstar’s sale of the Michigan & Lonyo Loan to AFT on December 27, 2010 precluded Flagstar from enforcing the Judgment against the Debt- or. Specifically, the Debtor argued that a guaranty of a promissory note cannot be separated from the promissory' note, and that once a promissory note is assigned, a guaranty of that promissory note passes as a matter of law to the purchaser of the promissory note. As a result, the Debtor argued, when Flagstar sold the Michigan & Lonyo Loan to AFT, the Guaranty necessarily, and by operation of law, followed the Promissory Note into AFT’s hands. Therefore, according to the Debtor, Flags-tar could no longer enforce the Judgment against the Debtor.
On March 18, 2011, the Wayne County Circuit Court held a hearing on the Debt- or’s motion to set aside the Judgment. According to the transcript, after hearing arguments from counsel for the Debtor and counsel for Flagstar, the Court denied the Debtor’s motion. The Wayne County Circuit Court held that even if the Debtor was correct in arguing that an assignment *4of a promissory note ordinarily has the effect of assigning a guaranty of that promissory note to the assignee, that argument did not provide a basis to grant the Debtor any relief from the Judgment, which the court found was properly entered. Although the Wayne County Circuit Court did not find that there was any basis to set aside the Judgment, it did observe at the hearing that Flagstar’s separation of the Debtor’s Guaranty from the Promissory Note should not enable Flags-tar to obtain a double recovery, or to recover more than it was owed on the Promissory Note. No appeal was taken from the decision of the Wayne County Circuit Court to deny the Debtor’s motion to set aside the Judgment.
AFT, as the holder of the Promissory Note, then proceeded to foreclose the Mortgage on the Michigan Avenue Property that secured the Promissory Note. On July 27, 2011, a foreclosure sale of the Michigan Avenue Property was conducted. AFT successfully bid $752,527.40 and obtained a sheriffs deed to the Michigan Avenue Property.
On November 8, 2011, the Debtor filed this Chapter 13 case. On January 25, 2012, Flagstar filed a proof of claim in the amount of $520,160.20. Flagstar’s proof of claim states that the basis for its claim is “Breach of Guaranty.” An addendum attached to Flagstar’s proof of claim also states that the proof of claim is based upon the Guaranty. The addendum contains a calculation showing the “total amount of the balance owing” on the Promissory Note in the amount of $520,160.20. Neither the proof of claim nor the addendum mention the Judgment.
On February 22, 2012, the Debtor filed an objection to Flagstar’s proof of claim. The objection first argues that Flagstar does not hold the right to enforce the Guaranty because Flagstar sold the Michigan & Lonyo Loan to AFT. The objection next argues that in the event that Flagstar is the holder of a claim against the Debtor based upon the Guaranty, the amount of that claim is much less than the amount set forth in Flagstar’s proof of claim because the Debtor is entitled to a credit against the Guaranty for the amount of AFT’s bid at the foreclosure sale. Flags-tar filed a response that argues that the AFT Agreement expressly excluded the Guaranty from the sale of the Michigan & Lonyo Loan to AFT and, therefore, Flags-tar is the proper holder of the Guaranty and entitled to enforce it against the Debt- or. Further, the response argues that the Debtor is not entitled to a credit on the Guaranty for the amount bid at the foreclosure sale by AFT, but is only entitled at most to a credit for the amount of the purchase price allocated by the AFT Agreement to the Michigan & Lonyo Loan.
On March 27, 2012, the Court held a preliminary hearing on the Debtor’s objection to Flagstar’s proof of claim. The Court required the Debtor and Flagstar to file briefs setting forth the law in support of their respective positions, set deadlines to file the briefs, and adjourned the hearing on the Debtor’s objection to Flagstar’s proof of claim to May 8, 2012. The Debtor and Flagstar each timely filed a brief. The Debtor’s arguments in his brief were essentially unchanged, albeit more fully developed. Flagstar, on the other hand, raised several new arguments in its brief in addition to those that it previously made. First, although its proof of claim states that it is based on “Breach of Guaranty,” Flagstar now argues that it is the Judgment that is the basis for and is dis-positive of Flagstar’s proof of claim. Flagstar’s second new argument is that because the Wayne County Circuit Court denied the Debtor’s motion to vacate the *5Judgment, the Debtor is barred by principles of collateral estoppel and the application of the Rooker-Feldman doctrine from asserting that the Guaranty could not be separated from the Promissory Note. Flagstar’s third new argument asserts that the Debtor is estopped from objecting that Flagstar does not hold any claim because the Debtor listed Flagstar as a creditor on his schedules. Flagstar’s final new argument is that the Debtor is not entitled to any credit against the Judgment because the Debtor has not made any payments on the Judgment. At the conclusion of the hearing, the Court took the matter under advisement. The Debtor’s objection to Flagstar’s proof of claim is now ripe for decision.
The Claims Allowance Process
Section 502 of the Bankruptcy Code governs the allowance of claims in a bankruptcy case. Under § 502(a), a proof of claim that is filed under § 501 of the Bankruptcy Code is deemed allowed, unless a party in interest objects. Section 502(b) provides that if an objection to a claim is made, the court shall, after notice and a hearing, determine the amount of the claim, and shall allow such claim in such amount except to the extent that one of the grounds for disallowance of the claim under § 502(b)(1) through (9) apply. Although the Debtor’s objection to Flagstar’s proof of claim does not specifically identify any subsection of 502(b), the Court construes the substance of the Debtor’s objection as a § 502(b)(1) objection. Section 502(b)(1) states that the court shall disallow a claim if “such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law....”
Under Federal Rule of Bankruptcy Procedure 3001(f), a proof of claim executed and filed in accordance with the Federal Rules of Bankruptcy Procedure constitutes prima facie evidence of the validity and amount of the claim. The procedure for objecting to a proof of claim is set forth in Rule 3007(a). That rule provides that an objection to the allowance of a claim shall be in writing and filed and served at least 30 days prior to a hearing on the objection.
“During the claims allowance process, the burden of proof shifts between the parties. Initially, a creditor bears the burden of establishing its claim.” In re Hughes, 313 B.R. 205, 208 (Bankr.E.D.Mich.2004).
If a party objects to the claim, the objecting party carries the burden of going forward with evidence to overcome the prima facie validity and amount of the claim. If the objecting party produces evidence to refute at least one of the allegations essential to the claim’s legal sufficiency, the burden of persuasion shifts back to the claimant. The claimant ultimately bears the burden of proving the validity of the claim by a preponderance of the evidence.
Id. at 208-09 (citations omitted) (criticism on other grounds noted in Perron v. eCast Settlement Corp. (In re Perron), 350 B.R. 628 (Table), 2006 WL 2933827 at *3 n. 2 (6th Cir. BAP Oct. 13, 2006)). In this case, Flagstar bears the burden of proving the validity of its claim against the Debtor.
Discussion
1. Does Flagstar hold a claim against the Debtor?
The Guaranty contains a governing law provision that requires the application of Michigan law to the enforceability of the Guaranty. The Debtor argues that when Flagstar sold the Michigan & Lonyo Loan to AFT under the AFT Agreement, the Guaranty followed the Promissory Note into AFT’s hands. As a result, the Debtor argues that Flagstar simply does not hold any claim against the Debtor, and that any *6claim against the Debtor based upon the Guaranty can only be made by AFT. In support of this argument, the Debtor cites several cases decided by Michigan courts and other state courts. First, the Debtor relies upon Greene v. Bursey, 733 So.2d 1111 (Fla.Dist.Ct.App.1999). In that case, Greene had guaranteed a promissory note made in March, 1984 by Joli Hospitalities, Inc. to Western World Real Estate, Inc. In April, 1984, Western World assigned its interest in the note to Bursey. When Joli Hospitalities defaulted on the note, Bursey sued Greene on his guaranty. Greene argued that Bursey had no right to enforce the guaranty because there had not been any separate assignment of the guaranty to Bursey. The court disagreed, and held that Western World’s assignment of the note to Bursey also operated as an assignment of the guaranty “even though the assignment contained no specific reference to the guaranty.” Id. at 1114. As a result, Bursey was entitled to enforce the guaranty against Greene, even though he did not hold a separate assignment of it.
There are two problems with the Debt- or’s reliance upon Greene v. Bursey. First, it applied Florida law, not Michigan law, which the Court is bound to apply in this case. Second, it is factually distinguishable from this case. In Greene, the instrument of assignment was silent about the guaranty. The question there was whether or not an assignment of a promissory note by itself had the effect of also assigning a personal guaranty of that note. Here, the facts are much different. The AFT Agreement specifically excludes the Debtor’s Guaranty from the sale of the Promissory Note by Flagstar to AFT. There is nothing in Greene v. Bursey that says that such express contractual provision is not enforceable.
Next, the Debtor urges the Court to follow Damerau v. C.L. Rieckhoff Co., Inc., 155 Mich.App. 307, 399 N.W.2d 502 (1987). In that case, C.L. Rieckhoff Co., Inc. signed a promissory note payable to a trust. At the bottom of the promissory note appeared the words “payment guaranteed” followed by the signature of C.L. Rieckhoff in his individual capacity. The trust later assigned the promissory note to a bank. Despite assigning the promissory note to the bank, the trust brought an action against C.L. Rieckhoff individually to enforce his guaranty. The Michigan Court of Appeals affirmed the trial court’s ruling that the assignment of the promissory note to the bank “included the assignment of the right to turn to the guarantor for satisfaction.” Id. at 504. The opinion quoted a statement by the trial judge explaining that:
I don’t see how the guarantee — I just don’t see how the guarantee can be separated in an assignment from the note that goes with it.
It is my belief that when you assign a note, you assign not only part of the note, but you assign the whole note. And if that note is guaranteed, then you assign that guarantee.
Id. In affirming the trial court, the Michigan Court of Appeals in Damerau applied well established principles of construction of contracts and noted that the result in that case turned on construction of the particular assignment before the court and the parties’ intent in executing that contract. Id.
While it is true that Damerau did hold that the guaranty in that case was not separated from the promissory note when the promissory note was assigned to the bank, the facts in that case are much different from the facts in the case at bar. First, the guaranty in Damerau was actually written on the promissory note itself, rather than on a separate instrument. Second, Damerau did not involve a con*7tractual provision in an assignment that excluded the guaranty from the assignment of the promissory note. Damerau does not hold that such a contractual provision is unenforceable or that an assignment of a promissory note would necessarily have the effect of assigning a separate guaranty of that promissory note despite an express contractual provision in the assignment to the contrary.
Finally, the Debtor cites Jensen v. Gamble, 191 Mich. 233, 157 N.W. 440 (1916) in support of his argument that the Guaranty necessarily followed the assignment of the Promissory Note to AFT. However, that case dealt with splitting a single promissory note among three different individuals and the court’s analysis in that case relates to whether or not it is permissible to split a cause of action to enforce a promissory note. Jensen has no relevance to the Debtor’s objection to Flagstar’s proof of claim in this case.
For its part, Flagstar does not provide the Court with any authority one way or the other on whether it is permissible to contractually agree to separate a guaranty from a promissory note by assigning only the promissory note and stating expressly that the guaranty is not assigned. Instead, Flagstar notes that the Debtor has already made this very same argument unsuccessfully to the Wayne County Circuit Court when the Debtor filed his motion to vacate the Judgment.
From a review of the cases cited by the Debtor, as well as the Court’s own research, it does appear under Michigan law that ordinarily an assignment of a promissory note does have the effect of also assigning a guaranty of that promissory note, even if there is no specific assignment of the guaranty. See Aiton v. Slater, 298 Mich. 469, 299 N.W. 149, 153-54 (1941) (finding guaranty agreement attached to bond was enforceable by the holder of the bond, and “it was immaterial that the guaranty was not assigned at the same time the notes were, as the assignee had the same rights to subject the securities to payment of the debts as the assignor had”). But that is not the same thing as saying that parties to a sale of a promissory note are prohibited from contractually excluding an assignment of a guaranty of that promissory note from the sale of the note. Neither the Debtor nor Flagstar has cited the Court to any authority holding that it is impermissible or permissible under Michigan law to contract for an assignment of a promissory note and to contract that a guaranty of that promissory note is not included within the assignment. The authorities cited all dealt with the factual situation where either the assignment of the promissory note expressly included a provision assigning a guaranty of that note or the assignment of the promissory note was silent as to what became of a guaranty of that note. That is not the case before the Court.
Absent authority to the contrary, the Court concludes that Flagstar and AFT were not barred under Michigan law from entering into an agreement to assign the Michigan & Lonyo Loan and the Promissory Note, but expressly excluding the Debtor’s Guaranty from such assignment. “Michigan courts have long held that guaranty agreements ‘are to be construed like other contracts.’ ” Wells Fargo Bank NA v. MPC Investors, LLC, 705 F.Supp.2d 728, 735 (E.D.Mich.2010) (quoting In re Landwehr’s Estate, 286 Mich. 698, 282 N.W. 873, 875 (1938)). “[PJarties are free to contract as they see fit, and the courts are to enforce the agreement as written absent some highly unusual circumstance, such as a contract in violation of law or public policy.” Wilkie v. Auto-Owners Ins. Co., 469 Mich. 41, 664 N.W.2d 776, 782 (2003) (referring to this as a “bed*8rock principle of American contract law”). Therefore, the Court rejects the Debtor’s argument that the Guaranty is owned by AFT and not by Flagstar. Flagstar is the proper party to enforce the Guaranty as the AFT Agreement makes it clear that the Guaranty was not assigned by Flagstar to AFT.
However, even if the Court were inclined to agree with the Debtor’s analysis as to whether the Guaranty could lawfully be separated from the Promissory Note, the Debtor has a much bigger problem in this case in advancing the argument that Flagstar does not hold a claim against the Debtor: quite apart from the Guaranty, Flagstar holds the Judgment. The Debtor has advanced no reason why this Court could disregard the Judgment. The Full Faith and Credit Act, 28 U.S.C. § 1738, requires this Court to respect the Judgment. Regardless of any legal arguments as to who was entitled to sue to enforce the Guaranty, the simple fact is that the Wayne County Circuit Court has already adjudicated the Debtor’s liability to Flagstar under the Guaranty by entering the Judgment. The Rooker-Feldman doctrine prevents the Court from reviewing the Judgment. See Johnson v. De Grandy, 512 U.S. 997, 1005-06, 114 S.Ct. 2647, 129 L.Ed.2d 775 (1994) (“[A] party losing in state court is barred from seeking what in substance would be appellate review of the state judgment in a United States district court, based on the losing party’s claim that the state judgment itself violates the loser’s federal rights.”) (citing District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983) and Rooker v. Fidelity Trust Co., 263 U.S. 413, 416, 44 S.Ct. 149, 68 L.Ed. 362 (1923)). The Judgment has not been appealed and is final. No authority has been cited to this Court that would permit this Court to ignore the fact that Flagstar holds the Judgment, although it is curious to the Court that Flagstar’s proof of claim did not mention the Judgment, and instead recited the basis for the proof of claim as “Breach of Guaranty.” The Court overrules the Debtor’s objection that Flagstar is not the holder of a claim against the Debtor.1
2. What is the allowable amount of Flagstar’s proof of claim?
Flagstar filed its proof of claim in the amount of $520,160.20. The Debtor argues that even if Flagstar does hold a claim against him, the amount of the allowable claim is much less than the amount asserted. Although the addendum to Flagstar’s proof of claim contains a breakdown of this amount, it does not offer any explanation as to why the amount sought is less than the Judgment amount of $830,303.39. But it is now apparent that when Flagstar prepared the addendum, it gave the Debtor credit against the Judgment for the amount of the purchase price allocated to the Michigan & Lonyo Loan in the AFT Agreement. In its brief, Flags-tar has now shifted gears and contends that its proof of claim should be allowed in the full amount of the Judgment and that the Debtor is not entitled to any credit against the Judgment because the Debtor has not made any payments on the Judg-*9raent. As a fallback position, Flagstar argues that if the Debtor should get any reduction in the Judgment amount, the Debtor should get at most a credit for the amount paid by AFT to Flagstar for the sale of the Michigan & Lonyo Loan under the AFT Agreement, and not a credit for the amount of AFT’s bid at the foreclosure sale. The Debtor counters that the amount paid by AFT to Flagstar under the AFT Agreement is irrelevant. The Debtor argues that he was not a party to the AFT Agreement and is not bound by any allocation of purchase price or “Maximum Foreclosure Amount” set forth in the AFT Agreement. Instead, the Debtor argues that he is entitled to a credit against the Judgment for the full amount bid by AFT at the foreclosure sale of the Michigan Avenue Property. The Debtor has the better argument.
The Wayne County Circuit Court granted the Judgment adjudicating the Debtor’s liability under the Guaranty. Under Michigan law, the cause of action to enforce the Guaranty merged into the Judgment. Union Guardian Trust Co. v. Rood, 308 Mich. 168, 13 N.W.2d 248, 249 (1944). However, it does not follow that just because the cause of action to enforce the Guaranty merged into the Judgment, the Debtor is not entitled to receive credit for any payments made with respect to the Promissory Note which is the subject of the Guaranty and the Judgment. If Michigan & Lonyo paid the Promissory Note in full, no further amount would be owed on the Guaranty and, therefore, the Debtor would be entitled to a satisfaction of the Judgment. Even Flagstar does not contend that the entry of the Judgment adjudicating the Debtor’s liability on the Guaranty somehow entitles Flagstar to a double recovery. In other words, if the Promissory Note signed by Michigan & Lonyo is paid in full, to whoever happens to hold that note, Flagstar is not entitled to a separate, indeed double, recovery from the Debtor on his Guaranty.
When the Debtor signed the Guaranty, he was guarantying payment of a debt secured by a mortgage. The Guaranty expressly recognizes that the holder of the Promissory Note (i.e., Flagstar) was also granted a Mortgage to secure payment of the Promissory Note. Although, under the Guaranty, the Debtor waived the right to require Flagstar to proceed first to enforce the Mortgage securing the Promissory Note, at no time did the Debtor ever waive the right to receive credit on his Guaranty for any payments made by Michigan & Lonyo on the Promissory Note, whether such payments were made voluntarily by the maker of the Promissory Note, or involuntarily by foreclosure of the collateral that secured payment of the Promissory Note.
Just as a voluntary payment on the Promissory Note by Michigan & Lonyo would reduce the balance owing on the Promissory Note and the balance owing on the Guaranty, and thereby also reduce the balance owing on the Judgment, similarly, the amount bid at the foreclosure sale of the Michigan Avenue Property is also a payment on the Promissory Note.
“ ‘[A] sale on statutory foreclosure satisfies the debt secured by the foreclosed mortgage to the extent of the proceeds of the sale.’ ” New York Life Ins. Co. v. Erb, 276 Mich. 610, 613, 268 N.W. 754, 755 (Mich.1986) (quoting Moore v. Smith, 95 Mich. 71, 76, 54 N.W. 701, 703 (Mich.1893)). This rule also applies to reduce the amount owed under a guaranty agreement after collateral has been sold at a foreclosure sale. See Crown Life Ins. Co. v. Hicks, No. 93-71482, 1994 U.S. Dist. LEXIS 5562, at *13-14 (E.D.Mich. Jan. 7, 1994) (foreclosure sale of property reduced the indebted*10ness by the amount paid, partially satisfying guarantors’ liability).
8375 Honeytree Blvd. Holdings, LLC v. Starman, No. 11-12431, 2012 WL 683379, at *6 (E.D.Mich. Mar. 2, 2012).
The foreclosure sale bid was a payment on the Promissory Note in the amount of $752,527.40. It is irrelevant whether that payment was made voluntarily or involuntarily. Either way, that payment reduced the balance owing on the Promissory Note and, because the Guaranty promises to pay the Promissory Note, the payment also reduced the balance owing on the Guaranty. If Michigan & Lonyo had tendered $752,527.40 in cash to the holder of the Promissory Note, the Debtor would undoubtedly have gotten credit for such payment on his Guaranty. No reason has been advanced as to why a different result should obtain just because the cause of action on the Guaranty has been reduced to a judgment. To state it another way, the Debtor guaranteed payment of the Promissory Note. But he did not guarantee anything more. He did not promise to pay an amount that exceeds the balance owing on the Promissory Note. Whether the payments made by Michigan & Lonyo to reduce the balance owing on the Promissory Note were voluntary or involuntary, the Debtor gets the credit for the amount of the payments against his outstanding liability under the Guaranty, and against his outstanding liability for the Judgment.
To be fair, Flagstar does not argue that a guarantor should not ordinarily get credit for payments made on the guaranteed promissory note, whether such payments are voluntarily made by the maker of the note or are involuntarily made by foreclosure of the collateral that secures the promissory note. Instead, Flagstar argues that on the somewhat unusual facts of this case, the Debtor is not entitled to credit for the amount bid at the foreclosure sale of the Michigan Avenue Property. Specifically, Flagstar argues that it did not receive the $752,527.40 payment that was made by the bid at the foreclosure sale. According to Flagstar, the proceeds of that payment were received instead by AFT. Flagstar then points out that the only proceeds that it has ever received on the Promissory Note were the proceeds from AFT in the allocation of the purchase price to the Michigan & Lonyo Loan under the AFT Agreement. In other words, Flagstar did not receive $752,527.40, but instead received only $268,917.01 from AFT. Flagstar misses the point. The $268,917.01 that Flagstar received from AFT under the AFT Agreement was not a payment made for application to the Promissory Note. That payment had no effect on the balance owing on the Promissory Note or on the Debtor’s liability under the Guaranty. Instead, the $268,917.01 was a payment made by AFT to Flagstar for the sale by Flagstar to AFT of a bundle of rights including the right to enforce the Promissory Note. A payment made in exchange for the right to enforce the Promissory Note is simply not the same thing as a payment made on the Promissory Note itself, and does not have the effect of reducing the balance owing by the maker of the Promissory Note. In contrast, there was a payment made on the Promissory Note when the foreclosure sale took place and the high bid was $752,527.40. Flagstar’s argument conflates these two payments, one of which was made by AFT to acquire the right to enforce the Promissory Note, and the other of which was made for application to the balance owing on the Promissory Note. If Flagstar did not receive any proceeds from the foreclosure sale of the Michigan Avenue Property, and therefore did not receive the $752,527.40 payment on the Promissory Note, it is through no fault of the Debtor. It is because Flagstar *11chose to sell to AFT the right to receive payments on the Promissory Note. The return that Flagstar realized on the sale of that right is irrelevant to this analysis. The holder of the Promissory Note made by Michigan & Lonyo, AFT, received a payment of $752,527.40 upon the foreclosure sale of the Michigan Avenue Property. That sum reduced the balance owing on the Promissory Note and, therefore, also reduced the amount owing by the Debtor on his Guaranty of the Promissory Note, and the balance owing on the Judgment.
Flagstar seeks to avoid this result by next arguing that AFT somehow overbid at the foreclosure sale in an amount that exceeded the “Maximum Foreclosure Amount” that AFT had agreed to bid in the AFT Agreement. If that is true, then Flagstar may have a breach of contract cause of action against AFT. But that cause of action does not alter the fact that AFT reduced the balance owing on the Promissory Note by $752,527.40 when it bid that amount at the foreclosure sale of the Mortgage, and thus reduced the amount owed under the Guaranty. Flags-tar’s problem is with AFT, not with the Debtor. Flagstar put itself in this position by relinquishing the right to enforce the Promissory Note and Mortgage and thereby placing into AFT’s hands the decision as to how much to bid at the foreclosure sale of the Michigan Avenue Property.
Flagstar makes one final argument. Although mentioned only in passing in Flags-tar’s brief, Flagstar emphasized to the Court at the hearing that a recent Michigan Court of Appeals decision strongly supports Flagstar’s assertion that it is entitled to a claim for the full amount of the Judgment, unreduced by the amount of the bid at the foreclosure sale of the Michigan Avenue Property. The case cited by Flagstar is Greenville Lafayette, LLC v. Elgin State Bank, 296 Mich.App. 284, 818 N.W.2d 460 (2012). The crux of this argument is that the analysis in Greenville Lafayette would have permitted Michigan & Lonyo to challenge the foreclosure sale conducted by AFT as unlawful under Michigan law. Although Michigan & Lo-nyo raised no such challenge, and is not in any event a party to the proceedings before this Court, Flagstar argues that the availability to Michigan & Lonyo of such an argument requires this Court to disregard the foreclosure sale of the Michigan Avenue Property for purposes of determining the allowable amount of Flagstar’s claim against the Debtor.
In Greenville Lafayette, there was a $1.8 million loan made to a limited liability company, secured by real property. The promissory note was partially guaranteed by two individual guaranties. After the promissory note matured, the bank brought an action to collect on the guaranties. While the action was pending, the bank then began foreclosure proceedings on the property securing the promissory note. The limited liability company that made the promissory note and owned the property sought to enjoin the foreclosure sale, arguing that the bank’s decision to proceed with the lawsuit against the guarantors precluded the bank from foreclosing on the property securing the promissory note. The limited liability company argued that Mich. Comp. Laws Ann. § 600.3204(l)(b) barred the bank from foreclosing on the property because of the action that the bank had already commenced against the guarantors. The court stated that the outcome in that case turned on whether the bank’s action against the guarantors was an action to recover “the debt secured by the mortgage.” If so, the mortgage foreclosure could not proceed. If not, the mortgage foreclosure could proceed. The Michigan Court of Appeals explained that a guaranty is ordinarily a *12separate obligation from the promissory note that its guarantees. However, because of the manner in which the mortgage and the guaranties defined “indebtedness” in the case before it, the Michigan Court of Appeals concluded that the mortgage in that case did not just include the promissory note within the definition of “indebtedness,” but specifically defined the guaranties as part of the “indebtedness” secured by the mortgage. As a result, the Michigan Court of Appeals held that the one action rule bar of Mich. Comp. Laws Ann. § 600.3204(l)(b) did apply in the facts of that case. But that case does not help Flagstar.
First, the Michigan Court of Appeals decision in Greenville Lafayette turned entirely on the court’s construction of the language in the particular documents before it, which defined “indebtedness” in such a way as to persuade the Michigan Court of Appeals that the “indebtedness” secured by the mortgage also meant the promises contained in the guaranties as well as the promise contained in the promissory note itself. There is no argument in the case before this Court that the Michigan & Lonyo Loan documents, Promissory Note, Mortgage or Guaranty somehow define the “Indebtedness” described in the Mortgage as including the promise contained in the Guaranty given by the Debt- or.
Aside from the fact that Greenville Lafayette is factually inapposite because of the specific language in the documents before that court, there are other reasons why it is inapplicable to the case before this Court. The holding of Greenville Lafayette is that the limited liability company that owned the property subject to the mortgage was entitled to enjoin the bank from foreclosing on the mortgage because of the application of the one action bar of Mich. Comp. Laws Ann. § 600.3204(l)(b) to the specific contractual language in that case. The guarantors in Greenville Lafayette were not seeking any relief, but rather it was the owner of the property who was seeking to stop the foreclosure sale. Here, we have the reverse. Michigan & Lonyo is the owner of the Michigan Avenue Property. Even if the language in the Michigan & Lonyo Loan documents and the Guaranty in this case was similar to the language in the documents in Green-ville Lafayette (which it is not), at most that might have entitled Michigan & Lo-nyo to have brought an action to stop the foreclosure sale by AFT on the Michigan Avenue Property before that sale took place. But Michigan & Lonyo did not bring any such action, and the foreclosure sale proceeded to conclusion. Flagstar is essentially arguing that this Court should now disregard the foreclosure sale of the Michigan Avenue Property, pretend that it didn’t happen, and not reduce the balance owing by the Debtor by the amount paid on the Promissory Note by reason of that foreclosure sale, based solely on Flagstar’s theory that Michigan & Lonyo could have used the Greenville Lafayette analysis to try to stop the foreclosure sale conducted by AFT. That is too much of a stretch.
Greenville Lafayette is factually distinguishable and legally irrelevant because Michigan & Lonyo is not before this Court and the Debtor is not arguing that the foreclosure sale should have been stopped. Quite the contrary. The Debtor here is arguing that he is entitled to a reduction in his liability on the Guaranty, now evidenced by the Judgment, for the amount paid at the foreclosure sale. Far from wanting to set aside the foreclosure sale, the Debtor simply wants the Court to credit him for the payment made at the foreclosure sale, which is what he bargained for when he signed the Guaranty of *13the Promissory Note. Flagstar’s reliance on Greenville Lafayette is misplaced.2
Conclusion
For whatever reason, Flagstar structured a transaction with AFT that expressly separated the Guaranty from the Michigan & Lonyo Promissory Note and Mortgage. No authority has been brought to the Court by any party to show that this structure, although perhaps unusual, was unlawful. But that structure did not change the fundamental nature of the Debtor’s Guaranty or expand his liability under the Guaranty. He guaranteed payment of the Promissory Note. After sorting through all of the facts in this case, the analysis is relatively simple. The Promissory Note was secured by the Mortgage on the Michigan Avenue Property. When that property was sold at a foreclosure sale on July 27, 2011, the sale price constituted a payment on the Promissory Note. The Debtor was entitled to a full credit on his Guaranty for the amount of that payment on the Promissory Note. The fact that Flagstar had previously assigned the Promissory Note to a third party does not change that result. Nor does Flagstar’s contention that Michigan & Lonyo could arguably have challenged the foreclosure sale under Michigan law. The payment of the foreclosure sale proceeds of $752,527.40 reduced the balance owed on the Promissory Note, reduced the balance owed by the Debtor on the Guaranty, and reduced the balance owed on the Judgment, by a like amount.
The Court sustains in part and denies in part the Debtor’s objection to Flagstar’s proof of claim (docket entry no. 33). The Court concludes that the proof of claim filed by Flagstar should not be entirely disallowed, but the amount of the proof of claim that is allowable is the Judgment amount less the amount bid at the foreclosure sale. Counsel for the Debtor shall prepare an appropriate order allowing such proof of claim in this reduced amount and have it approved for entry by counsel for Flagstar within 14 days from the date of this opinion.
. Because the Court agrees with Flagstar that Michigan law does not prohibit Flagstar from enforcing the Guaranty against the Debtor, the Court need not reach Flagstar’s new argument in its brief that the Debtor is estopped from arguing that Flagstar does not hold a claim against the Debtor because the Debtor listed Flagstar's claim in his schedules. For the same reason, the Court need not reach Flagstar’s additional new argument that principles of collateral estoppel apply to the Debt- or’s unsuccessful motion to vacate the Judgment in Wayne County Circuit Court.
. Even if Michigan & Lonyo had raised the same challenge as the property owner in Greenville Lafayette its likelihood of success was doubtful. This is because, at the time of the foreclosure sale in this case, the only pending action was on the Guaranty, not the Promissory Note. See United States v. Leslie, 421 F.2d 763, 766 (6th Cir.1970) (allowing a creditor to proceed with its foreclosure action against the property the day after it sued the defendants as guarantors, finding that Mich. Comp. Laws Ann. § 600.3204 "was not enacted to protect guarantors of a note”). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494710/ | NAIL, Bankruptcy Judge.
Debtor Andrew William Shirley (“Debt- or”) appeals the January 12, 2012 order of the bankruptcy court1 sustaining the chapter 7 trustee’s objection to Debtor’s claimed homestead exemption. We affirm.
BACKGROUND
In March 1995, Debtor and his spouse purchased a house on Southwest 16th Street in Des Moines, Iowa.2 Debtor formally declared this house was his homestead. Debtor lived there with his spouse and children until October 2007.
In June 2005, Wells Fargo Bank commenced foreclosure proceedings against Debtor’s mother’s house on Kendallwood Circle in Des Moines, Iowa. In November 2005, Debtor purchased his mother’s house from the bank, using funds his mother gave him from a trust that was created upon his father’s death.3 Debtor’s mother has lived in the house on Kendallwood Circle, which is two-and-a-half miles from the house on Southwest 16th Street, since 1974.
In June 2007, Debtor’s spouse commenced divorce proceedings in state court. In October 2007, in compliance with the divorce court’s order directing him to vacate the house on Southwest 16th Street, Debtor moved into the house on Kendall-wood Circle and resided there with his mother.
In late December 2008 and again in early January 2009, while a creditor was attempting to enforce a judgment against him, Debtor formally declared the house on Kendallwood Circle was his homestead. Debtor did not discuss these declarations with his spouse or obtain her consent to change the family homestead.
Debtor’s divorce was finalized on April 22, 2009. That same day, in compliance with the divorce court’s decree of dissolution, Debtor quitclaimed his interest in the house on Southwest 16th Street to his former spouse. Debtor’s former spouse in turn quitclaimed any interest she may have had in the house on Kendallwood Circle — which was titled only in Debtor’s name — to Debtor.
On May 11, 2009, Debtor filed a petition for relief under chapter 7 of the bankruptcy code and claimed the house on Kendallwood Circle exempt as his homestead under Iowa Code § 561.2.4 Donald F. Neiman, the chapter 7 trustee at the time,5 timely objected to Debtor’s claimed homestead exemption, arguing because Debtor had not acquired the house on Kendallwood Circle with the proceeds from an “old” homestead, it could be sold pursuant to Iowa Code § 561.21 to satisfy debts that were contracted prior to its acquisition. In response, Debtor argued under Iowa Code § 561.20, he had the right to change the “metes and bounds” of his homestead and transfer his homestead rights to the new property.
*21Following an evidentiary hearing on February 4, 2010, the bankruptcy court took the matter under advisement. On Trustee Smith’s motion — based on Debt- or’s allegedly inconsistent testimony at the September 10, 2010 trial in an adversary proceeding (09-30099) in his mother’s chapter 7 bankruptcy (09-02206) — the bankruptcy court re-opened the record and held a continued hearing on January 12, 2012. After hearing the testimony of Debtor, his uncle, and his mother and receiving various exhibits, the bankruptcy court ruled from the bench and memorialized its decision in a docket text order sustaining the chapter 7 trustee’s objection to Debtor’s claimed homestead exemption. Debtor timely filed a notice of appeal.
STANDARD OF REVIEW
We review the bankruptcy court’s findings of fact for clear error and its legal conclusions de novo. Islamov v. Ungar (In re Ungar), 633 F.3d 675, 678-79 (8th Cir.2011). More specifically, we review de novo the bankruptcy court’s interpretation of a statute. See Ferrell v. West Bend Mut. Ins. Co., 393 F.3d 786, 796 (8th Cir.2005).
DISCUSSION
Under Iowa law, “[t]he homestead of every person is exempt from judicial sale where there is no special declaration of statute to the contrary.” Iowa Code § 561.16. A homestead may be sold to satisfy debts “contracted prior to its acquisition, but then only to satisfy a deficiency remaining after exhausting the other property of the debtor, liable to execution.” Iowa Code § 561.21(1). However,
[wjhere there has been a change in the limits of the homestead, or a new homestead has been acquired with the proceeds of the old, the new homestead, to the extent in value of the old, is exempt from execution in all cases where the old or former one would have been.
Iowa Code § 561.20.
Debtor argues his move from the house on Southwest 16th Street to the house on Kendallwood Circle — over two miles away — was a change in the limits of his homestead. The bankruptcy court correctly concluded otherwise. When he moved, Debtor did not change the limits, i.e., the boundaries, of his homestead. He claimed an entirely different homestead on Kendallwood Circle, while his spouse and children continued to occupy the family’s original homestead on Southwest 16th Street.
In a recent case involving the same Iowa statutes and a similar move from one house to another, the Eighth Circuit Court of Appeals rejected any interpretation of Iowa Code § 561.20 that would extend its protection to debtors who move and claim a new homestead that was not acquired with the proceeds of their old homestead:
We agree with the bankruptcy court and the [bankruptcy appellate panel] that the plain language of [Iowa Code] § 561.20 limits the “new homestead” exemption to cases where, in the words of the statute, “a new homestead has been acquired with the proceeds of the old.”
Walters v. Bank of the West (In re Walters ), 675 F.3d 1142, 1145 (8th Cir.2012). The court of appeals did not directly address the “change in the limits” argument Debtor raises in this appeal. The absence of any such discussion is telling: Had the court of appeals — in its de novo review of the bankruptcy court’s and the bankruptcy appellate panel’s interpretation of Iowa Code § 561.20 — considered a move from one house to another to be a change in the limits of the debtor’s homestead, the debt- or in Walters would have prevailed. She did not prevail, however, because the court of appeals instead considered such a move *22to be an acquisition of a new homestead. Consequently, Debtor’s argument fails. When he moved from the house on Southwest 16th Street to the house on Kendall-wood Circle, Debtor did not change the limits of his homestead; he acquired a new homestead.
Alternatively, Debtor also argues he acquired the house on Kendallwood Circle with the proceeds of the house on Southwest 16th Street. The bankruptcy court correctly found otherwise. The record is abundantly clear: Debtor acquired the house on Kendallwood Circle in November 2005 — while he still owned and was still living with his spouse and children in the house on Southwest 16th Street — using funds his mother gave him from a trust that was created upon his father’s death; Debtor did not sell the house on Southwest 16th Street; and he did not exchange it for the house on Kendallwood Circle.
The bankruptcy court identified debts Debtor incurred prior to October 2007, when the house on Kendallwood Circle became his homestead. Debtor has not challenged that finding on appeal. Pursuant to Iowa Code § 561.21(1), therefore, the house on Kendallwood Circle may be sold to satisfy those debts, notwithstanding Debtor’s claimed homestead exemption.
CONCLUSION
For the foregoing reasons, we affirm the bankruptcy court’s order sustaining the chapter 7 trustee’s objection to Debtor’s claimed homestead exemption.
ORDER
Appellant’s Motion for Rehearing is denied as untimely. L.R. BAP 8th Cir. 8015A.
. The Honorable Lee M. Jackwig, Chief Judge, United States Bankruptcy Court for the Southern District of Iowa.
. Debtor and his spouse agreed to purchase the house for $60,000.00 on a contract for deed with Debtors’ parents. They never paid the $60,000.00.
. The family’s original intent was to transfer ownership of the house on Kendallwood Circle to the trust. That never occurred.
. In reality, Iowa Code § 561.2 is only a limitation on the extent and value of a homestead. The actual homestead exemption is set forth in Iowa Code § 561.16.
. On May 19, 2011, the United States Trustee appointed Charles L. Smith to succeed Trustee Neiman. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488672/ | Matter of Maseto v A.O. Smith Corp. (2022 NY Slip Op 06557)
Matter of Maseto v A.O. Smith Corp.
2022 NY Slip Op 06557
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 190209/19 Appeal No. 16699 Case No. 2021-04245
[*1]In the Matter of New York City Asbestos Litigation Ernest Maseto, etc., Plaintiff-Respondent,
vA.O. Smith Corporation et al., Defendants, Burnham LLC, Defendant-Appellant.
Clyde & Co US LLP, New York (Peter J. Dinunzio of counsel), for appellant.
Simmons Hanly Conroy LLC, New York (John B. Wetmore of counsel), for respondent.
Order, Supreme Court, New York County (Adam Silvera, J.), entered April 27, 2021, which denied defendant Burnham LLC's motion to vacate a ruling of the Special Master, dated May 5, 2020, directing it to appear for deposition on issues concerning punitive damages, and confirmed the ruling, unanimously affirmed, without costs.
According to the case management order (CMO) entered June 26, 2017 — which remains the CMO governing New York City Asbestos Litigation (NYCAL) — "Where plaintiff asserts a punitive damages claim against a defendant, . . . defendant shall answer plaintiff['s] standard interrogatories and document requests seeking information related to punitive damages" (NY St Cts Elec Filing [NYSCEF] Doc No. 1, case management order at 17, in Matter of New York City Asbestos Litig. [All NYCAL Cases], Sup Ct, NY County, index No. 782000/2017, affd 159 AD3d 576 [1st Dept 2018], appeal dismissed 32 NY3d 945 [2018]). In addition, "no later than immediately prior to the commencement of jury selection, defendant shall provide plaintiff with reliable financial disclosure" (id. at 38). The CMO also appoints a Special Master, who is charged with supervising compliance with discovery, including the "adequacy of the plaintiffs' and defendants' responses to standard interrogatories, production of documents, expert disclosure, the conduct of depositions, and other discovery disputes that may arise" (id. at 2-3). Plaintiffs may only depose defendants beyond prior depositions taken in NYCAL cases "upon stipulation of the parties or application to the Special Master" (id. at 21).
The Special Master providently exercised her discretion in directing Burnham to appear for deposition on punitive damages-related issues after finding that Burnham's responses to plaintiffs' standard punitive damages interrogatories were inadequate; the motion court likewise providently exercised its discretion in confirming that recommendation (see Those Certain Underwriters at Lloyds, London v Occidental Gems, Inc., 11 NY3d 843, 845 [2008]). Burnham's reliance on authority in non-asbestos or -toxic tort cases holding that discovery on punitive damages should await a finding that it is, in fact, liable to plaintiff for punitive damages (e.g. Suozzi v Parente, 161 AD2d 232 [1st Dept 1990]; Prior v Brown Transp. Corp., 103 AD2d 1042 [4th Dept 1984]) is misplaced, given the exceptional needs of asbestos cases and litigants, which justified the CMO and its deviations, where necessary, from the CPLR in the first place (see Matter of New York City Asbestos Litig. [All NYCAL Cases], 159 AD3d at 576-577).
Nor did the Special Master's recommendation contravene the CMO. The Special Master was well within her discretion to direct Burnham to appear for deposition upon finding that its responses to plaintiff's standard punitive damages interrogatories were inadequate (see generally CPLR 3126).
Burnham's remaining argument that the Special Master's ruling, confirmed by the motion court, deprives [*2]it of due process of law and the equal protection of the laws is improperly raised for the first time on appeal (see e.g. Matter of Dailey v City of New York, 301 AD2d 439, 440 [1st Dept 2003]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488665/ | People v Fajardo (2022 NY Slip Op 06562)
People v Fajardo
2022 NY Slip Op 06562
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Ind. No. 3162/19 Appeal No. 16667 Case No. 2021-02644
[*1]The People of the State of New York, Respondent,
vJessenia Fajardo, Defendant-Appellant.
Caprice R. Jenerson, Office of the Appellate Defender, New York (Morgan Reed of counsel), for appellant.
Alvin L. Bragg, Jr., District Attorney, New York (Karl Z. Deuble of counsel), for respondent.
An appeal having been taken to this Court by the above-named appellant from a judgment of the Supreme Court, New York County (April Newbauer, J.), rendered April 02, 2021,
Said appeal having been argued by counsel for the respective parties, due deliberation having been had thereon, and finding the sentence not excessive,
It is unanimously ordered that the judgment so appealed from be and the same is hereby affirmed.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022
Counsel for appellant is referred to § 606.5, Rules of the Appellate Division, First Department. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488671/ | Matter of Rachmanov v Board of Stds. & Appeals of the City of N.Y. (2022 NY Slip Op 06565)
Matter of Rachmanov v Board of Stds. & Appeals of the City of N.Y.
2022 NY Slip Op 06565
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Index No. 150615/20 Appeal No. 16678 Case No. 2021-01826
[*1]In the Matter of Beni Rachmanov, Petitioner-Appellant,
vThe Board of Standards and Appeals of the City of New York et al. Respondents-Respondents, Sholom Daycare, Inc., Respondent.
Law Firm of Edward Vitale, Forest Hills (Edward Vitale of counsel), for appellant.
Sylvia O. Hinds-Radix, Corporation Counsel, New York (Antonella Karlin of counsel), for respondents.
Order, Supreme Court, New York County (Eileen A. Rakower, J.), entered on or about November 17, 2020, which denied the petition to annul a determination of respondent Board of Standards and Appeals of the City of New York (BSA), dated September 17, 2019, affirming the issuance of a building permit, and dismissed the proceeding brought pursuant to CPLR article 78, unanimously vacated, on the law, the proceeding treated as one transferred to this Court for de novo review, and, upon such review, the petition granted to the extent of annulling the determination in part and remanding the matter to BSA for further proceedings consistent herewith, and the determination otherwise confirmed, and the proceeding dismissed, without costs.
Because the petition raises an issue of substantial evidence, the proceeding should have been transferred to this Court pursuant to CPLR 7804(g) (see Matter of 101 Park Ave. Assoc. II, LLC v City of New York, 200 AD3d 401, 401 [1st Dept 2021]).
Petitioner claims that the side yard on the northern side of the lot at issue was below curb level, in violation of New York City Zoning Resolution (ZR) § 33-293, which requires "an open area at curb level" to be provided in a commercial district abutting a rear lot line in a residential district. BSA's rejection of this argument was arbitrary and capricious and is not supported by substantial evidence (see Matter of Pecoraro v Board of Appeals of Town of Hempstead, 2 NY3d 608, 613 [2004]). BSA found that this side yard complied with ZR § 33-22, which provides that "the level of a yard . . . shall not be higher than curb level," but that "this Section shall not be construed to require that natural grade level be disturbed in order to comply with this requirement." The phrase "this requirement" limits the latter clause to the requirement for the yard level to be no higher than curb level. In contrast, ZR § 33-293 imposes a stricter requirement as to the curb level and does not include any language regarding whether compliance may require the natural grade level be disturbed. On remand, BSA should adequately address the issue of compliance with ZR § 33-293, consistent with this decision.
Petitioner failed to preserve his arguments as to a rooftop fence, a rooftop playground, and the means of egress from a drug store. In a CPLR article 78 proceeding challenging an administrative determination, this Court does not have discretionary authority to "reach[] an unpreserved issue in the interest of justice" (Matter of Khan v New York State Dept. of Health, 96 NY2d 879, 880 [2001] [internal quotation marks omitted]).
BSA's determination, otherwise, had a rational basis and is supported by substantial evidence, i.e., "such relevant proof as a reasonable mind may accept as adequate to support a conclusion or ultimate fact" (300 Gramatan Ave. Assoc. v State Div. of Human Rights, 45 NY2d 176, 180 [1978]). Among other things, BSA rationally found that the parapet and bulkhead should be excluded [*2]from the calculation of the height of the front wall under ZR § 33-431.
We have considered petitioner's remaining arguments and find them unavailing.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488669/ | Matter of Thomas Anthony Holdings LLC v Goodbody (2022 NY Slip Op 06569)
Matter of Thomas Anthony Holdings LLC v Goodbody
2022 NY Slip Op 06569
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Index No. 157008/21 Appeal No. 16685 Case No. 2022-02621
[*1]In the Matter of Thomas Anthony Holdings LLC, Petitioner-Respondent,
vBridget Goodbody et al., Respondents-Appellants.
Kane Kessler, P.C., New York (David A. Gold of counsel), for appellants.
Tuttle Yick LLP, New York (Eli D. Raider of counsel), for respondent.
Order, Supreme Court, New York County (Verna L. Saunders, J.), entered on or about February 24, 2022, which denied respondents' motion for a default judgment on their counterclaims pursuant to CPLR 3012(d) and granted petitioner's cross motion to serve a late reply to the counterclaims pursuant to CPLR 3215, unanimously affirmed, with costs.
The court providently exercised its discretion in granting petitioner's cross motion to serve a late reply to respondents' counterclaims, and denying as moot respondent's motion for a default judgment on the counterclaims, especially in view of the strong public policy to dispose of cases on their merits (see HSBC Bank USA v Lugo, 127 AD3d 502 [1st Dept 2015]). Although petitioner's excuse that it overlooked the counterclaims in respondents' answer was "hardly overwhelming," it was adequate given that the delay was minimal, was not willful, and did not prejudice respondents (Jones v 414 Equities LLC, 57 AD3d 65, 81 [1st Dept 2008]; see generally Emigrant Bank v Rosabianca, 156 AD3d 468, 472-473 [1st Dept 2017]). Furthermore, petitioner demonstrated potentially meritorious defenses to the counterclaims (see Emigrant Bank, 156 AD3d at 473).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488667/ | People v Cruz (2022 NY Slip Op 06561)
People v Cruz
2022 NY Slip Op 06561
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kern, J.P., Scarpulla, Pitt, Higgitt, JJ.
SCI No. 946/18 Appeal No. 16676 Case No. 2019-5721
[*1]The People of The State of New York, Respondent,
vHector Cruz, Defendant-Appellant.
Justine M. Luongo, The Legal Aid Society, New York (Nao Terai of counsel), and Kramer Levin Naftalis & Frankel LLP, New York (Scott Eckl of counsel), for appellant.
Darcel D. Clark, District Attorney, Bronx (Nicole Neckles of counsel), for respondent.
An appeal having been taken to this Court by the above-named appellant from a judgment of the Supreme Court, Bronx County (Laurence Busching, J.), rendered July 11, 2018,
Said appeal having been argued by counsel for the respective parties, due deliberation having been had thereon, and finding the sentence not excessive,
It is unanimously ordered that the judgment so appealed from be and the same is hereby affirmed.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022
Counsel for appellant is referred to § 606.5, Rules of the Appellate Division, First Department. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488670/ | Matter of State of New York-Unified Ct. Sys. v Civil Serv. Empls. Assn., Inc. (2022 NY Slip Op 06567)
Matter of State of New York-Unified Ct. Sys. v Civil Serv. Empls. Assn., Inc.
2022 NY Slip Op 06567
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Gische, J.P., Kern, Gesmer, Scarpulla, Rodriguez, JJ.
Index No. 450983/21 Appeal No. 16513 Case No. 2022-00608
[*1]In the Matter of State of New York-Unified Court System, Petitioner-Respondent,
vCivil Service Employees Association, Inc., Local 1000, AFSCME, AFL-CIO, Respondent-Appellant.
Daren J. Rylewicz, Albany (Sarah M. Coligan of counsel), for appellant.
Craig E. Penn, Office of Court Administration, New York (Robyn L. Rothman of counsel), for respondent.
Order, Supreme Court, New York County (Eileen A. Rakower, J.), entered October 27, 2021, which, to the extent appealed from, granted petitioner State of New York-Unified Court System (UCS) leave to reargue its petition to permanently stay arbitration and CSEA's cross motion to compel arbitration, unanimously affirmed, without costs.
This proceeding concerns a dispute over whether mandatory stay-at-home work during the Covid-19 pandemic, which affected court officer trainees' (COTs) completion of probationary periods and, consequently, their compensation, is governed by their collective bargaining agreement (CBA), making the grievance arbitrable, or by administrative policies established by the Chief Judge, as codified in The Rules of the Chief Judge (22 NYCRR) § 25.22, making such grievance nonarbitrable.
The motion court properly granted reargument and such relief was warranted on the ground that the compensation issue in the CBA was necessarily intertwined with the question of UCS's authority to extend officers' probationary periods, which is governed by 22 NYCRR 25.22. The parties did not agree in the CBA to arbitrate the propriety of statutory extensions of the probationary periods. CSEA argues that it limits its grievance to the compensation issue, claiming only a violation of Article 7.4 of the CBA, and that it expressly forgoes any claim based on UCS's determination of probation extensions under 22 NYCRR 25.22. UCS persuasively argues, however, that CSEA's limiting its claim to Article 7.4 alone does not account for the cause of the reduced pay increases (i.e. , the probation extensions). It is inconceivable that an arbitrator could "fashion a remedy adequately narrowed to encompass only" the arbitrable issue of the CBA's compensation guarantees without considering the probation extensions under 22 NYCRR 25.22. Consequently, a stay of arbitration was warranted (Matter of Babylon Union Free School Dist. v Babylon Teachers Assn. , 79 NY2d 773, 775 [1991][internal quotation marks omitted]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488682/ | Emigrant Bank v Rosabianca (2022 NY Slip Op 06548)
Emigrant Bank v Rosabianca
2022 NY Slip Op 06548
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 850136/14 Appeal No. 16695 Case No. 2022-00599
[*1]Emigrant Bank, as Successor-by-Merger With Emigrant Savings Bank - Manhattan, Plaintiff-Respondent,
vLuigi Rosabianca et al., Defendants, Secured Lending LLC, Defendant-Appellant.
The Law Offices of Mitchell Cantor, New York (Mitchell Cantor of counsel), for appellant.
Adam Leitman Bailey, P.C., New York (Jeffrey R. Metz of counsel), for respondent.
Order, Supreme Court, New York County (Gerald Lebovits, J.), entered November 22, 2021, which, to the extent appealed from, granted plaintiff Emigrant Bank's motion to dismiss defendant Secured Lending LLC's first affirmative defense, unanimously reversed, on the law, with costs, and the motion denied.
"When moving to dismiss an affirmative defense pursuant to CPLR 3211(b), the plaintiff bears the heavy burden of showing that the defense is without merit as a matter of law (Alpha Capital Anstalt v General Biotechnology Corp., 191 AD3d 515, 515 [1st Dept 2021])." "The allegations in the answer must be viewed in the light most favorable to the defendant (id.), and the defendant is entitled to the benefit of every reasonable intendment of the pleading, which is to be liberally construed" (Pugh v New York City Hous. Auth., 159 AD3d 643, 643 [1st Dept 2018]). Secured's first affirmative defense to plaintiff's complaint, equitable subrogation, asserts: "[P]laintiff cannot demonstrate . . . that Defendant could have had actual or constructive notice of the facts alleged by Plaintiff. And as such Defendant's lien takes priority over Plaintiff's." That was sufficient to state a defense based on the priority of Secured's lien on the foreclosed property (see Tenzer, Greenblatt, Fallon & Kaplan v Ellenberg, 199 AD2d 45, 45 [1st Dept 1993]; Matter of Ideal Mut. Ins. Co., 140 AD2d 62, 67 [1st Dept 1988]).
"[T]he statute of limitations governs the commencement of an action, not the assertion of a defense" (CPLR 203[d]; Tauber v Village of Spring Val., 56 AD3d 660, 661 [2d Dept 2008]). Secured's participation in the foreclosure action, as well as the filing of a cross claim, counterclaim, affirmative defenses, and stipulation, put all parties with an interest in the property on notice that Secured was asserting a right to a priority lien on the Wall Street property (see Bennardo v Del Monte Caterers, Inc., 27 AD3d 503, 505 [2d Dept 2006]; see also NYCTL 1997-1 Trust v Stell, 184 AD3d 9, 17 [2d Dept 2020]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
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State of Tennessee v. Larry Dale PittsM2021-01334-CCA-R3-CDAuthoring Judge: Judge Timothy L. EasterTrial Court Judge: Judge Barry R. TidwellLarry Dale Pitts, Defendant, was convicted of aggravated assault after a jury trial. The trial court denied his request for judicial diversion and sentenced him to split confinement, with one year of incarceration, and the remainder on supervised probation. He now appeals the sentencing determinations of the trial court, arguing that it abused its discretion in denying judicial diversion, denying full probation, and sentencing him to the maximum within-range sentence of six years. After review, we affirm the judgment of the trial court.
Rutherford County
Court of Criminal Appeals
11/22/22
State of Tennessee v. Robert Lancaster Steed, Jr.E2022-00145-CCA-R3-CDAuthoring Judge: Judge Robert W. WedemeyerTrial Court Judge: Judge G. Scott GreenIn 2019, the Defendant, Robert Lancaster Steed, Jr., pleaded guilty to evading arrest, false imprisonment, domestic assault, and theft. The trial court sentenced the Defendant, by agreement of the parties, to an effective sentence of six years of probation. After several violations, the trial court ultimately revoked the Defendant’s probation and ordered him to serve his sentence in the Department of Correction. On appeal, the Defendant contends that his poor performance on probation was due to his drug addiction, so the trial court should have ordered a period of confinement followed by intensive outpatient substance abuse and mental health treatment. After review, we affirm the trial court’s judgment.
Knox County
Court of Criminal Appeals
11/21/22
Brandon Nathaniel Merritt v. State of TennesseeW2021-01448-CCA-R3-PCAuthoring Judge: Judge Tom GreenholtzTrial Court Judge: Judge Lee V. CoffeeThe Petitioner, Brandon Nathaniel Merritt, pled guilty to attempted rape and sexual battery and agreed to an effective sentence of six years. Pursuant to the plea agreement, the trial court was to determine how the sentence would be served. After the trial court imposed a sentence of full confinement, the Petitioner timely filed a petition for post-conviction relief asserting that he received the ineffective assistance of counsel regarding his guilty pleas and at his sentencing hearing. He also asserted that his guilty pleas were not knowingly and voluntarily entered. After an evidentiary hearing, the post-conviction court denied the petition for post-conviction relief. On appeal, we affirm the judgment of the postconviction court.
Shelby County
Court of Criminal Appeals
11/18/22
State of Tennessee v. Aaron Dewayne TrouttM2021-01248-CCA-R3-CDAuthoring Judge: Judge Kyle A. HixsonTrial Court Judge: Judge Vanessa A. JacksonThe Defendant, Aaron Dewayne Troutt, appeals as of right from the trial court’s dismissal of his Tennessee Rule of Criminal Procedure 36 motion to correct a clerical error. The Defendant contends that the trial court erred by concluding it was without jurisdiction to modify a final judgment to award behavioral and pretrial jail credit. After review, we affirm the trial court’s decision in part, reverse in part, and remand for findings on whether a clerical error exists regarding the Defendant’s pretrial jail credit.
Coffee County
Court of Criminal Appeals
11/18/22
State of Tennessee v. Marlon J. Johnson, Jr. E2022-00098-CCA-R3-CDAuthoring Judge: Judge Camille R. McMullenTrial Court Judge: Judge James F. Goodwin, Jr. The Defendant-Appellant, Marlon J. Johnson, Jr., appeals the revocation of his six-year probationary sentence for two counts of aggravated burglary, domestic assault, misdemeanor assault, misdemeanor theft, and misdemeanor false imprisonment. The Defendant conceded the probation violation before the trial court and on appeal. Accordingly, the sole issue presented for our review is whether the trial court erred in ordering the Defendant to serve the balance of his sentence in confinement. Upon review, we affirm.
Sullivan County
Court of Criminal Appeals
11/16/22
Donta Lamar Weir v. State of TennesseeM2021-01254-CCA-R3-PCAuthoring Judge: Presiding Judge James Curwood Witt, Jr.Trial Court Judge: Judge Larry B. Stanley, Jr.The petitioner, Donta Lamar Weir, appeals the summary dismissal of his petition for postconviction relief, which petition challenged his 2021 guilty-pleaded convictions of delivery of cocaine in a drug-free school zone, delivery of cocaine, and delivery of a counterfeit controlled substance. He argues that the post-conviction court erred by concluding that he failed to state a colorable claim for relief. Discerning no error, we affirm.
Warren County
Court of Criminal Appeals
11/15/22
State of Tennessee v. Thomas Adam BlackwellM2020-01171-CCA-R3-CDAuthoring Judge: Judge Robert L. Holloway, Jr.Trial Court Judge: Judge Dee David GayThomas Adam Blackwell, Defendant, claims that the trial court abused its discretion byrevoking his probation, denying an alternative sentence, and ordering his three-yearsentence for fourth offense driving under the influence (“DUI”) to be served consecutivelyto the seven-year sentence that he was serving on community corrections when he wasarrested for the DUI. After a thorough review of the record and applicable law, we affirm.
Sumner County
Court of Criminal Appeals
11/15/22
Christopher Brown v. State of TennesseeW2021-01331-CCA-R3-PCAuthoring Judge: Judge Tom GreenholtzTrial Court Judge: Judge J. Robert Carter, Jr.The Petitioner, Christopher Brown, was convicted of one count of first degree murder and three counts of aggravated assault by a Shelby County jury. The Petitioner later filed a petition for post-conviction relief alleging that he was denied the effective assistance of counsel when trial counsel failed to disclose discovery materials and failed to call particular witnesses. The post-conviction court denied the petition after an evidentiary hearing. On appeal, we affirm the judgment of the post-conviction court.
Shelby County
Court of Criminal Appeals
11/14/22
State of Tennessee v. Demarcus WootenW2022-00315-CCA-R3-CDAuthoring Judge: Judge Tom GreenholtzTrial Court Judge: Judge W. Mark WardA Shelby County jury found the Defendant, Demarcus Wooten, guilty of the offenses of first degree murder, attempted first degree murder, and employing a firearm during the commission of a dangerous felony. The trial court imposed a total effective sentence of life plus twenty-nine years. On appeal, the Defendant argues that the evidence is insufficient to sustain his murder and attempted murder convictions, arguing principally that the proof did not establish the elements of intent and premeditation. We respectfully disagree, and we affirm the judgments of the trial court.
Shelby County
Court of Criminal Appeals
11/14/22
State of Tennessee v. Marcus DavisW2021-01147-CCA-R3-CDAuthoring Judge: Judge John W. Campbell, Sr.Trial Court Judge: Judge J. Robert Carter, Jr.The Defendant, Marcus Davis, was convicted by a Shelby County Criminal Court jury of attempted first degree premeditated murder, a Class A felony, and employing a firearm during the attempt to commit a dangerous felony, a Class C felony, and was sentenced by the trial court to an effective term of twenty-one years in the Department of Correction. On appeal, he argues that the evidence is insufficient to show premeditation and that the trial court erred by denying his request for a jury instruction on self-defense. Based on our review, we affirm the judgments of the trial court.
Shelby County
Court of Criminal Appeals
11/14/22
State of Tennessee v. Stephen Hampton and Margaret HamptonW2021-00938-CCA-R3-CDAuthoring Judge: Judge John w. Campbell, Sr.Trial Court Judge: Judge Donald H. AllenStephen Paul Hampton and Margaret Mary Hampton were charged in the Madison County Circuit Court with drug and weapon offenses, but the charges were dismissed after the trial court granted their motions to suppress statements made to a police officer and evidence found in their vehicle. On appeal, the State contends that the trial court erred by granting the motions to suppress because the statements were not made during a custodial interrogation and because the police officer had probable cause to search the vehicle. Based upon the oral arguments, the record, and the parties’ briefs, we reverse the trial court’s orders granting the motions to suppress, vacate the order dismissing the indictment, and remand the case to the trial court for further proceedings consistent with this opinion.
Madison County
Court of Criminal Appeals
11/14/22
State of Tennessee v. Jeremy Lynn ThorntonW2021-01127-CCA-R3-CDAuthoring Judge: Judge John W. Campbell, Sr.Trial Court Judge: Judge Charles C. McGinleyThe Defendant, Jeremy Lynn Thornton, was convicted in the Benton County Circuit Court of possession of methamphetamine with intent to sell or deliver, possession of heroin with intent to sell or deliver, simple possession of alprazolam, simple possession of marijuana, possession of drug paraphernalia, and simple possession of diazepam and received an effective ten-year sentence to be served as one year in confinement followed by nine years on community corrections. The State appealed the Defendant’s community corrections sentence, and this court reversed the decision of the trial court and remanded the case for a new sentencing hearing. On remand, the trial court again imposed an effective ten-year sentence to be served as one year in confinement followed by community corrections. The State appeals, claiming that the Defendant is not eligible for community corrections due to his past pattern of behavior indicating violence and pattern of committing violent offenses. Based upon the oral arguments, the record, and the parties’ briefs, we affirm the judgments of the trial court.
Benton County
Court of Criminal Appeals
11/14/22
State of Tennessee v. Terry James LeeM2021-01084-CCA-R3-CDAuthoring Judge: Presiding Judge James Curwood Witt, Jr. Trial Court Judge: Judge Joseph WoodruffAggrieved of his Williamson County Circuit Court jury convictions of aggravated kidnapping, simple possession, violating the financial responsibility law, speeding, and the improper use of a vehicle registration, the defendant, Terry James Lee, appeals. In this appeal, the defendant challenges the sufficiency of the convicting evidence, the admission of evidence of certain uncharged conduct, and the admission of certain of his pretrial statements to the police. Discerning no error, we affirm.
Williamson County
Court of Criminal Appeals
11/10/22
Jacob Tate v. State of TennesseeE2022-00147-CCA-R3-PCAuthoring Judge: Judge James Curwood WittTrial Court Judge: Judge G. Scott GreenThe petitioner, Jacob Tate, appeals the denial of his petition for post-conviction relief, which petition challenged his 2018 guilty-pleaded convictions of especially aggravated kidnapping and rape, arguing that he was deprived of the effective assistance of counsel and that his guilty pleas were not knowingly, voluntarily, and intelligently entered. Discerning no error, we affirm.
Knox County
Court of Criminal Appeals
11/10/22
State of Tennessee v. Jacquiz McBeeE2021-01048-CCA-R3-CDAuthoring Judge: Judge Jill Bartee AyersTrial Court Judge: Judge Kyle A. HixsonDefendant, Jacquiz McBee, was convicted of first-degree premeditated murder and received a life sentence to be served consecutively to his prior three-year sentence for aggravated assault. On appeal, Defendant argues: that the evidence was insufficient to support his conviction; that the trial court erred by excluding the victim and Defendant’s minor child’s statement to a forensic interviewer; that the trial court erred by failing to redact the words “on probation” from searches made on the internet from Defendant’s cell phone; that the trial court erred by admitting the results of a Google search conducted by Detective McFarland consistent with a search made by Defendant; that the trial court erred by ordering consecutive sentencing; and that cumulative error entitles him to relief. Following our review of the entire record and the parties’ briefs, we affirm the judgment of the trial court.
Knox County
Court of Criminal Appeals
11/09/22
State of Tennessee v. Eric R. WrightW2021-01270-CCA-R3-CDAuthoring Judge: Judge Robert H. Montgomery, Jr.Trial Court Judge: Judge John W. CampbellThe Defendant, Eric R. Wright, was convicted by a Shelby County Criminal Court jury of robbery committed by the use of a deadly weapon and two counts of assault with the intent to commit first degree murder, for which he is serving an effective 150-year sentence as a Range III, persistent offender. He filed a Motion to Correct an Illegal Sentence pursuant to Tennessee Rule of Criminal Procedure 36.1, which the trial court denied. On appeal, he contends that the trial court erred in denying relief without appointing counsel and conducting a hearing. We affirm the judgment of the trial court.
Shelby County
Court of Criminal Appeals
11/09/22
Thomas N. Allen v. State of Tennessee E2022-00373-CCA-R3-PCAuthoring Judge: Judge Camille R. McMullenTrial Court Judge: Judge Alex E. PearsonThe pro se Petitioner, Thomas N. Allen, appeals from the summary dismissal of his petition filed pursuant to the Post-Conviction DNA Analysis Act of 2001 (“the Act”), wherein he sought DNA testing of evidence related to his first degree murder conviction. After reviewing the record and the parties’ briefs, we affirm the judgment of the post-conviction court.
Hamblen County
Court of Criminal Appeals
11/08/22
State of Tennessee v. Espiridion Evangelista Kolimlim, IIIM2020-01363-CCA-R3-CDAuthoring Judge: Judge Jill Bartee AyersTrial Court Judge: Judge Michael Wayne CollinsDefendant, Espiridion Evangelista Kolimlim, III, appeals the criminal court’s dismissal of his general sessions appeal from payment of a traffic citation after he filed a motion to withdraw payment of the citation. Following our review of the entire record, oral arguments, and the parties’ briefs, we dismiss the appeal.
Wilson County
Court of Criminal Appeals
11/07/22
State of Tennessee v. Elijah BowmanE2021-00614-CCA-R3-CDAuthoring Judge: Judge Camille R. McMullenTrial Court Judge: Judge G. Scott GreenThe Defendant-Appellant, Elijah Bowman, was convicted by a jury of first-degree felony murder, two counts of attempted second degree murder, two counts of especially aggravated robbery, and aggravated assault. He received a total effective sentence of life imprisonment plus twelve years. The sole issue presented on appeal is whether the evidence is sufficient to support his convictions of first-degree felony murder, attempted second degree murder, and especially aggravated robbery. We affirm.
Knox County
Court of Criminal Appeals
11/07/22
State of Tennessee v. Adam HolmesE2021-01489-CCA-R3-CDAuthoring Judge: Judge James Curwood WittTrial Court Judge: Judge Steven W. SwordThe defendant, Adam Holmes, appeals his Knox County Criminal Court jury convictions of possession of a weapon by a convicted felon, second degree murder, and especially aggravated robbery, arguing that the trial court erred by admitting into evidence a Cellebrite cellular telephone data extraction report and the prior testimony of a State witness and by permitting a State witness to testify remotely. Discerning no reversible error, we affirm.
Knox County
Court of Criminal Appeals
11/07/22
State of Tennessee v. Calvin Sanchez AmosM2021-00986-CCA-R3-CDAuthoring Judge: Judge Timothy L. EasterTrial Court Judge: Judge Stella L. HargroveCalvin Sanchez Amos, Defendant, was indicted for possession of .5 grams or more of cocaine with the intent to sell in a drug-free zone, possession of a firearm with the intent to go armed during the commission of a dangerous felony, and evading arrest. Defendant pled guilty to evading arrest and proceeded to trial on the remaining charges. A jury found Defendant guilty of the lesser included offenses of possession of .5 grams or more of cocaine for resale and attempted possession of a firearm during the commission of a dangerous felony. At the sentencing hearing, Defendant agreed to an effective sentence of 12 years. On appeal, Defendant challenges the sufficiency of the evidence and the trial court’s ruling on the admissibility of a video from Defendant’s phone in which he is seen cooking crack cocaine. After a full review, we affirm the judgments of the trial court.
Maury County
Court of Criminal Appeals
11/03/22
State of Tennessee v. Tanya Dawn EverettE2022-00189-CCA-R3-CDAuthoring Judge: Judge Tom GreenholtzTrial Court Judge: Judge Davie Reed DugganFollowing a conviction for theft of property, the Defendant, Tanya Dawn Everett, was sentenced to a term of four years and placed on probation. Thereafter, the Blount County Circuit Court found that the Defendant violated the terms of her probation by failing to report and by committing new criminal offenses. As a consequence, the trial court revoked the suspended sentence and ordered the Defendant to serve the balance of her original sentence in custody. On appeal, the Defendant argues that the trial court abused its discretion by ordering her to serve the balance of her sentence in confinement. We respectfully affirm the judgment of the trial court.
Blount County
Court of Criminal Appeals
11/03/22
State of Tennessee v. Glenn SewellW2021-00023-CCA-R3-PCAuthoring Judge: Judge Jill Bartee AyersTrial Court Judge: Judge Jennifer Johnson MitchellPetitioner, Glenn Sewell, appeals the denial of his post-conviction petition, arguing that the post-conviction court erred in denying his claim of ineffective assistance of counsel at trial. Following our review of the entire record and the briefs and oral arguments of the parties, we affirm the judgment of the post-conviction court.
Shelby County
Court of Criminal Appeals
11/02/22
Marlez Wilson A/K/A Marlez Wright v. State of TennesseeW2022-00024-CCA-R3-PCAuthoring Judge: Judge Jill Bartee Ayers Trial Court Judge: Judge James M. LammeyPetitioner, Marlez Wilson a/k/a, Marlez Wright, appeals the denial of his post-conviction petition, arguing that the post-conviction court erred in concluding that he received the effective assistance of counsel. Following our review of the entire record and the briefs of the parties, we affirm the judgment of the post-conviction court.
Shelby County
Court of Criminal Appeals
11/02/22
State of Tennessee v. William StricklandE2021-01280-CCA-R3-CDAuthoring Judge: Judge Camille R. McMullenTrial Court Judge: Judge David Reed DugganThe Defendant-Appellant, William Lester Strickland, appeals from the revocation of his probationary sentence for aggravated burglary. The sole issue presented for review is whether the trial court erred in fully revoking the Defendant’s probation and ordering him to serve the remainder of his sentence in confinement. Upon review, we affirm.
Blount County
Court of Criminal Appeals
11/02/22
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last » | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488680/ | Florez v 215 E. 68th St. L.P. (2022 NY Slip Op 06550)
Florez v 215 E. 68th St. L.P.
2022 NY Slip Op 06550
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Gische, J.P., Kern, Gesmer, Rodriguez, Pitt, JJ.
Index No. 152831/18 Appeal No. 16383 Case No. 2022-01459
[*1]Maria Florez, Plaintiff-Respondent,
v215 East 68th Street L.P., et al., Defendants-Appellants, Otis Elevator Company, Defendant-Respondent.
Wood Smith Henning & Berman LLP, New York (Courtney G. Swartz of counsel), for appellants.
Burns & Harris, New York (Mariel Crippen of counsel), for Maria Florez, respondent.
McNamara & Horowitz LLP, Bronx (Katryna L. Kristoferson of counsel), for Otis Elevator Company, respondent.
Order, Supreme Court, New York County (Arlene P. Bluth, J.), entered on or about March 4, 2022, which, to the extent appealed from, granted Otis Elevator Company's (Otis) motion for summary judgment dismissing the complaint as against it, granted Otis's motion for summary judgment dismissing the Rudin defendants' cross claims for contribution and common-law indemnity, denied the Rudin defendants' motion for summary judgment on their cross claims against Otis, denied the Rudin defendants' motion for summary judgment dismissing Otis's cross claims, and denied plaintiff's motion for summary judgment on liability as against Otis, unanimously affirmed, without costs.
Otis established its entitlement to summary judgment by eliminating all triable issues regarding its negligence in the service and maintenance of the elevator including any notice, actual or constructive, or any misleveling relating to the October 25, 2017 incident (see Leo v Mt. St. Michael Academy, 272 AD2d 145, 145-146 [1st Dept 2000]). Plaintiff has not appealed the trial court's determination that Otis was not negligent.
In view of plaintiff's failure to appeal and consequent inability to recover from Otis, any recovery for plaintiff will result from a showing of the Rudin defendants' negligence. Otis is therefore not obligated to indemnify or contribute to the Rudin defendants (see e.g. Ramirez v Almah, LLC, 169 AD3d 508, 509-510 [1st Dept 2019]; see also McCarthy v Turner Constr., Inc., 17 NY3d 369, 377 [2011]; Sotarriba v 346 W. 17th St. LLC, 179 AD3d 599, 601 [1st Dept 2020]; People v Grasso, 53 AD3d 403, 403 [1st Dept 2008]). Rudin's arguments, largely based on its own expert, that no dangerous condition existed does not change this result. Accordingly, the Rudin defendants' cross claims for indemnification and contribution must be dismissed. Moreover, the motion court properly denied the Rudin defendants' summary judgment motion on their cross claims and their motion for summary judgment dismissing Otis's cross claims.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488683/ | Dashdevs LLC v Capital Mkts. Placement, Inc. (2022 NY Slip Op 06547)
Dashdevs LLC v Capital Mkts. Placement, Inc.
2022 NY Slip Op 06547
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 655993/18 Appeal No. 16700 Case No. 2021-04191
[*1]Dashdevs LLC, Plaintiff-Respondent,
vCapital Markets Placement, Inc., Defendant-Appellant.
Long & Associates PLLC, New York (Ryan E. Long of counsel), for appellant.
Borg Law LLP, New York (Jonathan M. Borg of counsel), for respondent.
Order, Supreme Court, New York County (Nancy M. Bannon, J.), entered October 15, 2021, which, to the extent appealed from as limited by the briefs, granted plaintiff's motion to dismiss defendant's counterclaims for tortious interference with contract, abuse of process, and fraud, and granted plaintiff's alternative motion for summary judgment dismissing defendant's counterclaim for defamation, unanimously affirmed, with costs.
Defendant failed to state a cause of action for tortious interference with contract, as it failed to allege the existence of a contract between defendant and its clients that had been breached (see Amato v New York City Dept. of Parks & Recreation, 110 AD3d 439, 440 [1st Dept 2013]; see generally Foster v Churchill, 87 NY2d 744, 749-750 [1996]). Further, the allegations that plaintiff caused defendant's clients to terminate their relationship with defendant by "defam[ing]" defendant and "woo[ing]" the clients were vague, conclusory, and based on speculation (see Carlyle, LLC v Quik Park 1633 Garage LLC, 160 AD3d 476, 477 [1st Dept 2018]).
The court correctly granted plaintiff summary judgment dismissing the counterclaim for defamation on the ground that it was barred by the one-year statute of limitations (see CPLR 215 [3]). The alleged defamatory statements by plaintiff occurred in July 2018, over two years before defendant served its answer containing the counterclaim (see CPLR 215 [3]; Melious v Besignano, 125 AD3d 727, 728 [2d Dept 2015]). Defendant's allegation that the defamation was "ongoing" was "wholly speculative" (Smulyan v New York Liquidation Bur., 158 AD3d 456, 457 [1st Dept 2018]).
The counterclaim for abuse of process was correctly dismissed. Defendant failed to set forth facts showing that plaintiff's service of subpoenas and restraining notices was motivated by an intent to do harm, or to achieve any purpose other than the legitimate purpose of enforcing its judgment (see Zeckendorf v Kerry H. Lutz, P.C., 282 AD2d 295, 295-296 [1st Dept 2001]; Stroock & Stroock & Lavan v Beltramini, 157 AD2d 590, 591 [1st Dept 1990]). Defendant also failed to allege facts showing that plaintiff's failure to serve its motion for a default judgment, or copies of the subpoenas with restraining notices, on defendant's counsel was motivated by an improper purpose.
Furthermore, defendant failed to plead its counterclaim for fraud with the requisite particularity (see CPLR 3016 [b]). The allegations made "upon information and belief" were insufficient to support the claim (see Facebook, Inc. v DLA Piper LLP (US), 134 AD3d 610, 615 [1st Dept 2015], lv denied 28 NY3d 903 [2016]), and defendant failed to allege any facts from which it could be reasonably inferred that the invoices submitted by plaintiff were in fact falsely inflated, or that it justifiably relied on the allegedly inflated invoices to its detriment (see Katz 737 Corp. v Cohen, 104 AD3d 144, 151 [1st Dept 2012], lv denied 21 NY3d 864 [2013];
see generally Eurycleia [*2]Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559 [2009]).
We have reviewed defendant's remaining arguments and find them unavailing.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488700/ | 11/21/2022
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
Assigned on Briefs August 1, 2022
IN RE ESTRELLA A. ET AL.
Appeal from the Juvenile Court for Montgomery County
No. 2019-JV-939, 2019-JV-940, 2019-JV-941 Tim Barnes, Judge
___________________________________
No. M2022-00163-COA-R3-PT
___________________________________
Mother appeals the termination of her parental rights on five grounds, including severe
child abuse. Because we conclude that clear and convincing evidence supports the grounds
for termination and that termination is in the children’s best interests, we affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Juvenile Court Affirmed
and Remanded
J. STEVEN STAFFORD, P. J., W.S., delivered the opinion of the court, in which FRANK G.
CLEMENT, JR., P.J., M.S., and THOMAS R. FRIERSON, II, J., joined.
Taylor R. Dahl, Clarksville, Tennessee, for the appellant, Dixie A.
Herbert H. Slatery, III, Attorney General and Reporter; Carrie Perras, Assistant Attorney
General, for the appellee, State of Tennessee, Department of Children’s Services.
OPINION
I. FACTUAL AND PROCEDURAL BACKGROUND
On January 8, 2018, the Tennessee Department of Children’s Services (“DCS”)
received a referral that a child, Estrella A.1, who was five years old at the time, had made
disclosures to her teacher indicating sexual abuse. DCS informed the child’s mother,
Respondent/Appellant Dixie A. (“Mother”), about the abuse. Apparently, Estrella had
already informed Mother about the discomfort she was experiencing and Mother had
dismissed the discomfort as a result of the child’s hygiene.
1
In cases involving termination of parental rights, it is this Court’s policy to remove the full names.
of children and other parties to protect their identities.
DCS thereafter conducted a forensic interview with Estrella on January 9, 2018, in
which she made detailed disclosures of sexual abuse by her maternal grandfather, Jerry A.,
who was living in the same home with Mother and her children.2 Estrella and her two
siblings were initially placed with a relative. On September 11, 2018, however, DCS filed
a petition to declare the children dependent and neglected and asked that the children be
placed in DCS’s physical custody. Based on the petition, the Montgomery County Juvenile
Court (“the trial court”) issued a protective custody order removing the children and
placing them in DCS custody. The children were placed with a foster family, where they
remained at the time of trial.
Eventually, on June 11, 2019, DCS filed a petition in the trial court to terminate
Mother’s parental rights to three of her children, Estrella, Ryleigh D., and Dakota A. The
petition alleged the following grounds: (1) abandonment by failure to support; (2)
abandonment by failure to establish a suitable home; (3) substantial noncompliance with
permanency plans; (4) persistent conditions; (5) severe child abuse; and (6) failure to
manifest an ability and willingness to assume custody.3 DCS later filed an amended petition
on August 23, 2019.
Trial on the termination petition occurred on October 21, 2021.4 DCS case manager
Karissa Chapman (“Ms. Chapman” or “FSW Chapman”) testified that she was Mother’s
caseworker not only at the inception of this case, but during a prior case as well.
Specifically, in October 2017, DCS received a referral that one or more of Mother’s
children was drug-exposed.5 Mother was at that time taking part in drug and alcohol
treatment. The children were not removed at that time. But during one meeting around
December 2017, Mother informed Ms. Chapman that she had been sexually abused by her
father. Mother’s sister, who was also present at the meeting, confirmed that she had also
been sexually assaulted by Jerry A. Both women further confirmed that he had attempted
to assault another girl during a slumber party when the women were teenagers. Based on
these disclosures, Ms. Chapman cautioned Mother not to allow Jerry A. around her
children. Mother agreed.
In her testimony, Mother admitted that a DCS case had been opened regarding her
own abuse as a minor and that there may have been an incident with her father as a teenager,
but she denied having any memory of abuse perpetrated against her when she was a child
2
Mother’s sister and her children also lived in the home.
3
DCS also sought to terminate the parental rights of the children’s fathers. Their rights were
terminated, and they are not a party to this appeal.
4
During the trial, counsel stated that the hearing also involved DCS’s dependency and neglect
petition, which had never been finally adjudicated. The dependency and neglect action and the termination
action were filed under separate docket numbers, albeit in the same court. Neither party asserts that this
procedure was in error in this appeal.
5
As detailed, infra, this was not DCS’s first involvement with Mother and her children.
-2-
because she was “too young.” Still, Mother appeared to admit that the above-detailed
conversation with Ms. Chapman occurred; Mother claimed, however, that she did not allow
Jerry A. to be around her children following that conversation.6
According to DCS, Mother did not heed Ms. Chapman’s warning. Following the
2017 Christmas holidays, Estrella disclosed to Mother her vaginal discomfort. Eventually,
Estrella told Mother about the abuse. Mother admitted that when Estrella told her about
what happened, her only response was “that if anything happened at nighttime to let me
know, to kick on the wall.”7 As previously discussed, nothing was done until on or about
January 8, 2018, when the child disclosed the abuse to a teacher and the abuse was reported
to DCS, who began an investigation. The proof showed that Jerry A. pleaded nolo
contendere to two counts of aggravated sexual battery of a child and was sentenced to two
eight-year sentences.8 Video of the child’s forensic interview was submitted as proof that
she was a victim of severe child abuse.
Although at trial Mother appeared to concede that the abuse had occurred, she
denied that it occurred when she was in another room, as the child claimed in her forensic
interview. Mother’s testimony on this issue was as follows:
Q. . . . So as far as -- you’ve listened to this forensic [interview] today.
As you sit here today, do you believe that your daughter was sexually
assaulted by your father?
A. Like I said, I don’t know what happened. It -- when the time she said
that happened, when I was in the living room and she was in the sunroom, I
honestly don’t think there was any way it could happen at that time. I’m not
saying it didn’t happen. I’m saying it did not happen at that time.
* * *
Q. As we sit here today, do you believe that that happened?
A. At the time, no. Like when she said it happened, no. I’m not saying it
didn’t happen, but the time she said it happened, no.
* * *
6
Specifically, the testimony was as follows:
Q. Was there a conversation that happened between you and Ms. Chapman in 2017
where she specifically told you not to have your children around your father?
A. Yes, and I didn’t have my children around my father then. . . .
7
According the forensic interview, Mother’s sister also told Estrella to bite Jerry A.
8
The testimony at trial was that Jerry A.’s effective sentence was sixteen years. The convictions
submitted as evidence, however, indicate that the sentences were concurrent.
-3-
THE COURT: Ma’am, she’s asking a very simple question. Do you
believe your father molested your daughter?
THE WITNESS: Not with me in the other room, no. I didn’t say --
THE COURT: I -- I’m not asking about the rooms. Do you think he
ever molested your daughter?
THE WITNESS: I mean, by her testifying, it sounds like it, yes. But what
I’m saying is, when I was in the other room, I don’t think that happened then.
I'm not saying it didn’t happen at all. I’m saying when I was in the other
room.
THE COURT: All right. Let’s move on.
Mother admitted that when the child informed her, she failed to report the abuse to DCS or
the police, or take the child to see a doctor.9
When questioned why Mother would allow Jerry A. around her children after Ms.
Chapman’s warning, Mother also claimed that she had not left the children alone with Jerry
A. Still, Mother disputed that she had any right to remove Jerry A. from the home because
she was living in the home of her sister. She also insisted that once the children were
removed from her custody that she did remove him from the home and would never allow
him to return to any home where her children were.10 Except Mother admitted that she
allowed her other children to be alone with Jerry A. on one occasion when it was
unavoidable and only for a short period of time.
DCS family service worker/case manager Madison Huggins (“Ms. Huggins”)
further testified that Estrella “and other children” had previously been “sexually abused”
by a “gentleman that [Mother] had allowed into the home.”11 Very little testimony was
elicited about this incident except that the children have been “consistently in and out of
State’s custody or had involvement with [DCS] in some way[.]” Mother was also arrested
following the removal of the children for charges related to possession of drug
paraphernalia. Mother testified, however, that the charges were dropped because she was
not in possession of the illegal items, but only in the car with drug users.
Mother’s permanency plans focused on drug use, sexual abuse prevention, and
housing. Pursuant to the plan, Mother was to, inter alia, complete an alcohol and drug
assessment, follow any resulting recommendations, participate in random drugs screens,
have stable housing and employment, visit with the children, pay $60.00 in child support
per month, and complete a non-offender sexual abuse training class. It appears that Mother
9
According to Ms. Chapman, Mother initially assumed that the child’s discomfort was from not
wiping correctly.
10
DCS disputed that Mother immediately removed Jerry A. from the home because they received
a report that he continued to live in the home until January 2019, a year after Estrella’s disclosures.
11
This abuse apparently occurred in 2014. Estrella, the eldest of the children at issue, would have
been about two years old at this time.
-4-
completed many of these requirements, including a drug and alcohol assessment, parenting
and drug abuse classes,12 as well as the intensive outpatient program and counseling
recommended by the assessment.13 Mother also consistently participated in supervised
therapeutic visitation with the children. When Mother filed a motion for unsupervised
visitation, however, the supervisor of the visits recommended against it on the basis that
Mother had not progressed in her visits, did not always follow instructions during the visits,
and had recently come to a visit sick, exposing the children to “the virus.”14
By the time of trial, Mother still had not completed the non-offender training
classes, despite DCS setting her up with three different providers to take the class. Mother
claimed that her failure to complete the program was not her fault.15 As of the date of trial,
Mother had “just got in [the classes]” and had attended a class the day before trial.
According to Ms. Huggins, Mother also continued to deny that Estrella was a victim of
Jerry A.’s abuse.
Mother also sometimes failed or missed random drug screens, though she claimed
that her work schedule caused her absences. As a result, Mother was asked to complete a
second alcohol and drug assessment, which she never completed. Still, it appears that after
Mother completed intensive outpatient treatment, Mother consistently passed the drug
screens for which she appeared. But Mother then failed a drug test administered the day
before trial. That drug screen indicated that Mother was positive for THC. Mother claimed
that the positive result was due to the consumption of legal Delta 8 gummies and that she
did not know when she took them that they would result in a positive drug screen.
The proof further indicated that Mother was employed sporadically during the
custodial period, but paid no child support during the four months preceding the filing of
the amended termination petition, approximately April to August 2019. When asked
whether she worked during this period, Mother testified that she could not remember but
that she may have been pregnant and sick during that time. Mother submitted pay stubs,
12
To show completion of these classes, Mother submitted an undated certificate of completion of
eight required sessions of an Empowering Parenting Course and an April 2018 certificate of completion of
a Chemical Awareness, Recovery, and Education class.
13
A December 2018 psychological report in the record states that Mother stopped going to therapy
in November 2018 and only saw her new therapist twice. It is unclear when Mother resumed therapy, though
she claimed at trial that she was currently attending counseling.
14
The April 8, 2020 letter of Sharon Davis, who oversaw Mother’s therapeutic visitation, was
admitted as an exhibit.
15
The testimony indicates that Mother filed a motion regarding her inability to complete this class.
The record contains a document entitled a “Notice of Filing” in which Mother states that she is ready to
take the classes but blames DCS for not setting up the classes or paying for them. Moreover, the testimony
was undisputed that the one of the providers that DCS set up in December 2018 did not offer the specific
class that Mother needed. As for the other two times that DCS set up classes, Mother only vaguely claimed
that they conflicted with her work schedule. Nothing in the record indicates that the COVID-19 pandemic
was the culprit for Mother’s purported inability to complete the classes.
-5-
however, showing that she was employed from July 29, 2019 to August 11, 2019. Mother
also claimed that her IRS stimulus money was intercepted to pay child support. Mother
testified that child support is now being deducted from her paycheck. Mother further
testified that her employment was now stable and that she could financially support all five
of her children, but Ms. Huggins testified that DCS never received any proof of this
employment.16
Mother continued to stay in her sister’s home for a time following the removal of
the children. Ms. Huggins testified that DCS was unable to do a home visit on this home
following the removal of the children. Eventually, in March 2019, Mother signed a lease
on a new home that she shared with a boyfriend. After Mother provided DCS with proof
of the lease around July 2019, DCS did perform a home study on this home, but deemed it
inappropriate due to the boyfriend’s substance abuse issues and open investigation with
DCS. With regard to her boyfriends over the years, Mother testified that although she got
involved with inappropriate men, she could not know about their inappropriateness until
after she started dating them. Mother claimed to have entered into a new lease one week
before trial, but provided no proof of such and had not provided that lease to DCS so that
a home study could be performed.17
Ms. Huggins testified that the children are doing well in their foster home, where
they have been continuously placed since coming into DCS custody. The children are
academically and developmentally on track and the older two children participate in
individual therapy designed to address the sexual abuse issues.18 The children refer to their
foster mother as “Mom” and there is a loving bond between the children and their foster
parents. The foster family wants to adopt the children.
At the conclusion of the proof, the trial court granted DCS’s petition to terminate
Mother’s parental rights. A final, written order was entered on January 25, 2022, in which
the trial court found that DCS had proven the following grounds: (1) abandonment by
failure to support; (2) abandonment by failure to establish a suitable home; (3) persistent
conditions; (4) severe child abuse; and (5) failure to manifest an ability and willingness to
assume custody; the trial court did not find clear and convincing evidence that Mother
substantially failed to comply with permanency plans. The trial court also found that
termination was in the children’s best interests. From this order, Mother now appeals.
II. ISSUES PRESENTED
16
Mother’s two youngest children, who were born after the removal of the older children, remain
in her custody.
17
When asked that she submit the new lease as proof, Mother claimed that she could reproduce the
lease on her phone.
18
According to Ms. Huggins, the children had progressed to such a place that they “don’t talk about
[the sexual abuse] often at all anymore.”
-6-
As we perceive it, this appeal involves two issues:
1. Whether the trial court erred in finding clear and convincing evidence of grounds
to terminate Mother’s parental rights?
2. Whether the trial court erred in finding clear and convincing evidence that
termination was in the children’s best interests?
III. STANDARD OF REVIEW
Parental rights are “among the oldest of the judicially recognized fundamental
liberty interests protected by the Due Process Clauses of the federal and state
constitutions.” In re Carrington H., 483 S.W.3d 507, 521 (Tenn. 2016) (collecting cases).
Therefore, “parents are constitutionally entitled to fundamentally fair procedures in
parental termination proceedings.” Id. at 511. These procedures include “a heightened
standard of proof—clear and convincing evidence.” Id. at 522 (citations and quotations
omitted). “Clear and convincing evidence is evidence in which there is no serious or
substantial doubt about the correctness of the conclusions drawn from the evidence.” In re
Valentine, 79 S.W.3d 539, 546 (Tenn. 2002) (quotation marks and citation omitted).
In Tennessee, termination of parental rights is governed by statute, which identifies
“situations in which [the] state’s interest in the welfare of a child justifies interference with
a parent’s constitutional rights by setting forth grounds on which termination proceedings
can be brought.” In re Jacobe M.J., 434 S.W.3d 565, 568 (Tenn. Ct. App. 2013) (quoting
In re W.B., Nos. M2004-00999-COA-R3-PT, M2004-01572-COA-R3-PT, 2005 WL
1021618, at *7 (Tenn. Ct. App. Apr. 29, 2005) (citing Tenn. Code Ann. § 36-1-113(g))).
Thus, a party seeking to terminate a parent’s rights must prove by clear and convincing
evidence (1) the existence of at least one of the statutory grounds in section 36-1-113(g),
and (2) that termination is in the child’s best interest. See In re Valentine, 79 S.W.3d at
546. “Considering the fundamental nature of a parent’s rights, and the serious
consequences that stem from termination of those rights, a higher standard of proof is
required in determining termination cases.” In re Addalyne S., 556 S.W.3d 774, 782
(Tenn. Ct. App. 2018). The clear and convincing evidence standard applicable here is
“more exacting than the ‘preponderance of the evidence’ standard, although it does not
demand the certainty required by the ‘beyond a reasonable doubt’ standard. To be clear
and convincing, the evidence must eliminate any substantial doubt and produce in the fact-
finder’s mind a firm conviction as to the truth.” In re S.R.C., 156 S.W.3d 26, 29 (Tenn. Ct.
App. 2004) (internal citation omitted).
In termination cases, appellate courts review a trial court’s factual findings de novo
and accord these findings a presumption of correctness unless the evidence preponderates
otherwise. See Tenn. R. App. P. 13(d); In re Carrington H., 483 S.W.3d at 523–24
(citations omitted). “The trial court’s ruling that the evidence sufficiently supports
termination of parental rights is a conclusion of law, which appellate courts review de novo
-7-
with no presumption of correctness.” In re Carrington H., 483 S.W.3d at 524 (citation
omitted).
IV. ANALYSIS
A. Grounds for Termination
Mother argues that none of the grounds found by the trial court were supported by
clear and convincing evidence. We will consider each ground in turn.
1. Severe Child Abuse
We begin with the central reason that the children were removed from Mother’s
care: severe child abuse. Specifically, a ground for termination exists when
The parent or guardian has been found to have committed severe child abuse,
as defined in § 37-1-102, under any prior order of a court or is found by the
court hearing the petition to terminate parental rights or the petition for
adoption to have committed severe child abuse against any child[.]
Tenn. Code Ann. § 36-1-113(g)(4). Severe child abuse is defined as, inter alia: “[t]he
knowing exposure of a child to or the knowing failure to protect a child from abuse or
neglect that is likely to cause serious bodily injury or death and the knowing use of force
on a child that is likely to cause serious bodily injury or death[.]” Tenn. Code Ann. § 37-
1-102(b)(27).
The trial court found that Mother committed severe child abuse by “knowingly
exposing the child to, and knowingly failing to protect the child from” sexual abuse
committed by Jerry A. The trial court recounted the child’s statements during the forensic
interview, as well as the testimony of Ms. Chapman that Mother informed her that Jerry A.
had also sexually abused her and her sister and that Mother was warned to keep him away
from the children. Specifically, the Court commented as follows:
45. The Court finds it hard to believe that these two sisters who went through
that terrible thing would not have had some discussion about what went on
with them. But today the mother testifies that she doesn’t remember anything
about it. The Court does not find this credible, and the Court does not find
[Mother] credible.
46. FSW Chapman described in detail what her and [Mother] discussed
during the investigation. FSW Chapman even testified that [Mother]
admitted to her that Jerry A. had even tried to assault a friend of [Mother’s
sister’s], and that child, fortunately, escaped by going out a window.
47. Testimony today was that Jerry A., in front of the children, sits around
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and watches porn on his phone as the children are walking through the room.
This mother had every indication that Jerry A. is a severe threat of harm to
any child; should not ever be around any child; should certainly not ever be
left alone with a child, and yet it happened. The mother knew after it
happened, and testimony was that she told Estrella, that if it happens again,
she should just kick the wall or bite him.
48. [Mother] has woefully failed in her responsibility to protect her child, and
I don’t see how you can watch this forensic interview and not know that.
49. As stated previously, FSW Chapman testified that at the beginning of this
case, [Mother] did not believe that her child was sexually abused and even
today, she doesn’t seem sure that her child was sexually abused by her father.
On appeal, Mother does not dispute that Estrella was the victim of sexual abuse by
Jerry. A. Indeed, her brief characterizes her testimony as “acknowledge[ing] that . . . the
abuse happened[.]”19 Nor does she argue that this sexual abuse does not constitute severe
child abuse as defined by section 37-1-102. Instead, Mother disputes that she knowingly
failed to protect her child from the abuse, relying on her testimony that she never left the
child alone with Jerry A., that she would call the police and DCS if something happened
again, and that she would never allow the children around Jerry A. again.
Respectfully, Mother’s argument is not convincing. Here, the trial court credited the
testimony of Ms. Chapman that Mother had informed her that Jerry A. had been sexually
inappropriate with her in the past and that Ms. Chapman counseled Mother to never allow
Jerry A. around the children. Nothing in Mother’s brief leads this Court to question the trial
court’s determination on this issue. Hutchings v. Jobe, Hastings & Assocs., No. M2010-
01583-COA-R3-CV, 2011 WL 3566972, at *2 (Tenn. Ct. App. Aug. 12, 2011) (“The trial
court is in the best position to resolve factual issues that hinge on credibility and an
appellate court will not re-evaluate a trial court’s assessment of a witness’s credibility
absent clear and convincing evidence to the contrary.” (citation omitted)). But as Mother
has “acknowledged,” Mother did allow the child to be alone with Jerry A. in some manner
because Estrella was abused by him. So Mother was aware of Jerry A.’s propensity toward
sexual abuse, was warned to prohibit contact between Jerry A. and her children, and yet
still allowed her child to become his victim. Mother’s conduct constitutes a knowing failure
to protect a child from severe child abuse. Although only one of Mother’s children appears
to have been victimized, this ground for termination is therefore affirmed as to all three
children in this case. See Tenn. Code Ann. § 36-1-113(g)(4) (creating a ground for
termination when the parent has committed severe child abuse against “any child”).
19
The central proof concerning the abuse consisted of a videotaped forensic interview with the
child. Mother has not in any manner questioned the veracity or credibility of the child’s statements during
this interview. We therefore do not find it necessary to reproduce any of the child’s statements in this appeal.
We also note that although Jerry A.’s criminal convictions for sexual abuse were presented as evidence,
after noting that Jerry A. pleaded no contest to the charges, the trial court admitted the convictions only for
purposes of establishing Jerry A.’s current whereabouts.
-9-
2. Abandonment by Failure to Support
DCS next argues that the trial court correctly terminated Mother’s rights on the
ground of abandonment for failure to support. See Tenn. Code Ann. § 36-1-113(g)(1)
(providing that abandonment as defined by Tenn. Code Ann. § 36-1-102 is a ground for
termination). Under this provision, a ground for termination exists when
For a period of four (4) consecutive months immediately preceding the filing
of a proceeding, pleading, petition, or any amended petition to terminate the
parental rights of the parent or parents or the guardian or guardians of the
child who is the subject of the petition for termination of parental rights or
adoption, that the parent or parents or the guardian or guardians either have
failed to visit or have failed to support or have failed to make reasonable
payments toward the support of the child
Tenn. Code Ann. § 36-1-102(1)(A)(i). According to the statute, failure to support means
the failure, for a period of four (4) consecutive months, to provide monetary
support or the failure to provide more than token payments toward the
support of the child. That the parent had only the means or ability to make
small payments is not a defense to failure to support if no payments were
made during the relevant four-month period[.]
Tenn. Code Ann. § 36-1-102(1)(D); see also Tenn. Code Ann. § 36-1-102(1)(B) (“‘[T]oken
support’ means that the support, under the circumstances of the individual case, is
insignificant given the parent’s means[.]”). As noted above, the statute considers the
parent’s payment of support in the four months preceding the filing of the termination
petition “or any amended petition.” Tenn. Code Ann. § 36-1-102(1)(A)(i). Moreover, to
the extent that lack of willfulness is properly raised as an issue, the burden is on the parent
to show that the failure to support was not willful. See Tenn. Code Ann. § 36-1-102(1)(A)(l)
(“For purposes of this subdivision (1), it shall be a defense to abandonment for failure to
visit or failure to support that a parent or guardian’s failure to visit or support was not
willful. The parent or guardian shall bear the burden of proof that the failure to visit or
support was not willful. Such defense must be established by a preponderance of evidence.
The absence of willfulness is an affirmative defense pursuant to Rule 8.03 of the Tennessee
Rules of Civil Procedure[.]”).
In this case, the trial court’s final order considers the time period prior to the filing
of the amended petition. As such, both DCS and Mother agree that the four-month period
prior to the filing of the amended petition is the relevant time frame for purposes of this
ground. This time period spans from April 23, 2019, to August 22, 2019, the day before
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the amended petition was filed.20
In recent cases, however, this Court has held that we should consider the period of
time prior to the filing of the original petition, unless the amended petition constitutes a
“‘separate and distinct’ petition from the original[.]” In Re Elijah F., No. M2022-00191-
COA-R3-PT, 2022 WL 16859543, at 8 (Tenn. Ct. App. Nov. 10, 2022) (quoting In re
Braelyn S., No. E2020-00043-COA-R3-PT, 2020 WL 4200088, at *5 (Tenn. Ct. App. July
22, 2020)); see also In re Chase L., No. M2017-02362-COA-R3-PT, 2018 WL 3203109,
at *9 (Tenn. Ct. App. June 29, 2018). Although the amended petition did alter the
allegations concerning abandonment, it is something of a stretch to suggest that these
alterations rendered the amended petition separate and distinct from its predecessor for
purposes of this ground.
Still, in none of the cases cited above is there any indication that the parties agreed
to utilize the four-month period preceding the filing of an amended petition. In this case,
however, both DCS and Mother have chosen to utilize the amended petition for purposes
of determining this ground. For DCS, this choice means little, as it presented evidence that
Mother did not pay support during either the four-month period prior to the filing of the
original petition or the four-month period prior to the filing of the amended petition.21 But
Mother’s efforts to defeat this ground—by showing a lack of willfulness—are focused
wholly on the four-month period preceding the filing of the amended petition.22 Indeed,
Mother does not point to, nor does our review of the record reveal, any evidence tending
to show a lack of willfulness that was presented as to the four-month period preceding the
filing of the original petition. Thus, we conclude that, in fairness to Mother and to aid in
the expeditious resolution of this appeal, we will consider the evidence she presented on
lack of willfulness between April 23, 2019, to August 22, 2019. Cf. State v. Bristol, No.
M2019-00531-SC-R11-CD, 2022 WL 5295777, at *3–7 (Tenn. Oct. 7, 2022) (holding that
intermediate appellate courts should generally not consider issues that were not raised and
briefed by the parties; holding that when such issues must be addressed, the court should
not review the issue until after the parties have notice and an opportunity to respond); c.f.
20
Although the trial court was a day off in its findings of fact as to the relevant time frame, such an
error is harmless if “the trial court made sufficient findings of fact that encompassed the correct
determinative period.” In re J’Khari F., No. M2018-00708-COA-R3-PT, 2019 WL 411538, at *9 (Tenn.
Ct. App. Jan. 31, 2019); see also In re Porcalyn N., No. E2020-01501-COA-R3-PT, 2021 WL 2026700,
at *5 (Tenn. Ct. App. May 21, 2021).
21
The record indicates that Mother did allow support to be deducted from her pay just a few days
following the filing of the amended termination petition, in paystub dated August 27, 2019. However,
Tennessee Code Annotated section 36-1-102(1)(F) provides that “[a]bandonment may not be repented of
by resuming visitation or support subsequent to the filing of any petition seeking to terminate parental or
guardianship rights or seeking the adoption of a child[.]”
22
DCS makes a perfunctory argument that willfulness may have been waived by Mother, but
concedes that it may have been tried by consent. We conclude that this issue was tried by consent in the
same manner as In re Serenity S., No. E2019-00277-COA-R3-PT, 2020 WL 522439, at *7 (Tenn. Ct. App.
Jan. 31, 2020).
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In re Josiah T., No. E2019-00043-COA-R3-PT, 2019 WL 4862197, at *4 (Tenn. Ct. App.
Oct. 2, 2019) (noting “the importance that the parental termination statutes place
on expeditious resolution of these matters”) (citing Tenn. Code Ann. § 36-1-124(c) (“It is
the intent of the general assembly that the permanency of the placement of a child who is
the subject of a termination of parental rights proceeding or an adoption proceeding not be
delayed any longer than is absolutely necessary . . . .”)).
Unfortunately for Mother, even utilizing her chosen time period, we conclude that
she failed to prove that her lack of support during this time was not willful. To be sure,
Mother testified that she may have been pregnant during this period and therefore sick and
unable to work. But Mother also submitted pay stubs demonstrating that she was employed
during at least parts of this four-month period. The two paychecks that Mother submitted
that show pay received between April 23, 2019, to August 22, 2019, however, do not
indicate that any support was being deducted from Mother’s pay. No other evidence was
presented to show that any support payments were made during this time frame. Given that
no payments were made, it is no defense that Mother’s sporadic employment may have
rendered her capable of only paying smalls amounts of support or of only paying during a
portion of her chosen four-month period. See Tenn. Code Ann. § 36-1-102(1)(D) (“That
the parent had only the means or ability to make small payments is not a defense to failure
to support if no payments were made during the relevant four-month period[.]”). And given
that the evidence indicates that Mother was capable of employment during at least a portion
of her chosen four-month period, we cannot conclude that the evidence preponderates
against the trial court’s finding that Mother failed to show a lack of willfulness in her non-
payment of support during this time. Thus, regardless of the four-month period at issue,
DCS presented clear and convincing evidence that Mother failed to support the children as
required to prove this ground for termination. This ground is therefore affirmed.
3. Abandonment by Failure to Establish a Suitable Home
Abandonment may also be shown under the following circumstances:
(a) The child has been removed from the home or the physical or legal
custody of a parent or parents or guardian or guardians by a court order at
any stage of proceedings in which a petition has been filed in the juvenile
court alleging that a child is a dependent and neglected child, and the child
was placed in the custody of the department or a licensed child-placing
agency;
(b) The juvenile court found, or the court where the termination of parental
rights petition is filed finds, that the department or a licensed child-placing
agency made reasonable efforts to prevent removal of the child or that the
circumstances of the child’s situation prevented reasonable efforts from
being made prior to the child’s removal; and
(c) For a period of four (4) months following the physical removal, the
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department or agency made reasonable efforts to assist the parent or parents
or the guardian or guardians to establish a suitable home for the child, but
that the parent or parents or the guardian or guardians have not made
reciprocal reasonable efforts to provide a suitable home and have
demonstrated a lack of concern for the child to such a degree that it appears
unlikely that they will be able to provide a suitable home for the child at an
early date. The efforts of the department or agency to assist a parent or
guardian in establishing a suitable home for the child shall be found to be
reasonable if such efforts equal or exceed the efforts of the parent or guardian
toward the same goal, when the parent or guardian is aware that the child is
in the custody of the department[.]
Tenn. Code Ann. § 36-1-102(1)(A)(l)(ii).
Mother argues that the trial court erred in finding sufficient evidence of this ground
for termination, contending that DCS did not detail the reasonable efforts it took during the
relevant time frame to help her secure housing, that DCS failed to complete a walk-through
of her home immediately following the abuse to confirm that Jerry A. did not live there,
and that she had provided DCS with various lease agreements. Respectfully, we disagree.
First, we agree with the trial court that DCS made reasonable efforts in this case.
Here, the evidence showed that DCS provided a multitude of services to Mother not only
in the four months following the removal of the children, but for the life of this case. See In
re Jakob O., No. M2016-00391-COA-R3-PT, 2016 WL 7243674, at *13 (Tenn. Ct. App.
Dec. 15, 2016) (“As long as the proof relates to ‘a period of four (4) months following the
removal,’ Tenn. Code Ann. § 36-1-102(1)(A)(ii), the ground may be established. The
statute does not limit the court’s inquiry to a period of four months immediately following
the removal.”). These efforts include creating permanency plans, explaining to Mother the
Criteria for Termination of Parental Rights, providing random drug screenings to Mother,
facilitating therapeutic visitation, and doing home visits, as well as setting up classes and
assessments for Mother on multiple occasions. Although Mother certainly did complete
some services, including assessments, intensive outpatient treatment, and some drug
screenings, given that she also missed many drug screens, did not complete a second
assessment following missed or failed drug screens, had not provided DCS with proof of a
stable home or income, and had not yet completed non-offender sexual abuse classes by
the time of trial, we cannot conclude that her efforts exceeded that of DCS.
We further conclude that Mother had yet to establish a suitable home for the children
in the three years following the removal. During this time, Mother has had at least three
residences. First, Mother lived in the home the children were removed from, which
belonged to Mother’s sister. Mother claimed that this home was safe because she had
forced Jerry A. to move out following the removal of the children. But the proof shows that
when DCS told Mother to not allow Jerry A. to live in the house prior to the abuse, Mother
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did nothing, claiming that she had no right to ask him to move because it was not her house.
Then, when Estrella told Mother about the abuse, Mother again did nothing, telling the
child to kick the wall if it happened again. But after the child was removed by DCS, Mother
claimed that she did have the power to remove Jerry A. from the house and that she had
finally exercised that power. Mother did not, however, remain in this home for the entirety
of the custodial episode.
Around July 2019, Mother next provided DCS with a lease for a home that she
shared with a boyfriend. DCS conducted a home study of this home but found that the
children could not live there because of the boyfriend’s DCS case history and substance
abuse. Indeed, Mother admitted that she had five boyfriends over the past five years, most
of whom had drug issues; two of these boyfriends, Mother allowed to move in with her and
her children. Mother admitted that she waits until after she is in a relationship to learn about
her boyfriend’s drug issues or criminal tendencies.23 Finally, at trial, Mother testified that
she had entered into another lease for a home that she had just moved into. But because
DCS was never provided with this information prior to trial, it could perform no home
study. As such, Mother’s effort to obtain housing on the eve of trial was largely too little,
too late. In re L.J., No. E2014-02042-COA-R3-PT, 2015 WL 5121111, at *7 (Tenn. Ct.
App., filed Aug. 31, 2015) (holding that mother’s ability to obtain housing two weeks
before the final trial date was “too little, too late” and did not demonstrate mother’s ability
to provide a suitable home “at an early date”).
But even if Mother’s physical home was safe for the children, that is not all that is
required to establish a suitable home. Instead, the home must be safe from drug use and the
risk of abuse. In re Jamarcus K., No. M2021-01171-COA-R3-PT, 2022 WL 3755383, at
*8 (Tenn. Ct. App. Aug. 30, 2022), perm. appeal denied (Tenn. Sept. 27, 2022) (quoting
In re Hannah H., No. E2013-01211-COA-R3-PT, 2014 WL 2587397, at *9 (Tenn. Ct.
App. June 10, 2014). Mother met neither of these requirements. For one, Mother admitted
that she failed a drug test on the eve of trial. While Mother claimed that the positive result
stemmed from the consumption of legal Delta 8 gummy candy, Mother provided no proof
to establish that the positive result was due to legal consumption. Moreover, even if we
believe Mother, her decision to consume such items in the weeks before the termination
trial shows poor judgment on her part. First, it is unclear if Mother took these drugs while
caring for her other children. Additionally, Mother’s choice put her in the position of
having to explain a positive drug test on the eve of a trial determining the permanent
cessation of her relationship with three of her children. So even if the consumption of
Delta 8 gummies was legal, it was certainly unwise under the circumstances.
23
Specifically, the testimony was as follows:
Q. Wouldn’t it be fair to say that you do not take your children into consideration
when you pick who you’re going to live with?
A. Well, I don't know they’re that way until after I get in a relationship with them.
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Additionally, Mother has failed to take the steps necessary to give this Court
confidence that Mother will protect the children from future abuse. As detailed above,
Mother ignored warnings about Jerry A., which ultimately resulted in her daughter being
victimized. Mother has refused to recognize her culpability for the abuse and has refused
to take the steps DCS requested to ensure that such abuse never happens again, namely
completing the non-offender sexual abuse training and keeping inappropriate men away
from her children. Although Mother lays the blame for her non-completion of the non-
offender classes with DCS, the proof shows that DCS put Mother in touch with at least two
appropriate providers for this training. And despite nearly three years to complete these
classes, Mother claimed that her work schedule prevented her from taking the classes. But
then Mother was miraculously able to find the time to take the classes immediately prior
to trial.24 These facts indicate that Mother did not make the classes a priority until it was
too late. See In re L.J., 2015 WL 5121111, at *7. And given the multiple instances of
sexual abuse that have occurred and Mother’s history of not taking warnings about sexual
abuse seriously, without these classes, it does not appear that Mother has the knowledge
and skills necessary to prevent sexual abuse from occurring in the future. Under these
circumstances, we must conclude that Mother has not established a suitable home and has
demonstrated such a lack of concern in doing so that it is unlikely that she will be able to
provide a suitable home at an early date. This ground is therefore affirmed.
4. Persistence of Conditions
DCS next relies on the ground of persistence of conditions, pursuant to Tennessee
Code Annotated section 36-1-113(g)(3):
(A) The child has been removed from the home or the physical or legal
custody of a parent or guardian for a period of six (6) months by a court
order entered at any stage of proceedings in which a petition has been
filed in the juvenile court alleging that a child is a dependent and
neglected child, and:
(i) The conditions that led to the child’s removal still persist,
preventing the child’s safe return to the care of the parent or guardian,
or other conditions exist that, in all reasonable probability, would
cause the child to be subjected to further abuse or neglect, preventing
the child’s safe return to the care of the parent or guardian;
(ii) There is little likelihood that these conditions will be remedied at
an early date so that the child can be safely returned to the parent or
guardian in the near future; and
(iii) The continuation of the parent or guardian and child relationship
24
The testimony discusses a single class being taken the day before trial. It is unclear if Mother had
attended more than this single class.
- 15 -
greatly diminishes the child’s chances of early integration into a safe,
stable, and permanent home;
(B) The six (6) months must accrue on or before the first date the termination
of parental rights petition is set to be heard[.]
Here, there is no question that the children were removed from Mother’s custody in
the course of a dependency and neglect proceeding and had been removed for a period of
longer than six months. Thus, the dispositive questions are whether conditions persist that
prevent the safe return of the children, whether the conditions will likely be remedied at an
early date, and whether the continued relationship prevents early integration of the children
into a safe, stable, permanent home. As we have previously explained,
A parent’s continued inability to provide fundamental care to a child, even if
not willful, . . . constitutes a condition which prevents the safe return of the
child to the parent’s care.” In re A.R., No. W2008-00558-COA-R3-PT, 2008
WL 4613576, at *20 (Tenn. Ct. App. Oct. 13, 2008) (citing In re T.S. &
M.S., No. M1999-01286-COA-R3-CV, 2000 WL 964775, at *7 (Tenn. Ct.
App. July 13, 2000)). The failure to remedy the conditions which led to the
removal need not be willful. In re T.S. & M.S., 2000 WL 964775, at *6
(citing State Dep’t of Human Servs. v. Smith, 785 S.W.2d 336, 338 (Tenn.
1990)). “Where . . . efforts to provide help to improve the parenting ability,
offered over a long period of time, have proved ineffective, the conclusion []
that there is little likelihood of such improvement as would allow the safe
return of the child to the parent in the near future is justified.” Id. The
purpose behind the “persistence of conditions” ground for terminating
parental rights is “to prevent the child’s lingering in the uncertain status of
foster child if a parent cannot within a reasonable time demonstrate an ability
to provide a safe and caring environment for the child.” In re A.R., No.
W2008-00558-COA-R3-PT, 2008 WL 4613576, at *20 (Tenn. Ct. App. Oct.
13, 2008) (quoting In re D.C.C., No. M2007-01094-COA-R3-PT, 2008 WL
588535, at *9 (Tenn. Ct. App. Mar. 3, 2008)).
In re Navada N., 498 S.W.3d 579, 605–06 (Tenn. Ct. App. 2016).
With regard to this ground, the trial court found that the following conditions still
existed: (1) lack of stability; (2) lack of appropriate parenting skills; (3) lack of sufficient
housing and income; (4) Mother’s continued denial that Estrella was the victim of sexual
abuse; and (5) Mother’s continued mental health issues.
Although Mother now appears to concede that Estrella was the victim of sexual
assault, we agree with the trial court’s other conclusions. Importantly, while Mother may
now admit that the child was abused, she continues to deny or minimize her role in the
child’s victimization. According to the facts found by the trial court and supported by the
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record, Mother had previously been warned not to allow Jerry A. access to her children in
order to prevent sexual abuse. Mother apparently ignored that warning. Given the repeated
victimization of Mother’s children, Mother’s continued minimizations of that abuse, and
her failure to complete the classes directly relevant to the sexual abuse, we unfortunately
have little faith that Mother will now protect her children from abuse. This is an issue that
prevents Mother from safely parenting her children.
Mother’s lack of stability is also persistent. Mother’s testimony shows that she often
involves herself with criminals. Her housing is not stable, as illustrated by the fact that she
moved frequently and sometimes would not allow DCS to perform home studies. Indeed,
Mother moved to a new home just a week before trial, leaving DCS with no opportunity to
perform a home study. Mother’s children cannot be returned to her home without proven
stable housing to come home to.
Given that approximately three years have elapsed from the time that the children
were removed, we also conclude that these conditions are unlikely to be remedied at an
early date. Moreover, the continued legal relationship between Mother and the children
prevents them from being adopted, which is a possibility for these children. As such, the
trial court did not err in finding clear and convincing evidence of persistence of conditions.
5. Willingness and Ability to Assume Custody or Financial Responsibility
DCS next contends that Mother failed to manifest a willingness and ability, whether
by act or omission, to personally assume legal and physical custody or financial
responsibility of the child and that placing the child in her legal and physical custody would
create a risk of substantial harm to the child’s physical or psychological welfare. Tenn.
Code Ann. § 36-1-113(g)(14). Essentially, the statutory ground has two distinct elements
which must be proven by clear and convincing evidence:
First, DCS must prove that [the parent] failed to manifest “an ability and
willingness to personally assume legal and physical custody or financial
responsibility of the child.” DCS must then prove that placing the child[] in
[the parent’s] “legal and physical custody would pose a risk of substantial
harm to the physical or psychological welfare of the child.”
In re Maya R., No. E2017-01634-COA-R3-PT, 2018 WL 1629930, at *7 (Tenn. Ct. App.
Apr. 4, 2018) (quoting Tenn. Code Ann. § 36-1-113(g)(14)) (some alterations of the
original text removed). As for the first element, the petitioner must “prove[ ] by clear and
convincing proof that a parent or guardian has failed to manifest either [an] ability or
willingness” to parent the child. In re Neveah M., 614 S.W.3d 659, 677 (Tenn. 2020).
The trial court found that this ground was met by Mother’s failure to pay child
support, failure to complete services required by DCS, and failure to demonstrate that she
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could financially support the children. The trial court further found that placing the children
in Mother’s custody would pose a risk of substantial harm because Mother “failed to
protect her child from severe sex abuse and she has proven by her testimony that there is
great likelihood that she would fail to protect her children from further abuse.”
On appeal, Mother argues that she is both willing and able to take physical custody
and financial responsibility of the children, citing her substantial compliance with the
permanency plans by completing assessments, an intensive outpatient program, and drug
screens. She also argues that her failure to complete the non-offending sexual abuse
parenting class was not her fault, that she removed Jerry A. from her home and promised
he would not come back, and that she understood that if something happened again, she
would need to call the police and DCS. In contrast, DCS argues that Mother’s history of
housing instability, relationships with drug users, failure to cooperate with DCS by
completing all the requirements of her permanency plans or to complete the non-offender
training demonstrate that she is neither willing nor able to take custody of the children.
DCS also argues that Mother’s failure to pay child support shows that she is unwilling and
unable to take financial responsibility for the children.
We agree with DCS and the trial court. Here, Mother only began paying child
support following the filing of the amended termination petition, despite working
intermittently throughout the custodial period.25 At trial, Mother appeared to place the
blame for the lack of support on the fact that the support was not always deducted from her
pay depending on where she was working. It was Mother’s responsibility, however, to
ensure that her children received support when she was receiving income, not her
employer’s responsibility. As such, Mother’s failure to remit support for the children
independent of payroll deductions supports a finding that she was unwilling to take the
steps necessary to financially support her children in DCS custody.
Mother was also unwilling to take the steps necessary to assume custody of the
children. Here, a significant barrier to reunification is the risk of abuse that could occur in
Mother’s care. As previously discussed, it appears that Mother only took her responsibility
to take the non-offender sexual abuse class seriously on the eve of trial. This class is a
necessity given Mother’s role in exposing Estrella to sexual abuse and her inability to
accept her role in that abuse. So Mother’s failure to take the steps necessary to ensure that
Estrella and the other children are not at risk of future sexual abuse indicates that she is
unwilling to do the work necessary to have the children returned to her care.
We also agree that placing the children in Mother’s legal and physical custody
25
The first paystub submitted by Mother to indicate that child support was being deducted from
Mother’s pay is dated August 27, 2019, a few days following the filing of the amended petition. An August
2020 paystub from Mother’s current employment, however, showed that Mother had paid less than $100.00
in total child support for the year-to-date.
- 18 -
would create a risk of substantial harm to their welfare. See Tenn. Code Ann. § 36-1-
113(g)(14). With regard to substantial harm, this Court stated that:
The courts have not undertaken to define the circumstances that pose a risk
of substantial harm to a child. These circumstances are not amenable to
precise definition because of the variability of human conduct. However, the
use of the modifier “substantial” indicates two things. First, it connotes a real
hazard or danger that is not minor, trivial, or insignificant. Second, it
indicates that the harm must be more than a theoretical possibility. While the
harm need not be inevitable, it must be sufficiently probable to prompt a
reasonable person to believe that the harm will occur more likely than not.
In re Maya R., 2018 WL 1629930, at *7 (quoting Ray v. Ray, 83 S.W.3d 726, 732 (Tenn.
Ct. App. 2001) (footnotes omitted)). The trial court’s concern that Mother would not
protect the children from future abuse is well supported by the record. Here, Mother
continues to deny or minimize her fault in her daughter’s sexual abuse. She has not
completed the non-offender sexual abuse class even after three years. And while she
promises that she would not allow Jerry A. around her children, she made the same promise
to Ms. Chapman before Estrella was abused. Under these circumstances, we agree that
there is a likelihood that Mother would once again fail to protect her children from abuse
if they were returned to her. This ground is therefore affirmed.
B. Best Interest
Because we have determined that at least one statutory ground has been proven for
terminating Mother’s parental rights, we must now decide if DCS has proven, by clear and
convincing evidence, that termination of Mother’s rights is in the child’s best interests.
Tenn. Code Ann. § 36-1-113(c)(2); White v. Moody, 171 S.W.3d 187, 192 (Tenn. Ct. App.
1994). If “the interests of the parent and the child conflict, courts are to resolve the conflict
in favor of the rights and best interest of the child.” In re Navada N., 498 S.W.3d at 607.
According to the version of the statute at issue when this case was filed and decided,
the trial court was directed to consider the following best interest factors:
(1) Whether the parent or guardian has made such an adjustment of
circumstance, conduct, or conditions as to make it safe and in the child’s best
interest to be in the home of the parent or guardian;
(2) Whether the parent or guardian has failed to effect a lasting adjustment
after reasonable efforts by available social services agencies for such
duration of time that lasting adjustment does not reasonably appear possible;
(3) Whether the parent or guardian has maintained regular visitation or other
contact with the child;
(4) Whether a meaningful relationship has otherwise been established
- 19 -
between the parent or guardian and the child;
(5) The effect a change of caretakers and physical environment is likely to
have on the child’s emotional, psychological and medical condition;
(6) Whether the parent or guardian, or other person residing with the parent
or guardian, has shown brutality, physical, sexual, emotional or
psychological abuse, or neglect toward the child, or another child or adult in
the family or household;
(7) Whether the physical environment of the parent’s or guardian’s home is
healthy and safe, whether there is criminal activity in the home, or whether
there is such use of alcohol, controlled substances or controlled substance
analogues as may render the parent or guardian consistently unable to care
for the child in a safe and stable manner;
(8) Whether the parent’s or guardian’s mental and/or emotional status would
be detrimental to the child or prevent the parent or guardian from effectively
providing safe and stable care and supervision for the child; or
(9) Whether the parent or guardian has paid child support consistent with the
child support guidelines promulgated by the department pursuant to § 36-
5-101.
Tenn. Code Ann. § 36-1-113(i) (2020). “This list is not exhaustive, and the statute does not
require a trial court to find the existence of each enumerated factor before it may conclude
that terminating a parent’s rights is in the best interest of a child.” In re M.A.R., 183 S.W.3d
652, 667 (Tenn. Ct. App. 2005) (citations omitted).
The trial court in this case did not specifically tie any of its best interest findings to
the above factors. Mother argues, without citation to authority, that this shortcoming
renders the trial court’s order “deficient.” We agree that the trial court in a termination of
parental rights case must “enter an order that makes specific findings of fact and
conclusions of law[.]” Tenn. Code Ann. § 36-1-113(k).26 Here, the trial court’s order indeed
contains findings as to the children’s best interests. Moreover, while the trial court does
not tie its findings to the relevant factors, a review of the trial court’s order reveals that it
did consider the majority of the best interest factors. Although we agree that the best
practice is for the trial court to consider each and every factor explicitly, we conclude that
the trial court’s order here is sufficient to meet the requirements of section 36-1-113(k) and
to facilitate meaningful appellate review. So we will consider the children’s best interests
despite the trial court’s somewhat deficient best interest findings.
26
The current version of this statute provides in addition to the above quoted portion of the statute
that “[a]ll factors considered by the court to be applicable to a particular case must be identified and
supported by specific findings of fact in the court’s written order.” Tenn. Code Ann. § 36-1-113(i)(3)
(2022); see also 2021 Tenn. Laws Pub. Ch. 190 (S.B. 205), eff. April 22, 2021 (enacting this amendment).
There is no assertion that this amended version of the statute is applicable in this case. The best interest
factors were also amended to include additional factors for consideration. Again, we apply the statute that
was in effect at the time the petitions at issue were filed.
- 20 -
As for the first two factors, the trial court found that Mother “failed to demonstrate
continuity and stability in meeting the children’s basic material, educational, housing and
safety needs.” The trial court further found that Mother “failed to demonstrate a lasting
adjustment of circumstances, conduct, or conditions to make it safe and beneficial for the
child to be in the home[.]” We agree. Here, despite a multitude of services provided to
Mother, she failed to show any stability in her housing situation or any recognition for her
role in Estrella’s abuse, and she continued to engage in poor decision-making that was a
barrier to reunification even in the weeks before trial. Under these circumstances, we
conclude that the trial court did not err in finding that Mother had not made a lasting
adjustment of circumstances, despite reasonable efforts by DCS. See Tenn. Code Ann. §
36-1-113(i)(1) & (2).
The trial court did not make any findings as to whether Mother had maintained
visitation with the children or whether there was a meaningful bond between Mother and
the children. See Tenn. Code Ann. § 36-1-113(i)(3) & (4). The trial court did specifically
find, however, that a change in caretakers would have a detrimental effect on the children.
See Tenn. Code Ann. § 36-1-113(i)(5). The record shows that Mother did continue to
engage in visitation with the children after removal. So this factor favors Mother. The
evidence as to Mother’s meaningful relationship with the children was less clear. No
witness was specifically asked if the children had a meaningful relationship with Mother.
Ms. Chapman did testify, however, that the children do not “see [Mother] as their Mother”;
instead, they view their foster mother in that role and call their foster mother “Mom.”27
Moreover, the testimony indicates that visitation with Mother was not productive and could
never progress beyond supervised therapeutic visitation. And because of this bond and the
care that the children have been receiving in the foster home, there was little dispute that
changing caretakers would be negative for the children. So factors (4) and (5) favor
termination in this case.
Factor (6), concerning abuse, heavily favors termination in this case. See Tenn.
Code Ann. § 36-1-113(i)(6). Here, the evidence shows that Mother allowed Estrella to
become victimized by Jerry A., even after being warned against that exact eventuality. And
this was not the first time that Mother allowed a man in her life who victimized the children.
Hopefully, however, if Mother’s rights are terminated, it will be the last time.
The trial court also found that the environment of Mother’s home is not safe. See
Tenn. Code Ann. § 36-1-113(i)(7). As previously discussed, we agree that Mother has not
shown that her home is stable and free from drug use, and does not pose a risk of future
criminal activity or child abuse. This factor therefore favors termination.
The trial court made no specific findings as to factor (8), concerning whether
27
In contrast, the children sometimes call Mother “Momma Dixie.”
- 21 -
Mother’s mental and emotional status would be detrimental to the children. See Tenn. Code
Ann. § 36-1-113(i)(8). The trial court did note, however, that while the children receive
therapy in their foster home, Mother’s denial of the sexual abuse indicates that she would
not continue the counseling for the children. We tend to agree. In this case, Mother’s
testimony was inconsistent about the abuse that she suffered at the hands of Jerry A.
Perhaps because Mother is unable to face the abuse that she herself suffered, she was
unwilling to protect her child from similar abuse. To the extent that Mother was truthful
that she is currently seeking counseling, we commend her for her decision to participate in
that mental health treatment. Unfortunately, without more indication that Mother has made
progress in her treatment and in her ability recognize the dangerous situations that she has
placed her children in, we continue to have doubts that Mother will treat Estrella’s sexual
abuse with the seriousness that it deserves. This factor therefore favors termination.
Finally, the trial court found that Mother had not paid child support consistent with
the guidelines. See Tenn. Code Ann. § 36-1-113(i)(9). While it is true that Mother paid
support following the filing of the termination petition, she did not pay support consistently
or ever at the amount that was requested by DCS. As such, this factor indeed favors
termination.
In addition to the enumerated factors, the trial court also made the following
findings in support of its best interest determination:
The children are in a preadoptive foster home that is very loving. The
children are bonded with them and consider them their parents. At the time
when the mother is out getting arrested for drug paraphernalia in Stewart
County and the father serving his long jail sentence, the foster parents have
been [] taking care of these children. The foster home is providing the care
that has ensured, based on the testimony the Court has heard, that they are
developmentally on track, they are academically on track, and that they are
receiving counseling for some[thing] that the mother has consistently denied
that even happened, the sexual abuse perpetrated upon them by Jerry A[.]
* * *
The foster parents are well situated, they have provided care, financial and
emotion support to the child, and love her as if they [] were their own
biological children. If we were to change custody arrangement and place the
children with their biological parents, the Court finds that would pose a
substantial risk of harm to both the physical and emotional well being of the
minor children.
See Tenn. Code Ann. § 36-1-113(i) (stating that court “is not limited to” considering the
enumerated factors).
- 22 -
Based on the totality of the circumstances, we agree with the trial court that
termination is in the best interests of the children at issue in this case. Here, Mother
knowingly allowed one of her children to be abused under her care. When she was told
about this abuse, she did nothing but tell her daughter how to respond if the abuse happened
again. This suggests not only that Mother was not truthful when she stated she first believed
that the irritation that Estrella was experiencing was due to hygiene issues, but also that she
foresaw the horrifying possibility that such an incident could occur again in the future. And
then when the children were removed from her care, she still denied her culpability for the
abuse and delayed taking the classes that were directly related to remedying the conditions
that led to the abuse. Moreover, this was not the first time that Mother’s children had been
victimized by a man she allowed around her children, nor was it the last time that she
brought an inappropriate man into her children’s orbit. While all parental conduct may not
be irredeemable, White, 171 S.W.3d at 193, some conduct certainly comes close. And even
though Mother did participate in visitation, the visitation never progressed beyond the
limited scope that was permitted at the outset of the case.
Finally, as the trial court stressed, the children are doing well in a home that provides
them with the care and stability that they need. They view their foster parents as their
parents and would be harmed if returned to Mother’s custody. We know that Mother has
other children in her home, whom she is apparently parenting with some success.28 We
hope that Mother’s efforts continue with regard to these children and that she protects them
as she failed to do her older children. But we determine a child’s best interest from the
child’s rather than the parent’s perspective. In re Marr, 194 S.W.3d 490, 499 (Tenn. Ct.
App. 2005). From the children’s perspective, they have a loving, safe home that has a good
possibility of being forever. Their best interests are therefore served by remaining with this
family. The trial court’s finding that termination of Mother’s parental rights is in the
children’s best interest is affirmed.
V. CONCLUSION
The judgment of the Montgomery County Juvenile Court is affirmed, and this cause
is remanded for further proceedings consistent with this Opinion. Costs of this appeal are
taxed to Appellant, Dixie A., for all of which execution may issue if necessary.
S/ J. Steven Stafford
J. STEVEN STAFFORD, JUDGE
28
Ms. Huggins testified that “[t]here have been multiple referrals called in for the other two
children[.]” DCS had not taken action to remove the younger children, however, as Ms. Chapman agreed
that the children are “safe enough and well cared for enough that [DCS doesn’t] see a need to remove
them[.]”
- 23 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488684/ | Cruz v City of New York (2022 NY Slip Op 06546)
Cruz v City of New York
2022 NY Slip Op 06546
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Index No. 33774/18E Appeal No. 16668 Case No. 2021-03821
[*1]Angel Cruz, Plaintiff-Respondent,
vCity of New York et al., Defendants-Respondents.
City of New York et al., Third-Party Plaintiffs-Respondents,
vKomatsu America Corp., et al., Third-Party Defendants, Miller UK Ltd et al., Third-Party Defendants-Appellants, HydraForce, Inc., et al., Third-Party Defendants-Respondents. [And Other Third-Party Actions]
Littleton Park Joyce Ughetta & Kelly LLP, New York (Michael H. Bai of counsel), for appellants.
Pollack, Pollack, Isaac & DeCicco, LLP, New York (Brian J. Isaac of counsel), for Angel Cruz, respondent.
Gerber Ciano Kelly Brady LLP, Garden City (Brendan T. Fitzpatrick of counsel), for City of New York, Port Authority of New York and New Jersey and Delta Air Lines, Inc., respondents.
Gartner + Bloom, P.C., New York (Susan P. Mahon of counsel), for Hydraforce, Inc. and Hydraforce Hydraulic Systems (Changzhou) Co., Ltd., respondents.
Order, Supreme Court, Bronx County (Lucindo Suarez, J.), entered on or about April 13, 2021, which, to the extent appealed from, denied the motion of third-party defendants Miller UK Ltd (Miller UK) and Miller International Ltd. (Miller International; together, Miller parties) to dismiss the third-party complaint as against them for lack of personal jurisdiction, unanimously reversed, on the law, without costs, and the motion granted. The Clerk is directed to enter judgment dismissing the third-party complaint as against the Miller parties.
Plaintiff was injured when, while working on the Terminal D rehabilitation project at LaGuardia Airport, the bucket of an excavator, which was hoisting rebar and bundles, detached or decoupled and fell, striking him. He commenced this action in Bronx County and asserted Labor Law and common-law negligence claims, as well as a strict products liability claim. Defendants, in turn, commenced a third-party action against the Miller parties, among others, alleging, as relevant here, that the Miller parties defectively manufactured the coupler in the excavator that failed, and asserting claims for indemnification and contribution. As relevant here, the Miller parties' co-third-party defendants, HydraForce, Inc. and HydraForce Hydraulic Systems, (Changzhou) Co., Ltd. (together, HydraForce parties), allegedly designed, manufactured, or sold a defective spool valve that was used in the Miller coupler, and which also failed at the time of plaintiff's accident.
The Miller parties' motion to dismiss should have been granted on the basis of lack of personal jurisdiction. As an initial matter, defendants have failed to establish general jurisdiction over the Miller parties. General jurisdiction exists over a corporate entity only in the state(s) in which it is incorporated and has its principal place of business (see Aybar v Aybar, 37 NY3d 274, 289 [2021]; Motorola Credit Corp. v Standard Chartered Bank, 24 NY3d 149, 160 n 4 [2014], citing Daimler AG v Bauman, 571 US 117, 137-138 [2014]). As Miller UK is a United Kingdom company with its principal place of business in the United Kingdom and Miller International is a Gibraltar company with its principal place of business in Gibraltar, there is no general jurisdiction over the Miller parties.
Defendants have also failed to establish specific jurisdiction over the Miller parties pursuant to CPLR 302(a)(1), CPLR 302 (a)(3)(i) or CPLR 302 (a)(3)(ii). Although the Miller parties might have placed the coupler involved in plaintiff's accident into the stream of commerce, and while they tout having a global customer base and business model, the Supreme Court of the United States has made clear that "the 'fortuitous circumstance' that a product sold in another state later makes its way into the forum jurisdiction through no marketing or other effort of [the] defendant," or "'the mere likelihood that a product will find its way into the forum[,]' cannot establish the requisite connection [*2]between [the] defendant and the forum" to support an exercise of specific personal jurisdiction (Williams, 33 NY3d at 528-529, quoting World-Wide Volkswagen Corp. v Woodson, 444 US 286, 295, 297 [1980]). As for the Miller parties' retention of New York-based patent lawyers and prolix litigation in Illinois federal court, there is no evidence that plaintiff's accident arose out of these contacts with New York State, or even the United States (see generally D&R Global Selections, S.L. v Bodega Olegario Falcon Pineiro, 29 NY3d 292, 298-299 [2017]). For the same reason, the social media posts on which defendants, plaintiff, and the HydraForce parties rely, all postdate plaintiff's accident. Thus, even if they were to be considered part of a marketing strategy that the Miller parties deployed to market and sell their products in New York State — which, the Miller parties make clear, they were not — they still cannot establish a connection between plaintiff's accident and the Miller parties' presence in the State. In light of our conclusion that defendants have failed to establish personal jurisdiction over the Miller parties pursuant to the CPLR, we do not reach the due process arguments.
Furthermore, defendants, plaintiff and the HydraForce parties are not entitled to jurisdictional discovery from the Miller parties, as they did not make "a sufficient start" to show that "essential jurisdictional facts are not presently known . . . [and] within the exclusive control of the moving party" (Peterson v Spartan Indus., 33 NY2d 463, 466-467 [1974]; see CPLR 3211 [d]). All of the information that defendants claim jurisdictional discovery could reveal to support exercising jurisdiction over the Miller parties either is expressly negated by the affirmations from Miller UK's chief financial officer and the Miller International director, irrelevant to the jurisdictional issues in this case, or not within the Miller parties' exclusive control.
We have considered the remaining arguments and find them unavailing.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488685/ | Courtois v TOMS Capital Mgt. LP (2022 NY Slip Op 06545)
Courtois v TOMS Capital Mgt. LP
2022 NY Slip Op 06545
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 161028/20 Appeal No. 16698 Case No. 2022-01744
[*1]Kevin S. Courtois, Plaintiff-Respondent,
vTOMS Capital Management LP, Defendant-Appellant, Kiwi Los Angeles LLC et al., Defendants.
Dontzin Nagy & Fleissig LLP, New York (David A. Fleissig of counsel), for appellant.
Ancona Associates, Mineola (Vincent J. Ancona of counsel), for respondent.
Order, Supreme Court, New York County (Louis Nock, J.), entered October 27, 2021, which, to the extent appealed from, denied so much of defendant TOMS Capital Management LP's (TOMS) motion to dismiss the third cause of action for unjust enrichment and eighth cause of action for negligence against it based on the theory of respondeat superior, unanimously reversed, on the law, with costs, the motion granted as to those causes of action, and the complaint against TOMS dismissed in its entirety. The Clerk is directed to enter judgment accordingly.
Plaintiff alleges that a TOMS employee, defendant Alex Rosner, whom plaintiff met at a private social event, began providing plaintiff with investment advice in or about February 2020. Plaintiff initially made "large trading gains" on his private brokerage account based on the advice, and paid Rosner for the trade gains via Venmo. At some point, Rosner directed plaintiff to communicate with him by means of Signal, an app in which messages are encrypted and erased after six hours.
In or about June 2020, Rosner allegedly began an affair with plaintiff's wife. They then allegedly conspired to develop a scheme to deplete plaintiff's assets. In furtherance of this scheme, Rosner began to advise plaintiff to invest in high-risk stock options which Rosner knew were not suitable for plaintiff and would not be profitable for him. Plaintiff followed the advice and sustained trading losses in excess of $300,000. Plaintiff alleges that this investment advice was part of a scheme by TOMS and Rosner to "better position the stock options," in which TOMS was also allegedly participating, to benefit TOMS and Rosner and their clients.
The motion court incorrectly determined that the allegations in the complaint sufficiently supported claims for unjust enrichment and negligence against TOMS under a theory of respondeat superior. Even construed in the light most favorable to plaintiff (see Rovello v Orofino Realty Co., 40 NY2d 633, 634 [1976]), the alleged acts by Rosner clearly were not made within the scope of his employment or in furtherance of TOMS's business, but rather, for his own personal gain (see Rivera v State of New York, 34 NY3d 383, 389 [2019]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488678/ | Hartree Partners, LP v Esmark Steel Group-Midwest, LLC (2022 NY Slip Op 06572)
Hartree Partners, LP v Esmark Steel Group-Midwest, LLC
2022 NY Slip Op 06572
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Index No. 652140/19 Appeal No. 16669 Case No. 2022-00133
[*1]Hartree Partners, LP, Plaintiff-Appellant-Respondent,
vEsmark Steel Group-Midwest, LLC, Defendant-Respondent-Appellant.
Stroock & Stroock & Lavan LLP, New York (Melvin A. Brosterman of counsel), for appellant-respondent.
McGuire Woods, New York (Gerald J. Stubenhofer, Jr. of the bar of the Commonwealth of Pennsylvania, admitted pro hac vice, of counsel), for respondent-appellant.
Order, Supreme Court, New York County (Barry R. Ostrager, J.), entered January 3, 2022, which denied plaintiff's motion for summary judgment on its breach of contract claim and dismissing defendant's counterclaim for breach of contract, and denied defendant's motion for partial summary judgment declaring that the terms in plaintiff's emailed offers and defendant's later purchase orders constitute the terms of the parties' agreement and that plaintiff's confirmation did not alter those terms, unanimously affirmed, without costs.
In this action concerning a dispute over the terms of a series of three agreements between plaintiff Hartree Partners, LP, a steel trader, and defendant Esmark Steel Group-Midwest, LLC, a steel buyer and distributor, for the purchase of steel through plaintiff for shipment from Vietnam to the Midwestern United States, neither party established its entitlement to summary judgment on its motion. There is a triable issue of fact as to whether the agreements are limited only to plaintiff's price quote and defendant's purchase orders, or whether plaintiff's confirmation, along with the sales contracts incorporating general terms and conditions, constituted the parties' agreement. Whether a price quote is considered an offer is a question of fact dependent on the nature, conduct and circumstances surrounding the transaction (Gerard Lollo & Sons v Stern, 168 AD2d 606, 606 [2d Dept 1990]), and the record does not resolve the issue here. Defendant failed to eliminate all triable issues of fact with respect to whether the price quote was an offer, as generally, price quote-offers include not just a unit price, but also a quantity (cf. Robert Bosch Corp. v ASC Inc., 195 Fed Appx 503, 506 [6th Cir 2006]; Rochester Plumbing Supply Co. v A. Burgart, Inc., 49 AD2d 78, 79-82 [4th Dept 1975]).
Similarly, the record presents a triable issue of fact as to whether defendant accepted the terms of the sales contracts attached to plaintiff's confirmations. No unequivocal evidence supports plaintiff's argument that defendant's silence bound it to plaintiff's general terms and conditions, which materially altered the parties' understanding (see Uniform Commercial Code § 2-207[2][b]; Matter of Albrecht Chemical Co. [Anderson Trading Corp.], 298 NY 437, 440-441 [1949]). Defendant's president's deposition testimony shows that there was a considerable amount of ambiguity as to what terms defendant accepted. Although plaintiff's practice was to email a contract sometime after the parties agreed to a sale, viewed in the light most favorable to defendant, there is a triable issue as to whether defendant regarded plaintiff's general terms and conditions as binding, and there was no history of either party invoking general terms and conditions or the other terms attached to the confirmations during their business relationship.
A triable issue also exists as to whether defendant's attempt to negotiate a lower price based on changed market conditions amounted [*2]to an overt communication of intent to repudiate the agreement. Defendant's CEO disputed plaintiff's characterization that he presented the lower pricing proposal as a take-it-or-leave-it demand that plaintiff lower the price (see Uniform Commercial Code § 2-610, Comment 2; Tenavision Inc. v Neuman, 45 NY2d 145, 150 [1978]) or as an "absolute and unequivocal refusal to perform or a clear indication of the inability" to perform (see e.g. O'Connor v Sleasman, 14 AD3d 986, 988 [3d Dept 2005], lv denied 9 NY3d 806 [2007]; Matter of Express Indus. & Term. Corp. v New York State Dept. of Transp., 252 AD2d 376, 379-380 [1st Dept 1998] revd on other grounds 93 NY2d 584 [1999]).
Supreme Court also correctly denied plaintiff's motion insofar as it sought summary judgment dismissing defendant's counterclaim for breach of contract. Testimony by plaintiff's head of credit raised a triable issue of fact as to whether plaintiff, alarmed by defendant's financial instability and by plaintiff's credit insurer's failure to cover the entire purchase, decided to renege on the parties' agreement by refusing to release the steel deliveries (see Norcon Power Partners v Niagara Mohawk Power Corp., 92 NY2d 458, 463 [1998]).
We have considered the parties remaining contentions and find them unavailing.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488681/ | Ferguson v City of New York (2022 NY Slip Op 06549)
Ferguson v City of New York
2022 NY Slip Op 06549
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 157402/17 Appeal No. 16692 Case No. 2022-00956
[*1]Tanya Ferguson, Plaintiff-Appellant,
vThe City of New York, Defendant-Respondent, Metropolitan Transportation Authority et al., Defendants.
William Schwitzer & Associates, P.C., New York (Travis Wong of counsel), for appellant.
Sylvia O. Hinds-Radix, Corporation Counsel, New York (Benjamin H. Pollak of counsel), for respondent.
Order, Supreme Court, New York County (Lyle E. Frank, J.), entered August 23, 2021, which granted the motion of defendant the City of New York for summary judgment dismissing the complaint as against it, unanimously affirmed, without costs.
Plaintiff alleges that in February 2017, as she was walking on the pedestrian walkway through the overpass at East 108th Street and Park Avenue, she slipped on ice on the walkway and fell. According to plaintiff, while it was cold on the day of the accident it was not raining or snowing. Plaintiff testified that as she took about five steps into the tunnel, she fell on the ice on the walkway that was nearly as wide as the entrance. After the accident, plaintiff noticed water leaking from the roof of the tunnel onto the walls, as well as icicles hanging from the ceiling.
As a threshold matter, the City failed to establish its entitlement to the storm-in-progress defense. The City failed to eliminate all triable issues of fact of whether plaintiff's accident occurred while the storm was still in progress or whether there was a significant lull in the storm that afforded the City a reasonable opportunity to clear the pedestrian walkway (see Rodriguez v Woods, 121 AD3d 474, 476 [1st Dept 2014]; Hoenig v Park Royal Owners, 260 AD2d 250, 251 [1st Dept 1999]).
However, the City established its entitlement to summary judgment by making a prima facie showing that although it is responsible for maintaining the pedestrian walkway, it had no actual notice of the alleged icy condition. The record shows that the City did not receive any complaints about the walkway before the accident. Its witness from the Department of Sanitation testified that it never removed snow or ice from the walkway during ongoing storms, focusing instead on the roads. In addition, plaintiff testified that she never saw the City working in the tunnel before her fall, never complained to the City about the tunnel's condition, and was unaware if anyone else complained about the condition. Plaintiff also testified that she did not see any ice on the pedestrian walkway when she walked through the tunnel, four days before the accident.
In response to the City's prima facie showing, plaintiff failed to raise a triable issue of fact regarding actual or constructive notice. Plaintiff failed to submit any evidence as to when the ice formed on the walkway (see Early v Hilton Hotels Corp., 73 AD3d 559, 561 [1st Dept 2010]; Katz v City of New York, 11 AD3d 391, 392 [1st Dept 2004]), or any evidence of an ongoing and recurring dangerous condition that the City was aware of but routinely left unaddressed (see Irizarry v 15 Mosholu Four, LLC, 24 AD3d 373, 373 [1st Dept 2005]). Plaintiff's deposition testimony does not establish that water was routinely dripping from the tunnel's ceiling and forming icy conditions on the walkway, or that the ice was caused by water dripping from above. While the inspection reports created by defendant Metro North Commuter [*2]Railroad, which co-owned the overpass with defendant Metropolitan Transportation Authority, indicate that the tunnel was allowing water to leak in, there is no evidence those reports were provided to the City prior to the accident (see Gordon v American Museum of Natural History, 67 NY2d 836, 837 [1986]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488686/ | Black Diamond Capital Mgt., LLC v Oppenheimer Master Loan Fund, LLC (2022 NY Slip Op 06544)
Black Diamond Capital Mgt., LLC v Oppenheimer Master Loan Fund, LLC
2022 NY Slip Op 06544
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 652519/15 Appeal No. 16696-16696A Case No. 2021-03181, 2021-03530
[*1]Black Diamond Capital Management, LLC, et al., Plaintiffs-Appellants,
vOppenheimer Master Loan Fund, LLC, et al., Defendants-Respondents, IAP Global Services, LLC., Defendant.
Perkins Coie LLP, New York (David W.T. Daniels of counsel), for appellants.
Kramer Levin Naftalis & Frankel LLP, New York (Jonathan M. Wagner of counsel), for Oppenheimer Master Loan Fund, LLC and Oppenheimer Senior Floating Rate Fund, respondents.
Brown Rudnick LLP, New York (Sigmund S. Wissner-Gross of counsel), for Eaton Vance Corp., and Eaton Vance Floating Rate Portfolio, respondents.
Judgment, Supreme Court, New York County (Andrea Masley, J.), entered August 18, 2021, to the extent appealed from, dismissing plaintiffs' claim for specific performance, unanimously affirmed, with costs. Appeal from order, same court and Justice, entered on or about July 15, 2021, after a nonjury trial, unanimously dismissed, without costs, as subsumed in the appeal from the judgment.
After a 2014 restructuring of the debt of IAP Global Services, LLC and the issuance of new equity to senior lenders, defendants Oppenheimer Master Loan Fund, LLC and Oppenheimer Senior Floating Rate Fund (collectively, Oppenheimer) owned a 16% stake in IAP, defendants Eaton Vance Corp. and Eaton Vance Floating Rate Portfolio (collectively, Eaton) held a 19% stake, and plaintiffs Black Diamond Capital Management, LLC, Black Diamond IAP Holdings LLC, and GSC Partners CDO Fund IV, Ltd. (collectively, Black Diamond) held a 26% stake. In addition, nonparties Invesco Senior Secured Management owned 9% and Credit Suisse Securities (USA) LLC owned 17%. Toward the end of the restructuring negotiations, which culminated in the execution of a July 18, 2014 restructuring agreement, representatives from Eaton, Oppenheimer, and Invesco entered into an oral agreement for a right of first refusal (ROFR), which, in the event that any of the three institutions were considering selling their IAP equity, would give the other two a first look option to purchase the shares so as to enable the three entities to retain their collective interest in IAP.
In 2015, Oppenheimer decided to liquidate a portfolio of loans, including its 16% stake in IAP (the Security), in an auction process known as a "bids wanted in competition" (BWIC). On April 22, 2015, Credit Suisse (on behalf of Black Diamond) submitted the only bid, at a price of $750.58 per unit for the 16% stake, or 1,627.38 shares. In a phone call that day, James Erven, a senior trader at Oppenheimer, informed Matthew Tuck, a Credit Suisse managing director, of the ROFR, but provided no details; Tuck responded "Okay." Robert Franz, the head of Credit Suisse's loan trading desk, apparently was told by a Credit Suisse analyst that there was no ROFR in the IAP restructuring documents; later in the afternoon of April 22, 2015, Franz told Erven, "There is no ROFR here" and Erven replied "Okay, then we're good."
On April 24, 2015, Eaton and Invesco informed Oppenheimer that they each wanted to exercise the ROFR. On April 27, 2015, Oppenheimer sent Credit Suisse, which considered the purchase completed and believed that it had resulted in an enforceable auction agreement, an instant Bloomberg message informing it that the ROFR was being exercised, and that there was "NO trade on IAP equity." On July 6, 2015, Eaton purchased the entire Security for the same price as the Credit Suisse bid. After Credit Suisse assigned its rights under the purported auction agreement to Black Diamond, Black Diamond commenced this action against Oppenheimer and [*2]Eaton, challenging the sale to Eaton.
The trial court correctly dismissed the claim seeking to specifically enforce Black Diamond's purportedly completed and binding oral agreement to purchase the Security at auction. As the court found in a comprehensive and detailed decision, the evidence at trial established that Credit Suisse and Oppenheimer, who were the parties to the auction purchase, did not have a meeting of the minds with respect to an essential term — namely, whether the completion of the auction agreement based on Credit Suisse's bid was conditioned upon Eaton and Invesco refraining from making a post-auction bid matching the Credit Suisse bid. The evidence of the pre-trade conversation between Oppenheimer (Erven) and Credit Suisse (Tuck) in which Erven "commented" on the ROFR without providing any details, and Tuck acknowledged that comment by saying "okay," did not, alone and conclusively, establish a meeting of the minds as to the conditional nature of any auction agreement that would result from the bid and acceptance. Moreover, the trial record contains ample evidence of the subsequent confusion and disconnect between the parties as to the existence of an applicable ROFR, and as to whether the agreement was subject to a condition that it would become binding only if other parties declined to match the bid.
As there was no auction agreement established between Credit Suisse and Oppenheimer, there is no agreement to be specifically enforced. Accordingly, the claim was correctly dismissed on this basis alone (see Gessin Elec. Contrs., Inc. v 95 Wall Assoc., LLC, 74 AD3d 516, 518 [1st Dept 2010]), and we decline to address the additional trial rulings and arguments raised on appeal.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488687/ | Bchakjan v City of New York (2022 NY Slip Op 06543)
Bchakjan v City of New York
2022 NY Slip Op 06543
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kern, J.P., Scarpulla, Pitt, Higgitt, JJ.
Index No. 158738/17 Appeal No. 16670 Case No. 2021-02770
[*1]Anne Bchakjan, Plaintiff-Appellant,
vThe City of New York, Defendant-Respondent, Gateway Realty LLC et al., Defendants.
Mischel & Horn, P.C., New York (Lauren E. Bryant of counsel), for appellant.
Sylvia O. Hinds-Radix, Corporation Counsel, New York (Eva L. Jerome of counsel), for respondent.
Order, Supreme Court, New York County (J. Machelle Sweeting, J.), entered July 22, 2021, which, to the extent appealed from as limited by the briefs, granted defendant City of New York's motion to dismiss the complaint pursuant to CPLR 3211 (a) (7) and motion for summary judgment dismissing the complaint, unanimously reversed, on the law, without costs, plaintiff's claim reinstated, the complaint deemed amended to allege that the City had prior written notice, and the matter remanded for further proceedings consistent with this decision.
The City demonstrated prima facie entitlement to dismissal of the complaint pursuant to CPLR 3211 (a) (7) by showing that plaintiff had not pleaded that the City had prior written notice of the alleged sidewalk defect that caused plaintiff to trip and fall (see Kales v City of New York, 169 AD3d 585, 585 [1st Dept 2019]; see generally Administrative Code of the City of New York § 7-201 [c] [2]; Katz v City of New York, 87 NY2d 241, 243 [1995]). In support of its summary judgment motion, the City submitted evidence, including the most recent Big Apple Map received by the City prior to plaintiff's accident, and argued that the Map did not depict the type of sidewalk defect that plaintiff testified caused her accident.
Based on all the evidence submitted, including the Big Apple Map and photographs of the sidewalk defect, plaintiff raised a triable issue of fact as to whether the City had prior written notice of the alleged dangerous condition (see Sanchez v City of New York, 176 AD3d 490, 491 [1st Dept 2019]). The City's contention that the Big Apple Map had been rendered inapplicable by subsequent sidewalk repairs is unavailing. Aside from the fact that this argument was improperly raised for the first time on reply, the City's submissions indicated that the defect remained unchanged. Further, the issue of whether the Big Apple Map was sufficiently close in time to provide prior written notice, and whether the area had remained unchanged, was a question for the jury (see Rosell v City of Kingston, 92 AD3d 1123, 1124-1125 [3d Dept 2012]).
The evidence submitted by plaintiff in opposition to the City's motion may be considered to correct the deficiency in the pleadings regarding prior written notice (see Rovello v Orofino Realty Co., 40 NY2d 633 [1976]; Becker v City of New York, 131 AD2d 413, 415 [2d Dept 1987]). Because plaintiff previously pleaded actual notice and the City has been aware of the Big Apple Map, the City would not be prejudiced by an amendment of the pleadings to conform to the evidence, and we deem the pleadings so amended (see CPLR 3025 [c]; O'Neill v New York Univ., 97 AD3d 199, 209 [1st Dept 2012]; Reyes v City of New York, 63 AD3d 615, 616 [1st Dept 2009], lv denied 13 NY3d 710 [2009]).
To the extent the City contends that the notice of claim was insufficient absent an allegation of prior written notice, we find that it satisfied its purpose, which is to provide a description so that "municipal [*2]authorities can locate the place, fix the time and understand the nature of the accident" (Brown v City of New York, 95 NY2d 389, 393 [2000]).
The matter is remanded for determination of plaintiff's motions pertaining to discovery and trial preference, which were denied as moot.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494711/ | ORDER RE: PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT
GREGORY F. KISHEL, Chief Judge.
This adversary proceeding came before the Court on the Plaintiffs motion for partial summary judgment. The Plaintiff (“the Trustee”) appeared by his attorneys, Terrence J. Fleming, Sandra S. Smalley-Fleming, George H. Singer, and Mark S. Enslin (all of Lindquist & Vennum P.L.L.P., Minneapolis). The Defendants (collectively, “the Ritchie Defendants”) appeared by their attorneys, Thomas K. Cau-ley and Brian A. McAleenan (of Sidley Austin LLP, Chicago), and James M. Jor-issen (of Leonard, O’Brien, Spencer, Gayle & Sayre, Ltd., Minneapolis). The following memorandum of decision is based on the record made for the motion.
INTRODUCTION
Debtor Polaroid Corporation and several related companies were put into bankruptcy by voluntary petitions filed on December 18, 2008.1 At that time, the ownership of the Polaroid Corporation was traceable through an intermediate holding entity to Petters Group Worldwide, LLC (“PGW”), itself a holding company. PGW and a number of business entities related to it had been put into bankruptcy about two months earlier. Before PGW’s bankruptcy filing, one Thomas J. Petters was its sole shareholder, board chair, and chief executive officer.2
Earlier in the fall of 2008, Tom Petters and six of his business associates had been charged with various federal offenses in the United States District Court for the District of Minnesota: wire and mail fraud, money laundering, and conspiracy. The prosecution’s overarching theory was that Tom Petters and his co-conspirators had conducted an elaborate and long-term Ponzi scheme, using as its instrumentalities a corporation known as Petters Company, Inc. (“PCI”) and numerous related entities including PGW. As charged, the essence of the scheme was that Tom Pet-ters and his fellow defendants had induced lenders and investors to advance money to PCI. The ostensible purpose of the advances was to fund proposed, intermediate *28purchases and resales of consumer electronic goods in bulk. However, the prosecution accused Tom Petters and his fellow defendants of using forged documents in the inducement to lend — when there were no corresponding, contracted transactions in real life and no such transactions came to pass that could be identified to particular loans. PGW was implicated in the scheme as an alleged recipient and conduit of a significant portion of the funding that had been received by PCI or its subsidiary entities.
Ultimately, all of the individual co-conspirators pleaded guilty under arrangements with the United States Department of Justice. On December 2, 2009, a jury convicted Tom Petters of all 20 felony charges that had been brought against him under a superseding indictment.3
When the Polaroid Corporation was placed into bankruptcy, the Ritchie Defendants claimed to hold an enforceable security interest in certain aspects of its intellectual property, specifically trademarks and associated rights registered in China, India, and Brazil. Tom Petters, in the capacity of “Chairman” of the Polaroid Corporation, had executed documents to grant that security interest on September 19, 2008.4 (This was done five days before the Federal Bureau of Investigation executed a search warrant at PGW’s corporate headquarters, in the legal process that led to the criminal charges.) When the security interest was granted, the Polaroid Corporation was not a debtor of the Ritchie Defendants. The pledge of the patent rights was expressly made to secure preexisting debt of third parties. That debt was evidenced by multiple notes executed by PCI, PGW, and/or Thomas Petters, Inc. (“the PCI/PGW note debtors”) and given in favor of the Ritchie Defendants or for their benefit.5
*29In February, 2009, the Polaroid Corporation commenced this adversary proceeding in the capacity of debtor-in-possession. After the conversion of the case, the trustee of that Debtor’s estate under Chapter 7 was substituted as plaintiff.
The Trustee seeks to avoid the grant of the security interests to the Ritchie Defendants under the authority of bankruptcy law. Invoking 11 U.S.C. §§ 548 and 544, he characterizes the grant as a transfer fraudulent to the Polaroid Corporation’s creditors under the federal and state iterations of fraudulent transfer remedies. He classifies the grant as both “actually” fraudulent (i.e., made with actual intent to hinder, delay, or defraud those creditors) and “constructively” fraudulent (i.e., made for less than reasonably equivalent value given to the Polaroid Corporation, coupled with the contemporaneous or subsequent insolvency of the Polaroid Corporation).
The Trustee seeks other relief, in the alternative or additional: avoidance of the grant of the liens as a preferential transfer under 11 U.S.C. § 547(b), “[t]o the extent that any of the transfers [of liens] were made ... on account of a preexisting obligation ... ”; disallowance of the Ritchie Defendants’ claims in the underlying cases pursuant to 11 U.S.C. §§ 502(b) and 502(d) (i.e., until any avoided transfers are rectified by payment or other form of restoration to the estate); avoidance of the Ritchie Defendants’ liens under 11 U.S.C. § 506(d); equitable subordination of the Ritchie Defendants’ claims in the underlying cases, pursuant to 11 U.S.C. § 510(c); “recharacterization” of the Ritchie Defendants’ claims as “equity” received from what was “in substance and economic reality capital investment” by them; and declaratory relief that the liens are unenforceable under state-law principles of equity and for failure of consideration.
For their part, the Ritchie Defendants responded via a 38-page answer, heavy with fact allegations. They admit that the four named defendants other than Ritchie Capital Management, LLC made loan advances “to Thomas J. Petters ... and companies owned and controlled by him,” in February, March, and May, 2008. As to the grants of lien, they admit that “they and [the] Polaroid [Corporation] entered into an agreement titled Trademark Security Agreement dated September 19, 2008.” They specify that the Trademark Security Agreement was contemplated by a prior but nearly-contemporary agreement between them and the PCI/PGW note debtors. Under that other agreement, maturity dates on the underlying payment obligations were extended.
As to the estate’s theories for avoidance, the Ritchie Defendants flatly deny the complaint’s allegation that the grants of security interests “were made with actual intent to hinder, delay, or defraud a creditor....”6 They characterize the complaint’s fact pleading as a “malicious attempt to create the false impression that [they] engaged in a fraudulent scheme,” and that the Trustee’s actual-fraud theory is “irresponsible and unconscionable because there is absolutely no basis for such an allegation.”
*30Responding to the complaint’s preferential-transfer count, the Ritchie Defendants insist that the grants of lien “were in no way made on account of ‘antecedent debt’ of Polaroid because: (a) the relevant debt was owed by PGW, PCI and [Tom] Petters and thus was not even ‘debt’ of Polaroid....”
Finally, as an “Eighth Affirmative Defense” the Ritchie Defendants plead that they “gave value for” their receipt of the security interests, “and received such interests in good faith.... ”
JURISDICTION AND JUDICIAL AUTHORITY
This adversary proceeding is before the undersigned pursuant to 28 U.S.C. § 157(a), via the general reference of Loc. R. Bankr.P. (D.Minn.) 1071-1.
Of the counts entailed by the motion at bar, one is governed by substantive law contained in the Bankruptcy Code, Title 11 of the United States Code: 11 U.S.C. §§ 548(a)(1)(A) and 548(c). The second, governed by substantive state law, was brought by the Trustee under the empowerment of 11 U.S.C. § 544. The former arises under Title 11, and the latter arises in a bankruptcy case under Title 11; thus, the district court has jurisdiction over both counts. 28 U.S.C. § 1334(b). These counts are statutorily classified as core proceedings. 28 U.S.C. § 157(b)(2)(H). So are the counts for relief that would follow under the Bankruptcy Code’s governance after the avoidance as a fraudulent transfer. 28 U.S.C. §§ 157(b)(2)(B) and (0). The last substantively-oriented count, toward the invalidation of liens as unenforceable under state law, is also a core proceeding — this time under 28 U.S.C. § 157(b)(2)(E). As such, a bankruptcy judge may order final judgment on all of these counts when that is substantively and procedurally appropriate. 28 U.S.C. § 157(b)(1).
MOTION AT BAR
Earlier in this litigation, the parties and the Court addressed the sequence and means by which the various, complex issues could be presented for adjudication. The Trustee proposed that his requests for avoidance under the actual-fraud theory be developed and presented first. Ultimately, the Court acceded to the Trustee’s request. The proposal included a stay on discovery, development, and submission as to the counts under a constructive-fraud theory. The Court ordered that stay.7 After an initial skirmish over a counterclaim by the Ritchie Defendants, the litigation went through a briskly-conducted discovery process that generated wrangles *31over protective orders. Finally, the motion at bar was filed.
The Trustee seeks a grant of summary judgment in his favor on five counts of his complaint: Counts I and III, those framed under the actual-fraud theory of avoidance as a fraudulent transfer; Counts VI and VII, through which the Ritchie Defendants’ claims against the Polaroid Corporation’s bankruptcy estate would be disallowed, and their liens avoided in consequence of that disallowance, after an avoidance of the lien as a fraudulent transfer; and Count X, through which he would have the Trademark Security Agreement and all actions taken under it declared void and unenforceable in consequence of inequitable conduct on the part of the Ritchie Defendants, and for failure of consideration.
The Trustee argues that the record supporting his motion “shows that there is no genuine dispute as to any material fact” and that he “is entitled to judgment as a matter of law” on the specific theory of avoidance he presents. See Fed.R.Civ.P. 56(c), as incorporated by Fed. R. Bankr.P. 7056. As a movant for summary judgment, the Trustee must satisfy both of these requirements. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Handeen v. Lemaire, 112 F.3d 1339, 1346 (8th Cir.1997) (both noting that movant for summary judgment “always bears the initial responsibility of informing the [trial] court of the basis for its motion,” i.e., identifying parts of record that show “the absence of a genuine issue of material fact”). If he does, a burden of production of evidence shifts over to the Ritchie Defendants, in the sense of having to produce evidence to rebut the fact elements that are undisputed on the Trustee’s record. Fed.R.Civ.P. 56(e), as incorporated by Fed. R. Bankr.P. 7056; Buford v. Tremayne, 747 F.2d 445, 447 (8th Cir.1984). If the Ritchie Defendants dispute the certainty of result on the governing law, they must produce on-point authority to counter the Trustee’s legal argument. If the Ritchie Defendants fail in both aspects of the onus on them as respondents, the Trustee’s motion must be granted. Celotex Corp. v. Catrett, 477 U.S. at 322-323, 106 S.Ct. 2548.
At the end of an 87-page main responsive submission of facts and law, the Rit-chie Defendants simply request that the Trustee’s motion be denied in all respects. (The proffered reasons for such a result sprawl in great detail and complexity over the preceding 86 pages.)
ANALYSIS
I. Trustee’s Case in Chief: Avoidability of Grant of Trademark Security Interests, as Actually-Fraudulent Transfer.
Though many additional facts are entailed by the Trustee’s alternate and subsidiary theories, his motion on Counts I and III involves only one core fact issue: whether the grants of lien to the Ritchie Defendants were made with the intent to hinder, delay, or defraud the creditors of the relevant debtor, the Polaroid Corporation.8 As the proponent of fraudulent-transfer remedies, the Trustee has the burden of proof on this element under both *32federal and state law. In re Craig, 144 F.3d at 590 (applying § 548(a)); In re Northgate Computer Systs., Inc., 240 B.R. 328, 360 (Bankr.D.Minn.1999) (applying § 548(a)); Snyder Elec. Co. v. Fleming, 305 N.W.2d 863, 867 (Minn.1981) (decided under Uniform Fraudulent Conveyance Act); Elliot & Callan, Inc. v. Crofton, 615 F.Supp.2d 963, 968 (D.Minn.2009) (applying Minn.Stat. § 513.45(b)); New Horizon Ents., Inc. v. Contemporary Closet Design, Inc., 570 N.W.2d 12, 15 (Minn.Ct.App.1997) (applying Minn.Stat. § 513.44(a)(1)).
On its face, of course, the inquiry on this point goes to a subjective state of mind on the part of the grantor-transferor. In re Bob’s Sea Ray Boats, 144 B.R. 451, 458 (Bankr.D.N.D.1992).9 The courts have repeatedly observed that this class of fact issue is difficult of direct proof, and generally requires a showing by circumstantial evidence. E.g., In re Sherman, 67 F.3d 1348, 1353 (8th Cir.1995). Historically, the courts have considered the issue of subjective intent as not automatically well-suited to summary judgment. E.g., Pryor v. Nat’l Collegiate Athletic Ass’n, 288 F.3d 548, 563 (3d Cir.2002); In re Bankest Capital Corp., 374 B.R. 333, 346 (Bankr.S.D.Fla.2007).
However, the Trustee urges that the process of fact-finding on this issue is actually direct, much more confined, and much better-suited for summary adjudication than those general authorities suggest. The reason, he insists, is a context-specific analysis developed in fraudulent-transfer jurisprudence out of bankruptcy cases over the last several decades. He urges this court to use this analysis to recognize a “presumption of fraud,” or at least a strong permissible inference of it, to be attributed to the grantor in transfers of property that are made in the furtherance of a Ponzi scheme and induced by the purveyor of the scheme.
First, the Trustee argues, the actual long-term operation of a Ponzi scheme by Tom Petters through his corporate structure is not in dispute, having been admitted by the Ritchie Defendants. As the Trustee would have it, the Ritchie Defendants extracted the grants of lien from the Polaroid Corporation at their demand and via the direct act of Tom Petters, against the mounting failure of his Ponzi scheme. Thus, he argues, they were unquestionably in furtherance of the scheme at the time they were given. So, he concludes, there is nothing more to be established for a prima facie case for avoidance under the actual-fraud theory; and by extension from a grant of that remedy, he maintains, the remaining three counts involved in this motion should be conceded to him as well.
For their part, the Ritchie Defendants oppose the Trustee’s invocation of the Pon-zi scheme presumption on two different levels. The first is a rejection of the presumption, implied by the phraseology that “no court in the Eighth Circuit has ever applied” it as a device for fact-finding. This is tossed off pro forma, and in a combative tone; but because the quoted observation is correct in a technical sense, it requires attention as a threshold matter.
The second, however, is a major contention for the Ritchie Defendants. They are correct in their postulate. The Trustee seeks to have the presumption applied to a transfer that was made outside the structure of the Petters organization, which had been the operational core of the scheme; and thus far the courts have recognized and applied the presumption only as to *33transfers made by entities that directly purveyed Ponzi schemes. The question of whether a court may use the Ponzi scheme presumption as urged is a matter of first impression in a narrow body of case law that has burgeoned only since 2007-2008.
A. The “Ponzi Scheme Presumption” Under Fraudulent Transfer Law.
The territory here is not unfamiliar:
A Ponzi scheme is generally understood as a multi-client investment arrangement executed over time, in which initial investors’ infusions are wrongfully siphoned off, the fund never maintains enough cash to meet all its obligations, and the earlier clients’ realization on investment is funded by later clients’ infusions.
In re Nation-Wide Exchange Servs., Inc., 291 B.R. 131, 148-149 n. 20 (Bankr.D.Minn.2003) (citing In re Indep. Clearing House Co., 41 B.R. 985, 994 n. 12 and 998—1005 (Bankr.D.Utah 1984)). See also In re Armstrong, 285 F.3d 1092, 1093 n. 3 (8th Cir.2002) (“In a Ponzi scheme, the operator promises investors returns on their investment which the operator intends to pay from funds provided by new investors, rather than from profits generated by the underlying business venture.... ”); In re Agric. Research and Tech. Group, Inc., 916 F.2d 528, 531 (9th Cir.1990) (citing Cunningham v. Brown, 265 U.S. 1, 44 S.Ct. 424, 68 L.Ed. 873 (1924), the seminal court opinion that treated the consequences of the failed investment-based scheme purveyed by one Charles Ponzi).
From time to time — and more frequently in recent years — the bankruptcy process has been used to redress the consequences of a failed Ponzi scheme and to provide some relief to unsatisfied creditors of the corporate vehicle of the scheme.10 Intuitively, this is an apt match of remedies to a complex of problems. Bankruptcy, of course, evolved and persists as a statutory process to reconcile financial failure due to insolvency. Perforce, Ponzi schemes are operationally and structurally insolvent within their own confines:
A Ponzi scheme cannot work forever. The investor pool is a limited resource and will eventually run dry.... [T]he scheme will eventually collapse as a result of the inability to attract new investors .... [Investors at the end of the line will lose their money.
In re Indep. Clearing House Co., 77 B.R. 843, 860 (D.Utah 1987).
For the application of bankruptcy to a failed Ponzi scheme, one of the means invoked for the redress of frustrated, unpaid latecomers is the panoply of avoidance remedies under fraudulent-transfer statutes, state and federal. The steward of a bankruptcy estate' — a trustee under Chapter 7 or a debtor-in-possession under Chapter 1111 — will sue to avoid transfers of money, property, or other value that the debtor had made to earlier investors, characterizing such transfers as fraudulent on the debtor’s contemporaneous or future creditors. To justify the use of avoidance remedies, the plaintiff-trustee characterizes the transfer as actually fraudulent, constructively fraudulent, or (most commonly) both.
Ultimately, the notion behind the use of avoidance remedies against a satisfied, earlier investor is that its payment was *34made with the money of later victim-investors, and very much to the detriment of them, their contemporaneous fellow-creditors, and future creditors of the entities purveying the scheme. So, to meet bankruptcy’s goal and context — to “put[] all parties that transacted with the purveyor ... onto a parity in ... restitution” — those who got out early, at least within the “periods of vulnerability to avoidance or recovery specified by [applicable] law,” are legally compelled to pay into the estate and then may share pro rata with all victim-claimants at the end of the process. In re Petters Co., Inc., 440 B.R. 805, 806 (Bankr.D.Minn.2010) (describing process of so-called “clawback” in bankruptcy).12
Whether styled under 11 U.S.C. § 548(a)(1) or under a state-law analog (here Minn.Stat. § 513.44(a)(1)), the actual-fraud theory has both a benefit and a burden for its proponent. In the first place, avoidance may be judicially allowed on proof of only one element; and, unlike the constructive-fraud alternative, that one element is worded in short and straightforward fashion in the statute.13 But, that element is a subjective state of mind — and the relevant intent was that harbored by the transferor, or an individual person who effected the transfer on behalf of a corporate debtor-transferor.
Whenever a subjective state of mind is in play in fact-finding, the process of proof is challenging. Only rarely is there direct evidence of malign intent. Kelly v. Armstrong, 141 F.3d 799, 802 (8th Cir.1998); In re Sherman, 67 F.3d at 1353. Thus, the proponent often must rely on an inferential process from circumstantial evidence. This can entail the assessment of all dimensions of credibility, and close analysis of the evidence by participating counsel and fact-finder alike. In re Sherman, 67 F.3d at 1353. In the specific context of a failed Ponzi scheme, there can be logistical difficulties: the purveyor(s) of the failed scheme may well be under the onus of the criminal process, thus cloaked from compelled testimony by a Fifth Amendment privilege; they may be physically isolated by conditions of pretrial confinement or post-sentencing incarceration; or they may be uncooperative and unreliable anyway.
The law’s more general answer to such impediments was the evolution in judicial opinion and statute of the “badges of fraud” analysis to reach actual intent, well-developed in bankruptcy jurisprudence and in statute. E.g., Kelly v. Armstrong, 206 F.3d 794, 798 (8th Cir.2000); Kelly v. Armstrong, 141 F.3d at 802; In re Sherman, 67 F.3d at 1353-1354. That approach is not as easy of success as many trustees would have it, In re Lumbar, 446 B.R. 316, 331 (Bankr.D.Minn.2011), rev’d in part on other grounds, 457 B.R. 748 (8th Cir. BAP 2011), however much a “confluence” of enough badges of fraud may give rise to a rebuttable “presumption of fraudulent intent,” Kelly v. Armstrong, 206 F.3d at 798. Cf. In re Sharp Int’l Corp., 403 F.3d 43, 56 (2d Cir.2005) (“badges of *35fraud” do not create presumption of fraud, “but merely facilitate the analysis”).
But, a number of courts have recognized a context-specific alternative, one that turns in a sense on one big badge of fraud. That analysis evolved in cases where the debtor in bankruptcy had furnished a structure for a Ponzi scheme that failed. The thought is that proof of the existence and operation of a Ponzi scheme through a debtor-entity, and a resultant judicial finding to that effect, plus the execution of a transfer of property out of the entity in furtherance of the scheme, is sufficient to support a finding of intent on the part of the transferor to hinder, delay, or defraud contemporaneous or future creditors of the debtor-entity.
The operation of the basic proof for fact-finding on the intent element has been classified both as an inference virtually-compelled, In re Indep. Clearing House Co., 11 B.R. at 860; In re Rothstein Rosenfeldt Adler, P.A., No. 10-2612, 2010 WL 5173796, at *5 (Bankr.S.D.Fla. Dec. 14, 2010), and as a presumption, Perkins v. Haines, 661 F.3d 623, 626-627 (11th Cir.2011); In re Manhattan Inv. Fund Ltd., 397 B.R. 1, 10-11 (S.D.N.Y.2007); In re Dreier LLP, 452 B.R. 391, 424-427 (Bankr.S.D.N.Y.2011). The distinction is academic, given the phraseology of the courts’ analyses: “[findeed, no other reasonable inference [as to the transferor’s intent] is possible” in the Ponzi-scheme context. In re Indep. Clearing House Co., 77 B.R. at 860. See also In re Pearlman, 460 B.R. 306, 318 (Bankr.M.D.Fla.2011) (stating that a “Ponzi scheme is by definition fraudulent”) (quoting In re World Vision Entm’t, Inc., 275 B.R. 641, 656 (Bankr.M.D.Fla.2002)).
So, regardless of the characterization, the basic proof still has the same outcome: to shift a burden of production of evidence on the ultimate fact over to the trustee’s opponent. See Fed.R.Evid. 301. Cf. Kelly v. Armstrong, 206 F.3d at 799, 801 (if confluence of badges of fraud triggers presumption, opposing party may rebut presumption but must produce “direct ... rather than indirect” evidence of “legitimate supervening purpose” for transfer). Put another (and more pointed) way, once a trustee has proved the circumstances and the event noted two paragraphs previously, the defendant in the avoidance action must produce probative, significant evidence that the transferor-debtor lacked the intent to take the transferred value away from contemporaneous or future creditors, i.e., that there was a bona fide, legitimate purpose for the transfer. If it does not, it will receive an adverse finding on the central element of § 548(a)(1)(A), and perforce will suffer an adverse judgment of avoidance. See In re Manhattan Inv. Fund, 397 B.R. at 11 (holding that a transfer must “further a Ponzi scheme” for the presumption to apply); see also In re Foos, 188 B.R. 239, 244 (Bankr.N.D.Ill.1995) (holding that the basis of presuming fraud is not present where Ponzi scheme operator conducts ordinary business transactions outside of the scheme), rev’d on other grounds, In re Foos, No. 96C3982, 1996 WL 563503 (N.D.Ill. Sep. 23,1996).
There is no cogent argument against using this device for fact-finding in the appropriate context. In context, its logic is unassailable; given the very ethos of a Ponzi scheme, the transferor-purveyor invariably is intentionally cheating all others in the web, when it uses a current investor-creditor’s infusion — made ostensibly toward a specific transaction or purpose that would benefit that lender — to pay a preexisting investor-creditor. When both lenders are unaware of the actuality, this preserves the pretense of a functioning, viable investment operation that is in*36volved in extrinsic business activity. The fraud on all new infusers of cash goes with the territory. It is what makes the scheme work — for a while.
To the extent that the Ritchie Defendants argue from any flat rejection of the “Ponzi scheme presumption” or a “Ponzi scheme inference” as a valid tool for fact-finding on fraudulent intent where appropriate to context, their argument has no merit.14
B. Presence and Operation of a Ponzi Scheme Within Tom Petters’s Enterprise Structure.
Under this theory, the threshold point for fact-finding is the existence and operation of a Ponzi scheme, within the structure of the Petters organization. That exercise may seem superfluous, to anyone who has been involved in the intense three-year history of related federal court proceedings in this district, under criminal, civil, and bankruptcy jurisdiction. And to all appearances, the Ritchie Defendants have conceded the point on the record in this litigation, one way or another and at least to circumscribed effect.15 Nonetheless, it is appropriate to make an independent finding on the Trustee’s uncontro-verted evidence: at all times material to this adversary proceeding, Tom Petters did operate a Ponzi scheme, most centrally purveyed through PCI and a number of its many subsidiaries, but eventually involving more of his companies in the flow of money to keep it going.16
The transactional vehicle through which Tom Petters purported to operate the scheme is known in the consumer-goods side of the marketing sector as the “diverting business.” 17 “Diverting” is an extension or offshoot of the sort of activity in which Tom Petters made his start in Minnesota in the 1980s, the liquidation of outdated or unwanted stocks of consumer merchandise. “Diverting” is conducted at one level above retail, however, and on a mass basis. One engaged in “diverting” functions as a finder and go-between. First, the “diverter” finds large lots of goods that are not moving through the inventory of a wholesaler or chain retailer. (With Tom Petters, the merchandise was ostensibly larger-ticket consumer electronics like flat-screen television sets or game consoles.) Then it finds a retailer that wishes to purchase such goods for resale to the public, and it takes the steps to see that the goods are acquired and sold to the party needing them.
A “diverter” may function as an intermediate owner, actually taking title to the *37goods via purchase from an overstocked seller, either in its own right or through an affiliate-entity. (This was how Tom Pet-ters pretensed the transactions in his operation.) This purchase is financed by a third-party “investor” — generally a lender to the intermediate holder of title — which is to be paid upon the closing of the end-customer’s purchase.
Intuitively, at least, and given the obvious realities of the contemporaneous underlying market in the subject goods, this process does not have the structure to regularly generate a high profit margin. The reasons are several. The overstock goods may be languishing in inventory because of mounting obsolescence or past overproduction, making them less desirable to the end-consumer and hence of less value to any retailer selling to the consumer. The target purchaser from the “diverter” is more likely to be a retail discounter, often one possessing enough market dominance to compel cutthroat pricing from its suppliers. And such clientele do their own business in a fickle marketplace roiled by rapid product innovation; they would be reflexively plagued by the fear of having too much of “the last big thing” on-hand, and naturally would push a high-volume, quick-turnover mode of operations. None of these characteristics would be conducive to a large markup imposed by a diverter-intermediary. That fact logically would make diverting “high-volume, low-margin,” were it to be conducted in a sustainable fashion.
This is the milieu against which Tom Petters held himself out to prospective “investors” as a well-connected operator, able to make quick connections for large deals that would close so rapidly and at such a raw amount of profit that he could offer handsome returns to lenders.18 Some of his lenders apparently contemplated more generous, larger extensions of credit, with broader security interests or other security. More of them lent in on a transaction-by-transaction basis, ostensibly to finance individual deals that involved particular lots of goods that Tom Petters and his associates identified to orders from specific retailer-purchasers with well-recognized names.19 These ostensible lending transactions were documented as secured. The collateral was to be the specific lots of electronics and their proceeds in the form of the ostensible account receivable from an end-customer, plus a personal guaran*38tee from Tom Petters.20
There apparently was some bona fide “diverting” activity within Tom Petters’s enterprise structure, on a sporadic basis. However, for years before 2008 the great majority of the “diverting” that Tom Pet-ters and his associates presented to prospective lenders was fictitious. The “transactions” simply were not in process; the ostensible suppliers did not have the goods in reality, and the Petters organization had not even contacted the ostensible end-purchasers to solicit them.21 The corresponding evidence for prospective sales to established “big box retailers” (purchase orders, invoices, and the like) was forged.22
As presented to his lenders, the central entity for the diverting activity was PCI. PCI functioned as a recipient and disbur-ser of much (but not all) of the lent-in funding. It also was the parent of numerous subsidiary companies. These subsidiaries were individually established as “special purpose entities,” to serve as the repositories for funding from specific lender-investors and subsequent repayment to them.23
It is undisputed that Tom Petters used this modus operandi over an extended period of years, to churn increasingly-large volumes of money through business entities within this enterprise structure.24 Over that time few authentic diverting transactions were parlayed through PCI and its subsidiary-structure.25 Repayment to earlier lender-investors, involving higher and higher rates of return, was funded by the proceeds of lending-in from later investors, ostensibly tied to new diverting transactions but simply without a basis in reality. Tom Petters and a select few associate-employees at his direction tunneled the input funding through PCI and other entities within the Petters organization toward the satisfaction of debt now due and payable to earlier lenders, which had ostensibly invested in specific diverting transactions that were to have closed. As this went on, much of the churn was applied to the cost of an elaborate facade for public view, including expensively-furnished office headquarters, payment of substantial employee compensation and bonuses, and large draws by Tom Petters, plus high incremental rates of return to lenders.
One noteworthy use of funds siphoned from lender-investor infusions was the acquisition of the Polaroid Corporation and its related companies for Tom. Petters’s enterprise structure in 2005. The record contains uncontroverted evidence that all or virtually all of the 400 million-plus dollars that Tom Petters paid for the acquisition came out of PCI, which in turn had derived those funds from loans from investor-lenders.*3926 It is not clear from this record whether Tom Petters made the Polaroid acquisition solely to add surface luster to his enterprise, i.e., to impress prospective investor-lenders with his apparent business acumen as a general matter.27 But it is clear that he and his associates hoped to exploit the wow-factor of a legacy brand’s presence, in promoting him and his ostensible diverting activity to third parties.28
The result of all this, over time, was the vast shortfall of assets to meet liabilities. That has been established via forensic accounting reconstruction to total 3.5 to 3.7 billion dollars.29 The shortfall weighs principally on a small number of lenders who were “left in” when the Petters -structure collapsed in September, 2008.30 So, regardless of any concession by the Ritchie Defendants, there is an independent basis of fact on which to apply the Ponzi scheme presumption, in a fashion appropriate to context.
C. Application of the Ponzi Scheme Presumption to Transfer Made hy a Related Entity Outside the Main Operation of the Scheme.
The Ritchie Defendants categorically reject the Trustee’s invocation of the Ponzi scheme presumption to the specific transfer at bar:
The Trustee argues that the transfer of certain liens in international trademarks of Polaroid Corporation ... to Ritchie is presumptively an avoidable fraudulent transfer because Tom Petters had run a Ponzi scheme through a separate entity, Petters Company, Inc.... but the Ponzi scheme presumption applies only where *40the Debtor itself engaged in the Ponzi scheme and the transfer at issue was in furtherance of that scheme. Consequently, no court anywhere has ever applied the Ponzi presumption to a transfer from a debtor not operating a Ponzi scheme.
Defs.’ Opp’n at 8 (emphasis in original) [pagination per CM/ECF header].
The Ritchie Defendants justify this position on the mechanics that underlie the presumption and its articulated justification in the inevitability of collapse. They insist that there is no such platform for the presumption where the transferor-debtor was not the immediate purveyor of the Ponzi scheme — however much it was related to and under control of the purveyor— and where the transferor-debtor carried on a regular, non-fraudulent business in its own right:
Thus, because a legitimate business is not a Ponzi scheme that will inevitably fail, the Ponzi presumption has never been applied to transfers by a legitimate business.
Defs.’ Opp’n at 9.
This argument is not frivolous, given the relative nascence of the case law on the Ponzi scheme presumption. But in the end it is not tenable; it is deliberately myopic and unduly constrained. Adopting it would elevate abstraction — corporate form and the ostensible segregation of corporate operation — over reality — a hard and dirty manipulation of corporate form and control by a cynical but desperate defrauder, toward significant damage albeit to a different creditor-body.31
This theory of defense fails in application to the facts at bar because in context the relevant intent is that harbored by one natural person only, and here that is Tom Petters. His intent is attributed to the Polaroid Corporation as transferor, because he controlled that artificial entity.32 And the point of the Trustee’s theory is that Tom Petters also controlled the whole structure centering around PCI, through which the Ponzi scheme had been transacted to the detriment of its final victims. The Trustee does not posit that Tom Pet-ters had maintained an unimpregnable firewall between PCI’s machinations and *41the operations of Polaroid Corporation.33 But even if he had, the Ritchie Defendants’ point is not viable; the applicability of the presumption comes down to the controlling person’s motivation for effecting the specific transfer by the non-purveyor, “legitimate” business entity, when and as the transfer is made. The past operation of a freestanding business by the “legitimate” related entity and the abstract possibility of continuing such an operation do not bar the application of the presumption.
The reason is as follows. The Trustee’s expanded conception of the presumption is premised on common control within a larger structure. When this is the governing consideration, the automatic inference of fraudulent intent is made when the person in common control effects the transfer by the entity extrinsic to the Ponzi scheme, but in order to fu/rther the scheme as it has been maintained through the central entity. Yes, the creditors hindered, delayed, and defrauded by the transfer are not the direct victims of the Ponzi scheme in its operation, i.e., investors into the entity through which the scheme has been purveyed. Nonetheless, it is a readily-identifiable group: the creditors of the related entity that makes the transfer for the benefit of the purveyor-entity. The intent that is deemed via the inference is the intent to deprive those parties of the value of their legal recourse against the debtor with which they are in privity, i.e., the transferor that gives up its own assets at the beck of the person in common control, to satisfy a creditor of the purveyor-entity that is not a creditor of the transferor-entity.34
This sort of ultimate intent, directed toward the target group of creditors, is deemed upon a finding of an intentional transfer made in a specific sort of broader context. The proof lies in a motivation: a manifest wish by the controlling person to prolong the imposture of the Ponzi scheme (thus “furthering” it), by effecting the transfer by the controlled, related company.
There is nothing untoward about using the presumption in this way. Under the judicial articulation of the presumption, the idea of “furthering” the scheme is act-oriented (as signified by the use of a verb) rather than structure-oriented (as would be signified by identification to a noun). Where the close relationship inherent in common and exclusive control of closely-held companies is present, and surround*42ing conditions are desperate enough for the fortunes of the individual purveyor-controller, the deeming of intent to basic actions is a simple matter of recognizing a continuity inherent in the circumstances, and manifested by past historical fact: “crooked then and there, crooked now and here.” The victims of the transfer are different from the victims of the core scheme itself; but that does not mean the basic willingness to prejudice others’ rights is absent.
The resulting inference, satisfying the intent requirement of the statute, can always be rebutted by hard proof of contrary intent, i.e., a credible motivation to make the transfer that is grounded in good economic reason, as to the transferor-entity. Kelly v. Armstrong, 206 F.3d at 799, 801. However, making the inference via presumption in this variant situation only recognizes the predictable and preponderant action of human nature, in the corner of its corrupt and self-deceiving tendencies.
In short, as a matter of logic, judicial policy, and fundamental fairness, the Ponzi scheme presumption can be applied to the Polaroid Corporation’s encumbrance of valuable intellectual property rights in favor of the Ritchie Defendants. Such an application does go beyond the matrix of phenomena on which the presumption was first conceived; but it does so on proper considerations of the basis and purpose of the presumption.
D. Tom Petters’s Intent in Effecting the Grant of Security Interests to the Rit-chie Defendants: Applying the Presumption, and Also the Badges of Fraud.
At this point, the historical backdrop to the Polaroid Corporation’s pledging of its intellectual property rights is the key to the applicability of the Ponzi scheme presumption.
The transactional history among the Petters organization, the Ritchie entities, and then the Polaroid Corporation spanned barely ten months in 2008. The Polaroid Corporation was not even a participant in any related legal undertaking until the last single month. Albeit multi-staged, the transactional facts are all un-controverted. The evidence that goes to the parties’ contemporaneous states of mind stands unrebutted. Much of it is communication objectively memorialized in e-mail form.
Whether the presumption is applied or not, the sweep of the dealings among these three groups of participants leads to only one supportable inference as to the intent harbored by Tom Petters, which is to be deemed to the Polaroid Corporation on its grant of liens to the Ritchie Defendants. The following are the uncontroverted facts going to that,35 organized by historical sequence into three categories.
1. The Ritchie Defendants’ Initial Lending Into the Petters Organization.
1. By January, 2008, the Ponzi scheme that Tom Petters was purveying through the Petters organization began to experience deep structural and operational strain. The United States economy was slowing and business credit was tighter and tighter. Tom Petters was finding it more difficult to find parties willing to lend into PCI and his other entities. Pl.’s Exh. 8 (Coleman depo. tr.), at 564.
*432. At the same time, the Ritchie entities and Thane Ritchie, their individual principal, were experiencing distress of their own. Thane Ritchie personally and several of his companies had been the respondents in an enforcement action commenced by the Securities and Exchange Commission. They had been charged with engaging in “late trading,” the practice of backdating trades in mutual fund shares to take advantage of market events that occurred after the close of daily market trading. PL’s Exh. 43 (Securities Exchange Commission Order (2/05/08)) [Dkt. No. 65]. This was alleged to have taken place over a period of approximately three years. Id. On February 5, 2008, a consent order was entered in that proceeding. Id. Under it, defendant Ritchie Capital Management, LLC was censured; disgorgement of approximately 37.4 million dollars was ordered; and Ritchie Capital Management and Thane Ritchie, jointly and severally, were fined an additional 2.5 million dollars.36 Id.
3. Later in the business day of January 31, 2008 (4:34 p.m.), one George Johnson, a broker at Capital Financial Advisers, LLC in Chicago, made contact with Thane Rit-chie via e-mail. Johnson offered him the possibility to “participate in a short-term financing deal[ ],” “secured by the assets of a company with value far exceeding the value of the note.” Johnson was acting as a “finder” of funding for Tom Petters and his entities. PL’s Exh. 44 (E-mail chain between George Johnson and Thane Rit-chie) [Dkt. No. 65].
4. Before that date, Thane Ritchie had had only two contacts with Tom Petters: a meeting at the Petters organization’s offices in 2002 and a telephone call in 2005. Neither had resulted in significant progress toward a Ritchie entity directly lending to a Petters entity. PL’s Exh. 41 (Partial transcript of deposition of Aaron Robert Thane Ritchie (5/25/10)) [Dkt. No. 65], at 22-24.
5. Thane Ritchie responded to Johnson via e-mail that evening (8:08 p.m.), with a show of interest and a query: “What kind of assets? Company?” PL’s Exh. 44 (Email chain between Johnson and Ritchie).
6. In the early afternoon of February 1, 2008 (1:27 p.m.), Johnson replied:
We have to move fast.... I will send you a term sheet.... 90 day loan (20% interest ... 80% annualized ... backed by the entire Polaroid corporation).
Id. Also that day, Tom Petters, Thane Ritchie, and Johnson held a conference call, during which Thane Ritchie learned that PGW sought to “bridge a loan or bridge a sale of the ... Polaroid North American brand to the Iconix Corporation, and [Tom Petters] needed some short-term financing to pay off JPMorgan.” Defs. Exh. 65 (Partial transcript of deposition of Aaron Robert Thane Ritchie (5/25/10)), [Dkt. No. 85], at 44^46; see also Defs. Exh. 66 (Partial transcript of deposition of David Baer (8/9/10)), [Dkt. No. 85], at 53 (“The Ritchie loans were intended as a bridge loan ... ”). By the end of that day (a Friday), the following actions were performed:
a. David Baer, PCI’s in-house counsel, had e-mailed a term sheet to Thane Ritchie’s attorney, with Petters Capital, LLC identified as the borrower. PL’s Exh. 45 (E-mail from David Baer to Michael Legamaro with at-*44taehments (2/1/08)) [Filed under seal at Dkt. No. 70].37
b. Camille Chee-Awai, an employee of Petters Capital, LLC, e-mailed Thane Ritchie several documents regarding the Polaroid Corporation, including a document purporting to be a draft of the Polaroid Corporation’s audited financial statement for 2006 and an evaluation of the Polaroid brands prepared by Duff & Phelps. Pl.’s Exh. 46 (E-mail chain among Camille Chee-Awai, Thane Ritchie, and others) [Filed under seal at Dkt. No. 70].
c. A Ritchie entity had wired 31 million dollars to a bank account maintained by PCI. An attorney for the Ritchie entities at Sonnenschein, Nath & Rosenthal, LLP in Chicago confirmed the transaction via a statement sent by e-mail at 5:22 p.m. Pl.’s Exh. 47 (E-mail chain among Michael Legamaro, David Baer, and others) [Filed under seal at Dkt. No. 70].
d. PCI transferred out 31 million dollars to prior lender-investors ostensibly in its diverting business. These recipients included PC Funding, LLC (an SPE formed for PCI’s borrowing transactions with the Opportunity Finance entities); PB Finance Holdings, Inc. (an SPE formed for PCI’s borrowing transactions with the Palm Beach entities); and Thousand Lakes, LLC (an SPE formed for PCI’s borrowing transactions with Lancelot-related entities). Martens Affid. ¶¶ 4, 8; Pl.’s Exh. C (PricewaterhouseCoopers preliminary analysis of Ritchie and Associated Funds Note Payable Detail) [Filed under Dkt. No. 66, Martens Affid.].
Shortly after midnight that night (12:48 a.m., Saturday, February 2), Baer sent an e-mail to Thane Ritchie; John Wappler, an associate at Ritchie Capital Management; and Tom Petters. He gave them “thanks to all for accomplishing an amazing transaction today! Have a nice weekend.” Pl.’s Exh. 47 (E-mail chain among Michael Legamaro, David Baer, and others).
7. Only later on Saturday, February 2 (via e-mail sent at 9:47 p.m.) did Thane Ritchie ask Wappler and John Kermath, the president of Ritchie Capital Management, to review the Polaroid-related documents that Chee-Awai had sent on Friday. His directive was: “Need to know what Polaroid equity is worth.” Pl.’s Exh. 48 (E-mail chain among John Wappler, Thane Ritchie, and others) [Filed under seal at Dkt. No. 70]. Wappler and Kermath had not been aware previously that the 31 million dollars had been wired the day before. Pl.’s Exh. 31 (Partial transcript of deposition of John D. Kermath (5/24/10)) [Dkt. No. 65], at 54; and PL’s Exh. 49 (Partial transcript of deposition of John Michael Wappler, Jr. (5/21/10)) [Dkt. No. 65], at 94-95 (stating that he did not know whether Thane Ritchie’s directive had only posed a hypothetical).
8. Wappler replied variously on Sunday, February 3, very early (e-mail sent 1:11 a.m.) and in the late afternoon (e-mail sent 5:01 p.m.). In the first, after “[j]ust taking a stab at some quick valuations,” Wappler acknowledged a “wide range of possible equity values” for the Polaroid Corporation. Among other things, he noted the company had had net losses of 40 *45million dollars in 2006 and 65 million dollars in 2007; that it was “(hopefully) in the middle of a turnaround process” by “[s]hifting focus from Consumer Electronics to Digital Imaging/Digital Home products”; and that “[a]t the end of the day, the $426 MM that Petters paid for Polaroid in 2005[was] probably as good an estimate as any” for the value of the equity. In the latter, Wappler queried Thane Rit-chie:
The proposed loan is being used for activities which are 100% unrelated to Polaroid, correct? Specifically, I just want to make sure that if the idea that the loan proceeds are being used for doesn’t pan out, Polaroid value is unaffected.
Pl.’s Exh. 48 (E-mail chain among Wap-pler, Ritchie, and others).
9. As a result of e-mail exchanges with Camille Chee-Awai throughout Sunday, February 3, Wappler had raised (by e-mail sent at 12:40 p.m.) the possibility of the Ritchie lenders taking a position against the value of the Polaroid equity that would be subordinate to large preexisting debt obligations owed by the Polaroid Corporation to Petters-related entities. Pl.’s Exh. 51 (E-mail chain among John Kermath, Thane Ritchie, and others) [Filed under seal at Dkt. No. 70], By that evening (email sent 7:48 p.m.), Wappler was voicing concerns over the exposure to the Ritchie entities to be had from any further lending to PCI, if secured by a lien against the stock in Polaroid Corporation:
We may need a standstill from Petters with regard to exercising their rights against the company since they have a demand note. The alternative is to keep Petters as a co-borrower as we have now, then our positions are aligned.
Id. .-
10. At 3:47 a.m. on Monday, February 4, Thane Ritchie e-mailed Wappler and Kermath, and Jay Menton (another employee of the Ritchie entities):
[N]othing usual about this deal including the IRRÜ — need to make sure we get the pledge against Pol all lined up this week — standstill or first right o refusal makes sense[.]
Id.
11. The next day, Monday, February 4, the Ritchie Defendants advanced another 56 million dollars to PCI via wire transfer. Martens Affid. ¶8; Pl.’s Exh. C (PwC preliminary analysis of Ritchie and Associated Funds Note Payable Detail).
12. On the same day, PCI disbursed a total of 55 million dollars for the benefit of four different lenders that had previously advanced to PCI on ostensible diverting-business transactions. The recipients were the Palm Beach and Thousand Lakes SPEs, plus PAC Funding, LLC (the SPE associated with Acorn Capital Group, LLC) and Metro Gem, Inc. On the same date, PCI disbursed funds to PGW and Sun Country Airlines (a company held by Tom Petters through intermediate holding companies). Martens Affid. ¶ 8; PL’s Exh. C (PwC preliminary analysis of Ritchie and Associated Funds Note Payable Detail).
13. Between February 5 and February 19, 2008, the Ritchie entities disbursed a total of 59 million dollars in additional funds to PCI, via wire transfers made on February 5th, 7th, 15th, and 19th. Martens Affid. ¶¶ 4, 8; PL’s Exh. C (PwC preliminary analysis of Ritchie and Associated Funds Note Payable Detail). On all four days, PCI disbursed funds for the benefit of prior lenders to PCI on account of ostensible diverting business transactions, in amounts equal to or larger than the Ritchie entities had lent by their near contemporaneous advances. Martens Af-fid. ¶ 8; PL’s Exh. C (PwC preliminary *46analysis of Ritchie and Associated Funds Note Payable Detail).
14. The Polaroid Corporation received none of the funds advanced by the Ritchie Defendants, at any time. Id. Pl.’s Exh. 9 (Partial transcript of deposition of Mary Lynn Jeffries (4/13/10)) [Dkt. No. 65], at 107-108, 245-246. Further, the Ritchie Defendants disbursed the funds without a contemporaneous memorialization of the alleged intent to bridge a sale of the Polaroid North American brand to Iconix.
15. Finally, on February 19, 2008 (the date of the last advance from the Ritchie entities), Thane Ritchie and Tom Petters executed a written “Note Purchase Agreement” to memorialize terms and consequences for the loan advances that the Ritchie entities had already made to PCI. Tom Petters and PGW were the nominal parties identified as “Borrowers” in the Note Purchase Agreement. Pl.’s Exh. 27 (Note Purchase Agreement) [Filed under seal at Dkt. No. 68]. Ritchie Capital Management, in the identified role of “the initial ‘Administrative Agent’,” was the other signatory-party to the agreement itself. Tom Petters’s and PGW’s obligations expressly ran to a group of “Purchasers” of the contemplated notes, which were identified in an attached schedule. Among those listed purchasers were the remaining Ritchie Defendants in this adversary proceeding: Ritchie Special Credit Investments, Ltd. (“RSCI”); Rhone Holdings II, Ltd. (“Rhone II”); and Yorkville Investments I, L.L.C. (“Yorkville I”). The Note Purchase Agreement contemplated the issuance and sale by Tom Petters and PGW of up to 155 million dollars in promissory notes to the “Purchasers” identified on the schedule. The Note Purchase Agreement includes signed signature pages for RSI, Rhone II, and Yorkville I, with references to specific notes sold to RSI (total of 84 million dollars, notes dated February 1 to 19, 2008); Rhone II (total of 34 million dollars, notes dated February 4 to 19, 2008); and Yorkville I (total of 18 million dollars, notes dated February 5 and 15, 2008). Id. As to the Note Purchase Agreement:
a. Tom Petters and PGW had “sole discretion” to use the proceeds from the Ritchie entities’ advances, for any purpose. Id. § 1.3.
b. Though the notes as a whole “need not have the same terms and conditions,” “each Note issued pursuant to this Agreement [was to] rank pari passu with each and every other Note issued pursuant to this Agreement....” Id. § 1.1.
c. Thane Ritchie understood that this meant that there were no restrictions on Tom Petters and PGW as to how they used the funds, and he acquiesced because in his words, “Tom was pretty convincing that it would really screw up their business if we put a lot of restrictions on the loans.” Pl.’s Exh. 41 (Ritchie depo. tr.), at 76.
d. Thane Ritchie knew that the funds advanced would be used to pay existing debt of PGW, PCI, or the Polaroid Corporation. Id., at 75-78; Pl.’s Exh. 8 (Petters testimony tr.), at 3045. He was told that one of the reasons was an ostensible problem with “bad paper,” i.e., difficulties in enforcing purchase orders from ostensible customers of the diverting business. PL’s Exh. 10 (Baer depo. tr.), at 650-654, 716-717, 722-723.
e. Thane Ritchie contemplated the possibility that the debt to the Ritchie Defendants would be repaid by Tom Petters “go[ing] out and raispng] debt from other sources.” PL’s Exh. 41 (Ritchie depo. tr.), at 83-84. The possibility that this was a Ponzi *47scheme did not concern Thane Rit-chie. Id., at 84-85.
16.By February 19, 2008, Tom Petters had executed ten separate promissory notes on behalf of himself and PGW, to evidence the total of 146 million dollars in advances that the Ritchie Defendants had disbursed to PCI by then. Pl.’s Exh. 54 (Promissory notes from PGW and Tom Petters to the Ritchie Defendants) [Filed under seal at Dkt. No. 71]. As to the notes:
a. Each and every one bore an annual interest rate of 80%. Id. This feature “shocked” Simon Root, PGW’s outside counsel, and was unprecedented in his experience. Pl.’s Exh. 30 (Root depo. tr.), at 74-75, 132-133.
b. Per Kermath, this interest rate was the very highest of any lending on the Ritchie group’s portfolio. Pl.’s Exh. 31 (Kermath depo. tr.), at 78.
c. Three of the notes, with a total principal of 21 million dollars, were due in March, 2008. PL’s Exh. 54 (Rit-chie-PGW/Petters promissory notes). The others were due in May, 2008. Id.
d. Though the Note Purchase Agreement and the notes recited the parties “endeavoring to use” stock in the Polaroid Corporation as collateral, the pledge of the shares was not made when the advances were made or when the Note Purchase Agreement was executed. Id.; PL’s Exhs. 55 (E-mail from Mike O’Shaughnes-sy to John Kermath (2/19/08)), 56 (Subordination Agreement among Ritchie Defendants and PGW and others), 57 (Termination Agreement among Ritchie Defendants and PGW and others) [Each filed under seal at Dkt. No. 72]; PL’s Exh. 30 (Root depo. tr.), at 147-148; PL’s Exh. 10 (Baer depo. tr.), at 714-716. No security was given on the notes other than the personal guaranty of Tom Petters. PL’s Exh. 30 (Root depo. tr.), at 134; PL’s Exh. 31 (Ker-math depo. tr.), at 179. The Ritchie entities agreed to this as the security at this time, and proceeded to finalize the Note Purchase Agreement. PL’s Exh. 10 (Baer depo. tr.), at 714-716; PL’s Exh. 30 (Root depo. tr.), at 147-148.
e.In connection with the taking of Tom Petters’s personal guaranty, the Ritchie entities did not request or receive personal financial statements for him, or personal income tax returns. PL’s Exh. 41 (Ritchie depo. tr.), at 69; PL’s Exh. 19 (Partial transcript of deposition of James Wehmhoff (7/7/10)) [Dkt. No. 65], at 95.
17. Tom Petters and PGW failed to make any payment on the three notes that came due by March 18, 2008. PL’s Exh. 54 (Ritchie-PGW/Petters promissory notes); PL’s Exh. 33 (Allonges relating to loans among the Ritchie Defendants and PGW and Tom Petters) [Filed under seal at Dkt. No. 68]. The Ritchie Defendants extended the due date for those notes by 60 days, without demanding additional consideration. PL’s Exh. 33 (Ritchie-PGW/Petters allonges).
18. During March, 2008, PCI and one of the Ritchie entities finalized documents to memorialize a separate lending transaction, ostensibly to finance the purchase of a large lot of PlayStation game consoles for resale via a diverting transaction.38 *48Pl.’s Exh. 28 (Note Purchase Agreement) [Dkt. No. 65]. The Ritchie entity was to take 50% of the profit from the anticipated sale, plus the repayment of its 31 million dollar advance. Pl.’s Exh. 58 (Letter agreement between PCI and Ritchie Capital Management, Ltd.) [Filed under seal at Dkt. No. 72]. The advance was memorialized in two notes, executed by Tom Petters and PCI, which bore an interest rate of 67% per annum and a due date of July 14, 2008. PL’s Exh. 59 (Promissory notes among Ritchie Defendants and PCI and Tom Petters) [Filed under seal at Dkt. No. 72].
19.Thane Ritchie received from PCI a purported purchase agreement for the PlayStations, bearing the name of UBid. com Holdings as purchaser. Pl.’s Exh. 60 (E-mail with attachments from Deanna Coleman to Thane Ritchie) [Dkt. No. 65]. This and associated documents submitted to Thane Ritchie had been fabricated by Deanna Coleman, using information taken from the website of the Best Buy Company. Pl.’s Exh. 6 (Coleman depo. tr.), at 68-78. The Ritchie entities’ attorney questioned the capacity of this proposed purchaser to perform on a deal of the indicated size (the 79 million dollars of stated consideration for the sale appearing to be greater than the identified purchaser’s 43 million dollars in net revenue the prior year). In response, Tom Petters summarily offered a change of purchaser- — to Costco. PL’s Exhs. 61 (E-mail chain among Kenneth Rosenblum, Simon Root, and others (3/21/08)), 62 (E-mail chain among David Baer, Simon Root, and others (3/21/08)), 63 (E-mail chain among Deanna Coleman, Simon Root, and others (3/21/08)), 64 (uBid Holdings, Inc.’s Form 10-K) [Each filed at Dkt. No. 65]. PCI never provided a purchase order from Costco to Thane Ritchie, because it did not have such a sale in prospect. Thane Rit-chie did not contact UBid or Costco directly. PL’s Exh. 30 (Root depo. tr.), at 154-159.
20. The Ritchie entities advanced 31 million dollars to be made to PCI, by a wire transfer made on March 21. Martens Affid. ¶ 8; PL’s Exh. C (PwC preliminary analysis of Ritchie and Associated Funds Note Payable Detail). Though the Ritchie lender and PCI were to profit-share on the transaction, Thane Ritchie did not have anyone verify that PCI had actually made the 21 million dollar investment in a diverting transaction that was required by the lending terms. PL’s Exh. 30 (Root depo. tr.), at 154-159.
21. On the same date, PCI disbursed a total of 33 million dollars to its creditors, including the Fidelis Foundation and three SPEs associated with lenders to PCI. It also disbursed a total of 1.2 million dollars to PGW and Sun Country Airlines on the same date. Martens Affid. ¶ 8; PL’s Exh. C (PwC preliminary analysis of Ritchie and Associated Funds Note Payable Detail).
22. On May 9, 2008, the Ritchie entities advanced an additional 12 million dollars to the Petters organization, by a wire transfer made to PCI. Martens Affid. ¶ 8; PL’s Exh. C (PwC preliminary analysis of Rit-chie and Associated Funds Note Payable Detail). This was memorialized by a promissory note executed by Tom Petters on behalf of PCI, PGW, and himself personally. PL’s Exh. 29 (Promissory notes among Ritchie Defendants and PCI, PGW, and Tom Petters) [Filed under seal at Dkt. No. 68]. This note specified an interest rate of 362.10% per annum. Id.
23. On the same day of this advance, May 9, PCI disbursed 49 million dollars to *49three SPEs associated with its lenders, plus a total of 9.5 million dollars to Sun Country Airlines, PGW, and ZINK Imaging, LLC.39 Martens Affid. ¶ 8; PL’s Exh. C (PwC preliminary analysis of Ritchie and Associated Funds Note Payable Detail).
2. The PCI Borrowers’Default; Wrangling Over Unsecured Status of the Debt.
24. By May 19, 2008, the ten promissory notes to the Ritchie entities executed originally in February came due, with accrued interest of over 20 million dollars. Pl.’s Exh. 33 (Ritchie-PGW/Petters allong-es); PL’s Exh. 54 (Ritchie-PGW/Petters promissory notes). The Ritchie entities extended the maturity date on all of the notes for another 60 days. Again, no additional consideration was given for the extension, and the debt remained unsecured. PL’s Exh. 33 (Ritchie-PGW/Petters allong-es).
25. In June, 2008, Deanna Coleman confided to Wappler that PCI had used the 146 million dollars that the Ritchie Defendants had advanced in February, to pay earlier lenders into PCI. PL’s Exh. 49 (Wappler depo. tr.), at 46-47, 154-155; PL’s Exh. 6 (Coleman depo. tr.), at 92-94, 99-100, 220-229; PL’s Exh. 68 (E-mail chain among John Wappler, Deanna Coleman, and others) [Dkt. No. 65]. On Wap-pler’s demand for more information, she supported her statement by a spreadsheet that showed particular PCI lenders paid by the funds Ritchie had advanced. PL’s Exhs. 67 (E-mail from Deanna Coleman to Tom Petters and others (6/30/08)), 68 (Email chain among Wappler, Coleman, and others), 69 (E-mail chain among John Wappler, James Wehmhoff, and others) [Each filed at Dkt. No. 65]; PL’s Exh. 6 (Coleman depo. tr.), at 92-94, 99-100, 220-229; PL’s Exh. 49 (Wappler depo. tr.), at 46-47.
26. During the early summer of 2008, dialogue between the Ritchie and Petters organizations continued, over the status of the outstanding debt. PL’s Exh. 41 (Rit-chie depo. tr.), at 142-143, 149-153; PL’s Exh. 49 (Wappler depo. tr.), at 33. There were meetings in person that included, variously, John Wappler, James Wehm-hoff, Tom Petters, Thane Ritchie, Polaroid Corporation CEO Mary Jeffries, and other persons. PL’s Exh. 49 (Wappler depo. tr.), at 33-41. During these meetings, Tom Petters dwelt on the Polaroid organization and its future potential to regain a position in the retail market — to the exclusion of meaningful detail about the near-term prospects of payment to the Ritchie Defendants. Id. at 39-40.
27. As the notes to the Ritchie entities approached another due date in late July, 2008, Thane Ritchie tasked Wappler with investigating the availability of collateral from the Petters organization, in connection with any further extension of the due dates. Id. at 33, 42-43, 68-69, 150-151, 168. Wappler became concerned that the obligors under the notes — PCI, PGW, and Tom Petters — were not able to pay them off at that time, and that the obligations had been unsecured to that point. Id. at 50-52. The concurrent, mounting illiquidity in the general capital markets was putting additional pressure on all parties in the situation, including the Ritchie entities, in Wappler’s estimation. Id. at 52.
28. On August 14, 2008, the commencement of suit by another lender to Tom Petters came to Thane Ritchie’s attention. *50PL’s Exh. 41 (Ritchie depo. tr.), at 152-153, 175; Pl.’s Exh. 71 (Summons and Complaint, filed in Acorn Capital Grp., LLC v. Petters, 08-cv-07236 (S.D.N.Y.)) [Dkt. No. 65]. The action was venued in the United States District Court for the Southern District of New York. The plaintiff was Acorn Capital Group, LLC; the amount demanded in judgment was 50 million dollars. That plaintiff asserted that it held a security interest in some of the Polaroid Corporation’s assets, including intellectual property rights, under a grant made by Tom Petters, but that he had committed fraud in the inducement by misrepresentations and breaches of warranty as to the identity and value of the collateral. Pl.’s Exh. 71 (Summons and Complaint).
29. At that time, Thane Ritchie concluded that the allegations in Acorn Capital Group’s complaint contradicted Tom Petters’s earlier representations to them, i.e., that the assets of the Polaroid Corporation were unencumbered. PL’s Exh. 41 (Ritchie depo. tr.), at 152-153,183-184. In response, he sent Wappler to Minnesota and told him not to leave “until we had our collateral.” Id. at 175.
30. As of September 1, 2008, all of the PCI/PGW note debtors were in default to the Ritchie Defendants. PL’s Exh. 54 (Ritchie-PGW/Petters promissory notes); PL’s Exh. 33 (Ritchie-PGW/Petters allong-es); Defs.’ Answer ¶ 34 (admitting that “all of the Notes ... were technically in default as of August 31, 2008....”) [Dkt. No. 8]. The Ritchie Defendants continued to demand collateral, as a condition of not calling the notes. PL’s Exh. 34 (E-mail from Thane Ritchie to Tom Petters (8/28/08)) [Filed under seal at Dkt. No. 69]; PL’s Exh. 35 (E-mail from Michael Lega-maro to David Baer, Simon Root, and others (9/6/08)) [Dkt. No. 65]; PL’s Exh. 72 (Email chain among Michael Legamaro, David Baer and others) [Dkt. No. 65]. The prospect that Tom Petters and his entity structure were insolvent was “an issue on the table and being discussed,” as between Tom Petters and the Ritchie organization. PL’s Exh. 30 (Root depo. tr.), at 173-174. Obligations by companies in the Petters organization to other large creditor-related entities were in default. Those creditors were demanding payment, audits, and physical inspection of ostensible collateral. PL’s Exh. 73 (E-mail chain between Deanna Coleman and Tom Pet-ters) [Dkt. No. 65]. In early September, Tom Petters was giving frantically-worded directives to employees of entities to find solutions, without offering specific ideas of his own:
I have serious need to get this done so we can get out of the box? Otherwise I am afraid I will not be able to? Any ideas on short term money to nbe [sic] taken out in 30 days nby [sic] this new 200mm dollar deal will A must. Any or all ideas I can’t be there till Friday afternoon to late to do Sabes and Ubid and others. I know everyone will ask what about the money we are owed. So do I. We need hedge deal resolved first or risk even larger problems. We need a team effort on getting Fhut, real estate, sun country notes, mu equity in hedge fund and or whatever assets we need or choices are bleak, please respond ig [sic] you have any sold ideas for all or part of a 60million dollar bridge? ? ?I need your help.
Thanks tom
PL’s Exh. 74 (E-mail chain among Tom Petters, David Baer, and others) [Dkt. No. 65].
31.At this time, the Ritchie entities’ outside counsel implicitly threatened suit if his clients did not receive “a blanket lien on the assets of PCI”:
[Given that this is not the first such “inability to give us what which has been *51promised and the overall unwillingness to be transparent with us, you are only further putting the nail in your coffin, presumably causing things to unravel from here.”] If you want to work an amicable resolution of our issues, you must — immediately—release to us credit agreements which supposedly impact your ability here. Frankly, you are losing credibility fast and that will be a very dangerous path to take.
PL’s Exh. 35 (E-mail from Legamaro to Baer, Root, and others (9/6/08)).
32. At the same time, the Polaroid Corporation was going through a cash shortage and it was delinquent on payments to its vendors. Pl.’s Exh. 75 (E-mail chain among Polaroid employees Scott Hardy and Philippe Kalmbach, and others) [Dkt. No. 65]. Around August 28, 2008, the Ritchie entities’ outside counsel were questioning whether taking security against the Polaroid Corporation would have any value, given the assertions in the Acorn litigation that Polaroid Corporation had preexisting secured debt to PAC Funding, LLC (the Acorn-related SPE), that encumbered the Polaroid Corporation’s assets. PL’s Exh. 76 (E-mail chain among Kenneth Rosenblum, Simon Root, and others) [Dkt. No. 65]; PL’s Exh. 77 (E-mail chain among Kenneth Rosenblum, Simon Root, and others) [Dkt. No. 65].
33. In an e-mail exchange that spanned September 15-16, 2008, Thane Ritchie demanded of Tom Petters that “we need to finalize our loans,” and “lets get docs signed.” PL’s Exh. 78 (E-mail chain between Tom Petters and Thane Ritchie) [Dkt. No. 65]. By an e-mail sent to Tom Petters on September 18, Thane Ritchie threatened that “this will get very messy without an agreement in place today.” He insisted that he “was last money in and should be first out,” as compared to the Lancelot entities that had lent into PCI. PL’s Exh. 79 (E-mail from Thane Ritchie to Tom Petters (9/18/08)) [Filed under seal at Dkt. No. 72].
S. The Grant of the Trademark Security Interests by the Polaroid Corporation.
34. On September 19, 2008, Thane Rit-chie and Tom Petters executed a final extension agreement as to the ten outstanding notes. A new maturity date of December 19, 2008 was fixed. PL’s Exh. 36 (Extension and Amendment Agreement) [Filed under seal at Dkt. No. 69]. On the same date, Tom Petters, on behalf of the Polaroid Corporation and in the stated status of its “Chairman,” executed a Trademark Security Agreement in favor of Ritchie Capital Management, as “collateral agent” for “the February Note Purchasers” under the Note Purchase Agreement executed on February 19 and the “May Note Purchasers” that had been involved in the May 9 advance to which Tom Pet-ters had committed himself, PCI, and PGW. PL’s Exh. 37 (Trademark Security Agreement) [Filed under seal at Dkt. No. 69]. Under the Trademark Security Agreement, the Polaroid Corporation purported to grant a security interest in the trademarks in Brazil, India, and China and associated property rights that the Polaroid Corporation then held or would thereafter adopt or acquire, to secure the various debt obligations of the PCI/PGW note debtors that had been reset to the new due date. Id. at Term 2(a).
35. The Polaroid Corporation had not received any of the funds that the Ritchie Defendants had advanced to PCI and PGW under the ten promissory notes. Nor did it receive any monies from the Ritchie Defendants at the time it granted the trademark security interests, or at any time after that. Martens Affid. ¶ 8; PL’s Exh. C (PwC preliminary analysis of Rit-*52chie and Associated Funds Note Payable Detail); Pl.’s Exh. 9 (Jeffries depo. tr.), at 103,107-108, 245-246.
36. Mary Jeffries, the CEO of the Polaroid Corporation, only found out about Tom Petters’s intention to grant the trademark security interests, when David Baer e-mailed her the final agreements, which were later signed without her presence and over her objections. PL’s Exh. 9 (Jef-fries depo. tr.), at 119-121. She told David Baer and Tom Petters that she “would prefer it not be done.” Id., at 120-121. Tom Petters rejected her objection. Id. at 121. She then expressed that she “was not happy about it,” to Michael Phelps, another executive in the Petters enterprise structure. Id. Jeffries recognized that “Ritchie was getting collateral for loans they had already made to Petters.” Id. at 116. She also recognized immediately that the grant of lien significantly reduced the unencumbered assets of the Polaroid Corporation, which “made it difficult to raise new financing for” the company in its own right. Id. at 117-122. The Polaroid Corporation needed such financing at the time, to furnish working capital for its ongoing operations. Id. at 128.
37. On September 25, 2008, Tom Pet-ters met with Thane Ritchie and Wappler in Tom Petters’s aircraft hangar. Pl.’s Exh. 41 (Ritchie depo. tr.), at 147. At that time, Tom Petters executed an additional inter-creditor agreement running among Petters Capital, LLC, RWB Services LLC (by Lancelot Investment Management, L.L.C.), Ritchie Capital Management, L.L.C., and others. This document was contemplated by the September 19 extension agreement. Pl.’s Exh. 80 (Security and Inter-creditor Agreement) [Filed under seal at Dkt. No. 73]. The terms of the inter-creditor agreement had been negotiated over the previous week. The agreement required the consent of Greg Bell, on behalf of the Lancelot entities that were large creditors of the Petters organization. Id.; PL’s Exh. 79 (E-mail from Ritchie to Petters). These events took place one day after the FBI’s raid on the Petters organization’s corporate headquarters and Tom Petters’s residence. PL’s Exh. 11 (Application and Affidavit for Search Warrant relating to Tom Petters’s home and office) [Dkt. No. 65].
E. Inferences as to Intent, on the Uncontroverted Facts at Bar.
1. Application of Presumption Under Federal Law: 11 U.S.C.
§ 5b8(a)(l)(A).
As noted earlier, the Ponzi scheme presumption is triggered in this variant context by evidence of two facts: first, an intentional act of transfer; and then a specific sort of motivation for having the related third-party transferor make the transfer.
The former point is not controversial. Tom Petters obviously knew what he was doing in September, 2008 when he finally granted the security interest to the Ritchie Defendants.
For a good seven months, Tom Petters had held the Ritchie entities at bay, resisting their mounting entreaties for a grant of security through the Polaroid enterprise. His tactics got him and the Petters organization through the four-month term of actual lending advances from the Rit-chie Defendants, and three months after that — without giving a nickel’s worth of collateral for over 150 million dollars of new debt. Thane Ritchie let him do it, over and over again. He did so without stopping the advances at any stage, to extract the formal grant of the security originally contemplated — a lien against the stock in the Polaroid Corporation. All the while, Thane Ritchie paid little mind to the use of the Ritchie entities’ funds, such as whether they actually led to a sale of the *53Polaroid North American brand to Iconix, as originally contemplated. And then Tom Petters gave in to stricter terms extracted for an extension of the due date for payment of the full debt incurred via those ten prior advances.40 Every action of the Rit-chie Defendants between early February and mid-May bespoke Thane Ritchie’s willingness to assume significant risk on the ten advances in the short term.
Obviously, Tom Petters took the benefit of that willingness, over and over again. The funds he obtained from the Ritchie Defendants enabled him to mollify multiple preexisting creditors that were already ensnared in the Ponzi scheme. It was only months after the last advance that Tom Petters resorted to the Polaroid Corporation’s assets to secure debt that was not of its making, under threats by the Ritchie Defendants that would have collapsed his whole enterprise structure.
In its requirement that a transfer have been made in furtherance of a Ponzi scheme, the presumption looks to the motive for the transfer. Put another way, the transferor must have intended that the transfer facilitate the preservation of the scheme, undetected by its current creditors and future investors. Under the original iteration of the presumption, the benefit from the transfer flows back — to preexisting creditors — and its brunt falls contemporaneously and going forward — on the investor-creditor that has lent on the inducement of a direct return from the purveyor’s ostensible use of the funds for a valid transaction. When the presumption is applied to a transfer by a third party related to the purveyor, there is an equally-cognizable brunt. It falls on that transferor-entity’s own creditors; whether present or future, all of them are unaware that ready value has been extracted out of the entity against which they otherwise had legal and practical recourse on their claims. As long as the all-controlling purveyor is motivated by a wish to conceal and carry on the main scheme, the deeming of any intent to hinder, delay, or defraud the separate transferor’s creditors is as plausible as it is under the original iteration. Really, it is as undeniable; it just goes with the territory.
That recognition is all that is necessary to trigger the presumption here. In finally caving to the Ritchie Defendants’ demand for assets as collateral, Tom Petters was struggling to prevent the collapse and disclosure of the Ponzi scheme structured around his ostensible “diverting” business. That disaster would have followed on the declaration of a default by the Ritchie Defendants, and their ensuing suit on direct and guaranty liabilities. Clearly, Tom Petters believed that such action would have finished him; it would have ended his options to wheedle new private investor-funding. Yes, the soundness of such a belief was probably nil, at a time when mounting tension and stasis in world financial markets was drying up capital anyway. *54However, the mere fact of the motivation is the point, and not its realism.
When Tom Petters allowed the Ritchie Defendants to structure the security as a direct encumbrance of valuable assets of the Polaroid Corporation, he was giving accommodations that he had not previously countenanced.41 Now, he was willing to take the first claim to the value of those assets away from two groups of creditors within the Polaroid Corporation’s own debt structure.42 His changed willingness was manifested by the intentional act of finally going ahead and doing so, making the pledge for the benefit of creditors alien to the Polaroid Corporation’s debt structure.43
*55The undisputed facts properly trigger the Ponzi scheme presumption for the Polaroid Corporation’s encumbrance of the trademark rights in favor of the Ritchie Defendants. There is no direct, probative, admissible evidence to defeat the powerful inference that makes out the one key fact — that the pledge was made in furtherance of the scheme. Because the presumption then dictates a finding that the transfer was made with intent to hinder, delay, or defraud the Polaroid Corporation’s creditors, and because the Ritchie Defendants have brought forward no probative, admissible evidence of sufficient weight to rebut the presumption, the grant of security interest is avoidable under 11 U.S.C. § 548(a)(1)(A).
2. Application of State Law with Use of Presumption: Minn.Stat. § 51S.U(a)(l).
The Minnesota enactment of the Uniform Fraudulent Transfer Act has a provision that is functionally identical to § 548(a)(1)(A), Minn.Stat. § 513.44(a)(1).44 In the Eighth Circuit, corollary provisions in the federal and state law that address intentionally-fraudulent transfers receive the same construction and application. In re Graven, 936 F.2d 378, 383 (8th Cir.1991) (Uniform Fraudulent Conveyance Act and § 548(a)(1) use “the same standard”); In re Graven, 64 F.3d 453 (8th Cir.1995); In re Craig, 144 F.3d at 593 (Congress intended to bring federal bankruptcy law of fraudulent transfers into conformity with analogous state law); In re Sherman, 67 F.3d at 1353. Absent a contrary judicial application or an express prohibition in state law, there is no reason not to harmonize the construction in the other direction, in the context of a bankruptcy case.45
It is simple, then: the corollary provision of Minn.Stat. § 513.44(a)(1) furnishes equal authority for the adoption of the Ponzi scheme presumption, as extended under bankruptcy law, for the avoidance of the Ritchie Defendants’ liens against the property of the Polaroid Corporation. The grant of security interest may be avoided under Minnesota law, through the empowerment of 11 U.S.C. § 544, as well.
3. Badges of Fraud Under Federal and State Law: 11 U.S.C. § 518(a)(1)(A) and Minn.Stat. §§ 513.11(a)(1) and 513.U(b).
Apart from the Ponzi scheme presumption, there is an alternate basis for fact-finding as to actual intent in this matter. It also uses a process of inference, on the so-called “badges of fraud” analysis. This tool for adjudication is based on the same near-inevitability in real life, that “proof of actual intent to hinder, delay or defraud creditors may rarely be established by direct evidence.” In re Sherman, 67 F.3d at 1353. Thus, the law allows “courts [to] infer fraudulent intent from the circumstances surrounding the transfer.” Id. In such circumstances, legislatures and courts alike have recognized that certain events, acts, and statuses, in some meaningful combination, evidence a transferor’s intent to hinder, delay, or de*56fraud its creditors. These factors are termed “badges of fraud.” The legislative recognition of the badges in state fraudulent-transfer statutes receives deference from the federal courts, by their incorporation into the application of § 548(a)(1)(A). M46
The Minnesota enactment of the Uniform Fraudulent Transfer Act enumerates various badges of fraud at Minn.Stat. § 513.44(b), “which help to determine actual intent.”47 Citizens State Bank of Hayfield v. Leth, 450 N.W.2d 923, 927 (Minn.Ct.App.1990). See also, generally, U.S. v. Scherping, 187 F.3d 796, 804-805 (8th Cir.1999), cert. den., 528 U.S. 1162, 120 S.Ct. 1175, 145 L.Ed.2d 1084 (2000). Some of these factors refer to acts, with reference to the recipient. Most of them focus on the subject debtor’s condition or actions. As evidence, all go to the intent of the transferor, which logically is equated to the debtor.48 Those badges dealing with debts and assets presumptively implicate those of the debtor-transferor. And finally, because the remedy functions to protect creditors of the transferor, courts usually consider the badges dealing with debt as focusing on the debts of the debtor-trans-feror.
When actual-fraud litigation is brought on a debtor’s transfers of its own property for the benefit of a related third party, the frame of reference is somewhat different from that usually associated with the statutory badges. However, where the transfer is effected by a person in common control of both, this only requires a readjustment of the analysis; it does not make the badges of fraud inapplicable. First attention must still be given to the transfer’s impact on the debtor-transferor’s own creditors, in the forms of the debtor’s reduced solvency in a balance-sheet sense, its impaired ability to respond to its creditors on an ongoing basis, or the onset of actual insolvency. But where a person in control of a debtor-transferor brings about the transfer to benefit the creditor of a related, commonly-controlled entity, the financial insecurity and the actual or potential insolvency of that third-party entity is more powerful circumstantial evidence of an actual intent to impair the rights of the creditors of the transferor-entity—emanat-ing as it does from the person in common control.
Due to the variant context, most of the badges in the Minnesota statute’s nonexclusive listing do not lie perfectly on their wording, for this case. Nonetheless, the essence is present.
a. Minn.Stat. § 513.44.(b)(8): Lack of Reasonably Equivalent Value for Transfer.
In a non-quantified sense the presence or lack of reasonable equivalency between the value transferred and the worth of any consideration received by the debtor is a relevant consideration here, and not only by reference to Minn.Stat. § 513.44(b)(8). The Eighth Circuit has found a badge of fraud in the gratuitous transfer of a property interest, without exchange for consideration of value re*57ceived by the debtor-transferor. In re Bateman, 646 F.2d 1220, 1222-1223 (8th Cir.1981). In that regard, the Polaroid Corporation’s transfer to the Ritchie Defendants did not result from or result in the grant of any credit or the payment of any money to the Polaroid Corporation. It was entirely a grant of security after the fact, for the preexisting debt of a third party. There is no evidence of any quantifiable value received by the Polaroid Corporation for a transfer made expressly for the benefit of that related third party. This is a significant badge of Tom Pet-ters’s fraudulent intent to extract value out of the Polaroid Corporation, resulting in detriment to its own creditors.49
*58
b. Minn.Stat. § 51341(b)(3): Concealment of Transfer.
The disclosure or concealment of the transfer is another statutory badge, Minn. Stat. § 513.44(b)(3). There is no evidence of record that Tom Petters disclosed the encumbrance of the trademarks to any of the Polaroid Corporation’s trade creditors, or that there would have been any way for such creditors to learn of the effective subordination of their recourse against the value in some of their debtor’s most valuable assets, before the liens were perfected.
Further (though the point is more attenuated), the transfers were certainly concealed from parties that had a stake derivative of the claims of the other (and more significant) class of creditors in the Polaroid Corporation’s debt structure. Those unknowing parties were the non-Ritchie creditors of PCI and PGW, and not merely such creditors with claims that arose from the Ponzi scheme. PCI and PGW were major unsecured creditors of the Polaroid Corporation under very large booked inter-company lendings. In broad brush, they had a status common with the Polaroid Corporation’s trade creditors. The point, however, is that PCI’s and PGW’s own creditors had every interest in seeing that the Polaroid Corporation made good on its obligations to them under the inter-company grants of credit. This might be done from revenues from an operation enabled by bona fide third-party financing to be secured by the Polaroid Corporation’s assets, or it might come from the liquidation of the Polaroid Corporation’s still-unencumbered assets in a worst-case scenario. It does not matter which. The point is, with as tight a set of corporate relationships as this, the creditors of PCI and PGW would have wanted to know about what happened to the Polaroid Corporation’s most significant assets when their value and availability were as deeply affected as this.
Finally, there is a second way to recognize the interest of that same constituency — the creditors of the Polaroid Corporation’s second-level parent, PGW — by looking upstream in the ownership chain. PGW’s own creditors would have a valid, generalized expectation that the Polaroid Corporation would remain viable and unencumbered by debt that was not its own obligation, keeping its assets and options unburdened and hence providing a means for PGW to satisfy its own debts from dividends or the sale of equity with value that would be funneled through the intermediate holding company.
The encumbrance of the trademarks in favor of the Ritchie Defendants took significant value, actual and potential, away from all these parties up and down the corporate structure. By the time that any creditor of PCI or PGW could have retrieved a UCC filing against the Polaroid Corporation, it would have lost its chance to protest or to take preemptive action. Tom Petters yielded the senior value in trademarks to the Ritchie Defendants in secret from all who could have looked to the Polaroid Corporation’s unencumbered assets. This secrecy is significant circumstantial evidence of his intent to defraud the Polaroid Corporation’s creditors.
c. Minn.Stat. § 51341(b)(1): Suit, or Threat of Suit.
In material proximity with a challenged transfer, the commencement of suit against the transferor or the threat of suit is a badge of fraud under Minn.Stat. § 513.44(b)(4). In re Larson, 245 B.R. 609, 616 (Bankr.D.Minn.2000); Citizens *59State Bank of Hayfield v. Leth, 450 N.W.2d at 927. Obviously, this badge stems from the likelihood that a party anticipating a judgment-debtor status will be motivated to shelter its assets from collection by transferring them to a third party.
By late August, 2008, Tom Petters undeniably saw that several parts of his enterprise structure were vulnerable in this way. There was the commencement of the Acorn Capital Management lawsuit; and there was the Ritchie Defendants’ barely-veiled threat through attorney Legamaro. Yes, the Polaroid Corporation was not a defendant in the pending action (Acorn’s), and would not have been in the threatened one. But that does not matter. The person in common control clearly was scared of the consequences to his whole enterprise structure, long-avoided but imminent. He clearly was willing to do whatever it took to stave off suit from the Ritchie Defendants. It is not material that the transfer was made to mollify a threatening opponent by giving it asset value, rather than spiriting assets away from a successful one. In the end, it led to the same detriment, a prejudice to creditors of the transferor that otherwise would have looked to the assets for their satisfaction.
d.Minn.Stat. § 51341(b)(5): Transfer of “Substantially All” of Transferor’s Assets.
The emptying-out of value from a trans-feror that results from a challenged transfer is another badge, whether in whole or by a substantial portion of the transferor’s assets. Minn.Stat. § 513.44(b)(5); U.S. v. Scherping, 187 F.3d at 805. Again, the badge is premised on a logical coincidence within human experience: this sort of act is too frequently prompted by a motivation to see that a pressing creditor does not get the assets — whether the goal is to shelter them for later retrieval or not. Between the earlier pledge to Acorn Capital Management and the one at bar, the Polaroid Corporation transferred its trademark portfolio, probably the most valuable asset it had at the time. At the same time, it gave away most or all of its ready ability to secure any further third-party borrowing in its own right. The magnitude of the total loss to the Polaroid Corporation matches the essence of this badge. Cf. U.S. v. Scherping, 187 F.3d at 805 (staged transfer of nearly all of debtor’s assets, in separate conveyances, can be badge of fraud under Minn.Stat. § 513.44(b)(5)).
e.Transfer Effected by Sole Person in Common Control.
In evaluating actual intent under the badges-of-fraud approach, the court can consider “other [non-enumerated] factors bearing on the issue of fraudulent intent,” as a matter of logic and general human experience. In re Sholdan, 217 F.3d at 1010. Though none of the badges recited in the Minnesota statute encompass it, it is pivotal here that the transfer was directed and effected at the sole instance of Tom Petters, who held iron control of all of the business entities involved via his 100% ownership, and who had the very most to lose were he not to use the ploy of pledging the trademarks.
f.Outcome, on Consideration of Badges Noted.
The last factor clinches it, when tied back to the others: even without the overlaid backdrop of a collapsing Ponzi scheme, these badges cumulate to independently support the inference that Tom Petters was willing to materially impair the interests of the Polaroid Corporation’s creditors by encumbering assets otherwise subject to their claims, and was ready to go ahead and do that in mid-September, 2008. This meets the actual-intent requirement under either bankruptcy law or the Minnesota statute. The avoidance of the grant of *60liens is thus merited, independently of the Ponzi scheme presumption.
II. The Ritchie Defendants’ Affirmative Defense: Receipt of Security Interests for Value and In Good Faith.
The Trustee has also moved for summary judgment on the one statutory affirmative defense that the Ritchie Defendants raised against all of his fraudulent-transfer theories. This defense entails two fact issues: whether the grant of the trademark security interests was made for value given to the Polaroid Corporation, and whether the Ritchie Defendants acted in good faith in receiving them. The defense is recognized under both statutes invoked by the Trustee: the federal, at 11 U.S.C. § 548(c),50 and the state, at Minn. Stat. §§ 518.48(a) and (d).51 With the exception of one qualifying adjective that does not come into play here, the language of the statutes is indistinguishable in application.
A. Fact-Finding as to Transferee’s Good Faith, Under Judicial Construction of Applicable Statutes.
As to the good-faith element, the inquiry once again goes to a state of mind. This time, it is on the part of the transferee. Direct proof is again relatively rare; so the appellate courts have authorized fact-finding based on the sort of objective evidence that is more likely forthcoming. They permit the ultimate intent to be deemed on findings of the right sort-recognizing the conclusions that any rational participant in such a transaction would reach on learning of such circumstances.
The governing precedent plays out that way, as follows. The Eighth Circuit recognizes that good faith under § 548(c) “is not susceptible of precise definition and is determined on a case-by-case basis.” In re Sherman, 67 F.3d at 1355. Even though the focus of the inquiry is “subjective” in a connotative sense, “courts look to what the transferee objectively knew or should have known instead of examining the transferee’s actual knowledge from a subjective standpoint.” Id. (quoting In re Agric. Research & Tech. Group, Inc., 916 F.2d 528, 535-536 (9th Cir.1990) (interior quotations omitted)). “In other words, a transferee does not act in good faith when he has sufficient knowledge to place him on inquiry notice of the debtor’s possible insolvency.” Id. See also In re Armstrong, 285 F.3d 1092, 1096 (8th Cir.2002) (reiterating that inquiry over transferee’s knowledge or notice goes to insolvency of debtor-transferor, as ultimate subject); In re Grueneich, 400 B.R. 688, 693-694 (8th Cir. BAP 2009).
In a way, this analysis circles back in part to the transferor’s actual intent in relation to its own creditors, as the key to the threshold claim for avoidance: “to determine whether good faith exists, the court looks to whether the transaction carries the earmarks of an arms-length bar*61gain.” In re Sherman, 67 F.3d at 1355 (citation and interior quotes omitted). The status of an arms-length bargain places the justifiability of the transfer and its terms against another sort of objective standard.
Oddly, there does not seem to be any published construction of the “good-faith-purchaser-for-value” defense from the Minnesota state appellate courts, under the local enactments of the Uniform Fraudulent Transfer Act and its predecessor, the Uniform Fraudulent Conveyance Act.52 In the absence of that, the federal interpretation of the remedies in bankruptcy should be taken as the most likely approach that the Minnesota state courts would adopt. Harmonizing the construction of cognate legislation is as appropriate for the defenses as it is for the main remedy.
B. Good Faith or Lack Thereof, on the Part of the Ritchie Defendants, in Receiving the Security Interests.
The application of the federal-law precedent must contend with the skewed alignment of the participants’ interests, which again was somewhat different from that understood for the Eighth Circuit’s original framing of the defense. The question is the relative “goodness” of the Ritchie Defendants’ “faith” in extracting value from an entity that was not its debtor, via a pledge of that company’s assets for the debt of another. The event of transfer and its involved history are the same; but a heavy cleaver must be applied to identify the determinative facts and circumstances that are relevant to an objectively-driven process of inference.
In this regard, neither side’s presentations were tight enough in their theory. Both sides wandered astray in the way they weighted basic facts. The Trustee based too much of his argument on the terms of the Ritchie entities’ original lending to PCI and its related entities, which he repeatedly impugned as exploitive and even predatory. However, those transactions were only backdrop to the transfer to be subjected to avoidance, an extraction of value from the Polaroid Corporation. On the other hand, the Ritchie Defendants disputed the Trustee’s right to summary judgment by culling isolated disputes of fact from the fruits of discovery. But, none of those points are truly outcome-determinative of the issue of fact that goes to an essential element of their defense, under the governing precedent.53
In the end, those circumstances indisputably known to Thane Ritchie before the grant of the security interests, objectively manifested to him, compel only one inference on the central fact question for this affirmative defense.54 The following are *62the uncontroverted facts going to that.55
1. Ritchie Entities’ Original Lending to PCI, PGW, and Tom Petters: Backdrop, Due Diligence, and Reliance.
38. The 2008 lending was not the first contact between the Ritchie entities and the Petters enterprise structure. In 2002, the Ritchie entities first evaluated the prospect of lending to or investing in the Lancelot Funds, which had been providing financing to PCI for its ostensible operations. Pl.’s Exh. 41 (Ritchie depo. tr.), at 67-69. In addition, Thane Ritchie had considered lending to the Polaroid Corporation in 2005. Id. at 22-25, 67-69. Neither effort resulted in direct lending from the Ritchie entities to any company in the Petters enterprise structure, including the Polaroid Corporation. Id. at 22-25, 42-43, 67-69.
39. In 2002, the Ritchie entities had engaged one Jeff Nason for investigation in connection with a possible lending to the Petters enterprises or to the Lancelot Funds. Id. at 67-68. Nason is an “independent consultant” in finance, but he had formerly been employed by the accounting firm of Coopers & Lybrand. Id. at 68. In 2005, when reviewing the possible deal with Polaroid, the Ritchie entities hired “somebody” who “dug into the balance sheet [of the Polaroid Corporation] and the value of Polaroid at the time,” for the Ritchie entities, “estimating its value of over a billion dollars.” Id. at 67-68.
40. However, the Ritchie entities did not engage Nason or anyone else in 2008, for any purpose in connection with the lending or investment initially proposed by George Johnson at Capital Financial Ad-visors, LLC. Id. (admitting that the Rit-chie entities relied on the previous “due diligence”).
41. In 2008, the Ritchie entities’ personnel considered only two sources of information for the Petters enterprise structure and the Polaroid Corporation, to evaluate the lendings that were to begin at the beginning of February:
a. materials prepared or given by third parties at that time, which consisted of a letter from Northern Trust attesting that Tom Petters “was in high standing,” Pl.’s Exh. 41 (Ritchie depo. tr.), at 69,114; and
b. materials prepared within the Pet-ters enterprise structure, provided by Camille Chee-Awai to Thane Ritchie on February 1, 2008, which consisted of:
i. a draft of financial statements for the Polaroid Corporation for 2006, prepared internally for purposes of an audit that may not have been held;
ii. a report on the Polaroid Corporation’s financial performance as of November 30, 2007, generated internally and sent to creditor J.P. Morgan; and
iii. a “report” by Duff & Phelps that evaluated the Polaroid brand, prepared for some other purpose and for some other party; and
iv. a “summary of historical finan-cials and capital structure of Polaroid.”
PL’s Exh. 51 (E-mail from Camille Chee-Awai to Thane Ritchie (2/1/08)) [Filed under seal at Dkt. No. 70]; PL’s Exh. 41 (Ritchie depo. tr.), at 69.
42. The Ritchie entities never received audited financial statements or any other form of source-checked or verified report for the Polaroid Corporation, before they advanced the full amount of their lending *63to the PCI/PGW note debtors. That lack was not a “big concern” for Thane Ritchie. Pl.’s Exh. 103 (Transcript of deposition of Thane Ritchie (5/25/10)) [Dkt. No. 103], at 60-61.
43. Wappler asked James Wehmhoff for a personal balance sheet and other personal financial information for Tom Petters; but the Ritchie entities never received any of it. Wappler himself did not pursue these materials because “as an associate at Ritchie Capital, [he was] taking a lot of direction from above;” and he was not tasked to be “solely responsible for all diligence around this.” Wappler could not explain “why Ritchie as a group didn’t decide to pursue that further.” Pl.’s Exh. 104 (Transcript of deposition of John Wap-pler (5/21/10)) [Dkt. No. 103], at 58-59.
44. Neither Wappler nor any other Rit-chie personnel ever contacted an ostensible customer of PCI’s diverting business, to verify that PCI was transacting and generating revenues as represented to the Rit-chie entities. All Ritchie personnel yielded to Tom Petters’s blandishment that the diverting business entailed utter secrecy as a prevailing norm, and that this sensitivity prevented PCI from allowing lenders to obtain such verification as a part of their due diligence. Pl.’s Exh. 49 (Wap-pler depo. tr.), at 45. The Ritchie entities never second-guessed Tom Petters’s statement as to the need for such secrecy. There is no evidence in the record to establish that this was an industry norm.56
45. The possibility of imposing contractual restrictions on the use of lent funds was discussed. However, the Ritchie entities’ personnel relied on Tom Petters’s blandishment that “it would really screw up [PCI’s] business if we put a lot of restrictions on the loans.” Pl.’s Exh. 41 (Ritchie depo. tr.), at 75-76. Thus, the Note Purchase Agreement expressly gave the borrowers in the Petters enterprise “sole discretion” as to the use of funds lent. PL’s Exh. 27 (Note Purchase Agreement), § 1.3.57 In “not really hav[ing] an issue” with these terms, Thane Ritchie and his companies’ personnel relied in a broad way on “the collateral [being] good.” PL’s Exh. 41 (Ritchie depo. tr.), at 75-76. A lien against the equity shareholding in the Polaroid Corporation was the only “collateral” in discussion at that point.
46.One and two days after Thane Rit-chie had the first 31 million dollar advance wired to PCI, he and other personnel of the Ritchie entities had various concerns about the possible risks in a larger lending to PCI that would be secured by Polaroid Corporation’s stock, and discussed them among themselves:
a. On February 2, 2008, Thane Ritchie referred the matter to John Ker-math for his evaluation, stating that Polaroid “looks like a good brand but they are not making money and space may be tougher going forward ...” PL’s Exh. 48 (E-mail chain among Thane Ritchie, John Ker-math, and others) [Filed under seal at Dkt. No. 70].
b. Later on February 2, 2008, Wap-pler opined back to Thane Ritchie *64and others that a “revolver” in favor of J.P. Morgan already had “first lien on all assets” of the Polaroid Corporation, with the 209 million dollars’ worth of remaining debt on the books of the Polaroid Corporation being “basically Petters in some form or fashion,” i.e., inter-company debts to PCI or others in the Petters enterprise structure, “all subordinated to the [J.P. Morgan] revolver ...” Wappler’s bottom-line conclusion was that “90% of the debt is Petters, but the pledged stock [in the Polaroid Corporation] would be still subordinated to the debt payments ...” Pl.’s Exh. 50 (E-mail chain among John Wappler, Thane Ritchie, and others) [Filed under seal at Dkt. No. 70].
c. Kermath then opined, by e-mail, to Thane Ritchie and others, on February 3, 2008: “Still thinking through the issue of lending money to the sponsor against company stock where the key lender to the company is the sponsor (and has a demand note). Pretty unusual. At first blush, with $31MM loan outstanding I’m not worried. At $100MM, I’m more worried and we are in a stretched position.” Pl.’s Exh. 51 (E-mail chain among John Kermath, Thane Ritchie, and others) [Filed under seal at Dkt. No. 70].
d. Later on February 3, 2008, John Wappler sent an email to Thane Ritchie and others directing their attention to severe liquidity and cashflow concerns in the past: “According to the 2006 financial statements, Polaroid broke some covenants on the revolver in 2006 and entered a forebearance agreement with the lenders, reducing the maximum borrowing limit to $145MM.” Id.
47. But then the next day, February 4, 2008, Thane Ritchie replied to Kermath and the others, “[n]othing usual about this deal including the IRR!! — need to make sure we get the pledge against Pol all lined up this week — standstill or first right o[sic] refusal makes sense.” Id.
48. Thane Ritchie’s reference apparently was to the “Internal Rate of .Return.” On the ten promissory notes executed by Tom Petters on February 19, 2008, the stated annual interest rate was 80%. PL’s Exh. 54 (Ritchie-PGW/Petters promissory notes).
49. In Kermath’s estimation at the time, this interest rate was greatly out of the ordinary for the Ritchie entities’ operations. He could not think of another lending on the portfolio that bore such a high rate of interest. Pl.’s Exh. 31 (Kermath depo. tr.), at 78-79. Two years after the fact, Kermath opined that the rate was a reflection of “huge liquidity issues or systemic issues that were beginning to be apparent” in the general financial markets at the time, with “[b]anks ... pulling back in loans at the time.” Id. at 68-69 and 78.
50. Tom Petters told Thane Ritchie “right up front” that the Petters enterprise would use the Ritchie entities’ advances to pay off earlier hedge-fund lenders. PL’s Exh. 8 (Petters testimony tr.), at 3045.58 In addition, Deanna Coleman prepared and provided a spread sheet to the Ritchie entities, which recited an itemization of payments to prior creditors from the funds that the Ritchie entities had lent *65into the Petters enterprise structure. PL’s Exh. 6 (Coleman depo. tr.), at 92.59 By-June, 2008 at the latest, the Ritchie entities had received direct notice from the Petters enterprises that PCI had used all of the Ritchie cash infusions to pay preexisting creditors. PL’s Exh. 49 (Wappler depo. tr.), at 46-47, 154-155; PL’s Exh. 6 (Coleman depo. tr.), at 92-94, 99-100, 220-229; PL’s Exh. 67 (E-mail from Deanna Coleman to Tom Petters) (6/30/08) [Dkt. No. 65]; see generally PL’s Exh. 68 (Email chain among Wapper, Coleman, and others).
2. The Polaroid Corporation’s Grant of Security Interests: Ritchie Entities’ Final Push and Circumstances Surrounding Grant.
51.After Thane Ritchie learned of the Acorn Capital Management lawsuit against PCI in early August, he put much stronger pressure on Tom Petters to formalize and finalize a grant of collateral security to the Ritchie Defendants. He was very concerned about the allegations that the Polaroid Corporation had already pledged intellectual property rights to Acorn. PL’s Exh. 41 (Ritchie depo. tr.), at 152-153. At that time, an outside attorney for the Rit-chie entities evaluated his clients’ options for taking such security. He expressed serious doubts about the practical value of any security taken through the Polaroid Corporation. He concluded preliminarily that existing liens in favor of the Acorn group would leave a lien to the Ritchie entities “subordinated entirely.” He expressly envisioned a scenario: “... unless Acorn is gone in its entirety, Polaroid is near insolvency and the grant of any collateral to us would appear meaningless. Am I missing something?” PL’s Exh. 76 (E-mail chain among Legamaro, Root, and others). After viewing the Acorn security interest, the same lawyer opined: “Confirming my point. The Polaroid collateral is not available and not at all acceptable.” Id.
52. By early September, 2008, the Rit-chie entities had broached the prospect that Tom Petters and the PCI/PGW enterprise structure were insolvent. The parties and their attorneys were intentionally structuring their negotiations in light of the possibility. PL’s Exh. 30 (Root depo. tr.), at 173-174. In particular, they were contemplating that an extended due date on the promissory notes be fixed at least 90 days after a grant of lien to secure them, in light of possible litigation to avoid the grant of lien as a preference under bankruptcy law. Id. at 174.
53. By September 15-16, 2008, Thane Ritchie and Tom Petters were dealing directly with each other on a complex of issues: the defaulted status of the promissory notes; the Ritchie entities’ right to call them due immediately; the Ritchie entities’ demands for collateral security; and the contemporaneous onslaught by demands from Lancelot Investors Fund and its affiliates, which held even larger claims against PCI and the other Petters entities. Their communications on those days evidence that both men were getting frantic:
a. First, Thane Ritchie wrote to Tom Petters: “Please call tonight — we need to finalize our loans or it will be a mess — this is a real issue!!! — i left you a voice mail earlier!!!” *66Pl.’s Exh. 78 (E-mail chain between Thane Ritchie and Tom Petters).
b. Tom Petters responded: “I will call at a dinner trying to squeeze money from melon [sic] bank!!!” Id.
c. Reiterating his first e-mail, Thane Ritchie shot back: “Please call tonight — we need to finalize our loans or it will be a mess — this is a real issue!!! ... Also meeting greg bell tomorrow to help him and want to follow up on other short term issues.” Id.
d. Later that night, Tom Petters lamented: “Can’t sleep well tonight ... I am very upset and full of anxiety. I cannot make this whole thing go down. I must treat all as fairly as I know how. Please see what you can do to help Greg [Bell] raise dollars. Also know that we must both do the right things.” Id.
e. Thane Ritchie responded to Tom Petters with words of encouragement, albeit with the same amount of urgency: “Hang tough — we will get through this — lets get docs signed — i will handle greg — maybe i can fly down wed or meet fri — lets discuss dycal [sic] deal today.” Id.
54. On September 18, 2008, Thane Rit-chie told Tom Petters, via e-mail, that “this will get messy without an agreement in place today.” He expressed his concern that Greg Bell, on behalf of the Lancelot entities, was “grabbing value from both of us.” He complained that Bell didn’t “understand” that the Ritchie entities had been “last money in and should be first out.”60 Pl.’s Exh. 79 (E-mail from Ritchie to Petters).
55. After that:
a. Tom Petters and Thane Ritchie executed the Extension Agreement and the Trademark Security Agreement on September 19, 2008. PL’s Exh. 36 (Extension and Amendment Agreement).
b. On that very date, per Mary Jef-fries, the Polaroid Corporation was unable to meet its regular accounts payable when due. PL’s Exh. 83 (Partial rough transcript of deposition of Mary Jeffries (9/30/10)) [Dkt. No. 65], at 60.
c. On September 19, 2008, Tom Pet-ters, PGW, Thane Ritchie, and Greg Bell as manager of Lancelot Investment Management, LLC, agreed on terms for a joint pledge agreement under which Petters Capital, LLC (the Lancelot SPE) gave the Ritchie entities a security interest in certain inter-company obligations of the Polaroid Corporation to PGW under preexisting promissory notes. This was given as further security for PGW’s liability to the Ritchie entities that originated with the promissory note. Defs.’ Exh. 53 (Agreement Regarding Pledge of Thousand Lakes Shares and Related Matters) [Filed under seal at Dkt. No. 96].
d. The FBI conducted its search on September 24, 2008. PL’s Exh. 11 (Application and Affidavit for Search Warrant).
e. Later on September 24, 2008, PGW issued a press release acknowledging the search of the Petters enterprise’s headquarters by the FBI, the Internal Revenue Service, and the Minnetonka, Minnesota Police *67Department. Exh. 81 (Letter from Ritchie Capital Management, LLC and others to Tom Petters, PGW, and PCI (9/26/08)) [Dkt. No. 65] (acknowledging existence of press release).
f. On September 25, 2008, Thane Rit-chie, Wappler, and Tom Petters met at a party being held in Tom Pet-ters’s aircraft hangar. Tom Petters signed the inter-creditor and security agreement contemplated by the terms reached on September 19. Pl.’s Exh. 41 (Ritchie depo. tr.), at 147; Pl.’s Exh. 80 (Security and Inter-creditor Agreement).
3. Only Possible Inferences on Basic Facts: No Value Received by Polaroid Corporation, and Lack of Good Faith on Part of Ritchie Defendants.
As noted earlier, to avail themselves of the defense to avoidance at the Trustee’s instance, the Ritchie Defendants must prove two elements: that they took the trademark security interests for value given to the Polaroid Corporation, and that they acted in good faith in receiving them. 11 U.S.C. § 548(c); Minn.Stat. §§ 513.48(a) and (d). The Ritchie Defendants have the burden of production of evidence on both of these elements. Stoebner v. Lingenfelter, 115 F.3d at 579 (holding that defendant in action under 11 U.S.C. §§ 544 and 548 “failed to carry the substantial burden necessary ... on his ‘good faith for value’ defense”); In re Grueneich, 400 B.R. at 693.
Taking a page from Celotex Corp. v. Catrett, 477 U.S. at 322, 106 S.Ct. 2548, the Trustee makes a preemptive challenge to the Ritchie Defendants’ ability to do so. He maintains that all of the extant, basic evidence on both elements of the affirmative defense goes only one way, i.e., that it cannot sustain findings to make out either element for the proponents of the defense. He is correct.
In the first place, the record cannot support a finding that the Polaroid Corporation received cognizable “value,” in the .sense of something concrete, quantifiable, and reducible to equivalent dollars, when its assets were pledged over the misgivings of its own management for debt owing in part by its second-level parent company.
The ascertainment of value in this context should be done in an objective sense, with reference first to the marketplace, and it must reverberate against the definition in 11 U.S.C. § 548(d)(2)(A):
In this section—
(A) “value” means property, or satisfaction or securing of a present or antecedent debt of the debtor, but does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor;
By this very definition, any consideration going toward satisfying a debt must be toward a debt of the debtor in bankruptcy, to constitute “value” in itself. In re Richards & Conover Steel Co., 267 B.R. at 612 (applying statutory definition of “value” to analysis of “reasonably equivalent value” under 11 U.S.C. § 548(a)(1)(B)). If an indirect benefit to the debtor derived from the satisfaction of the debt of another is offered in defense as the “value,” it must be “fairly concrete.” In re Minn. Util. Contracting, Inc., 110 B.R. 414, 420 (D.Minn.1990). The party claiming to have delivered such value must quantify it, as to the debtor. In re Southern Health Care of Ark., Inc., 309 B.R. 314, 319-320 (8th Cir. BAP 2004); In re Richards & Conover Steel Co., 267 B.R. at 614.
Toward this point, the receipt of “fairly concrete” value, the Ritchie Defendants offer no more than the “importance to *68[the] Polaroid [Corporation] that PGW remain a viable parent company,” “with respect to [the] Polaroid Company’s ability to secure needed financing....” Defs.’ Opp’n at 41. In the context of the actual, contemporaneous conditions, the notion is laughable.
PGW and Tom Petters’s other companies were not finding financing for themselves, let alone for the Polaroid Corporation — hence their huge difficulties with the Ritchie Defendants. And it is striking that the Ritchie Defendants were fully on notice of that. At the same time, the Ritchie Defendants strongly suspected that the reasons for those difficulties pierced far more closely to their own situation; it was not just the general condition of the financial markets. The prospect of insolvency up and down the Petters enterprise structure was a point of open discussion across these parties, before the grant of the security interests. In such near-crisis conditions, there was no way to quantify the indirect benefit to the Polaroid Corporation from maintaining PGW against a default to the Ritchie Defendants. It was rapidly becoming a matter of “every company for itself,” with each entity’s interests to be considered in strict isolation, for the purposes of a determination of value in retrospect. See generally In re Jolly’s, Inc., 188 B.R. at 844-845.
The Ritchie Defendants have failed their burden as proponents of their affirmative defense, as to its requirement of “value” received.61 Their resistance to the Trustee’s motion would fail on that element alone.
To like effect, the evidence of record could not support a finding that the Rit-chie Defendants acted in good faith in receiving the trademark security interests.
In the end-stages of the events, the Rit-chie Defendants may have rationalized their resort to a direct lien against the Polaroid Corporation’s assets as a matter of just desserts: that is, the main brunt of their taking a secured position against the trademarks would fall on the Ritchie Defendants’ own debtors — PCI and the other Petters-related entities — even though such a security interest would functionally prime a claim in their favor over those of all of the Polaroid Corporation’s own unsecured creditors. The premise for this rationalization would be the heavy presence of intercompany liabilities to PCI and the other Petters-related entities in the Polaroid Corporation’s preexisting debt structure. Those parties’ claims would represent the bulk of value to be functionally subordinated by the attachment of a lien.
But, by the late summer of 2008, the Ritchie entities’ personnel and their attorneys expressly recognized that the Petters enterprise structure and its component entities might well be insolvent themselves, burdened by heavy debt to their own cred*69itors. There is no evidence of record that the Ritchie entities’ personnel knew the identity of those creditors, or the nature of their claims. But, in context it is not necessary for the Trustee to prove that they knew, or even suspected, that these creditors were the victims of a PCI-purveyed Ponzi scheme, as a prerequisite to countering their assertion of the good-faith defense. The Trustee only had to prove that the Ritchie entities knew of the circumstances of the Polaroid Corporation’s insolvency or severe financial distress. The recognition would follow directly after that, by logical progression to anyone involved in secured finance: the Ritchie entities’ receipt of a transfer of valuable property rights from the Polaroid Corporation, in the form of liens, would shove that grantor’s creditors aside from any recovery of the corresponding value. The Trustee has produced unrebutted evidence of that notice; and the inference of the awareness of the consequence follows, without evidentiary rebuttal by the Ritchie Defendants. This is sufficient to bar a finding for them on their conclusory assertion of good faith; and that conclusory assertion is all that they present as a prima facie case for this element.
The Trustee’s case for summary judgment is only strengthened by his unrebut-ted proof of an additional sort of knowledge and notice to the Ritchie Defendants contemporaneous with the grant of the trademark security interests: the distinct possibility that PCI, PGW, and their related entities were insolvent in August, 2008. The Ritchie entities gained this more specific knowledge months after they first were told, and believed, that PCI was engaged in the diverting business, with leverage provided by multiple other parties. It is also significant that the debt had been contracted as very short-term obligations, reflecting all sides’ assumption that the note debtors would have the means shortly after their original receipt of the advances. From the PCI/PGW note debtors’ subsequent nonperformance, the Ritchie Defendants were amply aware that they lacked the means to repay as originally scheduled and for months afterward. The presence of claims in favor of the PCI/PGW enterprise structure within the Polaroid Corporation’s debt structure portended large prejudice to the creditors of PCI, PGW, and their related entities, due to the conduit effect of that presence: the Petters-related entities could look to the Polaroid Corporation for repayment of the inter-company liabilities to them, and in turn the creditors of the Petters-related entities would look to that recovery of value for the satisfaction of their own claims.
The Ritchie entities had direct knowledge of this second-level financial distress. That knowledge erodes any remnant credibility in their assertion of good faith in the way they extracted the trademark security interests from an entity that was not even their own debtor.
Finally, there is the alternate consideration suggested by the Eighth Circuit in Armstrong: whether the transfer objectively qualifies as an incident of an arms-length transaction. Under that inquiry, the good faith element turns on the externally-manifested fairness-and-squareness of the transfer, to transferee and transfer- or alike. In large part, this turns on a reasonable matching of value and benefit given and value and benefit received — as would be acceptable generally to reasonable participants in the open market. Sherman, 67 F.3d at 1850 (holding that transfer of certain properties “did not bear the earmarks of an arms-length transaction” because purchase price did not correspond with properties’ “fair market values”).
*70Under that articulation of an arms-length transaction, the Ritchie Defendants’ claim to good faith evaporates. The Polaroid Corporation was a separate entity under law. It had its direct obligations to its own contractual creditors, and it had no payment obligations to the Ritchie entities. Even while its all-controlling shareholder was acting to encumber its assets, surreptitiously and by fíat, the Polaroid Corporation had those preexisting unsecured obligations of payment. Its interests as a functioning corporation suffered by the encumbrance; the attachment extracted that value out of the company and away from its creditors. Any reasonably-acting separate management of a corporation in a like posture would resolve to resist such a destructive measure, whether its holding company is financially distressed or not. The Polaroid Corporation’s own CEO, Mary Jeffries, did object to Tom Petters’s actions; they promised to destroy any ability to get outside financing for the Polaroid Corporation, in a market that was rapidly contracting anyway. No reasonable CEO in this situation would consider this transfer to be the result of an arms-length transaction among her company, its corporate parent, and a creditor threatening to shut down the parent.
Beyond that, the lack of arms-length character is patent from a different perspective, the genesis of the transfer when made. This was a capitulation by Tom Petters on a measure that he staved off for months, the formal grant of any security. And when he did, he gave security in a form that had a direct effect on the Polaroid Corporation’s own creditors. The originally-contemplated form of security would not have had that blunt impact.62 He granted this enhanced position to the Rit-chie entities only in the face of their threats to declare a default against the PCI/PGW note debtors and to take public legal action against them. Being sued promised heavy consequences for PCI’s and PGW’s own position in the business and financial markets.63 There could be nothing arms-length about a transfer coming out of such pressure, and made in such desperation.
In the face of the Trustee’s evidence, which points only one way, the Ritchie Defendants’ evidentiary proffer has no weight at all. To make out value to the Polaroid Corporation (and possibly as evidence of good faith on then.* part), they rely almost exclusively on a “earveout” provision in the Trademark Security Agreement. This term would have allowed the Polaroid Corporation to obtain up to 75 million dollars in working capital in its own right and to secure it by granting a hen in all of its assets that would be superior to the Ritchie Defendants’ security interests. See Pl.’s Exh. 37 (Trademark Security Agreement) [Filed under seal at Dkt. No. 69], But this argument elides the very essence of the provision.
By including this in the deal, the Ritchie Defendants were not giving a thing to the Polaroid Corporation. The term merely retained to the company a power that it had had in its own right before. The *71Ritchie Defendants insist that the grant of hen “did not hinder Polaroid’s ability to obtain working capital financing”; but entirely to the contrary, it had to. Its previously-unrestricted power to encumber its own assets was capped to a dollar value, and the title to those assets was clouded by a lien — -junior or senior, it is of no moment — on a debt that was not even its own. This one term is the only aspect of the transfer that is directly traceable to the Polaroid Corporation, and it did not cede any value that the Polaroid Corporation did not have already. With the failure of the gossamer-thin assertion of value in “the strong parent” of PGW, there is no probative evidence of weight from the Rit-chie Defendants to make out their affirmative defense, and the Trustee’s evidence cuts entirely to the contrary.64
The Trustee is entitled to summary judgment on this affirmative defense, whether raised under federal or Minnesota state law. The Ritchie Defendants can neither defeat the prima facie application of the Trustee’s avoidance remedy, nor shelter all or part of their lien from its effect.
III. Disallowance of Ritchie Defendants’ Claims in Consequence of Avoidance of Their Liens.
The Trustee basically seeks to terminate all participation by the Ritchie Defendants as creditor-claimants in the Polaroid Corporation’s bankruptcy case, in any capacity whether secured or unsecured. By their very terms, the statutes he invokes are triggered by the avoidance of the Ritchie Defendants’ liens under §§ 544 and 548. The Trustee has established his entitlement to that remedy. Given that, and the inherent nature of the Ritchie Defendants’ claims as asserted in the underlying case, the Trustee is entitled to summary judgment on these counts as well.65 This follows from the following considerations:
1. In a more customary grant of avoidance remedies to a trustee against a creditor-claimant, the avoidance of a grant of security interest as a fraudulent or preferential transfer under 11 U.S.C. §§ 544, 547, or 548 would leave the underlying pre-petition unsecured claim against the estate unaffected on its merits. However, for the purposes of entitlement to receive distribution from the bankruptcy estate, the claim must be disallowed “unless such ... transferee has paid the amount, or turned over any such property, for which such transferee is liable under [11 U.S.C. § ] 550....” 11 U.S.C. § 502(d).66 In other words, the creditor-reeipi-*72ent of an adjudicated avoidable transfer may not benefit from participation in the estate — at least in terms of a possible distribution — before it has made good to the estate, even if its claim is otherwise allowable on its merits. In re Midwest Agric. Dev. Corp., 387 B.R. 580, 585 (8th Cir.2008).
2. After accounting to the estate for its liability, such a creditor-transferee may be allowed a claim commensurate to the amount it pays into the estate. However, any such “claim arising from the recovery of property under ... [§ ] 550 ... shall be determined and shall be allowed ... or disallowed”, as provided by 11 U.S.C. §§ 502(a)-(e), “the same as if such claim had arisen before the date of the filing of the [bankruptcy] petition.” 11 U.S.C. § 502(h).
3. A pre-petition claim “shall [be] allowed] ... except to the extent that ... 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 unmatured....” 11 U.S.C. § 502(b)(1). This contemplates determination of the claim on its merits, under nonbankruptcy law. In re Stevenson Assoc., Inc., 777 F.2d 415, 419 (8th Cir.1985) (for purposes of objection to claim against bankruptcy estate under § 502(b)(2), trustee may assert all defenses to which debtor would be entitled).
4. It is undisputed on the record at bar that the Ritchie Defendants never lent money to the Polaroid Corporation; that the Polaroid Corporation did not receive a penny of the money advanced under the notes in question; 67 and that the Polaroid Corporation did not guarantee the debt under the notes. So, the Polaroid Corporation had no pre-petition liability to the Ritchie Defendants under contract or applicable law, on account of the ten notes.
5. Thus, the Ritchie Defendants have no underlying allowable unsecured claim against the bankruptcy estate of the Polaroid Corporation.
6. As a result, any process of a compelled post-avoidance accounting to the estate cannot legally give rise to a newly-allowable claim in favor of the Ritchie Defendants, against the bankruptcy estate of the Polaroid Corporation.
7. In any event, there is nothing for the Ritchie Defendants to do to account to the estate in consequence of avoidance. The trademarks subject to their liens were sold free and clear of those liens during the Chapter 11 phase of the Polaroid Corporation’s bankruptcy case; replacement liens in favor of the Ritchie Defendants were impressed against the proceeds of sale to provide ade*73quate protection under 11 U.S.C. §§ 363(c)(2)(B), 363(f), and 361. With the avoidance of the transfer of the original security interests, that replacement lien is now vitiated and the Ritchie Defendants have no interest in the proceeds held by the estate.
8. Finally — and only in a technical sense — the Ritchie Defendants’ lien is cumulatively avoidable under 11 U.S.C. § 506(d), because they hold no allowable unsecured claims against the estate and because the original attachment of their lien is to be avoided under §§ 548 and 544.
TV. Trustee’s Case in Chief: Voiding of Grant of Trademark Security Interests as Unenforceable Due to Failure of Consideration.
Finally, the Trustee moves for summary judgment on an alternate challenge to the trademark security interests, under Count X of his complaint. This theory is framed under Illinois law.68
As to the debtor in bankruptcy, the threshold point is that the Polaroid Corporation did not receive any consideration for its grants of lien to the Ritchie Defendants. As a matter of fact, this is already settled on uncontroverted evidence. The Trustee then posits that PCI, PGW, and Tom Petters did not receive any cognizable consideration either. The argument is that the default provisions of the extension agreement were entirely pretextual, because the transaction left the ten notes “callable at will” by the Ritchie entities anyway. This, he says, was due to the de facto existence of non-memorialized, preexisting grounds for a declaration of default, known to both parties when the transaction was executed and which were not excepted from the recitation of events of default under the agreement.
Thus, as the Trustee would have it, the Ritchie Defendants’ counter-parties were just as vulnerable as they were before the trademark security interests were given. As corroboration of that, he cites the fact that the Ritchie Defendants called the notes after the FBI raid, only seven days after they executed the extension agreement. This, the Trustee argues, was a failure to forbear for a reasonable time. Thus, as he would have it, the contemporaneous grant of the trademark security interests is unenforceable because the alleged consideration for them — a 90-day extension of the maturity of the notes— was illusory.
The Trustee bases this theory on a number of simple acts and events that are uncontroverted on the evidence of record.
A. Actions of Polaroid Corporation and Ritchie Entities, Toward Closing the Extension Agreement and the Trademark Security Agreement.
56. As of September 1, 2008, all ten promissory notes were in default. Pl.’s Exh. 54 (Ritchie-PGW/Petters promissory notes); Pl.’s Exh. 33 (Ritchie-PGW/Pet-ters allonges); Defs.’ Answer ¶ 34 (admitting that “all of the Notes ... were technically in default as of August 31, 2008....”).
57. In August, 2008, Thane Ritchie had confronted Tom Petters about the consequences of the Acorn Funds’ federal lawsuit against PCI, for the Polaroid Corporation’s ability to give acceptable collateral security on the outstanding debt under the defaulted promissory notes. Pl.’s Exh. 41 (Ritchie depo. tr.), at 152-153.
*7458. On September 9, 2008, there was an e-mail exchange between David Baer, as in-house counsel for PCI and PGW, and Bill Hobbs, as counsel for the Ritchie entities. The subject was a carveout of the contemporaneous defaults in payment on the notes, from the events that would be specified as defaults under an extension agreement. Defs.’ Exh. 55 (E-mail chain among David Baer, Bill Hobbs, and others) [Filed under seal at Dkt. No. 96].
59. Ultimately, on September 19, 2008, PCI, PGW, Tom Petters, and the Ritchie entities executed an extension agreement under which the final maturity dates for all the notes were reset to December 19, 2008. Pl.’s Exh. 36 (Extension and Amendment Agreement), § 3(a)(i). On the same date, Tom Petters executed the Trademark Security Agreement on behalf of the Polaroid Corporation. Pl.’s Exh. 37 (Trademark Security Agreement).
B. Ritchie Entities’ Declaration of Default: Their Attempt to Enforce Their Rights.
60. On September 26, 2008 — two days after the FBI executed search warrants at the PCI/PGW corporate headquarters and Tom Petters’s residence — the Ritchie entities issued a written notice of default to PCI, PGW, and Tom Petters. Pl.’s Exh. 81 (Letter from Ritchie to PCI, PGW, and Petters). The notice identified the event of default as the occurrence of the FBI raid. Under the notice, the Ritchie entities accelerated the note debtors’ obligations and declared all of the notes due and payable immediately. Id.
61. The Ritchie Defendants commenced suit against Tom Petters, PGW, and PCI in the Cook County, Illinois Circuit Court. Alleging the default and fraud in the inducement of the original lending, they sought damages, “[p]reliminary and permanent injunctive relief,” and “[imposition of a constructive trust.” Under the rubric of the latter two, they obtained an ex parte restraint of any non-ordinary course disposition of the companies’ assets. On October 6, they obtained the appointment of a receiver on an ex parte basis. He was empowered to seize the Ritchie Defendants’ “Collateral” from PCI and PGW and essentially to take over their business operations. On the same day, October 6, the United States District Court for the District of Minnesota appointed a receiver, in a proceeding ancillary to the criminal ease that had been commenced against Tom Petters. Within a few days, the Illinois state court deferred entirely to the federal proceedings in Minnesota; it held that the injunction and appointment of a receiver had “expired and [were] of no present effect.” PL’s Exh. 53 (Complaint in Ritchie Special Credit Investments, Ltd., et al. v. Petters (Cir. Ct., Cook County, Ill.)); In re Petters Co., Inc., 401 B.R. 391, 396-398 (Bankr.D.Minn.2009).69
C. Application of Illinois Law to Specific Grounds Cited by Trustee.
The Trustee argues that the extension agreement and the trademark security agreement are unenforceable because the structure for the Ritchie entities’ forbearance was illusory, and hence there was no consideration for the Polaroid Corporation’s third-party pledge. He identifies the contemporaneous pendency of the Acorn funds’ litigation as the non-memorialized trigger that was known to all signatories. He says that this event was a breach of the warranty of no material le*75gal action against the note debtors, at the very time the extension agreement was entered. The Trustee posits that the Rit-chie Defendants could have declared a default immediately, on this violation of the warranty, and hence the notes were functionally callable at will going forward. Thus, he argues, the Ritchie entities gave no consideration of value to anyone for the considerable value they received via the trademark security interests — with the PCI/PGW note debtors just as vulnerable as they were before, and the Polaroid Corporation now subject to the loss of the newly-liened trademarks. For such want of consideration, he would have the whole works declared unenforceable.
The Trustee does not cite any on-point legal authority for any of the component propositions of this argument. He glosses over the fíne points with a summary assertion that the circumstances after the September 19 extension agreement would have made the notes “callable at will.”70 His whole attack on the existence of consideration rests on this hypothetical legal character, with its implication for the practical value of the grant of forbearance. As such, it was incumbent on the Trustee to produce such legal authority.
Not only did the Trustee not do so; the Ritchie Defendants presented a colorable legal argument, founded in case law authority, that it would not have had the right to declare default based on the pen-dency of the Acorn law suit. Hence, as the Ritchie Defendants would have it, the grant of forbearance was otherwise enforceable for the stated period absent another specified event of default.
There is no on-point Illinois case law that articulates its analysis under the rubric framed by the Trustee, i.e., contractual forbearance for a term certain is generally excused by the existence of a non-memorialized but mutually-known incident of default preexisting the contract. However, there is corollary authority that indicates where the Illinois appellate courts would go on the issue. Two decisions of the Illinois Supreme Court hold the parties to the consequences of their knowledge, essentially binding them to a waiver of consequences otherwise to stem from their knowledge, and carving out a preexisting act or condition from the events that otherwise would contractually justify termination on default. DeLuna v. Burciaga, 223 Ill.2d 49, 306 Ill.Dec. 136, 857 N.E.2d 229, 249 (2006) (equitable estoppel does not lie where buyer was aware that seller’s representations were false); Wilkinson v. Appleton, 28 Ill.2d 184, 190 N.E.2d 727, 729-730 (1963) (“For a misrepresentation to constitute fraud which invalidates contract ... the party to whom it is made must be ignorant of its falsity, must reasonably believe it to be true, must act thereon to his damage, and in so acting must rely on the truth of the statement....”). See also Galli v. Metz, 973 F.2d 145, 151 (2d Cir.1992) (“Where a buyer closes on a contract in the full knowledge and acceptance of facts disclosed by the seller which would constitute a breach in warranty under the terms of the contract ... the buyer has waived the *76breach_”). In a different light, the fact that Tom Petters and Thane Ritchie both knew of the pendency of the Acorn lawsuit prevents it and its potential impact on their entities’ relationship from falling under the warranty of § 7(e) of the extension agreement. MacNeil Auto. Prods., Ltd. v. Cannon Auto. Ltd., 715 F.Supp.2d, 786, 794-795 (N.D.Ill.2010) (citing Royal Bus. Machines, Inc. v. Lorraine Corp., 633 F.2d 34, 41, 45 (7th Cir.1980)).71
On the unrebutted evidence construed most favorably to the Ritchie Defendants, the finding is required: the pendency of the Acorn litigation, with its implications for any pledge of the Polaroid Corporation’s assets, was fully known to all parties to the extension agreement, through the awareness of Tom Petters and Thane Rit-chie — and several weeks before September 19, 2008. So, the Ritchie entities could not have declared a default on that ground before September 19. The Trustee does not identify any other ground to vitiate its enforceability that obtained when it was given; so the extension of the maturity of the promissory notes had a cognizable value sufficient to constitute consideration for the trademark security interests given by Polaroid Corporation, under the state law of contract. Ives v. McHard, 103 Ill. 97 (1882). And the fact that the extension was to a date certain 90 days in the future only strengthened the case for its adequacy, because Illinois law does not require an agreement to forbear to be in express terms or for an exact period of time in order to qualify as consideration for a grant of collateral security. City Nat’l Bank of Hoopeston v. Russell, 246 Ill.App.3d 302, 186 Ill.Dec. 251, 615 N.E.2d 1308, 1312 (1993).
This means that the Trustee has not demonstrated his entitlement to judgment as a matter of law, on the uncontroverted facts that he presented for his own motion.72 His motion for summary judgment on Count X must be denied. Because he as movant must be deemed to have taken his best shot on this whole claim, on all evidence that he would have mustered at trial, it is appropriate to grant judgment to the Ritchie Defendants on this count.73
V. Outcome.
The Trustee is entitled to judgment in his favor on Counts I and III of his complaint, to avoid the Ritchie Defendants’ security interests in the Polaroid Corporation’s trademarks as the result of fraudulent transfers under federal and state law. *77He is also entitled to judgment on Counts AH and VII, to disallow the claims that the Ritchie Defendants have filed against the estate in the Polaroid Corporation’s case, in consequence of the avoidance of their liens. On the other hand, the Ritchie Defendants are entitled to judgment in their favor, on Count X of the Trustee’s complaint.
However, because the Trustee’s motion involved “one or more, but fewer than all, claims” in suit at his instance in this adversary proceeding, neither side will receive formal entry of judgment at this point. Clos v. Corrs. Corp. of America, 597 F.3d 925, 928 (8th Cir.2010); Clark v. Baka, 593 F.3d 712, 715 (8th Cir.2010); Taco John’s of Huron, Inc. v. Bix Produce Co., LLC, 569 F.3d 401 (8th Cir.2010) (all disfavoring the making of certification for entry of judgment under Fed.R.Civ.P. 54(b), on posture of litigation presented here). See also In re Hicks, 369 B.R. 420, 422-423 (8th Cir. BAP 2007); In re Strong, 293 B.R. 764, 767-768 (8th Cir. BAP 2003) (ditto, in application of Fed. R. Bank. P. 7054). The balance of the Trustee’s theories of suit are the next matter for litigation in this adversary proceeding, or for some other resolution in the wake of the present rulings.
ORDER
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED:
1. The Plaintiffs motion for summary judgment is granted as to Counts I, III, VI, and VII of his complaint, and denied as to Count X.
2. The Defendants are entitled to judgment in their favor on Count X of the Plaintiffs complaint.
3. The grant of security interests under the Trademark Security Agreement executed on September 19, 2009 on behalf of Debtor Polaroid Corporation is avoided, as a transfer fraudulent under 11 U.S.C. § 548(a)(1)(A) and, Minn.Stat. § 513.44(a)(1).
4. Pursuant to 11 U.S.C. § 551, the avoidance of transfer under Term 3 is preserved for the benefit of the bankruptcy estate of Debtor Polaroid Corporation, which shall now assume the same position as lienor against the proceeds of the sale of the subject collateral that was created in connection with the sale of those assets free and clear of liens in BKY 08-46617.
5. The Defendants’ claims against the estate in the case of Debtor Polaroid Corporation, BKY 08-46617, are disallowed in their entirety.
6. The grant of security interests described in Term 3 was and is not unenforceable for failure of consideration, as a matter of applicable state law.
ENTRY OF JUDGMENT ON TERMS 3-6 SHALL BE DEFERRED, PENDING FURTHER ORDER.
. The Debtors commenced these cases under Chapter 11. The cases were converted to ones under Chapter 7 on August 31, 2009, after the closing of a sale of most of the estates’ assets under 11 U.S.C. § 363.
. All further references to him will use his nickname — the informal cognomen under which he had projected himself for years in business and the media, regionally and nationally.
. Tom Petters is currently serving a 50-year sentence, which was imposed on him in April, 2010.
. The recitations in this paragraph are all statements of uncontroverted fact; the Ritchie Defendants admitted virtually all of them in their answer, see pp. 5-6 infra, and in any event they are established by unrebutted documentary evidence.
. To define further references to participants in the chain of events: "The PCI/PGW note debtors” will signify these three parties, collectively, and them alone. "The Petters organization” will signify a complex of companies in which Tom Petters was the controlling principal — one of three such complexes, but this one to include PCI, PGW, and their subsidiaries and affiliates with one major exception. "The Petters organization” will be used mainly in a connotative sense, i.e., for more general or historical reference and where precision as to the identity of corporate entities is not necessary. It will be used where a specific ruling as to liability, duty, or binding relationship is not being made. Use of the reference to "the Petters organization” will signify one cleaving line, however: the scope of the phrase does not cover the Polaroid Corporation, its immediate parent, or any of the Polaroid Corporation's affiliates in its own intercompany structure. "The Ritchie Defendants” will signify the five named defendants in this adversary proceeding as a group, collectively. Each of the Ritchie Defendants other than Ritchie Capital Management, L.L.C. took a secured position on separate debt under specific notes. But because a single agreement provided for all of them to share pari passu in all payment and other realization, and because the Trustee makes a frontal, collective challenge to their secured position against the Polaroid Corporation’s assets, a collective reference is appropriate. "The Ritchie entities” will signify any and all individual or corporate participants controlled by Aaron Robert Thane Ritchie that had any part in the lending relationships with the PCI/PGW note debtors that were originated by Defendant Ritchie Capital Management, LLC. (That individual principal will be identified in shorter form as "Thane Ritchie,” which appears to be the folksy cognomen that he preferred.) “The Ritchie entities” will include the five Ritchie Defendants, but will not *29be limited to them. This term also is to be taken in a more connotative, historically-minded sense. Its use is a fact-finder’s hedge against the possibility that there were other lending — or assignee-entities in Thane Rit-chie’s enterprise structure that were involved in the transactions in question, but which are not clearly identified in the record at bar. (One such has since emerged as a combative participant in the underlying bankruptcy case. See In re Polaroid Corp., 460 B.R. 740 (8th Cir. BAP 2011).)
. The Ritchie Defendants make this denial a second time, as a "Seventh Affirmative Defense” later in their answer.
. The Trustee’s rationale for this was based mainly on considerations of expense. The Ritchie Defendants promised to zealously defend the constructive-fraud counts on the element of contemporaneous or consequent insolvency. This factual issue portended to be extraordinarily complex on the value side, given the unique positioning of the Polaroid Corporation and its subsidiaries in 2008. (By that time, the Polaroid entities had terminated their legacy manufacturing operations and had entered into a brand-purveying mode. They had transitioned out of their legacy film products but were only part way into the development of modern analogs using the new technologies of digital photography. The expenses of new product development were large and the breadth of currently-saleable product — manufactured by contractors — was not wide. Yet, it has been alleged throughout the cases that the Polaroid brand itself, intangible but recognizable worldwide, had and has large value in its own right.) The Trustee estimated that a full reconstruction of the value of the assets of the relevant debtor(s) for a case on insolvency could cost $1,000,000.00 or more, given the heavy prominence of intangibles in the asset structure. The Trustee also urged that a case on his actual-fraud theory could be developed at a fraction of that cost, using the specific strain of analysis now before the Court.
. It is well-established that the grant of a lien is a "transfer” within the scope of fraudulent transfer law. In re Craig, 144 F.3d 587, 591 (8th Cir.1998); 11 U.S.C. § 101(54) (defining "transfer” to include "the creation of a lien”); Minn.Stat. § 513.41(12) (defining "transfer” to include "creation of a lien or other encumbrance”). Likewise, there is no dispute that the Trustee satisfies the two-year proximity requirement of § 548(a)(1); the liens here were granted less than 90 days before the Polaroid Corporation was put into bankruptcy-
. A century ago, the . Minnesota Supreme Court identified the intent of the debtor-trans-feror as the key factor for the analysis on actual fraud. Underleak v. Scott, 117 Minn. 136, 134 N.W. 731, 733 (1912).
. Such creditors may be late-arriving investors caught unpaid in the lurch; or they may be unpaid trade suppliers and vendors if the vehicle for the scheme had engaged in such facially-legitimate third-party transactions.
. A debtor-in-possession under Chapter 11 "shall have all the rights, ... and shall perform all the functions and duties, ... of a trustee....” 11 U.S.C. § 1107(a).
. These general observations do not speak to the measure of recovery consequent to avoidance, after the application of meritorious affirmative defenses. Currently, the calculation of judgment in recovery in this sort of litigation is an issue in hot controversy, in multiple jurisdictions. See, e.g., Karen E. Nelson, Turning Winners into Losers: Ponzi Scheme Avoidance Law and the Inequity of Clawbacks, 95 Minn. L.Rev. 1456 (2011).
. For the case on constructive fraud, proof of contemporaneous or consequent insolvency, 11 U.S.C. § 548(a)(1)(B)(ii) and Minn.Stat. §§ 513.44(a)(2)(i)-(ii), and 513.45(a), can be very complicated where the debtor was a large and/or active business entity at the relevant time, making the processes of discovery and trial potentially quite expensive. This might befall the Trustee here, if this litigation were to get that far into that count.
. The Ritchie Defendants do make a more focused argument — that the transfers in question here took place outside the direct structure of any PCI-centered Ponzi scheme, so the presumption should not be extended to the transfers in question. That issue is treated later.
. See, e.g., Ritchie Defendants' Opposition to Motion for Partial Summary Judgment, [Dkt. No. 85] ("Defs.’ Opp'n”), at 15 ("No one contends that Polaroid operated a Ponzi scheme. Rather, as the Trustee acknowledges ... PCI engaged in the Ponzi scheme.”), 16 ("Ritchie never suspected that Tom Petters was conducting a massive fraud until after the FBI raid....”), 22 ("The Ponzi scheme orchestrated by Tom Petters involved PCI’s diverting business....”).
. Just recently, the existence of something very big and very bad in the operations of Tom Petters’s enterprise structure has been recognized by two federal appellate forums, in collateral matters. See United States v. White, 675 F.3d 1073 (8th Cir.2012); Peterson v. McGladrey & Pullen, LLP, 676 F.3d 594 (7th Cir.2012). See also In re Lancelot Investors Fund, L.P., No. 08 B 28225, 2012 WL 761593 (Bankr.N.D.Ill. Mar. 8, 2012).
. In light of what Tom Petters was actually doing, the component wording of this term is grossly ironic.
. Pl.'s Exh. 8 (Partial transcript of testimony of Deanna Coleman (10/28/09), filed in U.S. v. Petters, 08-cr-364 (D. Minn.)) [Filed under Dkt. No. 65, Affidavit of Sandra Smalley-Fleming, Esq.], at 544-546. The bulk of the exhibits identified as "Pl.’s Exh.” are farmed into the record for this motion through the affidavit of Sandra Smalley-Fleming, Esq., [Dkt. No. 65], using the numbering assigned in that affidavit. All of these documents were generated during the Trustee’s investigation or discovery. Unless noted, the cited factual content of them has not been countered by evidence put into the record by the Ritchie Defendants. Other exhibits from the Trustee were docketed separately and are identified with their associated docket numbers; and with the exceptions treated in a separate order on the Ritchie Defendants’ motion to exclude, their receipt into the record not disputed either. To the extent that the underlying content of any exhibit was received into the record under seal, the sealing is now released to the extent of the text quoted or the factual matter summarized in a finding. (All such sealing was done by stipulation of the parties. The Court acceded to that, to avoid a lengthy in camera review on the preliminaries. At least to the extent of the material used for this decision, it is now clear that none of it qualifies as “trade secret or confidential research, -i development, or commercial information,” 11 ' U.S.C. § 107(b)(1), and none of it is "scandalous or defamatory matter,” 11 U.S.C. § 107(b)(2).)
. Pl.’s Exh. 8 (Coleman testimony tr.), at 546-549.
. Pl.’s Exh. 8 (Coleman testimony tr.), at 546-547 and 551.
. For most of the inducements to lend in the latter years of the scheme’s operation, the suppliers were identified as additional intermediaries — Enchanted Family Buying Company and Nationwide International Rer sources, Inc., outside entities operated by individuals in knowing conspiracy with Tom Petters and a limited number of his organization’s employees. Pl.'s Exh. 8 (Coleman testimony tr.), at 549-550.
. Pl.’s Exh. 8 (Coleman testimony tr.), at 549-550.
. Affidavit of Theodore F. Martens [Dkt. No. 66] ¶ 4.
. Pl.’s Exh. 6 (Partial transcript of deposition of Deanna Coleman (7/28/10)) [Dkt. No. 65], at 28-35 (reference to 13 years of operation of Ponzi scheme); Defs.' Exh. 83 (Affidavit of Theodore F. Martens (1/09/10), filed in U.S. v. Petters, 08-cv-05348 (D.Minn.)) [Filed under Dkt. No. 85, Affidavit of Andrew J. Budish, Esq.], ¶¶ 5-6.
. Pl.'s Exh. 8 (Coleman testimony tr.), at 545-546, 549-550.
. Pl.'s Exh. 8 (Partial transcript of testimony of Tom Petters (10/28/09), filed in U.S. v. Petters, 08-cr-364 (D.Minn.)) [Filed under Dkt. No. 65, Affidavit of Sandra Smalley-Fleming, Esq.], at 3170; Pl.'s Exh. 6 (Coleman depo. tr.), at 51; Pl.’s Exh. 16 (Government Exhibit Nos. 67, 67A-E) (confirming source of funds via tracing through bank account records). At Tom Petters’s criminal trial, an agent of the IRS Investigation Division Command testified to confirm the source of the funding for the Polaroid acquisition in PCI-received investor-lending, on the basis of her own forensic investigation. Exh. 8 (Partial transcript of testimony of Kathy Klug (10/28/09), filed in U.S. v. Petters, 08-cr-364 (D.Minn.)) [Filed under Dkt. No. 65, Affidavit of Sandra Smalley-Fleming, Esq.], at 2284-2290.
. He well may have had a separate, additional intention to revive and use the Polaroid brand as a profit source in legitimate operations in its own right, as another motivation for the purchase. His subsequent actions do include concerted effort to obtain funding for research, development, and marketing of Polaroid-branded products through the separate corporate structure of the Polaroid enterprise.
. Pi's Exh. 6 (Coleman depo. tr.), at 111 (testifying that "he [Tom Petters] bought Polaroid ... so it would lure investors in so investors would think Tom was this wealthy guy”)-
. See Defs.' Exh. 83 (Martens affid. (01/09/10)), ¶ 11 (estimating contractual losses alone at 3.5 billion dollars, but noting that analyses of investor losses was ongoing). When reports of the Petters scheme first broke in the local media in late September and early October, 2008, it was termed “the largest investor fraud scheme in American history.” That characterization was eclipsed barely three weeks later, when the Bernard Madoff matter came to light in New York; and recently news coverage of at least one other Ponzi scheme (the Allen Stanford matter in Texas) has cited to financial losses larger than those identified to Tom Petters. Whatever its relative ranking, this is still one of the largest such financial scandals in U.S. history — and it certainly is the largest in Minnesota’s history.
. The two largest groupings of these end-stuckees had to be put into bankruptcy themselves: the Lancelot Investors Fund group based in Chicago (formerly administered by the now-convicted and — imprisoned Greg Bell), and the Palm Beach group in Florida and the Cayman Islands.
. Many lawyers in the PCI/PGW and Polaroid Corporation cases have latched onto particular turns of phrase in written decisions from earlier in the cases, to attribute some nuance that is not inherent in the wording. So, to make it clear: the adjective “ostensible” denotes the quality of being part of the comprehensive pretense of engagement in large-scale, bona fide, real-life business in consumer-goods purveying, that Tom Petters projected to lender-investors, many of his companies’ employees, and the public at large. It is not to be taken as a reference to a transaction contracted or closed in real life, or to any counter-party to a real-life transaction. Far too many lawyers have used references to the "business” of PCI (and PGW) as if to suggest that there really had been a large volume of real "diverting” business before the fall of 2008. So far, the evidence in the cases has shown that Tom Petters engaged in few such transactions, those mainly through his "Red Box”-branded entities and operations. "Ostensible” thus denotes the projection of a false reality — which was quite effective on a very large scale, until the money stopped coming in.
. PL’s Exh. 10 (Partial transcript of deposition of David Eric Baer (8/11/10), [Dkt. No. 65], at 624-625). Notably, Tom Petters was Polaroid’s chairman, sole board member, the 100% beneficial owner of all of Polaroid's stock, and he retained sole and final authority on all Polaroid transactions. PL’s Exh. 30 (Partial transcript of deposition of Simon Root (3/31/10)) [Dkt. No. 65], at 132; PL’s Exh. 9 (Partial transcript of deposition of Mary Lynn Jeffries (4/13/10)) [Dkt. No. 65], at 121, 144; PL’s Exh. 8 (Petters testimony tr.), at 3184.
. Anything but, and not just because siphoned funds from investors into PCI were used to purchase the Polaroid Corporation. The forensic and direct evidence establishes that funds that came into the Petters enterprise structure via exploitation of Ponzi-scheme victims were directed through and beyond PGW and the Polaroid Corporation's structures at Tom Petters's direction, as the need arose. This annexed these other entities to the scheme’s operation, even though they did not become part of its center. Throughout the bankruptcy cases of PCI/PGW and the Polaroid Corporation, the Ritchie entities have based much of the theory of their positions on the existence of a "clean side” and a "dirty side” in Tom Petters’s enterprise structure — with their interface falling on the clean side only and thus immune to challenge now. The reality was just not so; eventually Tom Petters manipulated all or nearly all of it to enable the scheme.
. The intent to take asset value away from creditors that otherwise would look to it for realization on their claims is an intent to hinder, delay, or defraud those creditors, for the application of the fraudulent transfer laws. In re Sholdan, 217 F.3d 1006, 1010-1011 (8th Cir.2000) (affirming trial court’s finding of intent to defraud in such a state of mind). This is very much the notion of intent that underlies the Ponzi scheme presumption, as originally articulated; the intent is to divert an infusion of funds away from the assumed, specific purposes for which they are lent or invested, toward repayment of earlier, separate obligations now due.
. For clarity and ease in future review of this decision, findings will be set forth in separate numbered paragraphs, sequentially to the end of the analysis of all issues. The use of arabic numerals for the paragraphs abuts into the outline-format organization of the sections of the analysis, but there is no way to avoid that.
. It is not directly relevant to any legal issue at bar, but it is uncontroverted that the Rit-chie Defendants were investment funds that received capital from their own private clients, pooled it, and then relent it to borrowers. The Ritchie Defendants take great umbrage to the Trustee's characterization of them as "hedge funds,” but the applicability of that colloquial term is not legally relevant.
. Petters Capital, LLC, like Polaroid Holding Company, was a wholly owned subsidiary of PGW. See Exh. 1 of PwC Interim Report (Organizational Chart of Petters's Affiliated Bankruptcy Entities) (12/15/10), filed in In re Petters Company, Inc., 08-45257 (Bankr.D.Minn.) [Dkt. No. 809].
. The copy of the documents in the record does not feature a signature by the "Purchaser” or an associated date, so the identity of the specific Ritchie entity is not known. *48There is no dispute that a contract with this content was executed.
. ZINK Imaging, LLC had been spun off from the Polaroid Corporation several years earlier, for the development of consumer photographic products and supplies using digital technology.
. Granted, according to Thane Ritchie, representatives at Goldman Sachs could not divulge information to the Ritchie entities regarding the Iconix transaction because of a non-disclosure agreement. Defs.’ Exh. 65 (Ritchie depo. tr.), at 80-81. However, in his deposition Thane Ritchie admitted that the status of an Iconix sale "wasn’t a big concern” because he believed PCI, PGW, or Tom Petters could repay the Ritchie Entities in "infinite ways.” PL’s Exh. 41 (Ritchie depo. tr.), at 78-79, 83-84. While he says the Rit-chie entities "did due diligence” on those "infinite” other sources of repayment, id., nothing suggests that they performed any further due diligence than will be discussed below within the context of the Ritchie entities’ alleged good faith. All of this says volumes about the level and nature of risk that Thane Ritchie was willing to assume at the beginning, and to bear for months after that — until the risk played out to a significant threat, and he demanded and extracted a very different form of security long after the fact.
. In the beginning, the discussions had been toward a grant of lien in the stock of the Polaroid Corporation. Wappler’s early analysis was all framed in mind of that sort of collateral and lien.
. Those two groups, of course, were the direct, non-insider creditors within the company’s debt structure, and the large liabilities to PCI and other PCI-related entities that had been booked as earlier intercompany transactions.
. As part of their "kitchen sink” strategy in defense, the Ritchie Defendants insist that the ultimate inference is not possible — because there is "evidence that Polaroid was solvent, i.e., the value of its assets exceed[ed] the value of its liabilities, and hence one cannot rationally presume that the Ritchie Liens were transferred with an intent to defraud or otherwise harm Polaroid’s creditors.” Defs.’ Opp'n at 28-29. This argument presupposes a much higher bar for the Trustee than Eighth Circuit precedent actually imposes. See In re Sherman, 67 F.3d at 1355, n. 6 (rejecting defendant's categorical argument "that the transfers [could] not be avoided as [actually] fraudulent because no creditor was harmed”; recognizing that avoidance may lie "even though creditors are merely hindered or delayed”; and in any event rejecting argument because record had uncontroverted evidence of "substantial equity” in properties transferred). Toward the same end but in a different light, this argument is an attempt to snake a complex of difficult issues back into controversy after it was tabled indefinitely under the case management for this adversary proceeding: the value of the Polaroid Corporation's assets, including intellectual property rights. In any event, the argument fails on its own shortsightedness. It does not recognize that granting a first-priority security interest in the unencumbered half of the only significant assets of a company, in the midst of a difficult operational transition, left preexisting creditors of that company grossly hampered in the potential realization on their claims, in and of itself. (As noted earlier, and as disclosed via reportage on litigation, the other country-specific trademark rights of the Polaroid Corporation had already been pledged in favor of Acorn Capital Management, a different lender into PCI that was already pressing its claims.) At best, the Polaroid Corporation's own creditors would now have the far more attenuated call of unsecured creditors on the residual cash flow from an operating entity. At worst, they would be left with the dregs of surviving assets, were the two lienors against the trademark rights to enforce their liens and close down the Polaroid Corporation as an operating entity. The Ritchie Defendants’ carping is completely beside the point. The notion of a sufficient residuum for Polaroid’s own creditors was a fantasy under the conditions that prevailed then, whether that was to be from cash flow from preserved operations or from remaining unsecured assets. Their acceptance of the encumbrance pushed the Polaroid Corporation's own creditors far out to the margins, and probably over the edge. In rhetorical fashion, the Trustee accuses Thane Ritchie of having the strategy in mid-September to rush in and grab the encumbered trademarks as soon as the Ritchie Defendants could. That might not have been the case; there is no clear evidence to that effect. But there is no doubt that the collateral structure he finally squeezed from Tom Petters enabled them to attempt that, as soon as they did try. Their reliance on a cold and abstracted notion of balance-sheet solvency completely elides the contemporaneous condition of the Polaroid Corporation — veering, as it was, between momentary operational insolvency and bare currency on only its most recent expense obligations. With a downfall as likely as it was in an objective sense, the Ritchie Defendants have no real support in this notion — for either intent-based fact question at bar.
. The relevant text of the Minnesota analog is:
(a) A transfer made ... by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made ..., if the debtor made the transfer ...:
ll) with actual intent to hinder, delay, or defraud any creditor of the debtor ...
. There is no extant case law on the point from the Minnesota appellate courts. The Minnesota statute does not bar such a coordinated construction on its face.
. As a result, the analysis on the factors identified in state statute applies equally to counts pleaded in the alternative by a trustee in bankruptcy. So, a single discussion will suffice for both sources of law, under our circuit’s approach.
. The text of this statute now on the books was enacted in 1987 and has not been amended. It enumerates 11 acts or circumstances as to which consideration may be given, among other factors, in "determining actual intent under [Minn.Stat. § 513.441(a)(1).” (emphasis added). It is not necessary to quote the text's full enumeration here.
.See n. 9, p. 9.
. The Ritchie Defendants argue that the corporate finance industry recognizes that value inheres to a subsidiary operating company when it pledges its assets for the debt of its parent holding company. The thought apparently is that interlocking management is given greater strength and stability, which advances the interests of both companies and enhances the likelihood of mutual success in business. The argument ignores the presence of a bedrock definition in the statute itself: " ‘value’ means property, or satisfaction of a present or antecedent debt of the debtor ...11 U.S.C. § 548(d)(2)(A) (emphasis added). See In re Richards & Conover Steel Co., 267 B.R. 602, 613 (8th Cir. BAP 2001) (for “reasonably equivalent value” inquiry under constructive-fraud theory of avoidance, "value may be the satisfaction of an antecedent debt of the Debt- or, but not normally the satisfaction of another party’s debt_”). It also ignores a line of local authority, that in the context of fraudulent transfer litigation transfers by a debtor for the primary benefit of a third party must give the debtor an "indirect benefit” that is "fairly concrete” in order for that to be cognizable as "value” in the context of fraudulent transfer litigation. In re Minnesota Utility Contracting, Inc., 110 B.R. 414, 420 (D.Minn.1990); In re Jolly’s, Inc., 188 B.R. 832, 842-843 (Bankr.D.Minn.1995). See also Stoebner v. Lingenfelter, 115 F.3d 576, 579 (8th Cir.1997) (affirming fraudulent-transfer verdict for trustee against recipient of payment from debtor, where payment was applied solely to debt of another company owned by debtor’s individual principal and there was no basis in record on which to pierce corporate veil). The defendant raising such a defense has the burden of production of evidence on both the concreteness and the value to the debtor that would stem from the benefit to the third party. In re Minnesota Utility Contracting, Inc., 110 B.R. at 417-419; In re Richards & Conover Steel Co., 267 B.R. at 614 ("The party claiming to have delivered value [via direct bénefit to a third party] must quantify it....”). Cf. In re Bargfrede, 117 F.3d 1078, 1080 (8th Cir.1997) ("indirect, noneconomic benefit” to debtor from transferring asset to satisfy debt of his spouse, in "form of a release of a possible burden on the marital relationship and the preservation of the family relationship,” analogized to "intangible, psychological benefit” that was not reasonably equivalent to value of property transferred, for constructive-fraud analysis). The Ritchie Defendants have not put any evidence into the record to establish the concreteness of the indirect benefit they assert, let alone to quantify it to a dollar-value. More to the point, the whole notion of the "strong parent” theory is laughable in context. All the evidence in the record points to only one conclusion: weeks before the trademark security interests were granted, the jig was up for Tom Petters and his scheme. There was no avenue in sight for further borrowing to take the Ritchie organization out of the PCI/PGW debt structure. The financial markets were locking up and about to plummet, worldwide. The pledge of Polaroid Corporation assets was a measure of utter desperation, without thought to a future only two weeks hence let alone months or years. (One keeps coming back around to the frantic, even terrified, but witless scream of Tom Petters’s ukase to his subordinates, by e-mail sent on September 4, 2008. See Pl.’s Exh. 74 (quoted at Finding 30, pp. 37-38, supra)). And, anticipating a cry of foul play by the Ritchie Defendants under the docket administration of this matter: evidence on the contemporaneous value of the Polaroid Corporation’s assets or even the subject trademarks is not needed to support this conclusion. The lack of any direct consideration to the Polaroid Corporation that is capable of valuation in its own right shifts the initial burden of production qn this badge entirely to the Ritchie Defendants. Without any concrete evidence in the record to meet that heavy burden, the Trustee had no burden to develop quantified evidence of his *58own on any asset value transferred to the Ritchie Defendants.
. With an exception not applicable here, this statute provides, in pertinent part:
... a transferee ... of such a transfer ... that takes for value and in good faith has a lien on or may retain any interest transferred or may enforce any obligation incurred, as the case may be, to the extent that such transferee or obligee gave value to the debtor in exchange for such transfer ...
. These statutes dovetail with each other. They provide in pertinent part:
ia) A transfer or obligation is not voidable under [Minn.Stat. § ] 513.44(a)(1) against a person who took in good faith and for a reasonably equivalent value ...
(d) Notwithstanding voidability of a transfer ... under [Minn.Stat. §§ ] 513.41 to 513.51, a good-faith transferee or obligee is entitled, to the extent of the value given the debtor for the transfer ...
(1) ... a right to retain any interest in the asset transferred ...
. The defense itself was a feature of Minnesota common-law jurisprudence long before the modern legislation. E.g., Leqve v. Smith, 63 Minn. 24, 65 N.W. 121 (1895); Sonstiby v. Keeley, 11 F. 578 (C.C.D.Minn.1882); Thompson v. Bickford, 19 Minn. 17 (1872).
. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (materiality of facts at issue for summary judgment depends on whether they are outcome-determinative under governing substantive law).
. Just as all decision, direction, and action on the part of PCI, PGW, and the Polaroid Corporation was by the will of Tom Petters alone, so too were all of the Ritchie Defendants' decisions, directions, and actions at the order of Thane Ritchie alone. The whole history was propelled by two high-powered, "Mr. Big” types — both of whom relegated the details to their "people,” but who held and wielded total control over the final decisions to commit their respective companies. This is why Thane Ritchie’s knowledge and intent are just as attributable to all of the Ritchie Defendants as Tom Petters's is to all of the corporate entities on the other side.
. For the sake of anyone reviewing the sense of this decision, the numbering is sequential to that applied to earlier treatments of the other major issues.
. The Ritchie Defendants cite the testimony of Robert D. White, one of the convicted code-fendants of Tom Petters, to make out such an industry norm. See Defs.' Exh. 73 (Partial transcript of deposition of Robert D. White (July 27, 2010)) [Dkt. No. 85], at 234-236, 250-251. However, the Ritchie Defendants have never purported to qualify White as an expert in the diverting industry and his statements cannot carry preponderating weight.
. In retrospect, the purpose and contemplated effect of this provision is a mystery. All of the money had already been advanced, with no strings either oral or written. And all of the money was already gone.
. The Ritchie Defendants have produced no evidence to counter this statement, made under oath by Tom Petters himself.
. Per Coleman, this spreadsheet was either incomplete or inaccurate — because it did not reflect payments of Ritchie-lent funds that were paid to Tom Petters personally for his own use; money paid over to Sun Country Airlines for its own use; or money applied to payroll for PGW’s employees. Coleman, as Vice President of Operations at PCI, was one of the people most closely involved in the receipt and disbursement of monies lent into the Petters enterprise structure.
. The specific meaning of the references to the actions of Bell and the Lancelot entities is not clear from the record. However, the point is that Tom Petters and his enterprise structure were under siege by most of their very largest creditors at the same time, on all fronts. That is undisputed, as fact, from the record.
. The case law citations in this discussion are from constructions of the statute formerly codified at 11 U.S.C. § 548(a)(2) (now § 548(a)(1)(B)). This is the Code's provision governing constructively-fraudulent transfers. That statute requires a consideration of whether "reasonably equivalent value” was received by the debtor-transferor in consideration for its transfer. This is a different statute, the application of which has been deferred in this litigation; but that does not render these decisions’ analysis irrelevant. As noted, the existence of "value” is the threshold issue under either statute, and that term is statutorily defined at § 548(d)(2)(A). So whether specifically articulated or not, those courts first had to pass on the existence of "value,” and then proceed to its reasonable equivalence on both sides of a transfer. The notion of requiring concreteness and quantifi-ability goes to the threshold existence of value that would be cognizable for the later stage of constructive-fraud analysis. These courts addressed the existence of "value” as a necessary matter, whether they set it out as a separate step or not.
. Foreclosing on a lien against the stock would have made the Ritchie Defendants the shareholders of the Polaroid Corporation. As such, their rights to distribution out of the company’s revenues or liquidation would have been subordinate to those of its creditors, under state law.
. As an aside: yes, it is somewhat fatuous to refer to a position in the markets for the Petters enterprise structure, as if there reasonably were one in late August, 2008, and as if Tom Petters could reasonably think he could preserve it. The jig was up, obviously to him, and it is hard to conceive of him having any coherent thought that his facade would survive toward a third-party rescue. But it seems the possibility of holding it together for even one or two days more had its power for him.
. To the effect that the tender of the carve-out is proffered as evidence of the Ritchie Defendants' good faith, it has no probity or weight either. The measure was at least as much self-service for them; a continuation and strengthening of operations funded by new third-party lending would have greatly bolstered the value of the Ritchie Defendants’ lien, even given its potential subordination. This was no gift. More to the point, it was not part of a price either.
. Neither side paid particular attention to this aspect of the Trustee’s motion, in briefing or argument. Nonetheless, it is being subjected to analysis in the same detail as the other counts that were in sharper controversy.
.Under 11 U.S.C. § 550(a), upon the avoidance of a transfer, "the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property....” The effect of this provision is cumulative to that of 11 U.S.C. § 551, which prevents the underlying asset from reverting to the debtor if the asset is to be recovered and not its value via entry of a money judgment. In re Arzt, 252 B.R. 138, 141 (8th Cir. BAP 2000) (under § 551, “once the transfer is avoided, the property that was *72transferred becomes property of the estate. ...").
. The Ritchie Defendants suggest that some of the Ritchie entities’ funds "could have” flowed into the Polaroid Corporation because 25 million dollars of the funds lent to the Petters entities on February 4-5, 2008 went to an SPE associated with an Acorn entity, which in turn lent 15 million dollars to the Polaroid Corporation on February 29, 2009. Defs.’ Opp’n at 35. The suggestion is purely speculative; but more to the point of the summary judgment context, it is unsupported by any probative, direct evidence to controvert the Trustee’s evidence on the matter. Martens Affid. ¶ 8; PL’s Exh. C (PwC preliminary analysis of Ritchie and Associated Funds Note Payable Detail); Pl.’s Exh. 9 (Jeffries depo. tr.), at 103, 107-108, 245-246.
. Under the choice-of-law provisions of the parties' written agreements, the law of Illinois is to be applied to any dispute. See, e.g., PL's Exh. 27 (Note Purchase Agreement), § 8.9.
. This decision is not part of the formal record for the motion at bar. However, the Ritchie Defendants were active litigants and objectors in the proceeding that led to it; hence, they are bound by its findings.
. For instance, the Trustee did not impugn the Ritchie entities’ conduct in negotiation as part of a comprehensive plan to exploit a non-memorialized, preexisting event of default if necessary, and hence a violation of the implied covenant of good faith and fair dealing under Illinois law. See Northern Trust Co. v. VIII South Michigan Assocs., 276 Ill.App.3d 355, 212 Ill.Dec. 750, 657 N.E.2d 1095, 1104 (1995). See also Coleman v. Madison Two Assocs., 307 Ill.App.3d 570, 241 Ill.Dec. 97, 718 N.E.2d 668, 676 (1999) (interpreting implied covenant of good faith as "promise to do nothing which will destroy or injure the other party’s right to receive the fruits of the contract”).
. The Trustee's other efforts to distinguish the three cases cited by the Ritchie Defendants are without merit, particularly since he still cited no case law of his own to support his conclusory theory.
. There is another observation to be made, even though it is superfluous by this point. The Trustee's theory on this count was curiously abstract, distanced, and overly lawyerly. The preexisting circumstance on which he would have everything invalidated was not even the one that the Ritchie Defendants asserted when they tried to pull the plug a few days later. The logical (if rhetorical) question would be: if it all was a cynically-planned vehicle of exploitation on the part of the Rit-chie Defendants, with the intention to seize the trademarks almost immediately, why did they not cite the Acorn litigation in addition to the FBI raid when they declared default? These considerations further dilute the logic of characterizing the extension and lien grant as inequitable overreaching on their part, for this one alternate theory.
.That adjudication can be formally made at this point, even though the Ritchie Defendants did not make their own motion for summary judgment on any of the counts entailed by the Trustee's motion. Celotex Corp. v. Catrett, 477 U.S. at 325-326, 106 S.Ct. 2548. Figg v. Russell, 433 F.3d 593, 597 (8th Cir.2006); Bendet v. Sandoz Pharm. Corp., 308 F.3d 907, 911-912 (8th Cir.2002); Shur-Value Stamps, Inc. v. Phillips Petroleum Co., 50 F.3d 592, 595 (8th Cir.1995). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494713/ | KARLIN, Bankruptcy Judge.
This appeal is from a bankruptcy court order overruling the Trustee’s objection to the Debtors’ homestead exemption under 11 U.S.C. § 522(o )(4). Under § 522, a debtor can exempt certain property and protect that property from execution by a bankruptcy trustee. Section 522(o )(4) limits the homestead exemption to the extent of any value attributable to fraudulent conversion of nonexempt assets within ten years of filing bankruptcy. The statute reads:
[T]he value of an interest in ... real or personal property that the debtor ... claims as a homestead ... shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt, or that portion that the debtor could not exempt, under subsection (pb), if on such date the debtor had held the property so disposed of.1
The central issue in this appeal is the definition of the phrase “value of an interest in ... real [ ] property.”
We affirm the order overruling the Trustee’s objection because we, like the bankruptcy court, interpret the phrase “value of an interest in ... real [ ] property” as the measure of the increase in monetary value of the economic interest in real property claimed as a homestead due to a fraudulent transfer of non-exempt funds into the property, rather than a title interpretation of the word “interest.”
*911. Background Facts and Procedural History
In August, 2010, Appellee/Debtors Ricky Alan Willcut and Terri Ann Willcut (the “Debtors”) filed a Chapter 7 bankruptcy petition, claiming their home as exempt under Oklahoma’s homestead exemption.2 They valued their home at $600,000 in their schedules, and noted it was encumbered by a $415,000 secured claim. The Debtors’ petition also disclosed that they sold some items of real and personal property at auction prior to bankruptcy.
The Trustee filed an objection to the Debtors’ claim of exemption, arguing that it should be reduced pursuant to § 522(o )(4). The Trustee alleged the Debtors had applied approximately $100,000 received as proceeds from the auction of non-exempt property toward the purchase of the home, and that the conversion of non-exempt assets to exempt assets was an attempt by Debtors to defraud their creditors.
After an evidentiary hearing, the bankruptcy court overruled the Trustee’s objection to exemption. The bankruptcy court found: (1) the home had a fair market value of $425,000;3 (2) the scheduled valuation by Debtors of $600,000 for the property should be given no weight;4 and (3) there was “no realizable equity in the [home]”5 in light of the $415,000 mortgage on the property.6 The bankruptcy court then concluded that “in order for a party to prevail on an objection to exemption under Section 522(o)[,] the party must prove by a preponderance of the evidence that the debtor has equity ..., an economic interest that, if liquidated, would result in the generation of funds in excess of the amount of debt secured by liens upon the property.”7 Because there was no equity in the property, the bankruptcy court overruled the Trustee’s objection to exemption. The bankruptcy court additionally found that because there was no realizable equity in the property, the objection to exemption was effectively moot.8
*92II. Jurisdiction and Standard of Review
This Court has jurisdiction to hear timely filed appeals from “final judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit, unless one of the parties elects to have the district court hear the appeal.9 The Trustee timely appealed the final decision,10 and the bankruptcy court’s order overruling the Trustee’s objection to exemption is an appealable final order.11 Neither party has elected to have the district court hear this appeal, and this Court, therefore, has appellate jurisdiction.
The BAP reviews the bankruptcy court’s legal conclusions de novo and its findings of fact under the “clearly erroneous” standard of review.12
III. Discussion
A. Burden of proof.
The Trustee, as the party objecting to the Debtors’ homestead exemption, bears the burden of proof on his objection.13
B. The word “interest” in § 522(o )(4) refers to the Debtors’ economic equity in the property, not title.
As noted, the main issue on appeal is the bankruptcy court’s interpretation of § 522(o)(4), and, more particularly, the use of the word “interest” in that section. Under § 522(o )(4), “the value of [the Debtors’] interest in” the property “shall be reduced to the extent that such value is attributable to any portion of any [nonexempt] property that the debtor disposed of in the 10-year period” preceding the bankruptcy petition, when the debtor has “the intent to hinder, delay, or defraud a creditor.” In overruling the Trustee’s objection to exemption, the bankruptcy court focused on the “value of an interest in” language, and the potential mootness that language caused. We do the same.
The Trustee argues that this section of the Bankruptcy Code requires that a debt- or’s homestead exemption be reduced by the amount applied to that homestead that was derived from a fraudulent transfer of non-exempt property, regardless whether the debtor can repay this amount to creditors by drawing upon the value of the homestead. The Debtors argue that the phrase “value of an interest in” refers only to the increase in the economic equity in the real property, not the holding of title to the property, and that the bankruptcy court was limited to reducing the value of any equitable increase of a debtor’s interest in their homestead attributable to the wrongful investment of proceeds of nonexempt property. The Trustee counters that the appropriate remedy, when there is no equity in § 522(o )(4) property, is to give the Trustee an equitable lien on the debtor’s homestead.
*93As always, the starting point in any ease of statutory construction is to look to the language of the statute itself.14 ‘When interpreting statutory language, the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole.”15 The word “interest” is not defined in the Bankruptcy Code. However, words in statutes should be given their common, ordinary meaning.16 According to Black’s Law Dictionary, an interest is “[a] legal share in something; all or part of a legal or equitable claim to or right in property.”17 According to this definition of “interest,” the phrase could refer to either legal title or an economic equity interest.
Because we find no help in the dictionary definition, we next look to the language of § 522 as a whole, and other uses of the word “interest” within that statute. As the Supreme Court has noted:
The definition of words in isolation, however, is not necessarily controlling in statutory construction. A word in a statute may or may not extend to the outer limits of its definitional possibilities. Interpretation of a word or phrase depends upon reading the whole statutory text, considering the purpose and context of the statute, and consulting any precedents or authorities that inform the analysis.18
The context of the disputed phrase is, thus, important.
Section 522(o) was added to the Bankruptcy Code under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). At the same time that § 522(o) was added by BAPCPA, subsection (p) to § 522 was also added. Section 522(p) is an additional limitation on homestead exemptions in states, like Oklahoma, with unlimited homestead exemptions. Under § 522(p) — the neighboring provision to § 522(o) — a debtor is prohibited from exempting “any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate [$146,450] in value.”
The word “interest” is used within both § 522(o) and § 522(p). The words used within a statute should be interpreted consistently, and it is presumed that “identical words used in different parts of the same act [were] intended to have the same meaning.” 19 The full reach of § 522(p) is best evaluated by quoting its relevant provisions:
(1) a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $146,450 in value in—
*94(D) real or personal property that the debtor or dependent of the debtor claims as a homestead.
(2) ...
(B) For purposes of paragraph (1), any amount of such interest does not include any interest transferred from a debtor’s previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor’s current principal residence, if the debtor’s previous and current residences are located in the same State.20
In this neighboring provision, when the term “interest” is used, the statute appears to refer to equity, not title. For example, in § 522(p)(2)(B), the Code limits the reach of the § 522(p)(l) limitation on the homestead exemption, and refers to “any amount of such interest” in the homestead. This reference would be nonsensical if the word “title” were inserted rather than “equity.” In addition, § 522(p)(l) uses the phrases/words “any amount of interest,” “acquired” and “in the aggregate,” which all lend themselves more readily to a monetary interpretation of the word “interest.”
The addition of § 522(o) to the Bankruptcy Code was “intended to strike a balance between the rights of debtors and creditors in states with unlimited homestead exemptions ... and to make clear that abusive pre-bankruptcy planning will not be tolerated at the expense of creditors.”21 However, even after BAPCPA’s amendments, “[sjection 522 continues to adopt the position favorably viewed by the Code drafters that the mere conversion of nonexempt property into exempt property, without fraudulent intent, does not deprive the debtor of exemption rights in the converted property.”22 Ultimately, it appears that the purpose of adding § 522(o) and § 522(p) in 2005 was the attempt by Congress to address the pre-BAPCPA “mansion loophole”23 and to limit the value of homestead exemptions when there is fraud.24 This lends support to our interpretation of § 522(o) — that the statute was enacted to prevent the fraudulent attempt to build up equity in a homestead.
In support of his position, the Trustee cites to the House Report prepared for BAPCPA, and specifically a portion of a sentence within that report, found in the section titled “Highlights of Bankruptcy Reforms” and subtitled “Consumer Credit Bankruptcy Protections.” One portion states: “To the extent a debtor’s homestead exemption was obtained through the fraudulent conversion of nonexempt assets (e.g., cash) during the ten-year period preceding the filing of the bankruptcy case, S. 256 requires such exemption to be reduced *95by the amount attributable to the debtor’s fraud.”25 The Trustee argues this sentence lends support to his title theory, based on the language that an exemption should be reduced by the amount of the cash payment.
But it is difficult to reconcile this quoted portion, however, with the actual text of the statute as enacted. The actual text of the statute provides that it is the “value of an interest” that the debtor claims as a homestead that should be reduced.26 We are not swayed by the Trustee’s argument, and give effect to the text of the statute, which must necessarily control over ambiguous legislative history.27
Focusing again on the language of § 522(o )(4), the most persuasive interpretation of the statute is that the phrase “value of an interest in ... real [ ] property” refers to increased economic equity in real property due to a fraudulent transfer of non-exempt funds into the property, rather than a title interpretation of the phrase. The subsection refers to “the value of an interest,” which implies a monetary interest — equity, not title. The statute also refers to the value being reduced to the extent “such value is attributable” to a non-exempt conversion. Again, this implies an equity consideration. In addition, as a practical matter, there is no way to reduce the value of a person’s legal title in a piece of property when that property is fully encumbered.
A few appellate and bankruptcy courts have considered the definition of “interest” in § 522. Some have adopted the title definition, in § 522(p) contexts.28 Some have adopted the equity definition when interpreting both § 522(o) and § 522(p).29 Others have been able to render a decision without requiring a decision on this precise issue.30
*96We find persuasive the analysis in Parks v. Anderson,31 where the District Court for the District of Kansas found the term “interest” to mean “equity” in both subsections (o) and (p) of § 522. The Anderson case originated from a trustee challenge to the debtor’s homestead exemption under both § 522(o) and § 522(p). In that case, the debtor’s homestead was valued between $411,800 and $636,000, with a $172,380 mortgage. The bankruptcy court was asked to interpret the word “interest” as used in § 522(p), and in doing so referenced § 522(o ).32 The bankruptcy court concluded that while the term “interest” may mean equity in § 522(o), the word meant title or ownership in § 522(p).
The district court reversed the bankruptcy court’s interpretation of the term “interest” within § 522(p).33 The court concluded that if Congress intended § 522(p) be restricted to title interest, then it would not have included the words “any amount of’ before the word interest, which implies a value determination.34 In addition, the court noted that the use of the phrase “interest acquired” in § 522(p) was not determinative of the interpretation, because a debtor could acquire equity in property just like title may be acquired.35
The District Court also concluded that subsections (1) and (2) of § 522(p) must be read consistently, and a title definition in § 522(p)(2) would render incomprehensible that subsection’s provision for “any interest transferred” from the debtor’s previous principal residence into a current residence if both properties are located within the same state.36 The court noted: “a person does not transfer title from one residence to another, but instead, transfers equity.”37 Finally, the court assessed the interplay between § 522(o) and § 522(p):
... § 522(p) permits a debtor to transfer non-exempt assets into a homestead during the 1,215-day period if ... the transfer, in the aggregate, is less than [$146,450]. Section 522(o) provides that a transfer of any amount “shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor....” To impose § 522(o) upon a debtor requires a showing of actual intent of the debtor to hinder or defraud. Absent actual intent to hinder or defraud, a *97debtor transferring non-exempt assets to an exempt asset during the 1,215-day period is protected up to [$146,450]. Therefore, we find no conflict between § 522(o) and § 522(p) in applying an “equity” definition to the term “interest.” 38
The court concluded the word “interest” within § 522(p) “refers to equity acquired by a debtor.” Likewise, we conclude the similar use of the word “interest” in § 522(o)(4) refers to a debtor’s economic equity in the real or personal property used as a residence.
The Trustee also argues that the bankruptcy court impermissibly inserted an element into § 522(o )(4) that is not actually contained in the statute by requiring him to show realizable equity in the property for the section to apply. To the contrary, the bankruptcy court did not require a new element. It simply interpreted the statute’s language. The statute is clear that the Trustee must carry his burden to show how the “value of [the] interest in” the property should “be reduced,” and this was necessary to the ultimate resolution of the objection to exemption. The phrase “the value of an interest in ... real [ ] property ... shall be reduced” means that the equity in the real property obtained through fraudulent transfer of non-exempt assets into exempt assets is to be reduced. If there is no equity, there is no value subject to reduction.
C. The bankruptcy court did not clearly err in its factual finding that the property was appropriately valued at $425,000.
The Trustee next challenges the bankruptcy court’s factual finding that the Debtors had no realizable interest in the property. The Trustee argues that the Debtors are judicially estopped from asserting a valuation different than they claimed in their sworn schedules.
First, however, the Trustee did not argue judicial estoppel before the bankruptcy court.39 “It is well settled that an appellate court will not entertain an issue that was not first presented to the trial court.”40 Second, even if the Trustee had so argued, the bankruptcy court made a credibility determination when it found that the Debtors honestly, but erroneously, relied on their homeowners’ insurance replacement value of the property when completing their bankruptcy schedules. Further, the only other evidence offered to the bankruptcy court was the certified appraisal report valuing the property at $425,000, an appraisal the parties jointly offered into evidence, and which was admitted without objection by the Trustee. The Trustee elected not to offer expert *98testimony of a higher value. As a result, no evidentiary basis exists to conclude that the bankruptcy court was clearly erroneous in its factual findings.
IV. Conclusion
We conclude that the phrase “the value of an interest in ... real [ ] property ... shall be reduced” in 11 U.S.C. § 522(o) means that the equity in a debtor’s home that was obtained through fraudulent transfer of non-exempt assets into exempt assets is to be reduced. If there is no equity, there is no value subject to reduction. Accordingly, we affirm the bankruptcy court’s conclusions of law on this basis. We additionally affirm the bankruptcy court’s factual finding that the property had no realizable equity, based on the only evidence presented and on the credibility determinations made therein. We affirm the decision of the bankruptcy court overruling the Trustee’s objection to the Debtors’ homestead exemption.
. 11 U.S.C. § 522(o)(4).
. Oklahoma is an opt-out state. Okla. Stat. tit. 31, § 1(B) (2005). The Oklahoma homestead exemption is unlimited in value, and includes up to 160 acres of land outside, or up to 1 acre inside, a city or town. Okla. Stat. tit. 31, § 1(A) (2005); Okla. Stat. tit. 31 § 2 (1997). In contrast to this generous homestead exemption, the federal homestead exemption is limited to $21,625 in value in property used as a residence. 11 U.S.C. § 522(d)(1).
. Regarding this value, the bankruptcy court stated: "The Court finds as a matter of fact that the [home] has a fair market value of $425,000. The Court’s conclusion as to value is based upon the October 15, 2010 appraisal report of Chris Bauer, a residential appraiser certified by the State of Oklahoma. The report was admitted into evidence [as] Exhibit 3. This exhibit was a joint exhibit offered by all parties at the evidentiary hearing and it was received without objection.” Apr. 27, 2011, Transcript at 8, ll. 3-10, in Aplt. App’x at 497.
. Regarding this value, the bankruptcy court stated: "The only other evidence as to the value of the [home] was the statement by the Debtors in their schedules that the value ... was $600,000. In his testimony to the Court, Mr. Willcut testified without contradiction or objection that this value was based upon the replacement cost of the [home], as established by the homeowners' insurance company. The Court finds Mr. Willcut’s testimony to be credible in this regard and, therefore, gives the scheduled valuation of $600,000 no weight.” Id. at 8, ll. 11-20, in Aplt. App’x at 497.
. Id. at 11,1. 10, in Aplt. App'x at 500.
. Id. at 7, ll. 11-15, in Aplt. App’x at 496.
. Id. at 14-15, ll. 25, 1-6, in Aplt. App'x at 503-04.
. Id. at 15, ll. 8-22, in Aplt. App’x at 504. In support of this conclusion, the bankruptcy court stated that even if it did disallow the *92exemption, there would be no economic benefit to the estate, and that the property "is not worth enough to justify any efforts made to sell it.” Id. at 15-16, ll. 23-25, 1-2, in Aplt. App'x at 504-05.
. 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr.P. 8002; 10th Cir. BAP L.R. 8001-3.
. Apr. 27, 2011, Order at Docket Entry 95, in Aplt. App'x at 508.
. In re Carlson, 303 B.R. 478, 480 (10th Cir. BAP 2004).
. In re Robinson, 295 B.R. 147, 149 (10th Cir. BAP 2003).
. In re Hall, 441 B.R. 680, 685 (10th Cir. BAP 2009) ("The Trustee, as the party objecting to the exemption, bears the burden of proof to show the impropriety of the exemption by a preponderance of the evidence.”).
. In re Overland Park Fin. Corp., 236 F.3d 1246, 1251 (10th Cir.2001) ("In any case of statutory construction, the starting point of our analysis must begin with the language of the statute itself.").
. Id. at 1252 (internal quotation marks omitted).
. Id. (“The meaning of the words in the statute must be construed in their ordinary, everyday sense.”) (internal quotation marks omitted).
. Black’s Law Dictionary (9th ed. 2009).
. Dolan v. U.S. Postal Serv., 546 U.S. 481, 486, 126 S.Ct. 1252, 163 L.Ed.2d 1079 (2006).
. Bray v. Alexandria Women’s Health Clinic, 506 U.S. 263, 292, 113 S.Ct. 753, 122 L.Ed.2d 34 (1993) (internal quotations omitted); Lippoldt v. Cole, 468 F.3d 1204, 1213 (10th Cir.2006) (holding there is a presumption that identical words used in different part of the same act are intended to have the same meaning).
. 11 U.S.C. § 522(p) (emphasis added).
. In re Cipolla, No. 11-50391, 2012 WL 1003555, at *2 (5th Cir. Mar. 26, 2012) (internal quotation marks omitted).
. 4 Collier on Bankmptcy ¶ 522.08[5] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.).
. See In re Greene, 583 F.3d 614, 624 (9th Cir.2009) ("Section 522(p) was intended to address the well-documented and often-expressed concern by members of Congress about the so-called 'mansion loophole’ by which wealthy individuals could shield millions of dollars from creditors by filing bankruptcy after converting nonexempt assets into expensive and exempt homesteads in one of the handful of states with unlimited homestead exemptions.” Id. at 619 (internal quotation marks omitted)).
.Compare Parks v. Anderson, 406 B.R. 79, 91 n. 44 (D.Kan.2009), with Venn v. Reinhard (In re Reinhard), 377 B.R. 315, 320 (Bankr.N.D.Fla.2007) (discussing legislative intent of BAPCPA additions and the different interpretations given to the Congressional purpose in closing the “mansion loophole”).
. H.R.Rep. No. 109-31 pt. 1, at 16 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 102.
. 11 U.S.C. § 522(o) (emphasis added).
. St. Charles Inv. Co. v. Comm’r of Internal Revenue, 232 F.3d 773, 776 (10th Cir.2000) ("[LJegislative history may not be used to create ambiguity in the statutory language ... We do not inquire what the legislature meant; we ask only what the statute means.” (citation and internal quotation marks omitted)). In addition, the court in Parks v. Anderson, 406 B.R. at 91 n. 44, noted that portions of the legislative history concerning the pertinent subsections could also support the contrary argument.
. See, e.g., In re Greene, 583 F.3d at 624-25 (concluding that filing a homestead claim for an underlying property interest does not fall within § 522(p) because a homestead claim is not an ownership interest); In re Aroesty, 385 B.R. 1, 7 (1st Cir. BAP 2008) (holding that a debtor who previously held a beneficial interest in real property held in trust acquired an ''interest” under § 522(p) when record title was received to the trust); In re Sainlar, 344 B.R. 669, 673 (Bankr.M.D.Fla.2006) (concluding that the term "interest” in § 522(p) means tide interest because the phrase "interest that was acquired” implies actively acquiring title to property); In re Blair, 334 B.R. 374, 376-77 (Bankr.N.D.Tex.2005) (concluding that the plain meaning of "interest” in real property under § 522 is the title to a home because "one does not actually 'acquire equity in a home’ ”).
. See, e.g., In re Presto, 376 B.R. 554, 572 (Bankr.S.D.Tex.2007) ("The [objecting party] bears the burden of establishing a current market value in excess of the $521,800.00 purchase price in order to show by what amount the improvements made by the Debt- or actually increased the value of the Royal Rose Property.”); Venn, 377 B.R. at 320 (deciding that “interest” refers to equity and not ownership under § 522(p)); In re Rasmussen, 349 B.R. 747, 756 (Bankr.M.D.Fla.2006) (interpreting "interest” to mean acquisition of equity under § 522(p)).
. See, e.g., In re Fehmel, 372 Fed.Appx. 507, 511-12 (5th Cir.2010) (concluding that under either definition of "interest,” the debtors failed to show that exemption was properly claimed under § 522(p)); In re Rogers, 513 F.3d 212, 222-23 (5th Cir.2008) (discussing *96the title versus equity debate on the definition of interest and implying, but not deciding, that interest refers to equity in § 522(p)),; In re Khan, 375 B.R. 5, 11-13 (1st Cir. BAP 2007) (implying that "interest” means ownership under § 522(p), but not deciding issue because debtor failed to present any evidence of his ownership interest); Turner v. Keck (In re Keck), 363 B.R. 193, 212 (Bankr.D.Kan.2007) (granting equitable lien on homestead under § 522(o) in amount of non-exempt assets converted to cash and used to increase value of homestead where homestead was valued at $90,000, with no secured or tax claims against it).
. 406 B.R. 79 (D.Kan.2009).
. In re Anderson, 374 B.R. 848 (Bankr.D.Kan.2007). Ironically, and contrary to the facts of this appeal, the trustee in Anderson argued the term "interest” to be defined as "equity in the homestead,” whereas the debt- or preferred the term to mean “title or ownership.” The positions are switched in this appeal, because the benefit to the parties if their current preferred definition is adopted is switched.
. Anderson, 406 B.R. at 95.
. Id. at 94.
. Id.
. Id.
. Id.
. Id. at 95 (footnotes omitted).
. The Trustee, in his reply, argues that he did raise the judicial estoppel argument in the bankruptcy court and cites three record instances in support. Reply Brief at 12 n, 1. Upon closer examination, however, these record cites are not judicial estoppel arguments, but are simply instances where the Trustee referred the court to the fact that the Debtors valued the property at $600,000 in their schedules. See Aplt. App’x at 120 (transcript of evidentiary hearing where Debtor Ricky Alan Willcut states that the property was scheduled at $600,000); Aplt. App'x at 142 (transcript of evidentiary hearing where Debt- or Ricky Alan Willcut states that the value of the property was listed as $600,000 because that was the replacement value given by the insurance company and the Debtors did not want to pay for an appraisal); and Aplt. App'x at 457 n. 3 (Trustee's post-trial brief noting that the property was valued at $600,000 in schedules and that the Debtors had not amended their schedules even though they now submitted a lower appraisal — arguing this lower value was evidence of bad faith).
.In re Crowder, 314 B.R. 445, 449 (10th Cir. BAP 2004). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494715/ | MEMORANDUM OPINION GRANTING DEBTORS’ MOTION TO VALUE, SUSTAINING DEBTORS’ OBJECTION TO CLAIM, AND GRANTING DEBTORS’ MOTION FOR CRAM DOWN
KAREN S. JENNEMANN, Bankruptcy Judge.
Debtors object1 to Alafaya Homeowners Association’s secured proof of claim for a delinquent homeowners’ association (“HOA”) assessment and have filed a motion to determine the secured status of their claim under § 506(a)(1) of the Bankruptcy Code. Debtors also argue that Ala-faya’s claim is unsecured and, as such, Alafaya is not entitled to post-petition fees or expenses under § 506(b). Debtors also have filed a motion to cram down2 Alafa-ya’s unsecured claim under its plan of reorganization.3
Alafaya disputes that its lien is unsecured, arguing a relatively new Florida statute gives an HOA lien retroactive priority over other lien holders. Because Alafaya contractually subordinated its lien to all first mortgagees’ liens and never recorded a claim of lien as required by the recently amended Florida statute, the statute does not apply. The Court grants debtors’ motion to value, finding that Ala-faya’s claim is unsecured and sustains debtors’ objection as to Alafaya’s claim for post-petition fees and costs. Because *109debtors’ plan will pay Alafaya the full value -of its allowed unsecured claim, Alafaya is unimpaired, and debtors’ motion for cram down is granted.
Debtors’ Motion to Value is Granted
After debtors filed bankruptcy on July 1, 2011, Alafaya filed a secured proof of claim in the amount of $1,025.55 consisting of (1) a delinquent HOA fee of $165 plus interest of $3.31, (2) legal fees and costs related to foreclosure work of $254.86, and (3) $602.38 in administrative and attorney’s fees and expenses.4 Alafaya documented its proof of claim as follows:
Homeowners assessments due 03/01/11 $ 165.00
Interest @ 6% per annum through 07/01/11 $ 3.31
Administrative fees $ 32.38
Attorney’s fees for mortgage foreclosure action $ 250.00
Attorney’s costs for mortgage foreclosure action:
Copies $ 3.20
Postage $ 1.66
Attorney’s fees and costs for bankruptcy action $ 570.00
Total included in Proof of Claim $ 1,025.55
Alafaya’s claim arose from debtors’ failure to pay normal homeowners’ association fees associated with the ownership of their residential property in Oviedo, Florida.5 The residence, located in the Alafaya Woods Neighborhood Development, is bound by a Declaration of Covenants, Conditions, Restrictions, Reservations and Easements for the Alafaya Woods Development (the “Declaration”) recorded on February 22, 1985. According to the Declaration, the annual and special assessments, together with late charges, interest, and costs of collection, creates a continuing lien on the residence.6
Debtors purchased the residence subject to the Declaration with the help of a first mortgage loan from Federal National Mortgage (“Federal”) in the amount of $236,000.7 Federal recorded its mortgage lien on March 19, 2007.8 Even though Federal recorded the mortgage after the Declaration was filed in the public records, Federal held a first priority mortgage lien because the Declaration specifically subordinated any future HOA liens resulting from non-payment of fees to “any [other] mortgage recorded prior to recordation of a claim of lien.”9
Upon debtors’ bankruptcy, Federal filed a secured proof of claim in the amount of $286,352.74, which includes all amounts due under its note and mortgage, including late fees and interest.10 Based on the *110undisputed value of the residence of $165,000,11 Federal asserts it has an allowed secured claim of $165,000 and an allowed unsecured claim of $121,352.74.12 Alafaya disputes Federal’s priority claim and argues it has a superior, fully secured lien because a new Florida statute enacted in 2008 allows Alafaya’s lien to trump Federal’s lien, despite the subordination clause in the recorded Declaration.13 The relevant section of Fla. Stat. § 720.3085(1) reads:
When authorized by the governing documents, the [homeowners’] association has a lien on each parcel to secure the payment of assessments and other amounts provided for by this section. Except as otherwise set forth in this section, the lien is effective from and shall relate back to the date on which the original declaration of the community was recorded. However, as to first mortgages of record, the lien is effective from and after recording of a claim of lien in the public records of the county in which the parcel is located. This subsection does not bestow upon any lien, mortgage, or certified judgment of record on July 1, 2008, including the lien for unpaid assessments created in this section, a priority that, by law, the lien, mortgage, or judgment did not have before July 1, 2008.14
Alafaya claims this statute makes Alafa-ya’s lien superior to Federal’s mortgage lien, and as such, Alafaya is over-secured and entitled to its full claim of $1,025.55, which includes post-petition fees, costs, and expenses.
The relative lien priority of the two parties’ claims is significant because the value of the home is not enough to pay both parties’ claims in full. If Alafaya holds a superior interest to Federal’s mortgage lien, Alafaya has an over-secured claim in the full allowed amount of $1,025.55. If Alafaya has an inferior interest, Alafaya’s claim is wholly unsecured, and Alafaya will receive treatment as an unsecured creditor under debtors’ plan of reorganization. Alafaya as an unsecured creditor is not entitled to the portion of its claim for post-petition fees and expenses because § 506(b) of the Bankruptcy Code15 authorizes a creditor to recover post-petition fees, costs, and other expenses only if the creditor holds an over-secured claim.16
In this case, § 720.3085 does not apply because Alafaya never filed a claim of lien for debtors’ delinquent HOA fees. Alafa-ya’s continuing lien, granted as of the date of the Declaration, is not equivalent to a claim of lien as required by the statute. The Declaration clarifies the difference. Section 6.1 of the Declaration automatically creates a continuing lien that relates back to the Declaration when fees are assessed, but according to Section 6.8, a claim of lien does not occur automatically. Alafaya specifically must have recorded a claim of lien in the public records to be *111entitled to elevated priority under § 720.3085, which it never did. Therefore, Fla. Stat. § 720.3085 does not apply.
Notice is a fundamental principle of property law.17 Recording a claim of lien puts all others on notice of an encumbrance on property. In Florida, an HOA is entitled to lien priority only if it records a claim of lien and its declaration places others on notice that it intends to seek priority status.18 As the Florida Supreme Court said In Holly Lake Association v. Federal National Mortgage Association, “in order for a claim of lien recorded pursuant to a declaration of covenants to have priority over an intervening recorded mortgage, the declaration must contain specific language indicating that the lien relates back to the date of the filing of the declaration or that it otherwise takes priority over intervening mortgages.”19 Along that vein, Alafaya’s primary argument that § 720.3085 applies20 is based on footnote found in Ecoventure WGV. Ltd. in which the Fifth District Court of Appeals suggests that an HOA could have promoted its lien status by “including language expressly incorporating by reference the provisions of Chapter 720.”21
Alafaya points to Section 10.22 of the Declaration that requires the Declaration “be construed in accordance with the laws of the state of Florida, both substantive and remedial” as incorporating Chapter 720 into the Declaration.22 The Court finds this falls far short of expressly incorporating Fla. Stat. § 720.3085 because it does not refer to Chapter 720 specifically.23 Furthermore, Ecoventure overlooks the fundamental mandate in Florida Statute § 720.3085 that an HOA must first record a claim of lien in the public records before it can trump another claim.
Even if Alafaya did file a claim of lien, which it has not, two District Court of Appeals in Florida have held § 720.3085 does not operate retroactively to improve a lien’s priority to a position it did not have prior to July 1, 2008.24 Both the Second and Fifth District Courts of Appeals in Florida noted that a retroactive application of the statute would be an unconstitutional impairment of contracts and “would operate to severely, permanently, and immediately change the parties’ economic relationship ... a circumstance not supportable under the law.”25 The apparent purpose of this statute is to give homeowners’ associations in Florida at least some protection that their liens will not be completely disregarded should a homeowner fail to pay HOA dues and then lose his home to foreclosure. However, impos*112ing those protections on lenders holding liens recorded prior to July 1, 2008, such as Federal, would “result in an immediate diminishment in the value of [their] contract[s] ... a result repugnant to our constitutions.”26 Federal’s lien relates back to the dates of its 2007 mortgage, and the 2008 Florida statute cannot reach back to alter the priorities established at that date.
For these reasons, Alafaya may not rely on Florida Statute § 720.3085 to elevate its lien priority ahead of Federal. No creditor, had it looked, would have been able to determine that Alafaya was claiming a priority interest ahead of any mortgagees because Alafaya never gave appropriate notice through a claim of lien. As a result, Alafaya’s HOA lien remains subordinate to Federal’s mortgage lien, and Alafaya’s claim is unsecured.
Alafaya claims that this result is inequitable because debtors will retain their home and avoid their obligation to pay the pre-petition HOA assessment.27 But this is exactly what Alafaya bargained for. Alafaya drafted the Declaration and purposefully subordinated its lien to all first mortgagees, presumably “to induce lenders to extend mortgages on property subject to the Declaration.”28 The homeowners in the neighborhood benefit from this arrangement,29 and all have agreed to pay an additional assessment should one homeowner fail to meet its obligation to pay HOA dues as promised.30 Alafaya’s contention that “to allow the [djebtors to escape liability for these amounts, means that the remaining paying owners in the community will have to pay the [debtors’ *113share of the common expenses”31 is simply disingenuous.
The subordination clause in the Declaration induced Federal to loan debtors the money to purchase the residential property in exchange for a secured priority lien. Florida Statute § 720.3085 does not apply to alter the parties’ priorities because it does not operate retroactively. Alafaya, however, never filed a claim of lien or otherwise noticed its intention to seek a priority interest. Accordingly, debtors’ motion to value32 is granted. Federal has an allowed secured claim of $165,000 and an allowed unsecured claim of $121,352.74.33 Alafaya’s claim is wholly unsecured.
Debtors’ Objection to Alafaya’s Claim is Sustained
Debtors next object to the amount of Alafaya’s unsecured claim to the extent that Alafaya requests any amounts for post-petition attorney’ fees, costs, interest, or any other post-petition charge.34 Debtors argue Alafaya’s allowed unsecured claim should be limited to the $165 HOA assessment and the $3.31 in pre-petition interest because Alafaya has proven it was owed these amounts at the time debtors filed bankruptcy. Debtors specifically object to Alafaya’s request for $250 in legal fees for pursuing a foreclosure because Alafaya incurred this expense post petition.35 Alafaya disputes the $250 in legal fees was incurred post petition, but has presented no evidence to support its claim.
The Court will sustain debtors’ objection as to any additional fees because, even though Alafaya submitted an itemized proof of claim, the claim lacks significant dates. Alafaya has a valid claim for the HOA fee and interest because the first two entries in Alafaya’s proof of claim are dated and show that debtors owed a $165 HOA fee and accrued interest on that assessment of $3.31 at the time they filed bankruptcy. Alafaya, however, has not produced any evidence to prove it incurred other pre-petition costs in its proof of claim. Alafaya could have rebutted debtors’ claim objection by filing a detailed billing statement showing the costs accrued pre-petition, but it failed to do so. Despite having full knowledge of debtors’ objection to any additional fees beyond the delinquent HOA fees, Alafaya has not provided a shred of evidence that would support the full amount of its claim. Upon a claim dispute, a creditor has the obligation to prove the amounts it claims to be owed.36
Debtors’ objection to Alafaya’s claim is sustained. Alafaya has an allowed, unse*114cured claim of $168.31, which includes pre-petition HOA assessment of $165 and $3.31 for accrued interest as of the date of debtors’ bankruptcy petition. All other claim amounts are disallowed.
Debtors’ Motion for Cram Down is Granted
Debtors have filed a plan of reorganization that proposes to pay Alafaya’s unsecured claim of $168.31 in full in Class 18.37 Alafaya objected to this treatment and to the confirmation of debtors’ plan. In response, Debtors filed a motion to cram down its plan on Alafaya under § 1129(b) of the Code.38
Courts will confirm plans of reorganization notwithstanding an impaired creditor’s objection as long as all the other requirements of § 1129(a) are met,39 the plan does not discriminate unfairly, and the plan is fair and equitable with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.40 “As to a dissenting class of unsecured creditors, such a plan may be found to be ‘fair and equitable’ only if the allowed value of the claim is to be paid in full ... or, in the alternative, if ‘the holder of any claim or interest that is junior to the claims of such impaired unsecured class will not receive or retain under the plan on account of such junior claim or interest any property.’ ”41
In this case, Alafaya has no cause to complain. Alafaya is not impaired such that it can obstruct confirmation by voting against the plan.42 Debtors’ plan proposes to pay Alafaya’s allowed claim of $168.31 in full. As an unimpaired creditor, Alafaya is not entitled to vote for or against debtors’ plan because unimpaired creditors are deemed to have accepted a proposed plan under § 1126(f), even if they do not agree with the treatment. Therefore, because Alafaya is not impaired and may not vote against the plan, debtors’ motion for cram down is granted.
In conclusion, Debtors’ motion to value Alafaya’s claim is granted because Florida Statute § 720.3085 does not apply. Debtors’ objection to Alafaya’s claim is sustained. Alafaya has an unsecured claim for $168.31 that will be paid in full in Class 18. Alafaya is not an impaired creditor, and Debtors’ motion for cram down is granted. A separate order consistent with this opinion shall be issued.
DONE AND ORDERED.
. Doc. No. 120.
. Doc. No. 136.
. Doc. No. 132.
. Claim No. 13.
. Doc. No 120. The property is not debtor’s principal residence.
. Doc. No. 131, Exhibit 1, Section 6.1. Presumably, Alafaya means that the lien relates back to the date the Declaration was recorded. See Holly Lake Ass’n v. Federal Nat. Mortg. Ass’n, 660 So.2d 266, 269 (Fla. 1995).
. Claim No. 19, Exhibit 2.
. Claim No. 19, Exhibit 3.
. Doc. No. 131. The Declaration, Section 6.8 entitled "Subordination of the Lien,” reads:
The lien of the assessment provided for in this Article VI shall be subordinate to tax liens and to the lien of any mortgage recorded prior to the recordation of a claim of lien, which mortgage encumbers any Lot or Unit and is in favor of any institutional mortgagee and is now or hereafter placed upon a portion of The Properties subject to assessment; provided, however, that any institutional mortgagee when in possession or any receiver, and in the event of a foreclosure, any purchaser at a foreclosure sale, and any institutional mortgagee acquiring a deed in lieu of foreclosure, and all persons claiming by, through or under any such purchaser or mortgagee, shall hold title subject to the liability and lien of any assessment becoming due after such foreclosure (or conveyance in lieu of foreclosure). Doc. No. 131 Exhibit 1.
.Doc. No. 123. IBM Lender Business Process Services, as servicer for Federal, filed the proof of claim on October 28, 2011.
. Doc. No. 123. The Court granted debtors’ motion to value (Doc. No. 25) and held the value of the property at 1061 Providence Lane, Oviedo, FL is $165,000. Doc. No. 120, FN 1 (Seminole County Property Appraiser determined the value is $164,714).
. Doc. No. 120 at 3. See 11 U.S.C. § 506(b); Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004) (interpreting § 506(b)).
.Doc. No. 131.
. Fla. Stat. § 720.3085 (emphasis added).
. All references to the Bankruptcy Code shall be to 11 U.S.C. § 101 et seq.
. 11 U.S.C. § 506(b). See In re Electric Machinery Enterprises, Inc., 371 B.R. 549, 550-51 (Bankr.M.D.Fla.2007) (discussing four reasons why courts have held that unsecured creditors are not entitled to fees and costs).
. Bessemer v. Gersten, 381 So.2d 1344, 1348 (Fla. 1980) (citing Certain Lands v. Ideal Farms Drainage District, 156 Fla. 774, 778, 24 So.2d 585, 587 (1945); Feemster v. Schurkman, 291 So.2d 622, 626 (Fla. 3d DCA 1974)).
. Fla. Stat. § 720.3085.
. Holly Lake Ass’n v. Federal Nat. Mortg. Ass’n, 660 So.2d 266 (Fla.1995) (citing New York Life Ins. & Annuity Corp. v. Hammocks Community Ass’n, Inc., 622 So.2d 1369 (Fla.3d DCA 1993)).
. Doc. No. 131.
. Ecoventure WGV, Ltd. v. Saint Johns Northwest Residential Ass’n, Inc., 56 So.3d 126, 128 n. 3 (Fla.Dist.Ct.App. 5th 2011) (citing Angora Enters., Inc. v. Cole, 439 So.2d 832 (Fla.1983)).
. Doc. No. 131, Exhibit 1.
. See Coral Lakes Comm. Ass’n, Inc. v. Busey Bank, N.A., 30 So.3d 579, 584 (Fla.Dist.Ct.App.2d 2010).
. See Ecoventure, 56 So.3d at 127-28; Coral Lakes, 30 So.3d at 583-84.
. Ecoventure, 56 So.3d at 128 (citing Coral Lakes, 30 So.3d at 584).
. Coral Lakes, 30 So.3d at 585.
. The case Alafaya cites to support this argument, In re Rivera, 256 B.R. 828 (Bankr.M.D.Fla.2000), does not apply because debtors are not seeking a discharge of post-petition HOA assessments. The Court in Rivera held that a debtor may not be released from its obligation to pay post-petition assessments because an HOA lien is a covenant running with the land. Debtors in this case are seeking to discharge pre-petition HOA fees. Bankruptcy Code § 523(a)(16) clarifies the distinction:
A discharge under 727 ... does not discharge an individual debtor from any debt — (16) for a fee or assessment that becomes due and payable after the order for relief to ... 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.
. Ecoventure, 56 So.3d at 127 (describing the incentives an HOA uses to induce mortgage lenders to extend mortgages on properties subject to an HOA declaration, including subordinating their HOA interest and assessing all homeowners for delinquent fees when one homeowner fails to pay).
. Coral Lakes, 30 So.3d at 585. Presumably, residential mortgages in the neighborhood would be more expensive (i.e., have higher interest rates) if mortgagees' interests always were subordinate to HOA liens because second priority liens are riskier and subordination impairs the marketability of a mortgage on the secondary market. Id. The HOA assessments are to be used for the "maintenance, operation, management and insurance of the Common Properties [of the neighborhood] ... and to promote the health, safety, welfare and recreational opportunities of the Members of the [HOA].” Doc. No. 131, Exhibit 1.
. Doc. No. 131, Exhibit 1, Section 6.8 ("Any unpaid assessment which cannot be collected as a lien against any Lot or Unit by reason of the provisions of this Section 6.8 shall be deemed to be an assessment divided among, payable by and a lien against all Lots and Units as provided in Section 6.1 of this Article VI, including the Lot or Unit as to which the foreclosure (or conveyance in lieu of foreclosure) took place.”).
. Doc. No. 131 at ¶ 11.
. Doc. No. 120.
. Doc. 120 at 3. See 11 U.S.C. § 506(b); Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004) (interpreting § 506(b)).
. Debtors’ Objection to Claim of Alafaya Woods Homeowners Association (Doc. No. 120).
. Doc. No. 120 at 3.
. Once a claimant has presented evidence of a valid claim, the burden of proof shifts to an objecting party to produce evidence "equivalent in probative value to that of the creditor to rebut the prima facie effect of the proof of claim.” In re Southern Cinemas, Inc., 256 B.R. 520, 526 (Bankr.M.D.Fla.2000). An objecting creditor can do this by producing specific and detailed allegations that dispute the claim, or by presenting legal arguments based on the claim and its supporting documentation (or lack thereof) that question the validity of its claim. In re Taylor, 363 B.R. 303, 308 (Bankr.M.D.Fla.2007) (citations omitted). The creditor then bears the ultimate burden of persuasion to prove its claim by a preponderance of the evidence. Id.
. Debtors' Amended Plan of Reorganization (Doc. No. 132); Objection of Creditor to Confirmation of Debtors' Second Amended Plan of Reorganization and Objection to Debtors’ Motion for Cram Down of Class 18 (Doc. No. 140). Debtors' plan treats Alafaya differently depending on the amount of its unsecured claim. If Alafaya had an allowed unsecured claim of the full amount it requested, $1,025.55, debtors' plan would treat it as a general unsecured claim and pay it 1%, or $10.25.
. Doc. No. 136.
. Except for 11 U.S.C. § 1129(a)(8) which requires all impaired creditors to consent to a plan.
. 11 U.S.C. § 1129(b)(1).
. In re Lett, 632 F.3d 1216, 1219 (11th Cir.2011) (citing Bank of America Nat. Trust and Sav. Ass’n v. 203 N. LaSalle Street Partnership, 526 U.S. 434, 441-42, 119 S.Ct. 1411, 1415-16, 143 L.Ed.2d 607 (1999)).
. 11 U.S.C. § 1124(1). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494716/ | MEMORANDUM OPINION DENYING MOTIONS TO DISMISS
KAREN S. JENNEMANN, Bankruptcy Judge.
The trustee, Soneet Kapila, appointed on behalf of the jointly-administered bank*118ruptcy estate of the debtors1 (the “Debtors”), seeks to recover profit payments made to defendants2 under actual and constructive fraud theories of bankruptcy and state law. Defendants have moved to dismiss these claims, arguing the trustee has failed to state a claim for which relief can be granted, lacks standing, and is barred by the in pari delicto defense because he represents the Debtors who are perpetrators of a massive Ponzi scheme. Defendants also claim that the funds they received were returns on investments with the Debtors which provided the Debtors with reasonably equivalent value, or alternatively, that the transfers were not of an interest in the Debtors, such that they cannot be avoided. Defendants’ motions to dismiss are denied.
Debtor, Louis J. Pearlman, along with some of his co-debtor companies — Trans Continental Airlines (“TCA”), Trans Continental Records (“TCR”), and Louis J. Pearlman Enterprises (“Enterprises”)— bilked thousands of investors out of hundreds of millions of dollars through the perpetration of different Ponzi schemes. The first was known as the “Employee Investment Savings Account” (the “EISA Program”), under which TCA raised over $300 million from hundreds of investors nationwide. Pearlman, his broker intermediaries, and others at TCA allegedly promised investors above-market rates of return for their investments and that their investments were FDIC insured. Neither representation was true. Instead, Pearl-man and his cronies pocketed much of the investment funds and used new investments to repay, or to pay interest to, prior investors in the EISA Program.
Like the EISA Program, Pearlman also offered investments in an entity called “Transcontinental Airlines Travel Services, Inc.” (the “TCTS Stock Program”) which was another classic Ponzi scheme in which Pearlman and his associates sold stock in a defunct company that was dissolved in 1999 and had no assets, only to use new investor funds to pay off older investors or themselves. The defendants in this case invested money with the Debtors into one of the two fraudulent investment schemes.3 Each received from the Debtors a transfer of funds as repayment of their investments within the four years preceding the Debtors’ bankruptcy petition. These particular defendants actually recovered more than the full balance of their investment in the fraud schemes, an amount the trustee labels “profit.” They were the “lucky” few who received their full investment, plus some, back from the Debtors. The profit, however, is why they now are defendants in these fraudulent transfer adversary proceedings.
Since the commencement of these jointly *119administered bankruptcy cases,4 the Chapter 11 trustee has filed over 700 adversary proceedings seeking to recover alleged fraudulent transfers. The trustee seeks to avoid and recover only the profits the Debtors paid defendants during the two and four years prior to the filing of Pearl-man’s bankruptcy petition, alleging these transfers were fraudulent and avoidable under Bankruptcy Code5 §§ 544(b), 548(a)(1)(A) and (b), 550, and comparable Florida statutes.6 Defendants have filed motions to dismiss these adversary proceedings, arguing (1) the trustee lacks standing to bring these claims, (2) the transfers from the Debtors to defendants provided reasonably equivalent value to defeat the trustee’s fraudulent conveyance claims, (3) the trustee is barred from pursuing these recovery actions based on the doctrine of in pari delicto, (4) the transfers were not “of an interest in the debt- or,” such that the trustee could recover them for the estate, and (5) the trustee has failed to state a cause of action for which relief can be granted.
In reviewing a motion to dismiss under Fed. R. Civ. Pro. 12(b)(6),7 courts must accept the allegations in the complaint as true and construe them in the light most favorable to the plaintiff.8 Dismissal is appropriate if the plaintiff “can prove no set of facts that would support the claims in the complaint.”9 As the Supreme Court recently has elaborated, a complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw a reasonable inference that the defendant is liable for the misconduct alleged.”10 A complaint that pleads facts merely consistent with a defendant’s liability “stops short of the line between possibility and plausibility of entitlement to relief.’ ”11 “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged — but it has not ‘shown’ — ‘that the pleader is entitled to relief ”12
The trustee has standing to pursue these causes of action.
In their first argument, defendants argue the trustee does not have standing to bring these causes of action because they are not properly categorized as “property of the estate.” Defendants argue that these avoidance actions to recover funds for the estate, funds that will be *120distributed to other injured investors, are not causes of action that the debtor has, but causes of action that only the injured creditors can pursue. Therefore, as defendants argue, the trustee standing in the shoes of debtor has no authority to bring these causes of action.
According to § 701 of the Bankruptcy Code, a trustee has authority to “collect and reduce to money the property of the estate for which such trustee serves.”13 In bankruptcy, “property of the estate” means “all legal or equitable interests of the debtor as of the commencement of the case.”14 Defendants cite two Eleventh Circuit cases, O’Halloran and E.F. Hutton, which fail to support their argument. Both cases limit a bankruptcy trustee’s standing to pursue creditors’ claims; however, these cases are distinguishable from this case in one very important way — they both hold that a trustee is barred from bringing common law causes of action for damages in tort, which were uniquely held by the individual creditors involved in those disputes and were subject to the defenses assertable against the debtor. As defendants point out, the trustee in OHalloran brought a state court action in tort against a bank, at which a debtor maintained an account, for allegedly aiding and abetting the debtor in perpetration of a Ponzi scheme. The Eleventh Circuit Court of Appeals held that the bankruptcy trustee was not the proper party to bring actions for damages because, when a debt- or is sued in tort, a trustee acts on behalf of the debtor and is charged with all of the debtor’s wrongdoing. The doctrine of in pari delicto bars the trustee from benefit-ting from the debtor’s misconduct because the trustee is considered a wrongdoer.15
Similarly, in E.F. Hutton, the bankruptcy trustee of a debtor who sold securities was denied standing to bring negligence and conversion actions against third parties on behalf of the debtor’s creditors.16 The Eleventh Circuit Court of Appeals reasoned that the trustee’s claims were in tort, were not based on provisions in the bankruptcy statute, and were not even owed to the bankruptcy estate, but directly to the injured creditors. The court made clear that its decision was based on the particular facts and circumstances of that case, notably the tort under which the creditors sought to recover. Neither E.F. Hutton nor OHalloran addresses a trustee’s ability to recover fraudulent transfers under §§ 544 or 548 of the Bankruptcy Code or similar state fraudulent transfer statutes, presumably because these causes of action were not asserted,17 and because the Code specifically grants a trustee authority to pursue these claims for the benefit of the estate.
*121It is well recognized that Bankruptcy Code §§ 548 and 544 confer standing on trustees to bring actions to recover fraudulent transfers, both under bankruptcy and state law. Section § 548(a)(1) provides, “the trustee may avoid any transfer ... of an interest of the debtor in property, or any obligation ... incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition.”18 Section 544(b)(1) similarly allows a trustee to avoid any transfers which an unsecured creditor could have avoided under applicable state law, in this case, Fla. Stat. § 726.105(l)(a) and § 726.108.19 Bankruptcy Code § 548 and Fla. Stat. §§ 726.105 and 726.108 are substantially the same, with the exception of Florida’s more favorable four-year look-back period, and both allow a trustee to avoid transfers made with the actual intent to hinder, delay, or defraud a creditor of the debtor.20
In order to state a fraudulent transfer claim, the trustee must make a plausible showing that there was a transfer of debtor’s interest in property, the transfer occurred within two (or four) years of the debtor’s filing of the petition, and the transfer was made with actual intent to hinder, defraud, or delay, or that the debtor received less than reasonably equivalent value in exchange for the transfer when it knew, or should have known, it lacked the ability to pay.21 Indeed, only *122the trustee can bring federal and state law fraudulent transfer actions to recover property for the bankrupt estate.22 Allowing individual creditors to pursue their own causes of action under state [or federal] law “would interfere with this estate and with the equitable distribution scheme dependent upon it.... Any other result would produce near anarchy where the only discernible organizing principle would be first-come-first-served. Even without the Bankruptcy Code and the policies that support it, we would be reluctant to elevate such a principle to a rule of law.”23 Based on the foregoing, the trustee clearly has standing to pursue these causes of action against defendants, each of whom received transfers from the Debtors as a result of their investment in a Ponzi scheme. Defendants’ motion to dismiss based on the trustee’s lack of standing is denied.
The defense of in pari delicto does not apply to a bankruptcy trustee who seeks to avoid fraudulent transfers under the Bankruptcy Code.
Defendants next argue that the trustee is barred from bringing these avoidance causes of action under the equitable doctrine of in pari delicto, which states that a “plaintiff who has participated in wrongdoing may not recover damages resulting from the wrongdoing.”24 The remedy, to leave the wrongdoer parties as the Court finds them, is based on the policy that “courts should not lend their good offices to mediating disputes among wrongdoers.”25 The issue here is whether the trustee, who steps into the shoes of a debtor, is labeled as a wrongdoer such that he cannot avoid transfers because Debtors, as perpetrators of the Ponzi schemes, cannot avoid the transfers.
Some courts address the equitable defense of in pari delicto as a separate issue from standing.26 Even if they are *123discussed, together, avoidance actions by a trustee under §§ 544 and 548 are not barred by the in pari delicto defense. As a general rule, “[plaintiffs] in fraudulent conveyance actions [are] not subject to defenses that could be raised against the debtor.”27 Furthermore, by its own definition, § 548 is an exception to the in pan delicto defense. When application of the doctrine would not be in the public interest, such as where a trustee is seeking to recover assets fraudulently transferred in furtherance of a Ponzi scheme, courts will allow the trustee to proceed.28 As noted previously, the Bankruptcy Code specifically charges the trustee with the task of recovering fraudulent transfers by the debtor for the benefit of the estate. Holding a trustee lacks standing to pursue these actions would gut a trustee’s avoidance powers entirely. The trustee is not barred by the doctrine of in pari delicto, and defendant’s motion to dismiss as to this defense is denied.
The trustee has stated causes of action for which relief may be granted.
The trustee has brought both actual and constructive fraudulent transfer actions under §§ 548(a)(1)(A) and (B) of the Bankruptcy Code and comparable Florida statutes. A claim asserting an actual fraudulent transfer must allege facts sufficient to show that it is plausible that both (1) the debtor “transferred an interest in property,” and (2) the transfer was made “with actual intent to hinder, delay or defraud creditors.” Given the difficulties in establishing a transferor’s actual intent, courts generally look at the totality of the circumstances and the badges of fraud surrounding the transfers to establish the requisite intent.29 But in cases involving a Ponzi scheme, courts typically infer fraudulent intent because, as this Court has previously stated, “[a] Ponzi scheme is by definition fraudulent.”30 For that reason, “any acts taken in furtherance of [a] Ponzi scheme ... are also fraudulent. Every payment made by the debtor to keep the scheme ongoing [is] made with *124actual intent to hinder, delay, or defraud creditors, primarily the new investors.”31
In this adversary proceeding, the undisputed facts establish Debtors’ fraudulent intent because (1) the Debtors ran a Ponzi scheme, and (2) the Debtors transferred funds to the defendants in repayment of them investments in furtherance of the Ponzi scheme. The trustee has stated a cause of action as to the actual fraudulent transfer counts (Counts I and II in each of the trustee’s amended complaints),32 and the defendants’ motions to dismiss on this basis are denied.
Counts III and IV of the trustee’s complaint allege the profits defendants received from their investments in the TCTS Stock Program were constructively fraudulent transfers under § 548 of the Code and §§ 726.105(l)(b), 726.106(1), and 726.108(l)(a) of Florida Statutes. Similar to the actual fraudulent transfers, §§ 544(b)(1) and § 550 of the Code allow a trustee to avoid these transfers and recover them for the benefit of the estate.
To state a claim for avoidance of a transfer based upon constructive fraud under bankruptcy and Florida law, the trustee must allege facts sufficient to show the probability that (1) there was transfer of an interest in debtor’s property made within two (or four) years prior to the petition, (2) the debtor received “less than a reasonably equivalent value” in exchange for such transfer, and debtor (3)(i) was insolvent on the date that such transfer was made or such obligation was incurred, (ii) was engaged in business with an unreasonably small amount of capital, (iii) intended to incur debts beyond debtor’s ability to pay such debts, or (iv) made such transfer to or for the benefit of an insider outside of the ordinary course of business.33
The trustee argues he has established a presumption that the transfers to defendants were indeed constructively fraudulent because the transfers occurred within two (or four) years of the petition,34 at a time when Debtors perpetrated a Ponzi scheme which, by its very nature, rendered them insolvent and caused Debtors to extend debts beyond their ability to repay. Defendants counter that the trustee cannot prove constructive fraud because, in exchange for the transfers to defendants, Debtors received “reasonably equivalent value” because the transfers repaid Debt- or’s investments and correspondingly reduced Debtors’ liability to the defendants.
In Florida, “value” is given if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied.35 Thus, loan repayments for a present or antecedent debt normally constitute “reasonably equivalent value” to debtors because, in exchange, a debtor receives “a reduction in the principal and interest of their loan by an equal amount.”36 In the case of a *125Ponzi scheme, defrauded investors give “value” back to the debtor to the extent a debtor repays the principal amount of its obligation to the investor, but no value is attributed to payments made to investors in excess of a return of principal.37 “[A]ny transfer up to the amount of the principal investment ... is made for value .... [and is not] subject to recovery by the debtor’s trustee.”38 “Transfers over and above the return of the investor’s principal investment — i.e., for ‘fictitious profits — are not made “for value” ’ and may be subject to recovery by the trustee.”39
The trustee is properly seeking to avoid only those transfers to defendants that represent profits on their investment with the Debtors, the amounts that exceed each defendant’s initial principal investment. Because the Ponzi scheme already was underway, Debtors were by definition presumed insolvent. The defendants’ good faith in accepting repayment is irrelevant.40 The trustee has sufficiently pled a cause of action for constructive fraud, and defendants’ motions to dismiss as to Counts III and IV are denied.
Count V of the trustee’s amended complaint alleges defendants were unjustly enriched by receiving profits from their investments with the Debtors, and that it would be inequitable to allow defendants to keep these profits. As previously acknowledged, profits obtained in further-anee of a Ponzi scheme are considered “fictitious profits” and, therefore, not real. The trustee has stated a valid course of action that, if proven, defendants were unjustly enriched when they received payments to the extent they exceed defendants’ original investments, and defendants’ motion to dismiss Count V is denied.
Profít payments in a Ponzi scheme are recoverable as a debtor’s interest in property.
Property of a debtor’s estate includes all legal or equitable interest of debtor in property, wherever located and by whomever held.41 A bankruptcy trustee can recover for the bankruptcy estate transfers made by a debtor by demonstrating the transferred property was “of an interest of the debtor in property.”42 “[A]ny funds under the control of the debt- or, regardless of the source, are properly deemed to be the debtor’s property, and any transfers that diminish that property are subject to avoidance.”43 A debtor must have exercised “sufficient control over the funds to warrant a finding that the funds were the debtor’s property.”44 Sufficient control means “first, the power to designate which party will receive the funds; and, second, the power to actually disburse the funds at issue to that party. In other words, control means control over *126identifying the payee, and control over whether the payee will actually be paid.”45 The purpose of avoiding fraudulent transfer actions is to prevent a debtor from diminishing property that properly belongs to all creditors.46 In the Eleventh Circuit, “where a debtor has paid existing debts [to its creditors], the funds used as payment are presumed to be the debtor’s property absent some proof to the contrary offered by those defending the transfer.” 47
The Cernanskys argue that the profits they received from their investments with the Debtors are not avoidable because they are not, and never were, the Debtors’ property. The Cernanskys instead urge the Court to find that their funds were held in a constructive trust or bailment relationship, or created an equitable lien, and that the Cernanskys invested and maintained control over them at all times. They argue that, when they deposited money with the Debtors, they intended that money to be placed in a separate and segregated account.48 In essence, defendants claim they used Debtors and their affiliates merely as holding companies, or “temporary conduits,” but always intended to retain individual ownership and control over their funds such that they never became property of the estate.
The Cernanskys’ argument, at best, raises a possible defense that would require factual proof and is well beyond the scope of a motion to dismiss. But, even if they did present sufficient evidence proving they intended to maintain control over their investments, the defense has questionable validity. None of the funds invested in the Ponzi schemes were actually invested. Therefore, even if defendants somehow prove they completely controlled their accounts, they would not be entitled to the investment profits because they never actually earned or realized any true profit. The monies the Cernanskys received necessarily came from investments from other defrauded investors. The argument makes little sense, and segregation of their funds does not alter the outcome. Therefore, whether the defendants actually controlled their investments in Debtors’ Ponzi scheme is irrelevant as to the profits the trustee seeks to recover.
In summary, all of defendants’ motions to dismiss are denied. Separate orders consistent with this ruling and directing the defendants to file answers shall be issued in each of the above styled cases.
DONE AND ORDERED.
. The debtors in these jointly administered cases are: Louis J. Pearlman; Louis J. Pearl-man Enterprises, Inc.; Louis J. Pearlman Enterprises, LLC; TC Leasing, LLC; Trans Continental Airlines, Inc.; Trans Continental Aviation, Inc.; Trans Continental Management, Inc.; Trans Continental Publishing, Inc.; Trans Continental Records, Inc.; Trans Continental Studios, Inc.; and Trans Continental Television Productions, Inc. (collectively, the “Debtors”).
. Each of the defendants has filed similar motions to dismiss based on standing, in pari delicto, and failure to state a claim. The Cer-nanskys have asserted an additional basis for their motion to dismiss — that the transfers were not of an interest of the Debtors.
.Defendant Rachel Bennett invested in the TCTS Stock Program. Doc. No. 11 at 3 in Case No. 9-ap-00318. Defendants George and Anna Cernansky invested in the EISA Investment Program. Doc. No. 12 at 3 in Case No. 9-ap-135. Defendant Sherril Clark invested in the EISA Investment Program. Doc. No. 12 at 3 in Case No. 9-ap-231.
. The other jointly administered cases include: Trans Continental Television Productions, Inc., Case No. 07-bk01856, Trans Continental Aviation, Inc., Case No. 07-bk-02431, Trans Continental Management, Inc., Case No. 07-bk-02432, Trans Continental Publishing, Inc., Case No. 07-bk-04160, Louis J. Pearlman Enterprises, LLC, Case No. 07-bk-01779, and TC Leasing, LLC, Case No. 07-bk-04160.
. All references to the Bankruptcy Code are to 11 U.S.C. § 101 etseq.
. Fla. Stat. §§ 726.105, 726.106 and 726.108 ("FUFTA”).
. Made applicable to bankruptcy proceedings by Bankruptcy Rule 7012(b)(6).
. Financial Security Assur., Inc. v. Stephens, Inc., 450 F.3d 1257, 1262 (11th Cir.2006).
. Davila v. Delta Air Lines, Inc., 326 F.3d 1183, 1185 (11th Cir.2003).
. Ashcroft v. Iqbal, 556 U.S. 662, 663, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556-57 & 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).
. Id.
. Id. (citing Fed.R.Civ.P. 8(a)(2)).
. 11 U.S.C. § 701(a)(1).
. 11 U.S.C. § 541(a)(1).
. O'Halloran v. First Union Nat. Bank of Florida, 350 F.3d 1197, 1201-03 (11th Cir.2003). See more detailed discussion below regarding the affirmative defense of in pari delicto.
. E.F. Hutton & Co., Inc. v. Hadley, 901 F.2d 979 (11th Cir.1990).
. Defendants cite to these two cases apparently believing, mistakenly, that the trustee is pursuing claims of common law fraud against them. These cases would apply, as would In re Wiand, 2007 WL 963162 (M.D.Fla.2007), if the trustee were pursuing common law actions to recover damages for fraud. The trustee, however, is not seeking damages for fraud, he is seeking to recover monies improperly and fraudulently transferred to defendants. Recovery of fraudulent transfers merely restores funds to a bankruptcy estate so that all similarly situated creditors are paid pari passu, and no particular creditor receives more than his fair share.
. 11 U.S.C. § 548(a)(1). See In re Martin, 278 B.R. 634, (Bankr.S.D.Fla.2002) (allowing a Chapter 7 trustee to pursue fraudulent conveyance actions under §§ 548 and 544).
. 11 U.S.C. 544(b)(1) reads: ''[T]he trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.” (emphasis added). See In re IFS Financial Corp., 417 B.R. 419, 432 (Bankr.S.D.Tex.2009) (noting "Section 544(b)(1) allows a trustee to avoid transfer that a creditor could avoid under applicable state law”) (citing ASARCO LLC v. Americas Mining Corp., 404 B.R. 150, 156 (Bankr.S.D.Tex.2009); In re Lewis, 363 B.R. 477, 480-81 (Bankr.D.S.C.2007) (stating that there is general agreement that a trustee has standing to avoid transfers and recover property under § 544, 547, 548, and 549 (citing Chapter 13 Bankruptcy 3d ed., Keith M. Lundin, 2000 ed.)))
. See In re McCarn's Allstate Finance, Inc., 326 B.R. 843, 849 (Bankr.M.D.Fla.2005).
. 11 U.S.C. § 548 reads:
The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) of an interest of the debtor in property, or any obligation (including any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
(A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or
(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and (ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;
(II) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital;
(III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor’s ability to pay as such debts matured; or
(IV) made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business.
. See In re Strom, 97 B.R. 532, 539 (Bankr.D.Minn.1989).
. In re Zwirn 362 B.R. 536, 541 (Bankr.S.D.Fla.2007) (citing In re MortgageAmerica Corp., 714 F.2d 1266, 1275-1276 (5th Cir.1983) (emphasis added)) ("Other courts agree that conferring 'blank check’ standing on creditors to prosecute avoidance claims creates significant policy concerns because the individual creditor would be acting in its own interest, and not in the interest of all creditors in the Chapter 7 case”) (citations omitted).
. Official Committee of Unsecured Creditors of PSA, Inc. v. Edwards 437 F.3d 1145, 1152 (11th Cir.2006) (citing Black's Law Dictionary 794 (7th ed. 1999)). This common law defense "derives from the Latin, in pan delic-to potior est conditio defendentis: ‘In a case of equal or mutual fault ... the position of the [defending] party ... is the better one.’ ” Id.
. Edwards 437 F.3d at 1152.
. See Perlman v. Wells Fargo, 2011 WL 5873054 at *6 (S.D.Fla. Nov. 22, 2011) (noting the motion to dismiss state is too early to apply the doctrine of in pari delicto because it is an “affirmative defense requiring the defendant to prove facts, independent of the plaintiff's cause of action.”); In re Fuzion Technologies Group, Inc. 332 B.R. 225, 230 (Bankr.S.D.Fla.2005) (citing Jeffrey Davis, Ending the Nonsense: the In Pari Delicto Doctrine Has Nothing to Do with What is Section 541 Property of the Bankruptcy Estate, 21 Emory Bankr.Dev. J. 519 (2005)); Gerald L. Baldwin, In Pan Delicto Should Not Bar a Trustee's Recovery, 23-8 Am. Bankr.Inst. J. 8 (2004); Tanvir Alam, Fraudulent Advisors Exploit Confusion in The Bankruptcy Code: How In Pan Delicto Has Been Perverted To Prevent Recovery for Innocent Creditors, 11 Am. Bank. L.J. 305 (2003); Robert T. Kugler, The Role of Imputation and In Pari Delicto in Barring Claims Against Third Parties, 1 No. 14 Andrews Bankr.Litig. Rep. 13 (2004); Making Sense of the In Pari Delicto Defense: “Who’s Zoomin’ Who?" 23 No. 11 Bankruptcy Law Letter 1 (Nov. 2003); Official Comm. of Unsecured Creditors v. R.F. Lafferty & Co., 267 F.3d 340, 346-47 (3d Cir.2001) (citing In re Dublin Secs., Inc., 133 F.3d 377, 380 (6th Cir.1997) (analyzing in pari delicto separately from standing)).
. In re Friedman's Inc., 372 B.R. 530, 545 (Bankr.N.D.Ga.2007). See also In re Fuzion Technologies Group, Inc., 332 B.R. at 232 (citing PM Denver, Inc. v. Porter (In re Porter McLeod, Inc.), 231 B.R. 786, 793-95 (D.Colo.1999); Terlecky v. Abels, 260 B.R. 446 (S.D.Ohio 2001)) (the trustee was not barred by the defense of in pari delicto because the claims for fraudulent conveyances fell under its avoidance powers in the code); In re Personal and Business Ins. Agency, 334 F.3d 239, 245 (3d Cir.2003) (noting the fraudulent conduct of the debtor’s owner did not bar the trustee from bringing an avoidance cause of action);
. Fuzion Technologies Group, Inc., 332 B.R. at 232.
. Cuthill v. Greenmark (In re World Vision Entertainment, Inc.), 275 B.R. 641, 656 (Bankr.M.D.Fla.2002); McCarn’s Allstate Finance, 326 B.R. at 850. Badges of fraud include, but are not limited to: (1) the transfer was to an insider; (2) the debtor retained possession or control of the property after the transfer; (3) the transfer was concealed; (4) before the transfer was made the debtor had been sued or threatened with suit; (5) the transfer was of substantially all of the debtor's assets; (6) the debtor absconded; (7) the debtor removed or concealed assets; (8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (9) the debtor transferred the essential assets of the business to a lienor who transferred the asset to an insider of the debtor. Fla. Stat. § 726.105(2).
. World Vision, 275 B.R. at 656; see also Wiand v. Waxenberg, 611 F.Supp.2d 1299, 1312 (M.D.Fla.2009); In re Old Naples Securities, Inc., 343 B.R. 310, 319-20 (Bankr.M.D.Fla.2006); In re McCarn’s Allstate Finance, Inc., 326 B.R. 843, 849-52 (Bankr.M.D.Fla.2005).
. World Vision, 275 B.R. at 656. See also Perkins v. Haines, 661 F.3d 623, 626 (11th Cir.2011) (noting "with respect to Ponzi schemes, transfers made in furtherance of the scheme are presumed to have been made with the intent to defraud for purposes of recover the payments under §§ 548(a) and 544(b).”).
. Doc. No. 11 in Adversary Proceeding No. 9-ap-00318; Doc. No. 12 in Adversary Proceeding No. 9-ap-00135; Doc. No. 12 in Adversary Proceeding No. 9-ap-00231.
. 11 U.S.C. § 548(a)(1)(B).
. E.g., Doc. No. 12, Exhibit A in Case No. 9-ap-231.
. Fla. Stat. § 726.104; 11 U.S.C. § 548(d)(2)(A). See Perkins, 661 F.3d at 626.
. Kipperman v. Onex Corp., 411 B.R. 805, 851 (N.D.Ga.2009). See also In re Colombian Coffee Co., Inc., 62 B.R. 542, 545 (Bankr.S.D.Fla.1986).
. Perkins v. Haines, 661 F.3d 623, 627 (11th Cir.2011).
. Perkins, 661 F.3d at 627 (citing Jobin v. McKay, 84 F.3d 1330, 1340-42 (10th Cir.1996); Wyle v. Rider, 944 F.2d 589, 596 (9th Cir.1991)).
. Perkins, 661 F.3d at 627 (citing Sender v. Buchanan, 84 F.3d 1286, 1290 (10th Cir.1996); In re United Energy, 944 F.2d 589, at n. 6 (9th Cir.1991)).
. Perkins, 661 F.3d at 628-29.
. 11 U.S.C. § 541(a)(1).
. 11 U.S.C. §§ 544(b)(1) and 548(a)(1) ("The trustee may avoid any transfer ... of an interest of the debtor in property.... ”).
. Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 F.2d 1177, 1181 (11th Cir.1987).
. In re Chase & Sanborn Corp., 813 F.2d at 1180 (11th Cir.1987).
. In re Pearlman, 460 B.R. 306, 314 (Bankr.M.D.Fla.2011) (citing In re Bankest Capital Corp., 374 B.R. 333, 338 (Bankr.S.D.Fla.2007)).
. Id.
. Chase, 813 F.2d at 1181 (citing Larose v. Bourg, 45 B.R. 693, 697 (Bankr.M.D.La. 1985)). In contrast, funds transfers to non-creditors are not presumed fraudulent; instead a court must look to the totality of the circumstances of the case. Id.
.Doc. No. 14 at ¶ 32-36 in Case No. 9-ap-135. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494718/ | BOROFF, Bankruptcy Judge.
Angel Luis Colón Martinez (“the Debt- or”) appeals from an order of the United States Bankruptcy Court for the District of Puerto Rico dated November 22, 2011 (the “Order”). By the Order, the bankruptcy court both dismissed the Debtor’s chapter 11 case and disqualified him from filing a new case for 180 days pursuant to § 109(g).2 For the reasons set forth below, the Order is AFFIRMED.
BACKGROUND
The Debtor owns a home, residential rental property, unimproved land, and a commercial building (collectively, the “Properties”) in Puerto Rico. On October 18, 2010 (the “Petition Date”), he filed a voluntary petition for chapter 11 relief, pro se. In his schedules, the Debtor reported that, as of the Petition Date, the total value of the Properties was $1,975,000. He also identified his largest secured creditor as Allied Financial, Inc. (“Allied”), holding secured claims totaling $665,000.3
Shortly after case commencement, Allied filed a motion to dismiss the case, claiming that it was filed in bad faith (the “Motion to Dismiss”).4 The bankruptcy court responded by scheduling a status conference for December 2, 2010. Following that conference, the court entered an order providing the Debtor with an opportunity to obtain counsel by January 18, 2011, and giving that counsel until February 1, 2011, to oppose the Motion to Dismiss. Not long thereafter, the Debtor filed applications to retain counsel and an accountant, both of which applications the bankruptcy court approved on January 14, 2011. The Debtor’s new counsel filed an opposition to the Motion to Dismiss on February 5, 2011, albeit four days after the court-ordered deadline. Ultimately, the bankruptcy court denied the Motion to Dismiss.
On February 9, 2011, Allied filed a motion to “confirm termination or absence of stay” (the “Stay Termination Motion”). The Debtor’s counsel filed a response on February 22, 2011, and Allied timely replied. The bankruptcy court set the Stay Termination Motion for hearing on April 7, 2011. On April 4th, however, the Debtor, reportedly without the consent or even knowledge of his attorney, filed a motion with certain documents, asking that they be maintained under seal.5 Counsel for the Debtor apparently found this development troubling and immediately followed with a motion seeking to withdraw, arguing that he was not able to effectively communicate with his client. Allied re*140sponded just as quickly by opposing the withdrawal and complaining that these developments were just another strategy by the Debtor to delay the proceedings.
All of the foregoing matters were before the bankruptcy court on April 7, 2011, and it acted decisively. The court: (1) confirmed the ruling in Jumpp v. Chase (In re Jumpp), 356 B.R. 789 (1st Cir. BAP 2006), that any termination of the stay by dint of § 362(c)(3) had no impact on property of the estate; (2) returned the motion under seal to the Debtor; (3) ordered the Debtor and his counsel to confer with respect to the motion under seal and motion to withdraw; (4) ordered counsel for the Debtor to inform the court within ten days as to whether he wished to pursue the motion to withdraw; and (5) advised the Debtor that the 300-day deadline to file a chapter 11 plan was August 15, 2011.
The opportunity granted by the court to the Debtor and his counsel to mend fences came to naught. On April 26, 2011, the Debtor’s counsel renewed his request for withdrawal. That request was granted on June 1st.6
On June 22, 2011, Allied filed a motion to convert the case to one under chapter 7 (the “Motion to Convert”). On July 29, 2011, the bankruptcy court denied the Motion to Convert without prejudice. At the same time, the court scheduled a status conference in the case for August 4th.
On August 4, 2011, the court conducted the promised status conference, but then ordered it continued to August 10th because the Debtor, who did appear by telephone, claimed not to have received appropriate notice of the hearing. The court did take the opportunity to urge the Debtor to retain counsel who was allowed to practice in the bankruptcy court.
The August 10th hearing was later continued to August 30, 2011 at the request of Allied’s counsel. On August 11th, however, Allied filed a motion for reconsideration (the “Reconsideration Motion”) of the court’s July 29 order denying the Motion to Convert. The Debtor opposed and the Reconsideration Motion was also set for hearing on August 30th.
At the rescheduled status conference on August 30, 2011, the court recommended to the Debtor that he take advantage of publicly available information regarding the bankruptcy process, but warned him that he was “required to know the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and the Puerto Rico Bankruptcy Rules.” At the conclusion of the status conference, the court granted the Debtor another 15 days to obtain new counsel, directed him to file a disclosure statement and plan by October 3, 2011, and set the hearing on the approval of the disclosure statement for November 3, 2011 (“the August 30, 2011 Order”). The court took the Motion for Reconsideration under advisement, but denied same shortly thereafter.
On September 6, 2011, the Debtor filed a motion requesting an additional 90 days to obtain counsel, representing that he was in the midst of negotiations with a prospective attorney and would then require the retention of an accountant. In its opposition to the motion, Allied argued that a further extension was not justified.
The Debtor failed to file either a plan or disclosure statement by October 3, 2011. On October 5, 2011, Allied filed another motion to dismiss the case (the “Second *141Motion to Dismiss”). At a November 3, 2011 hearing on the Second Motion to Dismiss, the bankruptcy court continued the matter to November 22, 2011, but directed the Debtor to show cause by November 21, 2011 why the case should not be dismissed for failure to comply with the August 30, 2011 Order (“Order to Show Cause”). The “minutes of proceeding and order” memorializing the Order to Show Cause specifically provided, in pertinent part:
The motion to dismiss with prejudice filed by [Allied] is rescheduled for 11/22/2011, at 9:30 a.m. Movant has waived the 30 days determination period. Debtor has until 11/21/2011 to respond in writing to the Memorandum of Law (docket entry # 130). [The] Debt- or is ordered to show cause as to why the case should not be dismissed for failure to comply with the [c]ourt’s order to have filed a [disclosure [statement and an amended plan by October 3, 2011, and as to why the [e]ourt should not apply section 109[g] of the Bankruptcy Code and dismiss the case with a 180-day[ ] bar from re-filing for having failed to comply with the [c]ourt[’]s order to have file[d] the [disclosure [s]tatement and the plan by October 3, 2011. [The] Debtor is ordered to respond in writing to the [0]rder to [S]how [C]ause by or before November 21, 2011. The [c]ourt denies the motion requesting extension of time to obtain new legal representation (docket entry # 112) without prejudice to [the] Debtor hiring an attorney at any time he can find an attorney to represent him.
The Debtor failed to file a response to the Order to Show Cause. But he did file a Disclosure Statement and Plan on November 21, 2011, albeit approximately six weeks after the court-ordered deadline. At the November 22, 2011 hearing, Allied urged the court to dismiss the case for cause pursuant to § 1112(b), with a 180-day disqualification from filing any new case. As grounds for dismissal, Allied asserted that the Debtor’s conduct throughout the bankruptcy proceedings “evidenced a record of delay.” Allied further complained that: (1) the instant case, the Debtor’s second within a one-year period, was filed on the eve of foreclosure of three of the four Properties; (2) the Debtor failed to comply with the August 30, 2011 Order; and (3) the Plan and Disclosure Statement were not only late, but also deficient. In particular, Allied claimed that the Plan failed to include a liquidation analysis and a proposed classification and treatment of creditors; and the Disclosure Statement lacked relevant exhibits and sufficient disclosure regarding claims, including those held by Allied.
Counsel for the United States Trustee represented to the court that he had not had sufficient time to review the Disclosure Statement because it was filed late. The Debtor, on the other hand, again described the challenge of finding representation, as well as the difficulty of responding to motions in his pro se capacity.
The court then announced:
... I have had an opportunity to look over your Disclosure Statement and Plan. And on its face, it completely is inadequate. It just doesn’t meet any of the basic requirements of [c]hapter 11 of the Bankruptcy Code. So I am dismissing your case.
Well, first, the [c]ourt — the [c]ourt is dismissing the case with a 180-day bar from re[-]filing, under [§ ] 109(g) of the Code, for failure to comply with the deadlines imposed by the [c]ourt to file a [disclosure [statement and [p]lan which meets at least the minimum requirements of the Code. And also for failure to respond to the [c]ourt’s Order to *142Show Cause by November 21, 2011.... And also for the reason stated in [ejourt by counsel for Allied and counsel for the U.S. Trustee, all [of] which I find to be sufficient reasons to dismiss this case with a 180-day bar. Also, given the fact that this is your second filing, and your first filing had basically the same problems as this filing.
At the conclusion of the hearing, after the Debtor reiterated his inability to find an attorney, the court observed:
I’m sorry you couldn’t find an attorney. And your case has been allowed to go as far as it has gone, because you are a [pro se ] [djebtor, but you’ve enjoyed the benefits of being under the protection of the Bankruptcy Code.... since over a year now. And you also enjoyed similar benefits in your prior filing for a substantial amount of time, which also that case went nowhere, because you weren’t able to comply with the Bankruptcy Code requirements. And now the [ejourt is determining that your creditors’ rights have to be respected too. The Order, which was docketed on December 20, 2011, specifically provided:
Case is dismissed with a 180[-]day bar from re-filing under [§ 109(g) ] of the Bankruptcy Code for failure to comply with the deadlines imposed by the [ejourt to file a disclosure statement and the plan, which is the minimum requirement by the [ejourt and also for failure to respon[d] to the [ ] [Ojrder to [Sjhow [Cjause by November 21, 2011. A transcript of the hearing was ordered.
The Debtor filed a timely notice of appeal. Now represented by counsel, he identifies the following issues on appeal: (1) whether the bankruptcy court erred when it denied his request for an extension of time to retain an attorney, thereby depriving him of his purported “right to choose counsel”; and (2) whether the bankruptcy court erred in dismissing his case with a disqualification from filing a new case for 180 days under § 109(g).
On January 25, 2012, the Debtor filed a Motion for Stay Pending Appeal, which the court denied, ruling as follows:
The court having determined at the hearing of November 22, 2011 that the [Djebtor failed to comply with the August 30, 2011 [Ojrder ([djocket [ejntry # 116) to file a disclosure statement and plan by October 3, 2011 and the [ j [Ojr-der to [Sjhow [Cjause ([djocket [ejntry # 133), and that the [Djisclosure [Sjtatement and [Pjlan filed November 21, 2011 were so facially defective as to fail to satisfy the minimum requirements of the Bankruptcy Code, the court now finds it unlikely that [the] [Djebtor will be able to establish an abuse of discretion by the bankruptcy court in dismissing the case. See Howard v. Lexington Inv[s., Inc.]., 284 F.3d 320 (1st Cir.2002). Therefore, the court determines that [the] [Djebtor has failed to establish that there is likelihood of success on the merits of the appeal. See Pye ex rel. [N.L.R.B.] v. Excel Case Ready, 238 F.3d 69, 73 (1st Cir.2001). Accordingly, [the] [Djebtor’s motion requesting that this case be stayed pending appeal ([djocket [ejntry # 158) is hereby DENIED.
Thereafter, the Debtor filed a Motion for Stay Pending Appeal with the Panel, which the Panel similarly denied.
JURISDICTION
A bankruptcy appellate panel is “duty-bound” to determine its jurisdiction before proceeding to the merits, even if not raised by the litigants. Boylan v. George E. Bumpus, Jr. Constr. Co., Inc. (In re George E. Bumpus, Jr. Constr. Co., Inc.), 226 B.R. 724, 725-26 (1st Cir. BAP 1998) (citation omitted). The bankruptcy appellate panel has jurisdiction to hear *143appeals 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)(8). Fleet Data Processing Corp. v. Branch (In re Bank of New England Corp.), 218 B.R. 643, 645 (1st Cir. BAP 1998) (internal quotations omitted). “An order dismissing a chapter 11 case is a final, appealable order.” Farnsworth v. Morse (In re Farnsworth), No. MW 08-086, 2009 WL 8466786, at *6 (1st Cir. BAP Nov. 20, 2009) (citation omitted); see also Gilroy v. Ameriquest Mortgage Co. (In re Gilroy), No. BAP NH 07-054, 2008 WL 4531982, at *4 (1st Cir. BAP Aug. 4, 2008) (citation omitted). Accordingly, we have jurisdiction to hear this appeal.
STANDARD OF REVIEW
Although the bankruptcy court here did not specify the Code provision upon which it relied, the causes for dismissal which it enumerated fall squarely within § 1112(b), as discussed below. We have previously ruled that when considering a § 1112(b) dismissal, we review the bankruptcy court’s findings of fact for clear error and conclusions of law de novo. In re Gilroy, 2008 WL 4531982, at *4 (citations omitted).
DISCUSSION
I. Right to Counsel
The first issue which the Debtor presents on appeal, namely, whether the bankruptcy court deprived him of his right to counsel, is easily dispatched. In a recent decision, we noted that “[t]he United States Supreme Court has held that there is no Sixth Amendment right to counsel in civil cases.” Lussier v. Sullivan (In re Sullivan), 455 B.R. 829, 836 (1st Cir. BAP 2011) (citing Lassiter v. Dep’t of Soc. Servs. of Durham County, 452 U.S. 18, 24-28, 101 S.Ct. 2153, 68 L.Ed.2d 640 (1981); Ferrell v. Countryman, 398 B.R. 857, 866 (E.D.Tex.2009)). Accordingly, we “decline[d] to extend the constitutional right to effective assistance of counsel to the bankruptcy context.” Id. Thus, the Debt- or’s argument that he was deprived of his purported “right to counsel” is based on a faulty premise. Furthermore, contrary to the Debtor’s assertion, the record in this case reflects not only that the bankruptcy court directed him to obtain counsel on at least four separate occasions, but also that it afforded him ample time to do so.7
II. Dismissal
A. Section 1112(b)
Section 1112(b) governs conversion or dismissal of a chapter 11 case. In re Farnsworth, 2009 WL 8466786, at *6; see also Gollaher v. United States Trustee (In re Gollaher), No. UT-11-019, 2011 WL 6176074, at *3 (10th Cir. BAP Dec. 13, 2011). Section 1112(b)(1) provides, in pertinent part, that: *14411 U.S.C. § 1112(b)(1). Numerous courts have held that § 1112(b)(1) also permits a bankruptcy court to dismiss a chapter 11 case, sua sponte, for cause. See, e.g., Keven A McKenna, P.C. v. Official Comm. of Unsecured Creditors (In re Keven A. McKenna, P.C.), No. 10-472 ML, 2011 WL 2214763, at *3 (D.R.I. May 31, 2011) (citations omitted); see also Finney v. Smith (In re Finney), 992 F.2d 43, 45 (4th Cir.1993); Hayes v. Production Credit Ass’n of Midlands, 955 F.2d 49 (10th Cir.1992); Pagano Dev. Co., Inc. v. The Marlboro P’ship (In re Pagano Dev. Co., Inc.), No. 11-4448(FSH), 2011 WL 5082203, at *3 (D.N.J. Oct. 25, 2011).8
*143on request of a party in interest, and after notice and a hearing, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause unless the court determines that the appointment under section 1104(a) of a trustee or an examiner is in the best interests of creditors and the estate.
*144“BAPCPA limited the bankruptcy court’s discretion to dismiss or convert a chapter 11 petition for cause by mandating conversion or dismissal if the movant establishes cause, unless the debtor presents unusual circumstances, the debtor meets certain criteria justifying the act or omission and likelihood of confirming a plan, or the bankruptcy court finds that the appointment of a trustee is in the best interest of creditors.” In re Gilroy, 2008 WL 4531982, at *4 (citation omitted). In essence, § 1112(b)(1) “requires the bankruptcy court to make two determinations: (1) cause exists to convert or dismiss, and (2) which option is in the best interests of creditors and the estate.” In re Gollaher, 2011 WL 6176074, at *3 (citations omitted); see also In re Farnsworth, 2009 WL 8466786, at *6.
1. Cause
Although the Code does not define “cause” as that term is used in § 1112(b), “[§ ] 1112(b)(4) provides a nonexclusive list of what constitutes cause.” In re Gilroy, 2008 WL 4531982, at *4. That list includes, inter alia, the “failure to comply with an order of the court” (§ 1112(b)(4)(E)), and the “unexcused failure to satisfy timely any filing or reporting requirement ...” See 11 U.S.C. § 1112(b)(4)(F). Courts also dismiss chapter 11 cases for “unreasonable delay by the debtor that is prejudicial to creditors.” See, e.g., In re Abijoe Realty Corp., 943 F.2d 121, 128 (1st Cir.1991); In re Camann, No. 00-11090, 2001 WL 1757075, at *4 (Bankr.D.N.H. Mar. 19, 2001). In addition, the court may convert or dismiss a case “for reasons that are not specifically enumerated in the section, provided that these reasons are sufficient to demonstrate the existence of cause.” In re Camann, 2001 WL 1757075, at *2 (citations omitted). “One ground, however, is sufficient, standing alone, to establish cause under the statute.” In re McKenna, 2011 WL 2214763, at *1 (citations omitted).
In the instant case, the bankruptcy court listed the following reasons for dismissal: (1) the Debtor’s failure to comply with the August 30, 2011 Order; (2) the Debtor’s failure to respond to the Order to Show Cause; (3) all of the reasons advanced by counsel for Allied and the United States Trustee; and (4) the fact that this case was the Debtor’s second within a year, and suffered from the same flaws as the first. While the court did not reference § 1112(b), the first and second reasons which it cited for dismissal—the Debtor’s failure to file a plan and disclosure statement by October 3, 2011 and the failure to comply with the Order to Show Cause—fall squarely within *145§§ 1112(b)(4)(E) and 1112(b)(4)(F), respectively. Allied’s argument that the Debtor engaged in a pattern of delay over a 13-month period, adopted by the bankruptcy court as its third reason for dismissal, also qualifies as “unreasonable delay by the debtor that is prejudicial to creditors.”
We have previously ruled that “the most obvious example of an unreasonable delay prejudicial to creditors is the unjustified failure to file a reasonable plan of reorganization in a timely fashion.” De Jounghe v. Mender (In re De Jounghe), 334 B.R. 760, 771 (1st Cir. BAP 2005). Additionally, bankruptcy courts within this circuit have specifically held that under § 1112(b), dismissal is an “appropriate sanction” for a “continuous pattern of disregard” of the court’s deadline for filing a disclosure statement. In re Cordova Gonzalez, 99 B.R. 188, 191 (Bankr.D.P.R.1989).9
Here, the Debtor enjoyed a hiatus of over 13 months since the filing of his petition. Although he received the benefit of several extensions during this time period, the Plan and Disclosure Statement which he eventually filed were both untimely and inadequate. He then ignored the Order to Show Cause. By his accumulated omissions, the Debtor delayed the proceedings and neglected to take advantage of the Code’s protection and the bankruptcy court’s repeated continuances. While a single ground is sufficient to warrant dismissal, here there are several. The record amply supports a determination under the above standards that there existed sufficient cause for dismissal or conversion under § 1112(b)(3), (b)(4)(E), and (b)(4)(F).
This conclusion is consistent with the First Circuit’s recognition that it is “entirely appropriate” for a bankruptcy court to set and enforce deadlines. Howard v. Lexington Inv.’s, Inc., 284 F.3d at 323 (affirming bankruptcy court’s dismissal of chapter 13 case). Indeed, it is well established that courts have “inherent authority to manage their dockets and sanction parties who fail to comply with court orders and deadlines.” Roman v. Carrion (In re Rodriguez Gonzalez), 396 B.R. 790, 798 n. 6 (1st Cir. BAP 2008) (citations omitted) (addressing dismissal of adversary proceeding under Fed. R. Bankr.P. 7041).
2. Best Interests of Creditors
Although BAPCPA limited a bankruptcy court’s discretion to dismiss or convert a chapter 11 case under § 1112(b), “the bankruptcy court still retains broad discretion to determine whether either conversion or dismissal is in the best interests of creditors and the estate after finding cause.” In re Gilroy, 2008 WL 4531982, at *4.
Although the bankruptcy court in this case did not employ the phrase, “best interests of creditors,” we may reasonably conclude that the court nonetheless considered this issue based on its pronouncement, “[N]ow the [c]ourt is determining that your creditors’ rights have to be respected too.” Indeed, an examination of the totality of circumstances in this case would have supported either dismissal of the case or conversion of the case to chapter 7. The record demonstrates a lack of diligence in two consecutive bankruptcy cases. It also reveals that, in the instant case, the Debtor only *146filed his Plan and Disclosure Statement when confronted with the Second Motion to Dismiss. Even then, the belated Plan and Disclosure Statement lacked essential disclosures. These failures were compounded by the Debtor’s failure to abide by the Order to Show Cause. “Neither the court nor creditors should have to coerce or implore a debtor into fulfilling the obligations imposed upon it.” In re Berryhill, 127 B.R. 427, 433 (Bankr.N.D.Ind.1991) (dismissing chapter 11 case for failure to abide by court orders). “Timely and accurate financial disclosure is the life blood of the [c]hapter 11 process.” Id. “[D]elay which is accompanied by nondisclosure” is “of particularly pernicious effect in chapter 11 proceedings.” Id.
Furthermore, the Debtor’s repeated arguments concerning his difficulties in obtaining representation neither excuse nor justify his failures. As stated by one court, “there are limits to a court’s indulgence, as pro se status does not exempt a party from compliance with relevant rules of procedural and substantive law.” In re WorldCom, Inc., No. 02-13533, 2006 WL 3782712, at *5 (Bankr.S.D.N.Y. Dec. 21, 2006) (internal quotations omitted) (citing Traguth v. Zuck, 710 F.2d 90, 95 (2d Cir.1983)).
Consequently, in the absence of timely, complete financial disclosures and compliance with court orders, the bankruptcy court did not abuse its discretion in determining that dismissal was in the best interests of creditors and is entitled to substantial deference as to its choice of remedies. Furthermore, as the Debtor has not argued that conversion of the case to chapter 7 would have been more appropriate than dismissal, we need go no further to plumb its reasoning with respect to its choice of one remedy over another.
B. Section 109(g)
“Section 109 sets forth who may be a debtor under title 11.” In re Inesta Quinones, 73 B.R. 333, 336 (Bankr.D.P.R.1987). That statute specifically provides, in pertinent part, that
(g) Notwithstanding any other provision of this section, no individual or family farmer may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days if—
(1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case.
11 U.S.C. § 109(g).
Although the Code does not prescribe what constitutes a “willful” failure to abide by orders of the court, the First Circuit infers willfulness from a “pattern of failure to abide by court orders.” Perez v. Fajardo Fed. Sav. Bank, 116 F.3d 464, at *1 (1st Cir.1997) (citing In re Herrera, 194 B.R. 178, 189 (Bankr.N.D.Ill.1996) (holding repeated failure to attend § 341 meetings and make plan payments, coupled with re-filings in unchanged circumstances, constituted willful failure to abide by court orders)). “Repeated conduct strengthens the inference that the conduct was deliberate.” In re Lee, No. 11-8053, 2012 WL 1324234, at *9-10 (6th Cir. BAP Apr. 18, 2012) (citing In re Nelkovski, 46 B.R. 542, 544 (Bankr.N.D.Ill.1985)); see also In re Pike, 258 B.R. 876, 883 (Bankr.S.D.Ohio 2001) (holding that successive filings, “in the absence of changed circumstances,” justified a 180-day disqualification) (citation omitted).
Here, the bankruptcy court dismissed the Debtor’s case with prejudice only after he ignored the August 30, 2011 Order and the Order to Show Cause, and filed a Plan *147and Disclosure Statement that were woefully defective. Furthermore, the subject bankruptcy case is not the first example of the Debtor’s lack of diligence, his first case also having been dismissed for failure to abide by a court order. His successive filings within a one-year period, without any suggestion of a change in circumstances, are a strong indication of intentional conduct. Based on the repetitive nature of the Debtor’s failures, an inference of willfulness was justified.
Moreover, the Debtor did not introduce any evidence on this point in the proceedings below. While dwelling on his purported right to counsel, the Debtor ignores the central issues in this appeal. His appellate brief is silent about the statutory provisions which govern the outcome of this case, namely, §§ 1112(b) and 109(g): he neglects his failure to respond to the Order to Show Cause, his failure to file a plan that was either timely or confirmable, the fact that the instant case was his second defective filing within a year, and the issue of the best interests of creditors. Additionally, he has failed to show any special circumstances which would outweigh the bankruptcy court’s inherent authority to manage its own docket. Even if such circumstances existed, the Debtor has waived them on appeal by failing to mention them in his brief. See Furness v. Wright Med. Tech., Inc. (In re Mercurio), 402 F.3d 62, 64 n. 1 (1st Cir.2005) (holding failure to brief argument constitutes waiver).
CONCLUSION
The record amply supports the bankruptcy court’s conclusion that, notwithstanding its extraordinary patience and its accommodations made to the Debtor, there was cause to both dismiss the Debtor’s chapter 11 case pursuant to § 1112(b), and disqualify him from any further case filing for 180 days. Accordingly, the Order of the bankruptcy court is AFFIRMED.
. 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.
. It is unclear from the Debtor's schedules which of the Properties were covered by Allied’s mortgages.
. Although the Motion to Dismiss is not part of the record, we may take judicial notice of the bankruptcy court's docket. See Aja v. Emigrant Funding Corp. (In re Aja), 442 B.R. 857, 861 n. 7 (1st Cir. BAP 2011) (ruling Panel may take judicial notice of the proceedings in bankruptcy court). We have also taken information from the bankruptcy court docket elsewhere in this opinion in order to fully explain the sequence of events.
.The nature of these documents is not reflected in the record.
. The Debtor’s accountant sought leave to withdraw on April 20, 2011; leave was granted on July 27, 2011.
. Additionally, the record reflects that 58 days elapsed between the September 6, 2011 filing of the Debtor's motion for extension of time to obtain counsel and its November 3, 2011 denial. Another 19 days passed before the court dismissed the case on November 22, 2011. Thus, the Debtor effectively received 77 out of the 90 days he originally sought, and nonetheless failed to hire an attorney.
. But cf. In re Moog, 774 F.2d 1073, 1075-76 (11th Cir.1985) (ruling § 1112(b)’s explicit language and legislative history indicate bankruptcy court without power to dismiss sua sponte); Gusam Rest. Corp. v. Speciner (In re Gusam Rest. Coip.), 737 F.2d 274, 276 (2d Cir.1984) (holding bankruptcy court without power to convert, sua sponte, due to § 1112(b)'s "party in interest” requirement).
. Although the bankruptcy court acknowledged in Cordova Gonzalez that bankruptcy courts have civil contempt power to enforce their own orders under § 105, it held that the "contempt power should not be used when the Bankruptcy Code provides a specific and more adequate remedy,” as in the case of § 1112(b) dismissals. 99 B.R. at 191 (citations omitted). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494719/ | *150MEMORANDUM AND ORDER ON GAETANO DISTEFANO AND MARCUS DISTEFANO’S REQUEST FOR JURY TRIAL
MELVIN S. HOFFMAN, Bankruptcy Judge.
Defendants, Gaetano DiStefano and his son, Marcus DiStefano, have claimed the right to a jury trial on the multi-count amended complaint of the plaintiff, David M. Nickless, the Chapter 7 trustee of the estate of Chantel M. Basile, the debtor in the main case. The trustee disagrees with the defendants’ assertion of a jury trial right and in the alternative requests that if they are so entitled, the jury trial be conducted in the bankruptcy court. This latter request is easily disposed of because, although the bankruptcy court in this district may conduct jury trials, it may not do so without the express consent of all the parties. See 28 U.S.C. § 157(e); LR, D. Mass 202; and M.L.B.R. 9015-1. The defendants do not consent.
Background
The trustee’s amended complaint alleges the following facts.
The debtor and Gaetano DiStefano agreed that they would purchase for investment the property located at 119 Pleasant Valley Street in Methuen, Massachusetts. In April 2007 the debtor purchased the Methuen property for $250,000. She made a down payment of $50,000 and received a mortgage loan for the balance from the Provident Funding Group, Inc. Only the debtor is obligated on the Provident loan. The debtor and Gaetano1 were to share the profits from the Methuen property taking into consideration the debtor’s down payment. A little over a year after the purchase, the debtor transferred title to the Methuen property to Gaetano for $100. Gaetano executed an agreement to indemnify the debtor for any losses she might suffer as a result of the Provident loan. According to the trustee, Gaetano continues to benefit from the use of the Methuen property and its rental income although the complaint does not make it clear whether Gaetano has been using the rental income to make payments on the Provident note upon which the debtor remains obligated.
In July 2007 Gaetano induced the debtor to loan $20,000 to him and his friend, defendant Rosario Motta, whom the debtor did not know, so that Gaetano and Ms. Motto could purchase real estate in North Andover, Massachusetts. Apparently, Gaetano did not want his name associated with the property so the check was payable only to Ms. Motta. The $20,000 debt of Ms. Motta and Gaetano remains outstanding.
In October of the same year, the debtor paid $15,000 to Regan Ford on behalf of Gaetano’s son, defendant Marcus DiStefano, so that Marcus could buy a 2008 Ford SUV. The debtor, Gaetano and Marcus agreed that the $15,000 was a loan, not a gift. The loan remains outstanding.
In November 2007 the debtor loaned Gaetano $2,700 and in August 2008 she loaned him another $6,297.49. None of this money has been repaid.
The trustee’s amended complaint asserts the following causes of action:
• Count I against Gaetano for fraudulent transfer pursuant to Bankruptcy Code § 548(a)(1) in which the trustee seeks to recover the Methuen property or the value of the property;
• Count II against Gaetano for fraudulent transfer pursuant to Mass. Gen. Laws ch. 109A §§ 5 and 6 in which the *151trustee also seeks to recover the Me-thuen property or the value of the property;
• Count III against Marcus for fraudulent transfer pursuant to Mass. Gen. Laws ch. 109A §§ 5 and 6 for recovery of the Ford SUV or its value;
• Count IV against all defendants for breach of contract based on their refusal to repay any of the loans for which the trustee seeks money judgment in the amount of all loans, plus interest, including the down payments on the Methuen and North Andover properties;
• Count V against Gaetano for breach of his agreement to indemnify the debtor in which the trustee seeks a money judgment in the amount of the down payment on the Methuen property plus interest;
• Count VI against all defendants pursuant to Bankruptcy Code § 542(b) for “turnover” of the money loaned by the debtor, namely those amounts identified in count IV;
• Count VII against Gaetano for a declaratory judgment that title to the Methuen property is held in a constructive trust for the benefit of the debtor’s estate; and
• Count VIII against Marcus for a declaratory judgment that title to the Ford SUV is held in a constructive trust for the benefit of the debtor’s estate.
The trustee requested and obtained a default judgment in the amount of $20,000 plus interest against Ms. Motta.
Discussion
A party’s right to a jury trial in federal court is governed by federal law. Edwards v. Eastman Outdoors, Inc. (In re Game Tracker, Inc.), 2011 WL 5117569, at *1 (D.Me. Oct. 24, 2011) (citing 9 Chaeles AlaN WRIght & Arthur R. MilleR, Federal PRACTICE AND ProCedure § 2302 (3d ed. 2008)). “A right to a jury trial in federal court must arise out of the Seventh Amendment [to the United States Constitution] or be granted by a federal statute.” Washington Intern. Ins. Co. v. U.S., 863 F.2d 877, 878 (Fed.Cir.1988). In the present case there is no assertion of a statutory basis for the right to a jury trial; instead if a right exists it must emanate from the Seventh Amendment.
The Seventh Amendment provides a right to trial by jury in “suits at common law” where the amount in controversy exceeds twenty dollars. The Supreme Court has defined the phrase “suits at common law” to refer to “suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered.” Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41, 109 S.Ct. 2782, 2790, 106 L.Ed.2d 26 (1989).
In Granfinanciera the Court articulated a three-part test for determining whether the right to a jury trial exists. The first consideration is whether the party seeking a jury trial would have been entitled to one in eighteenth century English courts of law before the merger of law and equity courts. Second, courts must determine whether the remedies sought are legal rather than equitable in nature. It is this determination, which the Supreme Court describes as more important than the first, that generally dictates the outcome of a jury demand. Simply stated, claims which seek legal remedies generally implicate the constitutional right to a jury trial while those sounding in equity or admiralty do not. This characterization of a claim as legal or equitable is governed by federal law, even when the claim is based on a state-created right. *152Simler v. Conner, 372 U.S. 221, 222, 83 S.Ct. 609, 9 L.Ed.2d 691 (1963). Finally, even if a party would have a right to a jury trial under the first two prongs of the Granfinanciera test, courts must determine if the cause of action asserted involves public rather than private rights the adjudication of which Congress assigned to tribunals without authority to conduct jury trials. Granfinanciera, 492 U.S. at 42 & n. 4, 109 S.Ct. at 2790 & n. 4. Congress, however, may not convert private causes of action into public ones thereby depriving litigants of the right to trial by jury. Id. at 51-52,109 S.Ct. at 2795.
When an action involves a combination of both legal and equitable claims, “the right to jury trial on the legal claim, including all issues common to both claims, remains intact.” Curtis v. Loether, 415 U.S. 189, 196 n. 10, 94 S.Ct. 1005, 39 L.Ed.2d 260 (1974). Consequently facts common to legal and equitable claims must be adjudicated by a jury. Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 510-11, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959). The right to a trial by jury must be preserved even if the legal claims are characterized as incidental to the equitable claims. Dairy Queen, Inc. v. Wood, 369 U.S. 469, 473 n. 8, 82 S.Ct. 894, 897 n. 8, 8 L.Ed.2d 44 (1962). In such instances a court may not try the equitable claims first because to do so would subject the jury’s findings to the principles of collateral estoppel. Id. at 479, 82 S.Ct. 894. Because protection of the right to trial by jury is so important, “only under the most imperative circumstances ... can the right to a jury trial of legal issues be lost through prior determination of equitable claims.” Beacon Theatres, 359 U.S. at 510-11, 79 S.Ct. 948. See also Abbott GmbH & Co., KG v. Centocor Ortho Biotech, Inc., 2012 WL 837313, at *13 (D.Mass. May 4, 2012).
Moreover, as the Dairy Queen Court explained,
[T]he constitutional right to trial by jury cannot be made to depend upon the choice of words used in the pleadings. The necessary prerequisite to the right to maintain a suit for an equitable accounting, like all other equitable remedies, is ... the absence of an adequate remedy at law.
Id. at 477-478, 82 S.Ct. at 900. Therefore, courts must look behind the labels placed on the causes of action in the complaint as well as the causes of action themselves to determine if a remedy in equity is needed to address the alleged harm. Id.
Except for instances not relevant here,2 the right to trial by jury is not lost simply because an action is asserted in the bankruptcy court, even in a matter designated by Congress as core under 28 U.S.C. § 157(b). Granfinanciera, 492 U.S. at 60-61, 109 S.Ct. 2782; Commerce Industry Insurance Co. v. E.I. Du Pont De Nemours & Co. (In re Malden Mills Industries, Inc.), 277 B.R. 449, 455 n. 4 (Bankr.D.Mass.2002).
With these principles in mind, I turn to an examination of the claims raised in the trustee’s amended complaint.
*153A. Fraudulent Conveyance Claims— Real and Personal
In Granfinanciera the Supreme Court held that a defendant who has not filed a claim against a bankruptcy estate has a Seventh Amendment right to a trial by jury in a trustee’s suit to set aside a fraudulent conveyance either where money damages in a “determinate sum” are sought, 492 U.S. at 36, 109 S.Ct. at 2787, or where the transfer of personal property is sought to be avoided. Id. at 44, 109 S.Ct. at 2791. (“If the subject matter is a chattel, and is still in the grantee’s possession, an action in trover or replevin would be the trustee’s remedy; and if the fraudulent transfer was of cash, the trustee’s action would be for money had and received. Such actions at law are as available to the trustee today as they were in the English courts of long ago. If, on the other hand, the subject matter is land or an intangible, or the trustee needs equitable aid for an accounting or the like, he may invoke the equitable process, and that also is beyond dispute.”) Id. (internal citation omitted). Congress may not convert this private cause of action into a public one thereby sabotaging the right to a trial by jury. Id. Finally, although recognizing that whether a bankruptcy trustee’s right to recover a fraudulent transfer under Bankruptcy Code § 548(a)(2)3 “admits of some debate,” the Court held that such an action “seems to us more accurately characterized as a private right rather than a public right as we have used those terms in our Article III decisions.” Id. at 55,109 S.Ct. at 2798.
Thus, with respect to the trustee’s cause of action against Marcus for recovery of the Ford SUV asserted in Count III of the amended complaint, Marcus has a right to a jury trial.
As suggested by the Supreme Court’s analysis discussed above, when it comes to fraudulent conveyance actions to avoid the transfer of and to recover real estate the determination of whether a defendant has the right to a jury trial is not clear-cut. In Resolution Trust Corp. v. Pasquariello (In re Pasquariello), 16 F.3d 525 (3d Cir.1994), an action for mandamus in which the district court refused to withdraw the reference in an adversary proceeding seeking to set aside the fraudulent transfer of real property between spouses, the U.S. Court of Appeals for the Third Circuit noted that prior to the Supreme Court’s Granfinanci-era decision, all U.S. courts of appeals, including the U.S. Court of Appeals for the First Circuit,4 which considered the issue held that “any attempt to remedy a fraudulent conveyance of real property through a set aside or avoidance was a matter for the equity courts and that no right to a jury trial attached.” Pasquariello, 16 F.3d at 530. While acknowledging that since Granfinanciera, some lower courts have found that the right to jury trial arises in actions to avoid fraudulent transfers of real property, the Third Circuit in Pas-quariello noted that historically both courts of law and equity exercised jurisdiction over fraudulent conveyance actions involving land. Id. at 529.
An action to recover possession of real property, often known as ejectment, was an action at law. See id.; see also Pernell v. Southall Realty, 416 U.S. 363, 373, 94 S.Ct. 1723, 1728, 40 L.Ed.2d 198 (1974) (“by a variety of intricate fictions, ejectment eventually developed into the primary means of trying either the title to or the right to possession of real *154property”); Amoco Oil Co. v. Torcomian, 722 F.2d 1099, 1103 (3d Cir.1983) (ejectment is an action at law). On the other hand, an action to set aside a fraudulent conveyance of real estate was usually heard in equity. See Granfinanciera, 492 U.S. at 44-46, 109 S.Ct. at 2791-2792; Hobbs v. Hull, 1 Cox 445, 29 Eng.Rep. 1242 (Ch. 1788) (suit to set aside a conveyance of land in trust by husband to his wife may be adjudicated in court of equity); 1 Garrard Glenn, Fraudulent Conveyances and Preferences § 98 (rev. ed. 1940); 3 John N. Pomeroy, Pomeroy’s Equity Jurisprudence § 968 (Spencer W. Symons, ed., 5th ed. 1941). Thus, unlike Granfinan-ciera, this cause of action’s historical antecedents provide little guidance.
Id. at 530-31. The court went on to distinguish Granfinanciera because it involved the alleged fraudulent conveyance of money, a fungible commodity lacking the uniqueness of land.
In this adversary proceeding, the trustee seeks recovery not just of a sum certain but of the allegedly fraudulently conveyed property itself. In other words he seeks both legal and equitable remedies, albeit in the alternative.5
As the Supreme Court noted in Granfinanciera, “actions to recover preferential or fraudulent transfers were often brought at law in late 18th-century England.” Id. at 43, 109 S.Ct. 2782. To the extent that a trustee seeks money damages as compensation for an allegedly fraudulent transfer, this remedy is aptly characterized as legal rather than equitable in nature.
Some courts have held that actions to avoid the transfer of real property are equitable in nature and thus there is no right to a jury trial, see e.g., Campana v. Pilavis (In re Pilavis), 228 B.R. 808 (Bankr.D.Mass.1999), while others have reached the opposite conclusion. See, e.g., Fisher v. Hamilton (In re Teknek, LLC), 343 B.R. 850, 869 & n. 12 (Bankr.N.D.Ill.2006).
I agree with Judge Hillman’s analysis in Pilavis and the Third Circuit’s analysis in Pasquariello that when the fraudulent conveyance remedy requested is to avoid the transfer of real property, a trial by jury is not mandated by the Seventh Amendment. But here the trustee has included within his fraudulent transfer counts, demands for money judgment as an alternative to avoidance of the transfer. “Even if the plaintiff seeks a money judgment based on an equitable claim, the claim is generally considered legal in nature.” In re Freeway Foods of Greensboro, Inc., 449 B.R. 860, 883 (Bankr.M.D.N.C.2011) (internal citation omitted). Further, the Supreme Court in Dairy Queen instructs that the right to a jury trial must be preserved even if the legal claims are characterized as incidental to the equitable claims as they clearly are with respect to the real estate fraudulent conveyance claims here.
Even if I were able to overlook the alternative request for damages in Counts I and II of the trustee’s amended complaint and conclude that the trustee is seeking the return of the real estate, there are additional counts asserted in this action that without question trigger the right to a jury trial.
*155B. Breach of Contract Claims
The trustee has asserted breach of contract claims that traditionally were actions at law that would have been brought in English law courts in 1791. Chauffeurs, Teamsters and Helpers, Local No. 391 v. Terry, 494 U.S. 558, 569-70, 110 S.Ct. 1339, 108 L.Ed.2d 519 (1990). He seeks monetary damages, clearly a remedy at law. Moreover “claims for breach of contract are private, state-law causes of action as to which Congress lacks the power to eliminate the right to a trial by jury.” Freeway Foods, 449 B.R. at 884. Therefore the defendants are entitled to a jury trial on Counts IV and V of the amended complaint. Lars, Inc. v. Taber Partners (In re Lars, Inc.), 290 B.R. 467, 469-70 (D.Puerto Rico 2003); Aaron Gleich, Inc. v. Housing Authority of City of New Haven (In re Aaron Gleich, Inc.), 200 B.R. 464, 466 (Bankr.D.Me.1996) (no right to jury trial in action involving debtor’s counterclaims to city’s proof of claim but noting that absent the filing of the proof of claim, the breach of contract claim is legal triggering right to jury trial).
C. Equitable Claims
A statutory turnover action under Bankruptcy Code § 542 does not trigger a right to trial by jury. Braunstein v. McCabe, 571 F.3d 108, 115 (1st Cir.2009).
Commanding turnover is at the very root of the bankruptcy court’s equitable powers. See 11 U.S.C. § 542. If it has been established that certain assets are a part of the bankruptcy estate, there must be some mechanism for acquiring control of them. Requiring turnover is merely the bankruptcy court’s means of enforcing its decisions, and it is therefore equitable in nature.”
Walker v. Weese, 286 B.R. 294, 299 (D.Md.2002) (footnote omitted). Therefore, Count VI of the amended complaint if viewed in isolation, would not be tried to a jury-
A constructive trust is an equitable remedy and thus usually no right to a jury trial attaches. Goya Foods, Inc. v. Unanue, 233 F.3d 38, 48 (1st Cir.2000); Notinger v. Brown (In re Simply Media, Inc.), 2007 WL 4264514, at *5 (Bankr.D.N.H. Nov. 28, 2007). While “[a]n action seeking to impose a constructive trust is equitable in nature and will not ordinarily give rise to a right to jury trial,” a right to a trial by jury attaches if the action “is essentially one to collect a debt.” Redmond v. Hassan (In re Hassan), 376 B.R. 1, 19 (Bankr.D.Kan.2007) (quoting 8 Moore’s FedeRal Practice, § 38.31[2]). In the instant case the equitable claims in Counts VII and VIII may be fairly characterized as claims asserted to collect various debts that the trustee asserts are owed to the estate.
Moreover, the facts relevant to the equitable counts are the same as those relevant to the legal claims. Thus even if the equitable claims are triable without a jury, I cannot hold a bench trial on Counts I, II, VI, VII, and VIII before the counts asserting legal claims are determined by a jury. Dairy Queen, 369 U.S. at 479, 82 S.Ct. 894; Beacon Theatres, 359 U.S. at 510-11, 79 S.Ct. 948; Simply Media, 2007 WL 4264514, at *5. Consequently “ ‘the action must be structured and tried in a manner that preserves the right to jury trial with respect to the legal claim’ and issues of common facts must be tried to a jury with the bankruptcy court being bound by those findings.” Simply Media, 2007 WL 4264514, at *5.
Conclusion
For the foregoing reasons, I find that the defendants are entitled to a jury trial on Counts I, II, III, IV and V of the *156trustee’s amended complaint and that the relevant facts raised in those counts are common to the equitable counts, VI, VII and VIII. Therefore, the action must be tried to a jury before any judgment can be entered on Counts VI, VII and VIII. To avoid the potential jurisdictional infirmity raised in Wilson v. EMC Mortg. Corp. (In re Wilson), 2005 WL 3320594 (Bankr.D.Mass. Oct. 17, 2005), namely that there is no procedure for the bankruptcy court to initiate withdrawal of the reference by the district court, I will order the defendants to file a motion to withdraw the reference within ten days of this order’s becoming final.
So ordered.
. I will refer to the DiStefano defendants by their first names for ease of identification.
. There is no allegation that the defendants have waived their right to a jury trial if one exists. Their jury demand was filed with their joint answer to both the original and amended complaints and is thus timely. M.L.B.R. 9015-1; In re Bank of New England, 360 B.R. 1, 5 (D.Mass.2007). The defendants have not filed proofs of claim in the main bankruptcy case nor have they asserted any counterclaims against the trustee. Langenkamp v. Culp, 498 U.S. 42, 45, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) (by filing a proof of claim, creditor submitted to the bankruptcy court's equitable jurisdiction); Granfinanciera, 492 U.S. at 58, 109 S.Ct. 2782, 106 L.Ed.2d 26; Container Recycling Alliance v. Lassman, 359 B.R. 358, 360-61 (D.Mass.2007).
. Section 548(a)(2) of the Bankruptcy Code applicable in Granfinanciera appears in the current Bankruptcy Code as § 548(a)(1)(B).
. Whitlock v. Hause, 694 F.2d 861 (1st Cir.1982).
. The trustee's prayers for relief with respect to both the federal and state law fraudulent conveyance counts (I and II) request, among other things, a declaration that the transfer of the Methuen property was fraudulent and an order avoiding the transfer or in the alternative a money judgment, in an amount to be determined, for the value of the property plus interest, attorney's fees and costs. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494720/ | MEMORANDUM
JOAN N. FEENEY, Bankruptcy Judge.
I. INTRODUCTION
The matter before the Court is the “Motion for an Order Pursuant to 11 U.S.C. §§ 1521(a)(5) and 1521(b) Directing the Turnover of All Assets of the Debtors Located in the United States to the Foreign Representatives” (the “Turnover Motion”) filed by John Robert Lees (“Mr. Lees”) and Mat Ng (collectively, the “Foreign Representatives”). Raymond Cho-Min Lee (“Raymond Lee”) and Priscilla Hwang Lee (“Priscilla Lee”) (jointly, the “Foreign Debtors”) filed an Objection to the Turnover Motion. Additionally, Oasis Development Enterprises, Inc. (“ODE”) and East-West Enterprises Co., Ltd. (“EWE”), and their affiliates (collectively, the “US Companies”) filed an Opposition to the Turnover Motion. The Court conducted a trial with respect to the Turnover Motion on February 6, 2012. Prior to the commencement of the trial, the parties narrowed the disputed issues about the turnover of assets sought by the Foreign Representatives. The only remaining dispute among the parties concerns whether the Foreign Representatives are entitled to the turnover of the Foreign Debtors’ equity interests in the U.S. Companies.
At the trial, two witnesses, Mr. Lees and Jodie S. Garzón (“Ms. Garzón”), Senior Vice President of Finance and Controller of Oasis Consulting, Inc. (“OCI”), testified and 43 exhibits were admitted into evidence. At the conclusion of the trial, the Court directed the parties to file supplemental briefs.
The salient legal issues presented are 1) whether the Foreign Representatives are entitled to the turnover of the Foreign Debtors’ equity interests in the U.S. Companies; and 2) whether “the interests of the creditors and other interested entities, including the debtor,” will be “sufficiently protected,” if the Turnover Motion is granted and economic control of the Foreign Debtors’ equity interests passes to the Foreign Representatives and, if not, whether the Turnover Motion should be denied. See 11 U.S.C. § 1522(a). Subsidiary issues, which are unresolved by existing case law, include who has, and what is, the burden of proof relative to whether the interests of the creditors and other interested entities, including the debtor, are sufficiently protected under applicable provisions of Chapter 15 of the Bankruptcy Code.
Most of the material facts necessary to decide the issues are not in contention. Rather, the ramifications of the “turnover” of the Foreign Debtors’ equity interests to the Foreign Representatives are vigorously contested, although neither the Foreign Debtors nor the U.S. Companies disagree that the Foreign Representatives have “stepped into the shoes” of the Foreign Debtors with respect to their equity interests in the U.S. Companies pursuant to Hong Kong law. In short, the Foreign Debtors and the U.S. Companies maintain that allowance of the Turnover Motion will trigger defaults under various mortgages encumbering properties owned by entities in which the Foreign Debtors have direct or indirect equity interests and expose Raymond Lee to huge potential liabilities *159with respect to guaranties he executed in conjunction with financing of properties owned directly or indirectly by ODE and EWE. In addition, they maintain that rights of first refusal and other transfer restrictions in the articles of organization or operating agreements of companies in which the Foreign Debtors have equity interests will render “turnover” a problematic and fruitless endeavor.
II. FACTS
A. The Turnover Motion
Through their Turnover Motion, the Foreign Representatives seek an order pursuant to 11 U.S.C. §§ 1521(a)(5) and 1521(b) directing the turnover of all assets of the Foreign Debtors located in the United States. As noted above, the parties resolved their disputes as to the assets of the Foreign Debtors in the United States except for the equity interests in the U.S. Companies. With respect to the equity interests, the Foreign Representatives stated the following in their Turnover Motion:
Given the current real estate market, it is likely that the Equity Interests have limited liquidation value at this time. The Foreign Representatives intend to evaluate the Equity Interests to determine whether holding the Equity Interests in trust for the benefit of creditors (in the hope that the market will rebound) or conducting a public sale pursuant to section 363 of the Bankruptcy Code, would maximize value to the Foreign Debtors’ estates. Akin to a Chapter 7 Trustee, the Foreign Debtors [sic] can “step into the shoes” of the Debtors with respect to the ownership of the Equity Interests.... The Foreign Debtors [sic] acknowledge that any action they take with respect to the sale or liquidation of the Equity Interests must comply with the applicable provisions of any stockholder agreement governing the Equity Interests and U.S. law.
B. Background
On November 24, 2009, the Foreign Representatives filed a “Verified Petition Seeking Entry of Order Recognizing Foreign Main Proceeding Pursuant to 11 U.S.C. §§ 1515 and 1517 and Relief Pursuant to 11 U.S.C. §§ 1520 and 1521” of the Bankruptcy Code against the Foreign Debtors. At the time the Foreign Representatives filed their petitions, the Foreign Debtors had been adjudged bankrupts on August 31, 2009 following the filing of petitions in the High Court of the Hong Kong Special Administrative Region Court of First Instance on April 28, 2009 and May 27, 2009. The Hong Kong petitions were filed by Value Partners Strategic Equity Fund (“Value Partners”) and Winchesto Finance Company Limited (“Winchesto”), entities to whom the Foreign Debtors owed substantial sums relating to the failure of Oasis Hong Kong Airlines Limited, a low-cost, long-haul airline founded by the Foreign Debtors in 2005. The liquidated debt of the Foreign Debtors in the Hong Kong proceedings is approximately $33 million, excluding significant contingent debt owed to the Bank of China.
At the time they were adjudged bankrupts in Hong Kong, the Foreign Debtors held significant property interests in the United States. For purposes of the present dispute, the Debtors have direct and indirect ownership interests in over 20 properties through their ownership interests in tiers of corporations, limited liability companies, and single-asset, special purpose entities. The Debtors’ ownership interests are undisputed.1
*160The top tier entities in which the Foreign Debtors have interests are OCI, ODE and EWE. In summary,2 ODE is a Massachusetts real estate investment and management corporation, headquartered in Lynn, Massachusetts. It is the controlling entity of a group of real estate investment companies known as the Oasis Group, comprised of 16 properties. Raymond Lee is its Chairman, President, and Chief Executive Officer. Priscilla Lee is its Co-President and co-Chief Executive Officer.
OCI also is a Massachusetts corporation. It provides employees and human resources, accounting, and other services to ODE, which has no employees of its own. OCI employs 10 people, most of whom work in its offices in Lynn, Massachusetts. Raymond Lee is OCI’s President, and both Foreign Debtors serve as directors.
The Foreign Debtors collectively own 71.4% of the shares of ODE, as well as 71.4% of the shares of OCI. Raymond Lee owns 38.1% of each company; Priscilla Lee owns 83.3%.
As noted above, the Oasis Group’s portfolio currently is comprised of 16 commercial properties with more than 1,475,000 square feet of space leased to over 80 tenants. All of the properties except one are located in Massachusetts. The non-Massachusetts property is located in Las Vegas, Nevada. Specifically, Oasis Ten Milk Street Associates, Inc. owns Oasis Ten Milk Street LLC, which, in turn, owns a Class B office building located at 10 Milk Street, Boston, Massachusetts. The Foreign Debtors own 40.48% of Oasis Ten Milk Street LLC and EWE owns 27.932%. Raymond Lee is President of both Oasis Ten Milk Street Associates, Inc. and Oasis Ten Milk Street, LLC.
The Foreign Debtors also own 45.25% of ODE Asia, LLC (EWE owns 32.71%), which, in turn, owns 100% of Oasis Net Leased Holdings LLC. Oasis Net Leased Holdings LLC is a limited liability company, which holds the membership interests of 11 single-asset, special purpose entities comprising the so-called Net Leased Portfolio. Each of the special purpose entities, whose membership interests are held by Oasis Net Leased Holdings LLC, are owned in part by other individual investors. In total, over 30 individual and institutional investors have invested in one or more of the Oasis Group companies.
EWE directly owns five commercial real estate properties in Massachusetts with more than 150,000 square feet leased to over 60 tenants. Raymond Lee is the Chairman and President of EWE. He, his brother David C. Lee, and his sister Karen C. Lee, each own one third of EWE. EWE owns 99% of Oasis Northwoods, LLC, which is the record owner of a property located at 222 Rosewood Drive, Danvers, Massachusetts. That entity is in receivership.
Two other properties, which are, or were, part of the Oasis Group, are implicated in the Turnover Motion by reason of *161guaranty agreements executed by Raymond Lee, which will be discussed in more detail below, namely 700 Longwater Drive, Norwell, Massachusetts and 50 Dunham Road, Beverly, Massachusetts. The property located at 700 Longwater Drive is owned by Oasis 700 Longwater LLC, and was obtained with financing from Column Financial, Inc., and the property located at 50 Dunham Road was owned by Fifty Dunham Road LLC. According to Nancy B. Adams (“Ms. Adams”), the principal of Broadwater Financial, in an Affidavit which was accepted into evidence:
In December 2011, Fifty Dunham Road, LLC, which is managed by Oasis Development Enterprises, Inc., sold the real property at 50 Dunham Road, Beverly, Massachusetts, to a third party buyer for $2,300,000, after extensive marketing efforts by a commercial real estate broker. At the time of the sale, the property was subject to a mortgage loan from Eastern Bank, with an outstanding principal balance of $9,000,000. In connection with the sale, the borrower and the Bank reached an agreement whereby the borrower released the related tax, tenant improvement, capital improvement and leasing reserve accounts to the Bank, although the total of these accounts plus the net purchase price were less than the outstanding balance of the mortgage loan. In connection with the transaction, the Bank cancelled more than $4.3 million in debt, released its mortgage and released, Raymond C. Lee from his guaranty of the loan.
(emphasis added). Profits produced by properties in the ODE and EWE portfolios are distributed proportionately to the individual investors. As will be discussed below, although many of the properties in the Oasis Group portfolio and the EWE portfolio are valued at less than the outstanding mortgage debt, the properties generate significant operating revenue.
The Foreign Debtors are employed by, and receive salaries from, OCI. In addition, they realize income from the operations of the properties in the ODE and EWE portfolios through the distribution of profits, as do the other investors in the Oasis Group and EWE. Distributions are paid out of cash flow after debt service in whatever amount can be prudently paid to investors while maintaining adequate cash reserves for the operation of the properties and related expenses, including expenditures for leasing and improvements.
C. Properties Owned by ODE, EWE and Their Affiliates and Available Equity
Two exhibits constitute the only evidence of the value of the properties in the ODE and EWE portfolios, and, thus, inferentially, the value of the Foreign Debtors’ equity interests, namely Exhibit 38 submitted by the Foreign Representatives, which shows, as of August 1, 2009, total appraised values for the 22 properties in the ODE and EWE portfolios at that time of $175,190,000, subject to loan balances totaling $228,081,635; and Exhibit 1 submitted by the U.S. Companies which is the Affidavit of Ms. Adams. Ms. Adams separately valued 18 of the properties using either (i) a discounted cash flow calculation; or (ii) a direct capitalization calculation based on certain assumptions regarding future leasing activity at certain of the properties.3 She explained that “[t]he dis*162counted cash flow method takes a stream of future net operating income and discounts that future series of payments to present value by a market-based discount rate” and that she utilized discount rates ranging from 9.5% to 13%. She also explained that “[t]he direct capitalization method divides a single year’s estimate of net operating income by a capitalization rate to determine the value of an income generating property,” with capitalization rates, determined by the market, ranging from 7% to 9% for commercial real properties of the type and markets where the properties are located. Ms. Adams provided the following information about the Net Leased Portfolio, which is part of the Oasis Group portfolio:
The net leased portfolio (the “Net Leased Portfolio”) consists of eleven (11) properties, ten (10) of which are in Massachusetts and one of which is in Nevada. Each property in the Net Leased Portfolio is owned by a separate limited liability company, the membership interest in each of which is held by Oasis Net Leased Holdings LLC, which is itself a single member limited liability company. Ten of the special purpose limited liability companies in the Net Leased Portfolio are collectively the borrower under a single loan facility from Wells Fargo Bank, N.A., which assigned the loan to a CMBS trust, in the original principal amount of $120,000,000 (the “WFB Loan”). Administration of the loan is under the direction of a special servicer. One property within the Net Leased Portfolio, 7 Concord Farms, Concord, MA is undeveloped land. It is not included in the collateral package for the WFB Loan and the limited liability company which owns that parcel is not a borrower under the WFB Loan.
As of January 1, 2012, the principal balance of the WFB Loan is $113,723,178. As reflected in the Valuation Report, the estimated value of the 10 Net Leased Portfolio Properties which secure the WFB Loan is $69,885,000. Accordingly, I estimate that there is substantial negative equity in the Net Leased Portfolio, in the amount of ($43,838,178).
With respect to the EWE portfolio, Ms. Adams stated that the portfolio secures a loan in the original principal amount of $10,900,000 from Eastern Bank (the “Eastern Loan”) and that, as of January 1, 2012, the principal balance of the Eastern Loan was $10,248,806. She explained the status of the loan as follows in her Affidavit:
Due to the loss of a large tenant in the Sharon property and to declining rents and increasing vacancy in all properties, the cash flow after debt [service] turned negative in July 2010. The borrower paid the shortfall that now totals nearly $200,000. The loan matured on September 1, 2011. Loan payments continued to be made after maturity as negotiations continued to extend the loan maturity date. Terms of extension have been agreed and the Extension Agreement is expected to be executed before the end of January. The agreement provides for a reduction in the interest rate from 5.25% to 4.25% with payments [of] interest only ... As a condition of the modification of terms, two properties must be sold with closings occurring on or before July 31, 2012 and the balance sold or refinanced to pay off the loan by December 31, 2012.
(emphasis supplied). Ms. Adams opined that the value of the five commercial properties in the portfolio is $13,034,000, lead*163ing to the conclusion that the owner’s equity in the EWE portfolio is $2,785,194.
Ms. Adams also valued 10 Milk Street, Boston, MA, an 11-story Class B office and retail building in Boston, owned by Oasis Ten Milk Street LLC. According to Ms. Adams, the Milk Street Property secures a loan in the original principal amount of $58,000,000 from Merrill Lynch Mortgage Lending, Inc. (“Merrill Lynch”), which assigned the Loan to CMBS trust. Additionally, according to Ms. Adams, administration of the Milk Street Loan is under the direction of a special servicer. Ms. Adams opined that, as of January 1, 2012, the principal balance of the Milk Street Loan was $58,000,000 and that the value of the property is $45,735,000, resulting in “substantial negative equity in the Milk Street Property, in the amount of ($12,265,000).”4
With respect to the property located at 700 Longwater Drive, Norwell, Massachusetts, a two-story Class A suburban office building owed by Oasis 700 Longwater LLC, Ms. Adams stated that the property secures a loan in the original principal amount of $8,650,000 from Column Financial, Inc. (“Column Financial”), which assigned the loan to CMBS trust and that, as of January 1, 2012, the principal balance of the loan was $8,641,471. She opined that the value of the 700 Longwater Drive property is $7,510,000, resulting in substantial negative equity in the amount of ($1,131,471).
With respect to unencumbered property located at 7 Concord Farms, Concord, MA, Ms. Adams opined that the value was $528,000, resulting in owner’s equity of $528,000.
D. The Testimony of Ms. Garzón: The Loan Documents
The acquisition or refinancing of properties in the Oasis Group portfolio and the properties in the EWE portfolio, as well as several additional properties, were financed through a complex series of promissory notes and mortgages. These documents, including guaranties executed by Raymond Lee, contain among other things, default provisions, equity transfer restrictions and other prohibitions that the Foreign Debtors and the U.S. Companies cite in support of their opposition to the Turnover Motion. During the trial, Ms. Garzón referenced a number of pertinent provisions in her trial testimony which are discussed below.5
The single-asset, special purpose limited liability companies which comprise the Oa*164sis Net Leased properties held by Oasis Net Leased Holdings LLC (itself wholly owned by ODE Asia LLC in which the Foreign Debtors hold 45.26% of the equity interests), with the exception of Oasis Seven Concord Farms LLC, executed a “Promissory Note Secured by Security Instrument” on November 14, 2005 in the sum of $120,000,000 in favor of Wells Fargo Bank National Association (“Wells Fargo”) with a maturity date of December 5, 2015. The loan amount was allocated to each borrower pursuant to a separate schedule. The promissory note was secured by four mortgages and absolute assignments of rents and leases and security agreements with respect to the Massachusetts properties and one deed of trust and an absolute assignment of rents and leases and a security agreement with respect to the property located in Las Vegas, Nevada. The mortgage executed by the Concord Farms entities is illustrative as it contains typical default provisions in the agreements. Article 7 contains default provisions, captioned “Optional Default” and “Automatic Default” at Article 7.1.a and 7.1.b, respectively. Specifically, Article 7.1a.(ii), labeled “Failure to Perform,” provides an optional default in the event:
Borrower or Mortgagor shall fail to observe, perform or discharge any of Borrower’s or Mortgagor’s obligations, covenants, conditions or agreements, other than Borrower’s or Mortgagor’s payment obligations, under the Note, this Mortgage or any of the other Loan Documents, and (aa) such failure shall remain uncured for 30 days after written notice thereof shall have been given to Borrower or Mortgagor, as the case may be, by Mortgagee or (bb) if such failure is of such a nature that it cannot be cured within such 30 day period, Borrower or Mortgagor shall fail to commence to cure such failure within such 30 day period or shall fail to diligently prosecute such curative action thereafter.
Additionally, Article 7.1a.(iii), captioned “Representations and Warranties,” contains an additional ground for Wells Fargo to declare an Optional Default:
Any representation, warranty, certificate or other statement (financial or otherwise) made or furnished by or on behalf of Borrower, Mortgagor, or a guarantor, if any, to Mortgagee or in connection with the Loan Documents, or as an inducement to Mortgagee to make the Loan, shall be false, incorrect, incomplete or misleading in any material respect when made or furnished.
In addition to citing those specific events of default,6 Ms. Garzón referenced Article 6.15 captioned, “Due on Sale/Encumbrance.” Specifically, she observed that Article 6.15.c.(i), labeled “Prohibited Equity Transfers,” provides:
Mortgagor shall not cause or permit any Transfer of any direct or indirect legal or beneficial interest in a Restricted Party (collectively, a “Prohibited Equity Transfer”), including without limitation, ... (C) if a Restricted Party is a limited liability company, any merger or consoli*165dation or the change, removal, resignation or addition of a managing member or non-member manager (or if no managing member, any member) or any profits or proceeds relating to such membership interest, or the Transfer of a non-managing membership interest or the creation or issuance of a new non-managing membership interests....
Article 6.15.c.(ii) permits equity transfers and provides:
Notwithstanding the foregoing, none of the following Transfers shall be deemed to be a Prohibited Equity Transfer, so long as the Minimum Equity Requirement (defined below) remains satisfied following such Transfer: ... (C) a Transfer, in one or a series of transactions, of not more than 49% of the stock, limited partnership interests or non-managing membership interests (as the case may be) in a Restricted Party to persons not owning such interests as of the Disbursement Date where such Transfer does not result in a change in management control in the Restricted Party....
The term “Minimum Equity Requirement” is defined as
(i) Raymond C. Lee, (ii) a Family Trust of Raymond C. Lee, (iii) the Estate of Raymond C. Lee or (iv) a Qualified Raymond Lee Family Member (defined herein) must continue to control the Mortgagor and the day-to-day operations of the Property and own at all times, directly or indirectly, at least a 30% interest in the Mortgagor.
A “Qualified Raymond Lee Family Member” is defined as “any of the spouse, descendants, heirs, legatees or devisees of Raymond C. Lee that are qualified for employment by Oasis Development Enterprises, Inc. in a managerial capacity equivalent to that of a managing director.”
Article 4.4 of the mortgage governs the “Rights of Mortgagee upon Default.” It provides, in section 4.4.a., labeled “Disposition of Collateral”:
Mortgagee may: (i) upon written notice, require the Mortgagor to assemble any and all of the Collateral and make it available to Mortgagee at a place designated by the Mortgagee; (ii) without prior notice, enter upon the Property or any other place where the Collateral may be located and take possession of, collect, sell, lease, license and otherwise dispose of the Collateral, and store the same at locations acceptable to Mortgagee at Mortgagor’s expense; or (iii) sell, assign and deliver at any place or in any lawful manner and bid and become purchaser at any such sale
Ms. Garzón also testified about a “Mortgage, Assignment of Leases and Rents and Security Agreement” executed by Oasis Ten Milk Street, LLC to secure a $58,000,000 Loan Agreement dated April 18, 2007 provided by Merrill Lynch. As stated by Ms. Garzón, Article 6, captioned “No Sale or Encumbrance” provides at Section 6.2(a) the following:
Borrower shall not cause or permit a Sale or Pledge of the Property or any part thereof or any legal or beneficial interest therein nor permit a Sale or Pledge of an interest in any Restricted Party (in each case a Prohibited Transfer), other than pursuant to Leases of space and the Improvements to Tenants in accordance with the provisions of Section 4.13, without the prior written consent of lender.
The Loan Agreement contained the following definition of “Restricted Party” at Section 6.1: “Restricted party shall mean Borrower, Guarantor, any SPE Component Entity, any Affiliated Manager, or any shareholder, partner, member or nonmember manager, or any direct or indirect *166legal or beneficial owner of Borrower, Guarantor, any SPE Component Entity, any Affiliated Manager or any non-member manager.” Pursuant to those provisions, Ms. Garzón testified that a transfer of the interests or shares of the Foreign Debtors would constitute a prohibited transfer. Nevertheless, at Section 6.3, the Loan Agreement set forth permitted transfers with the following caveat:
Notwithstanding anything to the contrary contained in this Section 6.3, Raymond C. Lee must continue to own, directly or indirectly, at least a 25% interest in, and Control, Borrower, and remain the Guarantor under the Guaranty.
Article 10 of the Loan Agreement, captioned “Events of Default; Remedies” provided that any action under “any Creditors Rights Laws” against any managing member of Borrower or Guarantor would constitute an event of default, triggering the remedies set forth in Section 10.2 of the Loan Agreement.
Ms. Garzón testified about a $6,256,000 loan made by Column Financial to Oasis 700 Longwater LLC. referencing a Mortgage and Security Agreement dated November 20, 2003. She stated that Article 1, “Covenants of Borrower,” at Section 1.13, captioned “Alienation and Further Encumbrances” provides at subsection (a)(2) the following:
In the case of a Borrower which constitutes a limited liability company, up to 33% of the non-managing membership interests in Borrower shall be freely transferrable. Up to 33% of any manager’s interest or managing membership interest in such a Borrower may be transferred without the consent of Lender so long as those persons responsible for the management and control of borrower and the property remain unchanged following such transfer.
(emphasis supplied). The Loan Agreement further provided in Article II, “Events of Default” at Section 2.1.©:
The occurrence of any of the following events shall be a default hereunder: ...
There shall be a sale, conveyance, disposition, alienation, hypothecation, leasing, assignment, pledge, mortgage, granting of a security interest in or other transfer or further encumbranc-ing of the Property, Borrower or its owners, or any portion thereof or any interest therein, in violation of Section 1.13 hereof.
Insolvency of a managing member or guarantor also constituted an event of default pursuant to Section 2.1.(h). Raymond Lee executed an Indemnity and Guaranty Agreement on November 6, 2009.
The Court takes judicial notice of its docket7 and observes that none of the lenders, including Wells Fargo, Merrill Lynch, Column Financial, Eastern Bank, or CMBS trust, the assignee of Wells Fargo and Merrill Lynch, filed notices of appearance in the Chapter 15 cases, although the Court has no evidence that Wells Fargo, Merrill Lynch, Column Financial or Eastern Bank were given notice of the commencement of the Chapter 15 cases by the Foreign Representatives or by the Foreign Debtors. In view of the status of the Oasis Ten Milk Street LLC loan and the EWE portfolio loan and Raymond Lee’s status as president of both of Oasis Ten Milk Street Associates, ODE and EWE, as well as the provisions in the loan documents, the Court infers the lenders are aware of both the Hong Kong proceed*167ings and the proceedings pending in this Court. This inference is supported by the provisions in the Wells Fargo Limited Guaranty and the Column Financial Indemnity and Guaranty Agreement executed by Raymond Lee in which he agreed to provide year-end financial statements to the lenders upon written request. Additionally, there was no evidence that any of the lenders filed contingent claims against Raymond Lee pursuant to their guaranties in the Hong Kong proceeding.
E. The Testimony of Ms. Garzón: Transfer Restrictions in the Articles of Organization and Operating Agreements8
Ms. Garzón testified about the Articles of Organization for ODE. In particular, in her testimony, she referenced Article V, which set forth restrictions imposed upon the transfer of shares of stock of any class as follows:
1. Restriction on Transfer. Except to the extent and in the manner provided herein or as provided by agreement among all the stockholders of the corporation and the corporation, a stockholder of the corporation may not sell, assign, transfer, pledge, hypothecate or otherwise dispose (including by gift or otherwise) of any of his shares of capital stock of the corporation (“Stock”).
2. Exception for Authorized Transferees. The restrictions of paragraphs 3 and 4 [reproduced below] of this Article V shall not apply to transfers of Stock to the following persons (herein “Authorized Transferees”):
(a) the stockholder as the sole trustee of a trust revocable by the stockholder alone; and
(b) a corporation, of which the stockholder transferring Stock owns, directly or indirectly, not less than a majority of the capital stock which is entitled to vote for the election of directors;
provided, that the Stock held by such Authorized Transferee shall remain subject to the provisions of Article V.
3.Voluntary Transfers. Neither a stockholder nor his Authorized Transferee may sell, assign, pledge or otherwise dispose of any shares of Stock, or any interest therein now held or hereafter acquired, without first giving written notice thereof to the corporation. The written notice shall include the name of the transferee and all material terms of such transfer and, in the case of a transfer for fair value, shall be accompanied by a copy of the bona fide written offer to purchase such Stock upon the terms set forth in the written notice. The written notice to the corporation shall be deemed for all purposes to give the corporation a first right of purchase (sometimes referred to as a right of first refusal) as provided herein. If the corporation declines or fails to exercise its first right of purchase within the time provided, the stockholder may, within 60 days from the date said right terminates, transfer the Stock to the proposed transferee upon substantially the terms set forth in the original notice to the corporation.
*168Article V at Paragraph 4 sets forth “Transfer Events.” A Transfer Event may occur when a stockholder is subjected to an involuntary petition [clause iiijor when “a stockholder or Authorized Transferee is subject to a judgment, court order or decree or by operation of law is otherwise required to transfer Stock to other than an Authorized Transferee [clause iv].” (emphasis supplied). In addition, Paragraph 4(b) provides:
... A stockholder shall, within 10 days of the occurrence of a Transfer Event specified in clauses (ii) through (iv) of subparagraph (a) give written notice thereof to the corporation. If the corporation declines or fails to exercise timely its first right of purchase as provided in paragraph 5 [setting forth the First Right of Purchase], then the legal representative, beneficiary, trustee, assignee, receiver or other transferee who obtained the Stock by reason of the Transfer Event may retain the Stock, subject to the provisions of this Article V.
Ms. Garzón also testified about the transfer restrictions contained in the Articles of Organization of EWE. Paragraph 5 provides the following:
Any stockholder, including the heirs, assigns, executors or administrators of a deceased stockholder, desiring to sell, transfer or pledge such stock owned by him or them, shall first offer it to the corporation through the Board of Directors in the manner following ... No shares of stock shall be sold or transferred on the books of the corporation until these provisions have been complied with, but the Board of Directors may in particular instance waive these requirements.
Ms. Garzón testified about similar provisions applicable to the Amended and Restated Operating Agreement for ODE Asia, LLC. At paragraph 6, captioned “Substitution and Assignment of a Member’s Interest,” the Agreement provides:
(c) All Other Transfers. Except as otherwise provided in this Section 6, no member may sell, assign, give, pledge, hypothecate, encumber or otherwise transfer, including, without limitation, any assignment or transfer by operation of law or by order of court (in each instance a “Transfer”), such member’s interests in the LLC or any part thereof, or in all or any part of the assets of the LLC, without the written consent of the manager and any purported transfer without such consent (a “Prohibited Transfer”) shall be null and void and of no effect whatsoever.
Notwithstanding the foregoing, if the LLC is required to recognize a Prohibited Transfer the interest so transferred shall be strictly limited to the transfer- or’s rights to allocations and distributions as provided by this Agreement with respect to the transferred interest (and the transferee shall not thereby become a member of the LLC), which allocations and distributions may be applied (without limiting any other legal or equitable rights of the LLC) to satisfy any duties, obligations or liabilities for damages that the transferor or transferee of such interest may have to the Partnership.
(emphasis added). Ms. Garzón, in her testimony, added that the provisions in ODE Asia, LLC’s Operating Agreement with respect to transfer restrictions are typical for the single-asset, special purpose entities in the Oasis Group portfolio. She further testified that Raymond Lee’s bankruptcy proceeding would constitute a default under all of the loan documents submitted into evidence, citing Section 7.1(b)(iii) of the Wells Fargo Mortgage; section 10.1(f)(ii) of the Merrill Lynch Mortgage and Section 2.1(h) of the Column *169Financial loan documents. Ms. Garzón further observed that certain transfers are prohibited without the written consent of the manager, namely ODE, adding that decisions with respect to that entity are made by its Board of Directors, which is comprised of the Foreign Debtors, Karen Wang and Phillip Lee. She testified that those individuals make decisions about whether to approve transfers in connection with ODE Asia LLC. With respect to EWE, Ms. Garzón testified that it restricted transfers absent approval of its Board of Directors, whose members are Raymond Lee, Karen Lee, and David Lee, siblings who each hold 1/3 interest.
F. The Amended Order Granting Recognition of Foreign Main Proceedings and the Parties’ Stipulations
Approximately 16 months after the filing of the Chapter 15 petitions, this Court, on April 7, 2011, entered an Amended Order Granting Recognition of Foreign Main Proceedings and Related Relief, attached to which was a Stipulation executed by the Foreign Debtors, the Foreign Representatives and the U.S. Companies. The Amended Order Granting Recognition provided, inter alia, that this Court has jurisdiction to consider the matter pursuant to 28 U.S.C. §§ 157, 1334 and that Hong Kong is the center of main interest of the Foreign Debtors. Under Section 30A of the Hong Kong Bankruptcy Ordinance, individual bankruptcy cases, such as those of the Foreign Debtors, commence on the day the individuals are adjudged bankrupts and continue for a period of four years when the bankrupts are discharged. As noted above, the Foreign Debtors were adjudged bankrupts on August 31, 2009. The Foreign Representatives may obtain an extension of that four year period, however.
The Amended Order provided that “the Foreign Representatives are hereby entrusted with the administration, realization, and distribution of all of the Foreign Debtors’ assets located within the territorial jurisdiction of the United States, pursuant to 11 U.S.C. § 1521(a)(5),” subject “in all respects to the terms and conditions of the Recognition Stipulation.” The “Stipulation Regarding Verified Petitions Seeking Entry of Order Recognizing Foreign Main Proceedings Pursuant to 11 U.S.C. §§ 1515 and 1517 and Relief Pursuant to 11 U.S.C. §§ 1520 and 1521,” which was attached to the April 7, 2011 Amended Order, in pertinent part, provides:
As of the date of this Stipulation, the U.S. Companies estimate that the Foreign Debtors are owed the following amounts, subject to any defenses and/or offsets: (a) $47,354.95 in salary; (b) unpaid distributions from Oasis Development Enterprises, Inc. (“ODE”) of $952,548.69; (c) amounts owing from ODE on a promissory note line of credit of $1,572,894.53; and (d) unpaid distributions from the U.S. Companies other than ODE of $748,272.97. As soon as practicable, the U.S. Companies will pay to the Foreign Representatives at the Foreign Representatives’ direction the amounts described in subparagraphs (a) and (d) of this paragraph 2, which amount is estimated to be $795,627.92, and which represents the salary owed to the Foreign Debtors, and the unpaid distributions owed to the Foreign Debtors from the U.S. Companies other than ODE.
For the duration of the Foreign Debtors’ bankruptcy proceedings in Hong Kong (or until further Bankruptcy Court order or agreement of the Parties), all salary due and owing to the Foreign Debtors by the U.S. Companies shall be paid to the Foreign Representatives at their direction.
*170For the duration of the Foreign Debtors’ bankruptcy proceedings in Hong Kong (or until further Bankruptcy Court order or agreement of the Parties), to the extent that the U.S. Companies make distributions to equity holders, the Foreign Debtors’ pro rata share of all such distributions shall be paid to the Foreign Representatives at the Foreign Representatives’ direction.
For the duration of the Foreign Debtors’ bankruptcy proceedings in Hong Kong (or until further Bankruptcy Court order or agreement of the Parties), to the extent that the U.S. Companies make payments on any other amounts owed to the Foreign Debtors, including payments by ODE on the promissory note identified in paragraph 2 above, all such payments shall be made to the Foreign Representatives at the Foreign Representatives’ direction.
Absent further order of the Bankruptcy Court or agreement of the Parties, the Foreign Representatives shall not take any action (other than commencing proceedings in the Bankruptcy Court) with respect to the Foreign Debtors’ equity interests in the U.S. Companies. All Parties’ rights are reserved with respect to the equity interests-including any Parties’ rights to bring an action in the U.S. with respect to the equity interests. The equity interests are subject to the automatic stay imposed by § 1520(a)(1). Insofar as the Debtors are guarantors of indebtedness of the U.S. Companies, nothing herein prevents either of such Debtors as guarantors from acquiescing to any restructuring of the underlying indebtedness owing by any of the U.S. Companies to its respective lenders, or reaffirming such guarantees, provided that such acquiescing or reaffirming does not create new financial obligations, or increase the principal amount of guaranteed obligations, of the Debtors, and provided that such acquiescing or reaffirming shall not constitute a determination that such acquiescing or reaffirming is effective to bind the Foreign Representatives. The Debtors or the U.S. Companies shall provide the Foreign Representatives with reasonable advance notice of any such restructuring contemplated by this paragraph, and copies of any documents executed in their personal capacity with respect to any such restructuring.
United States law will govern any action taken by the Foreign Representatives against the U.S. Companies, including, without limitation, any attempt by them to liquidate or otherwise realize upon the Foreign Debtors’ interest(s) in the U.S. Companies, or any challenge to the operation or management of the U.S. Companies. Any such dispute will be brought exclusively in the courts of the United States.
The Foreign Debtors shall provide the Foreign Representatives and their professionals, including, but not limited to, a local outside accounting firm hired by the Foreign Representatives, with reasonable access to all of the books and records of the U.S. Companies for the purpose of performing a review of the finances of the U.S. Companies and monitoring the U.S. Companies going forward.
(emphasis supplied).
In conjunction with the Turnover Motion, the parties executed a Stipulation Resolving Stipend Motion and Partially Resolving Turnover Motion, which the Court approved on February 6, 2012. Pursuant to that stipulation, the parties significantly *171altered their April 7, 2011 stipulation and agreed, in relevant part, to the following:
As of the date that this stipulation is approved by the Court, all salary, fees including directors’ fees, commissions and other amounts earned by virtue of work performed by the Foreign Debtors (“Earned Income”) shall be paid to the Foreign Debtors, and all U.S. Earned Income shall no longer be paid to the Foreign Representatives, as formerly provided in paragraph 3 of the Recognition Order Stipulation. Provided, however, that any U.S. Earned Income earned by the Foreign Debtors prior to the date of this stipulation that has not already been turned over to the Foreign Representatives shall be turned over to the Foreign Representatives as soon as is practicable upon approval of this stipulation by the Bankruptcy Court. To the extent the Foreign Debtors’ joint gross Earned Income exceeds $144,000.00 USD for any one payment cycle (measured from March 1 to the end of February), any such excess shall be paid to the Foreign Representatives. The Foreign Representatives shall be responsible for the payment of all taxes imposed on the portion of any Earned Income that the Foreign Debtors turn over to the Foreign Representatives. The Parties reserve their respective rights to apply for an order from the Hong Kong Bankruptcy Court increasing or decreasing the amount of Earned Income that the bankruptcy estate may claim. For the avoidance of doubt, nothing in this stipulation shall affect the Foreign Representatives’ right to seek an “income payments order” pursuant to Section 43E of the Hong Kong Bankruptcy Ordinance.
This stipulation does not affect the following issues addressed in the Turnover Motion: ... the equity interests held by the Foreign Debtors in the corporations Oasis Development Enterprises, Inc., Oasis Consulting, Inc., EasL-West Enterprises Co., Ltd., and their corporate and limited liability company affiliates ....
The Recognition Order Stipulation remains in force except to the extent inconsistent with this stipulation.
In her Affidavit which was accepted into evidence at the trial, Ms. Garzón, recognized the agreement of the parties, stating that “[i]n compliance with the stipulation, the U.S. Companies have to date [February 1, 2012] paid a total of $2,797,353.38 to the Foreign Representatives.”
G. The Testimony of the Foreign Representative
Mr. Lees testified that, although the Foreign Representatives agreed to abide by the decisions of courts in the United States, he had a duty under Hong Kong law to take possession of all assets of the bankrupts, including shares in companies, adding that the Foreign Representatives “like to take an active part in decision making in these companies” with the goal of maximizing value. He stated: “[w]e’re not short-term in this situation; we’re long term. We’d be very happy to stay in here for five, six, seven or eight years if we need to see the values improve.” Concluding his direct testimony, he testified that the Foreign Representatives intended to keep the Chapter 15 proceedings open as long as the Hong Kong proceedings were open.
On cross-examination, Mr. Lees explained that under the Hong Kong Bankruptcy Ordinance it was possible to obtain an extension of the applicable four-year period for bankruptcy cases in Hong Kong upon application and the establishment of “a good reason for that extension,” adding that in most cases all the assets are col*172lected and distributed well within the statutory four year period.9
Mr. Lees explained his testimony that the Foreign Representatives would like to take “an active part in decision making” as follows:
Well, certainly it would be having a look at any transaction that was contemplated that — for sale of properties. We would like to have some contact with some of the lenders as well. I believe that, you know, we could give some credibility to the situation. Through our statute one of our major creditors in Hong Kong is a major property developer. He [sic] certainly has, you know, has a great deal of credibility.
Mr. Lees indicated that, although he could not criticize the decisions made with respect to the sale of the 50 Dunham Road property in Beverly, Massachusetts or the loan modification involving Ten Milk Street, Boston, Massachusetts, the Foreign Representatives were only made aware of the decisions affecting those properties after the fact. He expressed a desire for “some strict corporate governance ... so that certain things are relayed to us and before things happen.”
With respect to his duties to the other non-debtor shareholders or members of the U.S. Companies, Mr. Lees testified that the Foreign Representatives would always consider the interests of the other investors in the companies, adding “we certainly can’t do something which might severely jeopardize the interests of other parties.” He testified that he could not envision a scenario in which the interests of the creditors of the Foreign Debtors would conflict with the interests of the holders of the other equity interests, other than the Foreign Debtors, in the U.S. Companies.
With respect to the vesting of the Foreign Debtors’ ownership interests in the U.S. Companies in the Foreign Representatives, Mr. Lees stated that he had not attempted to sell the Foreign Debtors’ shares in ODE or EWE and had not received any unsolicited offers, reiterating that “any sale would have to be conducted according to any restrictive rights of those shares.” Mr. Lees also testified that he had not considered managing ODE if the Turnover Motion were granted. He stated, however, that he would like to receive more information about management decisions than what the Foreign Representatives have been receiving in the form of “quarterly reports and occasional management accounts.” Mr. Lees added: “It’s not a matter of ‘carrying on the business’ of the bankrupts. It’s a matter of taking control of the various assets.” Referencing Section 61(a) of the Hong Kong Bankruptcy Ordinance, he testified that that provision permitted him to, among other things, carry on the business of the bankrupts as far as may be necessary for the beneficial winding up of the same or to allow the bankrupt to restructure the business, while recognizing that the Foreign Debtors do not operate businesses, rather they own equity interests in companies that are in business that do not have employees. Because Section 61 permits the Foreign Representatives to engage in eer-*173tain activities “with the permission of the creditors’ committee,” Mr. Lees testified that Winchesto and Value Partners, as members of the creditors’ committee, believe that the Foreign Debtors’ equity interests should be vested in the Foreign Representatives and encouraged the filing of the Turnover Motion.
Upon redirect examination, Mr. Lees testified that, if the Turnover Motion were denied, it likely would constitute grounds for extending the bankruptcies in Hong Kong “because there’s outstanding business basically” and “[a]ll the affairs of the bankruptcy [sic] ... must be tidied up before the completion of the bankruptcy.”
III. POSITIONS OF THE PARTIES
A. The Foreign Representatives
The Foreign Representatives, relying upon the Declaration of Richard David Hudson, a partner in the Litigation and Dispute Resolution Department of Deacons, a law firm located in Hong Kong, which represents them, maintain that under Hong Kong law the equity interests, and in particular shares of stock, vest in the them as trustees of the bankrupts in the Foreign Main Proceeding and that that vesting by operation of Hong Kong law does not constitute a transfer implicating the transfer restrictions in the Articles of Organization of ODE or other applicable Operating Agreements or Articles of Organization. In their view, regardless of any transfer restrictions affecting the shares of stock owned by the Foreign Debtors in ODE or EWE, under Hong Kong law, upon the commencement of the bankruptcy and their appointment as trustees, the shares vested in them as trustees pursuant to Sections 43, 53 and 58 of the Bankruptcy Ordinance. The Foreign Representatives rely on Section 58(3) of the Hong Kong Bankruptcy Ordinance which provides that property of the debtor vests in the trustee without, inter alia, “any conveyance, assignment or transfer whatever.” Thus, in their view, pursuant to Hong Kong law, the Foreign Debtors’ equity interests automatically vested in the Foreign Representatives when they were appointed as joint trustees, regardless of any transfer restrictions. Because the Bankruptcy Ordinance expressly provides that the vesting of property does not constitute a transfer, the Foreign Representatives maintain that no corporate transfer restrictions can apply. Stated another way, if vesting does not involve a transfer, no transfer restrictions apply to vesting.
The Foreign Representative also rely upon Section 53(3) of the Bankruptcy Ordinance which provides “Where any part of the property of the bankrupt consists of stock, ... shares, or any other property transferable in the books of any company, office or person, the trustee may exercise the right to transfer the property to the same extent as the bankrupt might have exercised it if he had not become bankrupt.” In addition, the Foreign Representatives recognize Section 43(5) of the Bankruptcy Ordinance which provides that “property comprised in a bankrupt’s estate is so comprised subject to the rights of any person other than the bankrupt (whether as a secured creditor of the bankrupt or otherwise) in relation thereto ...,” although they maintain that Section 43(5) does not and cannot operate to permit third parties to exercise transfer restriction rights to prohibit the vesting of shares in a bankruptcy trustee because the vesting of shares does not constitute a transfer pursuant to Section 58 of the Bankruptcy Ordinance. Alternatively, the Foreign Representatives argue that even if this Court were to view the vesting of the equity interests in them as an event that would trigger the “transfer” restrictions in the Articles of Organization or LLC Oper*174ating Agreements, they assert that those restrictions cannot be enforced because doing so would frustrate the underlying purpose and guiding principles of Chapter 15.
The Foreign Representatives argue that the provisions of Hong Kong Bankruptcy Ordinance are consistent with the provisions of the Bankruptcy Code. Although they do not dispute that they must operate within the confínes of the applicable Articles of Organization and Operating Agreements and abide by provisions relating to transfer restrictions because they “step into the shoes” of the Foreign Debtors, they assert that they must have the ability to make decisions commensurate with the estates’ equity interests, citing In re First Protection, Inc., 440 B.R. 821, 880 (9th Cir. BAP 2010) (“We conclude that all of Debtors’ contractual rights and interest in Re-dux [a corporation] became property of their estate under § 541(a)(1) by operation of law when they filed their petition. Section 541(c)(1)(A) overrides both contract and state law restrictions on the transfers or assignment of Debtors’ interest in Re-dux in order to sweep all their interests into their estate.... Accordingly, the restrictions Debtors point to under the operating agreement or the Arizona LLC Act did not prevent the vesting of their contractual rights in their bankruptcy estate.”).
The Foreign Representatives conclude that the equity interests are property of the Hong Kong bankruptcy estate and that they should have the authority to control those equity interests consistent with the Foreign Debtors’ ownership of approximately 72% of ODE, which manages the Oasis Group portfolio. With respect to EWE, in which Raymond Lee is only a one-third equity interest holder, they contend they would have whatever rights he would have to participate in the governance of EWE, especially as Raymond Lee is President of EWE and there is a single loan, which has matured, that governs all the properties in the EWE portfolio. As noted above, Ms. Adams, in her Affidavit, indicated that the loan matured in September of 2011 and that there is a forbearance agreement which requires EWE to sell two of the five properties by June 30, 2012 and to sell as many of the other three properties as may be necessary to satisfy the loan in full by the end of 2012.
The Foreign Representatives emphasize that their activities are governed by the law of Hong Kong; that they are rational economic actors charged with maximizing the value of the equity interests for the estate; that they intend to engage professionals to protect and maximize the value of the equity interests; and that their interests are not adverse to those of the other interest holders in the U.S. Companies. Moreover, the Foreign Representatives contend that the provisions of Chapter 15, i.e., 11 U.S.C. §§ 1501, 1521(a)(5) and 1521(b), pre-empt state law transfer restrictions that would prevent this Court from entrusting the Foreign Debtors’ equity interests to the them. They argue that this conclusion is valid because the result — the vesting of the assets in the Foreign Trustees — is the same result that would occur in a Chapter 7 case through the operation of 11 U.S.C. § 541(c)(1).10 *175They rely upon principles of comity and cooperation embedded in Chapter 15 and urge this Court to avoid entering any orders which would permit the Foreign Debtor to shield assets in the United States from foreign creditors through contractual arrangements — something that they could not do in a Chapter 7 case.
The Foreign Representatives reject the arguments of the Foreign Debtors and the U.S. Companies that defaults under the loan documents compel denial of the Turnover Motion. Noting the absence of testimony or other evidence from representatives of the lenders, the Foreign Representatives observe that the Hong Kong proceeding is itself a default and that the EWE loan is in default and the subject of a forbearance agreement. They point to the record which establishes that the lenders have not been aggressive in enforcing default provisions applicable to the Oasis Group and EWE portfolios, noting that the Foreign Debtors have been successful in negotiating forbearance agreements.
The Foreign Representatives also discount the provisions in the loan documents about which Ms. Garzón testified. They observe that the U.S. Companies are already in default because the Lees were adjudged bankrupts under Hong Kong law. Moreover, they note that the EWE loan has matured and is the subject of a forbearance agreement which requires the sale of properties,11 as well as the receivership affecting the property owned by Oasis Northwoods LLC, located on Rosewood Drive in Danvers, Massachusetts. Additionally, with respect to the 50 Dunham Road property in Beverly, Massachusetts, they cite the forgiveness of $4 million in debt when the property was sold. In short, the Foreign Representatives maintain that the U.S. Companies and the Foreign Debtors produced no credible evidence about what the lenders would do if the Turnover Motion were allowed, adding that the existing evidence is that lenders have been working with the borrowers, obviating any notion of the existence of a “real risk,” particularly where the Foreign Representatives are insolvency professionals.
With respect to that requirement of Chapter 15 that relief may be granted pursuant to section 1521 only if the interests of creditors and other interested entities are “sufficiently protected,” 11 U.S.C. § 1522(a), the Foreign Representatives maintain that under In re Atlas Shipping A/S, 404 B.R. 726, 740 (Bankr.S.D.N.Y.2009), sufficient protection is determined with reference to whether the law of the foreign jurisdiction protects creditors and parties in interest. They maintain sufficient protection exists here because of the striking similarity between the Hong Kong Bankruptcy Ordinance and the Bankruptcy Code together with their acknowledgment that they will be bound by applicable transfer restrictions.
B. The Foreign Debtors and the U.S. Companies
The Foreign Debtors adopted and joined the arguments advanced by the U.S. Companies. Accordingly, the Court shall refer *176to the U.S. Companies in summarizing the positions advanced by both the U.S. Companies and the Foreign Debtors. The U.S. Companies, referencing the parties’ Stipulation Regarding Verified Petitions Seeking Entry of Order Recognizing Foreign Main Proceedings, observe that United States law applies to disputes involving the U.S. Companies and that those disputes must be brought in United States courts. The U.S. Companies rely upon the provisions of the Stipulation Regarding Verified Petitions Seeking Entry of Order Recognizing Foreign Main Proceedings dated February 25, 2011, which provide, in summary, that absent further order of this Court or agreement of the parties, the Foreign Representatives shall take no action with respect to the equity interests. They insist that the rights of parties in the U.S. Companies should be determined under United States law and Chapter 15 of the Bankruptcy Code, which provide for the protection of the interests of the Debtors and the U.S. Companies, a goal embodied in 11 U.S.C. § 1522.
The U.S. Companies emphasize that in addition to the Foreign Debtors the companies have approximately 30 other shareholders comprised of 19 individuals and entities. They urge the Court to recognize that those individuals and entities have invested over $34 million in the properties. They contend that the vesting of the equity interests in the Foreign Representatives will constitute transfers by operation of law which are subject to the share transfer restrictions in the Articles of Organization which should be upheld. In the alternative, they assert that the type of turnover sought by the Foreign Representatives, namely full and permanent ownership of the Foreign Debtors’ shares in ODE and EWE, will trigger the transfer restriction provisions. They differentiate between the Hong Kong Foreign Representatives being in charge of the portfolios and potentially causing the liquidation of the companies through control over the board of directors and ownership of the stock. They add that the Foreign Debtors’ ownership of stock in closely-held corporations does not equal and should not equal outright management of the portfolio companies, particularly where the companies have been operated in the interests of all shareholders, all income has been distributed in accordance with the parties’ stipulations, and problems can be addressed through the commencement of complaints for violations of fiduciary duties or the automatic stay.
The U.S. Companies also insist that the share transfer restrictions set forth in the Articles of Organization of ODE and EWE must be recognized, while observing that this Court can and should condition the relief sought in the Turnover Motion to comport with the provisions of the Stipulation Regarding Verified Petitions which requires that any disputes relative to transfers of the Foreign Debtors’ equity interests or the exercise of rights inherent in full and complete ownership of those equity interests should be brought to this Court. In other words, the U.S. Companies argue that the Chapter 15 proceedings should remain open to the parties in interest in the United States who are concerned about having the Foreign Representatives liquidate the companies themselves.
The U.S. Companies contend that the critical issue is whether the protections for other shareholders embodied in the transfer restrictions apply to the Foreign Representatives when they merely hold stock, or only when they elect to eventually, if ever, transfer the Foreign Debtors’ equity interests to third parties. They rely on the Section 43 of the Hong Kong Bankruptcy Ordinance, arguing that the property rights that are not violative of Article V *177of the transfer restrictions are already being granted to the Foreign Representatives in the form of income distributions and receipt of information which all shareholders receive.
The U.S. Companies maintain that the interests of their equity holders will not be sufficiently protected because the operation of the companies will be directly influenced by the Foreign Representatives, despite the testimony of Mr. Lees that the Foreign Representatives have a long-term view and would be “benevolent overlords” with respect to the equity interest holders. In sum, the U.S. Companies contend that denial of the Turnover Motion is warranted, adding that the Foreign Representatives can seek further relief in this Court in the event there is “any particular thing that they want to do or prohibit us from doing at the company level” in the future. They add that interference with the ownership structure and management should not be countenanced.
After the evidentiary hearing, the Foreign Debtors and the U.S. Companies submitted the Declaration of William M.F. Wong, a Barrister-at-Law and a member of chambers of Des Voeux Chambers, resident in Hong Kong (the “Wong Declaration”). In reliance upon the Wong Declaration, they advanced additional arguments. The maintain that the Wong Declaration confirms that (i) the vesting of the Equity Interests in the Foreign Representatives under Hong Kong bankruptcy law did not effect a transfer of all of the Debtors’ rights with respect to the Equity Interests, and (ii) the Foreign Representatives’ right to exercise ownership and control of the Equity Interests is limited by the stock transfer restrictions in the U.S. Companies’ organizational documents that are enforceable under Massachusetts law. They add that the Foreign Representatives overstate the nature and effect of vesting under the Hong Kong Bankruptcy Ordinance because, in their view, the Hong Kong law requires more than mere vesting to enable the Foreign Representatives to exercise full ownership and control of the equity interests. To obtain full ownership and control of the equity interests, they maintain that the Foreign Representatives must comply with any applicable stock transfer procedures, adding that for a Hong Kong company, which ODE, EWE and the limited liability companies are not, one such procedure is registration. They observe that in Hong Kong, before a trustee can exercise all rights of a shareholder in a Hong Kong corporation, he “must be registered as a shareholder in the company’s register of members” so that the mere vesting of the equity interests does not transfer full rights in the equity interests.
The U.S. Companies further argue that this second stage requires compliance with the U.S. Companies’ share transfer procedures and legal requirements such as, in Hong Kong, registration. Noting that the Foreign Representatives state that because “the vesting of property does not constitute a transfer, it follows that no transfer restrictions can apply, the U.S. Companies argue that “[t]his utterly misstates the dispute and ignores the relief actually sought, because, while the transfer restrictions may not apply to the first stage of vesting of the equity interests, they do apply to this second stage. Citing Section 43(5) of the Bankruptcy Ordinance, which expressly provides that the equity interests vest in the Foreign Representatives “subject to the rights of any person other than the bankrupt with respect to [the equity interests],” they conclude that the requirements and prerequisites applicable to a share transfer under a company’s charter apply to a transfer to the *178Foreign Representatives, not only to a transfer by them.
IV. DISCUSSION
A. Applicable Law
The Turnover Motion, through which the Foreign Representatives seek “to determine whether holding the Foreign Debtors’ equity interests in trust for the benefit of creditors (in the hope that the market will rebound) or conducting a public sale,” implicates both the Hong Kong Bankruptcy Ordinance and Chapter 15 of the Bankruptcy Code. Section 103(a) of the Bankruptcy Code provides in relevant part: “Except as provided in section 1161 of this title, chapters 1, 3, and 5 of this title apply in a case under chapter 7, 11, 12, or 13 of this title, and this chapter, sections 307, 362(o), 555 through 557, and 559 through 562 apply in a case under chapter 15.” 11 U.S.C. § 103(a). Accordingly, neither section 541(a) nor 541(c)(1) are applicable to a determination of property of the Hong Kong bankruptcy estates, and the determination of property of the estates must be made under Hong Kong law. Notably, were section 541(c) to apply, the transfer restrictions set forth in the Articles of Organization and Operating Agreements would be unenforceable.12
The provisions of Chapter 15 of the Bankruptcy Code support a determination that the Hong Kong Bankruptcy Ordinance governs what constitutes property of the Foreign Debtors’ bankruptcy estates and the Foreign Representatives’ rights with respect to that property, subject to protections set forth in that statute and the Bankruptcy Code. Section 1501 of the Bankruptcy Code provides that the purpose of Chapter 15 is to facilitate cooperation between U.S. and foreign courts and representatives. 11 U.S.C. § 1501(a).13 According to the court in SNP Boat Serv. S.A. v. Hotel Le St. James, No. 11-cv-62671, — F.Supp.2d - (S.D.Fla.2012),
*179Chapter 15 replaced § 304 of the U.S. Bankruptcy Code, [and] “many of the principles underlying § 304 remain in effect under chapter 15.” In re Atlas Shipping A/S, 404 B.R. at 739: see also In re Artimm, S.r.L., 335 B.R. 149, 159-60 (Bankr.C.D.Cal.2005) (“[T]he chapter 15 regime looks somewhat different from that applicable to this case under § 304. However, there is one provision that is strikingly similar. As under § 304, § 1521(b) authorizes the court, upon the request of the foreign representative, to entrust the distribution of all or part of the debtor’s U.S. assets to the foreign representative.”); Leif M. Clark & Karen Goldstein, Sacred Cows: How to Care for Secured Creditors’ Rights in Cross-Border Bankruptcies, 46 Tex. Int’l L.J. 513, 524 (2011) (“Not surprisingly, the case law under former § 304 is still relevant to the interpretation of Chapter 15, especially as it concerns the remedies available to a foreign representative once recognition has been granted.”). Like the old § 304, and in many ways to an even greater degree, Chapter 15 directs courts to be guided by principles of comity. Compare 11 U.S.C. § 304 (repealed 2005) (“In determining whether to grant relief under subsection (b) of this section, the court shall be guided by what will best assure an economical and expeditious administration of such estate, consistent with ... (5) comity....”), with 11 U.S.C. § 1507 (“In determining whether to provide additional assistance under this title or under other laws of the United States, the court shall consider whether such additional assistance [is] consistent with the principles of comity....”), and id. § 1509(b) (“If the court grants recognition under section 1517, and subject to any limitations that the court may impose consistent with the policy of this chapter ... a court in the United States shall grant comity or cooperation to the foreign representative.”).
SNP Boat Serv. S.A., 2012 WL 1355550 at *8.
Under Section 58 of the Hong Kong Bankruptcy Ordinance, property of the bankrupt vests in an Official Receiver upon the making of a bankruptcy order. Thereafter, upon the appointment of a trustee, the property of the bankrupt, vests in the trustee. In this case, the property of Raymond and Priscilla Lee vested in the Foreign Representatives. The bankrupt’s estate is defined at Section 43(l)(a) of the Bankruptcy Ordinance, which provides that property of the estate is comprised of “all property belonging to or vested in the bankrupt at the commencement of the bankruptcy.” It also includes “any property which by virtue of any of the provisions of this Ordinance is comprised in that estate or is treated as falling within paragraph (a).” Id. at 43(l)(b). Unlike property of the estate under the Bankruptcy Code where an interest of the debtor in property becomes property of the estate notwithstanding any provision in an agreement, such as the Articles of Organization, that restricts or conditions transfer of such interest by the debtor, see 11 U.S.C. § 541(c)(1), Section 43(5) of the Hong Kong Bankruptcy Ordinance provides in pertinent part the following:
For the purposes of any provision in this Ordinance, property comprised in a bankrupt’s estate is so comprised subject to the rights of any person other than the bankrupt (whether as a secured creditor of the bankrupt or otherwise) in relation thereto ...
Although the Hong Kong Bankruptcy Ordinance defines the bankrupts’ estate for purposes of the Turnover Motion, resolution of the parties’ disputes hinge on interpretation of provisions of *180Chapter 15. Section 1521 of the Bankruptcy Code pertains to relief available upon recognition of a foreign proceeding, whether main or nonmain, “where necessary to effectuate the purpose of this chapter and to protect the assets of the debtor or the interests of the creditors.” 11 U.S.C. § 1521(a)(emphasis supplied). It further provides: “[a]t the request of the foreign representative,” the Bankruptcy Court may, grant any appropriate relief, including — “entrusting the administration or realization of all or part of the debtor’s assets within the territorial jurisdiction of the United States to the foreign representative or another person, including an examiner, authorized by the court....” 11 U.S.C. § 1521(a)(5). Additionally, section 1521(b) authorizes the court to “entrust the distribution of all or part of the debt- or’s assets located in the United States to the foreign representative ... provided that the court is satisfied that the interests of creditors in the United States are sufficiently protected.” 11 U.S.C. § 1521(b) (emphasis supplied). Finally, section 1522(a) provides, in pertinent part, the following:
(a) The court may grant relief under section 1519 or 1521, or may modify or terminate relief under subsection (c), only if the interests of the creditors and other interested entities, including the debtor, are sufficiently protected ...
(c) The court may, at the request of the foreign representative or an entity affected by relief granted under section 1519 or 1521, or at its own motion, modify or terminate such relief.
11 U.S.C. § 1522(a) (emphasis supplied).
The provisions of Chapter 15 make clear that the Court is to be guided in its decision making by the purpose of Chapter 15, which are set forth in section 1501(a)(1)-(5), which include “protection and maximization of the value of the debtor’s assets.” 11 U.S.C. § 1501(a)(4). Moreover, section 1508 of the Bankruptcy Code directs the Court, “[i]n interpreting this chapter, ... [to] ... consider its international origin, and the need to promote an application of this chapter that is consistent with the application of similar statutes adopted by foreign jurisdictions.” 11 U.S.C. § 1508. According to the court in In re Tri-Cont’l Exch. Ltd., 349 B.R. 627 (Bankr.S.D.Cal.2006), a crucial goal is “uniformity of interpretation.” Id. at 633 (citing § 1508). The court observed that “Congress also focused the attention of United States courts to various international sources when construing chapter 15, which sources Congress described as ‘persuasive.’ ” Id. (citing House Rep. No. 109-31 at 109-10). In particular, according to the court in Tri-Cont’l Exch., “[o]ne of the sources that a United States court is obliged to treat as persuasive is the Guide to Enactment of the UNCITRAL Model Law Insolvency that was promulgated in connection with the approval of the Model Law. Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency, U.N. Gen. Ass., UNCITRAL 30th Sess., U.N. Doc. A/CN.9/442 (1997) (‘Guide ’).” Id.
In implementing the purposes of Chapter 15 and applying the principles set forth in sections 1521 and 1522, this Court, in fashioning relief, as noted above, must consider how best “to protect the assets of the debtor or the interests of creditors” and the “other interested entities, including the debtor.” According to the California bankruptcy court in Cont’l Exch., “[standards that inform the analysis of § 1522 protective measures in connection with discretionary relief emphasize the need to tailor relief and conditions so as to balance the relief granted to the foreign represen*181tative and the interests of those affected by such relief, without unduly favoring one group of creditors over another.” Id. at 37 (citing Guide at ¶¶ 161-63) (emphasis supplied).14 The court in In re Atlas Shipping A/S, 404 B.R. 726 (Bankr.S.D.N.Y.2009), outlined three basic principles governing sufficient protection. It stated:
One court has described “sufficient protection” as embodying three basic principles: “the just treatment of all holders of claims against the bankruptcy estate, the protection of U.S. claimants against prejudice and inconvenience in the processing of claims in the [foreign] proceeding, and the distribution of proceeds of the [foreign] estate substantially in accordance with the order prescribed by U.S. law.” In re Artimm, 335 B.R. at 160 (analyzing under § 304(c) of the old Code, but noting that the analysis would be “essentially the same” under § 1521(b)).
Atlas Shipping, 404 B.R. at 740.
B. Issues
The dispute between the Foreign Representatives, on the one hand, and the Foreign Debtors and the U.S. Companies, on the other hand, involves the narrow issue of whether the relief requested by the Foreign Representatives in their Turnover Motion, full entrustment of the Foreign Debtors’ equity interests for purposes of “administration and realization” and distribution, involves more than merely “stepping-into the shoes” of the Foreign Debtors. In other words, will the allowance of the Turnover Motion precipitate “transfers” triggering defaults under the loan documents and provisions governing the rights of first refusal in the Articles of Organization and Operating Agreements? *182The relief requested also involves the broader issue of whether the Foreign Representatives’ Turnover Motion should be granted to permit them to take financial control of the Foreign Debtors’ equity interests with a view toward holding and selling those interests if the real estate market improves with the concomitant availability of equity in the portfolios.
C. Burdens of Proof
The parties did not submit, and the Court was unable to find, decisions specifically addressing the burdens of proof with respect to turnover motions in the context of Chapter 15 cases. As the movants, the Court concludes that Foreign Representatives have the initial burden of establishing that they are entitled to relief under 11 U.S.C. §§ 1521(a)(5), 1521(b), and 1522(a) and should be entrusted with the administration and realization, of the Foreign Debtors’ equity interests in the U.S. Companies and the distribution of equity interests which comprise part of the Foreign Debtors’ assets in the United States. The Court further concludes that the Foreign Representatives have the initial burden of demonstrating that the interests of the Foreign Debtors and the U.S. Companies are sufficiently protected, but that the ultimate burden of establishing the absence of sufficient protection rests on the objecting parties. The Court’s conclusion is consistent with the burden of proof imposed with respect to turnover motions filed pursuant to 11 U.S.C. § 542. Although section 542 is inapplicable to Chapter 15 cases, see 11 U.S.C. § 103(a), the burden of proof applicable to that section of the Bankruptcy Code is warranted here as it is both consistent with the parties’ Stipulation Regarding Verified Petition, quoted above, and equitable under the circumstances where the U.S. Companies have neither alleged nor established that they are creditors of the Foreign Debtors.
In In re Meyers, 616 F.3d 626 (7th Cir.2010), the United States Court of Appeals for the Seventh Circuit stated:
Under the defunct Bankruptcy Act, we laid out the burdens of persuasion in turnover actions as follows. The trustee must bring the action to claim property for the bankruptcy estate, and she bears the burden of establishing a prima facie case for turnover. Gorenz v. Ill. Dep’t of Agric., 653 F.2d 1179, 1184 (7th Cir. 1981) (citing Maggio v. Zeitz, 333 U.S. 56, 68 S.Ct. 401, 92 L.Ed. 476 (1948)). Once a prima facie case is established, the debtor must provide a reason for going forward with the case, but the ultimate burden of persuasion remains with the trustee at all times. Id. See In re U.S.A. Diversified Products, Inc., 196 B.R. 801, 805 (N.D.Ind.1996) (applying this approach under the Code); In re Schneider, 417 B.R. 907, 919 (Bankr.N.D.Ill.2009) (same). We take this opportunity to place our imprimatur on this approach under the Bankruptcy Code. Asking the trustee to engage in extensive investigations and complicated calculations before filing a turnover order will necessarily result in increased costs to the bankruptcy estate, see 11 U.S.C. § 507(a)(1)(C) — costs that we do not believe are necessary unless and until the debtor provides a reason to go forward. At the same time, our approach gives every debtor the opportunity to challenge the trustee’s proposed assessment of the estate’s interest. The weaker the trustee’s case, the easier it will be for the debtor to upset it.
There is some dispute whether the trustee must establish the estate’s right to the property by a preponderance of the evidence or by the more demanding standard of clear and convincing evidence. Compare In re Quality Health Care, 215 B.R. 543, 549 (Bankr.N.D.Ind. *1831997) (adopting the preponderance-of-evidence standard based on Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991), which applied that standard to dischargeability-exceptions) with Evans v. Robbins, 897 F.2d 966, 968 (8th Cir.1990) (applying the clear-and-convincing-evidence standard). See also Oriel v. Russell, 278 U.S. 358, 49 S.Ct. 173, 73 L.Ed. 419 (1929) (applying the clear-and-convincing standard to a turnover action almost half a century prior to the adoption of the Bankruptcy Code). Although we think that the default preponderance standard that the Supreme Court applied to dischargeability in Grogan is probably the appropriate one also for turnover actions, because we would come to the same conclusion in this case under either evidentiary standard, we need not resolve that issue today.
In re Meyers, 616 F.3d at 629-30. See In re Int'l Banking Corp. B.S.C., 439 B.R. 614, 626 (Bankr.S.D.N.Y.2010) (court recognized that “turnover, like the other remedies provided in § 1521, is discretionary”); In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., 389 B.R. 325, 333 (S.D.N.Y.2008) (In contrast to recognition, which turns on “strict application of objective criteria,” post-recognition relief is “largely discretionary....”). See also Braunstein v. McCabe, 571 F.3d 108 (1st Cir.2009)(noting that turnover is historically equitable in nature).
Applying the standard enunciated by the Seventh Circuit in Meyers, the Court concludes that the Foreign Representatives satisfied their burden of proof by a preponderance of the evidence for multiple reasons, including 1) the purposes of Chapter 15 set forth in 11 U.S.C. § 1501 and the provisions of the Hong Kong Bankruptcy Ordinance, which are similar to, and not inconsistent with, the provisions of the Bankruptcy Code, see Atlas Shipping, 404 B.R. at 740; 2) the testimony of Mr. Lees in which he enunciated reasonable goals and conditions for realizing the value of the Foreign Debtors’ equity interests; 3) the Stipulation Regarding Verified Petitions Seeking Entry of Order Recognizing Foreign Main Proceedings in which the parties agreed that “United States law will govern any action taken by the Foreign Representatives against the U.S. Companies, including ... any attempt by them to liquidate or otherwise realize upon the foreign Debtors’ interests) in the U.S. Companies, or any challenge to the operation or management of the U.S. Companies;” 4) the fiduciary duties imposed upon shareholders of closely held corporations and members of limited liability companies; and 5) the status of the U.S. Companies, which have never identified themselves as creditors of the Foreign Debtors. Because the Foreign Representatives satisfied their burden of proof with respect to the allowance of the Turnover Motion, the U.S. Companies and the Foreign Debtors, to defeat allowance of the Turnover Motion, must establish lack of sufficient protection. In short, the Court finds for the reasons set forth in more detail below, that the Hong Kong Bankruptcy Ordinance provides for the just treatment of holders of claims against the Foreign Debtors’ bankruptcy estate and for distributions of proceeds substantially in accordance with the Bankruptcy Code and that any U.S. claimants will not be prejudiced or inconvenienced because the Chapter 15 proceedings shall remain open. See Atlas Shipping, 404 B.R. at 740. In this regard, the Court further rules that the Foreign Debtors and the U.S. Companies, while raising valid concerns with respect to defaults under the loan documents and transfer restrictions in the Articles of Organization and Operating *184Agreements, failed to establish that their interests would not be sufficiently protected if the Turnover Motion is granted.
D. Provisions of Chapter 15 and the Hong Kong Bankruptcy Ordinance
The Court has highlighted the provisions of section 1501, which should be interpreted “to promote an application ... consistent with the application of similar statutes adopted by foreign jurisdictions.” 11 U.S.C. § 1508. The Hong Kong Bankruptcy Ordinance and the Bankruptcy Code both set forth duties of trustees and debtors, establish priority for distributions to classes of creditors, and provide for the recovery of preferential and fraudulent transfers. Section 60 of the Hong Kong Bankruptcy Ordinance sets forth the powers of the Foreign Representatives, as trustees. It provides:
Subject to the provisions of this Ordinance and to any order of the court, the trustee ... may do ah or any of the following things—
(aa) take into his custody or under his control all the property to which the bankrupt is or appears to be entitled;
(a) sell all or any part of the property of the bankrupt ... by public auction or private contract, with power to transfer the whole thereof to any person or company, or to sell the same in parcels, ...
(d) exercise any powers the capacity to exercise which is vested in the trustee under this Ordinance [sic] and execute any powers of attorney, deeds and other instruments for the purpose of carrying into effect the provisions of this Ordinance;
(e) subject to section 61, do ah such other things as may be necessary for administering the estate and distributing its assets.
(emphasis supplied). Moreover, pursuant to Section 62 of the Bankruptcy Ordinance, the Foreign Representatives, “with the permission of the creditors’ committee, may appoint the bankrupt himself to superintend the management of the property of the bankrupt or of any part thereof ... and in any other respect to aid in administering the property, in such manner and on such terms as the trustee may direct.” That provision may, if utilized by the Foreign Representatives, minimize costs to the estate and avoid potential issues with respect to the provisions in the loan documents requiring Raymond Lee’s ongoing management of ODE and EWE. Coincident to the duties of the Foreign Representatives, the Foreign Debtors pursuant to Section 26(3) of the Bankruptcy Ordinance are required to “aid to the utmost of ... [their] ... power in the realization of ... property and the distribution of the proceeds among ... creditors.” (emphasis supplied). That provision resonates with 11 U.S.C. § 521(a)(3), which requires debtors to cooperate with the trustee “as necessary to enable the trustee to perform the trustee’s duties under this title.” In addition, the Bankruptcy Ordinance, in sections 37 and 38, like the Bankruptcy Code, contains provisions prioritizing payment of classes of claims.
E. The Testimony of the Foreign Representative
Based upon those provisions of the Bankruptcy Ordinance, the Court finds credible the testimony of Mr. Lees that he is motivated by his duty to exercise control over the Foreign Debtors’ equity interests, a duty which is similar to the duties of a trustee under the provisions of the Bankruptcy Code set forth in 11 U.S.C. §§ 521 and 704. Mr. Lees testified that the Foreign Representatives are experienced insolvency professionals who would engage the appropriate agents to facilitate en-trustment of the Foreign Debtors’ equity *185interests. In addition, Mr. Lees indicated that he did not intend to precipitously liquidate the Foreign Debtors’ equity interests, and he repeatedly stated that he was bound by the transfer restrictions in the Articles of Organization and Operating Agreements.
In summary, Hong Kong law is consistent with United States law and the Foreign Representatives’ rights will be no greater than the rights that the Foreign Debtors could have exercised. Mr. Lees testified that, if entrusted with the Foreign Debtors’ equity interests, the Foreign Representatives will abide by the transfer restrictions in the operative articles and agreements, thereby ensuring that the rights of the U.S. Companies and their equity owners will be protected. Aware of the loan modification affecting the property owned by Oasis Ten Milk Street LLC which will expire in November of 2012 and the maturation of Eastern Bank loan affecting the properties in the EWE portfolio, the Foreign Representatives are entitled to “seats at the table.” Their duties to the Hong Kong creditors, which are analogous to the duties of a Chapter 7 trustee, compel the Foreign Representatives to be more than passive recipients of distributions from U.S. Companies, a scheme altered by the Stipulation Resolving Stipend Motion and Partially Resolving Turnover Motion, and after-the-fact information about loan modifications or other workouts.
F. The Stipulation Regarding Verified Petitions and Fiduciary Duties
The parties stipulated to the applicability of the laws of the United States to their disputes. Accordingly, the interests of the U.S. Companies are sufficiently protected because any attempt by the Foreign Representative “to liquidate or otherwise realize upon the Foreign Debtors’ interest(s) in the U.S. Companies, or any challenge, to the operation or management of the U.S. Companies” will be governed by United States law. Indeed, in their Turnover Motion, the Foreign Representatives reference 11 U.S.C. § 363.
ODE, EWE and ODE, Asia, LLC are Massachusetts corporations and a Massachusetts limited liability company, respectively. With respect to closely held corporations,15 such as ODE and EWE, stockholders owe one another fiduciary duties.
Because of the fundamental resemblance of the close corporation to the partnership, the trust and confidence which are essential to this scale and manner of enterprise, and the inherent danger to minority interests in the close corporation, we hold that stockholders in the close corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another. In our previous decisions, we have defined the standard of duty owed by partners to one another as the ‘utmost good faith and loyalty. ’ Cardullo v. Landau, 329 Mass. 5, 8, 105 N.E.2d 843 (1952); DeCotis v. D’Antona, 350 Mass. 165, 168, 214 N.E.2d 21 (1966). Stockholders in close corporations must discharge their management and stockholder responsibilities in conformity with this strict good faith standard. They may not act out of ava*186rice, expediency or self-interest in derogation of their duty of loyalty to the other stockholders and to the corporation.
Donahue v. Rodd Electrotype Co. of N.E., 367 Mass. 578, 592-93, 328 N.E.2d 505 (1975) (footnote omitted, emphasis supplied). See also A.W. Chesterton Co., Inc. v. Chesterton, 128 F.3d 1, 5-6 (1st Cir.1997); In re Access Cardiosystems, Inc., 404 B.R. 593, 677 (Bankr.D.Mass.2009). Similarly, members of limited liability companies cannot act with impunity toward fellow members. See One to One Interactive, LLC v. Landrith, 76 Mass.App.Ct. 142, 920 N.E.2d 303, review denied, 456 Mass. 1105, 925 N.E.2d 547 (2010). See generally J. William Callison and Maureen A. Sullivan, Limited Liability Companies: A State-by-State Guide to Law and Practice, § 8.7 (2011). Because the Foreign Representatives are “stepping into the shoes” of the Foreign Debtors, whatever actions they take in the performance of their duties must comport with the fiduciary duties imposed by Massachusetts law. Thus, in the event that the Foreign Representatives in any way ignore the rights of first refusal or other duties owed to the Foreign Debtors or the U.S. Companies, this Court, as the repository of “United States laws,” is available to address any disputes that may arise among the parties.
G. Alleged Absence of Sufficient Protection
In response to the Turnover Motion, the Foreign Debtors and the U.S. Companies emphasize the default provisions in the loan documents, highlighting Raymond Lee’s exposure as a “carve-out” guarantor (meaning that upon the occurrence of certain conditions specified in the loan documents he will become personally liable for the outstanding loan amounts) for approximately $217 million in loans, and the transfer restrictions in the Articles of Organization and Operating Agreements. The Court recognizes that the lenders could have issued notices of default in response to the Hong Kong proceedings; they did not do so. In addition, they have not sought to enforce any guaranties executed by Raymond Lee either with respect to the 50 Dunham Road, Beverly, Massachusetts property or the Ten Milk Street, Boston, Massachusetts property.
The Foreign Debtors and the U.S. Companies failed to introduce any evidence that the lenders have taken any actions, or are likely to take any actions, in the Chapter 15 cases to enforce the default provisions or the guaranties executed by Raymond Lee. Indeed, none of the lenders, including Wells Fargo, Merrill Lynch, Column Financial, Eastern Bank, or CMBS trust, the assignee of Wells Fargo and Merrill Lynch, have filed notices of appearance in the case. In view of the existing defaults arising from the commencement of the Hong Kong proceedings and the existing default resulting from the nonpayment of the Eastern Bank loan at maturity, and arguably the modification of the Oasis Ten Milk Street loan, the Court is not persuaded that the potential for default declarations is sufficient to establish the absence of sufficient protection for the interests of the Foreign Debtors and the U.S. Companies, particularly where under both the Hong Kong Bankruptcy Ordinance and the Bankruptcy Code the interests of the U.S. Companies, as non-creditors, must be subordinated to the interests of the Hong Kong creditors.
With respect to the transfer restrictions, the Foreign Representatives have indicated through Mr. Lees’s testimony that they are bound by those restrictions as a result of Section 43(5) of the Hong Kong Bankruptcy Ordinance, although they maintain that vesting alone is insufficient to trigger the rights of first purchase, a contention *187vigorously challenged by the Foreign Debtors and the U.S. Companies and the salient issue in the case. Among the transfer restrictions, none is more problematic than that in the Articles of Organization for ODE. Article V, Paragraph 4.(a)(iv), which is not a model of clarity, provides that a transfer event, triggering a first right of purchase includes a circumstance where the stockholder “is subject to a judgment, court order or decree or by operation of law is otherwise required to transfer Stock to other than an Authorized Transferee.” Because the Articles of Organization for EWE lack language similar to that set forth in Article V, Paragraph 4.(a)(iv), the Court concludes that the vesting of the shares or membership interests in the Foreign Representatives is not a transfer that would trigger the rights of first purchase set forth in those documents, although, the Court notes that the Operating Agreement for ODE Asia, LLC may limit the Foreign Representatives’ to receipt of “allocations and distributions.”
Pursuant to Article V, Paragraph 4.(b) of ODE’s Articles of Organization,
... A stockholder shall, within 10 days of the occurrence of a Transfer Event specified in clauses (ii) through (iv) of subparagraph (a) give written notice thereof to the corporation. If the corporation declines or fails to exercise timely its first right of purchase as provided in paragraph 5, then the legal representative, beneficiary, trustee, assignee, receiver or other transferee who obtained the Stock by reason of the Transfer Event may retain the Stock, subject to the provisions of this Article V.
(emphasis supplied). Pursuant to Article V, Paragraph 5,
Upon receipt of written notice of intent to make a voluntary transfer under paragraph 3 or upon the occurrence of a Transfer Event specified in paragraph 4, the corporation shall have a right to purchase any or all of the shares of Stock to which such notice or Transfer Event relates at the price specified therein before any other action is taken to sell, assign, transfer, pledge, or otherwise dispose of the Stock. Such right shall continue for a period of 90 days from ... the receipt of written notice of a Transfer Event, and in any event shall continue for 15 days from the date of receipt by the corporation or [sic] an appraisal made pursuant to paragraph 7(a). If the corporation elects to exercise such first right of purchase, it shall so notify the holder of such shares of Stock, specifying the number of shares, manner of payment and time and place for tender of certificates representing such shares of Stock.
(emphasis supplied). The Court has no evidence that the Foreign Debtors, as stockholders of ODE, complied with Paragraph 4.(b) by sending written notice to ODE that they were adjudged bankrupts under the Hong Kong Bankruptcy Ordinance, although the Court takes judicial notice of a certificate of service filed by the Foreign Representatives pursuant to which ODE was served on December 9, 2009 with notice of the Chapter 15 petitions and other documents. Because Raymond Lee was and is both President and Chief Executive Officer of ODE, written notice that the Foreign Representatives acceded to the equity interests of the Foreign Debtors pursuant to Section 58(3) of the Hong Kong Bankruptcy Ordinance by the Foreign Debtors to ODE would elevate form over substance and serve no practical purpose. Moreover, the absence of a “price specified therein,” with respect to a purported transfer event “by operation of law,” resulting from the vesting of the Foreign Debtors’ equity interests in the Foreign Representatives, makes applica*188tion of the first right of purchase specified in Paragraph 5 difficult at best and meaningless at worst.
In summary, with respect to a transfer event specified in Article V, Paragraph 4.(a)(iv), two circumstances are immediately obvious from that provision: 1) the U.S. Companies, and ODE in particular, have been aware of the appointment of Mr. Lees and Mat Ng as provisional trustees since August of 2009 when the Foreign Debtors were adjudged bankrupts by the Hong Kong court (or at the latest in December of 2009 when the U.S. Companies were served with notices of the Chapter 15 cases) and that pursuant to Section 58(3) of the Hong Kong Bankruptcy Ordinance, the Foreign Representatives were vested with ownership of the equity interests on their appointment; and 2) ODE did not exercise any rights to purchase arising from that event pursuant to Article V, Paragraph 5.
Even if the Court were to assume that ODE and the U.S. Companies were unaware of that provision of the Hong Kong Ordinance in August of 2009, pursuant to Paragraph 4.(b), 90-days have passed since the Foreign Representatives filed the Turnover Motion. Accordingly, the Court finds that, at least with respect to ODE, the U.S. Companies, waived reliance upon a written notice of a transfer event from the Foreign Debtors to ODE and, more importantly, “vesting” as a Transfer Event. Accordingly, ODE, despite its present opposition, waived the right of first purchase arising from the Foreign Representatives “stepping into the shoes” of the Foreign Debtors with respect to their equity interests pursuant to Article V, Paragraph 5.
Alternatively, the Court concludes that Paragraph 6 of Article V of ODE’s Articles of Organization, pertaining to “Transfers in Violation of Article,” which was not referenced by any of the parties, provides additional protection to the U.S. Companies. It provides in relevant part the following:
If any transfer of shares of Stock is made or attempted contrary to the provisions of this Article V, or if shares of Stock are not offered to the corporation as required herein, the corporation shall have the right to purchase said shares from the owner thereof or his transferee at any time before or after the transfer, as herein provided. In the event that the corporation elects to exercise its first right of purchase, it may do so by canceling the certificate(s) representing the Stock and depositing the purchase price, as determined pursuant to paragraph 7 hereof, in a bank account for the benefit of a stockholder. In addition to any other legal or equitable remedies which it may have, the corporation may enforce its rights by actions for specific performance (to the extent permitted by law) and may refuse to recognize any transferee as one of its stockholders for any purpose, including without limitation dividend and voting rights, until there has been compliance with all applicable provisions of this Article V.
Thus, Paragraph 6 provides further protection to the U.S. Companies, which, in any event, failed to introduce any evidence that they have either the willingness or ability to tender the purchase price for the Foreign Debtors’ shares of ODE which, pursuant to Article V, Paragraph 7.(a) is stated to be “the book value per share” as determined by an independent accountant then representing the corporation or a certified public accountant appointed by the board of directors.
Similarly, the Amended and Restated Operating Agreement for ODE, Asia, LLC, which the parties agreed is typical of all the limited liability companies, provides *189at paragraph 6(c) that no member “may-sell ... or otherwise transfer, including without limitation, any assignment or transfer by operation of law or by order of court ..., such Member’s interest in the LLC or any part thereof, or in all or any part of the assets of the LLC, without the written consent of the Manager, and any purported transfer without such consent (a ‘Prohibited Transfer’) shall be null and void and to no effect whatsoever.” The Operating Agreement further provides that if the LLC is required to recognize a Prohibited Transfer, “the interest so transferred shall be strictly limited to the trans-feror’s rights to allocations and distributions as provided by this Agreement with respect to the transferred interest (and the transferee shall not thereby become a Member of the LLC).... ” Although the Court does not consider vesting under Section 58(3) of the Hong Kong Bankruptcy Ordinance to be a transfer, even if the Court were to conclude otherwise, the Foreign Representatives are entitled to allocations and distributions as provided in the agreements.
In view of the provisions discussed above, the Court finds that the Foreign Debtors and the U.S. Companies, while making cogent and sincere arguments, ultimately failed in their burden of proof. The Court concludes that neither the default provisions in the loan documents nor the transfer restrictions in the Articles of Organization or Operating Agreements are impediments to the allowance of the Turnover Motion. Not only do the Articles of Organization of ODE and EWE provide sufficient protection to ODE, the provisions of the Bankruptcy Ordinance also provide sufficient protection — indeed more protection than what would be available under the Bankruptcy Code.
V. CONCLUSION
The valuations of the properties in the Oasis Group portfolio and the EWE portfolio in relation to the mortgage debt present novel practical and legal problems for the Foreign Representatives, the U.S. Companies, and the Foreign Debtors. The properties in the portfolios have the potential to continue generating distributions while increasing in value, such that the Foreign Representatives may wish to solicit offers for the Foreign Debtors’ equity interests, at which time they will be bound by the transfer restrictions in the Articles of Organization or Operating Agreements and all parties will be bound by the fiduciary duties imposed by Massachusetts law. The Court concludes that the Foreign Representatives are duty-bound to maximize the value of the equity interests of the Foreign Debtors and that their interests are neither inconsistent with the Bankruptcy Code nor the interests of the U.S. Companies. Similarly, the Court does not view the position of the Foreign Representatives as adverse to the lenders whose views have not been articulated in this contested matter. In view of the Stipulations of the parties, and the evidence presented, the Court shall enter an order granting the Turnover Motion.
. Exhibits 36, 37 and 38 submitted by the Foreign Representatives are identical to ex*160hibits attached to the Affidavit of Ivan S. Chow, the Managing Director of OCI and ODE. They graphically illustrate the organization of the U.S. Companies and the Foreign Debtors’ equity ownership interests in the U.S. Companies. Mr. Chow's exhibits were produced in conjunction with the Foreign Debtors' Motion for Summary Judgment through which they sought denial of recognition of the Hong Kong proceedings as foreign main proceedings.
. The parties filed "Stipulated Facts” in conjunction with the Foreign Debtors' Motion of Summary Judgment. The Court has paraphrased information from those stipulated facts for purposes of elucidating information in the trial exhibits. There is no dispute as to those facts.
. As noted above, the Oasis Northwoods LLC property located at 222 Rosewood Drive, Danvers, Massachusetts is in receivership. Ms. Adams indicated that the property located at 50 Dunham Road, Beverly, Massachusetts owned by Fifty Dunham Road LLC was sold. She did not explain why the Belkins/Tolman property in Lynn, Massachusetts, owned by Goldblock Associates LLC, and the 600 Long-water Drive, Norwell, Massachusetts proper*162ty, owned by Oasis Longwater LLC, were not appraised. The Debtors have equity interests of 56.36% and 38.85% in those limited liability companies, respectively.
. With respect to the financing, Ms. Adams specifically stated:
The existing $58 million loan was closed in April 2007 with a ten year term and interest only payments. The lender, Merrill Lynch, included the loan in a securitized pool. In the spring of 2010, because there was insufficient income to cover operating expenses, debt service, and leasing expenses, the borrower requested that the loan be transferred to a Special Servicer in order to negotiate a modification of payment terms. The borrower paid the shortfall in debt service that totaled more than $1.3 million to keep the loan current while negations [sic] proceeded. The Special Servicer agreed to reduce the interest rate from 6.125% to 3% as of November 2010 for a two year period with all excess cash flow after debt paid into the Leasing Reserve Account. The modification expires in October 2012. A significant amount of space will need to be leased during 2012 to generate sufficient income to cover debt at the contract rate. With the competition continuing to offer above market tenant improvements and leasing commissions, there may be insufficient funds available to cover leasing costs.
(emphasis supplied).
. The loan documents were submitted into evidence as Exhibit 2 by the U.S. Companies. The Court shall refer to additional pertinent provisions in its discussion.
. The Foreign Debtors are in default under the loan documents. Among the automatic defaults at Article 7.1 .b.(ii) is the failure "to effect a full dismissal of any involuntary bankruptcy petition under the Bankruptcy Code or other Debtor Relief Law,” such as the Hong Kong bankruptcy proceedings, that "in any way restrains or limits Borrower or Mortgagor regarding the Loan or the Property, prior to the earlier of the entry of an order granting relief sought in the involuntary petition or ninety (90) days after the date of the filing of the petition.” A similar provision in Article 7.b.(iii) applies to guarantors, such as Raymond Lee, who executed a Limited Guaranty of the Wells Fargo loan on November 14, 2005.
. The Court may take judicial notice of the documents in the debtor's file and those in the Court’s own records. In re Hyde, 334 B.R. 506, 508 n. 2 (Bankr.D.Mass.2005). See also In re Dessources, 430 B.R. 330, 331 n. 5 (Bankr.D.Mass.2010).
. Ms. Garzon’s testimony referenced specific provisions of the Articles of Organization for ODE and EWE, and she also testified about a representative Operating Agreement for ODE Asia LLC. Although the Court has included the provisions she testified about here, the Articles and Operating Agreement themselves were submitted into evidence as part of Exhibit 2 submitted by the U.S. Companies. The Court shall discuss other relevant provisions later in this decision.
. Under Section 30A(3) and (4)(a) of the Hong Kong Bankruptcy Ordinance, the court may order the four-year period extended if "the bankrupt is likely within 5 years of the commencement of the bankruptcy to be able to make a significant contribution to the estate.” Additionally, under Section 30A(8) and (9), after the granting of a discharge, the bankrupt may be required to cooperate with the trustee, and the court may condition the discharge upon entry of an order requiring the bankrupt "to continue to make contributions to his estate in such amount and for such period as it considers appropriate but not exceeding a period of 8 years from the date the bankruptcy order was made.”
. See Tart v. Commonwealth of Mass., 949 F.2d 490, 500 (1st Cir.1991) (Federal preemption applies where "the federal statute and a state statute are in direct conflict ... because enforcement of the state statute would frustrate the congressional purpose underlying the federal statute.”) (citing Pacific Gas & Electric Co. v. State Energy Resources Conservation & Dev. Comm’n, 461 U.S. 190, 204, 103 S.Ct. 1713, 75 L.Ed.2d 752 (1983)); see also Patriot Portfolio, LLC v. Weinstein, 164 F.3d 677, 682-83 (1st Cir.1999) ("[spates may not pass or enforce laws to interfere with or complement the Bankruptcy Act or to provide *175additional or auxiliary regulations.”)(quoting Int'l Shoe Co. v. Pinkus, 278 U.S. 261, 265, 49 S.Ct. 108, 73 L.Ed. 318 (1929)).
. Because the forbearance agreement with the lender requires EWE to sell properties, the Foreign Representatives maintain that they have a duty under Hong Kong law to ensure the value of the assets and distributions. Accordingly, they argue they should be involved in the sale process and "have a say in the distribution of sale proceeds to the same extent as every other equity holder in EWE.”
. Section 541(c) provides:
(c)(1) Except as provided in paragraph (2) of this subsection, an interest of the debtor in property becomes property of the estate under subsection (a)(1), (a)(2), or (a)(5) of this section notwithstanding any provision in an agreement, transfer instrument, or applicable nonbankruptcy law—
(A) that restricts or conditions transfer of such interest by the debtor; or
(B) that is conditioned on the insolvency or financial condition of the debtor, on the commencement of a case under this title, or on the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement, and that effects or gives an option to effect a forfeiture, modification, or termination of the debtor’s interest in property.
(2)A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankrupt-cy law is enforceable in a case under this title.
11 U.S.C. § 541(c) (emphasis supplied).
. Section 1501(a) provides:
(a) The purpose of this chapter is to incorporate the Model Law on Cross-Border Insolvency so as to provide effective mechanisms for dealing with cases of cross-border insolvency with the objectives of—
(1) cooperation between—
(A) courts of the United States, United States trustees, trustees, examiners, debtors, and debtors in possession; and
(B) the courts and other competent authorities of foreign countries involved in cross-border insolvency cases;
(2) greater legal certainty for trade and investment;
(3) fair and efficient administration of cross-border insolvencies that protects the interests of all creditors, and other interested entities, including the debtor;
(4) protection and maximization of the value of the debtor’s assets; and
(5) facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment.
11 U.S.C. § 1501(a).
. The California bankruptcy court observed that section 1522 was based on article 22 of the Model Law and that bankruptcy courts are given " ‘broad latitude to mold relief to meet specific circumstances.' ” Id. at 637 (citing H.R.Rep. No. 109-31, at 116, U.S.Code Cong. & Admin.News 2005, pp. 88, 178). In a footnote, the court explained that the broad latitude standard under section 1522 allows the bankruptcy court "to mold relief to meet specific circumstances, including appropriate responses if it is shown that the foreign proceeding is seriously and unjustifiably injuring United States creditors.” Id. at 637 n. 13. The court also cited the Guide which provides:
161. The idea underlying article 22 is that there should be a balance between relief that may be granted to the foreign representative and the interests of the persons that may be affected by such relief. This balance is essential to achieve the objectives of cross-border insolvency legislation.
162. The reference to the interests of creditors, the debtor and other interested parties in article 22, paragraph 1, provides useful elements to guide the court in exercising its powers under article 19 or 21. In order to allow the court to tailor the relief better, the court is clearly authorized to subject the relief to conditions (paragraph 2) and to modify or terminate the relief granted (paragraph 3). An additional feature of paragraph 3 is that it expressly gives standing to the parties who may be affected by the consequences of articles 19 and 21 to petition the court to modify and terminate those consequences. Apart from that, article 22 is intended to operate in the context of the procedural system of the enacting State.
163.In many cases the affected creditors will be "local” creditors. Nevertheless, in enacting article 22, it is not advisable to attempt to limit it to local creditors. Any express reference to local creditors in paragraph 1 would require a definition of those creditors. An attempt to draft such a definition (and to establish criteria according to which a particular category of creditors might receive special treatment) would not only show the difficulty of crafting such a definition but would also reveal that there is no justification for discriminating creditors on the basis of criteria such as place of business or nationality.
Guide, ¶¶ 161-63 (emphasis supplied).
In re Tri-Cont’l Exchange Ltd., 349 B.R. at 637 n. 14.
. The U.S. Companies referred to the corporations as being closely held. Closely held corporations are characterized by a small number of stockholders, no ready market for corporate stock, and substantial majority stockholder participation in the management, direction and operations of the corporation. See Pointer v. Castellani, 455 Mass. 537, 549, 918 N.E.2d 805 (2009) (citing, inter alia, Brodie v. Jordan, 447 Mass. 866, 868-69, 857 N.E.2d 1076 (2006)). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494721/ | MEMORANDUM DECISION AND ORDER OVERRULING OBJECTION TO GECC CLAIM
STUART M. BERNSTEIN, Bankruptcy Judge.
Prior to the petition date, General Electric Capital Corporation (“GECC”), the debtor’s mortgagee, obtained a Consensual Judgment of Foreclosure and Sale (“Judgment”) that, inter alia, entered judgment *193in favor of GECC against the debtor in the amount of $74,007,710.71. After this chapter 11 case was filed, GECC filed a proof of secured claim in the amount of the Judgment, and the debtor filed an Objection to Various Aspects of the Secured Claim of General Electric Capital Corporation, dated Apr. 3, 2012 {“Objection") (ECF Doc. # 218).
The Objection makes two arguments. First, the portion of the Judgment that includes a prepayment premium in the amount of $3.1 million should be disallowed. Second, the Court should fix the post-petition, pendency interest rate under § 506(b) of the Bankruptcy Code in the amount of the federal judgment rate, which is currently less than 0.2%, rather than the 9% rate provided for under New York’s Civil Practice Law & Rules (“CPLR”) § 5004. For the reasons that follow, the objection is overruled.
BACKGROUND
The debtor owned real property located at 410 East 92nd Street in Manhattan which it operated as a hotel (the “Hotel”). In May 2008, the debtor borrowed $62 million from GECC, and secured its obligation by granting GECC a mortgage on the Hotel. Absent acceleration, prepayment or extension, the loan was due and payable on May 31, 2013. (Consolidated, Amended and Restated Promissory Note, dated May 12, 2008 (the “Note”).)1 The debtor was required to pay interest only for the first two years, and beginning on June 1, 2010, make monthly principal amortization payments based upon a 30 year amortization schedule. (Loan Agreement at § 2.3.)2
The debtor had the right to prepay the loan but only after the 36th loan month (the “Lockout Period”). (Id. at § 2.3(4).) The Loan Agreement imposed a prepayment premium that, according to the debt- or, was “designed to take into account both lost interest, and the loss [sic ] opportunity cost from the lender having tied up its money in this loan instead of investing it elsewhere.” (Debtor’s Reply to GECC’s Response and Opposition to the Pending Objection to Various Aspects of GECC’s Secured Claim, dated May 15, 2012 (“Reply ’’), at 8 (ECF Doc. # 277).) The prepayment premium was equal to the 'greater of 1% of the outstanding balance of the loan or the Make Whole Breakage Amount calculated as provided in Schedule 2.3(4) to the Loan Agreement. (Loan Agreement at § 2.3(4).) The Make Whole Breakage Amount involved a complicated formula based, among other things, on the U.S. Dollar Composite Swap Rate and the Weighted Average Life of the Loan, and was intended to estimate the present value of the future interest payments that would be eliminated by virtue of the prepayment. (See Loan Agreement, Schedule 2.3(4).)
A different rule, and the one applicable in this case, applied “[i]f the Loan is accelerated during the Lockout Period for any reason other than casualty or condemnation.” (Loan Agreement § 2.3(4).) In that event, the Loan Agreement imposed a prepayment premium equal to 5% of the outstanding balance of the loan. (Id.) It is undisputed that the debtor defaulted and GECC accelerated the loan during the Lockout Period.
Finally, the loan bore interest at the annual rate of 6.94%, plus an additional 5% as liquidated damages in the event that the debtor failed to pay any installment of interest or principal within five days of the due date. (Id. at § 2.2.)
*194Following the debtor’s default, GECC commenced a foreclosure action in New York supreme court (“State Court Action”), and ultimately obtained entry of the Judgment on May 26, 2011. As noted, the Judgment was consensual, and included the award of the 5% prepayment premium as one of its components. GECC thereafter noticed a foreclosure sale, but the sale was automatically stayed when the debtor filed this chapter 11 case.
GECC filed a proof of claim in the amount of the Judgment, and the debtor filed the Objection contending that the prepayment premium should be disallowed and the post-petition interest rate should be fixed at the federal judgment rate. In the meantime, the debtor sold the Hotel under a confirmed plan. GECC’s lien attached to the proceeds of the sale, and its claim is oversecured.
DISCUSSION
A. The Prepayment Premium
The debtor’s objection to the allowance of the prepayment premium, which is included as a component of the Judgment, is barred under the doctrine of res judicata. The Judgment is entitled to full faith and credit, 28 U.S.C. § 1738,3 and the Judgment has the same preclusive effect in this Court as it would have in state court. See Burka v. New York City Transit Autk, 32 F.3d 654; 657 (2d Cir.1994). Under New York law, a consent judgment has the same res judicata effect as a judgment on the merits. Levy v. United States, 776 F.Supp. 831, 835 (S.D.N.Y.1991); Silverman v. Leucadia, Inc., 156 A.D.2d 442, 548 N.Y.S.2d 720, 721 (N.Y.App.Div.1989); see Canfield v. Elmer E. Harris & Co., 252 N.Y. 502, 170 N.E. 121, 122 (1930). Res judicata bars successive litigation upon the same transaction or series of transactions if (1) there is a judgment on the merits rendered by a court of competent jurisdiction and (2) the party against whom res judicata is invoked was a party to the earlier action, People v. Applied Card Sys., Inc., 11 N.Y.3d 105, 863 N.Y.S.2d 615, 894 N.E.2d 1, 12 (2008), and this mandate applies to bankruptcy courts. Kelleran v. Andrijevic, 825 F.2d 692, 694 (2d Cir.1987), cert. denied, 484 U.S. 1007, 108 S.Ct. 701, 98 L.Ed.2d 652 (1988). Here, the New York supreme court had jurisdiction to render the Judgment, the Judgment included the 5% prepayment premium as part of the damage award and the debtor was a party to the State Court Action and expressly consented to the Judgment.
The Objection acknowledges the preclusive effect of the Judgment but contends that res judicata does not automatically foreclose the debtor from challenging the allowability of the claim under the Bankruptcy Code. The statement is overly broad and ultimately wrong in this ease. A bankruptcy court may not look behind a *195state court judgment to decide claims or issues resolved in the prior action unless the judgment was procured by fraud or collusion, or the state court lacked jurisdiction. See id. None of these exceptions apply.
It is true that a bankruptcy court may also “look behind” a valid state court judgment to determine a bankruptcy issue that was never considered or decided in the earlier action. In those situations, however, res judicata and collateral estop-pel still apply. For example, the bankruptcy court can determine whether a judgment based on fraud is dischargeable under 11 U.S.C. § 523(a)(2), but must apply the law of collateral estoppel in resolving the § 523 issues. Grogan v. Garner, 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Similarly, the bankruptcy court can look behind a state court judgment to determine whether the judgment creditor’s allowable claim is capped under § 502(b)(6) of the Bankruptcy Code, but the components of the judgment cannot be re-litigated. In re Tittle, 346 B.R. 684, 689-90 (Bankr.E.D.Va.2006).
Here, the debtor is not attempting to raise a “bankruptcy issue,” but instead, argues that the prepayment premium is unenforceable under non-bankruptcy law. {See Objection at ¶¶ 36-38.) That argument should have been raised before the New York supreme court. Instead, the debtor consented to the inclusion of the prepayment premium as part of the Judgment, and the Judgment precludes the debtor from re-litigating that issue before this Court. See Abir v. Malky, Inc. (In re Abir), No. 09 CV 2871(SJF), 2010 WL 1169929, at *6 (E.D.N.Y. Mar. 22, 2010) (“Since the issue of what Malky was entitled to recover under the judgment of foreclosure and sale was actually and necessarily decided by the state court and the parties clearly had a full and fair opportunity to litigate that issue in the state court, and since there is no allegation that the final judgment of the state court is a product of fraud or collusion, or that the state court lacked jurisdiction, the doctrine of collateral estoppel bars appellants from re-litigating their offset claim, and the amount of Malky’s claim, in the bankruptcy court.”).
[7] Even if res judicata does not bar the debtor’s challenge to the allowance of the prepayment premium, the merits do. Prepayment premiums are generally enforceable under the New York common law “rule of perfect tender in time.” This rule prohibits the prepayment of the loan under the rationale that the lender has the absolute right to receive the bargained for income stream over the life of the loan. U.S. Bank Nat’l Ass’n v. South Side House, LLC, No. 11 CV 4135(ARR), 2012 WL 273119, at *4 (E.D.N.Y. Jan.30, 2012); In Solutia, Inc., 379 B.R. 473, 487-88 (Bankr.S.D.N.Y.2007); Northwestern Mut. Life Ins. Co. v. Uniondale Realty Assocs., 11 Misc.3d 980, 816 N.Y.S.2d 831, 835 (N.Y.Sup.Ct.2006). The prepayment premium is viewed as the price of the option exercisable by the borrower to prepay the loan and cut off the lender’s income stream, Northwestern Mut. Life Ins. Co., 816 N.Y.S.2d at 835, and insures the lender against loss of the bargain if interest rates decline. In re LHD Realty Corp., 726 F.2d 327, 330 (7th Cir.1984).
The lender that accelerates the loan following a default generally forfeits the right to a prepayment premium because the acceleration advances the maturity date, and by definition, the loan cannot be prepaid. LHD Realty Corp., 726 F.2d at 330-31. Where, however, a clear and unambiguous clause requires the payment of the prepayment premium even after default and acceleration, the clause will be *196analyzed as a liquidated damages clause. South Side, 2012 WL 273119, at *5; Northwestern Mut. Life Ins. Co., 816 N.Y.S.2d at 836.
Section 2.3(4) of the Loan Agreement provides that “[i]f the Loan is accelerated during the Lockout Period for any reason other than casualty or condemnation, Borrower shall pay, in addition to all other amounts outstanding under the Loan documents, a prepayment premium equal to five percent (5%) of the outstanding balance of the Loan.” Although the debtor asserts that the clause is not sufficiently clear to permit a post-acceleration prepayment premium, § 2.3(4) is unambiguous. The debtor does not insist that its loan was accelerated due to casualty or condemnation, and in all other circumstances, the Loan Agreement requires the debtor to pay the 5% prepayment premium. Accordingly, the 5% prepayment premium is recoverable unless it is an unenforceable penalty rather than an enforceable liquidated damages clause.
Whether a clause which prescribes liquidated damages is in fact an unenforceable penalty is a question of state law. In re United Merchants & Mfrs., Inc., 674 F.2d 134, 141 (2d Cir.1982); Hassett v. Revlon, Inc. (In re O.P.M. Leasing Servs., Inc.), 23 B.R. 104, 111 (Bankr.S.D.N.Y.1982). A liquidated damages clause is valid under New York law if: (1) actual damages are difficult to determine, and (2) the sum is not “plainly disproportionate” to the possible loss. United Merchants, 674 F.2d at 142 (quoting Walter E. Heller Co. v. Am. Flyers Airline Corp., 459 F.2d 896, 899 (2d Cir.1972)); Leasing Serv. Corp. v. Justice, 673 F.2d 70, 73 (2d Cir.1982). The enforceability of a liquidated damages provision must be decided based on the circumstances existing at the time the parties entered into their agreement. Walter E. Heller, 459 F.2d at 898-99.
The party seeking to avoid the liquidated damages clause bears the burden of proving that it is a penalty, and must demonstrate either that the damages flowing from prepayment were readily ascertainable at the time the parties entered into the lending agreement or the prepayment premium is “conspicuously disproportionate” to the lender’s foreseeable losses. JMD Holding Corp. v. Congress Fin. Corp., 4 N.Y.3d 373, 795 N.Y.S.2d 502, 828 N.E.2d 604, 609 (2005). This burden must be considered in light of the admonition that the historical distinction between liquidated damages and penalties has become increasingly difficult to justify, and courts should not interfere with the parties’ agreement regarding liquidated damages “absent some persuasive justification.” GFI Brokers, LLC v. Santana, No. 06 Civ. 3988(GEL), 2009 WL 2482130, at *2 (S.D.N.Y. Aug.13, 2009) (Lynch, J.) (internal citation and quotation marks omitted); JMD Holding Corp., 795 N.Y.S.2d 502, 828 N.E.2d at 609-10.
Although the Objection characterized the prepayment premium as a penalty, it did not contend that GECC’s damages were readily ascertainable or that the premium was conspicuously disproportionate to GECC’s foreseeable losses at the time the parties entered into the Loan Agreement. In response, however, to GECC’s characterization of the prepayment premium as a “reasonable liquidated damages clause,” (see General Electric Capital Corporation’s Response to the Debtor’s Objections to Various Aspects of the Secured Claim of General Electric Capital Corporation, dated Apr. 26, 2012, at 11 (ECF Doe. # 249)), the debtor took the position that although the prepayment premium triggered after the Lockout Period was based on a complicated formula, *197the prepayment premium during the Lockout Period was a straight 5% with no effort to estimate the actual damages. {Reply at 8.) The debtor concluded, without more, that “the prepayment is definition [sic] out of proportion to damages actually incurred by GECC and cannot be enforced.” Id.
The debtor has failed to offer any proof that at the time that the parties entered into the Loan Agreement, GECC’s damages resulting from a default during the Lockout Period were readily ascertainable. The prepayment premium was designed to compensate GECC for the lost stream of interest payments. GECC’s damages would depend on future changes in interest rates, which were not readily ascertainable at the inception of the Loan Agreement. In addition, had the debtor actually prepaid the loan, GECC would at least have had the principal to invest elsewhere. However, the debtor did not pay the loan, and GECC lost the use of its money as well as its income stream. The parties may well have contemplated that a quick default would be followed by a costly delay in payment, and factored that into the premium.
The debtor has also failed to show that the 5% prepayment premium was “conspicuously disproportionate” to GECC’s foreseeable damages in the event of a default and acceleration during the Lockout Period. The debtor’s conclusory statement that the prepayment premium is disproportionate to the actual damages suffered misses the point; the test is the foreseeable damages at the time of contracting and not the actual damages at the time of the breach. In any event, the debtor failed to show that the 5% prepayment premium is disproportionately greater than the premium under the Make Whole formula because it never computed the latter number. Under the circumstances, there is no persuasive justification for disturbing the bargain struck by the parties.
B. The Appropriate Interest Rate
GECC is oversecured, and its right to post-petition, pendency interest is governed by 11 U.S.C. § 506(b), which states:
To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose.
Although § 506(b) entitles GECC to post-petition interest, it does not establish the appropriate rate. In re General Growth Props., Inc., 451 B.R. 323, 326 (Bankr.S.D.N.Y.2011); United States Trust Co. of N.Y. v. LTV Steel Co. (In re Chateaugay Corp.), 150 B.R. 529, 538 (Bankr.S.D.N.Y.1993).4 The great majority of courts have concluded that the appropriate rate should be the one provided in the parties’ agreement or the applicable law under which the claim arose, the so-called “contract rate” of interest. In re Urban Communicators PCS Ltd. P’ship, 379 B.R. 232, 251-52 (Bankr.S.D.N.Y.2008); see generally 4 Alan N. Resnick & Henry J. Sommer, Collier on Bankruptcy *198¶ 506.04[2][b][i], at 506-102 & n. 37 (collecting cases) (16th ed. 2012).
In the case of contracts, courts nevertheless have very limited discretion to deviate from the interest rate imposed under the contract. Key Bank Nat’l Ass’n v. Milham (In re Milham), 141 F.3d 420, 423 (2d Cir.1998) (“The appropriate rate of pendency interest is therefore within the limited discretion of the court.”). Thus, if an agreement fixes a rate, courts have recognized a rebuttable presumption that the contract rate applies post-petition, subject to adjustment based on equitable considerations. In re 785 Partners LLC, No. 11-13702(SMB), 470 B.R. 126, 2012 WL 1154282, at *5 (Bankr.S.D.N.Y. Apr.9, 2012) (collecting cases).
Courts have followed the same approach when state law fixes the rate of interest. See Chateaugay, 150 B.R. at 539-40 (“[T]he the rate of post-petition interest on noncontractual oversecured claims, such as state tax liens, should be determined by reference to applicable state law.”). For example, tax liens accrue post-petition interest at the rate fixed by the statute that created the lien, unless equitable considerations require the imposition of a lower rate. E.g., In re Coney Island Amusement, Inc., No. 05 Civ. 08238(LBS), 2006 WL 617979, at *1 (S.D.N.Y. Mar. 13, 2006) (“[W]hen determining the rate of post-petition interest due oversecured tax lien claimants, ‘a bankruptcy court is not necessarily bound by the state statutory rate, but should be reluctant to deviate from that rate except in very limited circumstances.’ ”) (quoting In re P.G. Realty Co., 220 B.R. 773, 778 (Bankr.E.D.N.Y.1998)); In re Chang, 274 B.R. 295, 304 (Bankr.D.Mass.2002) (allowing post-petition interest on a tax lien at the higher statutory rate where the post-petition period was brief, the statutory interest was de minimis and one of the largest creditors did not file a claim, freeing up money to pay the statutory interest rate); Wasserman v. City of Cambridge, 151 B.R. 4, 5-6 (D.Mass.1993) (allowing post-petition interest on a tax lien at the lower federal judgment rate because the debtor was insolvent and the higher statutory rate would “cause the unsecured creditors a direct harm by diminishing the value of the estate from which they hope to draw”); Marc Stuart Goldberg, P.C. v. City of New York (In re Navis Realty, Inc.), 193 B.R. 998, 1017-18 (Bankr.E.D.N.Y.1996) (A Court should award post-petition interest on an oversecured tax lien at the statutory rate unless the rate is a penalty or equity mandates a deviation from the statutory rate.).
GECC contends that its Judgment should bear interest at the New York statutory rate of 9% per annum. See CPLR §§ 5003, 5004.5 As in the case of *199oversecured tax liens, the presumptive interest rate under 11 U.S.C. § 506(b) is the statutory rate subject to adjustment based on equitable considerations. Equitable adjustment has been limited to four circumstances: “where there has been misconduct by the creditor, where application of the statutory interest rate would cause direct harm to the unsecured creditors, where the statutory interest rate is a penalty, or where its application would prevent the Debtor’s fresh start.” P.G. Realty, Co., 220 B.R. at 780; see 785 Partners LLC, 470 B.R. 126, 2012 WL 1154282, at *5 (discussing the equitable considerations relevant to adjusting the interest rate imposed under an agreement). The debtor bears the burden of rebutting the presumptive “contract rate.” 785 Partners LLC, 470 B.R. 126,133.
The debtor has again failed to sustain its burden. GECC is not guilty of misconduct, and the debtor does not contend that the statutory rate is a penalty. Furthermore, the debtor is liquidating, and will not require or receive a fresh start. The prejudice to the unsecured creditors is a closer question. The debtor sold the Hotel for $82 million. The Judgment was entered approximately one year ago, and the application of the 9% rate will increase GECC’s claim to roughly $80.7 million. On its face, this would render the debtor insolvent — possibly administratively insolvent; the debtor’s administrative and priority tax claims total roughly- $3 million. (Declaration of Robert Gladstone in Support of Confirmation of First Amended Chapter 11 Plan of Reorganization Pursuant to Section 1129 of the Bankruptcy Code, dated May 15, 2012, Ex. A (ECF Doc. #283).) In addition, filed unsecured claims approximate $1.4 million.6 (Id.)
The debtor predicts, however, that it will receive additional funds that the Courtyard Management Corporation is holding in escrow, intends to pursue claims against the latter, and will reduce a New York City priority tax claim by $142,000. (Id.) As a consequence, the debtor’s counsel argued at the confirmation hearing that the plan was feasible regardless of the outcome of the Objection because there will be enough money to pay all claims, including, possibly, all unsecured claims:
Calculating all of the professional fees we hope to, depending on the outcome of the cause of action, which is really the cause of action against Courtyard and its parent company, we hope to also be able to pay all unsecured creditors in full. But as the feasibility analysis demonstrates, there will absolutely be sufficient funds to pay GECC claim in full, whatever it may be determined to be by Your Honor as well as all priority and administrative claims.
(Transcript of the hearing held May 17, 2012, at 71 (ECF Doc. # 307).)
Thus, the debtor has failed to demonstrate whether or to what extent the 9% rate will prejudice the unsecured creditors, and under all of the circumstances, has failed to convince the Court that it should *200adjust the presumptive statutory rate in the exercise of its discretion.7
Although this conclusion disposes of the interest rate issue, I add that the debtor has offered no justification for the use of the near-zero federal judgment rate as opposed to some other rate between the federal judgment rate and 9%. The federal judgment rate is recognized by most courts as “the legal rate of interest” within the meaning of 11 U.S.C. § 725(a)(5), which requires a solvent estate to pay post-petition interest to its unsecured creditors. See In re Coram Healthcare Corp., 315 B.R. 321, 346 (Bankr.D.Del.2004). In Onink v. Cardelucci (In re Cardelucci), 285 F.3d 1231, 1234-35 (9th Cir.), cert. denied, 537 U.S. 1072, 123 S.Ct. 663, 154 L.Ed.2d 566 (2002), the Court identified four reasons for this rule. First, § 726(a)(5) refers to “interest at the legal rate,” and principles of statutory construction indicate that Congress intended the single source to be statutory because at the time the Bankruptcy Code was enacted the “legal rate” was fixed by statute. Id. at 1234-35. Second, the use of the federal judgment rate promotes uniformity. Id. at 1235. Third, an allowed bankruptcy claim is the equivalent of a federal judgment and, therefore, entitles the holder to interest at the federal judgment rate. Id. Fourth, the use of the federal judgment rate assures equitable treatment among creditors and is efficient and practical. Id. The “legal rate” is also relevant to the “best interest of creditors test,” 11 U.S.C. § 1129(a)(7), in a solvent case because the unsecured creditors are entitled to receive at least as much as they would receive in a liquidation under chapter 7. See Coram Healthcare Corp., 315 B.R. at 346.
GECC’s right to interest does not depend on the debtor’s solvency or § 726(a)(5). Instead, it arises under § 506(b) by virtue of its oversecured status. Section 506(b) does not call for the payment of interest at a specific rate much less the “legal rate,” and does not mandate the use of the federal judgment rate. Bradford v. Crozier (In re Laymon), 958 F.2d 72, 75 (5th Cir.) (holding that the contract rate of interest rather than the federal judgment rate is the appropriate rate under § 506(b)), cert. denied, 506 U.S. 917, 113 S.Ct. 328, 121 L.Ed.2d 247 (1992). To the contrary, we are directed to look to the parties’ agreement or other applicable non-bankruptcy law, a result consistent with long-standing bankruptcy jurisprudence. See id.; Chateaugay, 150 B.R. at 538. Thus, the principal rationale for using the federal judgment rate — Congress’s intent to select a single statutory rate — is absent. Furthermore, there are no concerns for fairness among similarly-situated creditors or efficiency because the secured class under a plan typically consists of a single creditor and a single claim. Here, GECC is the sole member of its class. Finally, while equitable principles play a role in the selection of the appropriate pendency interest rate under § 506(b), the ability to adjust the presumptive rate is quite limited, and in this case, missing.
Accordingly, the debtor’s objection to GECC’s claim is overruled. The Court has considered the debtor’s other arguments that are not specifically addressed above, and concludes that they lack merit.
So ordered.
. A copy of the Note is attached to the Objection as Exhibit A.
. A copy of the Loan Agreement is attached to the Objection as Exhibit C.
. Section 1738 provides:
The Acts of the legislature of any State, Territory, or Possession of the United States, or copies thereof, shall be authenticated by affixing the seal of such State, Territory or Possession thereto.
The records and judicial proceedings of any court of any such State, Territory or Possession, or copies thereof, shall be proved or admitted in other courts within the United States and its Territories and Possessions by the attestation of the clerk and seal of the court annexed, if a seal exists, together with a certificate of a judge of the court that the said attestation is in proper form.
Such Acts, records and judicial proceedings or copies thereof, so authenticated, shall have the same full faith and credit in every court within the United States and its Territories and Possessions as they have by law or usage in the courts of such State, Territory or Possession from which they are taken.
. The phrase “the agreement or State statute’’ modifies “reasonable fees, costs, or charges,” not "interest.” Cf. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241-42, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (interpreting earlier version of § 506(b) that “allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose”).
. Both parties take for granted that the annual rate dictated by New York law is 9%. GECC's position implies that its loan, which bore interest at a greater rate, merged into the Judgment and no longer provides a contractual basis to recover the higher rate. See In re Lehal Realty Assocs., 112 B.R. 588, 589 (Bankr.S.D.N.Y. 1990). In addition, CPLR § 5001(a) provides that "in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court’s discretion.” There is authority that this exception applies in a mortgage foreclosure action, and the court has discretion to award interest at a different rate. In re 114 Tenth Ave., Assoc., Inc., No. 05-60099, 2011 WL 1211547, at *2-4 (Bankr.S.D.N.Y. Mar. 25, 2011) (ruling that a state court foreclosure judgment was equitable in nature, and awarding interest under 11 U.S.C. § 506(b) at the interest rate that accrued on the sale proceeds while held in escrow); see Abir v. Malky, Inc., 59 A.D.3d 646, 873 N.Y.S.2d 350, 354 (N.Y.App.Div.2009) (concluding that the lower court abused its discretion when it departed from the statutory rate of 9% which is presumed to be reasonable and awarded in*199terest at the annual rate of 3.5%). Neither party has argued that the Court has discretion under state law to modify the 9% CPLR rate, and I do not decide the issue.
. The amount of Courtyard Management Corporation’s unsecured damage claim arising from the debtor's rejection of the parties’ Management Agreement is unknown at this time, but the debtor predicts that it will be "inconsequential to the estate.” (Disclosure Statement for First Amended Chapter 11 Plan of Reorganization, dated Apr. 3, 2012 ("Disclosure Statement"), at 17.) A copy of the Disclosure Statement is attached to the Order: (A) Approving the Disclosure Statement [etc.], dated Apr. 6, 2012 (ECF Doc. # 231).
. This is not intended to imply that a Court should adjust the "contract rate” simply because the debtor is insolvent and the unsecured creditors will not be paid in full if at all. Most chapter 11 cases involve insolvent debtors, and such an exception would swallow up the rule that the oversecured creditor is presumptively entitled to the “contract rate.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488663/ | People v Williams (2022 NY Slip Op 06559)
People v Williams
2022 NY Slip Op 06559
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Ind. No. 925/08 Appeal No. 16694 Case No. 2020-02278
[*1]The People of the State of New York, Respondent,
vHerbert Williams, Defendant-Appellant.
Robert S. Dean, Center for Appellate Litigation, New York (Alma D. Gonzalez of counsel), for appellant.
Darcel D. Clark, District Attorney, Bronx (Stephanie L. Nelson of counsel), for respondent.
Order, Supreme Court, Bronx County (Judith Lieb, J.) entered on or about March 5, 2020, which adjudicated defendant a level three sexually violent offender pursuant to the Sex Offender Registration Act (Correction Law art 6-C), unanimously affirmed, without costs.
The court correctly assessed 15 points under the risk factor for drug abuse (see People v Ramos, 171 AD3d 483, 484 [1st Dept 2019], lv denied 33 NY3d 912 [2019]; People v Greene, 154 AD3d 583 [1st Dept 2017], lv denied 30 NY3d 913 [2018]).
The court providently exercised its discretion when it declined to grant a downward departure (see People v Gillotti, 23 NY3d 841, 861-864 [2014]). There were no mitigating factors that were not adequately taken into account by the guidelines or outweighed by the seriousness of the underlying crime. We note that defendant's claims of rehabilitation while he was incarcerated are undermined by his unsatisfactory prison disciplinary record.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488702/ | 11/21/2022
IN THE COURT OF CRIMINAL APPEALS OF TENNESSEE
AT KNOXVILLE
Assigned on Briefs October 27, 2022
STATE OF TENNESSEE v. ROBERT LANCASTER STEED, JR.
Appeal from the Criminal Court for Knox County
No. 115769 Scott Green, Judge
___________________________________
No. E2022-00145-CCA-R3-CD
___________________________________
In 2019, the Defendant, Robert Lancaster Steed, Jr., pleaded guilty to evading arrest, false
imprisonment, domestic assault, and theft. The trial court sentenced the Defendant, by
agreement of the parties, to an effective sentence of six years of probation. After several
violations, the trial court ultimately revoked the Defendant’s probation and ordered him to
serve his sentence in the Department of Correction. On appeal, the Defendant contends
that his poor performance on probation was due to his drug addiction, so the trial court
should have ordered a period of confinement followed by intensive outpatient substance
abuse and mental health treatment. After review, we affirm the trial court’s judgment.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Criminal Court Affirmed
ROBERT W. WEDEMEYER, J., delivered the opinion of the court, in which JAMES CURWOOD
WITT, JR., P.J., and CAMILLE R. MCMULLEN, J., joined.
Clinton Evan Frazier, Maryville, Tennessee, for the appellant, Robert Lancaster Steed, Jr.
Herbert H. Slatery III, Attorney General and Reporter; Brent C. Cherry, Senior Assistant
Attorney General; Charme P. Allen, District Attorney General; and Joseph Welker,
Assistant District Attorney General, for the appellee, State of Tennessee.
OPINION
I. Facts
This case arises from a domestic assault incident during which the Defendant drove
his father’s vehicle, without permission, into the victim’s house, assaulted her, and then
forced her to get into his car and leave with him. For these events, the Knox County grand
jury indicted the Defendant for evading arrest, Count 1, false imprisonment, Count 2,
domestic assault, Count 3, and theft of property valued between $1,000 and $10,000, Count
4. The Defendant pleaded guilty to all four of the indicted offenses.
The transcript of the guilty plea is not included in the record; however, we glean the
underlying facts of this case from the presentence investigation report, which summarizes
the facts as follows:
The warrant alleges that on or about Monday, February 18, 2019, at
21:48 hours officers responded to an aggravated assault call . . . [on]
Sunshine Circle, Knoxville. While in route to the above location, officers
received information that a black male had driven a blue Dodge Caravan . . .
into the residence . . . [on] Sunshine circle and was then beating a female. At
this time officers arrived on scene and observed the Defendant leaving the
scene in a blue Caravan. Officers initiated primary emergency lights and
siren in an attempt to stop the Defendant, however, the Defendant did not
stop and officers pursued the vehicle reaching speeds of 97 MPH. The
Defendant was weaving in and out of traffic and running red lights
endangering the lives of other drivers and pedestrians, as well as, the life of
the victim . . . who was put in the situation against her will. The Defendant
stopped at Bradshaw Gardens at Fountain Drive, Knoxville, where the victim
bailed out of the front passenger side of the vehicle in an attempt to escape
the vehicle. The Defendant then pulled onto Fountain Drive and exited the
vehicle where he was taken into custody. Officers spoke with the victim who
stated that the Defendant had pushed her which caused her to fall down.
Officers observed a fresh abrasion on her elbow. The victim also stated she
did not want to go with the Defendant, but the Defendant grabbed her and
shoved her in the vehicle with him, knowing she did not want to go with him.
The Defendant also admitted that he saw the police attempting to stop him
and chose not to stop. The Defendant also said that the victim was pleading
with him to stop the vehicle. A search of the vehicle revealed under 10 grams
of a green leafy substance in a clear plastic baggy believed to be marijuana
and a pipe with what is believed to be marijuana residue. An investigation
revealed that the vehicle belongs to the victim’s father and that the Defendant
did not have permission to drive it. Officers spoke with multiple witnesses
at [the Sunshine Circle address] who stated that the Defendant and victim
were in an argument when the Defendant hit the victim and then got into the
vehicle and dr[o]ve it towards the victim, but lost control and collided with
the residence at the above address. An NCIC records check revealed an
outstanding warrant on file for the Defendant for simple possession and it
showed that he had a revoked license. The Defendant could also not provide
proof of financial responsibility for the vehicle. . . .
2
The presentence report also included the Defendant’s extensive criminal record, his
mental health diagnoses, and his life-long issue with substance abuse. On June 21, 2019,
the trial court sentenced the Defendant to an effective sentence of six years of probation.
On September 11, 2019, the trial court issued a probation violation warrant based
on the Defendant’s probation officer’s allegation that the Defendant failed to report for
intake on or about August 20, 2019, and August 27, 2019. On October 8, 2019, the trial
court amended this warrant to include that the Defendant had also violated his probation
by being arrested on or about October 3, 2019, for theft of property valued between $2,500
and $10,000.
On October 30, 2019, the trial court found the Defendant indigent and ordered that
the Defendant be released on his own recognizance. It continued the case until November
21, 2019.
At the November 21, 2019 hearing, the trial court noted that the Defendant had had
a positive drug screen. It ordered that the Defendant report to the Knox County Jail on
November 29, 2019, at 6 pm to serve a forty-eight-hour sanction. It also issued a mittimus
to the Knox County Sheriff’s Department and continued the case to January 8, 2020.
On December 3, 2019, the trial court again amended the original probation violation
warrant to include that the Defendant had not followed the rules of probation and failed to
turn himself in to the Knox County Jail as ordered on November 29, 2019. The warrant
further alleged that the Defendant had illegal drugs in his possession and had tested positive
for THC on the morning of November 21, 2019. At a follow-up appointment on the same
day, he tested positive for cocaine and methamphetamine, but not THC.
On March 31, 2020, the trial court again amended the probation warrant to include
that the Defendant had again violated his probation by being arrested on March 27, 2020,
for simple possession/casual exchange of methamphetamine and for possession of drug
paraphernalia. The amendment further alleged that the Defendant had failed to report his
arrest to his probation officer and that he was found in possession of approximately 29
grams of marijuana and 0.5 grams of methamphetamine on or about March 27, 2020, when
arrested.
On April 7, 2020, the trial court ordered that the Defendant be released on his own
recognizance and continued the case until June 11, 2020.
On August 5, 2020, the trial court amended the probation violation warrant to
include that the Defendant failed to follow the recommendation of his social worker and
probation officer that he refrain from using illegal drugs as evidenced by his positive drug
3
screen for methamphetamine on July 13, 2020. The warrant also was amended to allege
that he was in possession of and used methamphetamine as evidenced by his positive test
result.
On August 14, 2020, the trial court ordered that the Defendant be released on his
own recognizance and continued the case to August 31, 2020.
On December 2, 2020, the trial court amended the probation violation warrant to
include that the Defendant failed to report for his relapse prevention class on November 5,
12, and 19, of 2020. The Defendant also tested positive for methamphetamine and
amphetamine on November 23, 2020.
On February 16, 2021, the trial court amended the probation violation warrant to
include that the Defendant had absconded from supervision. At a hearing on March 16,
2021, the trial court released the Defendant on his own recognizance and continued the
case until March 17, 2021.
On April 5, 2021, the trial court issued a capias for the Defendant’s arrest. Shortly
thereafter, on May 3, 2021, the trial court amended the probation violation warrant to
include that the Defendant had failed to report to his probation officer on April 5 and 19,
2021, and that he tested positive for methamphetamine and amphetamine on April 1, 2021.
At a hearing on July 1, 2021, the parties informed the trial court that the Defendant
had some health issues, including congestive heart failure. The Defendant’s attorney stated
that the Defendant intended to admit that he violated his probation and submit himself into
custody. The Defendant then admitted his violation of his probation. At the Defendant’s
attorney’s request, the trial court agreed to a referral to Community Alternative to Prison
Program (“CAPP”). The trial court continued the case to August 12, 2021.
At a hearing on August 9, 2021, the Defendant’s attorney informed the trial court
that CAPP had rejected the Defendant as a suitable candidate. The Defendant’s attorney
asked for a referral to the Day Reporting Center Program (“DRC”). The trial court agreed,
noting that those referrals were taking some time and that the Defendant would remain in
custody pending the referral. The Defendant’s attorney asked that the Defendant be
released pending the referral, and the trial court denied the request. The trial court
continued the case to October 8, 2021.
At a hearing on October 8, 2021, the Defendant’s attorney informed the trial court
that the DRC had denied the Defendant’s referral. The attorney further said that the
Defendant had a “very, very serious drug problem which he has not really addressed.” The
attorney stated that when the DRC reviewed the Defendant, one of the concerns it listed
4
included a recorded phone call from jail between the Defendant and another person. In the
phone call, the report stated, the Defendant discussed his “complete lack of desire to attend
the DRC program and had an aggressive tone towards the person with which he was in
communication with.” The Defendant’s attorney provided context to that conversation
saying that it was him to whom the Defendant was speaking and that the Defendant was
“venting” and not in an emotional state to adequately convey his true desires.
The trial court noted that judgment in this case was entered August 5, 2019, and that
the Defendant had been before him in revocation status on twenty-five occasions. The trial
court noted that he had given the Defendant repeated chances but that the Defendant never
complied with the terms of his probation.
The Defendant spoke on his own behalf and implored the trial court for another
chance. The trial court acquiesced and offered the Defendant the chance to do a ninety-
day Intensive Treatment Program (“ITP”). While offering the Defendant no promises, he
said that he would reevaluate if the Defendant successfully completed the program.
At a hearing on February 3, 2022, the trial court noted that DRC and CAPP did not
want to work with the Defendant. The State’s attorney said that the Defendant had had so
many repeat violations that the Enhanced Probation office did not want to work with him.
The Defendant’s attorney stated that the Sheriff’s Office had come up with a plan for re-
entry into probation that was detailed. He further stated that the Defendant had successfully
completed ITP, two anger management classes, a time management class, a substance
abuse education class, and a behavior change class. The Defendant’s attorney noted the
difference in the Defendant’s demeanor and behavior since completing his classes.
The trial court found that the Defendant had violated the terms of his probation, and
it revoked the Defendant’s probation. It then ordered that he serve the balance of his
sentence in confinement, with credit for time served. The trial court noted that the
Defendant would not have much more time to serve before being released, waived all of
his court costs, and wished him success. It is from this judgment that the Defendant
appeals.
II. Analysis
On appeal, the Defendant does not contest the basis for his probation violation. He
instead asserts that the trial court “in its exercise of discretion, should elect to impose split
confinement and furlough him for intensive outpatient treatment with ITP and mental
health treatment . . . .” The State counters that, upon a finding that the Defendant has
violated the terms of his probation, the trial court has the authority to order the Defendant
to serve his sentence in confinement. We agree with the State.
5
A trial court’s authority to revoke a suspended sentence is derived from Tennessee
Code Annotated section 40-35-310 (2018), which provides that the trial court possesses
the power “at any time within the maximum time which was directed and ordered by the
court for such suspension, . . . to revoke . . . such suspension” and cause the original
judgment to be put into effect. A trial court may revoke probation upon its finding by a
preponderance of the evidence that a violation of the conditions of probation has occurred.
T.C.A. § 40-35-311(e) (2018). “In probation revocation hearings, the credibility of
witnesses is to be determined by the trial judge.” If a trial court revokes a defendant’s
probation, options include ordering confinement, ordering the sentence into execution as
originally entered, returning the defendant to probation on modified conditions as
appropriate, or extending the defendant’s period of probation by up to two years. T.C.A.
§§ 40-35-308(a), (c), -310 (2018); see State v. Hunter, 1 S.W.3d 643, 648 (Tenn. 1999).
The judgment of the trial court in a revocation proceeding, including the
consequences of the revocation, is entitled to a presumption of reasonableness unless there
has been an abuse of discretion. See State v. Dagnan, 641 S.W.3d 751, 759 (Tenn. 2022);
see also State v. Shaffer, 45 S.W.3d 553, 554 (Tenn. 2001); State v. Smith, 909 S.W.2d
471, 473 (Tenn. Crim. App. 1995). This is true “so long as the trial court places sufficient
findings and the reasons for its decisions as to the revocation and the consequence on the
record. It is not necessary for the trial court’s findings to be particularly lengthy or detailed
but only sufficient for the appellate court to conduct a meaningful review of the revocation
decision.” See Dagnan, at 759. Further, a finding of abuse of discretion “‘reflects that the
trial court’s logic and reasoning was improper when viewed in light of the factual
circumstances and relevant legal principles involved in a particular case.’” Id. at 555
(quoting State v. Moore, 6 S.W.3d 235, 242 (Tenn. 1999)).
The record in this case provided substantial evidence to support the trial court’s
revocation of probation, as the Defendant admitted his violations. State v. Glendall D.
Verner, No. M2014-02339-CCA-R3-CD, 2016 WL 3192819, at *7 (Tenn. Crim. App., at
Nashville, May 31, 2016), perm. app. denied (Tenn. Sept. 30, 2016).
After the trial court found that the Defendant had violated the terms of his probation,
it retained discretionary authority, pursuant to Tennessee Code Annotated section 40-35-
310(b), to order the Defendant to serve his sentence in incarceration. The determination of
the proper consequence of a probation violation embodies a separate exercise of discretion.
Hunter, 1 S.W.3d at 647; see also Dagnan, 641 S.W.3d at 759. Case law establishes that
“an accused, already on probation, is not entitled to a second grant of probation or another
form of alternative sentencing.” State v. Jeffrey A. Warfield, No. 01C01-9711-CC-00504,
1999 WL 61065, at *2 (Tenn. Crim. App., at Nashville, Feb. 10, 1999), perm. app. denied
(Tenn. June 28, 1999).
6
We conclude that the trial court did not abuse its discretion when it found that the
Defendant had violated his probation. As the trial court noted, the Defendant’s original
sentence arises from serious offenses that involved the risk of death. Further, the trial court
had given the Defendant multiple chances, including a short duration of jail time, to remain
on probation following prior violations of probation. The Defendant never successfully
complied with the terms of his probation, despite being given multiple chances. As such,
the trial court retains discretionary authority to order that the Defendant serve the balance
of his sentence in confinement. We conclude that the trial court did not abuse its discretion.
Therefore, the Defendant is not entitled to relief.
III. Conclusion
For the foregoing reasons, we affirm the trial court’s judgment.
____________________________________
ROBERT W. WEDEMEYER, JUDGE
7 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488634/ | USCA11 Case: 21-13073 Date Filed: 11/22/2022 Page: 1 of 10
[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 21-13073
Non-Argument Calendar
____________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
MYLES FRAZIER,
Defendant-Appellant.
____________________
Appeal from the United States District Court
for the Northern District of Georgia
D.C. Docket No. 1:21-cr-00049-SCJ-1
____________________
USCA11 Case: 21-13073 Date Filed: 11/22/2022 Page: 2 of 10
2 Opinion of the Court 21-13073
Before BRANCH, LAGOA, and BRASHER, Circuit Judges.
PER CURIAM:
Myles Frazier created an online persona as a young female
to persuade and coerce at least seven minors to produce child por-
nography and, on one occasion, engage in prostitution. Frazier
pleaded guilty to eight criminal counts: one for coercion of a minor
to engage in prostitution, one for cyberstalking, and six for produc-
tion of child pornography. The district court calculated Frazier’s
offense level by imposing two enhancements because the offense
involved (1) multiple counts and (2) a pattern of activity involving
sexual conduct with a minor. The court then sentenced Frazier to
288 months’ (twenty-four years’) confinement, varying downward
from the Guidelines range of life. Frazier argues his sentence was
procedurally unreasonable based on double counting and substan-
tively unreasonable because the district court failed to properly
consider the 18 U.S.C. § 3553(a) factors. We disagree on both points
and therefore affirm Frazier’s sentence.
I.
The FBI began investigating Frazier when the father of six-
teen-year-old M.B. reported threatening texts to his son from Fra-
zier, posing as a woman named “Liv.” Frazier connected with M.B.
on Instagram in May 2019 using his catfish account. After exchang-
ing numbers, Frazier arranged for an adult male to meet M.B. at
his home and engage in sex acts with M.B. Frazier paid M.B. a total
USCA11 Case: 21-13073 Date Filed: 11/22/2022 Page: 3 of 10
21-13073 Opinion of the Court 3
of 135 dollars for the adult male—who was actually Frazier—to
perform oral sex on M.B. twice. M.B. asked Frazier to stop during
oral sex both times, and the second time, M.B. had to shove Frazier
to stop him.
When M.B. stopped texting Frazier, Frazier began threaten-
ing to expose M.B. if he did not “work” or pay Frazier back. In just
one week, Frazier sent M.B. over 100 harassing texts. Frazier re-
peatedly threatened to send his brother to M.B.’s house to deliver
a letter to M.B.’s parents that read: “[Y]our son has also allowed a
male into your home several times to perform oral sex onto [sic]
him in order to keep bribing [Frazier] for money.” Frazier kept
sending threatening messages even after the FBI obtained M.B.’s
phone. The FBI arrested Frazier on July 2, 2019, a grand jury re-
turned an indictment, and Frazier has remained in custody since
his arrest.
Following Frazier’s arrest, the ensuing FBI investigation of
Frazier’s electronic devices revealed a pervasive pattern of sexually
exploiting minors. Between December 2017 and July 2019, Frazier
used his fake online persona to solicit and pay for sexual content
from a total of seven minors, one as young as twelve. After he ob-
tained child pornography, Frazier blackmailed his victims by
threatening to expose the content if they did not continue to
“work.” One victim, C.T., told agents Frazier asked him to have
sex with Frazier’s “male cousin.” When C.T. declined, an adult
male showed up at C.T.’s house even though he never disclosed to
Frazier where he lived. Frazier knew his victims were under the
USCA11 Case: 21-13073 Date Filed: 11/22/2022 Page: 4 of 10
4 Opinion of the Court 21-13073
age of 18 or in high school, telling one victim, “Yea u 16 n im 19,
ion wanna go to jail for u.” On top of exploiting seven minors, Fra-
zier used his catfishing scheme to contact at least 130 people in to-
tal.
Frazier pleaded guilty to one count of coercion of a minor
to engage in prostitution, one count of cyberstalking, and six
counts of production of child pornography. The district court cal-
culated an adjusted offense level of 36 for Frazier’s multiple counts
and reduced the offense level by three levels for Frazier’s ac-
ceptance of responsibility and assistance to authorities. U.S.S.G. §§
3D1.4(a)–(c), 3E1.1(a).
Important to this appeal, the district court then increased
Frazier’s offense level by ten levels. The district imposed five levels
based on multiple counts of conviction that were equally serious in
nature. See U.S.S.G. § 3D1.4. The district court imposed another
five levels for engaging in a pattern of activity involving prohibited
sexual conduct. See U.S.S.G. § 4B1.5(b)(1).
These enhancements gave Frazier an offense level of 43,
yielding a Guideline sentence range of life. Frazier objected to the
calculated offense level, alleging that the court erred by “double
counting” when it imposed both the five-level enhancement under
Section 3D1.4 and the five-level enhancement under Section
4B1.5(b). The district court overruled Frazier’s offense level objec-
tion, maintaining both enhancements.
USCA11 Case: 21-13073 Date Filed: 11/22/2022 Page: 5 of 10
21-13073 Opinion of the Court 5
During sentencing, the government recommended twenty-
eight years, acknowledging that Frazier had no previous criminal
history. Frazier requested the statutory minimum sentence of fif-
teen years, arguing that his “offense conduct is a manifestation of”
his mental health conditions. In support of Frazier’s argument, he
received two psychological evaluations while in custody and was
diagnosed with anxiety, depression, and borderline personality dis-
order.
The district court thoughtfully considered the Section
3553(a) factors for sentencing. On the one hand, the court empha-
sized the seriousness of Frazier’s crimes: “Looking at the 3553(a)
factors, the nature and the circumstances of the offense, you
planned this. . . . You terrorized these kids.” On the other hand, the
court acknowledged Frazier had no previous criminal history and
considered the effect of Frazier’s mental health diagnoses. The
court posited, “How can [a] man . . . be like this? . . . The doctor’s
reports did give me some understanding of the situation . . . . But
that doesn’t explain everything.” The court further considered “the
kinds of sentences available” and “the need to avoid sentence dis-
parity.” In particular, the court discredited Frazier’s proffered cases
that sentenced defendants convicted of similar crimes to shorter
confinement, finding Frazier’s conduct was “much, much worse.”
The district court then varied downward from the Guide-
lines, sentencing Frazier to twenty-four years’ confinement. The
court emphasized that it determined twenty-four years was a rea-
sonable sentence based on its assessment of the Section 3553(a)
USCA11 Case: 21-13073 Date Filed: 11/22/2022 Page: 6 of 10
6 Opinion of the Court 21-13073
factors, the Sentencing Guidelines, the parties’ memoranda and ar-
guments, and the Presentence Investigation Report.
II.
On appeal, Frazier first contends his sentence is procedurally
unreasonable because the offense level double counted two sen-
tencing enhancements based on the same harm. Frazier argues,
second, that his sentence is substantively unreasonable because the
district court failed to properly consider the Section 3553(a) factors.
We consider each argument in turn.
A. Procedural Reasonableness
Frazier first contends that applying cumulative offense level
enhancements under Section 4B1.5(b) and Section 3D1.4 consti-
tutes impermissible “double counting.” We disagree.
We review de novo the district court’s legal interpretation
of the Sentencing Guidelines, including its rejection of double
counting challenges. United States v. Cubero, 754 F.3d 888, 892
(11th Cir. 2014). “Impermissible double counting occurs only when
one part of the Guidelines is applied to increase a defendant’s pun-
ishment on account of a kind of harm that has already been fully
accounted for by application of another part of the Guidelines.”
United States v. Dudley, 463 F.3d 1221, 1226−27 (11th Cir. 2006)
(internal quotation omitted). “We presume that the Sentencing
Commission intended separate guidelines to apply cumulatively,”
unless otherwise expressed. Id. at 1227. Indeed, the Guidelines
USCA11 Case: 21-13073 Date Filed: 11/22/2022 Page: 7 of 10
21-13073 Opinion of the Court 7
instruct, “[a]bsent an instruction to the contrary,” Chapters 3 and 4
enhancements “are to be applied cumulatively” and “[i]n some
cases, such enhancements . . . may be triggered by the same con-
duct.” U.S.S.G. § 1B1.1, app. N.4(B).
Section 3D1.4 allows enhancements for multiple counts, i.e.,
offenses involving multiple victims. Id. § 3D1.4. Conversely, Sec-
tion 4B1.5 applies to “Repeat and Dangerous Sex Offender[s]
Against Minors.” Id. § 4B1.5. Section (b) recommends imposing a
five-level increase to “the offense level determined under Chapters
Two and Three” if the “defendant engaged in a pattern of activity
involving prohibited sexual conduct” with a minor. Id. §
4B1.5(b)(1) (emphasis added).
Application of both enhancements is not impermissible dou-
ble counting. First, the Guidelines plainly recommend imposing
Chapter 4 enhancements cumulatively to Chapter 3 enhance-
ments. See id. § 4B1.5(b)(1). Second, the harm resulting from Fra-
zier’s offenses involving multiple victims under Section 3D1.4 dif-
fers from the harm of committing a pattern of activity involving
prohibited sexual conduct against a minor under Section
4B1.5(b)(1). See Dudley, 463 F.3d at 1227. This is true even though
Frazier’s pattern of prohibited sexual conduct with a minor and of-
fenses against multiple victims involves overlapping conduct.
U.S.S.G. § 1B1.1, app. N.4(B). Accordingly, the district court
properly applied both enhancements.
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8 Opinion of the Court 21-13073
B. Substantive Reasonableness
Second, Frazier argues that the district court imposed a sub-
stantively unreasonable sentence because it did not properly con-
sider relevant Section 3553(a) factors: Frazier’s personal history and
characteristics, the nature and circumstances of the offense, and the
need to avoid unwarranted sentencing disparities. This argument
also fails.
We review the substantive reasonableness of a sentence un-
der a “deferential abuse of discretion standard.” Gall v. United
States, 552 U.S. 38, 41 (2007). The district court abuses its discretion
when it “(1) fails to afford consideration to relevant factors that
were due significant weight, (2) gives significant weight to an im-
proper or irrelevant factor, or (3) commits a clear error of judgment
in considering the proper factors.” United States v. Irey, 612 F.3d
1160, 1189 (11th Cir. 2010) (en banc) (quotation marks omitted).
The factors the court weighs are set forth in 18 U.S.C. § 3553(a).
The district court must evaluate all the Section 3553(a) fac-
tors, but the weight given to each factor is within the court’s sound
discretion. United States v. Ramirez-Gonzales, 755 F.3d 1267, 1272
(11th Cir. 2014). The district court need not explicitly address “each
of the [Section] 3553(a) factors or all of the mitigating evidence,”
but instead, the court’s acknowledgment that it considered the Sec-
tion 3553(a) factors and the parties’ arguments is sufficient. United
States v. Taylor, 997 F.3d 1348, 1354−55 (11th Cir. 2021). We also
USCA11 Case: 21-13073 Date Filed: 11/22/2022 Page: 9 of 10
21-13073 Opinion of the Court 9
ordinarily expect that a sentence within the guideline range is rea-
sonable. United States v. Hunt, 526 F.3d 739, 746 (11th Cir. 2008).
Frazier’s sentence is substantively reasonable. The district
court explicitly discussed the Section 3553(a) factors Frazier consid-
ers deficient. Namely, the court discussed Frazier’s personal history
(e.g., his lack of criminal history), the nature and circumstances of
Frazier’s crimes (e.g., the trauma that his crimes caused his vic-
tims), and the need to avoid sentencing disparities (e.g., finding Fra-
zier’s conduct “much, much worse” than defendants found guilty
of similar crimes). We note that we have upheld substantially
longer sentences for comparable criminal conduct. See United
States v. Woodson, 30 F.4th 1295, 1307 (11th Cir. 2022) (affirming
50-year sentence for coercing teens to provide pornographic im-
ages over social media); United States v. Beatty, 2022 WL 1719054,
at *1 (11th Cir. May 27, 2022) (per curiam) (same); United States v.
Killen, 773 F. App’x 567, 569 (11th Cir. 2019) (per curiam) (same).
The district court’s thoughtful consideration of mitigating
evidence, such as Frazier’s mental health diagnoses, and acknowl-
edgment that it relied on the Section 3553(a) factors bolsters the
reasonableness of Frazier’s sentence. See Taylor, 997 F.3d at 1354.
The district court acted within its discretion in heavily weighing
the seriousness of Frazier’s offenses. See Ramirez-Gonzales, 755
F.3d at 1272. That Frazier’s twenty-four-year sentence falls far be-
low the Guideline range of Life is, itself, indicative of the sentence’s
reasonableness. Hunt, 526 F.3d at 746. Accordingly, the district
USCA11 Case: 21-13073 Date Filed: 11/22/2022 Page: 10 of 10
10 Opinion of the Court 21-13073
court did not abuse its discretion in imposing a twenty-four-year
sentence.
III.
We AFFIRM Frazier’s conviction and sentence. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488707/ | UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
Case No. 1:00-cr-157-RCL
v.
Case No.
KENNETH SIMMONS
RONALD ALFRED
JAMES ALFRED
FRANKLIN SEEGERS
DEON OLIVER
Defendants.
MEMORANDUM OPINION
Nearly twenty years ago, this Court presided over a lengthy trial involving Kenneth
Simmons, Ronald Alfred, James Alfred, Franklin Seegers, and Deon Oliver, among others, who
were indicted for a massive drug conspiracy centered in Washington, D.C. A jury convicted them
of a variety of crimes, including conspiracy to distribute and possess with intent to distribute a
controlled substance. In finding the defendants guilty on the drug conspiracy count, the jury
concluded that certain drug quantities were attributable to each defendant, which in turn impacted
the applicable sentences. On appeal, the D.C. Circuit concluded that the admission of certain
evidence—specifically several Drug Enforcement Administration (“DEA”) drug analysis reports,
a summary chart derived from the reports, alongside testimony by a supervisory chemist
(collectively the “DEA-7 evidence”)—violated the Confrontation Clause of the U.S. Constitution.
United States v. McGill, 815 F.3d 846, 890-92 (D.C. Cir. 2016) (per curiam). And because the
DEA-7 evidence could have been used by the jury to help identify the drug quantity attributable
1
to each defendant, the Circuit remanded to this Court for a determination of whether “there is a
reasonable probability that, but for the improperly admitted evidence, the jury’s quantity findings
would have been different.” Id. at 892. In other words, that it “affected the outcome of the district
court proceedings.” Id. at 890 (quoting United States v. Olano, 507 U.S. 725, 734 (1993)).
After review of the defendants’ briefing, the government’s response, the applicable law,
and the trial record, this Court concludes that no defendant has met his burden to demonstrate such
a reasonable probability.
I. BACKGROUND
The Court will focus narrowly on the background and procedural history relevant to the
remand. All of the defendants here were indicted and later convicted of counts arising out of “a
large-scale and violent narcotics-distribution business centered in Washington, D.C.” Id. at 861.
Due to the difficulties with trying all related defendants in a single trial, the charged conspirators
were split into two groups and tried separately. The first group was tried first in a yearlong trial
and those defendants were part of a separate appeal. United States v. Moore, 651 F.3d 30 (D.C.
Cir. 2011), aff’d in part sub nom. Smith v. United States, 568 U.S. 106 (2013). That group included
both Kevin Gray and Rodney Moore, who led the criminal enterprise. McGill, 815 F.3d at 861.
The present appeal includes only defendants from the second group, who were tried together over
the course of six months, with dozens of government witnesses, including many cooperating
former coconspirators. See id. at 861-63; Gov’t Opp’n 8, ECF No. 2830.
The D.C. Circuit largely affirmed the defendants’ convictions on appeal. McGill, 815 F.3d
at 861-62, 947. However, it reversed and remanded to this Court based in part on the improper
2
admission of the DEA-7 evidence. 1 Id. at 890-92, 947. The improperly admitted chart,
summarizing the improperly admitted evidence, is reproduced below.
1
The Circuit also remanded for this Court to (1) examine ineffective assistance claims by Kenneth Simmons and
Ronald Alfred and (2) resentence Keith McGill. McGill, 815 F.3d at 947. That part of the remand is not the subject
of this opinion.
3
See ECF No. 2804-1. The Circuit concluded that the DEA-7 evidence was improperly admitted
because the government was required to call an authoring chemist in order to admit the reports and
chart, rather than a supervisory one. McGill, 815 F.3d at 890-92. However, because the defendants
did not make this objection at trial, the D.C. Circuit reviewed the issues under the plain-error
standard. Id. at 890-92, 947.
Applying the plain-error standard, the Circuit almost entirely rejected the defendants’
application to vacate their substantive convictions due to the Confrontation Clause violation. 2 The
defendants had argued that “apart from the improperly admitted drug report evidence, ‘there was
no tangible proof, other than testimony by highly impeached cooperating witnesses, as to the
nature and scope of the conspiracies at all.’” Id. at 891 (citation omitted). But the Circuit did not
accept that argument, reasoning that “the jurors could not have believed that appellants were going
through the elaborate transactions and precautions described, and exchanged the funds described,
for any reason other than conspiracy to distribute and possess narcotics” and that therefore, the
“[defendants] ha[d] not carried th[eir] burden as to any elements except (possibly) drug quantity.”
Id. at 892. The Circuit further stated, in rejecting the effect of any cumulative errors, that “[t]he
government mounted a strong case based on overwhelming evidence.” Id. at 947.
The Circuit’s reference to “drug quantity” refers to the findings that were part of the jury’s
verdict on the drug conspiracy charge for each defendant. Id. at 892. When a defendant is charged
with conspiring to distribute and possess with intent to distribute a controlled substance, the jury
2
The one exception was for Franklin Seegers. The government conceded that two charges for possession with intent
to distribute cocaine and heroin could not stand given the Confrontation Clause violation. McGill, 815 F.3d at 890.
The Circuit therefore reversed Franklin Seegers’s convictions on those two charges. Id.
4
must make specific findings as to the quantity of drugs attributable to each defendant. See id. That
quantity then determines the applicable sentencing range. 3 Id.
To illustrate the jury’s role in determining the applicable drug quantity amount, consider
the verdict form for defendant Ronald Alfred on the issue of powder cocaine. The jury had to
make the following determination:
ECF No. 1880 at 2. That finding represents the jury’s determination of the amount of powder
cocaine individually attributable to Ronald Alfred based on the evidence presented at trial.
The Circuit concluded that the improperly admitted DEA-7 evidence might have affected
the jury’s findings for the drug quantity attributable to each defendant. McGill, 815 F.3d at 892.
The panel therefore remanded to this Court to evaluate the issue and “depending on which counts
or quantity findings (if any) are vacated with respect to each appellant . . . determine in the first
instance whether resentencing is appropriate.” Id. In so doing, the Circuit explained that “[o]n
remand the burden will be on [defendants] to show, perhaps through additional briefing, that there
3
For a drug quantity to be attributable, the government must prove that each defendant “entered the conspiracy to
distribute not just an indeterminate amount of [drugs],” but rather that the attributable quantity was “reasonably
foreseeable, or within the scope of the conspiracy entered by a particular defendant.” United States v. Stoddard, 892
F.3d 1203, 1219 (D.C. Cir. 2018) (emphasis added). That is, the inquiry is as to the individual defendant, and the
drug quantity that can be attributed to him based on what was reasonably foreseeable to him, rather than “the amount
of drugs attributable to the conspiracy as a whole.” Id. at 1220.
5
is a reasonable probability that, but for the improperly admitted evidence, the jury’s quantity
findings would have been different.” Id.
The defendants subsequently filed memoranda, motions, and briefs on remand. James
Alfred and Deon Oliver filed briefs on remand arguing that the jury’s drug quantity findings as to
them would have been different without the DEA-7 evidence. Def. James Alfred Br., ECF
No. 2796; Def. Deon Oliver Br., ECF No. 2804. Franklin Seegers filed a memorandum in support
of his resentencing. Def. Franklin Seegers Mem., ECF No. 2799. Ronald Alfred filed a brief on
remand and moved for resentencing. Def. Ronald Alfred Mot., ECF No. 2826. Kenneth Simmons
moved to dismiss several of the substantive counts of conviction. Def. Kenneth Simmons Mot.,
ECF No. 2822.
The United States then filed an omnibus response to the defendants’ various filings. Gov’t
Opp’n. James Alfred and Dean Oliver replied. Def. James Alfred Reply, ECF No. 2832; Def.
Deon Oliver Reply, ECF No. 2834.
II. LEGAL STANDARD
The plain-error standard applies when a defendant fails to object at the district court level
and then seeks to bring that objection at the appellate level. McGill, 815 F.3d at 877. There (1)
must be a legal error, (2) that legal error must be clear, and (3) that error must violate “substantial
rights.” Id. (quoting United States v. Brown, 508 F.3d 1066, 1071 (D.C. Cir. 2007)).
The D.C. Circuit reviewed the defendants’ objections to the admission of the DEA-7
evidence under the plain-error standard. Id. at 890-92. The Circuit resolved the first two prongs
and concluded that there was a clear legal error. See id. The Circuit then instructed this Court to
resolve the “substantial rights” prong and specifically that “[o]n remand the burden will be on
appellants to show . . . that there is a reasonable probability that, but for the improperly admitted
evidence, the jury’s quantity findings would have been different.” Id. at 892. Therefore, with the
6
burden squarely on the defendants, this Court will “determine whether [defendants] can
demonstrate that the improperly admitted drug report evidence affected the jury’s drug quantity
findings.” See id.
III. DISCUSSION
This Court concludes that the defendants have not demonstrated that the DEA-7 evidence
violated their substantial rights for two reasons. First, the Court concludes that there is no
reasonable probability that the jury would have made different quantity findings because, if faced
with a proper ruling, the government would have simply introduced the DEA-7 evidence using the
authoring chemists. Second, even setting that conclusion aside, no defendant has demonstrated a
reasonable probability that the admission of the DEA-7 evidence affected the jury’s individualized
determination as to the drug quantity attributable to him.
A. No Defendant Can Demonstrate That His Substantial Rights Were Violated Because
the Government Would Have Simply Had the Authoring Chemists Testify
The introduction of the DEA-7 evidence could not have violated the defendants’ substantial
rights given the availability of the authoring chemists. As the Supreme Court recently explained,
when conducting a substantial rights inquiry, “[the] argument that plain-error review must focus
exclusively on the trial record contravenes both logic and precedent.” Greer v. United States, 141
S. Ct. 2090, 2098 (2021). After all, it “is not a realistic scenario” that “the Government [would]
not introduce additional evidence” were it faced with a proper evidentiary ruling. See id.
In Greer, the district court failed to give a required instruction on mens rea. Id. The
defendant argued on appeal that plain-error review of that failure required the appellate courts to
“assume a scenario where the proper instruction was given, but where the Government did not
introduce additional evidence to prove” that the defendant satisfied the mens rea requirement. Id.
The Supreme Court squarely rejected that narrow view of what plain-error review allows a court
7
to consider. Id. A judge need not hold the trial record constant and then apply a ruling that did
not occur. Instead, this Court should contemplate how the government would have reacted were
the unmade objection actually lodged and sustained during trial. See id. Here, that objection
would have been to admission of the DEA-7 evidence without testimony from the authoring
chemists.
There is no reasonable probability that the jury would have made different quantity findings
because, if faced with a proper ruling, the government would have simply introduced the DEA-7
evidence using the authoring chemists. See Appellants’ Br. at 163 & n.75, McGill, 815 F.3d 846
(No. 06-3190), Document #1381198 (recognizing that the authoring chemists were available to
testify but that the government did not call them out of convenience of presentation). This would
have rendered all the improperly admitted evidence admissible under the Confrontation Clause.
See McGill, 815 F.3d at 890. And no defendant has provided any reason to believe that testimony
by the authoring chemists, as opposed to the supervisory chemist, would have resulted in different
quantity findings by the jury. On that basis alone, the jury’s drug quantity findings should be
maintained as rendered—no defendant can demonstrate a reasonable probability of a different
result.
B. No Defendant Has Demonstrated a Reasonable Probability That the DEA-7
Evidence Affected the Jury’s Drug Quantity Findings Given the Trial Record
Independent of its conclusion in Part III.A., this Court has reviewed the briefing by the
defendants, as well as the government’s opposition, and the trial record, to determine whether there
is a reasonable probability that the jury would have reached a different result absent the DEA-7
evidence and without the government admitting additional evidence. As mentioned before, drug
quantity attribution in a drug conspiracy is an “individualized” approach with a focus on “the
quantity of drugs the jury attributes to [each defendant] as a reasonably foreseeable part of the
8
conspiracy.” Stoddard, 892 F.3d at 1222 (quoting United States v. Law, 528 F.3d 888, 906 (D.C.
Cir. 2008)). Therefore, the Court will consider the amount of drugs connected or attributed to each
defendant in the improperly admitted DEA-7 evidence as compared to the amount the jury found
attributable to each defendant. The Court will also review the trial record to consider the non-
DEA-7 evidence at trial establishing the drug quantities attributable to the individual defendants.
On that basis, the Court concludes that the defendants have failed to meet their burdens. 4
1. Kenneth Simmons
The jury attributed to Kenneth Simmons 5 kilograms or more of powder cocaine, 50 grams
or more of crack cocaine, and 100 grams to 1 kilogram of heroin. ECF No. 1879 at 2-3. The DEA-
7 evidence attributed 478.3 grams of powder cocaine and 506.65 grams of crack cocaine to
Kenneth Simmons. It attributed no heroin to Kenneth Simmons.
Kenneth Simmons makes no specific argument that the evidence at trial was insufficient to
establish the drug quantities for which he was convicted. 5 However, the Court will read his motion
broadly, and consider whether he has demonstrated a reasonable probability that the jury’s drug
quantity findings would have been different without the DEA-7 evidence. On that basis, the Court
has reviewed the government’s submission, the trial record, and the D.C. Circuit’s opinion,
including its recognition that “there was testimony that Simmons engaged in drug transactions
with Moore, Gray, Deon Oliver, Fleming, and James Alfred.” McGill, 815 F.3d at 892. Taking
4
The Court notes that the D.C. Circuit recently affirmed this Court’s rejection of codefendant Keith McGill’s identical
argument regarding drug quantity. There, the D.C. Circuit explained that codefendant Keith McGill’s argument that
the DEA-7 evidence “‘must have [ ] influenced’ the jury’s finding on the quantity of drugs he conspired to distribute”
was baseless and that “[t]he record contains overwhelming evidence” of the quantity of drugs for which he was
responsible. United States v. Keith B. McGill, No. 21-3058, 2022 WL 15604316, at *1 (D.C. Cir. Oct. 28, 2022)
(summary order).
5
Instead he argues that “[a]bsent the laboratory reports, the prosecution did not introduce sufficient evidence to prove
beyond a reasonable doubt that [he] possessed a controlled substance.” Def. Kenneth Simmons Mot. 1, 4 (citing
United States v. Trotman, 406 F. App’x 799 (4th Cir. 2011)). The Court rejects that argument as being beyond the
scope of the remand and wrong on the merits. Infra Part III.C.1.
9
the evidence as a whole, the Court concludes that Kenneth Simmons has not met his burden to
demonstrate a reasonable probability that the jury’s findings would have been different absent the
DEA-7 evidence.
For 5 kilograms or more of powder cocaine, the Court concludes that Kenneth Simmons
has failed to meet his burden given the substantial evidence at trial and the small amount of powder
cocaine attributable to him in the DEA-7 evidence compared to the jury’s finding.
Maurice Andrews, a cooperator and coconspirator, testified that he was aware of Kenneth
Simmons supplying Kevin Gray, a leader of the drug conspiracy, with powder cocaine three or
four times, comprising one-quarter, one-half, and at least one kilogram. Transcript (October 21,
2003, PM) at 58-59, ECF No. 1893. Eventually, that relationship reversed, and Gray began
supplying Kenneth Simmons. Transcript (October 21, 2003, PM) at 60. Cooperator and former
coconspirator Steven Graham testified that Gray once purchased a kilogram of powder cocaine
from Kenneth Simmons, before returning it due to apparent quality issues. Transcript
(December 15, 2003, AM) at 79-83.
Walter Fleming, a cooperator and former coconspirator who was involved in various drug
transactions, testified to a variety of powder cocaine transactions, including Kenneth Simmons
passing along to Fleming an average of 2 kilograms of cocaine every two to three weeks from the
end of 1996 until the Fleming’s arrest in 1998. Transcript (November 17, 2003, PM) at 125-28;
Transcript (November 19, 2003, AM) at 92-95. Fleming further explained that Rodney Moore,
another leader of the drug conspiracy, supplied powder cocaine to Kenneth Simmons and that,
after Kenneth Simmons connected Fleming and Moore, Fleming bought at least 2 kilograms of
powder cocaine from Moore directly and, during other instances, bought through Simmons,
including at least 3 additional kilograms of transactions. Transcript (November 17, 2003, PM)
10
at 130-34. Kenneth Simmons and Fleming further bought at least 2 kilograms of cocaine from
James Alfred. Transcript (November 18, 2002, AM) at 20-21. Graham corroborated the
relationship between Fleming and Kenneth Simmons as to powder cocaine. When Graham went
to Fleming’s place of business to pick up powder cocaine, Fleming would sometimes say that he
needed to wait for Kenneth Simmons to deliver the cocaine. Transcript (December 15, 2003, AM)
at 23-26. Raymond Sanders, a government cooperator, testified that Deon Oliver received powder
cocaine from Kenneth Simmons. Transcript (November 6, 2003, AM) at 21.
Given the varied and extensive testimony as to Kenneth Simmons’s powder cocaine
dealings, and the mere 478.3 grams linked to him in the DEA-7 evidence, Kenneth Simmons has
not met his burden to establish that there is a reasonable probability that the jury would have
reached a different quantity finding absent the DEA-7 evidence.
For 50 grams or more of crack cocaine the government presented substantial testimony
from several witnesses more than sufficient to attribute kilograms of crack cocaine to Kenneth
Simmons, never mind only 50 grams. This substantial testimony renders Kenneth Simmons unable
to meet his reasonable probability burden, even though the DEA-7 evidence did attribute to him
more crack cocaine than the minimum amount that the jury found attributable to him.
Fleming testified that Kenneth Simmons was purchasing 3 kilograms of crack cocaine a
week from him between 1994 and July 1996. Transcript (November 17, 2003, PM) at 82-83, 105-
06. Moreover, Fleming explained that he cooked crack cocaine for Kenneth Simmons. Transcript
(November 17, 2003, PM) at 128-29. Beyond the relationship between Fleming and Kenneth
Simmons, Fleming also testified that Kenneth Simmons would supply 62-gram and 125-gram
amounts of crack cocaine to Deon Oliver, Transcript (November 17, 2003, PM) at 139-40;
11
Transcript (November 19, 2003, PM) at 74, ECF No. 1906. The same was true for Kevin Gray.
Transcript (November 17, 2003, PM) at 144-45.
Cooperator and former coconspirator Omar Wazir testified that he heard Gray state that
Gray had supplied Kenneth Simmons with powder cocaine and that Kenneth Simmons was
complaining because the cocaine was not cooking into crack cocaine properly. Transcript
(October 28, 2003, PM) at 113-15, ECF No. 1897.
Cooperator and former coconspirator Frank Howard testified that he had personally
purchased 250 grams of crack cocaine from Kenneth Simmons. Transcript (January 9, 2004, PM)
at 56-57, ECF No. 1921. Cooperator and former coconspirator Bethlehem Ayele also spoke of
purchasing crack cocaine from Kenneth Simmons. Transcript (January 20, 2004, AM) at 117-20;
Transcript (January 20, 2004, PM) at 7-10, ECF No. 1926.
Victoria Robles, Deon Oliver’s girlfriend, stated that Kenneth Simmons would supply
Deon Oliver with crack cocaine as part of their business relationship. Transcript (November 25,
2003, PM) at 143, ECF No. 1909. She further stated that Kenneth Simmons sold crack cocaine.
Id.
The DEA-7 evidence attributed to Kenneth Simmons a substantial 506.65 grams of crack
cocaine. Given the massive amount of crack cocaine attributable to Kenneth Simmons based on
specific testimony of multiple witnesses at trial, Kenneth Simmons has not established a
reasonable probability that, but for the DEA-7 evidence, the jury would have failed to attribute 50
grams or more of crack cocaine to him.
For 100 grams to 1 kilogram of heroin, the defendant has not met his burden. First, the
DEA-7 evidence at trial connected no heroin to Kenneth Simmons at all. That fact alone makes it
difficult for Kenneth Simmons to demonstrate a reasonable probability that the DEA-7 evidence
12
caused the jury to make the quantity attribution that it did. Moreover, as the D.C. Circuit
recognized, evidence at trial established that “Simmons bought and sold drugs to or from Moore,
Gray, James Alfred, and Oliver,” McGill, 815 F.3d at 929, and he “owned a store that acted as a
meeting place for the large conspiracy’s drug deals.” Id. Indeed, “drug transactions occurred in
the store [b]asically every day, and . . . [e]verybody used to come through the store, including
Moore, Gray, Oliver, and Fleming.” Id. (internal quotation marks and citation omitted) (first and
third alterations in the original). Furthermore, coconspirators supplied by Moore would distribute
heroin, at the very least, in the corridor where the store was located. See Transcript (December
15, 2003, AM) at 31-35, 42-44. The testimony at trial provided sufficient evidence to find that
distribution or possession with intent to distribute 100 grams to 1 kilogram of heroin was
reasonably foreseeable to Kenneth Simmons as part of the conspiracy that he joined.
Given the absence of improperly admitted evidence linking Kenneth Simmons to heroin,
along with the substantial role that Kenneth Simmons and his store played within the conspiracy’s
many and varied drug transactions, the defendant has not met his burden to show that there is a
reasonable probability that the DEA-7 evidence affected the jury’s heroin quantity finding.
Accordingly, Kenneth Simmons has not shown a violation of his substantial rights for any
of the jury’s quantity findings.
2. Ronald Alfred
The jury attributed to Ronald Alfred 5 kilograms or more of powder cocaine, 50 grams or
more of crack cocaine, and 1 kilogram or more of heroin. ECF No. 1880 at 2-3. To meet his
burden, Ronald Alfred argues that the government “presented very little, if any, evidence of drugs
actually seized from Ronald Alfred’s possession or otherwise attributable to him.” Def. Ronald
Alfred Mot. 5. Ronald Alfred relies on his contention that there was “scant evidence of [his] actual
or constructive possession of unlawful narcotics, and lack of evidence showing he reasonably
13
foresaw such possession with intent to distribute amounts as a part of the conspiracy.” Id. at 7.
Finally, Ronald Alfred notes that his part in the conspiracy started around May 15, 1995. Id. at 4.
He has nonetheless failed to meet his burden.
First, and most importantly, the improperly admitted DEA-7 evidence attributed to Ronald
Alfred no drug quantities for the period comprising the relevant conspiracy. 6 Given that the
purpose of the remand is to determine whether there is a reasonable probability that the improperly
admitted DEA-7 evidence affected the jury’s quantity findings, the lack of relevant attribution in
that evidence presents a nearly insurmountable hurdle for Ronald Alfred.
Second, the D.C. Circuit has already rejected Ronald Alfred’s view of the evidence,
explaining that there was a “wealth of testimony” against Ronald Alfred for his conviction of drug
trafficking, even absent the DEA-7 evidence. McGill, 815 F.3d at 947. And, of particular
relevance, the D.C. Circuit specifically approved the jury’s attribution to Ronald Alfred of 50 or
more grams of crack cocaine. 7 The Circuit further explained that testimony showed that “Ronald
Alfred supplied Gray with drugs and vice-versa.” Id. at 892.
The lack of improperly admitted evidence relevant to the jury’s quantity finding, and the
D.C. Circuit’s own analysis, rebut Ronald Alfred’s briefing and demonstrate that he has not met
his burden. However, for the sake of completeness, the Court will also discuss the evidence in the
trial record that refutes Ronald Alfred’s argument.
6
Instead, it attributed to Ronald Alfred 997.9 grams of powder cocaine from 1989, and the jury was instructed not to
return any verdicts against Ronald Alfred for that time period. See, e.g., Transcript (November 4, 2003, AM) at 40-
41.
7
“Here, sufficient evidence supported [Ronald] Alfred’s conviction even without lab analysis. Testimony was
presented showing that Alfred’s close associates were involved in trafficking crack cocaine, including his brother
James, who was said to be Ronald Alfred’s middleman in drug transactions. Evidence also showed that the conspiracy
as a whole participated in crack cocaine transactions. Such evidence, along with the wealth of testimony regarding
Alfred’s own drug trafficking, supports the jury’s attribution of 50 or more grams of trafficked crack cocaine to Ronald
Alfred as a reasonably foreseeable part of the conspiracy he joined.” McGill, 815 F.3d at 947 (citing Law, 528 F.3d
at 906).
14
For 5 kilograms or more of powder cocaine, the testimony of cooperator and former
coconspirator Maurice Andrews provides substantial specific evidence to support the jury’s
finding. Andrews testified that, over the course of approximately three years, Ronald Alfred
supplied Kevin Gray with 125 grams of powder cocaine twice a week. Transcript (October 21,
2003, AM) at 156-58. Ronald Alfred would also gift drugs, like powder cocaine, to Gray.
Transcript (October 21, 2003, PM) at 49. Moreover, the jury heard testimony that Ronald Alfred
introduced Gray to a new supplier and coconspirator, Lionell Nunn, who proceeded to supply
powder cocaine to Gray in November 1998. Transcript (October 21, 2003, PM) at 145-47.
This evidence from trial further demonstrates that Ronald Alfred has failed to meet his
burden as to powder cocaine.
For 50 or more grams of crack cocaine, the D.C. Circuit already approved the jury’s finding
based on the testimony at trial that James Alfred was a middleman for his brother Ronald.
Transcript (October 21, 2003, AM) at 85-86; see McGill, 815 F.3d at 947 (“[Ronald Alfred’s]
brother James, [] was said to be Ronald Alfred’s middleman in drug transactions. . . . [The
evidence] supports the jury’s attribution of 50 or more grams of trafficked crack cocaine to Ronald
Alfred as a reasonably foreseeable part of the conspiracy he joined.”). Given that the government
has demonstrated that testimony at trial supports attributing several thousand grams of crack
cocaine to James Alfred, there is no reasonable probability that the finding as to Ronald Alfred
would have changed absent the DEA-7 evidence. See infra Part III.B.3.
In light of the D.C. Circuit’s specific discussion of crack cocaine attribution for Ronald
Alfred, the testimony at trial, the lack of crack cocaine attribution in the improperly admitted
evidence, and the omission of any effective argument otherwise by Ronald Alfred in his brief, this
Court concludes that Ronald Alfred has not met his burden for crack cocaine.
15
For 1 kilogram or more of heroin, the government admitted relevant testimony from several
witnesses.
Andrews testified that Gray would purchase two to three ounces of heroin at a time from
Ronald Alfred, heroin that James Alfred would sometimes deliver. Transcript (October 21, 2003,
AM)) at 85-86. Andrews’s testimony supports the conclusion that, at the very least, this weekly
delivery continued from mid-1995 to November 1998. Transcript (October 21, 2013, AM) at 156-
58. Andrews further testified to a one-ounce gift from Ronald Alfred to Gray. Transcript
(October 21, 2003, PM) at 49. And, after Ronald Alfred introduced Lionell Nunn, Nunn began
supplying quantities of heroin to Gray. Transcript (October 21, 2013, PM) at 145-47. Andrews
also testified that “[e]very once in awhile we would be getting ounces of heroin from [Ronald
Alfred].” Transcript (October 21, 2003, PM) at 137.
In his testimony, Fleming corroborated Kevin Gray’s heroin relationship with Ronald
Alfred. Fleming testified that in 1997, Gray told Fleming that Gray was getting heroin from
Ronald Alfred. November 18, 2003, AM, at 27-28. Meanwhile, Omar Wazir testified that Ronald
Alfred was sometimes supplied with heroin by Gray, with purchases in 200-gram units. Transcript
(October 28, 2003, PM) at 119. Frank Howard testified that Gray would supply Ronald Alfred
with heroin at least three times a week for approximately one year. Transcript (January 9, 2004,
PM) at 53-54. Finally, Steven Graham testified that Gray supplied Ronald Alfred with 100 grams
of heroin two to three times a week. Transcript (December 15, 2003, PM) at 12-16, ECF No. 1914.
Cooperator and former coconspirator Caprice Whitley testified that Ronald Alfred induced
her into acting as a drug courier moving heroin into the United States. Transcript (November 24,
2003, PM) at 84-93, ECF No. 1908. He supplied the money and Caprice proceeded to bring in ten
packages of 100 grams of heroin. Id.
16
Given the absence of any improperly admitted DEA-7 evidence on the subject, the D.C.
Circuit’s discussion, and the trial testimony, Ronald Alfred has failed to meet his burden for the
jury’s heroin quantity finding.
Accordingly, Ronald Alfred has not shown a violation of his substantial rights for any of
the jury’s quantity findings.
3. James Alfred
The jury attributed to James Alfred 5 kilograms or more of powder cocaine, 50 grams or
more of crack cocaine, and 1 kilogram or more of heroin. ECF No. 1881 at 2-3. James Alfred
argues that “the government’s trial evidence regarding quantities of controlled substances was not
limited to the improperly-admitted evidence, [but] that evidence was critical to the government’s
case against [him].” Def. James Alfred Br. 5. That is particularly true, he contends, because he
did not join the conspiracy until May 1995. Id. at 6. And he argues that the testimony at trial was
impermissibly vague and imprecise such that there is a reasonable probability the jury’s drug
quantity conclusion would have been different but for the DEA-7 evidence. Id. at 6-9. James
Alfred also provides detailed witness-by-witness reasons why the government’s evidence, without
the DEA-7 evidence, was insufficient. Id. Nevertheless, he has failed to demonstrate a reasonable
probability of different drug quantity findings absent the DEA-7 evidence.
First, and most importantly, the improperly admitted DEA-7 evidence attributed no drugs
to James Alfred for any category. This is a significant roadblock to James Alfred being able to
meet his burden. He attempts to navigate past this impediment by claiming that the drug reports
were “critical” because the jury would have wondered where the conspiracy’s seized drugs were,
Def. James Alfred Br. 5; Def. James Alfred Reply 2, and classified that evidence as being of a
different character than cooperator testimony. Def. James Alfred Reply 2. The Court rejects this
argument. As discussed below, significant and detailed testimony described the extent of the
17
narcotics conspiracy as well as James Alfred’s role in it. The D.C. Circuit further affirmed the
jury’s substantive convictions, even without the DEA-7 evidence, and rejected the defendants’
argument that such evidence was critical to the jury’s conspiracy finding. See McGill, 815 F.3d
at 892, 946-47. And this Court notes again that the D.C. Circuit’s opinion linked James Alfred’s
activities to those of his brother when it stated “[t]estimony was presented showing that [Ronald]
Alfred’s close associates were involved in trafficking crack cocaine, including his brother James,
who was said to be Ronald Alfred’s middleman in drug transactions.” McGill, 815 F.3d at 947.
The absence of relevant DEA-7 evidence attributing drug quantities to James Alfred and
the D.C. Circuit’s discussion alone demonstrate that he has failed to meet his burden. However,
for the sake of completeness, the Court will also review the substantial trial testimony as to the
drug quantities attributable to James Alfred. That testimony only further reinforces that there is
no reasonable probability of different drug quantity findings absent the DEA-7 evidence.
For 5 kilograms of powder cocaine, substantial testimony detailed the quantity of cocaine
properly attributable to James Alfred through his participation in the conspiracy.
Andrews testified that, sometime after approximately November 1998, James Alfred’s
source for powder cocaine was Gray. Transcript (October 21, 2013, PM) at 139-40, 145-49. He
further testified to an additional situation when Gray delivered 375 grams of cocaine to James
Alfred. Transcript (October 22, 2003, PM) at 24-33, ECF No. 1894. Cooperator and former
coconspirator Melvin Wallace testified that, on another occasion, Gray had provided 125 grams of
cocaine to James Alfred. Transcript (January 6, 2004, AM), at 40-42. All of this testimony was
bolstered with wiretap calls, during which James Alfred called Gray and asked about the cocaine
that Gray had available. Transcript (October 22, 2013, PM) at 37-38, 41-42, 47.
18
James Alfred responds to this evidence by arguing “that Gray was becoming increasingly
frustrated with James Alfred’s inability to pay” that “Gray started telling James Alfred he had no
drugs when, in fact, he did” and finally that “James Alfred was not part of the ‘crew,’ he was only
a customer.” Def. James Alfred Br. 6-7; Def. James Alfred Reply 3-4. Nevertheless, the evidence
at trial established the relationship of supply and delivery between James Alfred and Gray. Even
if that relationship frayed over time, the jury convicted James Alfred of being part of the larger
drug conspiracy and the D.C. Circuit did not disturb that conclusion, see McGill, 815 F.3d at 890-
92, nor does the evidence detailed suggest otherwise.
Furthermore, Omar Wazir testified to James Alfred’s involvement with powder cocaine.
Wazir explained that he observed James Alfred sell cocaine and that James Alfred had told him
that he sold cocaine, previously in wholesale quantities. Transcript (October 28, 2003, PM) at 54-
56. According to Wazir, James Alfred would keep his cocaine in a store in quantities of 125 grams
to 1 kilogram. Transcript (October 28, 2003, PM) at 68. Wazir once personally observed James
Alfred sell 1 kilogram of cocaine, the largest amount that he witnessed James Alfred sell.
Transcript (October 28, 2003, PM) at 54-56, 71. He also observed James Alfred with 2 to 3
kilograms in his car. Transcript (October 28, 2003, PM) at 71.
Walter Fleming testified that he and Kenneth Simmons together purchased 2 kilograms of
cocaine from James Alfred on one occasion. Transcript (November 18, 2003, AM) at 20-23.
In sum, there is a substantial amount of specific testimony detailing James Alfred’s
dealings with powder cocaine, directly involving multiple members of the charged conspiracy.
The quantities detailed in the testimony support the jury’s finding of more than 5 kilograms of
cocaine. And the DEA-7 evidence did not attribute any cocaine to James Alfred at all. Especially
taken together, James Alfred has failed to meet his burden as to powder cocaine.
19
For 50 grams or more of crack cocaine, it is important to again note the D.C. Circuit’s
conclusion that “[t]estimony was presented showing that [Ronald] Alfred’s close associates were
involved in trafficking crack cocaine, including his brother James, who was said to be Ronald
Alfred’s middleman in drug transactions. McGill, 815 F.3d at 947; see Transcript (October 21,
2003, AM), at 85-86.
Wazir testified that he personally observed James Alfred sell crack cocaine multiple times
and that the largest amount at one time was 250 grams. Transcript (October 28, 2003, PM) at 70.
He also testified that he observed people cook crack cocaine for James Alfred, including one
occasion when he watched someone cook 1 kilogram of cocaine into crack cocaine on behalf of
James Alfred. Transcript (October 28, 2003, PM) at 73-74, 77-79. Moreover, Wazir observed the
drug-related relationship between James Alfred and Gray, once watching as Gray gave James
Alfred 125 grams of crack cocaine. Transcript (October 28, 2003, PM) at 123-25. And Fleming
testified that he delivered 62 grams or 125 grams of crack cocaine to James Alfred at least ten
times. Transcript (November 18, 2003, AM) at 17-19.
That testimony establishes far more than the amount that the jury needed to attribute to
James Alfred. The lack of DEA-7 evidence, and the D.C. Circuit’s discussion of James Alfred as
a middleman for his brother’s crack cocaine sales, confirm that James Alfred has not met his
burden.
For 1 kilogram or more of heroin, there is, once again, significant trial evidence
establishing the attributable quantity, particularly given James Alfred’s role as a middleman for
his brother.
First, Andrews testified that Gray would purchase two to three ounces of heroin at a time
from Ronald Alfred, heroin that James Alfred would sometimes deliver. Transcript (October 21,
20
2003, AM) at 85-86. At the very least, those deliveries continued from mid-1995 to
November 1998. Transcript (October 21, 2013, AM) at 156-58. Separately, Wazir testified that
he personally observed James Alfred sell heroin. Transcript (October 28, 2003, PM) at 90-92,
102-06. And, James Alfred would also provide heroin to Wazir on occasion. Transcript
(October 28, 2003, PM) at 92-94. Given James Alfred’s role in his brother’s heroin operations, as
established by trial testimony, this quantity provides more than enough basis to conclude that he
should be attributed several kilograms of heroin, never mind the single kilogram necessary for the
jury’s attribution finding. Considering the absence of DEA-7 evidence for heroin, and the trial
testimony as to James Alfred’s role in heroin sales, James Alfred has not met his burden.
Given the absence of improperly admitted DEA-7 evidence attributing to James Alfred any
drug quantities, the D.C. Circuit’s discussion of his role, and the trial testimony, James Alfred has
not shown a violation of his substantial rights for any of the jury’s quantity findings. 8
4. Franklin Seegers
The jury attributed to Franklin Seegers 500 grams to 5 kilograms of powder cocaine, 50
grams or more of crack cocaine, and 100 grams to 1 kilogram of heroin. ECF No. 1963 at 2.
Franklin Seegers argues that the government presented “scant evidence regarding the
quantity of drugs allegedly attributable to [him]” during his involvement in the conspiracy. Def.
Franklin Seegers Mem. 12. He also argues that the improperly admitted DEA-7 evidence had a
“spillover effect” from the jury’s cocaine and heroin quantity findings, into their cocaine base
findings. Id. at 13.
8
This Court notes James Alfred’s specific objection to crediting Frank Howard’s testimony given that much of the
conduct Frank Howard described for James Alfred occurred before May 15, 1995, which is when the government
agrees James Alfred joined the conspiracy. Def. James Alfred Br. 7 n.2; Gov’t Opp’n 22 n.6. Out of an abundance
of caution, this Court has not relied on Howard’s testimony when considering the drug quantities for James Alfred.
21
The DEA-7 evidence attributed 28.255 grams of powder cocaine, 1.751 grams of crack
cocaine, and 25.94 grams of heroin to Franklin Seegers. Those amounts are less than the quantity
that the jury found was attributable to him. Given that the improperly admitted testimony alone
could not have established the jury’s quantity findings, the jury must have credited other evidence
presented at trial to come to its final quantity determinations. The Court will now review that trial
testimony to determine whether Franklin Seegers has met his reasonable probability burden.
For 500 grams to 5 kilograms of powder cocaine, the combination of the testimony at trial
regarding Franklin Seegers’s role in the conspiracy, alongside the small amount of powder cocaine
attributed to him in the DEA-7 evidence, together establish that he has not met his burden.
Eugene Williams testified that Pee Wee Oliver, a coconspirator, ran a variety of drug sales
out of Williams’s house. Transcript (November 13, 2003, AM) at 96-106. According to Williams,
Franklin Seegers supervised and oversaw Pee Wee Oliver, and the various drugs moving in out of
the house. Transcript (November 13, 2003, AM) at 116-19; Transcript (November 13, 2003, PM)
at 25-26, 32, 49-50, ECF No. 1904. Franklin Seegers stayed at Williams’s home every day to act
as Pee Wee Oliver’s “overseer, watcher, keeper, bodyguard.” Transcript (November 13, 2003,
AM) at 116-19; Transcript (November 13, 2003, PM) at 25-26, 32, 49-50. The D.C. Circuit agreed
that the trial testimony established “that Seegers was employed as Pee Wee Oliver’s ‘overseer’ or
‘bodyguard.’” McGill, 815 F.3d at 892.
The sales run by Pee Wee Oliver that were overseen by Franklin Seegers ran nearly
twenty-four hours a day. Transcript (November 13, 2003, AM) at 96-106, 116-19. And when
other conspirators, like Rodney Moore, gathered at the house, Franklin Seegers participated in the
meetings. Transcript (November 13, 2003, AM) at 106-07, 120-21. Furthermore, Rodney Moore,
22
a ringleader of the drug conspiracy, would supply Franklin Seegers with both money and drugs.
Transcript (October 21, 2003, PM) at 65-66.
Given that the DEA-7 evidence only attributed to Franklin Seegers approximately 28 grams
of the 500 grams or more of powder cocaine that the jury found attributable to him, alongside the
testimony at trial regarding Franklin Seegers’s substantial role within the conspiracy, he has failed
to demonstrate a reasonable probability that the improperly admitted evidence led the jury to make
its finding as to the amount of powder cocaine attributable to Franklin Seegers.
For the 50 grams or more of crack cocaine, testimony at trial established that Pee Wee
Oliver was the crack cocaine ringleader for the conspiracy and that Seegers oversaw Oliver.
Transcript (November 13, 2003, AM) at 96-96, 105-06; McGill, 815 F.3d at 892. The crack
cocaine sales run by Pee Wee Oliver were substantial, totaling $2,000 to $3,000 a day. Transcript
(November 13, 2003, AM) at 109. Furthermore, Williams testified that Franklin Seegers would
sell crack cocaine and that dealers, including Williams, would source their crack cocaine from
Franklin Seegers and those who worked for him. Transcript (November 13, 2003 AM) at 126-27.
Given the paltry 1.751 grams of crack cocaine attributed to Franklin Seegers in the DEA-
7 evidence, alongside the trial testimony that he was the overseer and bodyguard for the crack
cocaine ringleader of the conspiracy, Franklin Seegers has failed to demonstrate a reasonable
probability that the jury would have made a different crack cocaine quantity finding absent the
improperly admitted evidence.
For the 100 grams to 1 kilogram of heroin, Williams testified that members of the drug
conspiracy were selling heroin out of his house and said that he found “a few 10-packs of heroin”
with each individual bag containing “a couple of tenths of a gram” of heroin. Transcript
(November 13, 2003, AM) at 107-11. Williams testified that Franklin Seegers was at the house
23
where they sold heroin every day, overseeing Pee Wee Oliver. Transcript (November 13, 2003,
AM) at 116-19; Transcript (November 13, 2003, PM) at 25-26, 32, 49-50. Furthermore, Franklin
Seegers’s former coconspirator, Maurice Andrews, testified that Moore was supplying Franklin
Seegers with both money and drugs. See Transcript (October 21, 2003, PM) at 65-66.
Given this trial testimony, and the mere 25.94 grams of heroin attributed to him in the
DEA-7 evidence, Franklin Seegers has failed to meet his burden to demonstrate that the jury’s
heroin quantity finding would have been different absent the DEA-7 evidence.
In sum, Franklin Seegers has failed to meet his burden to demonstrate a reasonable
probability that the improperly admitted DEA-7 evidence caused the jury to make the quantity
findings that it did. Considering that the DEA-7 evidence attributed to Franklin Seegers mere
fractions of the drug quantities found by the jury, alongside the evidence regarding Franklin
Seegers’s role in the conspiracy, he has failed to demonstrate a violation of his substantial rights.
5. Deon Oliver
The jury attributed to Deon Oliver 5 kilograms or more of powder cocaine and 50 grams
or more of crack cocaine. ECF No. 1882 at 2.
Deon Oliver argues that the testimony at trial, without the DEA-7 evidence, was
insufficient for the jury to establish an attributable drug quantity. Def. Deon Oliver Br. 3-7. Deon
Oliver further asserts that the DEA-7 evidence was “critical” and that the testimony was
insufficiently specific. Def. Deon Oliver Reply 4-7. However, the argument is belied both by the
testimony at trial and the lack of DEA-7 evidence connected to Deon Oliver: nothing for powder
cocaine and a mere 12.8 grams for crack cocaine. And as the D.C. Circuit noted, “there was
testimony that . . . Deon Oliver sold drugs he obtained from Simmons and Moore.” McGill, 815
F.3d at 892.
24
For 5 kilograms or more of powder cocaine, Maurice Andrews testified that Deon Oliver
would sell drugs supplied by three members of the drug conspiracy: Rodney Moore, Kenneth
Simmons, and Kevin Gray. Transcript (October 21, 2003, PM) at 53-54, 63-64. Cooperator and
former coconspirator Raymond Sanders testified that one of the drugs Kenneth Simmons in
particular supplied to Deon Oliver was powder cocaine. Transcript (November 6, 2003 AM) at 21.
Walter Fleming testified that on one occasion, he, Kenneth Simmons, Rodney Moore, and Deon
Oliver gathered at Deon Oliver’s apartment to handle 1 kilogram of powder cocaine obtained by
the conspiracy. Transcript (November 17, 2003, PM) at 134-38.
Given the lack of DEA-7 evidence linking Deon Oliver to powder cocaine, and reinforced
by the testimony detailing his role in the conspiracy, he has failed to meet his burden as to powder
cocaine.
For 50 grams or more of crack cocaine, Fleming testified that Kenneth Simmons supplied
Deon Oliver with 62-gram and 125-gram quantities of crack cocaine. Transcript (November 17,
2003, PM) at 139-40; Transcript (November 19, 2003, PM) at 74. Fleming further testified that
he cooked powder cocaine into crack cocaine on behalf of Kenneth Simmons and that he was
sometimes told the final crack cocaine was for Deon Oliver. Transcript (November 19, 2003, PM)
at 74. This testimony was bolstered by Caprice Whitley, who testified that she had seen defendant
Kenneth Simmons provide Deon Oliver drugs, while Deon Oliver would give Kenneth Simmons
money. Transcript (November 24, 2003, PM) at 124. Furthermore, during the aforementioned
episode in Deon Oliver’s apartment, 1 kilogram of powder cocaine was turned into more than a
kilogram of crack cocaine. Transcript (November 17, 2003, PM) at 134-38.
25
Deon Oliver’s girlfriend, Victoria Robles, testified that Deon Oliver sold crack cocaine.
Transcript (November 25, 2003, PM) at 142-43, 149-50. Deon Oliver also confirmed that he had
received crack cocaine previously. Transcript (February 5, 2004, AM) at 85-87.
Given this substantial evidence, and the small amount of crack cocaine linked to him in the
DEA-7 evidence, Deon Oliver has failed to meet his burden as to crack cocaine.
In sum, Deon Oliver has failed to show a violation of his substantial rights.
C. The Defendants’ Other Arguments Are Without Merit
This Court will now address several additional arguments made by the defendants. All are
without merit.
First, Kenneth Simmons argues that this Court must vacate his substantive convictions
because, without the DEA-7 evidence, there was insufficient evidence that he was part of a
narcotics conspiracy. Def. Kenneth Simmons Mot. 1-6. Similarly, Ronald Alfred, Deon Oliver,
and James Alfred argue that their drug conspiracies convictions are jeopardized because the
government presented little evidence of drugs seized from them. Def. Ronald Alfred Mot. 5; Def.
Deon Oliver Br. 3-5; Def. James Alfred Br. 5.
Second, several defendants ask to be resentenced on the Racketeer Influenced and Corrupt
Organizations Act (“RICO”) conspiracy counts of which they were convicted. Def. Kenneth
Simmons Mot. 6-7; Def. Franklin Seegers Mem. 14; Def. Deon Oliver Br. 7.
Third, several defendants argue that, under two D.C Circuit cases, testimony by
cooperating witnesses alone cannot establish drug quantities without drug analyses. Def. Ronald
Alfred Mot. 5-8; Def. James Alfred Br. 5-6; Def. James Alfred Reply; Def. Deon Oliver Br. 4;
Def. Deon Oliver Reply 4.
26
1. This Court Will Not Vacate Defendants’ Substantive Drug Conspiracy
Convictions
Kenneth Simmons argues that this Court should vacate his substantive drug conspiracy
conviction because, without the DEA-7 evidence, there is a reasonable probability that the jury
would not have found him guilty of the drug conspiracy. See Def. Kenneth Simmons Mot. 1-6.
Several other defendants at least allude to the same claim. See Def. Ronald Alfred Mot. 5; Def.
Deon Oliver Br. 3-5; Def. James Alfred Br. 5.
The defendants’ arguments are foreclosed here because the D.C. Circuit already rejected
them. On appeal, defendants argued that “apart from the improperly admitted drug report
evidence, ‘there was no tangible proof, other than testimony by highly impeached cooperating
witnesses, as to the nature and scope of the conspiracies at all.’” McGill, 815 F.3d at 891 (quoting
Appellants’ Br. at 164). The D.C. Circuit considered and rejected that argument, writing that
defendants “ha[d] not carried [their] burden as to any elements except (possibly) drug quantity.”
Id. at 892. The Circuit continued, saying, “given the nature of the behavior described by the
cooperating witnesses, the jurors could not have believed that appellants were going through the
elaborate transactions and precautions described, and exchanged the funds described, for any
reason other than conspiracy to distribute and possess narcotics.” Id.
Under the D.C. Circuit’s holding, the question put to this Court on remand is simply
“whether the admission of the drug report evidence affected the jury’s findings as to the quantities
of drugs involved in the charged conspiracies and, if so, which counts or quantity findings (if any)
must be vacated with respect to each appellant.” Id. (emphasis in the original). The Circuit held
“that the Confrontation Clause violations were not prejudicial in any other respect.” Id. Therefore,
this Court will not vacate Kenneth Simmons’s substantive conviction, nor those of any other
defendant. See Briggs v. Pennsylvania. R. Co., 334 U.S. 304, 306 (1948) (“[A]n inferior court has
27
no power or authority to deviate from the mandate issued by an appellate court.”); Am. Council of
Blind v. Mnuchin, 977 F.3d 1, 5 (D.C. Cir. 2020).
Even if the question were properly before this Court, the defendants’ arguments fail on the
merits. The defendants could not meet their burden to show that there is a reasonable probability
that the jury would not have convicted them of the drug conspiracy without the DEA-7 evidence
because there was “overwhelming evidence” as to the defendants’ guilt. McGill, 815 F.3d at 947;
see id. at 892 (detailing the evidence at trial proving “appellants’ participation in the conspiracy
and drug dealing,” even absent the DEA-7 evidence); id. at 947 (affirming Ronald Alfred’s
conviction “even without lab analysis” because of the “wealth of testimony” regarding his
participation in the drug trafficking conspiracy); supra Part III.B. And drug analysis reports, or
physical evidence of drugs seized, are not necessary to convict defendants of a drug conspiracy.
McGill, 815 F.3d at 946 (“laboratory analysis is just one of many ways in which involvement with
narcotics can be proven; circumstantial evidence alone can also suffice”) (citing United States v.
Baugham, 449 F.3d 167, 171-72 (D.C. Cir. 2006)). There was overwhelming evidence at trial of
these defendants’ participation in the drug conspiracy that the jury convicted them of and there is
no reason to set that finding aside.
Based on the limited scope of the remand here, or alternatively on the merits, this Court
concludes that the defendants’ substantive drug conspiracy convictions should not be vacated.
2. This Court Will Not Vacate Defendants’ RICO Conspiracy Convictions
Several defendants argue that their RICO conspiracy convictions were disturbed by the
D.C. Circuit’s ruling on the Confrontation Clause violation. Def. Kenneth Simmons Mot. 6-7;
Def. Franklin Seegers Mem. 14; Def. Deon Oliver Br. 7; Def. Deon Oliver Reply 6-7. That
argument is without merit.
28
First, the Circuit rejected defendants’ argument that the improperly admitted DEA-7
evidence required “vacatur of their . . . RICO conspiracy convictions.” McGill, 815 F.3d at 890-
92. Second, no defendant has explained how different quantity findings would affect their RICO
conspiracy convictions. Third, because the defendants have not shown a reasonable probability of
different quantity findings, there cannot be any effect on the defendants’ RICO conspiracy
convictions. Supra Part III.B.
No matter how the issue is sliced, the defendants’ RICO conspiracy convictions have not
been disturbed by the D.C Circuit’s ruling and will not now be disturbed by this Court.
3. Several Defendants Wrongly Rely on the D.C. Circuit’s Fields Cases to Assert that
Drug Quantity Cannot be Established Without Seized Drugs
More directly responsive to the remand, several defendants argue that the D.C. Circuit’s
rulings in United States v. Fields, 242 F.3d 393, 396 (D.C. Cir. 2001) (“Fields I”) and United
States v. Fields, 251 F.3d 1041, 1043 (D.C. Cir. 2001) (“Fields II”) preclude a jury finding on drug
quantity based solely on cooperator testimony without drug analysis evidence. See Def. Ronald
Alfred Mot. 5-8; Def. James Alfred Br. 5-6; Def. James Alfred Reply; Def. Deon Oliver Br. 4;
Def. Deon Oliver Reply 4. Their view overreads those cases.
Fields I requires that a jury, before convicting a defendant of drug conspiracy charges, find
that the government proved the drug type and quantity beyond a reasonable doubt. 242 F.3d at 396
(“[T]he Government must state the drug type and quantity in the indictment, submit the required
evidence to the jury, and prove the relevant drug quantity beyond a reasonable doubt.”). There,
the jury never found any drug quantity amounts at all because the verdict form failed to include a
section to make such a finding. See id.
On rehearing, the D.C. Circuit expanded on Fields I and explained that “imprecise” and
“vague testimonial evidence” might be insufficient on plain-error review to establish drug quantity
29
amounts not found by a jury. Fields II, 251 F.3d at 1045. Examples of such testimony include
descriptions like “‘[the defendant] made a living selling crack,’ sold or supplied marijuana to ten
named individuals, ‘worked selling marijuana four to five days a week,’ and ‘had no idea how
much marijuana he had sold.’” Id. The cases, however, do not stand for the proposition that
testimony from coconspirators are never sufficient to maintain quantity findings. They merely
hold that a court must be careful to consider the evidence thoroughly to determine whether
defendants have demonstrated a violation of substantial rights based on the legal error made.
The defendants’ situation is clearly distinguishable from Fields I and II. There, the jury
never found any drug quantity amounts at all because the verdict form failed to include a section
to make such a finding. See Fields I, 242 F.3d at 396. In that circumstance, the evidence was
insufficient to ensure that the failure to ask the jury about drug quantities “did not ‘seriously affect[
] the fairness, integrity or public reputation of judicial proceedings.’” Fields II, 251 F.3d at 1045
(citation omitted) (alteration in the original). By contrast, the jury here made the required findings
as to quantity. See supra Part III.B. This Court is only evaluating whether the improperly admitted
evidence violated substantial rights, unlike a judge made to consider whether a complete failure to
ask the jury to identify attributable quantities violated substantial rights.
Moreover, unlike Fields II, which rejected testimony from witnesses who could not
sufficiently establish drug quantities, the government here presented numerous “cooperating
witnesses [who] testified to appellants’ participation in the conspiracy and drug dealing in depth
and at length.” McGill, 815 F.3d at 892. This Court has reviewed the trial record and weighed the
possible effect of the improperly admitted evidence against the strong, varied, and specific
testimony at trial supporting both guilt on the substantive charges as well as the individual quantity
findings made by the jury. Consequently, Fields I and Fields II do not support the defendants—
30 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488710/ | Filed 11/22/22 P. v. Kilgore CA3
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
----
THE PEOPLE,
Plaintiff and Respondent, C091113
v. (Super. Ct. No. 17FE001073)
LONNIE CHARLES KILGORE,
ORDER MODIFYING
Defendant and Appellant. OPINION AND DENYING
REHEARING
[NO CHANGE IN
JUDGMENT]
THE COURT:
It is ordered that the opinion filed in this case on October 31, 2022, be modified
as follows:
On page 18, footnote 3, replace the language in footnote 3 with the following:
On April 14, 2022, defendant moved to join in an argument regarding
section 1109 in codefendant Ackerson’s second supplemental opening brief in case
No. C090994. And on June 16, 2022, defendant moved to join in an argument regarding
section 1109 in codefendant Gi’s supplemental reply brief in case No. C090994.
Assembly Bill No. 333 added section 1109, which mandates a separate trial of a
section 186.22, subdivision (b) gang enhancement allegation if requested by the defense.
(Stats. 2021, ch. 699, § 5 [§ 1190, subd. (a]).) We interpret defendant’s April 14 and
June 16 motions as having sought to assert arguments pertaining to the gang
1
enhancement findings, and we deny the motions as moot because we have determined the
gang enhancement findings must be vacated.
In his petition for a rehearing, defendant claimed the section 1109 argument he
had wished to make in this appeal would have asked this court to reverse his conviction
on the substantive charges. He said he asked for rehearing to be allowed to file a
supplemental brief to flesh out that issue. Defendant asserted that his motions to join in
codefendants’ arguments reflected his wish to raise that claim. Also in support of his
petition for rehearing, defendant referenced his March 4, 2022 motion in this court
seeking permission to file a second supplemental brief, a motion that this court denied.
But none of those filings clearly articulated the claim defendant seeks to assert on
rehearing. In his March 4, 2022 motion, defendant observed that in his first supplemental
opening brief he argued that his gang enhancements should be reversed because of
amendments to section 186.22 enacted by Assembly Bill No. 333, and he stated that he
wished to raise additional Assembly Bill No. 333-related issues, including an argument
regarding section 1109. His motion did not clearly indicate defendant sought to raise a
new argument for reversal of his substantive convictions. Later, defendant moved to join
in and adopt by reference the argument raised in his codefendants’ briefs that the trial
court prejudicially erred in refusing to bifurcate the gang enhancements as requested by
the defense. Nowhere in either of those two motions did defendant clearly articulate that,
by seeking to join in his codefendants’ arguments regarding Penal Code section 1109, he
thereby sought to change the claim he raised in his supplemental opening brief.
This modification does not change the judgment.
The petition for rehearing is denied.
FOR THE COURT:
/S/
ROBIE, Acting P. J.
/S/
MAURO, J.
/S/
HOCH, J.
2
Filed 10/31/22 P. v. Kilgore CA3 (unmodified opinion)
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
----
THE PEOPLE,
Plaintiff and Respondent, C091113
v. (Super. Ct. No. 17FE001073)
LONNIE CHARLES KILGORE,
Defendant and Appellant.
A jury convicted defendant Lonnie Charles Kilgore and codefendants Elton
Ackerson, Dereck Gi, Jr., and Malik Green-Geiger of willful, deliberate, and
premeditated attempted murder, and found true gang enhancement allegations. The trial
court sentenced defendant to a determinate term of 17 years four months and an
indeterminate term of 39 years to life in prison.
1
Defendant now contends (1) his conviction is based on an invalid theory of
criminal liability, (2) willful, deliberate, and premeditated attempted murder was not
alleged in the accusatory pleading, (3) two rap videos should not have been admitted into
evidence, (4) the trial court improperly denied a defense request to instruct the jury on a
lesser-included offense, and (5) we must reverse the gang-related enhancement in light of
recent statutory changes made by Assembly Bill No. 333 (2021-2022 Reg. Sess.) (Stats.
2021, ch. 699.)
Finding merit in the fifth contention, we will affirm the convictions, vacate the
gang-related enhancement findings, and remand for further proceedings.
BACKGROUND
On October 20, 2016, M.G. parked his car in front of a relative’s house on High
Street in Sacramento. When he got out of the car, a bullet struck him in the groin.
Another 10 shots or more, from at least two guns, were fired at M.G.
Witness No. 1 was repairing a fence at a nearby house that day, and he saw the
shooting as he crossed the street to borrow a ladder. He remembered a dark-colored
sedan sped away after the shooting and had been parked in a crooked manner on the
street. Witness No. 2 was on her front porch when she heard multiple shots and ran
inside with her son. When she looked out her front window, she saw a black Lexus
backing out of the street. A lighter-colored car left the area headed in the same direction
just before the black Lexus.
Police found 9-millimeter casings and .45-caliber casings at the scene. That day
there had been calls between the codefendants, but the calls stopped for a period of time.
There was evidence that the cell phones of defendant and some of the codefendants had
been at Strawberry Manor Park and near the apartment of one of the codefendants. Gi’s
phone had also been near the location of the shooting. A global positioning system
tracker that had been placed on Ackerson’s silver Lexus before the shooting indicated
that the Lexus had been at Strawberry Manor Park.
2
Around 14 minutes before the shooting, a police camera captured video footage of
Green-Geiger’s dark-colored Lexus at an intersection about three blocks away from the
shooting. In front of the dark-colored Lexus and traveling in the same direction was
Ackerson’s silver Lexus and Gi’s silver Chrysler 200. A private video camera close to
the shooting captured a silver Chrysler 200 about 20 seconds after the shooting, and a
dark-colored Lexus about 26 seconds after the shooting.
An expert on criminal street gangs in Sacramento testified that in his opinion,
defendant and the codefendants were members of subsets of the Oak Park Bloods
criminal street gang, one of two “primary gangs that are against each other in
Sacramento” under which “the other smaller gangs line up.” The expert explained to the
jury how, in numerous social media posts (some of which the jury saw), defendant and
the three codefendants displayed guns and gang signs, wore gang clothing, and made
gang-related comments. Some of the posts showed them together. For example, People’s
exhibit No. 92 was a photograph of all four men (and several others), and People’s
exhibit No. 97 was a photograph posted to Green-Geiger’s social media account that
showed defendant with Green-Geiger and Gi.
Over defense objections, the jury also saw two rap music videos in which
defendant and some of his codefendants appeared.
The expert said he believed the shooting victim was affiliated with a criminal
street gang that was with the main rival of the Oak Park Bloods. A detective had testified
earlier that the neighborhood where the shooting occurred was claimed by the rival gang.
After the prosecutor presented a hypothetical scenario that mirrored many of the
facts surrounding the shooting in this case (including the different subset gang
memberships of defendant and the codefendants, and that the hypothetical gang members
were all previously acquainted and traveling in a straight line in three separate cars), the
expert explained that a shooting of the rival gang member by the representatives of the
3
entire gang benefitted the gang that committed the shooting because they are taken
seriously.
Using CALCRIM No. 416, the trial court instructed the jury on uncharged
conspiracy as a theory of liability, identifying attempted murder as the substantive
offense that was the object of the conspiracy. The trial court explained: “The People
have presented evidence of a conspiracy. A member of a conspiracy is criminally
responsible for the acts or statements of any other member of the conspiracy done to help
accomplish the goal of the conspiracy. To prove the defendant is a member of a
conspiracy, the People must prove that [1] the defendant intended to agree and did agree
with one or more of the other defendants to commit the attempted murder. [2] [A]t the
time of the agreement, the defendant and one or more of the other alleged members of the
conspiracy intended that one or more of them would commit attempted murder. [3]
[O]ne of the defendants committed at least one of the following overt acts to accomplish
attempted murder: [a], drove from Strawberry Manor into Del Paso Heights, or, [b],
brought a loaded handgun into Del Paso Heights from Strawberry Manor, or, [3], shot
[M.G.], and, [4], at least one of these overt acts was committed in California.
“To decide whether a defendant or another member of the conspiracy committed
these overt acts, consider all of the evidence presented about the acts. [¶] To decide
whether a defendant and one or more of the other alleged members of the conspiracy
intended to commit attempted murder, please refer to the separate instructions that I will
give you on that crime. [¶] The People must prove that the members of the alleged
conspiracy had an agreement and specific intent to commit attempted murder. The
People do not have to prove that any of the members of the alleged conspiracy actually
met or came to a detailed or formal agreement to commit that crime. An agreement may
be inferred from conduct if you conclude that members of the alleged conspiracy acted
with a common purpose to commit the crime.”
4
The trial court instructed the jury on attempted murder using CALCRIM No. 600,
explaining: “The [d]efendants are charged in Count 1 with attempted murder. To prove
the defendant is guilty of attempted murder, the People must prove that [1] the defendant
took at least one direct but ineffective step toward killing [M.G.], and [2] the defendant
had the specific intent to kill [M.G.].”
The trial court and the parties had discussed potential jury instructions, including
CALCRIM No. 601 [willful, deliberate and premeditated attempted murder], before the
People rested. There was no objection to the trial court’s proposal to instruct the jury
with CALCRIM No. 601. Accordingly, the trial court instructed: “If you do find a
defendant guilty of attempted murder under Count 1, you must then decide whether the
People have proved the additional allegation that the attempted murder was done
willfully, and deliberately and with premeditation. [¶] The defendants acted willfully if
they intended to kill when they acted. The defendants . . . deliberated if they carefully
weighed the considerations for and against the choice and knowing the consequences
decided to kill. The [d]efendants acted with premeditation if they decided to kill before
completing the act of attempted murder.”
In closing argument, the prosecutor argued that the uncharged conspiracy was the
legal way to hold everybody accountable for their actions in this case. “These guys had
an agreement to do what they did. They all drove into a neighborhood together, and they
did what they did. It doesn’t matter . . . who was where or who did what, as long as one
of them did it, something in furtherance of the conspiracy, which is exactly what
happened.” The prosecutor further argued: “In this case what evidence do you have of
an attempted murder? These guys were in Strawberry Manor Park for an hour. . . . They
agreed to travel into rival gang territory to kill a rival gang member. . . . [¶] They tried.
Okay? This is your direct, but ineffective step. You can pick any number of steps in this
case. Driving there, bringing a gun, those are steps as well. They tried. Fourteen times
with two shooters.” The prosecutor added: “Members of a gang don’t travel into rival
5
gang territory, three-cars deep, multiple-guns deep, fire fourteen rounds at another
person, without trying to kill them.” “The ineffective step is that they failed. They don’t
get off the hook for trying to kill [the victim] just because they stink at shooting. . . . .
They failed to kill him, but they did hit him.”
A bit later, the prosecutor said: “This was an attempted murder. Don’t let
anybody else sell you anything else. [¶] . . . [¶] This is the allegation underneath the
attempted murder, that it was done with premeditation and deliberation, okay?”
Returning to the uncharged conspiracy, the prosecutor said: “In this case what you
have is a planned, conscious decision to hunt down rival gang members in the middle of
the day on October 20th of 2016. All members who decided to do this, everybody, are
liable for the shooter’s acts. Everybody is responsible in a conspiracy. [¶] These are the
requirements: Each defendant intended to agree and did agree to commit attempted
murder. . . . The defendant and at least one other intended that at least one member
would commit attempted murder. [¶] . . . [¶] At least one defendant did at least one of
these . . . overt acts . . . .”
Addressing the alleged agreement between the defendants, the prosecutor said:
“There needs to be an agreement to do this. How do you prove an agreement? . . . [¶]
Number one, proof of a physical meeting is not required, but you have it. . . . It is not
required, but you have it, at Strawberry Manor Park.” The prosecutor argued the reason
there were no cell phone calls between the codefendants for a certain period of time that
day was because they were meeting together. “These guys were calling each other
throughout the entire morning, and then the calls stopped for this period of time.” The
prosecutor argued “an agreement between these four defendants can be inferred from the
conduct itself of the conspirators. . . . Traveling together . . . after meeting in the Manors.
An agreement can be inferred from what they are doing.”
In defense counsel’s closing argument, counsel conceded that defendant was at the
park on the day of the shooting, but argued there was no evidence of a meeting there and
6
no evidence defendant was on High Street that day. Defense counsel added that although
there was evidence that defendant’s cell phone was on the street of a codefendant’s
apartment after the shooting, there was no evidence defendant was there and not just the
phone.
The jury found defendant and the codefendants guilty of attempted murder.
(Pen. Code, §§ 664, 187, subd. (a) -- count 1).1 As relevant here, the jury further found
(i) the attempted murder was done willfully and with deliberation and premeditation;
(ii) one of the principals personally used and personally discharged a firearm during
commission of the crime, causing great bodily injury (§§ 12022.53, subds. (b), (c), (d));
and (iii) defendant committed attempted murder for the benefit of, at the direction of or in
association with a criminal street gang with the specific intent to promote, further or
assist in criminal conduct by gang members (§ 186.22, subd. (b)(1)).
The jury also found defendant guilty of being a felon in possession of a firearm
(§ 29800, subd. (a)(1)) and unlawful possession of ammunition (§ 30305, subd. (a)(1))
and found true the gang enhancement allegations associated with those offenses.
Defendant admitted a prior serious felony conviction under section 667. The trial court
sentenced defendant to a determinate term of 17 years four months in state prison, plus an
indeterminate term of 39 years to life for the attempted murder, consisting of 14 years to
life for the substantive offense (seven years to life doubled under the three strikes law)
(§§ 667, subd. (e)(1), 1170.12, subd. (c)(1)), plus 25 years to life for the firearm
enhancement under section 12022.53, subdivision (d).
1 Undesignated statutory references are to the Penal Code.
7
DISCUSSION
I
Defendant contends his conviction is based on an invalid theory of criminal
liability. Invoking this court’s decision in People v. Iniguez (2002) 96 Cal.App.4th 75,
79 (Iniguez), defendant argues there is no such thing as conspiracy to commit attempted
murder. He claims that because no other theory was presented at trial, his attempted
murder conviction must be reversed.
The People counter that the claim is forfeited because defendant did not raise it in
the trial court. We will address the merits of the contention, however, because a
contention of conviction on an invalid legal theory need not be preserved by objection in
order to be considered on appeal. (People v. Powell (2021) 63 Cal.App.5th 689, 710
(Powell); see People v. Valdez (2012) 55 Cal.4th 82, 151.)
In addition, the People argue Iniguez is distinguishable because here defendant
was not convicted of conspiracy, and any error was harmless because the jury found
defendant had the specific intent to commit a willful, deliberate, and premeditated
murder.
California Supreme Court decisions have “ ‘long and firmly established that an
uncharged conspiracy may properly be used to prove criminal liability for acts of a
coconspirator. [Citations.] “Failure to charge conspiracy as a separate offense does not
preclude the People from proving that those substantive offenses which are charged were
committed in furtherance of a criminal conspiracy [citation]; nor, it follows, does it
preclude the giving of jury instructions based on a conspiracy theory [citations].”
[Citation.]’ ” (People v. Valdez, supra, 55 Cal.4th at p. 150.)
In Iniguez, the defendant pleaded guilty to conspiracy to commit attempted
murder. (Iniguez, supra, 96 Cal.App.4th at pp. 77, 79) This court reversed the
conspiracy conviction because the target crime of the conspiracy, attempted murder,
required the specific intent to actually commit murder, but an agreement forming the
8
basis for the conspiracy to commit attempted murder would require agreement to an
ineffectual act. (Ibid.) Concluding that “[n]o one can simultaneously intend to do and
not do the same act,” the inconsistency in the required mental states made the purported
conspiracy to commit attempted murder a legal falsehood. (Ibid.)
Here, the trial court should not have instructed the jury on conspiracy to commit
attempted murder. But “ ‘[m]isdescription of an element of a charged offense is subject
to harmless error analysis and does not require reversal if the misdescription was
harmless beyond a reasonable doubt.’ ” (People v. Brooks (2017) 3 Cal.5th 1, 69; see
People v. Aledamat (2019) 8 Cal.5th 1, 11-12 [if the trial court instructs the jury with
only an invalid theory of liability, harmless error review, under Chapman v. California
(1967) 386 U.S. 18 [17 L.Ed.2d 705], is appropriate].)
We agree with the People that in this case, Iniguez is inapposite and the trial
court’s instructional error was harmless. Unlike in Iniguez, here defendant was not
convicted of conspiracy to commit attempted murder. Rather, he was convicted of
attempted murder, and the jury found that he acted willfully and with deliberation and
premeditation. The actual conviction and findings are not based on an inconsistency in
the required mental state. And the conviction and findings are consistent with the focus
of the prosecutor’s closing argument that defendant and his codefendants made a plan to
travel into rival gang territory to kill a rival gang member. (Powell, supra, 63
Cal.App.5th at p. 715 [prosecutor did not rely on the invalid theory].) Under the
circumstances, the challenged instruction was harmless under Chapman. (Cf. Boyde v.
California (1990) 494 U.S. 370, 380-381 [108 L.Ed.2d 316][a commonsense
understanding of the instructions in the light of all that has taken place at the trial is likely
to prevail over technical hairsplitting].)
9
II
Defendant next contends the accusatory pleading did not allege willful, deliberate,
and premeditated attempted murder, and therefore it was improper for the trial court to
impose a sentence based on that finding.
The People agree the pleading did not allege premeditation and deliberation, but
they argue, among other things, that the error is harmless because defendant points to
nothing he would have done differently. We agree that the failure to allege willful,
deliberate, and premeditated attempted murder was harmless.
Section 664, subdivision (a), provides: “[I]f the crime attempted is willful,
deliberate, and premeditated murder, as defined in Section 189, the person guilty of that
attempt shall be punished by imprisonment in the state prison for life with the possibility
of parole. . . . The additional term provided in this section for attempted willful,
deliberate, and premeditated murder shall not be imposed unless the fact that the
attempted murder was willful, deliberate, and premeditated is charged in the accusatory
pleading and admitted or found to be true by the trier of fact.” (See generally People v.
Houston (2012) 54 Cal.4th 1186, 1226-1228 [considering a claim pursuant to § 664,
subd. (a)].) However, section 960 provides: “No accusatory pleading is insufficient, nor
can the trial, judgment, or other proceeding thereon be affected by reason of any defect or
imperfection in matter of form which does not prejudice a substantial right of the
defendant upon the merits.”
Here, whether the pleading error was harmless is a question of state statutory law.
(See §§ 664, subd. (a), 960; People v. Anderson (2020) 9 Cal.5th 946, 963 (Anderson)
[citing § 960 as the relevant statute for purposes of harmless error analysis]). Thus, we
apply the “reasonably probable” standard of People v. Watson (1956) 46 Cal.2d 818, 836,
and defendant bears the burden of showing that he would have acted differently had the
error not occurred. (People v. Sivongxxay (2017) 3 Cal.5th 151, 181.)
10
In Anderson, the California Supreme Court rejected the People’s harmless error
argument, explaining that when the defendant learned of the prosecutor’s actual
intentions regarding the enhancements midway through the sentencing hearing, it was too
late to consider the prosecution’s pretrial plea deal or reshape defendant’s trial strategy.
(Anderson, supra, 9 Cal.5th at p. 964.)
In this case, however, the trial court informed the parties, before the People rested,
that it planned to instruct on premeditation and deliberation. Defendant does not show
how he would have acted differently had there been a properly pleaded allegation of
premeditation and deliberation. Rather, defendant claims the People’s harmless error
argument is speculative. But because defendant bears the burden of showing that he
would have acted differently had the error not occurred , and he has not met that burden,
his claim fails. (People v. Thomas (1987) 43 Cal.3d 818, 826, 832 [even if the accusatory
pleading was defective, defendant has not demonstrated he was misled to his prejudice
and reversal is therefore inappropriate].)
III
In addition, defendant argues the two rap videos should not have been admitted
into evidence.
Invoking Evidence Code section 352, defendant sought to prevent admission at
trial of two rap videos in which he appeared. He argued the videos were cumulative of
other evidence and introduction of the videos would have a prejudicial effect because rap
music is disliked by so many people. The prosecutor countered that the videos were
probative as to the gang enhancement and defendant’s state of mind. The trial court
concluded the potential prejudice did not substantially outweigh the probative value of
the evidence.
The jury saw the rap videos, which had been on YouTube, when the gang expert
testified. The expert said there were many things about the videos that were important to
him in forming his opinions about the case, including the lyrics, visible tattoos, gang
11
signs, gang callouts, filming locations, and clothing. The expert identified Ackerson,
Green-Geiger, and defendant in the videos. Referring to the lyrics “N-words breaking the
code and they telling on they own, Blood,” the expert said the lyrics were talking about
snitching in the gang world. The expert continued, “If you saw in the video [defendant]
was pulling on [Green-Geiger’s] sweatshirt, as he is saying Gunnas at Play leave your ass
fucking smoked. [W]e all know what the term ‘smoked’ means. It means to kill
somebody.”
The expert further referenced lyrics about gang members riding around town four
deep with firearms, shooting in the neighborhood and at rival gang members, and the
ritualized candlelight mourning of killed gang members. The expert said defendant sang
about killing opposing gang members in Sacramento and a running scoreboard of killings
between defendant’s gang and a rival gang.
In addition, the expert referenced the following lyrics: “Fuck the world, you fuck
with them, you N-words going to be ducking with them. Your bitches get hit too. Fair
game if you fucking with them.” The expert said defendant was saying, “fuck Del Paso
Heights, and if you are with a gang member from Del Paso Heights or you are anywhere
around a gang member, it doesn’t matter if you are a female, you are going to get shot at
too.” The expert said the rap videos were made to disrespect rival gangs, not for
entertainment purposes.
The trial court instructed the jurors they could consider evidence of gang activity
only to decide whether the defendant acted with the intent, purpose and knowledge
required to prove the gang-related crimes and enhancements charged, or to decide that
defendant had a motive to commit the crimes charged.
“Evidence Code section 352 provides the trial court with discretion to exclude
otherwise relevant evidence if its probative value is substantially outweighed by the
probability that admitting the evidence will unduly prolong the proceeding, prejudice the
opposing party, confuse the issues, or mislead the jury. [Citation.] ‘We apply the
12
deferential abuse of discretion standard when reviewing a trial court’s ruling under
Evidence Code section 352. [Citation.] . . . [For purposes of the statute,] “prejudicial” is
not synonymous with “damaging,” but refers instead to evidence that “ ‘uniquely tends to
evoke an emotional bias against defendant’ ” without regard to its relevance on material
issues. [Citations.]’ [Citation].” (People v. Zepeda (2008) 167 Cal.App.4th 25, 34-35
(Zepeda).)
“ ‘Gang evidence is admissible if it is logically relevant to some material issue in
the case other than character evidence, is not more prejudicial than probative, and is not
cumulative. [Citations.] . . . [¶] However, gang evidence is inadmissible if introduced
only to “show a defendant’s criminal disposition or bad character as a means of creating
an inference the defendant committed the charged offense. [Citations.]” [Citations.] . . .
Even if gang evidence is relevant, it may have a highly inflammatory impact on the jury.
Thus, “trial courts should carefully scrutinize such evidence before admitting it.” ’ ”
(People v. Coneal (2019) 41 Cal.App.5th 951, 964 (Coneal).)
In Zepeda, a jury convicted the defendant of murdering two members of a rival
gang, and found true gang enhancement allegations. The trial court allowed the
prosecution to play for the jury two tracks from a rap CD the defendant had written.
Citing People v. Olguin (1994) 31 Cal.App.4th 1355, this court concluded the lyrics were
“probative of defendant’s state of mind and criminal intent, as well as his membership in
a criminal gang and his loyalty to it. The songs showed that defendant’s gang had the
motive and intent to kill [rival gang members]. This evidence, although anticipatory, was
explicitly relevant to the charges against defendant.” (Zepeda, supra, 167 Cal.App.4th at
p. 35.) This court added: “While lyrics and poems do not often establish their author’s
true state of mind . . . , the gang expert here testified that gangs communicate through
music. Defendant’s communications here were not ambiguous or equivocal. These
lyrics, coupled with the other evidence of defendant’s gang membership and his
animosity towards [a rival gang], go beyond mere fiction to disclosing defendant’s state
13
of mind, his motives and intentions, and his fealty to furthering his criminal gang’s
activities.” (Zepeda, supra, 167 Cal.App.4th at p. 35.)
In Coneal, rap videos of the defendant and/or members of his gang were played
for the jury in a murder trial. (Coneal, supra, 41 Cal.App.5th at pp. 953, 960-963) The
appellate court ruled the trial court abused its discretion under Evidence Code section 352
by admitting the videos, although the error was harmless. (Coneal, at p. 972-973.)
Admission of the videos was improper because other evidence rendered the probative
value of the videos minimal (id. at pp. 967-968), and the videos painted a picture of
defendant that posed a significant danger of undue prejudice (id. at pp. 970-971). But the
court said song lyrics, with sufficient corroboration from other evidence, might have
probative value for purposes of proving a defendant’s motive. (Id. at p. 969.) Citing
Coneal, defendant argues admission of the two rap videos at his trial was contrary to
Evidence Code section 352 because the videos painted a picture of him eagerly seeking
violence.
We conclude the trial court did not abuse its discretion in admitting the videos. As
in Zepeda, the gang expert here testified that defendant’s gang was communicating with
its rival gang through the rap videos posted on YouTube, which were made to disrespect
rival gangs. The videos were probative of defendant’s mental state and motive. And the
trial court provided a limiting instruction to the jurors, which ameliorated undue
prejudice.
Under the abuse of discretion standard, we must not reverse a decision merely
because reasonable people might disagree with the balance the trial court struck after
conducting an Evidence Code section 352 analysis. Defendant’s Evidence Code
section 352 claim lacks merit. And because the statutory claim fails, so does defendant’s
undeveloped constitutional claim. (See People v. Falsetta (1999) 21 Cal.4th 903, 910,
917.)
14
IV
Moreover, defendant claims the trial court improperly denied a defense request to
instruct the jury on a lesser-included offense.2 Defendant asked the trial court to instruct
on assault with a deadly weapon. (§ 245, subd. (a)(1).) The prosecutor objected, and the
trial court denied the request, citing People v. Nelson (2011) 51 Cal.4th 198, 215 (Nelson)
[assault with a deadly weapon is not a lesser included offense of attempted murder, but
rather a lesser related offense]. Defendant says he is asserting this contention on appeal
to give the California Supreme Court the opportunity to reconsider its position, and to
preserve this issue for review in federal court.
“ ‘ “The trial court is obligated to instruct the jury on all general principles of law
relevant to the issues raised by the evidence, whether or not the defendant makes a formal
request.” [Citations.] “That obligation encompasses instructions on lesser included
offenses if there is evidence that, if accepted by the trier of fact, would absolve the
defendant of guilt of the greater offense but not of the lesser.” ’ ” (People v. Whalen
(2013) 56 Cal.4th 1, 68.) But if, as here, the prosecutor does not consent, “a court has no
obligation to instruct on lesser related offenses, which are not necessarily included in a
charged crime.” (People v. Wolfe (2018) 20 Cal.App.5th 673, 684, italics omitted.)
A lesser offense is necessarily included in a greater offense if either the statutory
elements of the greater offense, or the facts actually alleged in the accusatory pleading,
include all the elements of the lesser offense, such that the greater cannot be committed
without also committing the lesser. (People v. Smith (2013) 57 Cal.4th 232, 240.)
2 Defendant seeks to join and adopt by reference arguments made by codefendant Gi.
But to the extent defendant’s contentions are made solely by joinder to Gi’s opening
brief, we treat them as forfeited, as they do not satisfy defendant’s obligation to provide
particularized argument demonstrating error and prejudice.
15
Defendant does not argue that facts alleged in the accusatory pleading included all
the elements of assault with a deadly weapon. And the statutory elements of attempted
murder do not include all the elements of assault with a deadly weapon, as attempted
murder can be committed without using a deadly weapon. (See Nelson, supra, 51 Cal.4th
at p. 215.) We must follow the California Supreme Court’s holdings. (Auto Equity Sales,
Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.) Accordingly, the claim lacks merit
under Nelson.
V
In supplemental briefing, defendant asserts we must reverse the gang-related
enhancement in light of recent statutory changes made by Assembly Bill No. 333 (2021-
2022 Reg. Sess.), which became effective while this appeal was pending.
The People agree that defendant is entitled to the ameliorative effects of Assembly
Bill No. 333’s amendments to section 186.22. But they argue remand is unnecessary
because, given the overwhelming evidence in the record, it is beyond a reasonable doubt
that the jury would have found true the enhancement allegations under the Assembly Bill
No. 333 amendments.
We agree with the parties that Assembly Bill No. 333’s ameliorative amendments
to section 186.22 apply retroactively to defendant because his judgment is not final. (See
People v. Superior Court (Lara) (2018) 4 Cal.5th 299, 307-308 [discussing In re Estrada
(1965) 63 Cal.2d 740]; People v. Nasalga (1996) 12 Cal.4th 784, 792 [“The rule in
Estrada has been applied to statutes governing penalty enhancements, as well as to
statutes governing substantive offenses”].)
And following People v. Lopez (2021) 73 Cal.App.5th 327 (Lopez), we conclude
the gang enhancement allegations must be vacated and the matter remanded. (Id. at p.
343.)
In this case, the prosecution’s gang expert testified that reputation is very
important to a gang because it forces respect through fear and intimidation. The expert
16
also testified to specific prior convictions of gang members from defendant’s gang for
crimes listed in Penal Code section 186.22, subdivision (e), including unlawful firearm
possession and carrying a concealed firearm.
The trial court instructed the jurors: “If you find the [d]efendants guilty of the
crimes charged . . . , you must then decide whether for each crime the People have proved
the additional allegation that the [d]efendant committed the crime for the benefit of, at the
direction of, or in association with a criminal street gang. . . . [¶] . . . [¶] A criminal
street gang is any ongoing organization, association, or group of three or more persons”
“whose members . . . engage or have engaged in a pattern of criminal gang activity.”
Effective January 1, 2022, Assembly Bill No. 333 altered the requirements for
proving the pattern of criminal gang activity necessary to establish the existence of a
criminal street gang. Among other things, the common benefit of the predicate offenses
must be more than reputational. (Assem. Bill No. 333, § 3; amended § 186.22,
subd. (e)(1), eff. Jan. 1, 2022.) (Lopez, supra, 73 Cal.App.5th at p. 345.)
Here, the trial took place before section 186.22 was amended, and the jury was not
asked to, and did not, make the factual determinations now required by the amendments.
(Lopez, supra, 73 Cal.App.5th at p. 346.) On this record, we cannot say that the jury
would have found that the common benefit of the predicate offenses was more than
reputational. (Cf. Ibid.)
The gang-related enhancement findings must be vacated and the matter remanded
to give the People the opportunity to prove the applicability of the enhancements under
the amendments to section 186.22. (Lopez, supra, 73 Cal.App.5th at p. 346; see People
v. Figueroa (1993) 20 Cal.App.4th 65, 71-72 & fn. 2 [remand is appropriate to allow the
prosecution to establish the additional element retroactively added by statutory
17
amendment; there is no violation of the double jeopardy clause or constitutional
restrictions against ex post facto legislation].)3
DISPOSITION
The convictions are affirmed. The gang enhancement allegation findings under
section 186.22 are vacated, and the matter is remanded to the trial court to (1) give the
prosecution an opportunity to retry the section 186.22 enhancements under the law as
amended by Assembly Bill No. 333; and (2) resentence defendant as appropriate.
/S/
MAURO, J.
We concur:
/S/
ROBIE, Acting P. J.
/S/
HOCH, J.
3 On April 14, 2022, defendant moved to join in an argument regarding section 1109 in
codefendant Ackerson’s second supplemental opening brief in case No. C090994. And
on June 16, 2022, defendant moved to join in an argument regarding section 1109 in
codefendant Gi’s supplemental reply brief in case No. C090994. Assembly Bill No. 333
added section 1109, which mandates a separate trial of a section 186.22, subdivision (b)
gang enhancement allegation if requested by the defense. (Stats. 2021, ch. 699, § 5
[§ 1190, subd. (a]).) Because we have determined the gang enhancement findings must
be vacated, we deny defendant’s motions as moot.
18 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488711/ | Filed 11/22/22 P. v. Barajas CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
THE PEOPLE, 2d Crim. No. B314191
(Super. Ct. No. GA074425)
Plaintiff and Respondent, (Los Angeles County)
v.
ROBERTO BARAJAS,
Defendant and Appellant.
Roberto Barajas appeals following a remand for
resentencing. In 2015, a jury convicted appellant of first-degree
murder (Pen. Code,1 §§ 187, subd. (a), 189) and found true
allegations that the crime was committed for the benefit of a
criminal street gang (§ 186.22, subds. (b)(1), (c)) and that a
principal personally used and discharged a firearm causing great
bodily injury or death (§ 12022.53, subd (d) & (e)(1)). The trial
court sentenced him to an aggregate term of 50 years to life in
Unless otherwise stated, all statutory references are to
1
the Penal Code.
state prison, consisting of 25 years to life for the murder plus a
consecutive term of 25 years to life for the firearm enhancement.
A ten-year gang enhancement was imposed and stayed pursuant
to section 654.
We affirmed appellant’s murder conviction on direct appeal,
but remanded for the trial court to consider whether to exercise
its discretion to strike appellant’s firearm enhancement pursuant
to Senate Bill No. 620, which had gone into effect while the
appeal was pending. (People v. Barajas (May 29, 2019, No.
B266151) [nonpub. opn.].) On remand, the trial court declined to
strike the firearm enhancement but struck fines and fees that
had been imposed against appellant.
While this appeal from the resentencing was pending, the
Legislature enacted Assembly Bill No. 333 (AB 333), which
changed the substantive requirements for proving the gang and
firearm enhancement allegations found true in this case.
Appellant contends, and the People correctly concede, that this
new law applies to appellant because his judgment of conviction
has yet to become final. The parties also agree that this new law
compels the reversal of the subject enhancements because (1)
there was no evidence that the predicate offenses offered to prove
a pattern of criminal gang activity benefitted the gang in a
manner that was more than merely reputational, and (2) a true
finding on the gang enhancement allegation was an essential
element of the firearm enhancement allegation. Accordingly, we
shall reverse the true findings on both enhancement allegations
and remand for further proceedings.
AB 333 also amended section 1109 to require that gang
enhancement allegations be bifurcated at the defendant’s
request. Appellant contends that this new procedural law also
2
applies retroactively to his case and compels the reversal of his
murder conviction. We reject this contention for lack of
prejudice.2
STATEMENT OF FACTS 3
In 2007 or early 2008, victim Jennifer Ortega became
romantically involved with Jaime Flores, a former member of the
Villa Boys gang in Pasadena. Flores left the gang after he was
sentenced to prison in 2006. Following his release from prison,
he met Ortega and they began spending time together, having
sex, and using drugs.
On April 16, 2008, Ortega and Rudy Martinez, a Pacoima
gang member who was on parole, were arrested for possessing
methamphetamine. Ortega initially acknowledged that the drugs
she had been seen discarding were hers, but later told the police
the drugs belonged to Martinez.
On August 7, Villa Boys member Eddie Solario sent a letter
from prison to gang associate Debbie Garcia. The letter stated
that a fellow prisoner had “paperwork” indicating that Ortega
had blamed him for drugs found in her possession. Solario told
Garcia that Ortega “knows you’re not supposed to talk to cops.
Now she has to live with that for the rest of her life. Don’t forget
to tell all them youngsters that. That way they don’t make that
mistake.” In a letter dated August 17 that was never sent,
2 Because we are reversing the firearm enhancement,
appellant’s claim that the trial court was unaware of its
discretion to reduce the firearm enhancement allegation to a
lesser enhancement (People v. Tirado (2022) 12 Cal.5th 688) is
moot.
3The relevant facts are recited from our 2019 unpublished
opinion. (People v. Barajas, supra, B266151.)
3
Garcia told Solario that “everyone in Pasa[dena] is looking for
[Ortega] literally cuz she’s fucking up and burning people.”
Appellant was also a member of the Villa Boys gang. After
Flores left the gang, appellant began leaving him threatening
voicemail messages. In one message appellant told Flores, “We’re
going to get you guys.” A few days prior to Ortega’s murder, she
and Flores saw appellant at an apartment building frequented by
members of the Villa Boys. Appellant called Ortega and Flores
“snitches” and told them “we’re going to get you.” Flores told
Ortega to stay home with her family and avoid neighborhoods
occupied by the Villa Boys.
At 2:00 a.m. on August 19, S.K. was in a building in
Pomona when she saw appellant holding a silver semiautomatic
handgun. S.K. watched appellant as he removed a magazine
from the gun and reloaded it. She subsequently saw him leave in
a PT Cruiser.
At about 9:45 p.m. that night, Aaron Gomez saw a black PT
Cruiser enter the parking lot of a closed store in Pasadena. A
short time later, Gomez heard two or three gunshots, then saw
the PT Cruiser and a red car drive away. As the PT Cruiser was
leaving, the front passenger door was opened. Guillermina
Alvarez also heard the gunshots and saw a dark PT Cruiser
speed away with its headlights off, followed by a red car.
Shortly after both cars left, Gomez and Alvarez heard a
woman screaming and saw Ortega crawling out of the parking lot
toward the sidewalk. She had been shot three times in the back
and later died of her injuries.
The police recovered three expended casings from the scene
of the shooting. Testing confirmed that the casings were all fired
from the same 9-millimeter semiautomatic handgun. The casings
4
were placed onto a gauze pad in a clean and sterile scent transfer
unit (STU) for possible dog trailing. The pad was subsequently
placed in a heat-sealed bag for possible future use.
The police also obtained surveillance video from a gas
station located at the intersection where the shooting occurred.
The video shows the driver of a black PT Cruiser make a U-turn,
turn off the car’s headlights, and back into the parking lot where
Ortega was shot less than two minutes later. After the shots
were fired, the PT Cruiser is seen speeding away with the front
passenger door slightly open. Shortly thereafter, another car is
seen leaving the parking lot with its headlights off.
On August 28, Pasadena Police Detective William
Broghamer saw a black PT Cruiser in the parking lot of a motel
in Pasadena. After the detective determined that the PT Cruiser
was registered to appellant he observed appellant, Villa Boys
associate Maria Herrera, and three other females get into the
vehicle. As appellant was about to drive away, Detective
Broghamer stopped the vehicle and detained its occupants.
Appellant was arrested and taken to the police station. That
same night, the police searched appellant’s bedroom and found a
computer that had been used to access a news article about
Ortega’s murder. The computer had also recently been used to
visit the website for Kelly Blue Book, which provides estimates
regarding the resale value of used vehicles. On September 1,
during a dog scent test conducted with the gauze pad in which
the shell casings from the crime scene had been placed, the dog
alerted to appellant.
Villa Boys associate Richshawna Whitten told the police
she had heard prior to Ortega’s murder that she had been
“snitch[ing]” and identified appellant as the driver of a black PT
5
Cruiser. Whitten initially denied being present when the
shooting occurred but said she had heard that appellant and
another Villa Boys member she knew only as “Mono” had
committed the crime. Whitten eventually admitted she was
present when Ortega was killed. She arrived at the scene in a
red car along with Garcia, Herrera, and another female known as
“Charms.” Garcia and Herrera had arranged for Ortega to meet
them there. Garcia and Herrera walked up to Ortega, grabbed
her, and accused her of being a snitch. Garcia and Herrera let go
of Ortega as appellant drove up in his PT Cruiser. Mono exited
the front passenger seat and repeatedly shot Ortega. Mono then
got back into the PT Cruiser and appellant drove away.
Lisette Reyes, another Villa Boys associate, was
interviewed by the police later the same day as Whitten’s
interview. Prior to Ortega’s murder, Reyes had seen appellant
and two or three other young males physically assault Mono as
punishment for bringing Ortega into the gang. The day after the
murder, appellant and Mono came to her house. Both men were
acting paranoid and appellant was holding a gray semiautomatic
handgun. They bragged about the gun, said they had to get rid of
it because it was “hot,” and asked Reyes to give them a
screwdriver so they could take the gun apart. Reyes
subsequently identified appellant as the getaway driver and said
that after the murder he brought a semiautomatic handgun to
her house and disassembled it.
Detective Andrea Perez testified as the prosecution’s gang
expert. The Villa Boys gang is a criminal street gang with
approximately 100 documented members and six subsets,
including the Krazy Boys. The gang’s primary activities include
robberies, shootings, drug sales, and car theft. Detective Perez
6
opined that appellant was a member of the Villa Boys. She
reached that opinion based on photographs of appellant’s tattoos
and her review of departmental resources.
When presented with a hypothetical tracking the facts of
the case, Detective Perez opined that Ortega was killed at the
direction of the Villa Boys, in association with other members of
the gang, and for the benefit of the gang. The detective opined
that the crime benefitted the gang by instilling fear in the
community and by sending the message that the gang was “not
afraid to clean their own messes.”
DISCUSSION
I.
Appellant contends that his gang and firearm
enhancements must be reversed pursuant to AB 333, which went
into effect while this appeal was pending. The People correctly
concede the issue.
“[AB] 333 made the following changes to the law on gang
enhancements: First, it narrowed the definition of a ‘criminal
street gang’ to require that any gang be an ‘ongoing, organized
association or group of three or more persons.’ (§ 186.22, subd.
(f), italics added.) Second, whereas section 186.22, former
subdivision (f) required only that a gang’s members ‘individually
or collectively engage in’ a pattern of criminal activity in order to
constitute a ‘criminal street gang,’ [AB] 333 requires that any
such pattern have been ‘collectively engage[d] in’ by members of
the gang. (§ 186.22, subd. (f), italics added.) Third, [AB] 333 also
narrowed the definition of a ‘pattern of criminal activity’ by
requiring that (1) the last offense used to show a pattern of
criminal gang activity occurred within three years of the date
that the currently charged offense is alleged to have been
7
committed; (2) the offenses were committed by two or more gang
‘members,’ as opposed to just ‘persons’; (3) the offenses commonly
benefitted a criminal street gang; and (4) the offenses
establishing a pattern of gang activity must be ones other than
the currently charged offense. (§ 186.22, subd. (e)(1), (2).)
Fourth, [AB] 333 narrowed what it means for an offense to have
commonly benefitted a street gang, requiring that any ‘common
benefit’ be ‘more than reputational.’ (§ 186.22, subd. (g).)”
(People v. Tran (2022) 13 Cal.5th 1169, 1206 (Tran).)
The parties agree that this new law applies retroactively to
appellant’s case. (Tran, supra, 13 Cal.5th at p. 1206; People v.
Rodriguez (2022) 75 Cal.App.5th 816, 822.) The parties also
agree, as do we, that in light of this new law both the gang
enhancement and the firearm enhancement (an essential element
of which is the true finding on the gang enhancement allegation)
must be reversed for insufficient evidence. We remand to give
the People an opportunity to retry the gang and firearm
enhancement allegations under the new law. (People v. Lopez
(2021) 73 Cal.App.5th 327, 345; People v. Figueroa (1993) 20
Cal.App.4th 65, 71-72, fn. 2; People v. Sek (2022) 74 Cal.App.5th
657, 669.)
II.
As we have noted, AB 333 also amended section 1109 to
provide that trials on gang enhancement allegations must be
bifurcated at the defendant’s request. (§ 1109, subd. (a); Tran,
supra, 13 Cal.5th at p. 1206.) If the defendant makes such a
request, “[t]he question of the defendant’s guilt of the underlying
offense shall be first determined,” and “(2) If the defendant is
found guilty of the underlying offense and there is [gang
enhancement allegation], there shall be further proceedings to
8
the trier of fact on the question of the truth of the enhancement.”
(§ 1109, subd. (a).)
Appellant contends that this new law is an ameliorative
change that should apply retroactively to his case under In re
Estrada (1965) 63 Cal.2d 740 (Estrada), and that the error in
declining to bifurcate the gang enhancement allegation compels
the reversal of his murder conviction. The People respond that
section 1109 is merely a procedural change that applies
prospectively only and that any error in not bifurcating the
proceedings was in any event harmless. We need not address
whether the new law applies retroactively because we conclude it
is not reasonably probable that appellant would have achieved a
more favorable result had the gang enhancement allegation been
bifurcated. (Tran, supra, 15 Cal.5th at pp. 1207-1208.)
Our Supreme Court has recognized that “evidence of gang
membership is often relevant to, and admissible regarding, the
charged offense. Evidence of the defendant’s gang affiliation—
including evidence of the gang’s territory, membership, signs,
symbols, beliefs and practices, criminal enterprises, rivalries, and
the like—can help prove identity, motive, modus operandi,
specific intent, means of applying force or fear, or other issues
pertinent to guilt of the charged crime. [Citation.] To the extent
the evidence supporting the gang enhancement would be
admissible at a trial of guilt, any inference of prejudice would be
dispelled . . . .” (People v. Hernandez (2004) 33 Cal.4th 1040,
1049-1050.)
Here, evidence of appellant’s gang membership and
activities was relevant and admissible to prove his motive for
participating in the murder. The People aptly note that “as
appellant and his fellow gang member killed Ortega for being a
9
snitch, the vast majority of the gang evidence would have been
admitted even if the gang allegation had been bifurcated under
section 1109.” Moreover, the independent evidence of appellant’s
guilt is strong. We also presume the jury understood and
followed the court’s instruction not to consider the gang-related
evidence as proof that appellant was a person of bad character or
had a criminal disposition. (CALCRIM No. 1403; People v. Arauz
(2012) 210 Cal.App.4th 1394, 1404.) Accordingly, appellant
suffered no prejudice due to the fact that the trial on the gang
enhancement allegation was not bifurcated.
DISPOSITION
The true findings on the section 186.22 gang enhancement
allegation and the section 12022.53 firearm enhancement
allegation are reversed. The sentence is vacated and the matter
is remanded to the trial court for further proceedings. In all
other respects, the judgment is affirmed.
NOT TO BE PUBLISHED.
CODY, J.*
We concur:
GILBERT, P.J. BALTODANO, J.
* Judge of the Ventura Superior Court assigned by the
Chief Justice pursuant to article VI, section 6 of the California
constitution.
10
Suzette Clover, Judge
Superior Court County of Los Angeles
______________________________
Gregory L. Rickard, under appointment by the Court of
Appeal, for Defendant and Appellant.
Rob Bonta, Attorney General, Lance E. Winters, Chief
Assistant Attorney General, Susan Sullivan Pithey, Senior
Assistant Attorney General, Wyatt E. Bloomfield, and Michael C.
Keller, Deputy Attorneys General, for Plaintiff and Respondent. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488705/ | In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 21-2007
THOMAS BARWIN,
Plaintiff-Appellant,
v.
VILLAGE OF OAK PARK,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:14-cv-06046 — Mary M. Rowland, Judge.
____________________
ARGUED DECEMBER 7, 2021 — DECIDED NOVEMBER 22, 2022
____________________
Before ROVNER, ST. EVE, and JACKSON-AKIWUMI, Circuit
Judges.
ROVNER, Circuit Judge. This diversity case presents ques-
tions concerning the contractual rights of an at-will village
manager, Thomas Barwin, who resigned under threat of ter-
mination two and one-half years before his pension rights
vested. Barwin alleges that his former employer, the Village
of Oak Park, Illinois, breached its contractual duty of good
faith and fair dealing in two ways: first, by forcing him out of
2 No. 21-2007
his job in order to prevent his pension from vesting, and sec-
ond, by refusing to honor its practice of allowing senior em-
ployees to purchase out-of-state pension credits in order to
meet the vesting threshold. We agree with the district court
that Barwin has no plausible contract claim for breach of the
duty of good faith and fair dealing based on an expectation
that the Village would not fire him or force him to resign in
order to prevent him from reaching retirement eligibility, and
so that claim was properly dismissed at the pleading stage.
As an at-will employee, Barwin had no enforceable expecta-
tion that he would remain employed long enough to meet the
vesting threshold. However, we conclude that the district
court erred in entering summary judgment against Barwin on
the claim that his employer breached its duty of good faith
and fair dealing by not allowing him to purchase out-of-state
pension credits as it had historically done with other employ-
ees. His employment contract entitled him to the same bene-
fits that other senior employees of the Village enjoyed “by
practice,” and based on the facts presented, a finder of fact
could reasonably conclude that the Village had a practice of
allowing such employees to purchase out-of-state pension
credits.
I.
Oak Park recruited Barwin to serve as its village manager
in 2006. (He previously worked as a city manager in Michi-
gan.) He was employed by Oak Park on an at-will basis; in
other words, he was hired for no particular term and his em-
ployment agreement imposed no restrictions on the Village’s
ability to replace him at any time. Barwin was around 50 years
old at the time of his hiring, and he was concerned about his
prospective retirement income. The parties agreed that
No. 21-2007 3
Barwin would participate in the Illinois Municipal Retirement
Fund (the “IMRF” or “Retirement Fund”) and that they
would each make contributions to that Retirement Fund, but
it would be eight years before his pension rights vested under
that system, see 40 ILCS 5/7-141(a)(4), and because Barwin was
hired as at an-will employee, he had no guarantee that he
would be employed with the Village for that length of time.
Barwin alleges that he raised his concern with Village Presi-
dent David Pope, who assured him that if he left his position
with the Village before the eight-year threshold, he would be
able to purchase reciprocal out-of-state pension credits that
would satisfy the 8-year minimum. See 40 ILCS 5/7-139(a)(6). 1
Any such request would require the approval of the Village
Board of Trustees, which was Oak Park’s governing body. See
id. Pope advised Barwin that the Village had granted such a
request from the previous Village manager, who had likewise
been recruited from out of state. Following his discussion
with Pope, Barwin looked into the matter and independently
confirmed what Pope had told him. R. 94 at 1–2 ¶ 2, 8–9 ¶ 21.
Indeed, a total of at least five Village employees (including
Barwin’s predecessor) had made requests to purchase out-of-
state pension credits, and the requests of all five had been
granted. R. 94 at 9 ¶ 22. 2
1 In order to purchase such credits, an individual must have worked
for an Illinois municipality for a minimum of two years, previously
worked for an out-of-state local governing body and participated in that
body’s public employee pension system, and he must agree to forfeit his
right to obtain a pension under that other State’s system. 40 ILCS 5/7-
139(a)(6).
2 There may have been additional individuals who were authorized
to purchase such credits. Five is the number alleged in the complaint, and
which the Village has in turn admitted, but Barwin did not seek to
4 No. 21-2007
The terms of Barwin’s employment were memorialized in
a written employment agreement. Section 7 of the agreement
provided that Barwin would become a member of the IMRF
and that both he and the Village would make the requisite
contributions to that Retirement Fund. R. 44-1 at 2, § 7. How-
ever, the agreement did not say anything about Barwin’s right
to purchase out-of-state pension credits. Moreover, the agree-
ment contained an integration clause which expressly pro-
vided that:
This Agreement sets forth and establishes the
entire understanding between the Employer
and the Employee relating to the employment
of the Employee by the Employer. Any prior
discussions or representations by or between
the Employer and the Employee not specifically
stated in this Agreement are rendered null and
void by this Agreement. …
R. 44-1 at 8, § 21A. In short, there was no express promise that
Barwin would be able to purchase pension credits in the event
he needed them, and the agreement’s integration clause pre-
cluded resort to extrinsic evidence in order to establish such a
promise.
There is, however, another provision of the agreement that
has a bearing on this question. Section 19 of the agreement,
setting forth “Other Terms and Conditions of Employment,”
provided in relevant part that “the Employee shall be entitled
to the highest level of benefits that are enjoyed by other de-
partment heads or equivalent-level employees of the
determine in discovery whether there were additional instances of such
purchases. See Barwin Br. 42–43.
No. 21-2007 5
Employer as provided in the Oak Park Village Code, Person-
nel Rules and Regulations or by practice.” R. 44-1 at 7, § 19A
(emphasis supplied). 3 As discussed in greater detail below,
Barwin argues that because it was the Village’s historical
practice to grant employee requests for out-of-state pension
credits, he had a contractual right and expectation to be able
to purchase such credits under this provision of the contract.
Finally, pursuant to section 21A of the agreement, the par-
ties reserved the right to amend any provision of the contract
during its lifetime by mutual agreement. R. 44-1 at 8, § 21A.
The agreement was in fact amended by the parties on occa-
sion, most recently in June 2011, some eight or nine months
prior the events giving rise to this suit. See Barwin Aff. ¶¶ 5–
6, R. 141-2 at 3.
Barwin served as the Oak Park Village Manager for five
and a half years, from June 2006 until February 2012, when he
resigned under threat of termination. Barwin touts a number
of accomplishments as Manager and substantial satisfaction
among Oak Park residents with Village services during his
tenure, and the Village Board itself was apparently satisfied
in the main with his performance until early 2012, when the
Board undertook his annual evaluation for 2011. A previous
mid-year review finalized in November 2010, although not-
ing areas of strength in Barwin’s track record, had flagged
several aspects of Village operations and Barwin’s perfor-
mance that were of ongoing concern to the Trustees, R. 138-4,
3 This section of the contract was patterned after a similar provision
in a 2003 model employment agreement promulgated by the International
City/County Management Association, of which Barwin was a member.
R. 138-6 at 13, § 19A; see Barwin Dep. 8-11-2020 at 52, R. 138-5 at 8.
6 No. 21-2007
and Barwin himself would later acknowledge that he under-
stood this review of his performance to have been “mixed.”
Barwin Dep. Feb. 14, 2019 at 68, R. 138-2 at 15. The Board did
not undertake a mid-year review of Barwin’s work in 2011. In
early 2012, the Board members individually completed an-
nual-review forms rating Barwin’s performance in 2011, and
Barwin prepared a written assessment of his own. On Febru-
ary 13, 2012, the Village President and the other members of
the Board of Trustees met in closed session to discuss the re-
sults, having excluded Barwin, the Village legal counsel, and
the Village Clerk from the meeting. The meeting was recorded
and later transcribed. R. 138-3. The collated ratings of Bar-
win’s performance submitted by the Board members indi-
cated continuing dissatisfaction in a number of areas, and sev-
eral members of the Board indicated frustration that Barwin’s
own positive written assessment of his performance diverged
from their own in these areas.
During this discussion, the subject of Barwin’s eligibility
for retirement came up. One of the Trustees understood a pas-
sage in Barwin’s self-assessment concerning the completion
of his public service career to mean that Barwin hoped to con-
tinue as Village Manager for several more years and then re-
tire. The Trustee remarked, “It was like he was saying, give
me the three years and then I’ll be done.” R. 138-3 at 9. To
which another Trustee responded, “If you’ve been here for
twelve years, then you can do that … but you can’t do that
when you’ve been here for five. You can’t. Can’t afford it.”
R. 138-3 at 9. 4 That prompted a brief exchange as to when
4 The ellipsis appears in the transcript of the meeting. The record does
not reflect whether it is meant to signify a deletion from the Trustee’s re-
marks or merely a pause.
No. 21-2007 7
Barwin would be eligible to retire and whether, in lieu of him
reaching the eight-year vesting threshold, Barwin had ob-
tained reciprocal credits for his Michigan service with the
IMRF or was otherwise eligible for a Michigan pension—as to
which Village President Pope professed ignorance. R. 138-3 at
9. 5
After discussing their assessments of Barwin, the evident
consensus among all seven members of the Board, including
Village President Pope, was that the time had come for a
change of Village Manager. On the following day, Pope and a
Trustee (both of whom were members of the Village’s Person-
nel Committee) met privately with Barwin and presented him
with a choice: resign as Village Manager or face an official
Board vote to terminate him. 6 In the interim between the
5 The parties dispute what inferences can be drawn from this discus-
sion, including whether the remark “Can’t afford it” should be under-
stood to mean that Barwin could not afford to assume that he would con-
tinue in the Village’s employ until he reached pension eligibility (as the
Village argues) or that the Village could not afford the financial burden
that it would incur should Barwin attain pension eligibility. For purposes
of the issues raised in this appeal, and consistent with the allegations that
Barwin has made in his complaint, we shall assume that the latter inter-
pretation is the correct one.
6 Barwin’s complaint has cited a number of circumstances surround-
ing the February 13 meeting of the Board of Trustees and the follow-up
meeting with Barwin the next day—including the closed nature of the
meetings, the exclusion of legal counsel and other individuals, the lack of
public notice, the lack of official record-keeping, and the Trustees’ use of
personal email accounts to communicate about the decision to oust Bar-
win from the Village Manager post—as contrary to Village practice and
the Illinois Open Meetings Act, 5 ILCS 120/1, et seq., and as evidence of the
Village’s bad faith in deciding to force his resignation. Although, as dis-
cussed below, the Village admitted the factual allegations of the complaint
8 No. 21-2007
receipt of his mid-year evaluation in November 2010 and this
meeting on February 14, 2012, no member of the Board had
communicated a complaint or criticism to Barwin regarding
his performance nor had the Personnel Committee met with
him to advise him of any such concern.
Presented with the ultimatum to resign or be fired, Barwin
opted to resign. The Village granted him severance pay equal
to nine months of his salary pursuant to the Termination and
Severance provisions of the employment contract. R. 44-1 at
4–5 §§ 9–10. The Village also offered to grant him additional
severance benefits in exchange for a waiver of all claims
against the Village, but Barwin declined the offer.
At the time of his resignation, Barwin was still two and a
half years shy of the eight-year vesting threshold for his Illi-
nois pension. After he communicated his decision to resign
but while he was still within the Village’s employ (see Barwin
Dep. Feb. 14, 2019 at 136, 139, R. 125-3 at 25–26; Barwin Aff.
¶ 4, R. 141-2 at 2), Barwin asked Village President Pope if he
would be given permission to purchase out-of-state pension
by failing to file a timely answer, any legal issues raised by the complaint
are for the court to decide irrespective of the Village’s failure to timely
answer the complaint. See 10A Charles A. Wright & Arthur R. Miller, Fed.
Prac. & Proc. § 2688.1 & n. 11 (4th ed. 2016) (“a party in default does not
admit conclusions of law”). For its part, the Village denies any impropri-
ety and contends that the Board of Trustees convened in executive session
to discuss Barwin’s performance and likewise communicated its decision
to replace him in private in order to protect his confidentiality and pre-
serve his future employment prospects. Had Barwin refused to resign, the
Village represents that the Board of Trustees would have convened in a
public meeting to vote on whether to terminate him. Because the propriety
of the form of the meetings on February 13 and 14 do not affect our eval-
uation of Barwin’s two contract claims, we need not consider the issue.
No. 21-2007 9
credits in order to bring himself up to the eight-year vesting
minimum. Pope said he would take the request to the Village
Board, but he did not do so, and the Village Board of Trustees
never took a vote on whether to authorize Barwin to purchase
the credits. R. 94 at 4–5 ¶ 9, 14–15 ¶ 38. As a result, Barwin
was unable to purchase the credits and thus did not satisfy
the eight-year vesting threshold for pension eligibility. 7
Barwin filed suit in diversity (he is now a citizen of Flor-
ida 8)against the Village for breach of contract. The district
judge originally assigned to the case dismissed Barwin’s orig-
inal complaint with prejudice (R. 19) but later granted (R. 39)
his request for leave to file a first amended complaint, which
alleged that the Village breached the implied covenant of
good faith and fair dealing by interfering with Barwin’s ex-
pectation that the Village would not fire him (or force him to
resign) in order to prevent him from reaching the eight-year
vesting threshold for pension benefits (R. 44). The Village
again moved to dismiss, and the district court, following as-
signment of the case to a new judge, again granted the
7 Barwin could have made his request to purchase the out-of-state
credits at any point after he had been in the Village’s employ for two years,
but he did not do so until he was forced to resign. Barwin explained that
he had not done so previously because, given the financial burden of hav-
ing multiple children in college, he was attempting to “narrow th[e] gap”
between his years of actual work for the Village and the eight years re-
quired for pension vesting (and thereby reduce the cost of purchasing the
necessary credits). Barwin Dep. Feb. 14, 2019 at 135, R. 125-3 at 24. As we
discuss below, we are not persuaded that the timing of Barwin’s request
defeats his claim for breach of contract regarding his ability to purchase
the credits.
8 Following his departure from Oak Park, Barwin was hired as the city
manager of Sarasota, Florida.
10 No. 21-2007
Village’s motion. R. 91. The court acknowledged that alt-
hough Barwin was an at-will employee, the Village was none-
theless constrained by the implied duty of good faith and fair
dealing. R. 91 at 9, 11. But the court found nothing in the
agreement that guaranteed Barwin a pension or required the
Village to keep Barwin in its employ until such time as his
pension vested. R. 91 at 11. Further, although Illinois cases do
recognize that an employer may violate the duty of good faith
and fair dealing by taking action with an “improper motive,”
for example by discharging an employee in order to prevent
him from receiving benefits that he had already earned (R. 91
at 12), the allegations in this case did not fit that profile. Here,
the Village fired Barwin two and one-half years before he met
the pension-vesting threshold, and “there is no contract lan-
guage indicating that Barwin is entitled to his pension bene-
fits two and half years before it vests.” R. 91 at 13. In short,
Barwin had not alleged a plausible claim for breach of the cov-
enant of good faith and fair dealing.
The district court did, however, grant Barwin leave to file
a second amended complaint alleging that the Village, in re-
fusing to allow him to purchase pension credits, breached the
duty of good faith and fair dealing by interfering with his
right under section 19A of the agreement to the “highest level
of benefits” enjoyed by other department heads and compa-
rable employees “by practice.” Barwin’s theory was that the
Village had historically and uniformly allowed other senior
employees to purchase pension credits, that such employees
included the Village Manager who preceded Barwin, and that
Pope had assured Barwin he would be able to purchase such
credits if he did not attain enough years of service in order to
meet the vesting criteria. The court deemed it a “close call”
whether the new complaint presented a viable claim for
No. 21-2007 11
breach of the duty of good faith and fair dealing (R. 91 at 19),
but it determined that the facts alleged supported a reasona-
ble expectation that Barwin would be able to purchase pen-
sion credits if needed, and that the Village Board had acted
arbitrarily and with an improper motive in refusing to allow
him to do so (R. 91 at 19–20).
The Village neglected to file a timely answer to Barwin’s
second amended complaint and did not seek leave to file such
an answer until eight months after the district court author-
ized Barwin to file the complaint. After some sparring over
this issue, the court ultimately denied the Village’s belated re-
quest to file an answer (R. 136) and as a result it deemed the
Village to have admitted the factual allegations of that com-
plaint, see Fed. R. Civ. P. 8(b)(6).
When the parties subsequently filed cross-motions for
summary judgment on this claim, the district court granted
the Village’s motion and denied Barwin’s motion. R. 145. The
court agreed with the Village that section 19A of the agree-
ment did not grant Barwin a right to purchase additional pen-
sion credits, because the evidence did not support the notion
that there actually was a Village practice of allowing senior
employees to do so. The court agreed with the parties that the
term “practice” should be understood to mean “repeated or
customary action” or the “usual way of doing something”
(R. 145 at 8–9), but it also read the contract’s reference to rights
that “are enjoyed” “by practice” to “limit[ ] the span of time
that a reasonable reader may examine in order to determine
the ’practice’” (R. 145 at 8). Here, the evidence indicated that
over a course of multiple decades, some five Oak Park em-
ployees had been permitted to purchase out-of-state pension
credits, but the last known date for such a purchase was 2001,
12 No. 21-2007
five years before Barwin was hired and 11 years prior to his
resignation.
On these facts, the court concluded that no factfinder
could reasonably find that there was an established “practice”
of allowing employees to purchase such credits. R. 145 at 9.
This was so notwithstanding the absence of evidence that
such a request had ever been refused, and despite evidence
that the prior Village Manager himself (among other employ-
ees) had been allowed to make such a purchase.
The court reasoned further that this reading of “practice”
was consistent with a principle of Illinois law holding that
elected officials should not be bound by their predecessors’
decisions as to the welfare of the political subdivision they
govern. R. 145 at 9–10. See Grassini v. DuPage Twp., 665 N.E.2d
860, 864–65 (Ill. App. Ct. 1996) (deeming four-year contract for
employment of township administrator void ab initio because
the term of the contract extended beyond term of township
board and supervisor who approved it).
The court added that although Barwin pointed to Village
President Pope’s oral assurances at the time of his hiring that
the Village had allowed Barwin’s predecessor to purchase
out-of-state pension credits and that Barwin would be permit-
ted to do the same if the need arose, the agreement’s integra-
tion clause prevented the court from considering any such
promise or representation. R. 145 at 10–11.
In the absence of evidence sufficient to establish a practice
of allowing senior employees to purchase pension credits, the
court found that Barwin had no reasonable expectation under
section 19A of the employment agreement of having his own
request granted. Accordingly, the court found no need to
No. 21-2007 13
reach the question of whether the Village breached its duty of
good faith in declining to consider and grant his request.
R. 145 at 10, 15–16. The court found the additional allegations
of irregularities concerning the meeting where the decision to
discharge Barwin was made to be immaterial to his claim.
R. 145 at 12 & n.13.
Finally, the court rejected Barwin’s argument that the
court was violating the law of the case doctrine by retreating
from its prior analysis in allowing him to file his second
amended complaint. “The Court’s decision to allow an
amended complaint under Fed. R. Civ. P. 15 in no way guar-
antees success on the merits. Although the Court found Bar-
win alleged a plausible theory of liability in his proposed [Sec-
ond Amended Complaint] and the facts in that Complaint
have been admitted, the legal conclusions in that SAC were
not admitted.” R. 145 at 12.
II.
Barwin contends on appeal that he has a valid claim for
breach of contract against the Village under either of two the-
ories. First, he posits that under the terms of his employment
agreement, which obligated both parties to make pension
contributions to the IMRF, he had a reasonable expectation
that he would attain eligibility for a pension and that the Vil-
lage breached its contractual duty of good faith and fair deal-
ing when it decided to force his resignation in order to pre-
clude him from reaching the eight-year pension-vesting
threshold. Second, he contends that because the agreement
granted him such benefits as were enjoyed by senior employ-
ees “by practice” and the Village had a cognizable “practice”
of allowing such employees to purchase out-of-state pension
credits, the Village breached the duty of good faith and fair
14 No. 21-2007
dealing by refusing to abide by that practice and approve his
own request to purchase such credits. For the reasons that fol-
low, we affirm the district court’s decision to dismiss, for fail-
ure to state a claim, the first amended complaint which set
forth the first claim challenging the Village’s decision to oust
him as Village Manager. But we reverse the court’s decision
to grant summary judgment as to the second claim regarding
his asserted right, as a matter of Village practice, to purchase
out-of-state pension credits.
A. Good faith and fair dealing: reaching the pension-vesting
threshold.
As the foregoing discussion reveals, there are two breach-
of-contract claims at issue in this appeal, both based on the
duty of good faith and fair dealing: one that was dismissed at
the pleading stage, and one that was resolved against Barwin
at the summary judgment stage.
The claim that was dismissed at the pleading stage was the
claim in the First Amended Complaint that the Village forced
Barwin out as the Village Manager under threat of termina-
tion in order to prevent him from reaching the pension-vest-
ing threshold. The agreement obligated the Village and Bar-
win both to make regular contributions to the IMRF and, in
view of that provision, Barwin alleged that he had an expec-
tation that his pension would eventually vest and, more spe-
cifically, that the Village, notwithstanding its broad discretion
over his continuing employment, would not exercise that dis-
cretion in an opportunistic way so as to prevent him from
reaching pension eligibility. 9
9
Although both of Barwin’s contractual claims implicate his right to
a pension, we note that the Employee Retirement Income Security Act of
No. 21-2007 15
We review de novo the district court’s decision to dismiss
the First Amended Complaint pursuant to Federal Rule of
Civil Procedure 12(b)(6) for failure to state a claim on which
relief might be granted. E.g., Dean v. Nat’l Prod. Workers Union
Severance Trust Plan, 46 F.4th 535, 543 (7th Cir. 2022). To sur-
vive a motion to dismiss, a plaintiff need allege “only enough
facts to state a claim to relief that is plausible on its face.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974
(2007). A claim satisfies that criterion when “the plaintiff
pleads factual content that allows the court to draw the rea-
sonable inference that the defendant is liable for the miscon-
duct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct.
1937, 1949 (2009) (citing Twombly, 550 U.S. at 556, 127 S. Ct. at
1965). We accept as true all well-pled facts alleged in the com-
plaint. E.g., Heredia v. Capital Mgmt. Servs., L.P., 942 F.3d 811,
814 (7th Cir. 2019). Barwin attached his employment agree-
ment to the complaint, and consequently we deem the con-
tract to be part of the pleading, Fed. R. Civ. P. 10(c), and we
may consider the provisions of that contract in evaluating the
sufficiency of the complaint. Bible v. United Student Aid Funds,
Inc., 799 F.3d 633, 639–40 (7th Cir. 2015); Chicago Dist. Council
of Carpenters Welfare Fund v. Caremark, Inc., 474 F.3d 463, 466
(7th Cir. 2007).
The parties agree that Illinois law governs Barwin’s
claims, and because the employment agreement between Bar-
win and the Village did not specify a duration of employment
or otherwise impose conditions on the Village’s ability to
1974 (“ERISA”), 29 U.S.C. § 1001 et seq., does not come into play here, be-
cause ERISA expressly exempts from its coverage any “governmental
plan,” 29 U.S.C. § 1003(b)(1), and such a plan is defined to include a plan
established by a State or any political subdivision thereof, § 1002(32).
16 No. 21-2007
discharge Barwin, he was an at-will employee under Illinois
law. See Meade v. Moraine Valley Cmty. Coll., 770 F.3d 680, 687
(7th Cir. 2014); Burford v. Accounting Practice Sales, Inc., 786
F.3d 582, 586 (7th Cir. 2015), overruled on other grounds by LHO
Chicago River, L.L.C. v. Perillo, 942 F.3d 384, 387–89 (7th Cir.
2019); Robinson v. BDO Seidman, LLP, 854 N.E.2d 767, 770 (Ill.
App. Ct. 2006). 10 As a result, the Village was free to discharge
him for a good reason, a bad reason, or on a whim. Wilson v.
Career Educ. Corp., 729 F.3d 665, 674 (7th Cir. 2013) (Darrow,
J., concurring) (“An employer can terminate an at-will em-
ployee for almost any reason.”); LaScola v. U.S. Sprint
Commc’ns, 946 F.2d 559, 567 (7th Cir. 1991) (“as an at-will em-
ployee, LaScola could be discharged for any reason—good or
bad”); Jordan v. Duff & Phelps, Inc., 815 F.2d 429, 438 (7th Cir.
1987) (“An [at-will] employer may be thoughtless, nasty, and
mistaken.”); Robinson, 854 N.E.2d at 770 (“an employee at will
may be discharged for any reason or no reason at all”). The
freedom was not one-sided: as an at-will employee, Barwin
himself was free to terminate his relationship with the Village
for any reason without breaching his employment contract.
Id.; Stevenson v. ITT Harper, Inc., 366 N.E.2d 561, 566 (Ill. App.
Ct. 1977). 11
10
Unless otherwise indicated, all federal cases cited in this opinion
applied Illinois law.
11
Illinois does recognize a narrow limitation on an employer’s other-
wise unbounded discretion to discharge an at-will employee, allowing
such an employee to pursue a claim of retaliatory discharge when he has
been terminated in violation of public policy. See Blount v. Stroud, 904
N.E.2d 1, 9 (Ill. 2009); Palmateer v. Int’l Harvester Co., 421 N.E.2d 876, 878–
79 (Ill. 1981). There is no contention that Barwin’s discharge might sup-
port such a claim. Federal and state anti-discrimination statutes, including
Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e, et seq., and the
No. 21-2007 17
A duty of good faith and fair dealing is implied into every
Illinois contract. LaScola, 946 F.2d at 565 (citing Triad Assocs.,
Inc. v. Chicago Hous. Auth., 892 F.2d 583, 589 (7th Cir. 1989),
abrogated on other grounds by Bd. of Cnty. Comm’rs, Wabaunsee
Cnty., Kan. v. Umbehr, 518 U.S. 668, 116 S. Ct. 2342 (1996)); Jor-
dan, 815 F.2d at 438. As relevant here, that obligation pre-
cludes an employer from making an “avowedly opportunis-
tic” decision to discharge an at-will employee. See Jordan, 815
F.2d at 438; LaScola, 956 F.2d at 566. But the obligation is not a
source of rights independent of the parties’ contract, nor does
the duty supply a discharged employee with a separate cause
of action against his former employer. Instead, the duty of
good faith and fair dealing functions as an interpretive aid,
ensuring that the employer, as “a party vested with contrac-
tual discretion [in this case, to discharge its employee for vir-
tually any reason] to exercise [that discretion] reasonably, and
not arbitrarily or capriciously, or in a manner inconsistent
with the reasonable expectations of the parties.” Reserve at
Woodstock, LLC v. City of Woodstock, 958 N.E.2d 1100, 1112 (Ill.
App. Ct. 2011); see also Wilson, 729 F.3d at 674 (Darrow, J. con-
curring); McArdle v. Peoria Sch. Dist. No. 150, 705 F.3d 751, 755
(7th Cir. 2013); City of Rockford v. Mallinckrodt ARD, Inc., 360
F. Supp. 3d 730, 769 (N.D. Ill. 2019); Zewde v. Elgin Cmty. Coll.,
601 F. Supp. 1237, 1250 (N.D. Ill. 1984); Gordon v. Matthew
Bender & Co., 562 F. Supp. 1286, 1289–90 (N.D. Ill. 1983).
Thus, “[w]here a party acts with improper motive, be it a
desire to extricate itself from a contractual obligation to bring
Illinois Human Rights Act, 775 ILCS 5/1-101, et seq., also apply to at-will
employees. See Carter Coal Co. v. Human Rights Com’n, 633 N.E.2d 202, 207
(Ill. App. Ct. 1994). Barwin has not alleged that he was discharged in vio-
lation of any such statutory protections.
18 No. 21-2007
about a condition precedent or a desire to deprive an em-
ployee of reasonably anticipated benefits through termina-
tion, that party is exercising contractual discretion in a man-
ner inconsistent with the reasonable expectations of the par-
ties and therefore is acting in bad faith.” Dayan v. McDonald’s
Corp., 466 N.E.2d 958, 991 (Ill. App. Ct. 1984). So, for example,
if an employment agreement provides that an at-will em-
ployee is entitled to a commission under specified conditions,
and those triggering conditions have been met, the employer
may not evade its obligation to pay the commission by exer-
cising its otherwise wide discretion to fire the employee be-
fore the date payment is due: that would constitute avowedly
opportunistic behavior. Jordan, 815 F.2d at 438–39; see also Wil-
son, 729 F.3d at 67–75 (Darrow, J., concurring); id. at 681 (Ham-
ilton, J., concurring in part and dissenting in part); La-Scola,
946 F.2d at 566; McCleary v. Wells Fargo Sec., L.L.C., 29 N.E.3d
1087, 1093–95 (Ill. App. Ct. 2015) (plaintiff adequately alleged
that his employer breached duty of good faith and fair dealing
by unilaterally altering terms of bonus plan in order to deny
him eligibility after he had already met former criteria for bo-
nus); Reserve at Woodstock, 958 N.E.2d at 1113–14 (city violated
duty of good faith and fair dealing it owed to developer under
annexation agreement by exercising its discretion to re-zone
property for agricultural use and blocking proposed develop-
ment, after developer had already expended hundreds of
thousands of dollars and essentially complied with all criteria
to proceed with development).
But apart from ensuring that the employer does not take
undue advantage of an at-will employee by acting contrary to
the terms of the employment agreement, the duty of good
faith and fair dealing does not require that the employer have
cause to discharge the employee nor does it otherwise limit
No. 21-2007 19
the employer’s duty to let the employee go for whatever rea-
son: the employer retains its otherwise unfettered ability to
terminate its relationship with the at-will employee for any
reason, good or bad. See Jordan, 815 F.2d at 438; Gordon, 562
F. Supp. at 1289–90; Wilson, 729 F.3d at 688 (Wood, J., concur-
ring in part and dissenting in part).
Barwin’s theory, as we have said, is that the duty of good
faith and fair dealing, in view of the employment agreement’s
provision for payments toward his pension eligibility, barred
the Village from exercising its discretion to oust him from the
Village Manager role in order to interfere with his pension
rights. Drawing from the transcript of the Village Board meet-
ing where the decision was made to replace him, Barwin al-
leges that the Board decided to oust him so as to avoid incur-
ring the expense of paying him a pension. The complaint
highlights the remark by a Trustee to the effect that Barwin,
having only held the position of Village Manager for five and
a half years, could not assume that he would continue in that
position until he reached pension eligibility, concluding with
the observation, “Can’t afford it.” Barwin alleges that this re-
mark was meant to convey the notion that the Village could
not afford to have him become eligible for a pension. That
may not be the only reasonable way to interpret the remark,
but it is one plausible construction, and because this claim
was dismissed at the pleading stage, we accept the truth of
this allegation. 12 Consistent with that allegation, Barwin has
12 As we noted above, the actual remarks of the Village official as tran-
scribed are ambiguous as to whether the Trustee was referring to the Vil-
lage’s ability to afford Barwin reaching pension eligibility or Barwin’s abil-
ity to assume that he would remain employed until he reached the eligi-
bility threshold, and the parties dispute what significance we should at-
tach to those remarks. See supra n.5. But given that we are evaluating the
20 No. 21-2007
separately alleged that Pope had previously made remarks to
him over the course of his tenure regarding the cost of em-
ployee pensions. R. 94 at 12 ¶ 34. We can therefore assume, in
assessing the viability of this claim, that the Village Board in-
deed did decide to demand his resignation under threat of
discharge in whole or in part to prevent his pension from vest-
ing and thus to avoid the corresponding financial obligation.
Even so, we agree with the district court that the complaint
does not state a plausible claim for breach of the contractual
duty of good faith and fair dealing.
Whatever else the contract provided, it did not state that
the Village and Barwin were agreeing to a minimum employ-
ment term of eight years; had that been the case, Barwin
would not have been an at-will employee. True enough, the
agreement obligated both Barwin and the Village to make
contributions to the municipal pension fund, a necessary but
not sufficient condition on his eventual eligibility to receive a
pension. From Barwin’s perspective, that obligation only
makes sense if the parties intended for him to serve as Village
Manager until such time as his pension rights vested. Put an-
other way, in agreeing that Barwin would participate in the
IMRF and that both parties would make periodic contribu-
tions to the Retirement Fund, the Village, in Barwin’s view,
implicitly agreed not to weigh the costs of his prospective
pension in exercising its otherwise unfettered discretion to re-
place him as Village Manager at any time. But we do not think
that provision of the contract can bear the weight Barwin
places upon it. The parties agreed to make contributions to
dismissal of this claim at the pleading stage, and our focus is necessarily
confined to the four corners of the complaint, we shall set aside the ambi-
guity in the transcript (which is not attached to the complaint).
No. 21-2007 21
the IMRF toward Barwin’s eventual pension eligibility, but no
more. It is by no means unusual for an employee to quit or be
discharged before his pension rights vest, and that does not
render worthless any prior pension contributions made on his
behalf. Had Barwin obtained employment with another Illi-
nois municipality participating in the IMRF, his years of ser-
vice with Oak Park and the contributions made during that
time would have continued to count toward his pension eli-
gibility, and he might have reached the 8-year vesting thresh-
old in his new position. 13 We also understand from the parties
that Barwin had a right to request a refund of the contribu-
tions he had made to the IMRF, and for its part the Village
could allocate the contributions it had made for Barwin to its
other pension obligations. 14 So the contributions were not ren-
dered pointless with Barwin’s ouster, and we do not read the
provision dictating that the parties make such contributions
as reflecting a shared expectation, let alone commitment, that
Barwin would continue in the Village Manager position long
enough for his pension rights to vest.
That being the case, the duty of good faith and fair dealing
did not preclude the Village from discharging Barwin even if
it did so in whole or in part because it did not want him to
become eligible for a municipal pension and for the Village
coffers to incur the substantial cost of that pension. This case
is not analogous to the earned-benefit cases, given that the
triggering event for Barwin’s pension eligibility had not yet
13 Indeed, Barwin testified at his deposition that he made unsuccessful
efforts to find a job with another Illinois municipality. Barwin Dep. Feb.
14, 2019 at 140, R. 125-3 at 27.
14 See Barwin post-argument memorandum at 1–2, 7th Cir. docket No.
34 (Dec. 21, 2021).
22 No. 21-2007
come to pass and, in fact, was still two and a half years away.
See Criscione v. Sears, Roebuck & Co., 384 N.E.2d 91, 94 (Ill. App.
Ct. 1978) (“Plaintiff’s complaint alleges only that pension ben-
efits had accrued during [his] 10 years at Sears and that the
benefits were lost as a result of his dismissal. There is no alle-
gation regarding agreements pertaining to pension benefits or
that his rights to the benefits had vested.”); Stevenson, 366
N.E.2d at 566 (where employment agreement provided that
company would pay an annual pension to plaintiff in event
he remained in company’s employ until he reached age of 65,
there was no undertaking by company to retain employee‘s
services until he reached age of 65 or for any other period:
“Terminating of the employment relationship was and re-
mained the exclusive privilege of the employer precisely as
plaintiff retained the concurrent right to leave the com-
pany.”). Even if we assume arguendo that the duty of good
faith might foreclose the Village from firing Barwin on the eve
of the vesting threshold in order to keep him from earning a
pension, cf. K Mart Corp. v. Ponsock, 732 P.2d 1364, 1370 (Nev.
1987) (recognizing tort claim for bad faith discharge decision
made by large nationwide employer to prevent employee
from claiming contractual retirement benefits which were six
months away from becoming 100 percent vested), abrogated by
Ingersoll-Rand Corp. v. McClendon, 498 U.S. 133, 111 S. Ct. 478
(1990) (holding that ERISA preempts state-law claims relating
to private benefit plans, including common law wrongful dis-
charge claims premised on employer’s desire to avoid making
contributions to pension fund on employee’s behalf); Hurst v.
IHC Health Servs., Inc., 817 F. Supp. 2d 1202, 1208 (D. Id. 2011)
(“The paradigmatic example of a breach of the covenant is
where an employer terminates an at-will employee weeks be-
fore the employee’s retirement vests in order to avoid paying
No. 21-2007 23
the employee’s retirement benefits; although the employment
contract permits termination without cause, termination to
avoid paying benefits due the employee would amount to a
breach.”) (Idaho law); Stevenson, 366 N.E.2d at 567 (noting
that duty of good faith did not assist plaintiff “because the
record does not suggest that plaintiff’s termination was a bad
faith effort by ITT Harper to avoid its conditional duty to pay
15
pension benefits”), two and a half years short of the vesting
threshold does not qualify as the eleventh hour. And at a
15 Barwin cites the Illinois Appellate Court’s decision in
Stevenson for the proposition that discharging an employee in
order to prevent his pension rights from vesting violates the
covenant of good faith and fair dealing, regardless of whether
the vesting threshold is imminent. But the passage we have
quoted from Stevenson, which rejected such a claim based on
a factual determination that the employer had not let the
plaintiff go in order to escape its conditional obligation to pay
pension benefits, constitutes nearly the entirety of the court’s
analysis. Barwin presumes that had the court found that the
plaintiff was discharged in order to avoid paying him a pen-
sion, the court would have concluded that the employer
breached the duty of good faith and fair dealing. We agree it
is possible that the Stevenson court might have come to that
conclusion, but given the brevity of the court’s analysis, we
are not convinced that such an outcome was certain or even
likely. It is not unusual for a court to reject a particular claim
on the ground that the factual premise of the claim has not
been established, without addressing the legal merits of the
claim.
24 No. 21-2007
substantial remove from that hour, the Village was free to
make a decision that it deemed to be in its own economic self-
interest, however detrimental that was to its at-will employee
and however unfair or distasteful that decision might seem.
See Wilson, 729 F.3d at 688 (Wood, J., concurring in part and
dissenting in part) (“Opportunism exists only if one side has
sunk costs that cannot be recovered by the time the other side
acts[.]”); Rodio v. R.J. Reynolds Tobacco Co., 416 F. Supp. 2d 224,
235 (D. Mass. 2006) (“The implied covenant of good faith and
fair dealing ‘does not protect interests contingent on an event
that has not occurred,’ such as continued employment.”)
(quoting Harrison v. NetCentric Corp., 744 N.E.2d 622, 631
(Mass. 2001)) (Massachusetts law); Wagenseller v. Scottsdale
Mem. Hosp., 710 P.2d 1025, 1040 (Ariz. 1985) (“The covenant
does protect an employee from a discharge based on an em-
ployer’s desire to avoid the payment of benefits already
earned by an employee, … but not the tenure required to earn
… pension and retirement benefits … .”), superseded in other
respects by Ariz. Rev. Stat. § 23-1501, et seq.; accord, Metcalf v.
Intermountain Gas Co., 778 P.2d 744, 749 (Id. 1989), modified in
other respects by Sorensen v. Comm Tek, Inc., 799 P.2d 70, 75 (Id.
1990). It would be no different had the employment agree-
ment specified a pay increase for each additional year that
Barwin worked for the Village: at some point, the Village
might have concluded that it was in its interest to let Barwin
go and replace him with a more modestly compensated em-
ployee. See Edwards v. Mass. Mut. Life Ins. Co., 936 F.2d 289,
292 (7th Cir. 1991) (Mass. law). This is the nature, and some
might say the point, of at-will employment: the employer is
free to discharge the employee even on a rationale that a rea-
sonable observer might find unfair. As Judge Wood observed
in Wilson with respect to the doctrine of at-will employment,
No. 21-2007 25
“Some people might not mourn its passing, but it is firmly en-
trenched in Illinois law, and it is our duty to follow Illinois in
this respect.” Id.
In short, construing the duty of good faith and fair dealing
to limit the Village’s discretion as to Barwin’s continued em-
ployment—even if only to require that it be blind to the costs
of his prospective pension—cannot be reconciled with his sta-
tus as an at-will employee. For better or worse, the at-will doc-
trine remains a feature of Illinois law, and short of a contrac-
tual obligation to continue employing Barwin until his pen-
sion rights vested, the Village remained free, with the vesting
threshold more than two years off, to discharge him even if
solely to prevent him from reaching that threshold.
B. Good faith and fair dealing: purchase of out-of-state pension
credits.
Barwin’s second good faith and fair dealing claim—this
one asserted in the Second Amended Complaint and allowed
by the court to proceed beyond the pleading stage—has its
foundation in section 19A of the agreement, which entitled
Barwin to the highest level of benefits that “are enjoyed” by
department heads and similar employees “by practice.” Bar-
win asserts that it was the Village’s practice to allow senior-
level employees to purchase out-of-state pension credits, and
that consequently, it was his reasonable expectation that he
would be permitted to do so in the event he needed such cred-
its in order to reach the 8-year vesting threshold. Yet, when
the Village forced him to resign, it departed from that practice
and effectively refused his request to purchase pension cred-
its. That decision, he asserts, was taken with malice to specif-
ically deprive him of a right that other employees, including
26 No. 21-2007
a prior Village Manager, had been granted by practice, in
breach of the implied duty of good faith and fair dealing.
We review the district court’s decision to grant summary
judgment to the Village on this claim de novo. E.g., Stockton v.
Milwaukee Cnty., 44 F.4th 605, 614 (7th Cir. 2022). Summary
judgment is properly granted to the moving party when
“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); Stockton, 44 F.4th at 614. In assessing the eviden-
tiary record underlying the district court’s decision, we grant
the non-moving party the benefit of conflicting evidence and
any reasonable inferences that may be drawn from the evi-
dence. Id. We shall affirm the district court’s summary-judg-
ment decision in this case so long as no reasonable finder of
fact could conclude that there was a practice of allowing sen-
ior Oak Park employees to purchase out-of-state pension
credits. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252,
106 S. Ct. 2505, 2512 (1986); Cloutier v. GoJet Airlines, LLC, 996
F.3d 426, 441 (7th Cir. 2021).
As relevant here, section 19A entitled Barwin to the high-
est level of benefits that “are enjoyed” by department heads
and like employees “by practice.” So there are two inter-re-
lated questions presented: (1) was there a practice of allowing
senior employees to purchase out-of-state pension credits,
and (2) was the practice sufficiently current, such that it
would have been recognized as one as continuing or prece-
dential, so to speak, at the time of Barwin’s hiring and during
his tenure as a Village employee.
There are multiple undisputed facts that are relevant to
these questions: (1) As set forth in the Second Amended Com-
plaint (the factual allegations of which the Village has
No. 21-2007 27
admitted as true), Village President Pope told Barwin that his
immediate predecessor had purchased pension credits; (2) a
total of five Village employees in the decades preceding Bar-
win’s hiring had asked to purchase pension credits and were
permitted to do so; (3) so far as the record reveals, no such
previous request was ever denied; (4) apparently, the last time
such a request was made was in 2001, some five years before
Barwin was hired (that request was made by Barwin’s prede-
cessor) and some 11 years before he was forced to resign; and
(5) no request to purchase an out-of-state pension credit was
made between the time Barwin was hired as Village Manager
and the time he was advised to resign or face termination. 16
As we have noted, the district court was not convinced
that a total of five requests, made over a period of decades,
was sufficient to constitute a practice, i.e., a customary or
usual way of doing something. The court also reasoned that
the “are enjoyed” language of section 19A referred to benefits
that are currently enjoyed by employees, and that the five-year
time gap between the last time a request to purchase pension
16 A printout from the Illinois Municipal Retirement Fund’s database
indicates that a total of 12 Oak Park employees submitted applications to
purchase out-of-state pension credits from 1990 to 2019. R. 125-6 at 4. One
of the 12 applications was submitted by Barwin himself in 2012 and there
was one subsequent application submitted by another Village employee
in 2019. Thus, a total of 10 applications were filed in the 22 years prior to
Barwin’s resignation. Apart from knowing that five of those 10 applica-
tions were granted, we do not know what happened with the other five.
Some number of those applications may have been granted. See n.2, supra.
As noted previously, it is undisputed that no such application—apart
from Barwin’s—was ever denied by a vote of the Village Board of Trustees
or, as in this case, a refusal to submit the request to the Board. We can only
assume that the other applications were withdrawn or not acted upon be-
cause the applicants chose not to pursue them.
28 No. 21-2007
credits had been granted in 2001 and Barwin’s hiring, and the
passage of 11 years between that last prior purchase and Bar-
win’s forced resignation in 2012, was too great to establish a
right that was enjoyed by employees at the time of his hiring
and/or ouster.
Looking at the alleged practice in context, however, we
conclude that it would be possible for the factfinder to resolve
these points in Barwin’s favor and find that there was a prac-
tice of allowing senior Village employees to purchase out-of-
state pension credits. For that reason, it was error to enter
summary judgment against Barwin on this claim.
The contract itself does not define the term “practice,” and
the parties’ briefs do not point us to any informative prece-
dents on the matter; but as it happens, the question comes up
regularly in labor arbitration. Workplace practices or “the law
of the shop” can shed light on the meaning of ambiguous
terms in a collective bargaining agreement and, in appropri-
ate cases, supplement the written agreement with implied but
nonetheless binding terms. See United Steelworkers of Am. v.
Warrior & Gulf Nav. Co., 363 U.S. 574, 581–82, 80 S. Ct. 1347,
1352 (1960) (“The labor arbitrator’s source of law is not con-
fined to the express provisions of the contract, as the indus-
trial common law—the practices of the industry, and the
shop—is equally a part of the collective bargaining agreement
although not expressed in it.”); BLET GCA UP v. Union Pac.
R.R. Co., 988 F.3d 409, 413–14 (7th Cir. 2021) (“any well estab-
lished practices that constitute a course of dealing between
the [rail] carrier and employees form part of the agreement
the same as do any specific terms set out in the text of the
agreement”) (cleaned up); Bhd. of Maint. of Way Employees
Div./IBT v. Norfolk So. Ry. Co., 745 F.3d 808, 813 (7th Cir. 2014)
No. 21-2007 29
(“An employer’s contractual claim may rely upon implied
contractual terms, which the parties established through past
practices.”). Arbitrators are thus frequently called upon to de-
cide what constitutes a practice (or “past practice,” as it is of-
ten referred to) for this purpose. In this case, of course, section
19A of the agreement not only invites but requires the court
to consider what benefits the Village had established for sen-
ior employees via practice. See Carlton J. Snow, Contract Inter-
pretation: The Plain Meaning Rule in Labor Arbitration, 55
FORDHAM L. REV. 681, 695 n.95 (1987) (“The most familiar way
to incorporate past practices into a contract by reference is
through a so-called ‘past practices’ clause or a ‘freeze’ or
‘maintenance of benefits’ clause.”) (quoting Moore Co. v. Di-
rectly Affiliated Local Union No. 22804, 79-2 Lab. Arb. Awards
(CCH) ¶ 8337, at 4410 (Bornstein, Arb., 1979)).
Of course, Barwin was not a union member and his em-
ployment was not subject to a collective bargaining agree-
ment. But his employment agreement expressly granted him
the benefit of rights that comparable Village employees en-
joyed as a matter of practice, and so we take guidance from
these cases as to the criteria that inform whether a particular
practice can be recognized.
“Something qualifies as a practice if it is shown to be the
understood and accepted way of doing things over an ex-
tended period of time.” Richard Mittenhall, Past Practice & the
Admin. of Collective Bargaining Agreements, 59 MICH. L. REV.
1017, 1019 (1961). Criteria that arbitrators look to in assessing
whether prior actions amount to a practice include clarity and
consistency, longevity and repetition, acceptability (i.e., the
parties are aware of the practice and regard it as the correct
and customary way of handling the particular issue or
30 No. 21-2007
circumstance), and mutuality (i.e., it is the product of a joint
understanding between the parties). Id.; see also Kenneth May,
ed., Elkouri & Elkouri, HOW ARBITRATION WORKS, ch. 12.2 at
12–4 (8th ed. 2016) (quoting Celanese Corp. of Am., 24 LA 168,
172 (Justin, Arb.,1954) (a past practice generally must be
“(1) unequivocal, (2) clearly enunciated and acted upon, [and]
(3) readily ascertainable over a reasonable period of time as a
fixed[ ] and established practice accepted by both [p]arties”)).
Single, isolated, or sporadic incidents are typically rejected as
insufficient to establish a past practice. See id. at 12–15 & n.23
(collecting cases); Mittenhall, at 1019. However, a limited
number of instances may nonetheless be deemed sufficient to
establish a practice when the relevant situation to which the
purported practice applies occurs only on occasion. See, e.g.,
In re arbitration between Grievant 1 and Respondent 1 (Servs., Not
Elsewhere Classified), 2019 WL 3766458, at *7 (Perea, Arb., May
20, 2019) (“It may be argued the before-mentioned instances
when National Days of Mourning as proclaimed by the Pres-
ident were treated by the parties as ‘holidays’ … are too infre-
quent to constitute a valid past practice. It must be noted,
however, that the death of a United States President is not a
matter which occurs with frequency. … Where the incidents
giving rise to the issue of binding past practice are found to
be infrequent, as in this instance, the gauge for measuring the
repetition of such occurrences must be adjusted accord-
ingly.”); In re Earthgrains Co. (Marquette, Mich.) & RWDSU, Lo-
cal 665, 2007 WL 8319142, at *7 (Roumell, Jr., Arb., Jan. 22,
2007) (“This Arbitrator appreciates, as suggested by the Un-
ion’s advocate, that a ‘past practice’ means a long-standing
practice that is frequently recognized and mutually adopted
by the parties. The suggestion was that the examples used
were too infrequent to arise to a standard of a binding past
No. 21-2007 31
practice. Yet, the fact is, when a conversion of a full-time to a
part-time position did occur, it was not challenged by the Un-
ion. As Arbitrator Brodsky in Monroe County Intermediate
School District, 105 LA [565] (1995) at 567, observed: ‘[A] prac-
tice can be established if, when one circumstance occurs, it is
consistently treated in a certain way. The occurrence need not
be daily or weekly, or even yearly. But when it happens, a
given response to that occurrence always follows.’”) (addi-
tional citation omitted); In re Bi-State Dev. Agency of the Mis-
souri-Illinois Metro. Dist. (Transit Div.) & IBEW, Local 2, 2004
WL 6344102, at *11 (Block, Arb. Apr. 8, 2004) (“I find merit in
the Agency’s position that a past practice can be found in a
consistent response to a situation that occurs infrequently.
The record establishes that, for these parties, in every situa-
tion when the Agency determined that it was necessary that
electricians work a shift other than their bid shift, it was han-
dled by requesting volunteers to work the shift with the time-
and-one-half compensation for the first day.”); In re arbitration
between Respondent & Grievant-1, Labor Union (Elec. Gas & San-
itary Servs.), 2000 WL 36095728, at *12 (Keenan, Arb., Apr. 20,
2000) (“[W]ith respect to the Union’s task of establishing a
past practice of a limit on management’s prerogatives vis-à-
vis assigning the task of unloading unexpected incoming
trucks, it gets some assistance from the arbitral principle to
the effect that fewer instances are required to establish a ‘prac-
tice’ where the situation (as here) arises only infrequently.”)
(but ultimately concluding evidence insufficiently specific to
establish alleged practice); In re Nat’l Coop. Refinery Assoc.,
McPherson, Kan., & Oil, Chem. & Atomic Workers Local 5-558,
1997 WL 34982504, at *3 (Allen, Jr., Arb., Oct. 1, 1997) (“this is
a ‘classic’ case wherein contract language has been modified
via a very long and consistent past practice, even though this
32 No. 21-2007
situation arises relatively infrequently”). Thus, in appropriate
circumstances, arbitrators have determined that a past prac-
tice exists even when only a handful of instances are cited as
evidence of that practice.
In reviewing the district court’s summary-judgment deci-
sion in this case, we must ask whether a factfinder reasonably
could find that there was a practice of allowing senior Village
employees to purchase out-of-state pension credits when
there were only five precedents identified over a period of
multiple decades. That is a small number of priors, we agree,
but as the foregoing cases reveal, it matters to the determina-
tion how frequently the underlying circumstance occurs. Oak
Park is a mid-sized municipality with just under 52,000 resi-
dents as of the 2010 census, see U.S. Census Bureau, Quick
Facts, Oak Park Village, Illinois, https://www.census.gov/
quickfacts/oakparkvillageillinois, and has a total workforce of
roughly 350 municipal employees, see “About Oak Park’s Mu-
nicipal Government,” https://www.oak-park.us/your-gov-
ernment/village-manager/about-oak-parks-municipal-gov-
ernment. 17 We do not know how many people in that work-
force qualify as department heads or their equivalent, but
whatever the number might be, it is necessarily a modest por-
tion of the Village workforce. The number among that group
who have had out-of-state work experience and have sought
to purchase out-of-state pension credits would logically be
even smaller. What we know, however, based on Barwin’s in-
vestigation is that in the two decades or so prior to his forced
resignation, five individuals had sought to purchase out-of-
17 The record indicates that the Village workforce was reduced sub-
stantially during Barwin’s tenure owing to the Great Recession and its fis-
cal fallout for the Village. Barwin Dep. Aug. 11, 2020 at 41, R. 125-4 at 17.
No. 21-2007 33
state pension credits and all five were granted their requests
by the Village; no such request had been denied. See n.5, supra.
In sum, the relevant instances applied to a relatively small
group of Village employees, occurred only occasionally, and
were all resolved the same way. We cannot say as a matter of
law this was insufficient to constitute a practice for purposes
of section 19A.
The district court and the Village have placed emphasis on
the current tense of the “are enjoyed” language of section 19A.
It is true that the provision is phrased in the present tense, and
we presume that the parties chose that tense deliberately. The
language reasonably suggests, we agree, that the parties in-
tended to exclude practices that the Village had abandoned or
modified and to include only those workplace practices that
were still understood to represent the Village’s way of han-
dling particular benefit issues at the time Barwin was hired
and during his tenure.
As to benefits that are issued, applied for, or adjudicated
frequently, drawing a line between prior and current prac-
tices may be a relatively straightforward matter. How the Vil-
lage handled various types of leave requests (e.g., sick, paren-
tal, family, or personal leave) five years ago may be incon-
sistent with how such leave requests are handled today, and
to that extent, contract language referencing benefits that “are
enjoyed” by practice would tend to exclude the former in fa-
vor of the latter.
But as to benefit questions that come up only infrequently,
a rigid focus on the day the employee is hired or even the du-
ration of his tenure as an employee may not be appropriate.
Suppose, for example, that a particular issue of employment
benefits for senior employees comes up, on average, once in
34 No. 21-2007
five years (taking extended parental leave, for example), but
the evidence nonetheless establishes that it has been handled
in a particular way and there is a shared, ongoing understand-
ing between the employer and its workers that that is how the
matter has been and should be handled. Suppose further that
at the time of the plaintiff’s hiring, it had been five years since
the issue last arose. Does it necessarily follow that the passage
of time alone precludes a factfinder from determining that
there was a practice in effect at the time of the plaintiff’s hire?
Likewise, does the fact that the issue happens not to come up
during the plaintiff’s multi-year tenure as an employee pre-
clude the factfinder from concluding that a previously-recog-
nized practice had not been abandoned and remained in ef-
fect? We think the answer to these questions is “No.”
Certainly, workplace routines evolve, the circumstances
that inform them can change, and prior practices can be aban-
doned; whether or not that was true here presents a question
for the factfinder. The passage of time certainly allows an em-
ployer to argue to a factfinder that what it did in the past no
longer represents current practice, just as the limited number
of prior occurrences permits it to argue that, in fact, there
never was a recognized practice as to a particular benefit. But
as the line of labor cases we have cited makes clear, when the
relevant circumstance occurs only infrequently, one cannot
draw hard lines about what is a practice—or what constitutes
a current practice—based solely on the number of prior prec-
edents or the passage of time between or following those prec-
edents. Again, having in mind that the pool of eligible em-
ployees in this case was small and that the issue would come
up only infrequently, the fact that the last occasion on which
a request to purchase credits had occurred five years prior to
Barwin’s employment does not strike us as foreclosing the
No. 21-2007 35
notion of an ongoing practice, particularly when Barwin’s
predecessor in the Village Manager position himself had ben-
efitted from the practice. Indeed, a factfinder might construe
the fact that Village President Pope referred to that very in-
stance at the time of Barwin’s hiring (more on that in a mo-
ment) as an affirmation that the practice indeed was an ongo-
ing one.
More generally, notwithstanding the present tense of the
“are enjoyed” phrasing, section 19A refers to benefits that are
enjoyed “by practice.” What occurs as a matter of “practice”
is inevitably and necessarily backward-looking to some de-
gree. Cf. Star Tribune Co. v. Minn. Newspaper Guild Typograph-
ical Union, 450 F.3d 345, 349 (8th Cir. 2006) (“The CBA did not
define present practice [as used in the agreement’s preamble]
and the arbitrator therefore had to look at extrinsic evidence
to inform his interpretation, including an examination of the
past practices of the parties to the agreement.”) (emphasis
ours) (applying federal law). The parties themselves concur
on this point, as is evident from the district court’s decision,
which noted that both parties embraced a definition of the
term “practice” that, among other things, “looks back at what
has been done and whether it has been done consistently.”
R. 145 at 9. This reinforces the notion that one must neces-
sarily look backward in time to identify whether there has
been a “practice,” notwithstanding the current-facing “are en-
joyed” language of the contract. The use of one term that looks
to the past and a second clause that focuses on the present is
not inconsistent: “practice” focuses on what has consistently
been done in the past, whereas “are enjoyed” reflects an ex-
pectation that this past practice remains valid, i.e., that noth-
ing has interceded to render a past practice no longer binding.
36 No. 21-2007
Again, notwithstanding the relatively small number of
prior events in question (five), given the fact that these re-
quests were all resolved favorably to the employees, the fact
that the plaintiff’s immediate predecessor was permitted to
purchase credits, and the fact that the Village President em-
phasized to Barwin at the time of his hiring that his immediate
predecessor had been permitted to purchase such credits, the
record would support a finding that there was a practice of
granting such requests that was sufficiently ongoing (i.e., cur-
rent) at the time of Barwin’s hiring. So Barwin is entitled to
present his case on this claim to a factfinder.
A word is in order about Pope’s representation to Barwin
regarding his predecessor’s purchase of out-of-state pension
credits. The district court believed it was foreclosed from con-
sidering any such statements by the employment agreement’s
integration clause, which provides that “[a]ny prior discus-
sions or representations by or between the Employer and the
Employee not specifically stated in this Agreement are ren-
dered null and void by this Agreement.” R. 44-1 at 8, § 21A.
We agree that this clause excludes evidence of Pope’s assur-
ance that Barwin would be permitted to purchase pension
credits if needed: that was a promise that was not set forth in
the agreement itself. But we do not understand this clause to
preclude consideration of Pope’s additional statements to
Barwin as evidence of the very sort of “practice” that section
19A of the contract explicitly incorporates.
When the terms of a contract are clear, an integration
clause in conjunction with the parol evidence rule heeds the
four corners of the parties’ agreement and avoids misunder-
standings that may arise from extrinsic evidence of what the
parties may have talked about, contemplated, understood, or
No. 21-2007 37
intended yet failed to memorialize in writing. See Air Safety,
Inc. v. Tchrs Realty Corp., 706 N.E.2d 882 (Ill. 1999).
But when, for example, contract language is ambiguous,
parol evidence properly may be admitted to resolve the am-
biguity notwithstanding the contract’s integration clause. Id.
at 884–85; see Bidlack v. Wheelabrator Corp., 993 F.2d 603, 608
(7th Cir. 1993) (en banc) (lead opinion) (federal law); Vallone
v. CNA Fin. Corp., 375 F.3d 623, 630 (7th Cir. 2004); Brooklyn
Bagel Bros., Inc. v. Earthgrains Refrigerated Dough Prods., Inc.,
212 F.3d 373, 380 (7th Cir. 2000); Pabst Brewing Co. v. Corrao,
161 F.3d 434, 440 (7th Cir. 1998) (federal law). Likewise, in the
past-practices labor cases that we have identified, parol evi-
dence is routinely admitted to establish the existence and na-
ture of past practices in a particular workplace. Logically, un-
less an agreement itself names and delineates the contours of
a given practice, extrinsic evidence is the only way a practice
can be identified. Judicial decisions reviewing arbitral awards
in turn recognize that when the arbitrator has turned to ex-
trinsic evidence to ascertain whether there is a past practice in
order to cast light on ambiguities or gaps in the parties’ writ-
ten contract, he or she is nonetheless interpreting their agree-
ment. See Jasper Cabinet Co. v. United Steelworkers of Am., AFL-
CIO-CLC, Upholstery & Allied Div., 77 F.3d 1025, 1030 (7th Cir.
1996) (in effort to resolve ambiguity of contract language re-
garding overtime work, arbitrator’s “comprehensive analy-
sis” resorting to extrinsic evidence including, inter alia, “cir-
cumstantial evidence relating to the practices of the Employer
which clearly demonstrate its lack of belief that overtime was
mandatory” confirmed that “the arbitrator was engaged in in-
terpretation of the agreement”) (federal law); Graphic Packag-
ing Int’l, Inc. v. Graphic Commc’n Conf. Int’l Bhd. of Teamsters,
Dist. Council 1, Local 77-P, 2010 WL 3699981, at *3 (E.D. Wis.
38 No. 21-2007
Sept. 13, 2010) (“[T]he fact that the arbitrator relied on extrin-
sic evidence does not mean the award did not draw its essence
from the agreement. … This was not a case of the arbitrator
imposing his own world view or his ‘notions of industrial jus-
tice’ on the parties; the arbitrator was looking to past practice
to give meaning to a provision he found ambiguous.”) (fed-
eral law); see also, e.g., United Steel, Paper & Forestry, Rubber,
Mfg., Energy, Allied Indus. & Serv. Workers Int’l Union AFL-
CIO-CLC, USW Local 200 v. Wise Alloys, LLC, 807 F.3d 1258,
1274 (11th Cir. 2015) (“the presence of a zipper clause [in the
CBA] does not defeat the traditional rule that ambiguities can
be resolved by looking to extrinsic evidence[,]” of past prac-
tices) (federal law).
By explicitly incorporating any rights that senior employ-
ees enjoyed as a matter of practice, the employment agree-
ment opened the door to appropriate evidence of what such
practices were. Pope’s statements as to what the Village had
done in the past with respect to requests to purchase out-of-
state pension credits are admissible not only because they are
relevant to whether there was a past practice concerning the
purchase of such credits, but also because, if there was such a
past practice, they could be construed as bringing that prac-
tice “up-to-date” as of the time of Barwin’s hiring. That is,
when Barwin specifically inquired about the point, Pope de-
scribed what the Village’s practice was: Pope was effectively
describing it as an ongoing, current, practice (or so a fact-
finder might conclude). The timing of these remarks strike us
as particularly important vis-à-vis the “are enjoyed” clause of
section 19A, because this is when the terms of Barwin’s em-
ployment were being struck and Pope, as President and a
member of the Board of Trustees, was in a position to know
No. 21-2007 39
what the practice, if any, with respect to out-of-state pension
credits was.
The integration clause should not block consideration of
Pope’s statements as to what the Village had done in the past,
because properly understood, Barwin is not relying upon
these statements as an enforceable promise—he is relying on
section 19A for that. What he is relying on Pope’s statements
for is evidence of what the practice (enforceable through sec-
tion 19A) was with regard to the purchase of out-of-state pen-
sion credits. Construing the integration clause to exclude
Pope’s statements to Barwin, when the contract otherwise re-
quires parol evidence as to the existence of Village benefit
practices, and when Pope was a logical source of evidence as
to the nature of such practices, would be nonsensical. To be
clear, we are not suggesting that Pope’s statements were nec-
essarily binding or authoritative as to whether there was such
a practice and, if so, what the practice was; his statements are
merely one piece of evidence on this point, and nothing pre-
cludes the parties from offering other relevant evidence on
this point.
Even if we are wrong as to the admissibility of Pope’s
statements, wholly apart from those statements we have Bar-
win’s representation that he independently looked into and
confirmed what Pope told him about his predecessor and
what the Village had done with respect to other pension-
credit requests. That allegation is in the Second Amended
Complaint and has been admitted by the Village. R. 94 at 1–2
¶ 2, 8–9 ¶ 21. The exclusion of Pope’s statements would there-
fore not deprive Barwin’s case of evidentiary support on this
point.
40 No. 21-2007
Finally, although the Village makes the point that all five
prior requests to purchase pension credits were made by in-
dividuals who were, at the time of their requests, current as
opposed to former employees, we do not view this as a mate-
rial distinction. Barwin made the request for the same reason
that all prior employees did, i.e., to get himself to the vesting
threshold, and although his decision to resign preceded his
request to purchase credits, Barwin has pointed out that he
technically was still a Village employee at the time he made
this request. Barwin Aff. ¶ 4, R. 141-2 at 2. We add that the
Village gives us no reason to believe that the imminence of
Barwin’s departure would have had any impact on the Vil-
lage Board’s ability to consider and act on his request or the
IMRF’s ability to credit him for his prior, out-of-state service.
In sum, the facts would permit a factfinder to conclude
that there was a practice, current as of the time of Barwin’s
hiring, of granting senior employees the right to purchase
out-of-state pension credits upon request. To be clear, alt-
hough we view the evidence as being sufficient to support a
finding in Barwin’s favor on this point, it does not compel
such a finding. Whether a practice exists is a case-by-case de-
termination dependent on the totality of the circumstances
and the inferences and conclusions the factfinder draws from
those circumstances. A factfinder might find that a practice
existed for the reasons we have noted, but it also might reach
a contrary conclusion, perhaps because it deems the prior
number of pension-credit approvals to be too few to support
a true practice, see Elkouri & Elkouri, , ch. 12.2 at 12-5 n.23 (col-
lecting examples of such cases), perhaps because it finds the
passage of time since the last approval prior to Barwin’s hir-
ing and ouster suggests any past practice was now moribund,
or because it views the prior approvals as merely representing
No. 21-2007 41
the unilateral, benevolent exercise of managerial discretion by
the Village President and Board as opposed to a mutually-rec-
ognized understanding as to how the matter should be han-
dled, see id. at 12-5 n. 21 (collecting cases citing managerial
discretion); see also Sperry Rand Corp., 54 L.A. 48, 52 (Volz,
1971) (distinguishing leniency by individual supervisors from
mutual agreement or acquiescence by the contracting parties
in a consistent course of action).
The district court thought that recognizing such a practice,
and a determination that Barwin was entitled to purchase out-
of-state pension credits consistent with that practice, would
be inconsistent with “the spirit if not the letter” of the princi-
ple recognized in Grassini v. DuPage Township. that it would
be “contrary to the effective administration of a political sub-
division to allow elected officials to tie the hands of their suc-
cessors with respect to decisions regarding the welfare of the
subdivision.” 665 N.E.2d at 864 (citing Milliken v. Edgar Cnty.,
32 N.E. 493 (Ill. 1892)); R. 145 at 10. Typically, cases in this line
of authority deal with multi-year employment contracts, but
the same rationale has been applied to other types of contrac-
tual undertakings as well. See M.R. Deyo v. Comm’r of High-
ways of Sheridan, 256 Ill. App. 3, 1930 WL 2992 (Ill. App. Ct.
1930) (multi-year installment contract for purchase of tractor).
We understand the Village’s position on this point to be that
the votes of prior Village Boards of Trustees to approve the
purchase of out-of-state pension credits cannot bind later
Boards to vote the same way, and to the extent that section
19A of Barwin’s employment contract represents that it does
so, it violates the Grassini principle. R. 142 at 6.
We disagree. The Village entered into an agreement with
Barwin that expressly granted him the highest level of
42 No. 21-2007
benefits that “are enjoyed” by other senior employees “by
practice,” which as discussed necessarily looks to what has
been done customarily in the past, whether by the Board or
other Village officials. Recognizing that practice in the agree-
ment did not tie the Village’s hands in perpetuity. We pre-
sume that if the Village wanted to disclaim any past practice
and announce that it would no longer be followed going for-
ward, it could have done so at any time (thereby terminating
the requisite mutual understanding between the Village and
its senior employees as to the practice) and yet there is no ev-
idence that it ever did so as to the purchase of pension credits.
For that matter, given that Barwin was an at-will employee,
the Village could have insisted that the written employment
agreement be modified to disclaim this or any other prior
practice and sent Barwin packing if he did not consent. (As
Barwin has noted, the terms of his employment had been
modified on other occasions.) But the Village did not do that
either. We can therefore infer that the members of the Village
Board in office at the time of Barwin’s discharge had accepted
the provisions of his contract and the employee-benefit prac-
tices it incorporates via section 19A. See Hostrop v. Bd. of Jr.
Coll. Dist. No. 515, 523 F.2d 569, 574 (7th Cir. 1975) (rejecting
argument that plaintiff’s original and superseding employ-
ment contracts with school district were void ab initio because,
inter alia, they were contrary to principle that one school
board should not be permitted to enter into contract that ex-
tends beyond election of successor board, noting that “the
new board did not object to plaintiff’s new contract [which
extended two years beyond term of old board] and permitted
him, on July 1, 1970, to commence serving under it,” thereby
adopting the contract); Vill. of Oak Lawn v. Faber, 880 N.E.2d
659, 672 (Ill. App. Ct. 2007) (“[T]he problem with contracting
No. 21-2007 43
beyond the term of the existing governing body is that the
new body will be unable to make the decisions and use the
discretion for which it was elected. This problem was never a
risk under the [employment] agreements in this case because
Faber was always terminable at will; neither the outgoing
board nor the new board was ever in a position where it had
to employ Faber against its better judgment.”). The
Grassini principle does not come into play here.
Finally, we note that Barwin repeats the argument he
made below that because the district court had denied the Vil-
lage’s motion to dismiss the Second Amended Complaint
based on alleged facts that the court deemed sufficient to state
a plausible claim for breach of the covenant of good faith and
fair dealing, and because the Village subsequently admitted
the truth of those facts by failing to timely answer the com-
plaint, the court was obligated to deny the Village’s motion
for summary judgment on the same rationale. Given our de-
cision to reverse the district court’s grant of summary judg-
ment to the Village on other grounds, we need not reach this
argument.
III.
For the reasons set forth above, we affirm the district
court’s dismissal of Barwin’s claim that the Village breached
its duty of good faith and fair dealing when it forced him to
resign in order to prevent his pension rights from vesting.
However, we reverse the court’s grant of summary judgment
in favor of the Village on the claim that the Village breached
the duty of good faith and fair dealing by refusing to approve
his request, at the time of his resignation, to purchase out-of-
44 No. 21-2007
state pension credits. We remand that claim to the district
court for further proceedings consistent with this opinion.
AFFIRMED IN PART, REVERSED IN PART,
and REMANDED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488708/ | Filed 11/21/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
In re GERALD JOHN A162977
KOWALCZYK
(San Mateo County
on Habeas Corpus. Super. Ct. No. 21SF003700A)
Gerald John Kowalczyk filed a petition for writ of habeas corpus
challenging the trial court’s decision denying him bail. We issued an order to
show cause and later asked the parties to brief a number of issues, including
whether pretrial detention is authorized outside of the circumstances
specified in article I, section 12 of the California Constitution. We ultimately
dismissed the habeas petition as moot on the motion of the People, the real
party in interest, who informed us that petitioner had pled and been
sentenced in the underlying criminal matter.
The California Supreme Court granted review and transferred the
matter back to this court with directions to vacate our dismissal order and to
“issue an opinion that addresses which constitutional provision governs the
denial of bail in noncapital cases—article I, section 12, subdivisions (b) and
(c), or article I, section 28, subdivision (f)(3), of the California Constitution —
or, in the alternative, whether these provisions can be reconciled.” At this
juncture, we have received additional briefing from the parties and held oral
argument on the question posed.
Adhering to settled principles governing the construction of
constitutional provisions, we conclude that the bail provisions of article I,
section 28, subdivision (f)(3) can be reconciled with those of article I,
section 12 (hereafter section 12 and section 28(f)(3)) and that both sections
govern bail determinations in noncapital cases. This means that section 12’s
general right to bail in noncapital cases remains intact, while full effect must
be given to section 28(f)(3)’s mandate that the rights of crime victims be
respected in all bail and OR release determinations. In so concluding, we
reject any suggestion that section 12 guarantees an unqualified right to
pretrial release or that it necessarily requires courts to set bail at an amount
a defendant can afford.
FACTUAL AND PROCEDURAL BACKGROUND
The People charged petitioner by complaint with one felony count of
vandalism (Pen. Code, § 594, subd. (b)(1)), three felony counts of identity
theft (id. § 530.5, subd. (a)), one misdemeanor count of petty theft of lost
property (id. § 485), and one misdemeanor count of identity theft (id. § 530.5,
subd. (c)(1)). Petitioner waived arraignment on the complaint, and the court
set bail at $75,000. Prior to his preliminary hearing, petitioner filed a motion
seeking release on his own recognizance (OR) with drug conditions and
electronic monitoring, arguing that he posed no danger to the alleged victims
or the community and was a minimal risk for nonappearance at future court
proceedings.
At a hearing in May 2021, the prosecutor opposed the bail motion and
requested that bail remain set at $75,000. According to the prosecutor, the
judge who initially set bail determined that petitioner posed a danger to the
public based on the recommendation of a pretrial services report and on
petitioner’s extensive RAP sheet. Given petitioner’s ongoing commission of
2
crimes, including while on probation, the prosecutor argued that no less
restrictive nonfinancial conditions could protect the public from him.
Petitioner contended otherwise, noting there was no showing of flight risk or
a risk of “harm to others” insofar as the charged offenses were property
crimes and the majority of his prior offenses were merely theft or drug
related. Petitioner also urged consideration of his inability to pay the bail
amount and the imposition of alternative conditions, such as drug testing.
The court denied bail altogether and ordered petitioner detained.
Although the court indicated it was not worried for the safety of the victims of
the charged offenses, it emphasized protection of the public as the primary
concern and viewed petitioner’s property crimes as a significant public safety
issue. The court observed that petitioner was a chronic reoffender whose
RAP sheet documented 64 prior convictions and was over 100 pages long.
Among those prior convictions were at least four convictions for driving under
the influence. Petitioner received the maximum score of 14 on the Virginia
Pretrial Risk Assessment Instrument, and the pretrial services report
indicated petitioner failed to abide by supervised OR conditions in the last
five years. The court also indicated its concern that petitioner might
abscond, noting his convictions spanned multiple states and multiple
counties in California. Furthermore, petitioner—who was unhoused and
unemployed—made no showing of any incentive to remain and attend future
court appearances. Highlighting petitioner’s unprecedented “level of
recidivism,” the court found that no nonfinancial or financial conditions could
accomplish the goals of protecting the public or ensuring petitioner’s
appearance at future court proceedings.
At the preliminary hearing in mid-May 2021, the court (a different
judicial officer than the two who considered the issue of bail before) held
3
petitioner to answer to the felony identity theft counts, but not the felony
vandalism count, and “ ‘certified’ ” the misdemeanor counts to the superior
court. The court considered and denied the defense’s oral motion to reduce
bail, explaining that the prior judge already considered the issue of bail and
that the circumstances had not sufficiently changed to warrant disturbing
that order.
In mid-June 2021, petitioner again moved to reduce bail or for OR
release, contending that he posed no risk to specific victims or the public and
that nonfinancial terms could be used to secure his appearance. He also
noted he was not held to answer on the felony vandalism charge, which he
claimed was a changed circumstance warranting reconsideration of bail. At
one point during the hearing, but before the prosecutor raised the issue of
petitioner’s extensive criminal history and recidivism, the court (a different
judicial officer than those before) indicated she did not see a public safety
issue in the case. Ultimately, the court denied the motion and declined to
disturb the no bail order due to the absence of changed circumstances.
In July 2021, petitioner filed his habeas petition challenging the denial
of bail on various grounds. As indicated, we issued an order to show cause
but ultimately dismissed the petition as moot. The California Supreme Court
granted review, and transferred the matter back to this court with directions
to vacate our order dismissing the petition as moot, to conduct further
proceedings as appropriate, and to “issue an opinion that addresses which
constitutional provision governs the denial of bail in noncapital cases—article
I, section 12, subdivisions (b) and (c), or article I, section 28, subdivision (f)(3),
of the California Constitution—or, in the alternative, whether these
provisions can be reconciled.”
4
DISCUSSION
A. California Constitutional Provisions Relating to Bail
1. Early History
In 1849, article I, section 7 of the California Constitution provided: “All
persons shall be bailable, by sufficient sureties, unless for capital offenses,
when the proof is evident or the presumption great.” (Cal. Const. of 1849,
art. I, § 7.) Article I, section 6 of the 1849 Constitution also provided:
“Excessive bail shall not be required . . . .” These provisions were
subsequently joined and set forth in article I, section 6 of the California
Constitution of 1879, and in 1974 they were relocated to section 12 with an
added provision explicitly permitting OR release at the court’s discretion.1
(Standish, supra, 38 Cal.4th at p. 874.)
2. Propositions 4 and 8 in 1982
In 1982, Proposition 4 proposed to amend section 12 by adding two
subdivisions that would “broaden the circumstances under which the courts
may deny bail.” (Ballot Pamp., Primary Elec. (June 8, 1982) analysis of
Prop. 4 by the Legislative Analyst, p. 16.)2 According to the Legislative
Analyst, under new subdivision (b), bail “could be denied in felony cases
involving acts of violence against another person when . . . the proof of guilt is
1 In full, this former version of section 12 read: “A person shall be
released on bail by sufficient sureties, except for capital crimes when the
facts are evident or the presumption great. Excessive bail may not be
required. [¶] A person may be released on his or her own recognizance in the
court’s discretion.” (Former Cal. Const., art. I, § 12; People v. Standish (2006)
38 Cal.4th 858, 874 (Standish) [prior to 1974, there was a “ ‘ “well-established
practice of releasing persons accused of crimes on their own recognizance” ’ in
appropriate circumstances as an alternative to requiring the posting of
bail”].)
2 Petitioner’s unopposed request for judicial notice of various documents,
including voter information guides, is granted.
5
evident or the presumption of guilt is great and . . . there is a substantial
likelihood that the accused’s release would result in great bodily harm to
others.” (Id., analysis of Prop. 4 by the Legislative Analyst, p. 16; see id., text
of Prop. 4, p. 17.) And under new subdivision (c), bail “could be denied in
felony cases when . . . the proof of guilt is evident or the presumption of guilt
is great and . . . the accused has threatened another with great bodily harm
and there is a substantial likelihood that the threat would be carried out if
the person were released.” (Id., analysis of Prop. 4, p. 16.) Proposition 4 also
proposed to add a constitutional “requirement that the courts, in fixing the
amount of bail, consider . . . the seriousness of the offense, the person’s
previous criminal record, and the likelihood that the person will appear to
stand trial[].” (Ibid.)
On the same ballot was Proposition 8—known as “ ‘The Victims’ Bill of
Rights’ ”—which would accord a number of constitutional rights to crime
victims in areas ranging from bail to restitution. (Ballot Pamp., Primary
Elec. (June 8, 1982) text of Prop. 8, p. 33.) In particular, Proposition 8 would
acknowledge that “[t]he rights of victims pervade the criminal justice system,
encompassing not only the right to restitution . . . , but also the more basic
expectation that persons who commit felonious acts causing injury to
innocent victims will be appropriately detained in custody.” (Ibid., italics
omitted.) To accomplish these goals, the proposition explained, “broad
reforms in the procedural treatment of accused persons and the disposition
and sentencing of convicted persons are necessary and proper as deterrents to
criminal behavior and to serious disruption of people’s lives.” (Ibid., italics
omitted.)
With regard to bail, Proposition 8 proposed to repeal section 12 and to
substitute section 28, subdivision (e) (“section 28(e)”) in its place. (Standish,
6
supra, 38 Cal.4th at p. 874; Ballot Pamp., Primary Elec., supra, text of
Prop. 8, §§ 2–3, p. 33.) Section 28(e), entitled “Public Safety Bail,” provided
as follows: “A person may be released on bail by sufficient sureties, except for
capital crimes when the facts are evident or the presumption great.
Excessive bail may not be required. In setting, reducing or denying bail, the
judge or magistrate shall take into consideration the protection of the public,
the seriousness of the offense charged, the previous criminal record of the
defendant, and the probability of his or her appearing at the trial or hearing
of the case. Public safety shall be the primary consideration. [¶] A person
may be released on his or her own recognizance in the court’s discretion,
subject to the same factors considered in setting bail. However, no person
charged with the commission of any serious felony shall be released on his or
her own recognizance.” (Ballot Pamp., Primary Elec., supra, text of Prop. 8,
§ 3, p. 33, italics omitted.)
Ultimately, Proposition 4 and Proposition 8 both passed, but
Proposition 4 received more votes than Proposition 8. Over a decade later,
the California Supreme Court commented that the bail and OR provisions in
Proposition 4 prevailed over those in Proposition 8 because the former
received more votes than the latter. (In re York (1995) 9 Cal.4th 1133, 1140,
fn. 4 (York).) However, the York court did not analyze at length whether the
two propositions might be harmonized so that both of their bail and OR
provisions could be given effect. (Standish, supra, 38 Cal.4th at pp. 876–877.)
In 2006, the California Supreme Court performed such an analysis in
Standish, supra, 38 Cal.4th 858. In conducting a “section-by-section
comparison of Propositions 4 and 8,” the Standish court observed their bail
and OR provisions were in “direct conflict”: “Proposition 8 would have
repealed . . . section 12 [citation], while Proposition 4 amended that provision.
7
[Citation.] Proposition 8 would have rescinded the court’s discretion to grant
OR release for any serious felony[3] [citation], while Proposition 4 left the
court’s preexisting discretion intact without any restriction. [Citation.]
Proposition 4 stated that all accused persons ‘shall’ be admitted to bail,
subject to certain limitations [citation], while Proposition 8 would have
rendered bail discretionary in all cases and would have extended the
restrictions it imposed upon bail to OR release.” (Id. at pp. 877–878.) In view
of this analysis and the greater number of votes Proposition 4 received, the
court determined that Proposition 4’s bail and OR amendments to section 12
took effect, and that Proposition 8’s conflicting provisions in section 28(e) did
not. (Id. at p. 878.)
As relevant here, the voters approved two subsequent amendments.
First, in 1994 the voters passed Proposition 189, which expanded the
exception in subdivision (b) of section 12 to include persons who have
committed “felony sexual assault offenses on another person, when the facts
are evident or the presumption great and the court finds based upon clear
and convincing evidence that there is a substantial likelihood the person’s
release would result in great bodily harm to others.” (Supp. Ballot Pamp.,
Gen. Elec., (Nov. 8, 1994) text of Prop. 189, p. 18, italics omitted.) Second,
and as will be discussed below, the voters approved Proposition 9 in 2008.
3. Proposition 9 in 2008
Proposition 9—entitled the “ ‘Victims’ Bill of Rights Act of 2008:
Marsy’s Law’ ”—proposed to amend section 28 as added to the Constitution in
1982, including the bail provisions previously held inoperative. (Voter
3 As noted, post, this specific provision rescinding a court’s discretion to
grant OR release for serious felonies was expressly stricken from section 28
by the passage of Proposition 9 in 2008.
8
Information Guide, Gen. Elec. (Nov. 4, 2008) text of Prop. 9, §§ 1 & 4.1,
pp. 128–130.) Proposition 9 contained a finding that crime victims are
entitled to “justice and due process” and that its provisions are necessary “to
remedy a justice system that fails to fully recognize and adequately enforce”
such rights. (Id., text of Prop. 9, § 2, p. 128.) Specifically, Proposition 9
declared: “The People of the State of California find that the ‘broad reform’ of
the criminal justice system intended to grant these basic rights mandated in
the Victims’ Bill of Rights initiative measure passed by the electorate as
Proposition 8 in 1982 has not occurred as envisioned by the people. Victims
of crime continue to be denied rights to justice and due process.” (Ibid.)
Importantly, Proposition 9 included the following declaration of its
purposes and intent: “The rights of victims also include broader shared
collective rights that are held in common with all of the People of the State of
California and that are enforceable through the enactment of laws and
through good-faith efforts and actions of California’s elected, appointed, and
publicly employed officials. These rights encompass the expectation shared
with all of the people of California that persons who commit felonious acts
causing injury to innocent victims will be appropriately and thoroughly
investigated, [and] appropriately detained in custody . . . so that the public
safety is protected and encouraged as a goal of highest importance.”4 (Voter
Information Guide, Gen. Elec., supra, text of Prop. 9, § 4.1, p. 129.)
4 The italics in this and in the following quoted text from Proposition 9
reflect the original italicized language appearing in the ballot materials,
which informed the reader: “This initiative measure amends a section of the
California Constitution and amends and adds sections to the Penal Code;
therefore, existing provisions proposed to be deleted are printed in strikeout
type and new provisions proposed to be added are printed in italic type to
indicate that they are new.” (Voter Information Guide, Gen. Elec., supra,
introductory paragraph to text of Prop. 9, p. 128.)
9
Upon its passage, Proposition 9 amended section 28, subdivision (a), to
provide that crime victims had the personally enforceable rights described in
subdivision (b)(1) through (17). (Voter Information Guide, Gen. Elec., supra,
text of Prop. 9, § 4.1, p. 129.) In particular, subdivision (b)(3) of section 28
guaranteed the right of crime victims “[t]o have the safety of the victim and
the victim’s family considered in fixing the amount of bail and release
conditions for the defendant.” (Text of Prop. 9, § 4.1, p. 129.)
Proposition 9 also added subdivision (f)(3) to section 28, which reflected
the same title (“Public Safety Bail”) and contained language nearly identical
to the language that appeared in Proposition 8’s version of section 28(e).
(Compare Voter Information Guide, Gen. Elec., supra, text of Prop. 9, § 4.1,
p. 130 with Ballot Pamp., Primary Elec., supra, text of Prop. 8, p. 33.) Given
its significance to petitioner’s contentions, we set forth the following relevant
text of proposed section 28(f)(3), as it appeared in the ballot materials:
(f) In addition to the enumerated rights provided in
subdivision (b) that are personally enforceable by victims as
provided in subdivision (c), victims of crime have additional
rights that are shared with all of the People of the State of
California. These collectively held rights include, but are not
limited to, the following:
[¶] . . . [¶]
(e) (3) Public Safety Bail. A person may be released on bail
by sufficient sureties, except for capital crimes when the facts are
evident or the presumption great. Excessive bail may not be
required. In setting, reducing or denying bail, the judge or
magistrate shall take into consideration the protection of the
public, the safety of the victim, the seriousness of the offense
charged, the previous criminal record of the defendant, and the
probability of his or her appearing at the trial or hearing of the
case. Public safety and the safety of the victim shall be the
primary consideration considerations.
A person may be released on his or her own recognizance in
the court’s discretion, subject to the same factors considered in
10
setting bail. However, no person charged with the commission of
any serious felony shall be released on his or her own
recognizance.
Before any person arrested for a serious felony may be
released on bail, a hearing may be held before the magistrate or
judge, and the prosecuting attorney and the victim shall be given
notice and reasonable opportunity to be heard on the matter.
When a judge or magistrate grants or denies bail or release
on a person’s own recognizance, the reasons for that decision
shall be stated in the record and included in the court’s minutes.
(Voter Information Guide, Gen. Elec., supra, text of Prop. 9, § 4.1, p. 130.)
Unlike the situation earlier with Proposition 8, Proposition 9 did not
propose to repeal section 12. Proposition 9 did, however, include a provision
entitled “Conflicts with Existing Law” which specifically stated: “It is the
intent of the People of the State of California in enacting this act that if any
provision in this act conflicts with an existing provision of law which provides
for greater rights of victims of crime, the latter provision shall apply.” (Voter
Information Guide, Gen. Elec., supra, text of Prop. 9, § 7, p. 132, block
capitalization omitted.)
B. The Humphrey Decision
To round out the constitutional landscape pertaining to bail, we discuss
the California Supreme Court’s decision in In re Humphrey (2021) 11 Cal.5th
135 (Humphrey).
In Humphrey, the charges against the 66-year-old petitioner included
first degree residential robbery and burglary, infliction of injury on an elderly
victim, and four prior strike allegations. (Humphrey, supra, 11 Cal.5th at
pp. 143–144.) In seeking OR release without any condition of money bail, the
petitioner cited his age, community ties, financial condition, history of
appearing in court, remoteness of his prior offenses, as well as the fact that
the charged offenses involved the alleged taking of $7 and a bottle of cologne
11
from the victim. (Id. at p. 144.) The court set bail at $600,000, then later at
$350,000, despite the petitioner’s protestations that he could not afford these
bail amounts. (Id. at pp. 144–145.) After the Court of Appeal granted habeas
relief, the California Supreme Court granted review “to address the
constitutionality of money bail as currently used in California as well as the
proper role of public and victim safety in making bail determinations.” (Id. at
p. 147.)
Ultimately, the Supreme Court held it unconstitutional to detain
arrestees solely because they lack financial resources. (Humphrey, supra, 11
Cal.5th at p. 156.) In so holding, the court emphasized that bail
determinations require “an individualized consideration of the relevant
factors,” including “the protection of the public as well as the victim, the
seriousness of the charged offense, the arrestee’s previous criminal record
and history of compliance with court orders, and the likelihood that the
arrestee will appear at future court proceedings.” (Humphrey, supra, 11
Cal.5th at p. 152, citing §§ 12, 28(b)(3), (f)(3); Pen. Code, § 1275, subd. (a)(1).)
The Humphrey court underscored the following general framework for
pretrial release and detention determinations: “Where the record reflects the
risk of flight or a risk to public or victim safety, the court should consider
whether nonfinancial conditions of release may reasonably protect the public
and the victim or reasonably assure the arrestee’s presence at trial. If the
court concludes that money bail is reasonably necessary, then the court must
consider the individual arrestee’s ability to pay, along with the seriousness of
the charged offense and the arrestee’s criminal record, and—unless there is a
valid basis for detention—set bail at a level the arrestee can reasonably
afford. And if a court concludes that public or victim safety, or the arrestee’s
appearance in court, cannot be reasonably assured if the arrestee is released,
12
it may detain the arrestee only if it first finds, by clear and convincing
evidence, that no nonfinancial condition of release can reasonably protect
those interests.” (Humphrey, supra, 11 Cal.5th at p. 154.) In sum, “detention
is impermissible unless no less restrictive conditions of release can
adequately vindicate the state’s compelling interests.” (Id. at pp. 151–152.)
As relevant here, the Humphrey court expressly noted that “[e]ven
when a bail determination complies with the above prerequisites, the court
must still consider whether the deprivation of liberty caused by an order of
pretrial detention is consistent with state statutory and constitutional law
specifically addressing bail—a question not resolved [in Humphrey]—and
with due process.” (Humphrey, supra, 11 Cal.5th at p. 155, fn. omitted.) In a
footnote accompanying this statement, the court noted it was leaving
unresolved the question of whether section 12 and section 28(f)(3) “can or
should be reconciled, including whether these provisions authorize or prohibit
pretrial detention of noncapital arrestees outside the circumstances specified
in section 12, subdivisions (b) and (c).” (Humphrey, at p. 155, fn. 7; In re
White (2020) 9 Cal.5th 455, 470.) As indicated, the California Supreme Court
has directed us to resolve that open issue in this case.
C. Analysis
Before turning to the question presented, we address petitioner’s claim
that section 28(f)(3) is completely inoperative because Proposition 8 never
took effect in 1982. We review this issue de novo. (Taxpayers for Accountable
School Bond Spending v. San Diego Unified School Dist. (2013) 215
Cal.App.4th 1013, 1026 (Taxpayers for Accountable School Bond Spending).)
1. Section 28(f)(3) is fully operative
In contending section 28(f)(3) is inoperative, petitioner emphasizes that
the ballot materials accompanying Proposition 9 made no mention of the
13
Supreme Court’s decision holding that Proposition 8’s similar bail provisions
were inoperative; nor did the materials otherwise indicate the voters were
being asked to “re-enact” or effectuate the inoperative bail provisions of
section 28(e). Thus, petitioner claims, the voters’ 2008 approval of
Proposition 9 did not reflect an intent to resuscitate the inoperative bail and
OR provisions of Proposition 8, and section 28(f)(3) must be deemed
inoperative. Alternatively, petitioner posits that effect should be given only
to the “genuinely new material” of section 28(f)(3), i.e., only those portions of
the constitutional text that were italicized in the ballot materials.5
“Under the California Constitution, ‘[t]he legislative power of this State
is vested in the California Legislature . . . but the people reserve to
themselves the powers of initiative and referendum.’ (Cal. Const., art. IV,
§ 1.)” (Wilde v. City of Dunsmuir (2020) 9 Cal.5th 1105, 1111.) The initiative
power is “ ‘one of the most precious rights of our democratic process’ ”
(Associated Home Builders etc., Inc. v. City of Livermore (1976) 18 Cal.3d 582,
591), and “courts have consistently declared it their duty to ‘ “jealously
guard” ’ and liberally construe the right so that it ‘ “be not improperly
annulled” ’ ” (California Cannabis Coalition v. City of Upland (2017)
3 Cal.5th 924, 934). “ ‘If doubts can reasonably be resolved in favor of the use
of this reserve power, courts will preserve it.’ ” (Associated Home Builders, at
p. 591.) In analyzing challenges to the exercise of the initiative power, courts
generally assume that, when voters are provided the whole text of a proposed
constitutional amendment, they have considered each aspect of the law and
5 In their joint amicus brief in support of petitioner, the American Civil
Liberties Union of Northern and Southern California, the California Public
Defenders Association, Crime Survivors for Safety and Justice, and the
Public Defender of Ventura County (hereafter amici) essentially advance this
the same argument, as well as a few other of petitioner’s arguments.
14
voted intelligently. (See Brosnahan v. Brown (1982) 32 Cal.3d 236, 252
(Brosnahan).)
Here, there is no dispute that the voters were provided the entire text
of Proposition 9. Thus, when the voters cast their ballots, they presumably
considered each aspect of the law and voted intelligently to approve all of its
terms, including the whole of section 28(f)(3). (Brosnahan, supra, 32 Cal.3d
at p. 252.) That the ballot materials omitted to mention section 28(f)(3)’s
similarity to bail provisions previously deemed inoperative despite voter
approval in 1982 provides no basis for its annulment.
In arguing to the contrary, petitioner directs our attention to Elections
Code section 9086, subdivision (f), which provides: “The provisions of the
proposed measure differing from the existing laws affected shall be
distinguished in print, so as to facilitate comparison.” (Italics added.)
Pointing to a paragraph in the 2008 ballot materials that explains “new
provisions proposed to be added are printed in italic type to indicate that they
are new” (see ante, fn. 4), petitioner argues that, at best, the voters intended
to enact only those few italicized words and phrases within section 28(f)(3) of
Proposition 9, i.e., “the safety of the victim,” “and the safety of the victim,”
“considerations,” and “and the victim.”
We express no view as to whether Elections Code section 9086,
subdivision (f), would have required the entirety of section 28(f)(3) to be
italicized, had a timely challenge to the typeface in the Voter Pamphlet been
filed. Elections Code section 9086 is silent as to whether italicization is
appropriate for laws that technically exist but have been deemed inoperative,
such as the bail provisions at issue. Here, petitioner cites no authority for
the view that, despite section 28(f)(3)’s approval by the voters, only its
italicized portions should be given effect. Indeed, when excised from the
15
sentences they appear in, the words and phrases that were italicized in
section 28(f)(3) did not convey a complete idea and had no real meaning
beyond their conceptual references. Contrary to petitioner’s contention, there
simply is no basis for believing that the voters intended to enact certain
select words and phrases divorced from the contextual language that gave
them meaning.
2. Section 12 and section 28(f)(3) can be reconciled and each given
full effect
We now address whether section 12(b) and (c) or section 28(f)(3)
governs the denial of bail in noncapital cases, or alternatively, whether these
provisions can be reconciled. This is a matter of constitutional interpretation,
which we undertake de novo. (Taxpayers for Accountable School Bond
Spending, supra, 215 Cal.App.4th at p. 1026.)
We focus first on the meaning of these constitutional provisions. For
this task, we adhere to well established principles similar to those governing
statutory construction. (Silicon Valley Taxpayers’ Assn., Inc. v. Santa Clara
County Open Space Authority (2008) 44 Cal.4th 431, 444.) Our goal is to
ascertain the intent of the lawmakers “so as to effectuate the purpose of the
law.” (People v. Canty (2004) 32 Cal.4th 1266, 1276 (Canty).) We start by
examining the language of the constitutional provisions, “ ‘ “giving the words
their usual, ordinary meaning.” ’ ” (Ibid.) If the language is clear and
unambiguous, we follow its plain meaning. (Ibid.) We construe the language
in the context of the measures as a whole and the overall legislative scheme,
according significance to every word, phrase, and sentence in order to achieve
the legislative purpose. (Ibid.) “The intent of the law prevails over the letter
of the law, and ‘ “the letter will, if possible, be so read as to conform to the
spirit of the act.” ’ ” (Id. at pp. 1276–1277.) Once we ascertain the meaning
of each constitutional provision, we will be positioned to determine which
16
provision governs the denial of bail in noncapital cases or whether the two
provisions can be reconciled.
To reiterate, section 12 provides in relevant part: “A person shall be
released on bail by sufficient sureties, except for: [¶] (a) Capital crimes . . . ;
[¶] (b) Felony offenses involving acts of violence on another person, or felony
sexual assault offenses on another person . . . and the court finds . . . that
there is a substantial likelihood the person’s release would result in great
bodily harm to others; or [¶] (c) Felony offenses . . . and the court finds
. . . that the person has threatened another with great bodily harm and that
there is a substantial likelihood that the person would carry out the threat if
released.” Section 12 further provides: “Excessive bail may not be required.
In fixing the amount of bail, the court shall take into consideration the
seriousness of the offense charged, the previous criminal record of the
defendant, and the probability of his or her appearing at the trial or hearing
of the case. [¶] A person may be released on his or her own recognizance in
the court’s discretion.”
Section 28(f)(3) provides in full: “Public Safety Bail. A person may be
released on bail by sufficient sureties, except for capital crimes when the
facts are evident or the presumption great. Excessive bail may not be
required. In setting, reducing or denying bail, the judge or magistrate shall
take into consideration the protection of the public, the safety of the victim,
the seriousness of the offense charged, the previous criminal record of the
defendant, and the probability of his or her appearing at the trial or hearing
of the case. Public safety and the safety of the victim shall be the primary
considerations. [¶] A person may be released on his or her own recognizance
in the court’s discretion, subject to the same factors considered in setting bail.
[¶] Before any person arrested for a serious felony may be released on bail, a
17
hearing may be held before the magistrate or judge, and the prosecuting
attorney and the victim shall be given notice and reasonable opportunity to
be heard on the matter. [¶] When a judge or magistrate grants or denies bail
or release on a person’s own recognizance, the reasons for that decision shall
be stated in the record and included in the court’s minutes.”
The principal dispute centers around the language in the first sentence
of each of these constitutional provisions. Specifically, the lead clauses are
virtually identical except that section 12 states that a person “shall be
released on bail by sufficient sureties,” while section 28(f)(3) says that a
person “may be released on bail by sufficient sureties.” (Italics added.) The
precise inquiry is this: What is the meaning of the seemingly permissive
language in section 28(f)(3), and can it be reconciled with the mandatory
language in section 12, which embodies a longstanding “constitutional right
to be released on bail pending trial” in noncapital cases subject to two
exceptions? (Standish, supra, 38 Cal.4th at p. 878; see Cal. Const. of 1849,
art. I, § 7; In re Law (1973) 10 Cal.3d 21, 25.)
Turning to section 28(f)(3)’s use of the term “may,” we observe that,
ordinarily and presumptively, “may” is permissive. (Standish, supra, 38
Cal.4th at p. 869.) “May” is a term that also refers to an expression of
possibility. (Black’s Law Dictionary (11th ed. 2019) p. 1172, col. 2.) Given
that section 12 was fully operative when Proposition 9 was presented to the
voters and approved, the most natural reading of section 28(f)(3)’s phrase “[a]
person may be released on bail by sufficient sureties” is that the phrase is a
declarative statement of existing law. (Italics added.) That is, the phrase
acknowledges that a person may or may not be released on bail, consistent
with the dictates in section 12 that a person is generally entitled to bail
release in noncapital cases except under the circumstances articulated in
18
section 12(b) and (c), or (as will be discussed below) when a person may not
be able to post bail as set.
Construing section 28(f)(3) in this manner fully promotes the voters’
intent to “preserve and protect” the right of crime victims “to justice and due
process” by having “the safety of the victim and the victim’s family considered
in fixing the amount of bail and release conditions for the defendant.” (Voter
Information Guide, Gen. Elec. (Nov. 4, 2008), text of Prop. 9, § 4.1, p. 129; id.,
arguments in favor of Prop. 9, p. 62.) Section 28(f)(3) accomplishes this by
requiring that (1) all bail determinations take into consideration and give
primacy to protection of the public and victim safety6; (2) all OR
determinations be subject to the same factors considered in setting bail; and
(3) victims be notified and provided a reasonable opportunity to be heard
“[b]efore any person arrested for a serious felony may be released on bail.” At
the same time, these victim safety provisions do not conflict with section 12
or otherwise impede its operation; they simply mandate additional
considerations in bail and OR determinations in noncapital cases.
Accordingly, construing the first sentence of section 28(f)(3) as declarative of
the general right to bail allows for complete reconciliation of section 28(f)(3)
and section 12.
The People advance a different construction of section 28(f)(3),
essentially contending the phrase “[a] person may be released on bail by
sufficient sureties” must be interpreted as a grant of judicial discretion to
deny bail release in all noncapital cases. (Italics added.) Such construction,
of course, would mean that section 28(f)(3) is in direct conflict with section 12
6 Sections 28(f)(3) and 12 both additionally require consideration of “the
seriousness of the offense charged, the previous criminal record of the
defendant, and the probability of [the defendant] appearing at the trial or
hearing of the case.”
19
and its limited exceptions for denying bail release in certain noncapital cases.
Setting aside for a moment the strong presumption against implied repeal,
the People’s construction finds no support in the text of section 28 or in the
ballot materials accompanying Proposition 9.
Apart from the People’s proffered interpretation of section 28(f)(3)’s
first sentence, the text of section 28 contains no language indicating an intent
to broaden the authority of judges and magistrates to deny bail. Indeed,
when the measure mentions the topic of bail, it does so in a manner that is
fully consistent with the terms of section 12. For instance, section 28’s
prefatory declarations include a finding that the rights of crime victims
“encompass the expectation” shared by all Californians that, prior to trial,
“persons who commit felonious acts causing injury to innocent victims will be
. . . appropriately detained in custody.” (§ 28, subd. (a)(4), italics added.) Not
only does this finding align with section 12’s contemplation that pretrial bail
release may be denied in certain serious felony cases, but the specificity of the
italicized language counters any suggestion that judges were being given
discretion to deny bail to any person accused of committing a noncapital
offense.
Similarly, the ballot materials accompanying Proposition 9 featured an
impartial analysis by the Legislative Analyst that specifically informed the
voters: “The Constitution would be changed to specify that the safety of a
crime victim must be taken into consideration by judges in setting bail for
persons arrested for crimes.” (Voter Information Guide, Gen. Elec., supra,
analysis of Prop. 9 by the Legislative Analyst, p. 59.) While that analysis
accurately conveyed the measure’s intent to add victim safety as a new
mandatory consideration for bail determinations, the Legislative Analyst
offered no view that the measure would completely eliminate the historic
20
right to bail which has existed in the California Constitution since 1849. Nor
did the arguments for and against Proposition 9 suggest that the measure
would expand judicial discretion to deny bail release beyond the exceptions in
section 12(b) and (c). (Voter Information Guide, Gen. Elec., supra, arguments
in favor of Prop. 9 and rebuttal to argument in favor of Prop. 9, pp. 62–63.)
Moreover, where, as here, a later law contains no terms explicitly
providing for repeal of existing law, we must contend with the strong
presumption against repeal by implication. (Western Oil & Gas Assn. v.
Monterey Bay Unified Air Pollution Control Dist. (1989) 49 Cal.3d 408, 419–
420.) To overcome this presumption, the bail provisions of sections 12 and
28(f)(3) “ ‘must be irreconcilable, clearly repugnant, and so inconsistent that
the two cannot have concurrent operation.’ ” (Western Oil & Gas, at pp. 419–
420.) Put another way, “ ‘[t]here must be ‘no possibility of concurrent
operation.’ ” (Ibid., italics added.)
As discussed, sections 28(f)(3) and 12 are easily reconciled by giving a
natural reading to the first sentence of section 28(f)(3) and understanding its
meaning as a declarative statement of existing law. Such construction
respects the longstanding constitutional right to bail as embodied in
section 12, while also fully effectuating Proposition 9’s constitutionally
mandated considerations of public and victim safety in all bail and OR
release determinations. Consequently, there appears no basis for finding a
repeal by implication.
In reaching this conclusion, we acknowledge that in Standish, supra,
38 Cal.4th 858, our Supreme Court determined that the bail provisions
previously approved in Proposition 8—which were nearly identical to those in
section 28(f)(3)—were in direct conflict with the bail provisions approved in
Proposition 4—which amended section 12 with the language existing today.
21
(Standish, at pp. 877–878.) That finding of conflict, however, is neither
dispositive nor persuasive in the present matter.
Significantly, the Standish court was faced with the circumstance that
section 28(e), as proposed in Proposition 8, explicitly called for the repeal and
substitution of section 12. (Standish, supra, 38 Cal.4th at p. 877.) Because
the repeal clause would eliminate the constitutional right to bail enshrined in
section 12, then by necessity section 28(e) had to articulate its own
constitutional parameters for the availability of bail. Thus, section 28(e)’s
use of the permissive term “may” was properly understood as rendering “bail
discretionary in all cases.” (Standish, at p. 877.) In stark contrast,
Proposition 9 had no repeal clause and thus presented the voters with bail
release provisions that, presumably, would have to operate concurrently with
the existing constitutional provision recognizing the right to bail in most
noncapital cases. For the reasons discussed, our reading of section 28(f)(3) is
the most natural one given the operative provisions of section 12.
In sum, we interpret the first sentence of section 28(f)(3) as a
declarative statement recognizing that bail may or may not be denied under
existing law. Under this construction, section 12’s general right to bail
remains intact, while full effect is accorded to section 28(f)(3)’s mandate that
the rights of crime victims be respected in bail and OR release
determinations.
3. Bail and OR release after Humphrey
As indicated, section 12 provides that a person “shall be released on
bail by sufficient sureties” except for capital crimes and specific felony
offenses. Having concluded that sections 12 and 28(f)(3) must be given
concurrent effect, we turn to petitioner’s contention that section 12
guarantees an “absolute right to pretrial release” and requires courts to set
22
bail at an amount a defendant can afford. For the reasons below, we reject
petitioner’s expansive and novel reading of section 12.
First, petitioner’s contention finds no support in the plain language of
section 12. The phrase “released on bail by sufficient sureties” as used in
both sections 12 and 28(f)(3) generally refers to the state of being released
from custody after the posting of some sufficient security such as “cash,
property, or (more often) a commercial bail bond—which is forfeited if the
arrestee later fails to appear in court.” (Humphrey, supra, 11 Cal.5th at
p. 142; Pen. Code, §§ 1268, 1269; accord Stack v. Boyle (1951) 342 U.S. 1, 5.)
A “surety” is: “1. Someone who is primarily liable for paying another’s debt
or performing another’s obligation” or “2. A formal assurance; esp., a pledge,
bond, guarantee, or security given for the fulfillment of an undertaking.”
(Black’s Law Dict. (11th ed. 2019) p. 1742, col. 2; Civ. Code, § 2787 [enacted
in 1872 and defining a surety as “one who promises to answer for the debt,
default, or miscarriage of another, or hypothecates property as security
therefor”].)
Although we have found no California case expressly interpreting the
phrase “sufficient sureties,” the phrase must be construed in conjunction with
section 12’s requirement that trial courts fix the amount of bail upon
consideration of “the seriousness of the offense charged, the previous criminal
record of the defendant, and the probability of his or her appearing at the
trial or hearing of the case.” When viewed as a whole, and with reference to
section 28(f)(3)’s additional considerations of public and victim safety, the
most natural reading of section 12 is that a person has a right to be released
upon the posting of a sufficient security which a court, in its discretion,
determines is adequate to accomplish the purposes of bail, i.e., to protect
public and victim safety and to ensure a defendant’s presence in court.
23
(§§ 12; 28(b)(3), (f)(3).) This construction clearly promotes the
constitutionally-based policy purposes of bail, while a contrary construction
that categorically requires release on affordable bail does not.
Indeed, our construction comports with the long history of section 12,
which has never been understood as mandating affordable bail. At the time
our state Constitution was drafted in 1879, people were routinely confined in
jail for want of bail. (1 Willis & Stockton, Debates and Proceedings, Cal.
Const. Convention 1878–1879 (1880), p. 310 [“the vast majority of those who
are committed for various offenses under felonies are persons who are unable
to give bail”]; id. at p. 317 [“if [a man] [is] poor and unable to give bail, he
must go to jail, there to remain perhaps for months to await the meeting of
the Grand Jury”]; 3 Willis & Stockton, supra, at p. 1188 [“Sometimes we lock
men up because they cannot give bail”].) Section 12 and its predecessors
sought to curtail this all-too-common situation by expressly recognizing a
right to bail in most cases, and by prohibiting the imposition of excessive bail.
But neither of these constitutional provisions has ever been construed as
imposing an absolute requirement that bail be affordable.7
7 The language of section 12 is materially identical to clauses in the
Constitutions of our sister states. (E.g., Iowa Const., art. I, § 12 [“All persons
shall, before conviction, be bailable, by sufficient sureties, except for capital
offences where the proof is evident, or the presumption great.”]; N.M. Const.,
art. II, § 13 [“All persons shall, before conviction, be bailable by sufficient
sureties, except for capital offenses when the proof is evident or the
presumption great and in situations in which bail is specifically prohibited by
this section”]; Ariz. Const., art. II, § 22 [“All persons charged with crime shall
be bailable by sufficient sureties, except . . .”]; Ill. Const., art. I, § 9 [“All
persons shall be bailable by sufficient sureties, except for the following
offenses where the proof is evident or the presumption great . . .”].)
Our interpretation of section 12 is in line with the case law interpreting
these sister state Constitutions. (E.g., State v. Briggs (Iowa 2003) 666
24
Notably, petitioner’s position that bail must be affordable was
essentially rejected well over a century ago in the cases of Ex parte Duncan
(1879) 53 Cal. 410 (Duncan I) and Ex parte Duncan (1879) 54 Cal. 75
(Duncan II), in which a prisoner twice sought relief by habeas corpus to have
his bail amount lowered, and twice the high court denied relief. (Duncan I, at
pp. 411–412; Duncan II, at pp. 76, 80.) In Duncan I, the court indicated that
the setting of the amount of bail was a matter of judicial discretion, to be
interfered with on review only when the amount was excessive, i.e., “ ‘per se
unreasonably great and clearly disproportionate to the offense involved,’ etc.”
(Duncan I, at p. 411.)
More significantly, in Duncan II, the court confronted and rejected the
argument that a bail amount is excessive simply because a prisoner is unable
to procure it. (Duncan II, supra, 54 Cal. at pp. 77–78.) As Duncan II
explained, “Undoubtedly the extent of the pecuniary ability of a prisoner to
furnish bail is a circumstance among other circumstances to be considered in
fixing the amount in which it is to be required, but it is not in itself
controlling. If the position of the counsel were correct, then the fact that the
prisoner had no means of his own, and no friends who were able or willing to
become sureties for him, even in the smallest sum, would constitute a case of
N.W.2d 573, 582; People ex rel. Gendron v. Ingram (1966) 34 Ill. 2d 623, 626
([“Sufficient, as used in the [Illinois] constitution, means sufficient to
accomplish the purpose of bail, not just the ability to pay in the event of a
‘skip’]; State v. Gutierrez (N.M.Ct.App. 2006) 140 N.M. 157, 162; Fragoso v.
Fell (Ariz.Ct.App. 2005) 210 Ariz. 427, 433; see also State v. Brooks (Minn.
2000) 604 N.W.2d 345, 350 [explaining that Pennsylvania’s law—which
permitted all prisoners to be “ ‘Bailable by Sufficient Sureties’ ”—“became the
model for almost every state constitution adopted after 1776” and two-thirds
of state constitutions contain similar or identical language], italics omitted.)
25
excessive bail, and would entitle him to go at large upon his own
recognizance.” (Duncan II, at p. 78, italics added.)
Taken together, the Duncan cases implicitly recognized that
unaffordable bail is not per se excessive and that, aside from prohibiting a
bail amount disproportionate to the circumstances, the California
Constitution’s bail provision—now in section 12—did not require bail in an
affordable amount.
We now address the extent to which the California Supreme Court’s
decision in Humphrey affects the historical understanding and operation of
section 12’s bail provisions. In holding that the denial of bail must comport
with due process and equal protection principles, the Humphrey court
carefully explained that “where a financial condition is . . . necessary, the
court must consider the arrestee’s ability to pay the stated amount of bail—
and may not effectively detain the arrestee ‘solely because’ the arrestee
‘lacked the resources’ to post bail.” (Humphrey, supra, 11 Cal.5th at p. 143,
italics added.)
Although the Humphrey court made clear that a trial court must
consider a defendant’s ability to pay in making a bail determination,
Humphrey did not suggest that a court is precluded from setting bail at an
amount beyond a defendant’s means when necessitated by the circumstances
presented. To the contrary, Humphrey explicitly recognized that “[i]n
unusual circumstances, the need to protect community safety may conflict
with the arrestee’s fundamental right to pretrial liberty—a right that also
generally protects an arrestee from being subject to a monetary condition of
release the arrestee can’t satisfy—to such an extent that no option other than
refusing pretrial release can reasonably vindicate the state’s compelling
interests. In order to detain an arrestee under those circumstances, a court
26
must first find by clear and convincing evidence that no condition short of
detention could suffice and then ensure the detention otherwise complies
with statutory and constitutional requirements. [Citation.] [¶] Detention in
these narrow circumstances doesn’t depend on the arrestee’s financial
condition. Rather, it depends on the insufficiency of less restrictive conditions
to vindicate compelling government interests: the safety of the victim and the
public more generally or the integrity of the criminal proceedings. Allowing
the government to detain an arrestee without such procedural protections
would violate state and federal principles of equal protection and due process
that must be honored in practice, not just in principle.” (Ibid., italics added.)
Reasonably read, the foregoing passage in Humphrey meaningfully
restricts, but does not purport to eliminate, the traditional power of a court to
set bail at an amount that may prove unaffordable, so long as the court—
after undertaking an individualized consideration of all relevant factors
including the defendant’s ability to pay—makes the necessary findings to
support a detention. That is, the court must find clear and convincing
evidence that no other conditions of release, including affordable bail, can
reasonably protect the state’s interests in assuring public and victim safety
and the arrestee’s appearance in court. (Humphrey, supra, 11 Cal.5th at
pp. 143, 152–154.)
Thus, when a court sets bail at an amount higher than a person can
likely afford after finding clear and convincing evidence that no conditions
short of detention can vindicate these compelling state interests, it cannot be
said that the court “effectively detain[ed]” the person “ ‘solely because’ ” the
person “ ‘lacked the resources’ to post bail.” (Humphrey, supra, 11 Cal.5th at
p. 143, italics added.) Though the person’s inability to post the court-ordered
bail amount necessarily results in the person’s detention, the person’s
27
financial condition is not the determinate cause of detention. Rather, the
determinate cause of the detention is the court’s finding that no other
conditions short of detention are sufficient to vindicate the state’s interests.
(See United States v. Fidler (9th Cir. 2005) 419 F.3d 1026, 1028 [“de facto
detention” when defendant is unable to comply with a financial condition
does not violate the federal Bail Reform Act if the record shows “the detention
is not based solely on the defendant’s inability to meet the financial condition,
but rather on the district court’s determination that the amount of the bond
is necessary to reasonably assure the defendant’s attendance at trial or the
safety of the community”]; United States v. McConnell (5th Cir. 1988) 842
F.2d 105, 108–110.)
We acknowledge the recent decision in In re Brown (2022) 76
Cal.App.5th 296 (Brown) offers an alternative interpretation of Humphrey.
As a preliminary matter, we observe the Brown court summarizes Humphrey
as follows: “Having considered potential nonfinancial conditions, if the trial
court nonetheless concludes money bail is ‘reasonably necessary’ to protect
the public and ensure the arrestee’s presence at trial, then bail must be set
‘at a level the arrestee can reasonably afford’ unless the court concludes, by
clear and convincing evidence, that no nonfinancial condition in conjunction
with affordable money bail can reasonably protect public safety or arrestee
appearance. (Humphrey, supra, 11 Cal.5th at p. 154.)” (Brown, at pp. 305–
306.)
While we concur in the foregoing summary, we cannot agree with the
Brown court’s conclusion that, when a trial court makes the required finding
above, then Humphrey leaves a court with no option other than to formally
order pretrial detention. For one thing, such a conclusion appears at odds
with the historical understanding of section 12’s general right to release on
28
bail by sufficient sureties, and Humphrey did not disavow that
understanding. Moreover, Humphrey repeatedly acknowledged that an
outright pretrial detention order would not offend the due process clause in
those rare instances in which a court concludes, by clear and convincing
evidence, that no nonfinancial condition in conjunction with affordable money
bail can reasonably protect the state’s compelling interests in public safety or
arrestee appearance. (Humphrey, supra, 11 Cal.5th at pp. 143, 154, 156.) If,
in balancing the liberty interest of an accused with the state’s compelling
interests, an outright pretrial detention order would be appropriate, then a
fortiori a bail order in an amount higher than a defendant can afford would
also be appropriate.8
CONCLUSION
In closing, we summarize our answer to the California Supreme Court’s
question and explain our view of the framework governing bail
determinations as informed by the principles in Humphrey.
Section 28(f)(3) became fully operative when the voters approved
Proposition 9 in 2008, and its bail provisions can be fully reconciled with
those in section 12, as follows. When a defendant’s case falls outside the
circumstances specified in section 12, subdivisions (a) through (c), the
8 We note it can be difficult to know with any certainty what a defendant
might in good faith be able to afford in terms of bail. But if a defendant truly
cannot afford to post any bail, then arguably all that remains, in effect, is OR
release. (Black’s Law Dict. (11th ed. 2019) p. 1543, col. 2 [“release on
recognizance” means “[t]he pretrial release of an arrested person who
promises, usually in writing but without supplying a surety or posting bond,
to appear for trial at a later date”]; Pen. Code, §§ 1270, 1318.) Both sections
12 and 28(f)(3) contain OR release provisions that are separate and distinct
from their bail provisions and that clearly provide for judicial discretion. (See
Humphrey, supra, 11 Cal.5th at p. 147; York, supra, 9 Cal.4th at pp. 1139–
1141.)
29
defendant has a general right under sections 12 and 28(f)(3) to be released on
bail by sufficient sureties, or to be released on OR in the court’s discretion,
subject to the considerations below.
In fixing the amount of bail and release conditions, or in exercising its
discretion to release a person on OR, courts must consider the protection of
the public, the safety of the victim, the seriousness of the offense charged, the
previous criminal record of the defendant, and the probability of the
defendant appearing at the trial or hearing of the case. (§§ 12, 28(b)(3) &
(f)(3).) Public safety and the safety of the victim shall be the primary
considerations. (§ 28(f)(3).)
“In those cases where the arrestee poses little or no risk of flight or
harm to others, the court may offer OR release with appropriate conditions.
[Citation.] Where the record reflects the risk of flight or a risk to public or
victim safety, the court should consider whether nonfinancial conditions of
release may reasonably protect the public and the victim or reasonably
assure the arrestee’s presence at trial. If the court concludes that money bail
is reasonably necessary, then the court must consider the individual
arrestee’s ability to pay, along with the seriousness of the charged offense
and the arrestee’s criminal record, and—unless there is a valid basis for
detention—set bail at a level the arrestee can reasonably afford. And if a
court concludes that public or victim safety, or the arrestee’s appearance in
court, cannot be reasonably assured if the arrestee is released, it may detain
the arrestee only if it first finds, by clear and convincing evidence, that no
nonfinancial condition of release can reasonably protect those interests.”
(Humphrey, supra, 11 Cal.5th at p. 154.) Though excessive bail cannot be
imposed, courts are not required to set bail at an amount a defendant will
necessarily be able to afford. Before a court sets bail at an amount higher
30
than a person can likely afford, it must make the aforementioned findings
necessary to support a detention.
Finally, we reiterate the fundamental principle that “liberty is the
norm, and detention prior to trial or without trial is the carefully limited
exception.” (United States v. Salerno (1987) 481 U.S. 739, 755.) While
section 12 does not prohibit courts from fixing bail at an amount a defendant
likely cannot meet, it will be the rare case where such a monetary condition
is truly necessary to sufficiently protect the state’s compelling interests in
public and victim safety and in ensuring appearances in court.
DISPOSITION
Having answered the question posed to us by the California Supreme
Court, we dismiss the petition for writ of habeas corpus as moot.
_________________________
Fujisaki, J.
WE CONCUR:
_________________________
Tucher, P.J.
_________________________
Rodríguez, J.
31
Trial Court: San Mateo County Superior Court
Trial Judge: Hon. Susan Greenbert
Counsel: Law Offices of Marsanne Weese, Marsanne Weese, Rose
Mishaan; Civil Rights Corps, Carson White, Katherine
Hubbard, Salil Dudani, and Alec Karakatsanis for
Petitioner
ACLU Foundation of Northern California, Avram Frey,
Mica Doctoroff, Emi Young; ACLU Foundation of
Southern California, Summer Lacey for American Civil
Liberties Union of Northern California, American Civil
Liberties Union of Southern California, California
Public Defenders Association, Crime Survivors for
Safety and Justice, and Claudia Y. Bautista, Ventura
County Public Defender as Amicus Curiae on behalf of
Petitioner
Stephen M. Wagstaffe, District Attorney of San Mateo
County, Lechelle Mercier, Law Clerk, Bryan Abanto
and Joshua Martin, Deputy District Attorneys for Real
Party in Interest
In re Kowalczyk (A162977)
32 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494722/ | MEMORANDUM OPINION APPROVING THE DEBTORS’ KEY EMPLOYEE INCENTIVE PLAN
MARTIN GLENN, Bankruptcy Judge.
The Debtors seek approval of a Key Employee Incentive Plan (the “KEIP”), which proposes to set aside approximately $2.875 million in incentive-bonus payments for a number of the Debtors’ employees (including insiders) if the Debtors’ businesses reach certain financial goals. Such plans have become commonplace in large bankruptcy cases. The United States Trustee (the “U.S. Trustee”) filed an objection to the Motion (defined below). In response to that objection, the Debtors filed a reply and additional declarations in support of the Motion, clarifying certain issues raised by the U.S. Trustee. After the hearing on May 29, 2012, the Debtors *204further amended the KEIP in light of the U.S. Trustee’s remaining objections. All but two of the U.S. Trustee’s objections have been resolved. For the reasons discussed below, the Court now overrules the U.S. Trustee’s remaining two objections and grants the Motion approving the KEIP, as amended.
I. BACKGROUND
On April 2, 2012 (the “Petition Date”), the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. In December 2011, before the bankruptcy, with the assistance of their financial and legal advisors, the Debtors began a comprehensive marketing process attempting to sell all or parts of their business. Ultimately, the Debtors received three bids. After discussions with the ad-visors for Barclays Bank PLC (the “First Lien Agent”) and the majority of first lien lenders regarding the range of values and the terms of the bids, the Debtors determined that a financial restructuring supported by the majority of their first lien lenders would provide more value for the Debtors’ estates than pursuing any of the bids that had been received. Before the Petition Date, General Electric Capital Corporation, Goldentree Asset Management LP, Chase Lincoln Financial Corporation, and Barclays Bank PLC, in their capacity as first lien lenders (collectively with the First Lien Agent, the “Lender Parties”), entered into a chapter 11 case protocol (the “Agreed Protocol”) outlining the terms of a proposed restructuring of the Debtors’ business and financial affairs and a proposed sale of the Debtors’ assets to the Lender Parties.
On May 8, 2012, the Debtors filed the Debtors’ Motion for Entry of an Order Approving the Debtors’ Key Employee Incentive Plan (the “Motion”) (ECF Doc. # 130) with the attached declaration of Lorraine DiSanto (the “DiSanto Declaration”). The U.S. Trustee filed an objection to the Motion (the “Objection”). (ECF Doc. # 145.) The Debtors filed a reply, addressing each of the issues raised by the U.S. Trustee. (ECF Doc. # 181.) The Debtors also filed the declarations of Robert A. Campagna Jr. (the “Campagna Declaration”) (ECF Doc. # 182) and Vincent DiBenedetto (the “DiBenedetto Declaration”). (ECF Doc. # 214.)1
A. The KEIP Program
In developing the Agreed Protocol, the Debtors discussed the design of the KEIP with their outside advisors and a majority of the Lender Parties (and their advisors). The KEIP includes earnings performance targets (the “Targets”) based on the applicable business or sale plan for each business unit. The term sheet for the originally proposed KEIP is attached to the Motion as Exhibit 2.
The KEIP was subsequently amended, and a revised term sheet was filed with the Court. (ECF Doc. #2181) The amendments include modifications to the proposed service milestones for George Thomas, General Counsel of the Debtors, and the compensation terms for Vincent DiBenedetto, President of Coverdell & Company, Inc. The U.S. Trustee and the Official Committee of Unsecured Creditors (the “Committee”) have consented to these modifications.
The KEIP is separately tailored to three of the Debtors’ businesses with specific *205incentive programs for the following Debtors: (1) FYI Direct, Inc., Brand Magnet, Inc. and Adaptive Marketing LLC, collectively with certain of their non-debtor affiliates (the “ACU Business”);2 (2) Cover-dell & Company, Inc., and its non-debtor affiliates (“Coverdell”); and (3) Neverblue Communications, Inc., and certain its non-debtor affiliates (“Neverblue”).
1. The Key Employees
The Debtors estimate that approximately 63 employees would receive payments under the KEIP (the “Key Employees”), of whom five are insider directors or officers under the Bankruptcy Code. The identities of the non-insider KEIP participants were shared with the U.S. Trustee but are not identified in the Motion. These non-insider employee participants will be determined by management (and in the case of the ACU Business, participants will be determined by Alan Jacobs, the Chief Restructuring Officer (the “CRO”), in consultation with the Chief Executive Officer and the Chief Financial Officer). The “insiders” who are proposed KEIP recipients are: (i) Gary Johnson (the Debtors’ Chief Executive Officer and a director of the Debtors); (ii) Lorraine DiSanto (the Debtors’ Chief Financial Officer and Chief Operating Officer); (iii) George Thomas (the Debtors’ General Counsel and a director of certain of the Debtors); (iv) Vincent DiBenedetto (a director and the President of Coverdell & Co.); and (v) Hakan Lindskog (the President of nondebtor affiliate Neverblue Media Company). All other employees who may receive payments under the plan are responsible for running the day-to-day business operations; they are subordinate employees who report to an officer or an intermediary who reports to an officer.3
2. The Targets and Payouts
The KEIP’s base funding level for achieving the applicable Targets is $2.875 million, consisting of $2 million allocated to the ACU Business (the “ACU Target”); $700,000 to Coverdell (the “Coverdell Target”); and $175,000 to Neverblue (the “Neverblue Target”). (Mot. ¶ 18.) Depending on performance, Key Employees will have the ability to earn greater than 100% of the incentive pool Target,
a. The ACU Target
The ACU Target will be allocated to employees managing the Harvest of ACU through two separate pools: (i) $600,000 (the “Executive Pool”) for Gary Johnson, Lorraine DiSanto, and George Thomas (each, an “Executive Employee”) in the aggregate (i.e., $200,000 each); and (ii) $1.4 million for all other Key Employees required to maximize the value of the Harvest (the “Employee Pool”). The Employee Pool will be allocated by the CRO in collaboration with Gary Johnson and Lorraine DiSanto, who will continue to consult with the CRO on adjustments while they are employed by the Debtors. Payouts from the Executive Pool will be based on *206achieving defined milestones and providing transition services essential to the success of the Harvest. At a minimum, for Executive Employees to earn their KEIP payments, the Debtors must meet the net operating cash flow covenant in section 7.1(a)(ii) of the Debtors’ postpetition credit agreement over the initial thirteen weeks of the Debtors’ cases (the “DIP Budget”), and the Executive Employees must provide additional transitional services, as described in the Motion. (Mot. ¶ 25.)
Payouts for the rank and file Employee Pool will be distributed based on “Net Proceeds”4 to creditors as follows:
Net Proceeds_% of Employee Pool_Cash Payment_Cumulative Cash
$50 million_75.0%_$1.050 million_$1,050 million
$60 million_87.5%_$0.175 million_$1,225 million
$70 million_100%_$0.175 million_$1.400 million
$80 million_112.5%_$0.175 million_$1.575 million
$90 million_125.0%_$0.175 million_$1.750 million
$100 million_137.5%_$0.175 million_$1.925 million
$110 million_150.0%$0,175 million$2,100 million
b. The Coverdell Target
The $700,000 Coverdell Target will be allocated to Key Employees of Coverdell; amounts per employee will be determined at the discretion of Coverdell’s management. (Mot. ¶ 28.) Participants include approximately 27 non-insider employees of Coverdell, as well as Coverdell’s President, Vincent DiBenedetto (who also serves as a Director). (Id.) Under the revised KEIP, in the event that Coverdell is sold to a third-party purchaser or the Lender Parties for more than $80 million, DiBenedetto’s compensation is calculated as a percentage of the Coverdell Net Sale Proceeds; the percentage increases as the range of the Coverdell Net Sale Proceeds increases. Additionally, the U.S. Trustee negotiated an across-the-board $100,000 reduction in Mr. DiBenedetto’s compensation under the KEIP.
With respect to the rank and file employees of Coverdell, one of two tests will apply to the allocation of the Coverdell Target. First, if the Lender Parties acquire Coverdell through an $80 million credit bid, or if the Debtors sell Coverdell for less than $80 million, then Coverdell would have to meet revenue and EBITDA targets for participants to receive KEIP compensation. Alternatively, if Coverdell is sold to a third party for $80 million or more, or if the Lender Parties acquire Coverdell under a credit bid in excess of $80 million, then a net sale proceeds calculation applies.5 Participants would also *207have the ability to earn more or less than the Coverdell Target based upon performance relative to the revenue and EBITDA targets or the Coverdell Net Sale Proceeds test.
c. The Neverblue Target
The $175,000 proposed allocation to Key Employees of Neverblue will be allocated to approximately eight non-insider employees; the exact participants and incentive amounts will be determined at the discretion of Neverblue’s management. Similar to the Coverdell Target, the tests and allocation methods for Key Employees of Neverblue will depend on the facts and circumstances of these cases. First, if the Lender Parties acquire Neverblue through a $20 million credit bid, or if the Debtors sell Neverblue for less than $20 million, then Neverblue would have to meet certain revenue and EBITDA targets for participants to receive KEIP compensation. Alternatively, if Neverblue is sold to a third party for $20 million or more, or if the Lender Parties acquire Neverblue under a credit bid in excess of $20 million, then a net sale proceeds calculation would apply.
Finally, with respect to Hakan Lindskog (the President of non-debtor affiliate Nev-erblue Media Company), if the Lender Parties acquire Neverblue in connection with a $20 million credit bid, then Mr. Lindskog would receive 0.5% of the face amount of the credit bid (or $100,000). If Neverblue is sold to a third-party purchaser, or is acquired by the first lien lenders under a credit bid in excess of $20 million, then he would receive 1% of the proceeds or the face amount of the credit bid. This amount is in addition to the $175,000 allocated for other Key Employees of Never-blue.
According to the Debtors, the KEIP will provide “incentive-based cash awards to the Key Employees who are most capable of maximizing the Debtors’ financial performance.” (Mot. ¶ 8.) The KEIP was heavily negotiated with the Lender Parties, and, as a result, the secured lenders fully support the KEIP. Additionally, the Committee has not filed an objection.
B. The U.S. Trustee’s Objection and the Debtors’ Reply
The Debtors have worked diligently with the U.S. Trustee, in consultation with the Lender Parties and the Committee, to resolve the Objection. As a result of these discussions and the amendments to the KEIP, only two objections by the U.S. Trustee have not been resolved: (1) the objection as to the DIP Budget milestone applicable to the Executive Employees under the ACU Target; and (2) the objection to the sale target for Mr. Hakan Lindskog. Specifically, with respect to the ACU Target, the U.S. Trustee argues that the Executive Employees’ bonuses are dependent only on the Debtors’ compliance with the DIP Budget. This, according to the U.S. Trustee, does not set an incentive target for management to reach. With respect to the Neverblue Target, according to the U.S. Trustee, no information on what, if anything, Mr. Lindskog is required to do to earn his bonus was included in the information.
After consideration of the evidence and arguments, the Court finds and concludes that the KEIP properly incentivizes all Key Employees, the KEIP meets the requirements of section 503(c) of the Bankruptcy Code, and the KEIP is a valid exercise of the Debtors’ business judgment. Whether incentive targets require management to “stretch” to meet performance goals is fundamentally a factual question. On the undisputed evidence submitted in support of the KEIP Motion, the Court expressly finds in the context of this case that the DIP Budget and sales tar*208gets indeed require all Key Employees to stretch to achieve the required Targets. Satisfaction for the Targets is by no means assured.
II. DISCUSSION
A. Insiders
As an initial matter, in evaluating the validity of a key employee incentive plan, the Court must determine whether each eligible employee is an “insider” within the meaning of section 101(31).6 See generally In re Borders Grp. Inc., 453 B.R. 459 (Bankr.S.D.N.Y.2011). Insider status is important because it may potentially bar an employee from participating in the KEIP (assuming the program is found to be primarily retentive). If the Court determines that an employee is an insider, then the Debtors must meet the strict requirements of section 503(c)(1).7
Although the term “insider” is specifically defined by the Bankruptcy Code, see 11 U.S.C. § 101(31)(B), insider status can also be determined on a case-by-case basis from the totality of the circumstances, including the degree of an individual’s involvement in a debtor’s affairs. See CPY Co. v. Ameriscribe Corp. (In re Chas. P. Young Co.), 145 B.R. 131, 136 (Bankr.S.D.N.Y.1992). In such cases, insiders must have “at least a controlling interest in the debtor or ... exercise sufficient authority over the debtor so as to unqualifiably dictate corporate policy and the disposition of corporate assets.” In re Babcock Dairy Co., 70 B.R. 657, 661 (Bankr.N.D.Ohio 1986) (citations omitted); see also In re 9281 Shore Road Owners Corp., 187 B.R. 837, 853 (E.D.N.Y.1995).
Here, the Debtors have disclosed exactly which insiders are participating in the KEIP. Additionally, based on the information provided in the DiBenedetto Declaration, the Court is satisfied that those individuals who originally concerned the U.S. Trustee are not insiders of the Debtors. Thus, the issue the Court must now address is whether the KEIP is valid pursuant to section 503(c) of the Bankruptcy Code as it relates to both the insider employees of the Debtors and the rank and file employees.
*209B. Pursuant to Section 503(c), the KEIP Is Incentivizing and Not Primarily Retentive
Section 503(e) was added to the Bankruptcy Code as one of the BAPCPA amendments in 2005 to “eradicate the notion that executives were entitled to bonuses simply for staying with the Company through the bankruptcy process.” In re Global Home Prods., LLC, 369 B.R. 778, 783-84 (Bankr.D.Del.2007). The intent of section 503(c) is to “limit the scope of ‘key employee retention plans’ and other programs providing incentives to management of the debtor as a means of inducing management to remain employed by the debt- or.” 4 COLLIER ON BANKRUPTCY ¶ 503.17 (15th rev. ed. 2007). In addition to limiting payments to insiders for retention purposes, section 503 also limits severance payments to insiders and any transaction outside the ordinary course of business that would benefit “officers, managers, and consultants hired after the date of the filing of the petition.” 11 U.S.C. § 503(c)(3). The effect of section 503(c) was to put in place “a set of challenging standards” and “high hurdles” for debtors to overcome before retention bonuses could be paid. Global Home, 369 B.R. at 784-85. To the extent that either section 503(c)(1) or (c)(2)8 apply, the transfer cannot be justified solely on the debtor’s business judgment. In re Dana Corp., 351 B.R. 96, 100-01 (Bankr.S.D.N.Y.2006) (“Dana I ”). Section 503(c)(3) also prohibits “other transfers or obligations that are outside the ordinary course of business and not justified by the facts and circumstances of the case, including transfers made to, or obligations incurred for the benefit of, officers, managers, or consultants hired after the date of the filing of the petition.” 11 U.S.C. § 503(c)(3).
Section 503(c) does not “foreclose a chapter 11 debtor from reasonably compensating employees, including ‘insiders,’ for their contribution to the debtors’ reorganization.” In re Dana Corp., 358 B.R. 567, 575 (Bankr.S.D.NY.2006) (citation omitted) (“Dana II”). A transfer to an insider to induce the insider to remain with the debtor’s business must satisfy the requirements under subdivisions (A), (B), and (C) of section 503(c)(1) in order to be subject to this subdivision’s exception. 4 CollieR on Bankruptcy ¶ 503.17; see also Dana II, 358 B.R. at 575 (summarizing the requirements under 503(c)(1)).
Section 503(c)(1) limits payments to insiders for the purpose of retention and “applies to those employee retention provisions that are essentially ‘pay to stay’ key employee retention programs.” Dana II, 358 B.R. at 571. Attempts to characterize what are essentially prohibited retention programs as “incentive” programs in order to bypass the requirements of section 503(c)(1) are looked upon with disfavor, as the courts consider the circumstances under which particular proposals are made, along with the structure of the compensation packages, when determining whether the compensation programs are subject to section 503(c)(1). See, e.g., Dana I, 351 B.R. at 102 (stating that if a bonus proposal “walks like a duck (KERP), and quacks like a duck (KERP), it’s a duck (KERP).”). Athough a pur*210ported KEIP may contain some retentive effect, that “does not mean that the plan, overall, is retentive rather than incentiviz-ing in nature.” Id. See also Global Home, 369 B.R. at 785 (“The entire analysis changes if a bonus plan is not primarily motivated to retain personnel or is not in the nature of severance.”) (emphasis added); In re Nellson Nutraceutical, Inc., 369 B.R. 787, 802 (Bankr.D.Del.2007) (reading section 503(c)(1) to mean “a transfer made to ... an insider of the debtor for the [primary] purpose of inducing such person to remain with the debtor’s business” because any payment made to an employee, including regular wages, has at least a partial retentive effect). As stated earlier, all of the Executive Employees subject to the KEIP are insiders. Therefore, if the Court concludes that the KEIP is essentially a retention plan, then such payments must comply with section 503(c)(1).
In Dana II, Judge Lifland held that “[b]y presenting an executive compensation package that properly incentivizes [management] to produce and increase the value of the estate, the Debtors have established that section 503(c)(1) does not apply.” 358 B.R. at 584. However, prior to Dana II, Judge Lifland found that “without tying [a] portion of [a] bonus to anything other than staying with the company until the Effective Date, this Court cannot categorize a bonus of this ... form as an incentive bonus.” Dana I, 351 B.R. at 102. In Mesa Air Group, this Court held that the debtors’ incentive bonus program was not a retention bonus because it was designed to “motivate the employees to achieve performance goals.” In re Mesa Air Grp., No. 10-10018, 2010 WL 3810899, at *4 (Bankr.S.D.N.Y. Sept. 24, 2010) (citation omitted). In that case, incentive bonuses were tied to certain performance goals, such as maintenance of flight schedules, efficient return of aircraft, securing aircraft equipment at reduced rates and negotiating reduced rates for aircraft no longer in service. Id.
The U.S. Trustee asserts that the KEIP in this case is not primarily incentive-based because the ACU Target is predominantly tied to the Debtors’ compliance with the DIP Budget. However, this financial target “was developed in conjunction with the projected revenue and EBIT-DA targets of Cover dell and Neverblue, and expected range of recovery of the ACU Business,” and, thus, this target “measures the same performance targets set for the Debtors’ businesses.... ” (Cam-pagna Decl. ¶¶ 35-36.) Furthermore, under the KEIP, the Executive Employees are required to do more to meet the wide-scale goals outlined in the KEIP as they must address concerns and issues that are unique to the bankruptcy proceeding. The KEIP encourages the Executive Employees to increase their pre-bankruptcy job responsibilities to achieve the bonus requirements and financial targets. Accordingly, the Court is satisfied that through the use of the Targets, the KEIP conforms to prevailing practices in this district and others, thereby alleviating the need for a section 503(c)(1) analysis. See In re BearingPoint, Inc., Case No. 09-10691(REG) (Bankr.S.D.N.Y. July 24, 2009) (ECF Doc. # 1128) (incentives based on (i) the sale of business units, (ii) employees working on estate transition and wind-down activities and (iii) percentage of creditor recoveries); In re Calpine Corp., Case No. 05-60200(BRL) (Bankr.S.D.N.Y. May 15, 2006) (ECF Doc. # 1580) (size of incentive pool tied to the debtor’s market adjusted enterprise value and plan adjusted enterprise value); In re Nortel Networks, Inc., Case No. 09-10138(KG) (Bankr.D. Del. Mar. 5 and 20, 2009) (ECF Doc. ##436, 511) (incentive plan based on the achievement of separate milestones, including a cost reduction plan, “certain parameters *211... that will result in a leaner and more focused organization” and plan confirmation).
Furthermore, in previous years, the Debtors utilized revenue and EBITDA targets as a means for incentive-based pay for their employees. (Campagna Decl. ¶ 18.) Historically, these targets have proven difficult to achieve. (Id. ¶ 19-21.) And, according to representations from counsel for the Debtors, the Debtors have yet to meet the Targets. See Dana II, 358 B.R. at 583 (noting that the financial benchmarks set for debtor’s incentive plan are difficult targets to achieve and are therefore incentivizing); WebsteR’s Ninth New Collegiate Dictionaey 608 (9th ed. 1984) (defining “incentive” to mean “something that incites or has a tendency to incite to determination or action”). Additionally, as explained in the Campagna Declaration, the Court is satisfied that the $80 million and $20 million are fair baseline target sale amounts for Coverdell and Neverblue, respectively, in connection with the KEIP. (Campagna Decl. ¶¶ 22, 25, 27.) Thus, the Court finds that the KEIP Targets will properly incentivize all of the Key Employees.
The Court also finds that the Targets and payments applicable to Hakan Lindskog primarily incentivize him to perform at the highest level. Under the KEIP, Mr. Lindskog would be paid 0.5% of the face amount of a $20 million credit bid or 1% of sales proceeds from a third-party purchaser for Neverblue. Mr. Lindskog must work diligently with the Debtors’ investment banker to find a third-party purchaser and work with proposed buyers, responding to due diligence requests and providing business and financial information. (Id. ¶ 28.) Furthermore, pursuant to his employment agreement, Mr. Lindskog is actually entitled to receive 1% of the proceeds of a sale or change of control transaction of Neverblue. (Id. ¶ 29.) Thus, the incentives as applied to him under the KEIP will actually force Mr. Lindskog to perform at the highest level for Neverblue to command a price in excess of $20 million.
The KEIP’s goals are also consistent with the policies underlying chapter 11. While an expeditious emergence from bankruptcy via a confirmed reorganization plan is the ultimate objective of most chapter 11 debtors, a sale of a debtor’s business as a going concern under section 363 also achieves the chapter 11 goal of preserving businesses and maximizing recoveries for creditors. See Bank of Am. Nat’l Trust & Sav. Ass’n. v. 208 N. LaSalle St. P’ship, 526 U.S. 434, 453, 119 S.Ct. 1411, 143 L.Ed.2d 607 (1999) (noting that the two basic purposes of chapter 11 are to preserve going concerns and maximize property available to satisfy the claims of creditors). Meeting these benchmarks is also beneficial to the estate because an expedited emergence will minimize administrative costs, thereby helping to maximize stakeholder value.
C. The Debtors Have Exercised Sound Business Judgment
The alternative method for approving the KEIP is as an “ordinary course” transaction by the Debtors pursuant to 11 U.S.C. § 363. See In re Mesa Air Grp., 2010 WL 3810899, at *3. While the Bankruptcy Code does not provide guidance whether a particular transaction is conducted in the “ordinary course of business,” courts have applied both “horizontal” and “vertical” tests to consider the reasonableness of a transaction and whether it was conducted in the ordinary course. As stated by Judge Beatty,
[t]he inquiry deemed horizontal is whether, from an industry-wide perspective, the transaction is of the sort com*212monly undertaken by companies in that industry. The inquiry deemed vertical analyzes the transactions ‘from the vantage point of a hypothetical creditor and [the inquiry is] whether the transaction subjects a creditor to economic risk of a nature different from those he accepted when he decided to extend credit.’
In re Crystal Apparel, Inc., 207 B.R. 406, 409 (Bankr.S.D.N.Y.1997) (citation omitted); see also Dana II, 358 B.R. at 580 (citing Crystal Apparel with approval). The horizontal test “is aimed at determining whether the transaction is abnormal or unusual, in which case it is probably not in the ordinary course of business, or whether it is a reasonably common type of transaction.” 3 COLLIER ON BANKRUPTCY ¶ 363.17. The vertical test “reviews the transaction from the perspective of creditors, asking whether the transaction is one that creditors would reasonably expect the debtor or trustee to enter into.” Id.
If a particular transaction passes the horizontal and vertical tests, it is then considered an “ordinary course” transaction subject to approval under section 363. As an ordinary course transaction, the inquiry is then whether the debtor has a valid business purpose for engaging in the particular transaction, and whether “the conduct involves a business judgment made in good faith upon a reasonable basis and within the scope of authority under the Bankruptcy Code.” In re Nellson Nutraceutical, Inc., 369 B.R. at 799.
Section 503(c)(3) limits payments made to the Debtors’ employees outside of the ordinary course unless such payments are justified by “the facts and circumstances of the case.” 11 U.S.C. § 503(c)(3). Courts have held that the “facts and circumstances” language of section 503(c)(3) creates a standard no different than the business judgment standard under section 363(b). See Dana II, 358 B.R. at 576; Global Home, 369 B.R. at 783 (“If [the proposed plans are] intended to incentivize management, the analysis utilizes the more liberal business judgment review under § 363.”); Mesa Air Grp., 2010 WL 3810899 at *4; In re Nobex Corp., No. 05-20050, 2006 WL 4063024, at *2 (Bankr.D.Del. Jan. 19, 2006). In Dana II, Judge Lifland listed several factors that courts consider when determining if the structure of a compensation proposal and the process for its development meet the business judgment test:
- Is there a reasonable relationship between the plan proposed and the results to be obtained, i.e., will the key employee stay for as long as it takes for the debtor to reorganize or market its assets, or, in the case of a performance incentive, is the plan calculated to achieve the desired performance?
- Is the cost of the plan reasonable in the context of the debtor’s assets, liabilities and earning potential?
- Is the scope of the plan fair and reasonable; does it apply to all employees; does it discriminate unfairly?
- Is the plan or proposal consistent with industry standards?
- What were the due diligence efforts of the debtor in investigating the need for a plan; analyzing which key employees need to be incentivized; what is available; what is generally applicable in a particular industry?
- Did the debtor receive independent counsel in performing due diligence and in creating and authorizing the incentive compensation?
358 B.R. at 576-77 (emphasis in original). See also Global Home, 369 B.R. at 786 (evaluating an incentive plan under the business judgment standard of section 363 by applying the factors listed above); but see In re Pilgrim’s Pride Corp., 401 B.R. *213229, 236-37 (Bankr.N.D.Tex.2009) (standard for approval under section 503(c)(3) is higher than the business judgment test; if payments to employees outside the ordinary course were only subject to the business judgment test, then the language of section 503(c)(3) would ostensibly be rendered meaningless).
As an initial matter, the Debtors have adequately shown that the incentives and Targets proposed under the KEIP are the same as those that have been established by the Debtors in previous years. (Campagna Decl. ¶¶ 18-20.) Further, applying the Dana II factors, the Court finds that the Debtors have exercised sound business judgment. A reasonable relationship exists between the plan proposed and the results to be obtained. In this case, the KEIP is keyed to the successful sale of the Debtors’ businesses to a third-party purchaser. The KEIP is also reasonable in light of the Debtors’ financial situation. Assuming the Debtors meet their performance goals, the aggregate KEIP payments are $2.875 million. (Id. ¶ 15.) Additionally, the KEIP does not unfairly discriminate and comports with industry standards, as it is nearly identical to the bonus plan that the Debtors had in place prepetition. (Id. ¶¶ 18-20.) Finally, the Debtors, as evidenced by the declarations filed in support of the KEIP, have exercised proper diligence in formulating the KEIP. Specifically, the Debtors have utilized their financial advisor, Alvarez & Marsal North America, LLC, to assist, advise and guide the Debtors in developing a KEIP that would incentivize the Key Employees to maximize the value of the Harvest and the sales of Coverdell and Neverblue.
III. CONCLUSION
For the reasons stated above, the Court overrules the U.S. Trustee’s remaining objections. The Debtors have met their burden of proving that the proposed KEIP is primarily incentive-based as it relates to all Key Employees and is a valid exercise of their sound business judgment under section 363 and 503(c)(3). A separate order will be entered approving the Motion.
. According to the DiBenedetto Declaration, the Senior Vice President and Executive Vice President identified by the U.S. Trustee are "not directors of the Company, nor do they fulfill the functions of Board appointed officers with the authority to set corporate policy.” (DiBenedetto Decl. ¶ 6.)
. The ACU Business is comprised of the Debtors’ credit and identity theft protection and the lifestyle and shopping businesses. According to the Agreed Protocol, the Debtors will continue to operate the ACU Business in the ordinary course, but will cease spending new marketing dollars to acquire new members on a go-forward basis (the "Harvest”). The Harvest is further described in the in the Declaration of Lorraine DiSanto in Accordance with Local Bankruptcy Rule 1007-2. (ECF Doc. #3.)
. However, the Debtors disclosed that one employee in Coverdell's finance department, Roseanne Corigliano, is the sister of Vincent DiBenedetto and thus is a statutory insider under section 101 of the Bankruptcy Code. Under the proposed KEIP, she would earn $15,000. According to the Debtors, Ms. Co-rigliano has no corporate authority to dictate policy and is subordinate to the officers and directors of the Debtors.
. "Net Proceeds” is the unlevered free cash flow from the ACU Business after deducting all recurring and non-recurring cash payments associated with the ACU Business and all post-petition professional fee payments related to the entire restructuring process (excluding the investment banking fees of the proposed investment banker for Coverdell and Neverblue), on an undiscounted basis. The Net Proceeds calculation will be measured from the Petition Date and excludes un-levered free cash flow from Coverdell and Neverblue and the ending cash balance as of the Petition Date.
. "Coverdell Net Sale Proceeds” would be determined by the net cash received by the estate after payment of all expenses in conjunction with a sale transaction of the respective business, or the face amount of a credit bid in excess of $80 million after payment of all expenses in conjunction with the sale transaction.
. The Court need not address these issues in full because, as explained below, the Court finds that the KEIP is primarily incentivizing rather than retentive, and thus, the requirements of 503(c)(1) are not applicable.
. Section 503(c)(1) prohibits any transfer
made to, or an obligation incurred for the benefit of, an insider of the debtor for the purpose of inducing such person to remain with the debtor’s business, absent a finding by the court based on evidence in the record that—
(A) the transfer or obligation is essential to retention of the person because the individual has a bona fide job offer from another business at the same or greater rate of compensation;
(B) the services provided by the person are essential to the survival of the business; and
(C)either—
(i) the amount of the transfer made to, or obligation incurred for the benefit of, the person is not greater than an amount equal to 10 times the amount of the mean transfer or obligation of a similar kind given to nonmanagement employees for any purpose during the calendar year in which the transfer is made or the obligation is incurred; or
(ii) if no such similar transfers were made to, or obligations were incurred for the benefit of, such nonmanagement employees during such calendar year, the amount of the transfer or obligation is not greater than an amount equal to 25 percent of the amount of any similar transfer or obligation made to or incurred for the benefit of such insider for any purpose during the calendar year before the year in which such transfer is made or obligation is incurred;
11 U.S.C. § 503(c)(1).
. Section 503(c)(2) prohibits severance payments made by a debtor to insiders, unless:
(A) the payment is part of a program that is generally applicable to all full-time employees; and
(B) the amount of the payment is not greater than 10 times the amount of the mean severance pay given to nonmanagement employees during the calendar year in which the payment is made
11 U.S.C. § 503(c)(2). Since the KEIP does not contemplate severance payments, this subsection is not applicable. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494723/ | MEMORANDUM DECISION PROHIBITING WELLS FARGO FROM ASSERTING THE SETTLED FORGERY CLAIM OR ANY OTHER ESTATE CLAIMS IN STATE COURT
CECELIA G. MORRIS, Chief Judge.
First Republic Bank (“First Republic”) filed a motion to compel Wells Fargo Bank (“Wells Fargo”) to comply with the automatic stay and prior bankruptcy court rulings, and asks that the Court direct Wells Fargo to withdraw state court pleadings that assert the Debtor’s forgery claim and other claims of the estate. Wells Fargo argues that it is free to assert a claim of forgery in state court since it received no benefit from the settlement agreement between the chapter 7 trustee and First Republic and that its causes of action in state court are not derivative. Wells Fargo argues that it should not be precluded from contesting the First Republic foreclosure litigation. The Court finds that Wells Fargo is precluded from asserting the Debt- or’s claim of forgery, a derivative forgery claim, or any other estate claims in the state court action. Whether Wells Fargo has in fact raised direct causes of action should be determined by the state court.
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. The administration of the Debtors’ estate is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A).
Background
The Court adopts the factual background as stated in its June 2, 2011 Memorandum Decision and uses terms as defined in that Memorandum Decision.
The Current Motions
On June 23, 2011, this Court entered an Order Enforcing Order Approving Settlement Agreement against the Debtor. That order “barred [the Debtor] from pursuing claims settled and released by the Trustee against [First Republic] in any forum, including but not limited to, the Foreclosure Defenses and Counterclaims.”
Since the entry of the Order, the Debtor filed an amended answer in the state court foreclosure proceeding (“Foreclosure Action”), withdrawing her counterclaims and related affirmative defenses. On March 10, 2012, First Republic moved for summary judgment in the Foreclosure Action.
On March 23, 2012, Wells Fargo, which had not filed a timely answer in the Foreclosure Action, filed a Cross-Motion to Compel First Republic to Accept Wells Fargo’s Answer and Counterclaims and *216opposition to First Republic’s Summary-Judgment. Wells Fargo’s pleadings seek, among other things, to: (i) equitably subordinate the First Republic mortgage to Wells Fargo’s mortgages; (ii) obtain priority over First Republic under N.Y. Real Property Law § 291; and (iii) recover damages for First Republic’s alleged unjust enrichment.
On March 26, 2012, the Debtor filed opposition to First Republic’s motion for Summary Judgment and motion to sever cross-claim and counterclaims. Included with that opposition is the supporting affidavit of the Debtor. These pleadings contain allegations that First Republic’s mortgage was obtained by forgery and as such is void ab initio.
On April 9, 2010, First Republic’s counsel sent a letter to Wells Fargo and the Debtor asking them to withdraw their opposition and warning First Republic would bring the matter to this Court’s attention if not withdrawn.
On April 12, Wells Fargo responded by letter asserting that it was free to assert that First Republic’s mortgage was void ab initio under New York real property law and the Settlement Agreement.
On April 19, 2012, the Debtor filed a motion in this Court seeking a declaration that she is not violating the automatic stay or the Court’s Memorandum Decision and Order Enforcing the Settlement Agreement. Her counsel also responded to First Republic by letter.
On May 1, 2012, Wells Fargo filed a “Protective Response” to the Debtor’s motion arguing that its state court pleadings are not violative of this Court’s Memorandum Decision Enforcing the Settlement Agreement and is not violative of the Order Approving the Settlement Agreement dated October 21, 2009.
On May 1, 2012, First Republic filed its Motion for Contempt, Motion to Compel/Opposition of Julie Dowden Cfik/a Julie D. Salander) and Cross-Motion for an Order Holding Debtor in Contempt and a Motion to Compel Wells Fargo to Comply with the Automatic Stay and Prior Bankruptcy Court Orders. First Republic argues, among other things, that Debtor is seeking to exercise control over property of the estate and collaterally attacking this Court’s prior orders; and that Wells Fargo is attempting to litigate the precise forgery and fraud claims that were settled and released by the Trustee despite this Court’s Order affirming that the settlement was valid and enforceable. First Republic also asks this Court to compel Wells Fargo to withdraw its proposed answer and counterclaims and opposition to summary judgment. It argues that Wells Fargo’s claims of equitable subordination; fraudulent conveyance actions; and unjust enrichment are improperly asserting estate causes of action and cannot be brought in state court. First Republic also argues that Wells Fargo is estopped from arguing that the First Republic mortgage is not valid and duly recorded.
On May 8, 2012, Wells Fargo filed opposition to First Republic’s motion and the Debtor filed a reply arguing that it preserved its right to contest the foreclosure action; it is not a party to the settlement; the state court has jurisdiction to decide the issues; and that it may properly contest void mortgage issues.
On May 11, 2012, the Debtor filed a reply to First Republic’s opposition arguing that she is not attempting to “end-run” around this Court’s order. She argues that whether Wells Fargo or First Republic are first in priority, she knows that she cannot take from the proceeds of any foreclosure sale until First Republic’s lien is *217satisfied and that she may legally support Wells Fargo’s contentions of forgery.
At a hearing held on May 15, 2012 to consider these motions, the Court found the Debtor in contempt of this Court’s June 23, 2011 Order but reserved decision as to whether Wells Fargo could assert claims against First Republic in the Foreclosure Action. A Consent Order holding the Debtor in Contempt was entered on May 24, 2012.
Summary of the Law
There seems to be some confusion over what property remains property of the estate and what property was, but is no longer, property of the estate. In order to make the record clear, the Court notes that the Debtor’s forgery claim is separate from any state cause of action, whether derivative or direct, that Wells Fargo may be permitted to bring in its own right, and that Debtor’s forgery claim exists distinctly and separately from the Millbrook Property. The Court will interpret each separately.
The Debtor’s Claim of Forgery against First Republic
“[T]he bankrupt estate includes ‘all legal or equitable interests of the debt- or ... as of the time of the commencement of the case.’ ” In re Ionosphere Clubs, Inc., 156 B.R. 414, 437 (S.D.N.Y.1993) (citing 11 U.S.C. 541(a)(1)).1 The trustee has the power to stand in the shoes of the debtor and only the trustee “has standing to bring any suit that the debtor could have instituted had it not petitioned for bankruptcy.” Ionosphere, 156 B.R. at 437. Put more directly, “[i]f a cause of action belongs to the estate, creditors may bring such an action only if the Trustee abandons it or otherwise allows the creditors to pursue it independently.” Id. (citing 11 U.S.C. § 554). Because the trustee acts for the benefit of the estate as a whole, claimants may be prohibited from pursuing such actions and are bound by the outcome of the trustee’s action. Id.
In St. Paul Fire and Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 707 (2d Cir.1989), the Second Circuit held that a creditor did not have standing to assert a cause of action against a third party where the claims were property of the estate and no direct injury was asserted under state law. (“If the claims asserted by [the creditor] in this action are property of the debtor ... under state law and therefore properly brought by the trustee, and if PepsiCo has not alleged a direct injury traceable to [the defendant], [the creditor] does not have standing to assert those claims outside of the bankruptcy proceeding.”). The Second Circuit held that while “jurisdiction may be proper in more than one forum,.... Congress has given standing ... to the bankruptcy trustee.” St. Paul Fire and Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 707 (2d Cir.1989). The Second Circuit also noted that the creditor would have had to obtain relief from the automatic stay or an order of abandonment of the claim by the trustee. Id.
Here, the Debtors’ claim of forgery against First Republic was clearly property of the estate and Wells Fargo is precluded from asserting that claim on behalf of the Debtor. Wells Fargo never requested relief from the stay in order to pursue this claim and the trustee never abandoned this claim. As opposed to abandoning this claim, the trustee actively settled it. As was stated in this Court’s June 2, 2011 Memorandum Decision,
*218[t]he Bankruptcy Code gives a trustee power to ‘stand[] in the shoes of the debtor’ and bring claims founded on the rights of the debtor that could have been brought by the debtor prior to the bankruptcy proceeding. Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1092 (2d Cir.1995); 11 U.S.C. § 541, 544, 547. The Trustee was acting under this power when he agreed to settle ‘any and all claims’ against First Republic pursuant to the Settlement Agreement, including potential litigation contesting the extent, nature, and validity of First Republic’s security interest and certain guarantees.
In re Salander, 450 B.R. 37, 47 (Bankr.S.D.N.Y.2011). Once a settlement is reached, the litigation concerning the controversy is rendered moot and further court action is unnecessary. See 15 James Wm. Moore, et. al., Moore’s Federal Practice § 101.93[4] (3d ed. 2007).
Wells Fargo argues that it should not be bound by the Settlement Agreement because, as a secured creditor, it received no benefit from the Settlement and because it had no knowledge of the alleged forgery prior to this Court’s approval of the Settlement Agreement.
Whether Wells Fargo received a benefit from this settlement is irrelevant and its assertion that it received no benefit is inaccurate. The Debtors’ estate has not yet been fully administered. While Wells Fargo argues that it is not an unsecured creditor and therefore received no benefit from this settlement, it has yet to be seen whether Wells Fargo will be paid in full through the Foreclosure Action or whether it will be entitled to file a deficiency claim in this proceeding and receive a distribution as an unsecured claimant. Moreover, a settlement need not be in the best interest of each creditor individually. Rather, the chapter 7 trustee acts for the benefit of the estate and the finality of court-approved settlements is important to the administration of the estate. See Petitioning Creditors of Melon Produce, Inc. v. Braunstein, 112 F.3d 1232, 1240 (1st Cir.1997).
Wells Fargo argues that it had no knowledge of the Debtor’s allegations of forgery prior to this Court’s approval of the settlement. As was stated in this Court’s June 2, 2011 Memorandum Decision, the trustee settled all claims, known or unknown. Regardless of whether or not the Debtor’s forgery claim accrued under state law at the time the petition was filed, it was property of the estate and therefore, properly settled by the trustee. Salander, 450 B.R. at 46.
The Court also explained that Wells Fargo may have gained knowledge of the alleged forgeries had it been a more diligent creditor. Wells Fargo had the opportunity to attend the October 31, 2008 meeting of creditors where the chapter 7 trustee questioned the Debtors about the validity of their signatures on various bank documents but Wells Fargo chose not to attend. Id. at 57-58. The reason given for failing to attend the meeting of creditors is that the Debtors were making adequate protection payments. However, the meeting of creditors has no bearing on whether the creditors are being paid adequate protection. Rather, a debtor is required to appear and be examined under oath by the trustee and by any creditor who wishes to participate in the examination. Collier on Bankruptcy P 341.02[d] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). “[Creditors may appear at the meeting of creditors to participate in the examination of the debtor or in the other aspects of the meeting.” Id. at 341.02[a].
The questions asked [at the meeting of creditors] generally concern the debtor’s financial affairs, assets and liabilities, as *219initially set forth in the schedules and statements filed by the debtor. The purpose of the examination is to make a determination as to whether assets have been concealed, whether there has been any improper disposition of assets, whether a chapter 7 debtor’s case might be considered an “abuse” under section 707(b), or if there are grounds for objections to exemptions or to discharge.
Id.
Wells Fargo had the opportunity to appear at the meeting of creditors to either examine the Debtors for its own purposes or to listen to the examination of the Debtors by the Trustee. Had Wells Fargo attended the meeting of creditors, it would have learned of some alleged forgeries and may have been able to examine the Debtor as to its own loan documents or the loan documents of First Republic.
Wells Fargo also had the opportunity to oppose or appeal the settlement, which the Court addressed in its June 2, 2011 Memorandum Decision. See id. at 57 (“Wells Fargo, under its previous name, Wachovia, filed an objection to the initial Motion to Approve the Agreement in which it argued that there was insufficient disclosure of the terms of the settlement, a substantially similar argument to the one made in its cross-motion—lack of disclosure. At the hearing held by this Court on October 20, 2009, Wells Fargo stated that its objection to the Motion to approve the Agreement was resolved and never appealed the Approval Order.”). Similarly, Wells Fargo failed to appeal the Court’s June 2, 2011 Memorandum Decision and the Court’s June 23, 2011 order denying Wells Fargo’s cross-motions.
Wells Fargo is “bound by the outcome of the [Tjrustee’s litigation”—the Settlement, which provided First Republic with a valid and enforceable first priority lien despite the Debtor’s allegations of forgery and mooted the underlying litigation of same.
The Millbrook Property
At the hearing held on May 15, 2012, Wells Fargo argued that it sought, in its previous motion, to have this Court make a determination as to the priority of its lien and was denied that opportunity by the Court. Such a request is properly brought as an adversary proceeding. See Fed. R. Bankr.P. 7001 (stating that a proceeding to determine the validity, priority, or extent of a lien must be commenced as an adversary proceeding). Adversary proceedings are nothing more than lawsuits commenced in a bankruptcy action by the filing of a complaint with the Court, which may be commenced by a plaintiff at any time. Fed. R. Bankr.P. 7003 (stating that Federal Rule of Civil Procedure 3 applies in adversary proceedings and that “[a] civil action is commenced by filing a complaint with the court.”).
While the real property was property of the estate at the time the Trustee entered into the Settlement Agreement, at the time of Wells Fargo’s cross-motion, the Court had already approved the Trustee’s abandonment of the Millbrook Property. See Salander, 450 B.R. at 50-52 (explaining that the Trustee settled, but did not abandon, the Debtor’s forgery claim and later abandoned the Debtor’s real property—which was no longer subject to the Debtor’s forgery claim because of the earlier Settlement Agreement). As of October 27, 2010, the Millbrook Property is no longer property of the estate. See Collier on Bankruptcy P 554.02[3] (Alan N. Res-nick & Henry J. Sommer eds., 16th ed.) (“[AJbandonment constitutes a divesture of all of the estate’s interests in the property.”).
Abandonment of property ends the bankruptcy court’s jurisdiction to determine disputes concerning that property, *220unless the result of the dispute could have some effect on the bankruptcy case. Id.; see also In re Xonics, Inc., 813 F.2d 127, 132 (7th Cir.1987). In Xonics, Judge Easterbrook stated that “[s]ometimes the practical effect of abandonment is to fold up the bankruptcy case, to remit claimants to the ‘abandoned’ assets to whatever remedies they have at state law.... When the disposition of the abandoned assets cannot possibly affect other creditors, there is no reason for the bankruptcy court’s jurisdiction to linger. A party believing that competing claims to the abandoned assets should be resolved by the bankruptcy court must object to the abandonment.” Neither Wells Fargo nor First Republic objected to the abandonment of property nor did either appeal the October 27, 2010 Order. Thus, the creditors are now left to pursue their remedies in state court.
Even if the estate continues to maintain some interest in the determination of the Foreclosure Action, the state court has concurrent jurisdiction over the action. Savage & Assocs., P.C. v. Mandl (In re Teligent, Inc.), 459 B.R. 190, 197 (Bankr.S.D.N.Y.2011) (“While the Court enjoys exclusive jurisdiction over property of the estate, it only enjoys nonexclusive jurisdiction over bankruptcy proceedings that may affect property of the estate.”).
Because the estate’s interest in the forgery claims was settled by the Trustee and any remaining interest in the property was abandoned, the state court is the more proper forum for determining the validity, priority, and extent of Wells Fargo’s lien on the Millbrook Property.
Wells Fargo’s Direct (non-Derivative) Claims against First Republic
First Republic argues the claim for forgery that Wells Fargo is pursuing in the Foreclosure Action is a derivative claim that has been settled by the trustee. Wells Fargo argues that its claim is not derivative and, therefore, remains viable.
Usually a party only has standing to pursue a cause of action if a wrongful act injures a legal right or property interest held by that party. Bartfield v. Murphy, 578 F.Supp.2d 638, 645 (S.D.N.Y.2008). “However, the common law often gives an individual standing to bring a ‘derivative’ action on behalf of a legal entity, such as a corporation, in which [it] holds an interest if that entity would be the only party entitled to bring a direct suit and has failed to do so.” Id. In the bankruptcy context, it is only the trustee (or in a chapter 11 case, the debtor-in-possession) who has independent standing to pursue estate causes of action. In re Cooper, 405 B.R. 801, 807 (Bankr.N.D.Tex.2009). And in a chapter 7 case, there is no textual basis for allowing a creditor to pursue an estate claim derivatively. In re Cooper, 405 B.R. 801, 804 (Bankr.N.D.Tex.2009).
In In re Cooper, 405 B.R. 801 (Bankr.N.D.Tex.2009), an individual creditor sought permission from the bankruptcy court to pursue turnover actions and other estate actions, such as state law fraud claims. The court reasoned that in a chapter 7 case, unlike in a chapter 11, “there is no textual basis in the Bankruptcy Code to support the notion that a non-trustee, such as a creditor: (a) has independent standing to pursue chapter 5 avoidance actions or other estate causes of action; or (b) may be granted derivative standing.” In re Cooper, 405 B.R. 801, 804 (Bankr.N.D.Tex.2009). The court noted that in chapter 7 cases, “a trustee has a unique role as an independent fiduciary, with a completely different perspective and interest in a bankruptcy estate than an individual creditor” and saw “no equitable rationale to deviate from the Bankruptcy Code’s apparent remedial scheme vis-a-vis *221avoidance actions and other estate causes of action.” Id. at 804, 812 (“[Allowing a creditor — a non-statutory fiduciary — to go forward in the Chapter 7 trustee’s stead could facilitate a creditor ‘hijacking’ a Chapter 7 bankruptcy case in a manner that Congress did not envision.”).
Even if a creditor in a chapter 7 case could raise an estate claim derivatively, its right to pursue that cause of action is extinguished upon settlement by the trustee. In In re Ambac Financial Group, Inc., 2011 WL 6844583, at *2 (S.D.N.Y.2011), the district court affirmed a debtor-in-possession’s power to settle derivative claims on behalf of individual shareholders and stated that the settlement did not amount of an abandonment of the derivative claims. Id. at *3 “Such a position, if accepted, would essentially render null the previously established power of a debtor-in-possession to settle the claims held by a bankruptcy estate.” Id. The same reasoning applies here. Assuming that Wells Fargo had standing to pursue a derivative action against First Republic, allowing it to do so now, after the trustee has already settled that claim, would “render null” the trustee’s power to settle estate claims. Id.
As such, Wells Fargo does not have the ability to raise any estate cause of action in the Foreclosure Action. As was discussed earlier, only the trustee had standing to assert the Debtor’s forgery claim prior to this Settlement and he has settled that claim, which is now moot pursuant to federal civil procedure law and federal bankruptcy law. See supra. This Court has already ruled that when the trustee abandoned the Millbrook Property, he abandoned any interest that remained in the Property after the estate realized the benefit of the forgery claim.2 See Salander, 450 B.R. at 50-51. That is, he abandoned whatever interest in the Millbrook Property that remained after the Settlement Agreement but retained the interest the estate had derived from the alleged forgeries. Id. This concept of abandoning real property but retaining the benefit of a cause of action that was previously attached to that property is a purely legal one and one that probably does not exist outside of bankruptcy law. However, that is precisely what happened here. See id. (discussing a trustee’s ability to abandon assets after realizing their benefits). Because the forgery claim had already been settled and its value consumed by the estate, the remainder of the real property that was abandoned was less valuable than it would have been had the Settlement not been reached. Id. As such, Wells Fargo cannot assert a claim of forgery that is premised upon the estate’s claim — that claim was never abandoned; it was administered prior to the abandonment.
Wells Fargo argues that it has a direct, as opposed to a derivative, cause of action against First Republic. Wells Fargo’s claim is direct, as opposed to derivative, if Wells Fargo can prevail without showing injury to the Debtor. Druck Corp. v. Macro Fund Ltd., IIU, 290 Fed.Appx. 441, 443 (2d Cir.2008). To determine whether or not Wells Fargo’s claim is direct or derivative this Court would need to apply state law. Aboushanab v. Janay, 2007 WL 2789511, *6, 2007 U.S. Dist. LEXIS 71278, *18-*19 (S.D.N.Y. Sept. 25, 2007). It has yet to be shown whether *222Wells Fargo will even be allowed to participate in the Foreclosure Action and as such, the state court is in the best position of determining which of Wells Fargo’s claims, if any, are direct.
To the extent that the state court determines that Wells Fargo has a cause of action against First Republic for injuries that it suffered separate and apart from the Debtor’s injuries or any other estate claim, Wells Fargo is entitled to assert those actions in the Foreclosure Action. To the extent that Wells Fargo is asserting an injury dependent upon the Debtor’s injury, such claim is derivative and may not be raised by Wells Fargo. Any other estate cause of action raised by Wells Fargo, such as a claim stating that First Republic was unjustly enriched through the estate’s treatment of First Republic’s claim in this bankruptcy, has not been abandoned by the trustee and may not be plead by Wells Fargo. Those claims remain property of the estate and subject to the automatic stay. See Salander, 450 B.R. at 45 (“The automatic stay is intended to ‘allow the bankruptcy court to centralize all disputes concerning property of the debtor’s estate so that reorganization can proceed efficiently, unimpeded by uncoordinated proceedings in other arenas.’ ”) (quoting United States Lines, Inc. v. Am. S.S. Owners Mut. Prot. & Indem. Ass’n (In re United States Lines, Inc.), 197 F.3d 631, 640 (2d Cir.1999)); see also In re Colonial Realty Co., 980 F.2d 125, 133 (2d Cir.1992) (“The purpose of the automatic stay is ‘to prevent a chaotic and uncontrolled scramble for the debtor’s assets in a variety of uncoordinated proceedings in different courts. The stay insures that the debtor’s affairs will be centralized, initially, in a single forum in order to prevent conflicting judgments from different courts and in order to harmonize all of the creditors’ interests with one another.’ ”) (citation omitted).
Wells Fargo argues that its right to pursue the forgery claim was preserved in Settlement Agreement by the following language: “the Trustee agrees to stipulate to the lifting of the automatic stay with respect to the Millbrook Property and consents to [First Republic’s] foreclosure on such property, subject to any other lien-holder on the Millbrook Property’s right to contest such acts.”3 It would be nonsensical for this clause to grant Wells Fargo the power to pursue estate claims or the same causes of action that the trustee was purporting to settle through the Settlement Agreement (and those claims that only he had standing to bring). It is more likely that the trustee wanted to preserve lien-holder’s right to pursue their own independent cause of action in state court — an interpretation that is consistent with the plain meaning and purpose of the Settlement Agreement and with bankruptcy law.
Conclusion
Subject to allowance by the state court, Wells Fargo is entitled to assert any direct cause of action that does not remain property of the estate and that has not been settled (and its benefit realized) by this estate. First Republic should submit an Order consistent with this Decision.
. “[P]roperty of a bankruptcy estate also includes 'any interest in property that the trustee recovers' under specified Bankruptcy Code provisions.” In re Colonial Realty Co., 980 F.2d 125, 131 (2d Cir.1992).
. Moreover, the estate received many benefits from the Settlement in question and First Republic has given up much of its pre-petition rights in exchange for the settlement of these claims. For a more detailed discussion of the estate’s benefit and First Republic’s consideration see In re Salander, 450 B.R. 37, 43-44 (Bankr.S.D.N.Y.2011) or the Settlement Agreement at number 423 on the electronic docket for this bankruptcy case.
. It should be noted that at the time the Settlement Agreement was entered, the Mill-brook Property continued to be property of the estate. Since that time, the Millbrook Property has been abandoned. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494724/ | MEMORANDUM REGARDING ALLOCATION DISPUTES2
KEVIN J. CAREY, Bankruptcy Judge.
As detailed in its October 31, 2011 Opinion, this Court denied confirmation of two competing plans of reorganization for the Debtors because both plans failed to meet the requirements of Bankruptcy Code § 1129. In re Tribune Co., 464 B.R. 126 (Bankr.D.Del.2011) (the “Confirmation Opinion” or Tribune I). Three motions for reconsideration of the Confirmation Opinion were filed.3 On December 29, *2272011, this Court issued a Memorandum on Reconsideration granting the relief requested in the Law Debenture Reconsideration Motion and the Aurelius Reconsideration Motion and striking that part of the Confirmation Opinion defined as the “Subordination Determination.”4 In re Tribune Co., 464 B.R. 208 (Bankr.D.Del.2011) (the “Reconsideration Decision” or Tribune II). There, I concluded that fraudulent transfer claims, that would be pursued by the Litigation Trust established by the DCL Plan (see n. 6), are not assets belonging to the Debtors and, therefore, could not be “assets of the Company” subject to the subordination provisions of the PHONES Notes.5 Upon reconsideration and further review of the meaning of the phrase “[u]pon distribution of the assets of the Company” in light of applicable state law and the entirety of the PHONES Indenture, I determined that the phrase “assets of the Company” must be read broadly and amended the Confirmation Opinion to strike the Subordination Determination. (Id.).
On November 18, 2011, the DCL Plan Proponents filed the Third Amended Joint Plan of Reorganization for Tribune Company and Its Subsidiaries (D.I. 10273)(the “Third Amended Plan”).6 The Third Amended Plan includes an “Allocation Dispute Protocol” which proposes to establish reserves for distributions to holders of allowed claims in certain classes that would be impacted by unresolved disputes regarding inter-creditor priorities, particularly with respect to the PHONES Notes and the EGI-TRB LLC Notes (the “EGI Notes”).7 (Third Amended Plan, § 5.18 and Exhibit 5.18). The parties disagreed about the timing for resolution of the “Allocation Disputes,” specifically whether the disputes should be resolved prior to solicitation of votes on the Third Amended Plan. The parties have argued persuasively that those entitled to vote on the Third *228Amended Plan should know definitively where they may fall in the priority scheme before being required to cast a vote. Moreover, resolution of the Allocation Disputes will reduce the need for reserves. Bankruptcy Rule 7001(8) provides that subordination issues must be decided either via adversary proceeding or in connection with confirmation.
Therefore, the Court has agreed to resolve the Allocation Disputes prior to plan solicitation and voting; however, all such determinations are subject to, conditioned upon and for the purpose of obtaining confirmation of a chapter 11 plan substantially in the form of the Third Amended Plan (D.I. 10273), hearing on which is scheduled to commence on June 7, 2012 (D.I. 11362).8
The parties submitted proposed schedules for resolution of the “Allocation Disputes” and the process for confirmation of the Third Amended Plan. On January 24, 2012, the Court entered the Order Establishing Scheduling for (1) Resolution of the Allocation Disputes and (2) Consideration of the DCL Plan Proponents’ Supplemental Disclosure Document, Solicitation Procedures Motion and Plan. (D.I. 10692) (the “Allocation Procedures Order”). The Allocation Procedures Order defined the “Allocation Disputes” as follows:
a. PHONES Notes Disputes. Disputes concerning the following issues related to the PHONES Notes: (i) whether and to what extent the Article III Distributions must be adjusted in order for the distributions under the Plan to satisfy the applicable requirements of the Bankruptcy Code in connection with assertions that all or any portion of the consideration provided by the Senior Lenders, Bridge Lenders, and Settling Step Two Payees in respect of the Settlement are or are not subject to the subordination provisions of the PHONES Notes Indenture; (ii) whether and to what extent the priority of the distributions from the Creditors’ Trust must be adjusted in order for the distributions under the Plan to satisfy the applicable requirements of the Bankruptcy Code in connection with assertions that all or any distributions from the Creditors’ Trust are or are not subject to the subordination provisions of the PHONES Notes Indenture; (iii) whether and to what extent the Article III Distributions or the priority of distributions from the Creditors’ Trust and/or the Litigation Trust must be adjusted in order for the distributions under the Plan to satisfy the applicable requirements of the Bankruptcy Code in connection with assertions that any category of Other Parent Claims (ie., the Swap Claim, the Retiree Claims or general unsecured trade claims against Tribune) does or does not constitute “Senior Indebtedness”, as defined by the PHONES Notes Indenture (including, without limitation, because any category of Other Parent Claims does or does not constitute “Indebtedness,” as that term is defined in the PHONES Notes Indenture and used in the PHONES Notes Indenture’s definition of “Senior Indebtedness”); (iv) the Allowed amount of the PHONES Notes *229Claims; (v) whether and to what extent beneficiaries of the subordination provisions of the PHONES Notes Indenture (as determined by the Bankruptcy Court, if applicable) are entitled to receive post-petition interest prior to the Holders of PHONES Notes Claims receiving payment on their Claims; and (vi) whether the PHONES Notes are senior in right of payment to the EGI-TRB LLC Notes; and
b. EGI-TRB LLC Notes Disputes: Disputes concerning the following issues related to the EGI-TRB LLC Notes: (i) whether and to what extent the Article III Distributions must be adjusted in order for the distributions under the Plan to satisfy the applicable requirements of the Bankruptcy Code in connection with assertions that all or any portion of the consideration provided by the Senior Lenders, Bridge Lenders, and Settling Step Two Payees in respect of the Settlement are or are not subject to the subordination agreement governing the EGI-TRB LLC Notes; (ii) whether and to what extent the priority of the distributions from the Creditors’ Trust and/or the Litigation Trust must be adjusted in order for the distributions under the Plan to satisfy the applicable requirements of the Bankruptcy Code in connection with the assertions that all or any distributions from the Creditors’ Trust and/or the Litigation Trust are or are not subject to the subordination agreement governing the EGI-TRB LLC Notes; (iii) whether and to what extent the Article III Distributions or the priority of distributions from the Creditors’ Trust and/or the Litigation Trust must be adjusted in order for the distributions under the Plan to satisfy the applicable requirements of the Bankruptcy Code in connection with assertions that any category of Other Parent Claims (ie., the Swap Claim, the Retiree Claims or general unsecured trade claims against Tribune) does or does not constitute “Senior Obligations”, as defined by the subordination agreement governing the EGI-TRB LLC Notes; (iv) whether and to what extent beneficiaries of the subordination agreement governing the EGI-TRB LLC Notes (as determined by the Bankruptcy Court, if applicable) are entitled to receive post-petition interest prior to the Holders of EGI-TRB LLC Notes Claims receiving payment on their Claims; and (v) whether the EGI-TRB LLC Notes are senior in right of payment to the PHONES Notes.
(Allocation Procedures Order, ¶ 2).9 The parties engaged in discovery and submitted briefs according to the schedule in the Allocation Procedures Order. A hearing to consider the Allocation Disputes was held on March 5 and 6, 2012 (the “AD Hearing”). Limited, post-hearing letter briefs were submitted. The parties have also stipulated to certain facts and have agreed to an Amended Master Exhibit List (D.1.11116).10
*230
DISCUSSION
A. Issues Related to the PHONES Notes
I. Are the PHONES Notes’ subordination provisions applicable to (i) a distribution of Settlement Proceeds under the Third Amended Plan, or (ii) a distribution of Creditors’ Trust proceeds?
The Confirmation Opinion noted that the DCL Plan included two settlements known as the LBO Settlement and the Step Two Disgorgement Settlement (together the “DCL Plan Settlement”).11 Tribune I, 464 B.R. at 152. The DCL Plan Settlement is preserved substantially in the Third Amended Plan. (See Supplemental Disclosure Document Relating to the Third Amended Plan (D.I. 10275) at 18).
The DCL Plan created (and the Third Amended Plan includes) a “Creditors’ Trust” to pursue certain pre-petition LBO-Related Causes of Action arising under state fraudulent conveyance law (known as the “Disclaimed State Law Avoidance Claims”) that may be assigned to the Creditors’ Trust by creditors. (See Third Amended Plan, §§ 1.1.61, 1.1.84 and Article XIV). The plans also create a “Litigation Trust” to pursue unsettled LBO-Related Causes of Action and other specific claims (the “Preserved Causes of Action”). (See Third Amended Plan, §§ 1.1.138,1.1.193 and Article XIII).
WTC argues that the DCL Plan Settlement includes the settlement of causes of action brought under chapter 5 of the Bankruptcy Code (the “Chapter 5 Causes of Action”), which are not assets of Tribune under Off'l Comm. Of Unsecured Creditors of Cybergenics Corp. v. Scott Chinery (In re Cybergenics Corp.), 226 F.3d 237, 245 (3d Cir.2000). WTC further argues that the subordination provisions in the PHONES Notes apply only to a distribution of “assets of the Company” and, therefore, a distribution of DCL Plan Settlement proceeds (the “Settlement Proceeds”) would not be subject to the subordination provisions in the PHONES Notes.
WTC concedes that the Reconsideration Decision determined that the PHONES Notes’ subordination provisions applied to any proceeds distributed by the Litigation Trust, but argues, correctly, that no decision was made about applicability of the subordination provisions to distributions of the Settlement Proceeds or the Creditors’ Trust proceeds.12 In response, other parties assert that the reasoning of the Reconsideration Decision applies equally to the Settlement Proceeds and Creditors’ Trust proceeds.
a. Jurisdiction
WTC filed an appeal of the Reconsideration Decision.13 (D.I. 10580). *231Although WTC argues that the Reconsideration Decision did not address the applicability of the PHONES Notes subordination provisions to the Settlement Proceeds and the Creditors’ Trust proceeds, WTC argues simultaneously that its appeal of the Reconsideration Decision divests this Court of jurisdiction to determine the same issues.
The “Divestiture Rule” provides that an appeal divests the lower court of any further jurisdiction over the subject of the appeal. In re Washington Mutual, Inc., 461 B.R. 200, 217-18 (Bankr.D.Del.2011) (“WaMu”) citing (among other cases) Griggs v. Provident Consumer Disc. Co., 459 U.S. 56, 58, 103 S.Ct. 400, 74 L.Ed.2d 225 (1982) (“The filing of a notice of appeal is an event of jurisdictional significance—it confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in the appeal.”); Venen v. Sweet, 758 F.2d 117, 120-21 (3d Cir.1985) (“ ‘Divest’ means what it says—the power to act, in all but a limited number of circumstances, has been taken away and placed elsewhere.”); In re Whispering Pines Estates, Inc., 369 B.R. 752, 757 (1st Cir. BAP 2007) (“It is well established that the filing of a notice of appeal is an event of jurisdictional significance in which a lower court loses jurisdiction over the subject matter involved in the appeal. The purpose of the general rule is to avoid the confusion of placing the same matter before two courts at the same time and preserve the integrity of the appeal process.”) (citations omitted).
The WaMu Court recognized, however, that in a bankruptcy context the appeal of one ruling does not stay the entire bankruptcy case. WaMu, 461 B.R. at 218. As explained by one Court:
As courts have noted, however, a bankruptcy case typically raises a myriad of issues, many totally unrelated and unconnected with the issues involved in any given appeal. The application of a broad rale that a bankruptcy court may not consider any request filed while an appeal is pending has the potential to severely hamper a bankruptcy court’s ability to administer its cases in a timely manner.
Whispering Pines, 369 B.R. at 758. Bankruptcy Rule 8005 provides that during an appeal “the bankruptcy judge may suspend or order the continuation of other proceedings in the case under the Code or make any other appropriate order during the pendency of an appeal on such terms as will protect the rights of all parties in interest.” Fed.R.Bankr.P. 8005. See also In re Hagel, 184 B.R. 793, 798-99 (9th Cir. BAP 1995) (superceded by statute on other grounds) (holding that Rule 8005 “does not provide that the bankruptcy court must stay all proceedings” but that it has discretion to stay any proceedings.).
The WaMu Court determined that “the correct statement of the Divestiture Rule is that so long as the lower court is not altering the appealed order, the lower court retains jurisdiction to enforce it.” WaMu, 461 B.R. at 219 citing In re Dardashti, No. CC-07-1311, 2008 WL 8444787, at *6 (9th Cir. BAP Feb. 12, 2008) (stating that “when there is no stay pending appeal, the bankruptcy court retains jurisdiction to enforce an order that is on appeal, on condition that in doing so, the bankruptcy court does not significantly alter or expand upon the terms of that order.”); Hagel, 184 B.R. at 798 (“courts *232have recognized a distinction between acts undertaken to enforce the judgment which 'are permissible, and acts which expand upon or alter it, which are prohibited.”).
In WaMu, the Court held that it retained jurisdiction to consider confirmation of a modified plan, even though the plan authorized the transfer of certain securities, the ownership of which was the subject of a pending appeal. The modified plan’s treatment of the securities was consistent with the Court’s prior decision. The WaMu Court decided that confirmation was not a request to modify the appealed order, but to enforce it. WaMu, 461 B.R. at 220. Judge Walrath stated that the appellant had not moved for a stay pending appeal and, therefore, declined to exercise discretion under Rule 8005 not to consider the confirmation just because it might render the appeal moot.14 Id.
The jurisdictional question currently before me is not as difficult as the one presented in WaMu. The matters before me do not implicate application of the PHONES Notes’ subordination provisions as to the Litigation Trust proceeds; instead the issues now before me require consideration of the applicability of the PHONES subordination provisions to other distributions. Therefore, the Allocation Disputes do not seek to modify the Reconsideration Decision and my decision on these disputes will not change the Reconsideration Decision. This Court has jurisdiction to consider the Allocation Disputes.
b. Applicability of the PHONES Notes’ subordination provisions to distribution of the Settlement Proceeds and Creditors’ Trust proceeds.
Although the issue before me applies to different distributions than previously considered in the Reconsideration Decision, WTC’s arguments are the same: (i) that the DCL Plan Settlement includes resolution of Chapter 5 Causes of Action, (ii) that Chapter 5 causes of action are not assets of Tribune Company pursuant to the Third Circuit Court of Appeals’ decision in Cybergenics, (iii) that the PHONES Notes’ subordination provisions only apply to distributions of “assets of the Company” and, (iv) therefore, the subordination provisions do not apply to a distribution of DCL Plan Settlement Proceeds or Creditors’ Trust proceeds.
Bankruptcy Code § 510(a) provides that “[a] subordination agreement is enforceable in a case under this title to the same extent that such agreement is enforceable under applicable non-bankruptcy law.” Determining the meaning of the phrase “assets of the Company” as it is used in the PHONES Indenture requires consideration of basic rules of contract interpretation. This is precisely the exercise that was undertaken in the Reconsideration Decision. As required by Illinois state law (which is applicable pursuant to Article 1.12 of the PHONES Indenture), I considered the phrase “assets of the Company” in light of the entirety of the PHONES Indenture and determined that the subordination provisions applied to a distribu*233tion of the Litigation Proceeds based upon, among other things, the unqualified subordination language of Section 14.02(A), the application of subordination provisions to all sources of “payment” in Section 14.02(B), and the catch-all language of the pay-over obligation in the paragraph following Section 14.02(B). (See Tñbune II, 464 B.R. at 215-21). I perceive no reason why the same analysis does not apply to a distribution of the Settlement Proceeds or the Creditors’ Trust proceeds. WTC has not provided any basis to differentiate between the Litigation Trust Proceeds and the Settlement Proceeds or Creditors’ Trust proceeds. WTC argues merely that my previous analysis is wrong. For the same reasons as set forth in the Reconsideration Decision, I conclude that the PHONES Indenture subordination provisions apply to any distribution of Settlement Proceeds and Creditors’ Trust proceeds.
2. What is the allowed amount of the PHONES Notes Claim?
In the Confirmation Opinion, this Court was asked to determine the outstanding claim amount of the PHONES Notehold-ers but, due to an insufficient record, the issue was not resolved. (See Tribune I, 464 B.R. at 195-97). The parties have now presented additional evidence, including a Stipulation by and among the Debtors, Aurelius Capital Management, WTC, Bar-clays Bank PLC, and Waterstone Capital Management, L.P. on certain facts relevant to the Allocation Disputes and the determination of the Allowed Amount of the PHONES Claim (the “Stipulation”). (ADH Ex. 115).
Prior to the Debtors’ bankruptcy filing, and as permitted under the PHONES Indenture and the Global Note, some PHONES Noteholders attempted to exchange their Notes for cash, but, due to the intervening bankruptcy, those Note-holders never received payment from Tribune. The practical effect of a successful exchange entitled a PHONES Noteholder to receive cash in an amount, as it turns out, that is lower than the amount due to those PHONES Noteholders who did not tender their notes for exchange. This dynamic has generated the dispute about whether the claim amount should be reduced by the amount of those PHONES Notes that were presented for exchange.
(a) The Exchange Rights and Procedures
The terms of the form of global note (the “Global Note”) (ADH Ex. 3) provide that the holder of each PHONES (a “Holder”) has a right at any time and from time to time, to exchange (the “Exchange Right”) each PHONES Note for an amount of cash based on the value of certain reference stock. (Stipulation, ¶ 1). Pursuant to the Global Note, with respect to any PHONES held through the Depository Trust Company (“DTC”), the Holders may exercise their Exchange Right through the DTC ATOP system by “delivering an agent’s message and delivering the PHONES of such Holder to the Trustee’s DTC participant account.” (Stipulation, ¶ 2). Upon delivery of a notice from any Holder (the “Exchange Notice”) to the Indenture Trustee, Tribune is obligated to pay “the amount due upon exchange as soon as reasonably practicable” but in no event “later than ten Trading Days after the date of such Exchange Notice.” (Stipulation, ¶ 3). Pursuant to the Global Note, Tribune is required to deliver an officer’s certificate with respect to any received Exchange Notice specifying the exchange amount to be paid and the date such amount would be paid (the “Exchange Payment Date”). On the Exchange Payment Date, Tribune is required to deposit with the Indenture Trustee the due ex*234change amount and the Indenture Trustee is required to pay DTG as soon as practicable. (Stipulation, ¶ 4).
In September 2008, Tribune and Duetsche Bank Trust Company Americas (“DBTCA”) determined that the “mechanism outlined in the [Global] note is obsolete and will not work” because the DTC ATOP System no longer worked for those types of trades. (Stipulation, ¶ 8). Therefore, Tribune and DBTCA agreed on a revised form of exchange notice (the “Revised Exchange Notice”) and revised PHONES exchange instructions for DBTCA. (Stipulation, ¶ 9). Pursuant to the Revised Exchange Notice, to the extent the new “Exchange Procedures” modified the procedures in the Global Note, they “shall supercede and replace the procedures set forth in the [Global Note].” (Stipulation, ¶ 11).
The Exchange Procedures attached to the Revised Exchange Notice included the following:
• “Holder will send [DBTCA] an Exchange Notice and submit the PHONES to be exchanged through the DWAC system [defined below] for withdrawal by [DBTCA]; [DBTCA] will accept DWAC and take possession of the PHONES tendered for Exchange (such date, the ‘Exchange Date’).”
• “[DBTCA] will notify [Tribune] of [the] Exchange by delivering the Exchange Notice and acknowledging that [DBTCA] has taken possession of the PHONES tendered for Exchange by 12:00 pm on the Business Day following the Exchange Date.”
• If Exchange Notices relating to more than 500,000 PHONES have been delivered on any Exchange Date, [DBTCA] shall notify [Tribune] by 6:00 pm New York City time on the Exchange Date and [Tribune] will give notice of such fact by issuing a press release prior to 9:00 am New York City time on the next Trading Day to be provided to DTC for dissemination and by providing such notice to [DBTCA],
• [Tribune] will deliver an Officers’ Certificate to [DBTCA] no later than l[one] Business Day after the Trading Day following the Exchange date; provided, however, if Exchange Notices relating to more than 500,000 PHONES have been delivered on any Exchange Date, the Company will deliver an Officers’ Certificate no later than 1 Business Day after the 5th Trading Day following the Exchange Date.
• The Officers’ Certificate shall set forth the amount to be paid to the tendering Holder(s) and the Exchange Payment Date.
• Based on the Officers’ Certificate, Trustee will provide the Exchange Payment Date and amount to the Holder(s)
On the Exchange Payment Date (no later than 10 Trading Days following Exchange Date):
• [DBTCA] will cancel the tendered PHONES in the [DBTCA]’s possession”
• [Tribune] will pay the Holder(s)
(Stipulation, ¶¶ 14-16; ADH Ex. 94). “DWAC” stands for Deposit/Withdrawal At Custodian, which is the automated system for deposits and withdrawals of securities run by the Depository Trust Company. (Stipulation, ¶ 17). In an email dated September 17, 2008 from DBTCA’s Vice President to Tribune’s outside counsel, DBTCA stated: “When [DBTCA] accepts] the DWAC it means that we match with the instructions the holder has put up. Accepting the DWAC will remove the *235bonds from DTC’s records and move them to ours.” (Stipulation, ¶ 18).
(b) Undisputed Facts
Beginning November 26, 2008 and continuing through the December 8, 2008 (the “Exchange Period”), holders of 3,093,941 PHONES in 17 different exchanges tendered their PHONES for exchange (the “Tendering Noteholders”), but did not receive payment from Tribune. (Stipulation, ¶ 24; ADH Ex. 91). Notices for the 17 exchanges given during the Exchange Period were delivered by DBTCA to Tribune. (Stipulation, ¶ 25). According to DBTCA’s records, 14 exchanges were accepted into DWAC and 3 exchanges were not. (Stipulation, ¶ 26).15 The current outstanding balance of PHONES on DTC’s system is 4,953,884. (Stipulation, ¶ 29).
The Debtors’ chapter 11 eases were commenced on December 8, 2008. By letter dated December 30, 2008, DBTCA advised Tribune that it had “received a number of requests from the PHONES holders seeking to withdraw their election to exercise [of] the Exchange Option ... [and] requests that [Tribune] advise the Trustee and WTC as to whether it will honor the [withdrawal [r]equests.” (Stipulation, ¶ 30).
By letter dated January 14, 2009, Tribune advised DBTCA that “the Company considers each election to exercise the Exchange Right pursuant to an Exchange Notice submitted by a holder of PHONES to be irrevocable. Accordingly, the company is not prepared to honor any [withdrawal [r]equest.” (Stipulation, ¶ 31).
(c) Discussion Regarding the PHONES Notes Claim Amount
The claim amount of the PHONES Noteholders depends upon the rights of the Tendering Noteholders at the time the bankruptcy petition was filed on December 8, 2008. See Nantahala Capital Partners, LP v. Washington Mutual, Inc. (In re Washington Mutual, Inc.), 464 B.R. 656, 668 (Bankr.D.Del.2012)(deciding that equity holders’ interests remained only equity interests when the right to elect a cash payment did not arise as of the bankruptcy petition date) citing Carrieri v. Jobs.com, Inc., 393 F.3d 508, 522 (5th Cir.2004) (holding that warrants with cash redemption provision are equity interests unless the right to receive a cash payment matured before the petition date). See also The Minority Voting Trust v. Orange County Nursery, Inc. (In re Orange County Nursery, Inc.), 439 B.R. 144, 151 (C.D.Cal.2010) (deciding that the bankruptcy court correctly noted that the nature of the minority shareholders’ interest “depends on its position at the time the bankruptcy petition was filed.”).
The parties do not dispute that the Tendering Noteholders delivered their PHONES Notes to DBTCA for exchange prior to the Debtors’ petition date. Although three of the exchanges were not accepted into the DWAC system, Tribune received notice of all 17 exchanges. The *236Debtors’ records demonstrated that Tribune, after receiving the Exchange Notices, established the Exchange Payment Date and amount for most the tendered notes. (ADH Ex. 91).16 Before the applicable Exchange Payment Dates, however, the chapter 11 bankruptcy filing intervened and the Tendering Noteholders were not paid. At the time the chapter 11 petitions were filed, Tribune was obligated (pursuant to the terms of the Global Note and the Revised Exchange Procedures) to pay the applicable exchange amounts to the Tendering Noteholders. The triggering event that established the parties’ rights and obligations as of the petition filing was the Noteholders’ delivery of the PHONES Notes for exchange.
WTC argues that the Tendering Note-holders’ attempted exchange was ineffective because payment was not received from Tribune. WTC argues that DTC wrongfully cancelled the Notes because the Revised Exchange Procedures provided that the Notes would be cancelled on the Exchange Payment Date — after payment by Tribune. WTC further argues that this unauthorized termination of the Notes should be treated like “mutilated, destroyed, lost or stolen” securities under Section 3.06 of the PHONES Indenture, requiring Tribune to issue a new security with the same benefits as other securities under the Indenture, or pay the security. (ADH Ex. 2).
Ultimately, cancellation of the Notes (wrongful or otherwise) is not relevant to this inquiry. The relevant inquiry is: what was the obligation of Tribune with respect to the Notes as of the petition date? As of the petition date, here, Tribune’s obligation to make the Exchange Payments was set due to (i) the Tendering Noteholders’ delivery of the Exchange Notices and the Notes, and (ii) Tribune’s acknowledgment of receipt of all of the Exchange Notices (including the Exchange Notices for those three exchanges that were not accepted in DWAC) by setting the Exchange Payment Date and determining the amount of the payments. Tribune was complying with the Exchange Procedures when the bankruptcy filing interrupted that process and prevented payment. There is no need to treat the notes as destroyed, lost or stolen. Cancellation of the Notes, wrongfully or not, is not the event that triggers the parties’ rights and obligations.
Aurelius contends that the language of the Indenture supports this conclusion because the Indenture’s definition of the term “Outstanding” specifically excludes “Securities theretofore cancelled by the Trustee .... or delivered to the Trustee or any Authenticating Agent for cancellation.” (ADH Ex. 2, p. 4 (emphasis added)). Aurelius notes that, regardless of whether the Notes should have been can-celled before payment, the parties should agree that the Notes were delivered for cancellation. But WTC does not agree, and argues that the Notes should not have been delivered for cancellation before the *237Exchange Payment Date. A review of the Revised Exchange Procedures provides that there is only one delivery of the Notes — at the beginning of the process when the Exchange Notice is given. The Trustee holds the Notes and cancels them after the Holder receives payment. Therefore, Notes are delivered for cancellation at the beginning of the process. Consequently, the definition of “Outstanding” excludes Notes as soon as they are delivered for exchange and, ultimately, cancellation.
Next, WTC argues that the Tendering Noteholders are entitled to rescind the Exchange Notices since Tribune failed to make the required payment. By letter dated December 30, 2008, DBTCA advised Tribune that it had received a number of withdrawal requests, but Tribune refused to honor them. The parties agreed that “[njeither the PHONES Indenture, the Global Note nor the Revised Exchange Notices address whether or not an election to tender is revocable or contain any provisions as whether or not a tender is revocable.” (Stipulation, ¶ 22). The parties do not cite to any provision in the Bankruptcy Code that would allow rescission post-petition.
“Rescission is an extraordinary remedy that involves the judicial termination of a party’s contractual obligation.” Bucciarelli-Tieger v. Victory Records, Inc., 488 F.Supp.2d 702, 712 (N.D.Ill.2007). Under Illinois law, rescission is generally granted only for fraud, mutual mistake or breaches of contract so material that they go to the very root of the contract. Id. See also Scott & Fetzer Co. v. Montgomery Ward & Co., Inc., 129 Ill.App.3d 1011, 1021, 85 Ill.Dec. 53, 473 N.E.2d 421, 429 (Ill.App.Ct.1984) (deciding that rescission is equitable in nature and the trial court did not err by denying equitable relief when an adequate remedy at law exists). The Noteholders ask for rescission because Tribune failed to pay the exchange amounts. Rescission is not appropriate here when the Tendering Noteholders’ have an adequate remedy in law for Tribune’s breach of contract: a claim for the amount the Tendering Noteholders were entitled to receive if Tribune had complied with the Exchange Notices.
Therefore, the Tendering Noteholders’ claims should be allowed in the amount that Tribune was obligated to pay in exchange for the tendered Notes. According to the Stipulation, the PHONES Claim Amount should be $759,252,932, calculated as follows:
Number of PHONES
PHONES Claim Amount (calculated at $155.4944 per PHONES)
Original PHONES_8,000,000_$1,243,955,537
Less Exchanges not subject to challenge (prior to (386,649) ($60,121,771) the Exchange Period)_
subtotal_7,613,351_$1,183,833,767
Less Exchanges subject to determination (tendered (3,093,941) ($481,090,630) during the Exchange Period, including the rejected DWAC tenders)_
subtotal_4,519,410_$ 702,743,137
Add Exchange Value of Accepted DWAC Tenders $ 56,509,795 (including Rejected DWAC tenders)_
Total_4,519,410_$ 759,252,932
*238(Stipulation, ¶ 35).
3. Whether the Third Amended Plan’s treatment of the “Other Parent Claims” class is “unfair discrimination ”?
In their objection to the DCL Plan, the Senior Noteholders argued that the DCL Plan contravened the requirements of Bankruptcy Code § 1129(b)(1) that a plan “not discriminate unfairly” and Bankruptcy Code § 510(a), providing that subordination agreements are enforceable in a bankruptcy case, because, they argue, the DCL Plan allowed other unsecured creditors of Tribune to reap the benefits of the PHONES and EGI subordination provisions undeservedly. This issue of “unfair discrimination” was discussed, but not resolved, in the Confirmation Opinion because the record was unclear (Tribune I, 464 B.R. at 198-199), and the issue remains unresolved with respect to the Third Amended Plan.
The Third Amended Plan provides the Senior Noteholders and the Other Parent Claims17 with equivalent distributions— 33.6% of their allowed claim amounts — of the initial distribution under the plan, and equivalent distributions of any recoveries obtained by the Litigation Trust.18 The Senior Noteholders contend that they are the only non-LBO creditors entitled to the benefit of subordination provisions related to the PHONES Notes and EGI Notes, and, as a result, argue that distribution of the plan’s allocation for the PHONES Noteholders’ and EGI Noteholders’ claims (the “Disputed Allocation”) should be turned over for the benefit of only the Senior Noteholders. They argue that the Third Amended Plan’s distribution of the Disputed Allocation to the Senior Note-holders and the Other Parent Claims results in unfair discrimination.
Underlying the Senior Noteholders’ argument is the position that the Other Parent Claims do not fall within the PHONES Indenture’s definition of “Senior Indebtedness” or the EGI Subordination Agreement’s definition of “Senior Obligations.” These issues comprise separate Allocation Disputes argued by the parties at the hearing. However, based upon my decision on the issue of unfair discrimination, I need not decide each of those separate disputes. For this purpose, I could assume (without deciding) that the none of the Other Parent Claims are Senior Indebtedness or Senior Obligations and are not entitled to the benefit of either subordination agreement.19
*239Generally speaking, the Bankruptcy Code’s prohibition against “unfair discrimination” ensures that a dissenting class will receive relative value equal to the value given to all other similarly situated classes. In re Armstrong World Ind., Inc., 348 B.R. 111, 121 (D.Del.2006) (citations omitted). In Tribune I, I noted that the issue here arose “in an unusual context” since the Senior Noteholders argued that the DCL Plan was unfairly discriminatory because it treated the unsecured classes equally. Tribune I, 464 B.R. at 199. The Senior Noteholders point out, however, that the statute’s legislative history provides that the standard of unfair discrimination must be viewed in precisely this context:
This point illustrates the lack of precision in the first criterion which demands that a class not be unfairly discriminated against with respect to equal classes. From the perspective of unsecured trade claims, there is no unfair discrimination as long as the total consideration given all other classes of equal rank does not exceed the amount that would result from an exact aliquot distribution. Thus if trade creditors, senior debt, and subordinate debt are each owed $100 and the plan proposes to pay the trade debt $15, the senior debt $30, and the junior *240debt $0, the plan would not unfairly discriminate against the trade debt nor would any other allocation of consideration under the plan between the senior and junior debt be unfair as to the trade debt as long as the aggregate consideration is less than $30. The senior debt could take $25 and give up $5 to the junior debt and the trade debt would have no cause to complain because as far as it is concerned the junior debt is an equal class.
However, in this latter case the senior debt would have been unfairly discriminated against because the trade debt was being unfairly over-compensated; of course the plan would also fail unless the senior debt was unimpaired, received full value, or accepted the plan, because from its perspective a junior class received property under the plan. Application of the test from the perspective of senior debt is best illustrated by the plan that proposes to pay trade debt $15, senior debt $25, and junior debt $0. Here the senior debt is being unfairly discriminated against with respect to the equal trade debt even though the trade debt receives less than the senior debt. The discrimination arises from the fact that the senior debt is entitled to the rights of the junior debt which in this example entitle the senior debt to share on a 2:1 basis with the trade debt.
The criterion of unfair discrimination is not derived from the fair and equitable rule or from the best interests of creditors test. Rather it preserves just treatment of a dissenting class from the class’s own perspective.
Vol. C COLLIER ON BANKRUPTCY App. Pt. 4(d)(i) at 416-418 (15th ed. rev.). The Senior Noteholders argue that this legislative history compels the conclusion that the Third Amended Plan unfairly discriminates against the Senior Noteholders by treating the Senior Noteholders class and the Other Parent Claims class equally.
The legislative history is not determinative for analyzing this issue, especially in light of the numerous developments in case law, discussed below, on this particular issue since the Code’s enactment. Further, the examples of unfair discrimination in the legislative history have been described as “roundabout, almost otiose.” Bruce A. Markell, A New Perspective on Unfair Discrimination in Chapter 11, 72 Am.Bankr.L.J. 227, 237-38 (1998) (hereinafter, Markell at 237). See also Armstrong, 348 B.R. at 121 (“Unfair discrimination is not defined in the Bankruptcy Code, nor does the statute’s legislative history provide guidance as to its interpretation.”). I agree. The legislative history is useful for confirming that the concept of unfair discrimination may be applied to examine facts such as those before me, but further analysis must be viewed in light of the plain language of the statute and applicable decisional law.20
*241The Senior Noteholders argue that the statute may be read as requiring that a plan must not unfairly discriminate, even before giving effect to third party contractual rights embodied in a subordination agreement, but in any event, a plan cannot be confirmed under § 1129(b) unless the subordination agreements are fully implemented. The Senior Noteholders’ position is not supported by relevant decisional law. The Bankruptcy Court for the District of New Jersey analyzed this specific language in § 1129(b) and determined:
The only logical reading of the term “notwithstanding” in section 1129(b)(1) seems to be: “Even though section 510(a) requires the enforceability of [a] subordination agreement in a bankruptcy case to the same extent that the agreement is enforceable under non-bankruptcy law, if a nonconsensual plan meets all of the § 1129(a) and (b) requirements, the court ‘shall confirm the plan.’ ” The phrase “[njotwithstanding section 510(a) of this title” removes section 510(a) from the scope of 1129(a)(1), which requires compliance with “the applicable provisions of this title.”
In re TCI 2 Holdings, LLC, 428 B.R. 117, 141 (Bankr.D.N.J.2010). The Third Circuit reviewed the meaning of “notwithstanding” in the context of a different Code section, writing:
Section 508(b)(1) is specifically mentioned in § 365(d)(3). The provision [section 365(d)(3) ] imposes the duties ... “notwithstanding section 503(b)(1) of [the Bankruptcy Code].” 11 U.S.C. § 365(d)(3). The key word here is “notwithstanding.” It means “in spite of’ or “without prevention or obstruction from or by.” Webster’s Third New Int’l Dictionary 1545 (1971). In this context, § 365(d)(3) is best understood as an exception to the general procedures of § 503(b)(1) that ordinarily apply.
In re Goody’s Family Clothing, Inc., 610 F.3d 812, 817 (3d Cir.2010). Therefore, the meaning of “notwithstanding section 510(a) of this title” means that § 1129(b) is applied without prevention or obstruction of any applicable subordination agreements.
When considering whether a plan complies with the unfair discrimination test, the Armstrong Court recognized that several courts have adopted a rebutta-ble presumption test, first proposed by then professor, now Bankruptcy Judge, Brace A. Markell. Armstrong, 348 B.R. at 121. Professor Markell wrote:
I propose that a court should not confirm a nonconsensual plan, even if it provides fair and equitable treatment for all classes, when there is: (1) a dissenting class; (2) another class of the same priority; and (3) a difference in the plan’s treatment of the two classes that results in either (a) a materially lower percentage recovery for the dissenting class (measured in terms of the net present value of all payments), or (b) regardless of percentage recovery, an allocation under the plan of materially greater risk to the dissenting class in connection with its proposed distribution.
Under the third factor, discrimination is presumptively unfair in two circumstances. First, unfairness is presumptively present if the plan specifies mate*242rially different percentage recoveries for two classes having the same priority. If, for example, a plan gave an assenting class of trade creditors consideration, measured in terms of present value, equal to ninety percent of their claims, while giving a dissenting class of bank deficiency claims consideration worth only five percent, unfairness would presumptively exist. Second, a plan that allocates to dissenting classes plan consideration containing risks materially greater than those assumed under the plan by other similar assenting classes is also presumptively unfair. This second presumption exists even if the plan pays each class the same percentage recovery on its prepetition claims. This later type of unfairness could occur, for example, if a plan allocated common stock to a dissenting class of trade creditors, while giving short term secured notes to an assenting insider class of unsecured creditors.
In either case — disparity of recovery or disparity of risk — the plan proponent can rebut the presumption of unfairness by proving that the difference in treatment is attributable to differences in the prepetition status of the creditors. In the case of a difference in the present value of the recovery, the presumption may also be overcome by a demonstration that contributions will be made by the assenting classes to the reorganization, and that these contributions are commensurate with the different treatment. In such cases, while discrimination exists, it is not unfair.
Markell at 249-250. This rebuttable presumption test has been adopted or applied by a number of courts. See Armstrong, 348 B.R. at 122, In re Unbreakable Nation Co., 437 B.R. 189, 202 (Bankr.E.D.Pa.2010), In re Quay Corp. Inc., 372 B.R. 378, 386 (Bankr.N.D.Ill.2007), In re Greate Bay Hotel & Casino, Inc., 251 B.R. 213, 231 (Bankr.D.N.J.2000), In re Dow Coming Corp., 244 B.R. 696, 701-03 (Bankr.E.D.Mieh.1999). I join the courts adopting the rebuttable presumption test for analyzing the unfair discrimination issue of Bankruptcy Code § 1129(b).
The presumption of unfair discrimination does not arise unless the plan’s treatment of two classes results in “a materially lower percentage recovery for the dissenting class” or an allocation of “materially greater risk to the dissenting class.” Materiality is important because “[t]he pertinent inquiry is not whether the plan discriminates, but whether the proposed discrimination is ‘unfair.’ ” Armstrong, 348 B.R. at 121. Minor or immaterial differences in plan treatment do not rise to the level of unfair discrimination. See Unbreakable Nation, 437 B.R. at 203 (Relying, in part, on the rebuttable presumption test, the court determined that the difference between 1.5% and 1.25% in a proposed distribution to two classes was not unfair discrimination); Greate Bay Hotel, 251 B.R. at 231 (deciding that the difference between an 80% and 76% distribution was not a “materially lower percentage recovery” that would constitute unfair discrimination). Disparity of risk has not been raised as an issue in this present dispute. At issue is whether the plan’s equal treatment of the Senior Note-holders and the Other Parent Claims results in a materially lower recovery for the Senior Noteholders.
The Recovery Scenarios admitted into evidence show the change in the Senior Noteholders’ recovery due to allowing the Other Parent Claims to benefit from the subordination provisions:
*243percentage recovery if only senior noteholders benefit from subord. provisions
percentage recovery to senior noteholders under the Plan
percentage difference
Initial Distributions 35.9% 33.6% 2.3%
Initial Distributions plus $250mm 49.4% 46.6% 2.8% net Litigation Trust proceeds
Initial Distributions plus $500mm 61.4% 58.2% 3.2% net Litigation Trust proceeds
Initial Distributions plus $750mm 73.5% 69.8% 3.7% net Litigation Trust proceeds
(See ADH Ex. 89).21 Furthermore, ADH Ex. 89 also demonstrates that the dollar amount the Senior Noteholders would receive under the Initial Distribution is decreased from $461,016 (if only the Senior Noteholders benefitted from the subordination provisions) to $431,041 under the Plan (if the Other Parent Claims benefit-ted from the subordination provisions). This represents a 6.5% decrease in the payment. Are any of these reductions material ?
Courts considering the issue of unfair discrimination have roundly rejected plans proposing grossly disparate treatment (50% or more) to similarly situated creditors, while at least two courts decided that unfair discrimination did not exist when the difference in recoveries was 4% or less. A chart prepared by the Creditors’s Committee summarized those cases as follows:
Dissenting Class Preferred Class Case_% Recovery_% Recovery_Conclusion_
In re Greate Bay Hotel & 76% 80% no unfair discrimination Casino, Inc., 251 B.R. 213 (Bankr.D.N.J.2000)_
In re Unbreakable Nation 1.25% 1.78%22 no unfair discrimination Co., 437 B.R. 189 (Bankr. E.D.Pa.2010)_
In re Crosscreek Apart- 50% 100% unfair discrimination ments, Ltd., 213 B.R. 521, 537-38 (Bankr.E.D.Tenn. 1997)_
In re Cranberry Hill Assocs., 50% 100% unfair discrimination L.P., 150 B.R. 289, 290-91
(Bankr.D.Mass.1993)
*244In re Barney & Carey Co., 15% 100% unfair discrimination 170 B.R. 17, 25-26 (Bankr. D.Mass.1994)_
In re Tucson Self-Storage, 10% 100% unfair discrimination Inc., 166 B.R. 892, 898 (9th Cir. BAP 1994)_
In re Aztec Co., 107 B.R. 585, 3% 100% unfair discrimination 589-91 (Bankr.M.D.Tenn. 1989)
(Creditors Comm. Brief, D.1.1000, at 8).
The Senior Noteholders argue that the discriminatory treatment in this case is grossly disproportionate when viewed in terms of the percentage increase to the Other Parent Creditors receiving the benefit of the subordination provisions. If viewed by looking at the increase in payment of the proposed Initial Distribution to the Other Parent Claims, the SWAP claimant’s payment increases from $36,818 to $54,403 (47.8% increase) and the Retirees claimants’ payment increases from $23,043 to $35,275 (53% increase). When viewed in terms of percentage of recovery, the SWAP claimants’ recovery increases from 24.4% (if only the Senior Noteholders benefit) to 36% under the Plan — an 11.6% increase; likewise the Retirees recovery increases from 21.9% (if only the Senior Noteholders benefit) to 33.6% under the Plan — an 11.7% increase.
However, the analysis for determining whether the discriminatory treatment is unfair should be viewed by its effect on the dissenting class. See Greate Bay Hotel, 251 B.R. at 231-32 (“confirmation would be denied only if there was a ‘materially lower’ percentage recovery for the dissenting class” citing the Markell rebuttable presumption test), see also Legislative History, supra, (“[the unfair discrimination test] preserves just treatment of a dissenting class from the class’s own perspective.”). As shown above, the proposed distributions in the Third Amended Plan will result in a decrease to the Senior Noteholders’ percentage of recovery of less than four percent.23 When viewed in terms of a decrease in amount (rather than percentage), the decrease in amount of the Senior Noteholders’ initial distribution recovery, caused by the forced sharing of the Disputed Allocation, is 6.5%. The discriminatory effect on the dissenting class is immaterial and, therefore, no re-buttable presumption of unfair discrimination arises here.
4. Whether the PHONES Notes are senior in right of payment to the EGI Notes?
The parties dispute whether the PHONES Notes or the EGI Notes are senior to each other in right of payment. For the following reasons, I conclude that the EGI Notes are subordinate to the PHONES Notes.
On the same date the EGI Notes were executed, EGI-TRB, LLC entered into a Subordination Agreement (the “EGI Subordination Agreement”) (ADH Ex. 8) that was “in favor of the holders of Senior *245Obligations.” The term “Senior Obligations” is defined as:
“Senior Obligations ” means all obligations, indebtedness and other liabilities of the Company [Tribune Company] other than (i) any such obligations, indebtedness or liabilities that by their express terms rank pari passu or junior to the Company’s obligations under the Subordinated Note and (ii) trade pay-ables and accrued expenses incurred in the ordinary course of business, in each case, whether incurred on or prior to the date hereof or hereafter incurred.
(ADH Ex. 8 at 1). WTC argues that because the PHONES Indenture does not does not expressly state that it is subordinate to the EGI Notes, the PHONES Notes are Senior Obligations. Moreover, WTC points out that the PHONES Indenture could not expressly reference the EGI Notes since the PHONES Indenture was entered into in 1999, while the EGI Notes were issued in December 2007. WTC further argues that the EGI Subordination Agreement was written with full knowledge that the PHONES Notes had been in existence for eight years and that the PHONES Indenture had no express language stating that the PHONES Notes were pari passu or junior to the EGI Notes. If EGI intended to exclude the PHONES Notes from the Senior Obligations, the drafters would have included the PHONES as one of the specific exceptions to Senior Obligations.
On the other hand, EGI argues that PHONES Notes were drafted in a way that contemplated that the PHONES Notes would be subordinated to Tribune’s future debt, since the definition of “Senior Indebtedness” includes subordination to the Company’s indebtedness “whether outstanding on the date of this Indenture or hereafter incurred, assumed or guaranteed.” EGI also points out that the exception to “Senior Indebtedness” in the PHONES Indenture states:
any Indebtedness of the Company as to which, in the instrument creating the same or evidencing the same or pursuant to which the same is outstanding, it is expressly provided that such Indebtedness of the Company shall be subordinated to or pari passu with the Securities;
(PHONES Indenture, § 14.01(2)(A) (emphasis added)). And, similar to WTC’s argument, EGI argues that the EGI Notes and the EGI Subordination Agreement do not expressly provide that the EGI Notes are subordinated or pari passu to the PHONES Notes.
Thus I am faced with similar, but not identical, language in the subordination provisions relating to both the PHONES Notes and the EGI Notes. Clearly, the EGI Subordination Agreement was drafted with full knowledge of the existence of the PHONES Notes, so I begin my analysis with that agreement. Each party argues that the failure to specifically reference the PHONES Notes in the EGI Subordination Agreement — either as a Senior Obligation or as an exception to the Senior Obligations — falls in its favor.
The EGI Subordination Agreement provides that it should be interpreted according to the laws of the State of Delaware. (ADH Ex. 8 at ¶ 13). “A court applying Delaware law to interpret a contract is to effectuate the intent of the parties.” JFE Steel Corp. v. ICI Americas, Inc., 797 F.Supp.2d 452, 469 (D.Del.2011). The JFE Steel Court further wrote:
Accordingly, the Court must first determine whether a contract is unambiguous as a matter of law. See Nw. Nat’l Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del.1996) GB Biosciences Corp. v. Ishihara Sangyo Kaisha, Ltd., 270 *246F.Supp.2d 476, 481-82 (D.Del.2003). If the language of the contract is unambiguous, the Court interprets the contract based on the plain meaning of the language contained on the face of the document. See GB Biosciences, 270 F.Supp.2d at 482. (“The use of extrinsic evidence to interpret clear and unambiguous language in a contract is not permitted.”) (internal citations omitted). A contract is ambiguous only if it is fairly and reasonably susceptible to different interpretations. See Esmark, 672 A.2d at 43.
JFE Steel, 797 F.Supp.2d at 469.
The EGI Subordination Agreement provides that “Senior Obligations” includes all indebtedness of Tribune, with certain exceptions. I do not infer anything from the EGI subordination agreement’s “failure” to list the PHONES Notes as a Senior Obligation — the document is written so that the term is broad. However, the exceptions to the Senior Obligations are ambiguous. On the one hand, it is reasonable to argue that the first exception to the definition of “Senior Obligations” refers to the PHONES Notes, since the PHONES Indenture expressly provides that PHONES Notes will be subordinated to future indebtedness. Parties must have intended that the phrase “express terms” in the exception language refers to the intent to be subordinated to future indebtedness generally — not specific future obligations, which are unknown.
However, because the PHONES Indenture has a similar “exception” to its definition of “Senior Indebtedness” (which would except the EGI Notes from the PHONES Notes’ definition of “Senior Indebtedness”) the argument becomes circular as the reader continuously refers to each document’s “exception,” thereby leading to the ambiguity.
Therefore, Court must review parol evidence to resolve the ambiguity presented by the “exceptions” to the Senior Obligations and the Senior Indebtedness. In Falco v. Alpha Affiliates, Inc., 2000 WL 727116 (D.Del.2000), the Court wrote:
Under Delaware law, the parol evidence rule generally bars the admission of extrinsic evidence of prior or contemporaneous contract negotiations to interpret the meaning of, vary the terms of, or create ambiguity in a contract. See Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del.1997). However, ... evidence is admissible under two exceptions to the parol evidence rule: (1) to interpret ambiguous contract terms, see id.; and/or (2) to prove one party was fraudulently induced to enter the contract. See Anglin v. Bergold, 565 A.2d 279, 1989 WL 88265 [88625], *2 (Del.1989) (citing Scott-Douglas Corp. v. Greyhound Corp., 304 A.2d 309, 317 (Del.Super.1973)).
Falco, 2000 WL 727116 at *8. WTC argues that there is “significant contemporaneous evidence demonstrating that the EGI-TRB Notes were intended to be the most junior debt in the capital structure, and junior to the PHONES.” (D.I. 10999 at 33). EGI argues that parol evidence shows that the parties intended the EGI Notes to be junior only to LBO-related debt.
The parties do not dispute that in March 2007, Tribune made inquiries concerning the ratings impact of Tribune’s contemplated LB O-Transaction. (ADH Ex. 151, Examiner’s Report, Vol. I at 199). Moody’s Investors Service (“Moody’s”) eventually issued a March 29, 2007 letter summarizing its assumptions and report its conclusions concerning the rating impact of the LBO. (ADH Ex. 125). Included in those conclusions is reference to the EGI Notes as “junior subordinated debt” *247(Id. at 3) and reference to the PHONES Notes as “senior subordinated debt” (Id. at 6). The conclusions in Moody’s letter were based, in part, on “specific information provided during our March 2007 meeting and subsequent presentations, related projections, emails and other information and telephone conversation.” (Id.).
One set of correspondence related to the Moody’s letter involved a “notching model” or “waterfall analysis” prepared by Moody’s, which listed Tribune Company’s debt instruments together with a “priority rank” for each. (ADH Ex. 124). Moody’s ranked the PHONES Notes as a “6” priority, ahead of the “Zell Investment Subordinate Note” (i.e., the EGI Notes), which was given a “7” priority rank. (Id.). John Puchalla of Moody’s sent the “notching model” via email to Chandler Bigelow, Tribune’s Treasurer, asking him “to review the inputs.” (Id.). Bigelow forwarded the Puchalla email to entities involved in structuring the LBO, including JPMorgan, Citigroup, and Merrill Lynch, and asked “Anyone have a view on the PHONES vs. Zell note — is the PHONES [Note] senior?” (the “Bigelow Email”) (ADH Ex. 123). He received the following responses:
(i) “The Zell Note should be junior to the PHONES for sure” stated Patricia Deans of JPMorgan (ADH Ex. 122);
(ii) “Zell junior” stated Peter Cohen of JPMorgan (ADH Ex. 123);24
(iii)“The Zell Note is Jr to the PHONES” stated Julie Persily of Citigroup (ADH Ex. 121).
In preparing his response to the Bigelow Email, Peter Cohen of JPMorgan contacted another JPMorgan employee, Joachim Sonne, who advised by email:
Talked to EGI, Chris Hochschild, and he confirmed that they see their security as the most junior in the capital structure and junior to the PHONES.
(ADH Ex. 128). The parties agreed that ADH Exhibits 116-136 are admissible under the business records exception to hearsay (Fed.R.Evid. 803(6)). However, EGI objects to the admissibility of ADH Ex. 128 on the grounds of double hearsay, because the email contains a statement attributed to Hochschild, an analyst at EGI, who was not copied on the email and, in a recent deposition, stated that he has no recollection of making the statement. (See ADH Ex. 157 at 55:5-56:3). WTC argues that ADH Ex. 128 overcomes the double hearsay objections: the first layer of hearsay is overcome by the parties’ agreement that the email is admissible under the business records exception, and the second layer of hearsay related to the Hochschild statement is overcome under Fed.R.Evid. 801(d)(2)(D), which provides that a statement is not hearsay if “[t]he statement is offered against an opposing party and ... was made by the party’s ... employee on a matter within the scope of that relationship and while it existed.”25 I agree that Fed.R.Evid. 801(d)(2)(D) applies and that ADH Ex. 128 is admissible.26
*248In connection with providing information to the ratings agencies, Tribune also advised Nils Larsen of EGI that Tribune had provided terms sheets to the rating agencies describing the Step One Convertible Subordinated Promissory Note and the Step Two Subordinated Promissory Note. (ADH Ex. 117). The term sheets described both obligations to EGI as “[fjully subordinated in all rights and remedies.” (Id,.). In his response email, Nils Larsen responded that the term sheets “are fíne with me.” (ADH Ex. 118).
As further evidence, ADH Ex. 138 demonstrates that another Tribune officer, Gary Weitman, told a reporter from the New York Times on April 4, 2007, that the “Zell Note will be fully subordinated, just above common equity.” (ADH Ex. 138 at 3).
In rebuttal, EGI offers deposition testimony of William Pate, who was one of the leaders of EGI’s team of professionals who structured and negotiated the 2007 LBO. (ADH Ex. 156 at 10:24-11:5). Pate testified that the documentation presented by WTC, including the terms sheets and information provided to Moody’s, were relevant to a combined note and warrant received by EGI at Step One of the LBO, and that the deal changed before the EGI Notes were provided at Step Two. (Id. at 108:4-110:13). He stated that, for Step Two, the parties used a different structure that separated the note and the equity warrant, making the note “hard” and “independent” for tax reasons. (Id. at 17:20-19:15). Pate also assumed the Step Two EGI Notes would be senior to the PHONES Notes, stating: “My view of the PHONES was they were a convertible subordinated security. I wouldn’t say I had a specific understanding, but I had seen other convertible subordinated securities and assumed that they were similarly subordinated.” (Id. at 15:21-16:2). However, at the deposition, Pate was uncertain whether his understanding of the EGI *249Notes’ seniority over the PHONES Notes was ever communicated to anyone outside of EGI. (Id. at 95:14-96:8).
Pate’s testimony regarding his subjective understanding of the priority between the EGI Notes and the PHONES Notes at Step Two of the LBO is not helpful. “[I]n order to interpret contracts with some consistency, and in order to provide contracting parties with a legal framework which provides a measure of predictability, the courts must eschew the ideal of ascertaining the parties’ subjective intent and instead bind parties by the objective manifestations of their intent.” Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1009 (3d Cir.1980).27 “The strongest objective manifestation of intent is the language of the contract.” Id. Although I have already determined the subordination agreements are ambiguous on this topic, WTC asks me to review the language of the Step One EGI Note and the Subordination Agreement to determine whether the subordination provisions changed between the two steps.
The Step One EGI Note defined “Senior Obligations” as “Senior Obligations ” means all obligations, indebtedness and other liabilities of the Maker [Tribune Company] other [than] any such obligations, indebtedness or liabilities that by its express terms ranks pari passu or junior to the Maker’s obligations under this Note, in each case, whether incurred on or prior to the date hereof or hereafter incurred.
(ADH Ex. 5 at ¶ 2(e)). The term “Senior Obligations” was changed in the Subordination Agreement executed along with the EGI Notes at Step Two, with the following changes marked in bold text:
“Senior Obligations” means all obligations, indebtedness and other liabilities of the Company [Tribune Company] other than (i) any such obligations, indebtedness or liabilities that by their express terms rank pari passu or junior to the Company’s obligations under the Subordinated Note and (ii) trade pay-ables and accrued expenses incurred in the ordinary course of business, in each case, whether incurred on or prior to the date hereof or hereafter incurred.
(ADH Ex. 8 at 1). The changes in the subordination provisions from Step One to Step Two do not alter the language applicable to the PHONES priority dispute. The changes do not indicate any intent to ensure that, after the deal changed to a “hard” note, the EGI Notes would be senior to the PHONES Notes.
To further rebut WTC’s parol evidence, EGI argues that three public filings with the SEC between April and July 2007 expressly described the EGI Note as “subordinated to the senior obligations of the Company.” (ADH Ex. 137 at 7, ADH Ex. 139 at 2, ADH Ex. 145 at 114). EGI argues that the PHONES are not senior obligations of the Company. Although not capitalized, this language may refer to the term “Senior Obligations” as defined in the Subordination Agreement. However, this language does not directly refer to the *250priority issue between the PHONES Notes and the EGI Notes and is far less convincing than the emails and drafts which discuss the issue directly.
Finally, EGI also relies upon a letter dated June 2, 2009 from EGI’s attorneys to the Debtors’ attorneys stating that the PHONES Notes are junior to the EGI Notes. (ADH Ex. 150). This letter, written well after the LBO negotiations and after the chapter 11 filing, merely sets forth EGI’s position on the subordination issue. “It is black letter law that lawyers’ arguments are not evidence.” Perry v. Shinseki 783 F.Supp.2d 125, 135 (D.D.C.2011). Thus, I accord no weight to this letter in determining this issue.
After review of the evidence offered by the parties, including parol evidence, I conclude that the collective, contemporaneous understanding of the parties negotiating the LBO was that the EGI Notes would be the most junior in Tribune’s capital structure. Accordingly, I conclude that the PHONES Notes are senior to the EGI Notes.
5. Whether beneficiaries of the subordination -provisions of the PHONES Indenture are entitled to receive post-petition interest prior to the PHONES Noteholders receiving payment of their claims?
The background of judicial analyses of the post-petition interest/subordination agreement issue was succinctly summarized by the Bankruptcy Court in 203 North LaSalle Street, as follows:
• Under the Bankruptcy Act of 1898, there was no statutory treatment of subordination agreements, and the courts enforced these agreements according to equitable principles.
• One of the general principles of bankruptcy law is that interest on unsecured claims stops at the time of the filing of a bankruptcy case.
• A senior creditor under a subordination agreement could argue that its claim was entitled to postpetition interest, despite the general prohibition, with the payment of interest coming not from the estate, but from the dividend that would otherwise be paid to the subordinated claim. The idea was that the senior claim was to be paid “in full” before the subordinated claim was paid, and that full payment required postpetition interest.
• The Third Circuit, faced with such an assertion by a senior creditor, rule that in order for the parties to a subordination agreement to change the general bankruptcy rule (“that interest stops on the date of the filing of the petition”), their agreement would have to “clearly show that the general rule ... is to be suspended, at least vis-a-vis these parties.” In re Time Sales Fin. Corp., 491 F.2d 841, 844 (3d Cir.1974). This requirement, operant only in the context of postpetition interest, became known as the Rule of Explicitness.
Bank of America v. North LaSalle Street Ltd. P’ship (In re 203 North LaSalle Street P’ship), 246 B.R. 325, 330 (Bankr.N.D.Ill.2000). Since the enactment of Bankruptcy Code § 510(a), however, some courts have questioned whether the Rule of Explicitness continues to be viable. Id. citing Chemical Bank v. First Trust of New York (In re Southeast Banking Corp.), 156 F.3d 1114, 1120-24 (11th Cir.1998). Section 510(a) directs courts to enforce subordination agreements to the extent the agreement are enforceable under “applicable nonbankruptcy law.” Southeast Banking, 156 F.3d at 1121 quoting 11 U.S.C. § 510(a). Lacking a federal statute or common law to guide in the interpreta*251tion of the subordination agreements, the Southeast Banking Court decided that the issue must be addressed under applicable state law, recognizing that “the enforcement and interpretation of private contracts is ordinarily a question of state law” Id. (citations and internal quotations omitted). See also In re Washington Mutual, Inc., 461 B.R. 200, 249 (Bankr.D.Del.2011) (applying New York law—which still requires the Rule of Explicitness—to interpret a subordination agreement on the postpetition interest issue).
As noted earlier, the PHONES Indenture is governed by the law of the State of Illinois. (ADH Ex. 2 at § 1.12). Illinois law provides that, “in the absence of ambiguity, the terms of subordination agreements are to be construed according to their plain language.” 203 North La-Salle, 246 B.R. at 329.
The definition of “Senior Indebtedness” in the PHONES Indenture addresses expressly the inclusion of post-petition interest:
“Senior Indebtedness ” means the principal of (and premium, if any) and interest on (including interest accruing after the filing of a petition initiating any proceeding pursuant to any Federal bankruptcy law or any other applicable Federal or State law, but only to the extent allowed or permitted to the holder of such Indebtedness of the Company against the bankruptcy or any other insolvency estate of the Company in such proceeding) and other amounts due on or in connection with any Indebtedness of the Company incurred, assumed or guaranteed by the Company, whether outstanding on the date of this Indenture or hereafter incurred, assumed or guaranteed and all renewals, extensions and refundings of any such Indebtedness of the Company; ...
(ADH Ex. 2, § 14.01(2))(emphasis added). This provision permits a senior noteholder to recover postpetition interest only to the extent permitted in the bankruptcy proceeding. The general rule in bankruptcy is that unsecured creditors are not entitled to recover postpetition interest, unless the debtor is solvent. Washington Mutual, 461 B.R. at 241 (citations omitted). See also In re W.R. Grace & Co., 2012 WL 310815 at *74 (D.Del. Jan. 30, 2012) (“[T]he general rule is that payment of any post-petition interest, whether at a default or non-default rate, on pre-petition unsecured claims is prohibited by the Bankruptcy Code.” The exceptions to that rule (for oversecured creditors or when the debtor is solvent) were determined to be inapplicable.)
The record does not support a finding that the Debtor is solvent. Some creditors argue that this issue is not ripe for adjudication since there is a possibility of recoveries by the Litigation Trust and the Creditors’ Trust to pay creditors in full. I conclude that, at this time, the senior noteholders have not demonstrated any entitlement to recover post-petition interest before the PHONES Noteholders can receive payment. However, this determination is without prejudice to allow the parties to revisit the issue in a court of competent jurisdiction if the Trusts’ recoveries reach a level that would cause the solvency exception to become applicable.
B. Issues Related to the EGI Notes
1. Are the subordination provisions of the EGI Subordination Agreement applicable to (i) a distribution of Settlement Proceeds under the Third Amended Plan, (ii) a distribution of Litigation Trust proceeds, or (Hi) a distribution of Creditors’ Trust proceeds ?
EGI argues that the terms of the EGI Subordination Agreement expressly *252limit subordination of EGI’s claims to “assets of the Company” or payments “from the Company.” Like the PHONES Note-holders, EGI argues that fraudulent transfer claims are not “assets of the Company” based upon the decision Off'l Comm. Of Unsecured Creditors of Cybergenics Corp. v. Scott Chinery (In re Cybergenics Corp.), 226 F.3d 237, 245 (3d Cir.2000). Therefore, EGI argues, its claims are not subordinated to the Senior Obligations in the distribution of (i) DCL Plan Settlement Proceeds (which includes, in part, resolution of fraudulent transfer claims), (ii) recoveries by the Litigation Trust (which is pursuing unsettled LBO-Related Causes of Action, including fraudulent transfer claims), and (iii) recoveries by the Creditors’ Trust (which is pursuing certain pre-petition LBO-Related Causes of Action arising under state fraudulent conveyance law (known as the “Disclaimed State Law Avoidance Claims”) that may be assigned to the Creditors’ Trust by creditors).28 EGI also argues that the EGI Subordination Agreement does not contain that broad, unqualified language found in the PHONES Indenture, which the Court relies upon, in part, in the Reconsideration Decision when deciding that the PHONES Notes were subordinated. Therefore, EGI contends that the Reconsideration Decision does not foretell the outcome of this dispute.
The Subordination provision in the EGI Subordination Agreement provides:
2. Subordination. The Subordinated Obligations are subordinate and junior in right to payment to all Senior Obligations to the extent provided in this Agreement. No part of the Subordinated Obligations shall have any claim to the assets of the Company on a parity with or prior to the claim of the Senior Obligations. Unless and until the obligations to extend credit to the company under the Senior Documents shall have been irrevocably terminated and the Senior Obligations have been paid in full in cash, the Subordinating Creditor will not take, demand or receive from the Company, and the Company will not make, give or permit, directly or indirectly, by set-off, redemption, purchase or in any other manner, any payment of (of whatever kind or nature, whether in cash, property, securities or otherwise), whether in respect of principal, interest or other, or security for the whole or any part of the Subordinated Obligations.
(ADH Ex. 8 at ¶ 2) (emphasis added). EGI argues that the language emphasized in bold print demonstrates that the EGI Notes are subordinate to senior debt only with respect to claims on “assets of the Company” and payments “from the Company.” EGI also argues this interpretation is consistent with the “payover” provision of the Subordination Agreement, which provides:
6. Payments Received by Subordinating Creditor. Except as to payment or distributions which the Company is permitted to pay to Subordinating Creditor or which Subordinating Creditor is permitted to accept and retain pursuant to this Agreement, all payments or distributions upon *253or with respect to any Subordinated Obligation which are made by or on behalf of the Company or received by or on behalf of the Subordinating Creditor in violation of or contrary to the provisions of this Agreement shall be received in trust for the benefit of the holders of Senior Obligations and shall be paid over upon demand to such holders for application to the Senior Obligations until the Senior Obligations shall have been paid in full in cash.
(ADH Ex. 8, ¶ 6) (emphasis added). EGI again emphasizes that the language in this provision limits its application to payments and distributions made by or on behalf of the Company, thereby excluding distribution of the Avoidance Recoveries.
EGI’s argument is based upon its assertion that the Avoidance Recoveries, which include claims for fraudulent transfer, are not property of the Debtor, Tribune. The flaw in EGI’s argument is the focus upon whether the fraudulent transfer claims belong to the Debtors.29 As the Third Circuit explained in In re PWS Holding Corp., 303 F.3d 308 (3d Cir.2002), this focus fails to consider properly the interplay between claims under state law fraudulent transfer laws and the Bankruptcy Code. Id. at 314.
“Fraudulent conveyance law aims ‘to make available to creditors those assets of the debtor that are rightfully a part of the bankruptcy estate, even if they have been transferred away.’ ” Id. at 313 citing Buncher Co. v. Official Comm. Of Unsecured Creditors of GenFarm Ltd. P’ship TV, 229 F.3d 245, 250 (3d Cir.2000). “Section 544(b) places the debtor in possession in the shoes of its creditors, giving it the right to prosecute individual creditors’ fraudulent transfer claims for the benefit of the bankruptcy estate. This provision of the Bankruptcy Code is consistent with its objective of equitable distribution.” PWS, 303 F.3d at 314.
In PWS, a creditor sought to assert state law fraudulent transfer actions, arguing that the confirmed chapter 11 plan could not extinguish those claims because Cybergenics decided that the debtor. did not mm those claims. The Third Circuit held that the chapter 11 plan, which had been confirmed over the creditor’s objection, could properly extinguish those claims, explaining:
In arguing that his claims as a note-holder were not extinguished under the Reorganization Plan and Confirmation Order, [creditor] fixates upon our conclusion in Cybergenics that fraudulent transfer claims do not constitute assets of the debtor in possession. In doing so, however, he neglects to consider the well-established rule under § 544(b) that we reaffirmed in Cybergenics, namely, that “a debtor in possession is empowered to pursue ... fraudulent transfer claims for the benefit of all creditors.” Id. at 245. Unlike in Cybergenics, the debtor in possession in this case, after thoroughly investigating and evaluating the potential fraudulent transfer claims, explicitly extinguished all such claims in its Reorganization Plan. The District confirmed the Reorganization Plan in its December 7, 1999 order, which we then affirmed in PWS Holding Corp., 228 F.3d [224] at 250. Much as a party might decide to resolve a claim by reaching an out-of-court settlement, [debtor] resolved the fraudulent transfer claims here by extinguishing them. In *254contrast, the debtor in Cybergenics merely completed a sale of its assets. It did not exercise its power under § 544(b) to resolve potential fraudulent transfer claims, as did the debtor in this case.
Id., 303 F.3d at 315. In this case, the Debtors have proposed a plan that will exercise their power to resolve, or pursue through the Litigation Trust, potential fraudulent transfer claims on behalf of creditors under Bankruptcy Code § 544(b) and § 548. Any recoveries will be property of the estate pursuant to § 541(a)(3) (Property of the estate includes “any interest in property that the trustee recovers under section ... 550”). Since the DCL Plan Settlement Proceeds and the Litigation Trust recoveries are property of the estate, the distribution of those funds would be a distribution or payment “by or on behalf of the Company” and the subordination provisions of the EGI Subordination Agreement will apply to those distributions.
It is not as clear whether the same result follows for the Creditors’ Trust proceeds, since that trust is pursuing the Disclaimed State Law Fraudulent Transfer Claims. Bankruptcy Code § 510(a) directs the court to determine enforceability of the subordination agreement by reviewing “applicable non-bankruptcy law.” The EGI Subordination Agreement is governed by the law of the State of Delaware (ADH Ex. 8 at ¶ 13), which requires “[a] court applying Delaware law to interpret a contract ... to effectuate the intent of the parties.” JFE Steel Corp. v. ICI Americas, Inc., 797 F.Supp.2d 452, 469 (D.Del.2011). Furthermore,
Delaware adheres to the objective theory of contracts, i.e., a contract’s construction should be that which would be understood by an objective, reasonable third party. We will read a contract as a whole and we will give each provision and term effect, so as not to render any part of the contract mere surplusage. We will not read a contract to render a provision or term meaningless or illusory.
Osborn v. Kemp, 991 A.2d 1153, 1159 (Del.2010) (internal quotations omitted). See also JFE Steel, 797 F.Supp.2d at 469 (same).30 Accordingly, the use of the phrases “assets of the Company” or payment “by or on behalf of the Company” must be read in the context of the Subordination Agreement as a whole and considered in light of how that phrase would be understood by an objective reasonable third party.
Paragraph 4 of the Subordination Agreement limits EGI’s ability to exercise rights and remedies to collect amount due on the EGI Note, stating:
4. Limitation on Enforcement. Unless and until ... the Senior Obligations have been paid in full in cash, at no time shall the Subordinating Creditor take or continue any action, or exercise any rights, remedies or powers under the terms of *255the Subordinated Note, or exercise or continue to exercise any other right or remedy at law or in equity that the Subordinating Creditor might otherwise possess, to collect any Subordinated Obligation, including, without limitation, the acceleration of the Subordinated Obligations, the commencement of any action to enforce payment or foreclose on any lien or security interest, the filing of any petition in bankruptcy or the taking advantage of any other insolvency law of any jurisdiction. Notwithstanding the foregoing, the Subordinating Creditor may file a proof of claim in any bankruptcy or similar proceeding instituted by another entity and may vote such claim in a manner not inconsistent with the terms hereof. If the Subordinating Creditor shall attempt to enforce, collect or realize upon any of the Subordinated Obligations in violation of the terms hereof, any holder of Senior Obligations may by virtue of the terms hereof, restrain any such enforcement, collection or realization, either in its own name or in the name of the Company.
(ADH Ex. 8, ¶ 4). The exception in this paragraph that allows EGI to file a proof of claim and vote its claim in any bankruptcy proceeding reinforces the broad scope of its prohibitions, since the parties determined the need to specify EGI’s ability to exercise even those rights. This paragraph plainly prevents EGI from pursuing fraudulent transfer claims on its own. Under EGI’s reading of paragraphs 2 and 4, the phrases “of the Company” or “by or on behalf of the Company” would allow EGI to bypass the overall subordination intent of this agreement and permit EGI to share in those proceeds. Such a result is implausible and not one that a reasonable, objective third party would reach. Osborn, 991 A.2d at 1160 (“An unreasonable interpretation produces an absurd result or one that no reasonable person would have accepted upon entering the contract.”).
Similar arguments that rely on a phrase or subsection found within a broad subordination agreement to limit a scope of the subordination agreement have arisen before me on at least three prior occasions. See Tribune II, 464 B.R. at 218-221, In re Sponsion, 426 B.R. 114, 148-51 (Bankr.D.Del.2010), Kurak v. Dura Automotive Systems, Inc. (In re Dura Automotive Systems, Inc.), 379 B.R. 257 (Bankr.D.Del.2007). In Dura, when considering an attempt to limit the reach of the subordination provisions of an indenture, I decided that a clause in the subordination provision:
should not be considered based upon its grammatical structure alone, but also within the context of the entire agreement, which, here, is more reflective of the parties’ intent: that except in very limited circumstances, no payment can be made to the Subordinated Notehold-ers until (1) the Senior Notes are paid in full, or (2) the Senior Noteholders consent.[The proposed interpretation of the clause would] eviscerate the purpose of the subordination provisions in the Subordinated Notes Indenture and expand the limited carve out beyond its intended scope.
Dura, 379 B.R. at 270. Similar considerations are present here. The overall purpose of the Subordination Agreement is to ensure that the EGI Notes are at the bottom of Tribune’s capital structure. (See previous discussion regarding the priority between the PHONES Notes and the EGI Notes). EGI’s argument that the phrases “of the Company” or “by the Company” in paragraphs 2 and 6 should be read as limiting the scope of the Subordi*256nation Agreement to reach the Avoidance Proceeds is inconsistent with those provisions and the agreement as a whole and must be rejected.
2. Whether beneficiaries of the subordination agreement governing the EGI-TRB LLC Notes are entitled to receive post-petition interest prior to the Holders of EGI-TRB LLC Notes Claims receiving payment on their Claims?
As discussed above in connection with the PHONES Notes, determining whether senior noteholders are entitled to recover post-petition interest to be “paid in full” requires courts to interpret and enforce subordination agreements according to applicable non-bankruptcy law. Southeast Banking, 156 F.3d at 1121, 11 U.S.C. § 510(a). The EGI Subordination Agreement is governed by the laws of the State of Delaware. (ADH Ex. 8 at ¶ 13). The parties have not cited and independent research has not revealed any Delaware decisions addressing whether a senior noteholder’s “full payment” permits recovery of post-petition interest, particularly whether Delaware Courts would continue to apply the Rule of Explicitness.
I have determined that the EGI Notes are junior subordinated debt, at the bottom of Tribune’s capital structure. At this point in the case, it is far from certain whether senior noteholders, including the PHONES Noteholders, will be paid in full. The issue of post-petition interest is an intercreditor issue, rather than a bankruptcy issue.31 I decline the invitation to parse through the unsettled law on this issue, especially since the issue is not ripe for adjudication on this set of facts.
CONCLUSION
For the reasons set forth herein, I conclude as follows with respect to the PHONES Notes issues (subject to, conditioned upon, and for the purpose of obtaining confirmation of a chapter 11 plan substantially in the form of the Third Amended Plan):
(1) The subordination provisions in the PHONES Indenture are applicable to distributions of the Settlement Proceeds and the Creditors’ Trust proceeds,
(2) The claim amount for the PHONES Noteholders should be $759,252,932 (known as the “low PHONES Amount”),
(3) The Third Amended Plan’s equal treatment of the Senior Noteholders and the Other Parent Claims does not amount to unfair discrimination under Bankruptcy Code § 1129(b),
(4) The EGI Notes are junior in priority to the PHONES Notes, and
(5) The beneficiaries of the PHONES Indenture subordination provisions are not entitled to receive post-petition interest prior to the PHONES *257Noteholders receiving payment of their claims.
For the reasons set forth herein, I conclude as follows with respect to the EGI Notes issues (subject to, conditioned upon, and for the purpose of obtaining confirmation of a chapter 11 plan substantially in the form of the Third Amended Plan):
(1) The subordination provisions in the EGI Subordination Agreement are applicable to (i) a distribution of Settlement Proceeds under the Third Amended Plan, (ii) a distribution of Litigation Trust proceeds, and (iii) a distribution of Creditors’ Trust proceeds, and
(2) The issue of whether beneficiaries of the subordination provisions in the EGI Subordination Agreement are entitled to post-petition interest pri- or to payment of the EGI Notes is not ripe for determination.
An appropriate Order follows.
. This Memorandum constitutes the findings of fact and conclusions of law, required by Fed.R.Bankr.P. 7052. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a). This is a core proceeding pursuant to 28 U.S.C. 157(b)(1) and (b)(2)(A), (B), (L), and (O).
. The three motions for reconsideration were: (1) Joint Motion of Law Debenture Trust Company of New York and Deutsche *227Bank Trust Company Americas Requesting Reconsideration of the Court's Confirmation Opinion with Respect to the Subordination of the PHONES (the "Law Debenture Reconsideration Motion”) (D.I. 10222), (2) Motion of Aurelius Capital Management, LP for Reconsideration of the Court’s October 31, 2011 Decision as it Pertains to the Application of the PHONES Notes Subordination (the "Aurelius Reconsideration Motion”) (D.I. 10226), and (3) Motion of the Noteholder Plan Proponents for Reconsideration and Clarification of the Court’s October 31, 2011 Decision (the "NPP Reconsideration Motion”) (D.I. 10227).
. The NPP Reconsideration Motion was granted, in part, regarding a request for clarification that the Court did not make any finding as to the claim amount of the PHONES Noteholders, and denied, in part, regarding the remainder of the relief requested.
. The “PHONES Notes” are those certain exchangeable Subordinated Debentures due 2029, issued pursuant to that certain Indenture dated April 1, 1999 (the "PHONES Indenture”) between Tribune as issuer and Wilmington Trust Company as successor indenture trustee ("WTC”) (ADH Ex. 2).
. The DCL Plan Proponents is the term used by the parties to refer to the parties proposing a joint plan of reorganization with the Debtors. The "DCL Plan Proponents” are the Debtors, the Official Committee of Unsecured Creditors (the "Creditors’ Committee”), Oak-tree Capital Management, L.P. ("Oaktree”), Angelo, Gordon & Co., L.P. ("Angelo Gordon”), and JPMorgan Chase Bank, N.A. (“JPMorgan”). The DCL Plan Proponents’ plan that was being considered in the Confirmation Opinion was the Second Amended Joint Plan of Reorganization for Tribune Company and Its Subsidiaries, as amended (see D.I. 8769) (the "DCL Plan”).
. The EGI-TRB LLC Notes are those certain promissory notes in the aggregate principal amount of $225 million issued by Tribune in favor of EGI-TRB LLC and certain direct and indirect assignees of EGI-TRB LLC. (Third Amended Plan, § 1.1.95) (ADH Ex. 6 and ADH Ex. 7).
. Hearing on the plan solicitation procedures motion and supplemental disclosure statement are scheduled for April 16, 2012.
. Capitalized terms used through out this Memorandum, but not defined herein, shall have the definitions set forth in the Third Amended Plan.
. The exhibits admitted into evidence at the AD Hearing were marked as "ADH Ex.-.”
. The LBO Settlement was described as "the settlement with current and former Senior Lenders, Bridge Lenders, and other parties of certain LBO-Related Causes of Action” and the Step Two Disgorgement Settlement was described as "the settlement with current and former Senior Lenders, Bridge Lenders, or Step Two Arrangers who received pre-petition payments from the Debtors on account of the Step Two Financing.” Tribune I, 464 B.R. at 152.
.WTC argues that this issue is moot as to the Creditors' Trust proceeds because the PHONES Noteholders opted out of the Creditors' Trust in voting on the DCL Plan. However, PHONES Noteholders will be permitted to decide anew whether to opt out of the Creditors’ Trust as part of the solicitation procedures for the Third Amended Plan. Since not all PHONES Noteholders may opt out of the Creditors’ Trust, the applicability of the subordination provisions to the Creditors' Trust proceeds is not moot.
.On January 21, 2012, WTC also filed a Motion for Leave to Appeal, which is before the United States District Court for the Dis*231trict of Delaware (the "Delaware District Court”) in miscellaneous case no. 12-mc-00029.
. On January 15, 2012, the appellants in WaMu filed an Emergency Motion for Stay of Confirmation Proceedings Pending the Appeal and a Motion for a Writ of Mandamus before the District Court. The WaMu Court's decision on jurisdiction was upheld by the District Court's decision denying the Writ of Mandamus and Emergency Motion for a Stay of the Confirmation Proceedings Pending the Appeal. See Black Horse Capital L.P. v. JPMorgan Chase Bank NA (In re Washington Mutual, Inc.), Civil Action No. 11-124(GMS) (D.Del. Jan. 19, 2012). A further appeal of the request for a writ of mandamus seeking to stay the confirmation proceedings was denied by the Third Circuit. In re Washington Mutual, Inc., No. 12-1263 (3d Cir. Feb. 6, 2012).
. In its Responses and Objections to Interrogatories served by WTC, DBTCA states, in part, regarding two separate proposed exchanges of 197,237 PHONES by Goldman Sachs on 12/3/2008 and 12/8/2008 and one proposed exchange of 40,000 PHONES by Citigroup Global Markets on 12/2/2008, that “to our knowledge [these exchanges] were not accompanied by a DWAC that had been initiated by the broker and accepted by DBTCA. After a reasonable inquiry of its own files, DBTCA is unable to determine whether these exchanges were duplicates or what the circumstances and/or reasons why the [proposed exchanges] were not approved into the DWAC system. Because a DWAC instruction was not approved, it is our understanding that DTC did not reduce the amount of the PHONES Notes on its bookkeeping system.” (Stipulation, ¶ 27, ¶ 28).
. ADH Ex. 91 provides that Officers’ Certificates specifying the Exchange Payment Date and amounts were not provided to Notes exchanged on December 2, 2008 and December 8, 2008, since more than 500,000 PHONES Notes were received on those exchange dates, thereby subjecting those Notes to a different procedure for calculating the payment amounts. ADH Ex. 91 shows that the Officers’ Certificates for the December 2 and 8, 2008 were not due until 12/10/2008 and 12/16/2008, respectively. The parties do not specify exactly when in the day the Notes were tendered for exchange on the petition date, but I will rely upon their Stipulation, which calculates competing claim amounts assuming that the exchanges on December 8, 2008 were made prior to the time the petitions were filed.
. "Other Parent Claims” are defined in the Third Amended Plan as “General Unsecured Claims against Tribune and the Swap Claim [described in n. 19, infra.] (and for the avoidance of doubt includes all Claims against Tribune under Non-Qualified Former Employee Benefit Plans, but does not include Convenience Claims).” (Third Amended Plan, § 1.1.175). At the previous confirmation hearing, the DCL Plan Proponents asserted that the class of Other Parent Claims included the Swap Claim (approximately 57%), Retiree Claims (approximately 40%), and Trade Claims. (Tribune I, 464 B.R. at 198).
. The distribution figures used herein are reflected on ADH Ex. 89 ("Subordination Scenario Recovery Charts”), which are based upon certain assumptions appearing in the footnotes to the Charts. At oral argument, counsel for the Creditors' Committee noted that the "footnotes were heavily negotiated among all the parties and were essentially the caveats and reservations that were necessary to get everybody to agree that Exhibit 89 could indeed come in [as evidence].” (Tr. 3/6/12 at 26:25-27:3).
.The issue with respect to the SWAP Claim is easily determined and, therefore, I do decide here that the SWAP Claim falls within the definition of Senior Indebtedness in the PHONES Indenture. The SWAP Claim is defined in the Third Amended Plan as "any *239Claims asserted under the certain 1992 ISDA [International Swap and Derivatives Association, Inc.] Master Agreement, dated as of July 2, 2007, between Barclays Bank PLC and Tribune.” (Third Amended Plan, § 1.1.252, ADH Ex. 13). As part of the 2007 LBO, Tribune obtained approximately $8 billion dollars of financing pursuant to a Credit Agreement, dated May 17, 2007, as amended, restated, supplemented or otherwise modified from time to time (the "Credit Agreement”). Section 5.01(k) of the Credit Agreement, entitled “Interest Rate Protection,” obligated Tribune to “enter into, and for a minimum of two years thereafter maintain, Hedge Agreements ... that result in at least 35% of-the aggregate principal amount of total Consolidated Debt for Borrowed Money being effectively subject to a fixed or maximum interest rate reasonably acceptable to the Agent.” (ADH Ex. 11, § 501(k)). To comply with the obligation in § 5.01(k) of the Credit Agreement, Tribune entered into the Swap Agreement. Thereafter, on July 3, 2007, Tribune entered into three interest rate swap confirmations (collectively, the “Swap Documents”) with Barclays Bank, which Swap Documents provide for (i) a two-year hedge with respect to $750 million in notional amount, (ii) a three-year hedge with respect to $1 billion in notional amount and (iii) a five-year hedge with respect to $750 million notational amount. (ADH Ex. 15, at 16 (OCMS 0000635)).
The PHONES Indenture defines "Senior Indebtedness,” in part, as "the principal of (and premium, if any) and interest on ... and other amounts due on or in connection with any Indebtedness of the Company incurred, assumed or guaranteed by the Company, whether outstanding on the date of this Indenture or hereafter incurred, assumed or guaranteed and all renewals, extensions and refundings of any such Indebtedness of the Company; provided, however, that the following will not constitute Senior Indebtedness: [exceptions listed do not apply here].” (PHONES Indenture, § 14.01(2)). The parties do not dispute that the Credit Agreement is Indebtedness and Senior Indebtedness as defined by the PHONES Indenture. The record before me establishes that the indebtedness due under the Swap Agreement is an amount due in connection with the Credit Agreement and, therefore, within the definition of the Senior Indebtedness under the PHONES Indenture.
The definition of "Senior Obligations” in the EGI Subordination Agreement is even broader, and includes "all obligations, indebtedness and other liabilities of the Company.” The indebtedness under the Swap Agreement also falls within the definition of Senior Obligations under the EGI Subordination Agreement.
Because the Swap Agreement indebtedness is part of the Senior Indebtedness and Senior Obligations as defined in the relevant documents, the treatment in the Third Amended Plan of the Senior Noteholder Claims and the Other Parent Claims becomes even less vulnerable to a charge of "unfair discrimination.” (See n. 21, infra.).
. See Exxon Mobil Corp. v. Allapattah Serv., Inc., 545 U.S. 546, 568, 125 S.Ct. 2611, 2626, 162 L.Ed.2d 502 (2005):
As we have repeatedly held, the authoritative statement is the statutory text, not the legislative history or any other extrinsic material. Extrinsic materials have a role in statutory interpretation only to the extent they shed a reliable light on the enacting Legislature's understanding of otherwise ambiguous terms. Not all extrinsic materi-ais are reliable sources of insight into legislative understandings, however, and legislative history in particular is vulnerable to two serious criticisms. First, legislative history is itself often murky, ambiguous, and contradictory. Judicial investigation of legislative history has a tendency to become, to borrow Judge Leventhal's memorable phrase, an exercise in " ‘looking over a crowd and picking out your friends.’ " See Wald, Some Observations on the Use of Leg*241islative History in the 1981 Supreme Court Term, 68 Iowa L.Rev. 195, 214 (1983). Second, judicial reliance on legislative materials like committee reports, which are not themselves subject to the requirements of Article I, may give unrepresentative committee members — or, worse yet, unelected staffers and lobbyists — both the power and the incentive to attempt strategic manipulations of legislative history to secure results they were unable to achieve through the statutory text.
. The figures in this chart are taken from ADH Ex. 89, which is the Recovery Scenarios that the parties agreed could be submitted into evidence. (See n. 18, supra.) If both the Senior Noteholders and the Swap Claim benefit from the subordination provisions, the decrease in the Senior Noteholders' percentage recovery is even smaller. (See n. 19, supra.) The Initial Distributions' percentage recovery would decrease from 34.5% (if both Senior Noteholders and the Swap Claim benefit from the subordination) to 33.6% (Plan Distribution) resulting in a decrease of 0.9%.
. The Court in Unbreakable Nation compared the dissenting class’s recovery under the plan against what the dissenting class claimed it was entitled to receive (i.e., 1.25% to 1.5%). For purposes of this chart's comparison, the Creditors Committee compared the dissenting class’s recovery to the recovery of the allegedly preferred class, which the Committee calculated to be 1.78% Unbreakable Nation, 437 B.R. at 202.
. Even if we looked to the example of unfair discrimination in the Legislative History, the Plan's proposed effect to the Senior Notehold-ers passes muster. The parties agreed that the example in the Legislative History showed a change to the dissenting class’ recovery of 20%. The decrease in recovery to the Senior Noteholders — whether viewed as a change to the recovery percentage (less than 4%) or based on the amount that the dollars paid to the dissenting class decreased (6.5%) — does not reach that threshold.
. Joachim Sonne, of the same JPMorgan group as Peter Cohen, also responded to the Bigelow Email stating, "Zell sub note will be the most junior in the capital structure” (ADH Ex. 135).
. See Joy Global, Inc. v. Wisconsin Dept. Of Workforce Dev. (In re Joy Global, Inc.), 346 B.R. 659, 665 n. 13 (D.Del.2006) (admitting an exhibit subject to a triple hearsay objection after deciding that each layer of hearsay was overcome by a separate hearsay exception).
.EGI argues that Fed.R.Evid. 801(d)(2)(D) does not apply to ADH Ex. 128 because WTC failed to establish that the statement was within Hochschild’s role and responsibilities for EGI. See McAdams v. United States, 297 Fed.Appx. 183, 186 (3d Cir.2008) (affirming lower court’s exclusion of statement by VA medical center x-ray technician that the lobby *248floor was "like a skating rink,” since the x-ray technician was not responsible for the condition or maintenance of the medical center floors), Greishaw v. Base Mfg., 2008 WL 509077, *4 (W.D.Pa. Feb. 21, 2008)(statement by accounts payable clerk held inadmissible because the clerk had no responsibility for personnel, compensation and sales commissions). William Pate, one of the leaders of EGI’s team of professionals who structured and negotiated the 2007 LBO, stated that he was surprised JPMorgan would contact Ho-chschild on the subordination issue, rather than himself or Nils Larsen. (ADH Ex. 156 at 10:24-11:12, 56:1-57:2). However, Fed. R.Evid. 801(d)(2)(D) does not require that a declarant have authority to bind its employer, but simply requires that an agent make the statement "within the scope of” his or her employment. Big Apple BMW, Inc. v. BMW of North America, Inc., 974 F.2d 1358, 1372 (3d Cir.1992) ("As the Advisory Committee noted when amending this rule, to limit its scope in this manner would preclude much probative evidence because an employer will rarely authorize it employee to make incriminating statements.”).
In his deposition, Hochschild testified that he did not have a formal title at EGI, but was essentially an analyst (ADH Ex. 157 at 10:23-11:2) and that he "was involved in the operational due diligence [and] ... also worked on the models and analytics around the investment.” (Id. at 14:18-21). The evidence shows that in this position Hochschild had information about the framework of the deal and proposed capital structure for Tribune. (See, e.g., ADH Ex. 144 (email dated June 29, 2007 from Chandler Bigelow to Chris Hochschild with the subject heading "May 31st Debl/Cash (PF for the 1st step)”, attaching financial information that includes the amount of the PHONES Notes in an entry titled "Total debt (before Zell note)”)). Knowledge of information on the priority of the PHONES Notes relative to the EGI Notes was within the scope of Hochschild's responsibilities during his employment at EGI. ADH Ex. 128 is admissible, but, recognizing Hochschild's junior status, the statement in the email will be weighed accordingly.
. EGI argues that Pate's subjective understanding of the priority of the EGI Notes should be considered by the Court under the “forthright negotiator principle,” which allows the Court to consider “evidence of what one party subjectively ‘believed the obligation to be, coupled with evidence that the other party knew or should have known of such belief.' ” United Rentals, Inc. v. RAM Holdings, Inc., 937 A.2d 810, 835 (Del.Ch.2007) citing U.S. West, Inc. v. Time Warner, Inc., 1996 WL 307445, *11 (Del.Ch. June 6, 1996) (emphasis in original). The record before me lacks any evidence that the other parties negotiating the LBO had any reason to know of Pate's subjective belief that the Step Two EGI Notes would be senior to the PHONES Notes.
. The DCL Plan Settlement Proceeds, Litigation Trust recoveries, and Creditors’ Trust recoveries will be jointly referred to, herein, as the "Avoidance Recoveries.” Referring to these proposed recoveries in this manner should not be deemed a finding or conclusion that those recoveries consist solely of fraudulent transfer recoveries. Indeed, the fact that the DCL Plan Settlement and the Litigation Trust consist of more than fraudulent transfer claims is a flaw in EGI's argument.
. This flaw was carried over into that section of the Confirmation Opinion, later defined as the Subordination Determination (see Tribune I, 464 B.R. at 195-96), which was struck in the Reconsideration Decision and is not longer in effect (see Tribune II, 464 B.R. at 221).
. Delaware Courts also have decided that unambiguous subordination agreements must be strictly construed. Guarantee Bank v. Magness Construction Co., 462 A.2d 405, 408-09 (Del.1983), Masten Lumber & Supply Co. v. Suburban Builders, Inc., 269 A.2d 252, 254 (Del.Super.1970). In the foregoing cases, however, the subordination agreements were very specific as to the parties and the purpose of loans that would be senior. The courts determined the unambiguous and specific language of the subordination agreements should be construed strictly. Here, I have already determined that some provisions of the EGI Subordination Agreement are ambiguous and require parol evidence to interpret. The Subordination Agreement in this case is not analogous to the agreements in Guarantee Bank or Masten Lumber.
. As one article stated:
[W]hen a senior noteholder is seeking post-petition interest on its claim, it is not seeking that payment from the bankruptcy estate. Rather the senior noteholder is seeking to enforce its seniority rights against a junior noteholder. Thus the allowance or dis-allowance of postpetition interest arising from subordination agreements is a matter of intercreditor relationships and not the relationship between a debtor and creditors. As such, the debtor, and the estate is not prejudiced when senior debt is able to recover postpetition interest payment through distributions that may be made to a junior creditor. There is no added depletion of the estate in these situations and thus, the rationale behind the general rule disallowing postpetition interest in bankruptcy does not apply.
Dennis J. Connolly and William Hao, X Maries the Spot: Contractual Interpretation of Indenture Provisions, 17 1. Bankr.L. & Prac. 6 Art. 1 (Sept. 2008). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494726/ | OPINION
ROSEMARY GAMBARDELLA, Bankruptcy Judge.
MATTER BEFORE THE COURT
Before the Court is a Motion to Correct Mistake in the Court’s December 14, 2010 Opinion, pursuant to Rule 60(a) and (b) of the Federal Rules of Civil Procedure, made applicable by Rule 9024 of the Federal Rules of Bankruptcy Procedure, and 11 U.S.C. § 105, filed by Claimant New York City Housing Authority (NYCHA). NYCHA filed a proof of claim on October 10, 2008, for asbestos property damage to housing complexes in the amount of $500 million to pay for the abatement of asbestos-containing materials allegedly originally manufactured, mined, distributed, and sold by G-I Holdings, Inc. or its predecessors in interest. On December 10, 2008, the Reorganized Debtors filed an objection to the NYCHA Claim, and on December 14, 2010, this Court issued its opinion granting in part and denying in part the *267Debtors’ Objection to the NYCHA Claim, In re G-I Holdings, Inc., 443 B.R. 645 (Bankr.D.NJ. Dec. 14, 2010) (“December 14, 2010 Opinion”). Thereafter, discovery proceeded until conflicting interpretations of the December 14, 2010 Opinion brought the instant issue before the Court. On October 31, 2011, and November 28, 2011, the parties raised the issue at separate status conferences. On February 16, 2012, the Court held a hearing and reserved decision. The following constitutes this Court’s findings of fact and conclusions of law.
Statement of Facts and PROCEDURAL HISTORY
A. Background
The Court need not recite the entire history of the case, and what follows is a brief overview of the background of the administrative case and the involvement of NYCHA, focused primarily on those facts most relevant to NYCHA’s Motion to Correct Mistake in the Court’s December 14, 2010 Opinion.1
On January 5, 2001, G-I Holdings, Inc. (“G-I”) filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (“Bankruptcy Code”), and continued to operate its business as a debt- or-in-possession. On August 3, 2001, ACL Inc. (“ACI”), a subsidiary of G-I, also filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. Pursuant to this Court’s Order on, October 10, 2001, the two cases have been jointly administered.2
On January 25, 2001, the Office of the U.S. Trustee appointed the Official Committee of Unsecured Creditors pursuant to 11 U.S.C. § 1102(a), ECF No. 87, and on October 10, 2001, the Court appointed C. Judson Hamlin as Legal Representative— a fiduciary representative of the interests of persons holding present and future asbestos-related claims against G-I, ECF No. 603.
By Order dated September 5, 2008 (“Bar Date Order”), this Court fixed Octo*268ber 15, 2008, as the bar date by which all proofs of claim against any interest in the Debtors had to be filed, other than certain “Excluded Claims.” See Bar Date Order, Sept. 5, 2008, ECF No. 8257.
Chief Judge Garrett Brown of the U.S. District Court for the District of New Jersey and this Court, by Order dated November 12, 2009, jointly approved the Debtors’ Eighth Amended Joint Plan of Reorganization. ECF No. 9787.
B. NYCHA Proof of Claim
NYCHA filed its proof of claim on October 10, 2008, in the amount of $500 million to remediate asbestos-related property damage to NYCHA-owed housing complexes and buildings (“NYCHA Claim”). NYCHA asserts there are asbestos-containing products originally manufactured, mined, distributed, and sold by Debtors or their predecessors-in-interest in those housing complexes and buildings and alleges it incurred costs necessary to abate the health hazards by replacing such products with non-toxic substitutes.
The Proof of Claim lists the basis for the claim as ■ “Other: Property Damage,” states the claim was incurred on “various” dates, and refers to “attachments and statement” as supporting documentation. Attached to the Proof of Claim is a Statement in Support of Proof of Claim of New York City Housing Authority (“Statement in Support”), dated October 9, 2008, and an attachment that identifies NYCHA Developments. See NYCHA Mot. to Correct Mistake ex. 2, Dec. 13, 2011, ECF No. 10552. The Statement in Support reads:
1. The asbestos property damage claim of NYCHA, to which this Statement is attached, includes hundreds of buildings owned by NYCHA, built with products identified as having been manufactured by the Debtors, or having been manufactured with asbestos fiber for which the Debtors are legally responsible and include tens of millions of feet of vinyl asbestos floor tile (“VAT”), roofing materials, insulation materials. It would be extremely burdensome, if not impossible, to assemble, collect and submit all of the documentation supporting this asbestos property damage claim at this time, particularly in view of the extremely short period of time from the issuance of the Court approved Notice of [Bar Date] and the actual Bar Date of October 15, 2008.
2. Attached to NYCHA’s Proof of Claim are representative documents which demonstrate the types of product identification documentation which establish the presence of Debtor’s products in NYCHA’s buildings. The voluminous documentation for all of the housing complexes and buildings included in the Claim are being gathered, organized and prepared for submission in support of the Claim.
Id.
On November 17, 2008, supplementary documentation to the Proof of Claim was filed, which includes: “Ruberoid Roofing Claim Example Documents;” “Ruberoid/Vermont Asbestos Fiber RA Keasbey/Rex Cement Claim Example Documents;” “Ruberoid/Vermont Asbestos Fiber EHRET/Baldwin EHRET Hill Claim Example Documents;” “Ruber-oid/Vermont Asbestos Fiber Atlantic Asbestos Company Claim Example Documents;” “Empire/ACE/Vermont Asbestos Fiber Claim Example Documents;” “Ru-beroid Vermont Asbestos Fiber Flint Home Asbestos Tile Claim Example Documents;” and “Ruberoid/Vermont Asbestos Fiber United States Gypsum Claim Example Documents.” NYCHA Mot. to Correct Mistake ex. 3 pts. 1 & 2, Dec. 13, 2011, ECF Nos. 10552-4, -5. These example documents list several *269different types of asbestos-containing materials, as indicated by the categories of documents listed above. Id.
C. Debtors’ Objection to NYCHA Claim
On December 10, 2008, G-I filed an objection to the NYCHA Claim, arguing the underlying asbestos property damage claim was time-barred under New York state law or, alternatively, the NYCHA Claim lacked sufficient detail and documentation in order to state a claim. Debtors alleged the claim provided insufficient information concerning which asbestos-containing products were allegedly installed in which of the NYCHA housing complexes or buildings as well as what actions were taken by NYCHA to abate asbestos-containing products. Debtors’ Obj. to NY-CHA Cl. ¶¶ 5-7, ECF No. 8625. G-I argued NYCHA’s documents “provided no indication of what products were installed” and did not “indicate the nature and extent of the damages” nor “costs allegedly incurred or may in the future be incurred.” Id. ¶¶ 16-17.
In its Response to Debtors’ Objection to the NYCHA Proof of Claim, NYCHA stated it had, at the time the Response was filed, expended more than $40 million “just for the removal and replacement of asbestos-containing floor tile (vinyl asbestos floor tile or NAT’).” Resp. to Proof of Cl. Obj., Jan. 6, 2009, ECF No. 8733. It went on:
Among the hundreds of asbestos abatement projects, a large number involved removal and replacement of asbestos-containing materials manufactured and sold by G-I’s predecessors, including but not limited to GAF, Ruberoid, Mastic, and Matico.... On November 17, 2008, NYCHA submitted a First Supplemental Submission enclosing additional documents establishing that NYCHA buildings were constructed with ACMs [asbestos-containing materials], such as vinyl asbestos floor tile, roofs, thermal system insulation materials and products manufactured by Debtors’ predecessors and other companies with asbestos fiber supplied by Vermont mines.
Id. ¶¶ 2, 9.3
Subsequently, Debtors filed a Reply in Further Support of Debtors’ Objection to NYCHA’s Proof of Claim on July 7, 2009, in which they further argued about both the nature and the timeliness of the NY-CHA Claim. G-I alleged NYCHA was wrongly attempting to invoke the “emergency assistance doctrine” because NY-CHA was merely removing vinyl asbestos floor tiles (“VATs”) as a “precautionary removal, at the convenience of NYCHA, of a non-friable asbestos-containing VAT,” not because of immediate risk of harm to occupants. Debtors’ Reply in Supp. of Cl. Obj. ¶¶ 2, 4, ECF No. 9290. Debtors stated the following in Footnote 2:
In an effort to create an illusion of an asbestos-related hazard to its residents. NYCHA refers to a variety of asbestos-containing products allegedly manufactured by the Debtors’ predecessors and to the thousands of asbestos lawsuits filed against them. However, it is clear from the documentation submitted by the NYCHA that its untimely proof of claim is based on one product and one product only: VAT. No property damage claim based on that product has ever been sustained against the Debtors or their predecessors.
Id. ¶ 4 n. 2. In the remaining arguments, Debtors focused on discussing VAT, the health and environmental risks of VAT, *270and the legal treatment of what Debtors characterize as non-friable VAT compared with the immediate risk of, for example, peeling lead paint. Id. ¶¶ 21-23, 26, 31.
NYCHA filed a Sur-Reply on July 17, 2009, in which it argued in support of its restitution and indemnity claims, citing New York state law’s “liberal application” of statutes of limitation. NYCHA Sur-Reply, ECF No. 9312. In characterizing Debtors’ response as incorrect with respect to the need to abate asbestos-based hazards, NYCHA stated: “Debtors are simply wrong in asserting that the need to abate lead paint is more ‘immediate’ than the need to abate defective building materials such as GAF VAT and other products which expose children and adults, alike, to the hazards of asbestos-related disease.” Id. ¶ 11. A substantial portion of the remainder of the Sur-Reply addressed case law contrary to Debtor’s cited case law and drew the Court’s attention to evidence previously presented to the Court about the dangers of VAT.
Nowhere in the Sur-Reply did NYCHA limit the nature of its claims, and it expressly contradicted Debtors’ above-referenced Footnote 2, stating:
NYCHA’s Proof of Claim plainly seeks recovery for contamination caused by a wide variety of Debtors’ products, including “tens of millions of square feet of vinyl asbestos floor tile (VAT), roofing material, insulation materials” [and] “asbestos fibers manufactured, mined, distributed and sold by Debtors.... ” Debtor’s [sic] misrepresent to the Court that NYCHA’s claim is only for VAT.
Id. ¶ 23 (internal citations to Court filings omitted). NYCHA further drew the Court’s attention to previously submitted examples of other asbestos products that originated with Vermont Asbestos Group. Id. ¶ 24.
The Court held a hearing on July 22, 2009, at which parties reiterated their arguments. After some discussion of additional argument, this Court instead allowed parties to submit further letter briefs. On August 24, 2010, NYCHA submitted its letter, which discussed recent New York state court decisions they argued should impact this Court’s decision. On September 8, 2010, Debtors filed their responsive letter, distinguishing NYCHA’s cited cases from the immediate case and arguing that NYCHA could not recharac-terize its time-barred asbestos property damage claims from tort to indemnity.
D. Court’s December 14, 2010 Opinion
On December 14, 2010, the Court issued its Opinion granting in part and denying in part Debtors’ Motion Objecting to NY-CHA’s Proof of Claim. In re G-I Holdings, Inc., 443 B.R. 645 (Bankr.D.N.J.2010). The Opinion sets forth a thorough background of the administrative case and the procedural history that led to the Debtors’ Motion Objecting to Proof of Claim. In “Subsection F” of the background and procedural history, titled “The Housing Authority Claim,” the Court related the history of the motion at issue, and stated that NYCHA filed its Proof of Claim on October 10, 2008, as well as, on November 17, 2008, a First Supplemental Submission, which “included supplemental documents establishing that Housing Authority Buildings were constructed with asbestos containing floor tile, roofs, thermal system insulation materials and products manufactured by the Debtors’ predecessors and other companies.” Id. at 653. The final sentence of Subsection F reads: “Supplemental documentation filed by the Housing Authority indicates that the alleged asbestos-containing products that are the subject of the claim are non-friable asbestos-containing floor tiles (‘VAT’) that the Housing Authority installed in some of *271its buildings.” Id. The Opinion then laid out the respective positions of the parties in their moving papers, the arguments at the July 22, 2009 hearing, and the subsequent filings.
The Court denied NYCHA’s claims under a tort theory, finding the applicable statutes of limitation had expired and the claims were therefore out of time. With respect to the indemnification claims, the Court found the dates of expenditures and the amount of funds expended by NYCHA in abatement efforts were needed to determine when the applicable statute of limitation began to accrue and were issues of fact that “cannot by resolved by this Court until the parties present additional proofs and the record before this Court is further developed at an evidentiary hearing.” Id. at 668.
The Court continued: “At this juncture, Debtors’ motion to disallow the Housing Authority’s claim(s) which are based on common law indemnity as time-barred is premature, and accordingly, it is denied. The Housing Authority will have an opportunity to present further proofs with respect to these issues of fact.” Id. In the same vein, the Court held that NYCHA had alleged sufficient facts which, taken as true, would give rise to a claim for common law indemnification. Similar holdings were made about the restitution claims. Id. at 669, 671 (“The actual dangers of VAT and the urgency of the public health risk, the dates that expenditures were made by the Housing Authority, the required duties of the Housing Authority and Debtors to tenants, and the reasonable quantum of abatement costs that should have been borne by Debtor are all issues of fact that cannot be resolved by this Court until there is a more developed factual record”). The Court repeatedly held that, in light of the Court’s obligation to take all facts as pled by the non-moving party as true when evaluating a motion to disallow claims, there was insufficient evidence before the Court to make a determination at that time. See id. at 668, 669, 671.
E. The Discovery Disputes
On April 8, 2011, Debtors submitted a letter to the Court detailing disputes that arose when NYCHA and the Debtors attempted to negotiate a Scheduling Order, informing the Court that “[t]he present dispute relates to discovery issues, including, in particular, whether discovery should proceed first with respect to the potentially dispositive factual matters raised in this Court’s Opinion dated December 14, 2010.... ” Debtors’ Scheduling Order Letter at 1-2, Apr. 8, 2011, ECF No. 10444. The Debtors’ primary concern, according to the Letter, was that analysis of all of the buildings that were allegedly contaminated would be extremely burdensome, and it believed that with some additional information, it could bring a motion to dispose of a large portion of NYCHA’s claims. At no point in the Letter is there reference to a limitation of the subject materials of the claims. In fact, Debtors state: “Specifically, G-I believes these matters can be resolved via a dispositive motion following some very basic and inexpensive discovery targeted at establishing that to the extent NYCHA removed any VAT or other Asbestos Products from any of the NYCHA Properties, it did so primarily as a matter of convenience, and not as the result of any imminent health hazard or to fulfill any duty owed to third parties such as tenants.” Debtors’ Scheduling Order Letter at 5.
On October 81, 2011, this Court held a telephonic status conference with the parties to discuss their letter to the Court, submitted October 25, 2011, which gave the Court a status report. During that *272conference, the parties reported they were attempting to conclude document production by January 31, 2012, the agreed-upon extended deadline in the scheduling order. Oct. 31, 2011 Hr’g Tr. 4:10-13, ECF No. 10579. Both parties expressed concern over the logistical complications of voluminous production. Debtors reported they had made approximately 200 boxes of documents available to NYCHA in West Virginia and that Debtors were receiving a rolling production of documents from NY-CHA. Id. at 4:18-5:16.
During the hearing, counsel for NY-CHA, Jeffrey Pollack, Esq., referred to document requests for asbestos-containing materials other than tile flooring. See, e.g., id. at 7:21-25. In response to discussions about potential building inspections, counsel for G-I, Andrew Rossman, Esq., referred to abatement procedures for flooring tiles only — essentially limiting the discussion of discovery to VAT. The Court, in response, noted that it understood both parties reserved their rights to make further argument on the scope of discovery. See id. at 11-12,13:9-13.
On November 28, 2011, the Court held a second telephonic status conference, where the parties raised the issue of characterization of the December 14, 2010 Opinion. At that hearing, parties reported on the status of the on-going discovery. NYCHA expressed concern that some materials related to either roofing or a thermal system manufactured by Calsilite (referred to elsewhere as TSI or Calsilite) were not produced in the West Virginia documents and neither was information on other subjects. NYCHA’s counsel argued G-I had made no indication on the record that production would be limited to certain asbestos-containing materials or would exclude roofing materials. See Nov. 28, 2011 Hr’g Tr. 4; 14-20, 5:7-17, 6:7-14, ECF No. 10580.
In response, G-I’s counsel refuted the premise that NYCHA was unaware of GI’s objections to NYCHA’s request for production of documents and things. G-I objected to production beyond that related to what Debtors allege is the “subject of NY-CHA’s claim against G-I: non-friable asbestos-containing floor tile, VAT,” and cited to the December 14, 2010 Opinion in support. Id. at 7-8. Debtors’ counsel alleged NYCHA was aware of the limitation for several months before the trip to West Virginia to review documents.
Debtors argue that the December 14, 2010 Opinion, standing alone, limited the subject of the NYCHA Claim and further support the limitation, arguing:
And the reason why [the Claim is] limited to VAT makes perfect sense when you think about it, You Honor, because their claims are not claims for asbestos property damage. The only claims that have survived the statute of limitation rulings are, for the moment, are claims for indemnity and restitution. The basis for those claims had to be, as Your Honor’s opinion indicates, some duty that’s owed to the residents of the New York City Housing Authority, that there is some public danger presented by the product.
I find it difficult to imagine how there could be a public danger presented to tenants of the New York City Housing Authority if there are roofing materials that are made of asbestos. So we think that clearly that issue is out of the case and the case is limited to VAT.
Id. at 9:8-23.
In response, NYCHA expressed its disagreement with the reading of the Opinion, stating “Obviously, [the Court is] the foremost expert on [its] own opinion,” but arguing that clarification was needed. Id. at 15:12-16; see id. at 27:13-16 (“[NYCHA’s] position is we’re not changing the game at *273all. This is [ ] a valid, viable claim that has never been dismissed.”). But see id. at 25:16-25 (argument by the Debtors that NYCHA needed to file a Rule 60 motion).
The Court requested parties put their positions regarding the scope of production pursuant to the December 14, 2010 Opinion in letter briefs to be submitted to the Court.
F. The Letter Briefs & Rule 60 Motion
On December 9, 2011, NYCHA submitted a letter to the Court expressing NY-CHA’s understanding that roofing, thermal system insulation (Calsilite) (TSI), and raw asbestos fiber in NYCHA’s Proof of Claim were within the December 14, 2010 Opinion’s determination of non-disallowed4 claims. This letter, which also notifies the Court of the forthcoming Rule 60(a) Motion, sets forth NYCHA’s arguments in favor of its interpretation of the Opinion, as requested at the November 28, 2011 hearing. NYCHA argues that “from the outset,” its claims have been based on several asbestos-containing products, including but not limited to VAT. NYCHA Letter Br., Dec. 9, 2011, ECF No. 10548. They deny there was inappropriately limited scope in the supporting documentation of their Proof of Claim, drawing the Court’s attention to the Statement in Support, which indicated the documents submitted were “representative” documents for all types of products. Id. at 2 & n. 1.
NYCHA further argues it does not understand the basis for the Court’s reference in the December 14, 2010 Opinion to a supplemental filing after the November 17, 2008 Submission, as “there was no further supplemental documentation submitted by NYCHA, and it has never filed or presented to the Court any documentation limiting its claim to VAT.” Id. at 3. NYCHA asserts it does not believe the Court “intended to rule that NYCHA’s roofing and TSI claims are barred” and encourages the Court, pursuant to its broad powers under 11 U.S.C. § 105, to clarify the language they believe the Debtors have misconstrued. Id. at 6. Alternatively, NYCHA argues that Fed.R.Civ.P. 60(a), made applicable by Fed. R. Bankr.P. 9024, empowers the Court to make corrections such as removing the contentious last sentence of Subsection F of its Opinion. Id. at 6-8.
NYCHA filed the instant Motion to Correct Mistake on December 13, 2011, arguing it had asserted a claim for roofing, thermal system insulation (Calsilite) (TSI), and raw asbestos fiber, as well as floor tiles, and because Debtors had not provided sufficient proof to contradict those claims, all of those materials should be included in the Court’s determination that the claims were not disallowed. Mot. to Correct Mistake, Dec. 13, 2011, ECF No. 10552. NYCHA alleges the current conflict in interpretation arose when Debtors “abject[ly] refus[ed]” to produce documents during document production in Charleston, West Virginia, id ¶ 12, stating that “[u]ntil recently, when G-Is counsel (Andrew Rossman, Esq.) articulated G-Is basis for not producing responsive materials, NYCHA was under the belief that both parties agreed that the roofing, thermal system insulation (Calsilite) (TSI) and raw asbestos fiber had not been disallowed,” Id. ¶ 1.
Reiterating several of the arguments in its Letter, NYCHA alleges the various asbestos-containing materials have been included in the NYCHA Claim since the *274Proof of Claim’s initial filing, consistently included since then and, further, its documentation — both the attachment to the Proof of Claim and the November 17, 2008 First Supplemental Submission — has consistently been “representative” due to the short timeframe between the issuance of the Notice of Bar Date on September 5, 2008, and the October 15, 2008 Bar Date. It repeats it does not understand the basis for the Court’s reference to a supplemental submission.
NYCHA also repeats its argument that the Court should strike the last sentence of Subsection F in order to clarify the Opinion pursuant to Fed.R.Civ.P. 60, made applicable by Fed. R. Bankr.P. 9024. Id. ¶¶ 8-11 (citing Burton v. Johnson, 975 F.2d 690 (10th Cir.1992)) (“[The] court may also invoke Rule 60(a) to resolve an ambiguity in its original order to more clearly reflect its contemporaneous intent and ensure that the court’s purpose is fully implemented.”); In re Lenox, 902 F.2d 737 (9th Cir.1990) (recognizing that, pursuant to 11 U.S.C. § 105(a), a bankruptcy court has the power to reconsider any of its previous orders when equity so requires); and In re Cisneros, 994 F.2d 1462 (9th Cir.1993) (upholding a bankruptcy court’s decision to vacate its previously issued order and rejecting debtor’s argument of a too lengthy delay because there was no prejudice to the debtor).
NYCHA argues there has been no real prejudice to the Debtors despite the nearly yearlong gap between the issuance of the Court’s Order denying in part Debtors’ Motion to Disallow and the filing of the instant Motion (the “December 22, 2010 Order”), arguing no intervening rights of the Debtors have become vested in reliance on the verbiage in the Opinion and the only action taken in response to Debtors’ interpretation was the refusal to produce documents in connection with other asbestos-containing materials. Id. ¶¶ 13, 14 (relying on the explanation elucidated in Marchand v. Waters (In re Waters), 2007 WL 3069326, at *3 (Bankr.D.N.J. Oct.18, 2007), which supports courts’ use of equitable powers so long as “no intervening rights have become vested in reliance on the orders”). Further, they argue, denial of the relief sought would be highly prejudicial to NYCHA’s claim because it would eliminate “large quantities of Debtor’s products from the viable restitution and indemnity claims.” Id. 12. NYCHA requests this Court either strike the last sentence of Subsection F in the Opinion or “issue a clarification that NYCHA’s claims include all the product types specified in its claim and supplemental submission, and direct Debtors to answer all discovery relating thereto, plus such further relief the Court deems appropriate.” Id. at 10.
On December 19, 2011, Debtors submitted a letter response to NYCHA’s December 9, 2011 Letter. G-I Letter Br., Dec. 19, 2011, ECF No. 10555. In it, G-I argues the Court should reject NYCHA’s “untimely” attempt to modify the Opinion, because, they allege, the “Opinion makes clear the Court ruled, for several reasons, that only indemnity and restitution claims relating to VAT could proceed.” Id. at 1. G-I argues predominantly that NYCHA failed to meet its burden of adequately asserting facts to support a finding that it expended funds to abate other asbestos-containing materials, without which a claim could not be sustained. Id. at 7-8. Debtors also argue NYCHA has not quantified any costs expended to abate products other than VAT and therefore has failed to meet its burden of proof in that respect. Further, G-I argues that since nearly a year has elapsed between the Order and the current Motion, during which time Debtors proceeded with discovery under their interpretation of the Court’s Opinion, significant prejudice to G-I would result *275from “much expanded” scope of production. Id. at 10. The Debtors argue this Court must have intended to limit NY-CHA’s claims solely to indemnity and restitution related to abatement of VAT and disallowed claims based on other asbestos-containing materials, as evidenced by the Court’s thirty-two references to VAT in the Opinion, as compared with once apiece for the other materials. Id. at 3.
On January 3, 2012, G-I filed Debtors’ Opposition to Claimant New York City Housing Authority’s Motion to Correct Mistake in Court’s December 14, 2010 Opinion that “The” Subject of NYCHA’s Claim are Non-Friable Asbestos-Containing Floor Tiles. G-I Opp’n, Jan. 3, 2012, ECF No. 10561. Therein, G-I argues its position that the December 14, 2010 Opinion, “properly read,” allowed NYCHA to “seek indemnity and restitution relating only to the abatement of VAT [floor tiles], and consequently that NYCHA is entitled to discovery relating only to VAT.”5 Id. at 3 n. 1. In support, G-I directs the Court to our December 22, 2010 Order, which states NYCHA would have an opportunity to organize and present proofs with respect to the identified issues of material fact. See id. at 4 (quoting Order Granting in Part and Denying in Part Debtors’ Mot. to Disallow NYCHA’s Cls. ¶ 4, Dec. 22, 2010, ECF No. 10408). G-I argues the Court “clearly” intended issues of material fact to mean solely those related to VAT because the Court repeatedly referred to VAT without referencing other asbestos-containing materials. Id. at 4-7, 9-11.
G-I argues the Court “must have considered and rejected” NYCHA’s claims for other asbestos-containing materials, pointing to the evidence submitted by NYCHA and concluding the Court “therefore explicitly considered NYCHA’s various installments of documents ... and nonetheless stated that NYCHA’s claims relate to VAT.” Id. at 11. Debtors allege the sentence in Subsection F demonstrates the Court explicitly determined only VAT claims survived the Motion to Disallow and, thus, NYCHA’s request for information concerning other asbestos-containing materials goes beyond allowable “discoverable information” as defined by Rule 26(b)(1) of the Federal Rules of Civil Procedure.6
Further, Debtors argue, none of NY-CHA’s relied-upon legal bases for its Motion are applicable in this situation. They allege Rule 60(b)(1) is inapplicable because the Motion was not brought within a reasonable time. According to G-I, while NYCHA’s Motion was brought within the one year threshold established by Rule 60(c),7 it was not brought within a reasonable time, id. at 13-14 (citing In re Diet Drugs Prod. Liab. Litig., 383 Fed.Appx. 242 (3d Cir.2010)), because despite its allegations that it only recently became aware of the differing interpretations, NYCHA had been aware of G-I’s intent to produce only VAT-related documents because that *276intent was stated in G-I’s Response and Objections to documents and interrogatory requests, id. at 15. Widening the scope of production would prejudice the Debtors, who have, they argue, “pressed forward in good faith with a large and thorough document production consistent with [their interpretation of] the Opinion.” Id. at 15-16.
G-I challenges NYCHA’s use of Rule 60(b) generally, contending the presentation of prior proofs amounts to an attempt to relitigate prior issues. NYCHA, G-I argues, is trying, through its characterization of the Opinion “as a mistake” to present the same arguments again, which is an improper use of Rule 60. Debtors further argue that since NYCHA did not present any new information, the cited authority, including In re Cisneros, 994 F.2d 1462 (9th Cir.1993) and In re Waters, supra, 2007 WL 3069326, does not support the request for relief under Rule 60. G-I Opp’n at 16-17 (relying on Smith v. Evans, 853 F.2d 155 (3d Cir.1988); Hazel v. Smith, 190 Fed.Appx. 137 (3d Cir.2006); and Pazzo Pazzo, Inc. v. New Jersey (In re Pazzo Pazzo), 2007 WL 437685 (Bankr.D.N.J. Feb. 5, 2007)). Nor, according to G-I, is NYCHA’s use of Rule 60(a) appropriate, because the rule applies only to corrections of technical or mechanical errors, not to NYCHA’s request for clarification that all the product types identified were not disallowed by the December 14, 2010 Opinion, which G-I argues “seeks to unravel the entire Opinion, not correct a typo.” G-I Opp’n at 19 (arguing that the thirty-two references to “VAT” are not in the nature of a typographic error).
Finally, G-I argues NYCHA failed to provide a reason to find “inequity” in the Opinion so as to properly support its request to modify the Opinion under 11 U.S.C. § 105(a). G-I alleges NYCHA, nearly a year after an order was entered, is asking the Court to invoke its equitable power because NYCHA did not “understand, or did not attempt to understand, the order’s implications.” Id. at 17-18. Debtors argue there is no inequity and thus no reason to employ § 105. Id. (citing In re Beaty, 306 F.3d 914, 922 (9th Cir.2002); In re Con’t Airlines, 203 F.3d 203 (3d Cir.2000); In re United Steel Enters., Inc., 2006 WL 3544583 (D.N.J. Dec. 8, 2006); In re G-I Holdings, Inc., 327 B.R. 730 (Bankr.D.N.J.2005)).
On February 16, 2012, the Court held a hearing on the Motion. At the hearing, NYCHA repeated its belief that it has consistently understood and represented the scope of the NYCHA Claim to include various asbestos-containing materials, not simply VAT, and that until October 2011, it was under the impression that the understanding was mutual. NYCHA argued the Opinion did not render a decision on the merits of the NYCHA Claim, but is more correctly viewed as a decision on whether NYCHA properly pled a claim in a timely fashion. NYCHA believes it is within the equitable power of the Court, pursuant to In re Waters and under Fed. R. Bankr.P. 9024, to correct or amend the Opinion because there has been no active reliance on the Order. Further, it argues, to deny the Motion to Correct Mistake could lead to potential for the Opinion to be read inconsistently.
G-I argues the plain meaning of the Opinion and the subsequent Order is that “this case is limited to a VAT case.” They recall that the original objection to the NYCHA Claim was not merely on statute of limitations grounds, but also for failure to sufficiently support the NYCHA Claim. G-I pointed to three parts of the Opinion to support Debtors’ understanding that the Court limited the subject of the NYCHA Claim to VAT. G-I, while acknowledging the last sentence in Subsection F did ap*277pear in the background section, contends the section itself reflects the “shared understanding of the litigants and the Court as to what is before the Court, as to what the case was about” based on the proofs submitted to the Court and argues there is a distinction between what was presented by NYCHA to be the subject of the NY-CHA Claim and what the Court determined the subject to be. The Debtors also point to pages 669 and 671 of the Opinion to reflect their understanding in the holding of the Opinion — arguing that since the Court referred to NYCHA stating a claim for “VAT,” rather than a more general term or a more complete list of asbestos-containing materials, and following that reference with a discussion of what proofs would be needed to build a more complete factual record in order to state a claim, the Court clearly indicated the case was limited to VAT. G-I asserts the Debtors relied on that reading and accordingly were prejudiced as to case strategy as well as the cost and time of discovery. Debtors reiterated their argument that NYCHA is asking the Court not merely to correct a typographic error, so Rule 60(a) does not apply; that there have not been new proofs provided, so Rule 60(b) does not apply; and that the Court, according to its own rulings, cannot use 11 U.S.C. § 105 to expand its powers under the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure.
NYCHA rebutted Debtors’ interpretation, explaining the Opinion goes through, at great length, whether a claim was established and what proofs were needed to establish a claim, but that there was no discussion of whether the Court allowed, or more relevantly, disallowed, claims other than for VAT. It argues that in each section of the Opinion the Court explicitly holds whether a particular type of claim survives the Motion to Disallow but stresses there is no such holding with respect to VAT or non-VAT claims. NYCHA argues that if the Court denies the Motion, the denial essentially means that on a scientific basis, without the opportunity for a hearing, G-I was so persuasive NYCHA may not even put on a case for the other asbestos-containing materials. It disagrees with the Debtors’ claim of true detrimental reliance and concludes that since the subject Opinion is the Court’s decision, the Court can say whether it meant VAT in the broad sense or the specific under its inherent equitable power.
STANDARDS OF LAW
“Bankruptcy courts, as courts of equity, have the power to reconsider, modify, or vacate their previous orders so long as no intervening rights have become vested in reliance on the orders.” Cisneros v. United States (In re Cisneros), 994 F.2d 1462, 1466 (9th Cir.1993); see Meyer v. Lenox (In re Lenox), 902 F.2d 737, 739-40 (9th Cir.1990) (noting the power was formalized in Fed. R. Bankr.P. 9024). In order to meet the requirements of equity and serve the interests of justice, a bankruptcy court may reconsider any of its orders, including, if necessary, even stipulations. Lenox, 902 F.2d at 740.
Federal Rule of Bankruptcy Procedure 9024 makes Rule 60 applicable to cases under the Bankruptcy Code. Federal Rule of Civil Procedure 60 provides:
(a) Corrections Based on Clerical Mistakes; Oversights and Omissions. The court may correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment, order, or other part of the record. The court may do so on motion or on its own, with or without notice....
(b) Grounds for Relief from a Final Judgment, Order, or Proceeding. On motion and just terms, the court may relieve a party or its legal representa*278tive from a final judgment, order, or proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b); ... (6) any other reason that justifies relief.
(c) Timing and Effect of the Motion.
(1) Timing. A motion under Rule 60(b) must be made within a reasonable time — and for reasons (1), (2), and (3) no more than a year after the entry of the judgment or order or the date of the proceeding.
(2) Effect on Finality. The motion does not affect the judgment’s finality or suspend its operation.
Fed.R.Civ.P. 60.
Rule 60(a) is limited to the correction of clerical mistakes or omissions and does not include alterations to decisions deliberately made. The focus when considering a Rule 60(a) motion is the court’s intent. The court may void an order or make changes to allow the order or judgment to reflect its actual contemporaneous intentions, including modifications to resolve an ambiguity in its original order or judgment. See Burton v. Johnson, 975 F.2d 690, 694 (10th Cir.1992); United States v. Falcone, 2010 WL 1372435, at *9 (D.N.J. Mar. 31, 2010) (Wolfson, J.) (noting that Rule 60(a) allows courts to “correct records to show what was done”); Wetherbee v. Willow Lane, Inc. (In re Bestway Prods., Inc.), 151 B.R. 530, 534-35 (Bankr.E.D.Cal.1993) (reflecting the 9th Circuit rule that “any blunder in execution can be corrected under Rule 60(a), while some other procedural basis (e.g., Rule 60(b)) is needed when the court is changing its mind”), aff'd, 165 B.R. 339 (9th Cir. BAP 1994). Rule 60(a) does not apply, however, where the requested changes go “beyond merely correcting a ‘clerical mistake or a mistake arising from oversight or omission’ and instead seek to alter the substantive rights of the parties.” In re Burns & Roe Enters., 2009 WL 1372251, at *6 (D.N.J. May 15, 2009) (Brown, C.J.); see also Burton v. Johnson, supra, 975 F.2d at 694 (“A ... court is not permitted, however, to clarify a judgment pursuant to Rule 60(a) to reflect a new and subsequent intent because it perceives its original judgment to be incorrect.... Rather the interpretation must reflect the contemporaneous intent of the [court] as evidenced by the record.”).
Where clarification, rather than modification, is requested, courts in the Third Circuit have recognized that Rule 60(a) is not applicable where the court recognizes that the meaning or the effect of an order is unclear, it would “strain reason to find it apparent that the court intended one thing but by merely clerical mistake or oversight did another,” and such ambiguity or uncertainty cannot be characterized as a clerical error on the court’s part. Law Offices of William W. McVay v. Szeg, 2006 WL 2850627 (W.D.Pa. Oct. 3, 2006) (Ambrose, C.J.) (finding that where parties seek an explanation of a term, there is more than a question of “mindless and mechanistic” error and as such cannot be determined to be “a clerical error, or a mistake in copying, computation, mechanics, or other appropriate synonym”); see Pfizer v. Uprichard, 422 F.3d 124, 129-30 (3d Cir.2005) (holding that Rule 60(a) encompasses only errors that are mechanical in nature); In re Burns & Roe Enters., Inc., 2009 WL 1372251, supra; see also In re Diet Drugs Prod. Liab. Litig., 383 Fed.Appx. 242 (3d Cir. June 7, 2010). The omission of explanatory language is not a simple mechanical or typographic error, because the question of *279which rights or issues were adjudicated by the judgment “clearly and directly affects the substantive rights of the parties.” Szeg, 2006 WL 2850627, at *4.
Rule 60(b)(1) permits the court, on motion, to vacate orders entered as a result of mistake, inadvertence, surprise, or excusable neglect. Fed.R.Civ.P. 60(b)(1). Rule 60(b)(1) is concerned with mistakes of a substantive, rather than clerical, nature. Stradley v. Cortez, 518 F.2d 488, 493 (3d Cir.1975); see United States v. Falcone, supra, 2010 WL 1372435, at *8. Mistakes of law cannot, standing alone, justify granting a Rule 60(b) motion. See Smith v. Evans, 853 F.2d 155, 158 (3d Cir.1988) (citing Moolenaar v. Gov’t of the V.I., 822 F.2d 1342, 1346 (3d Cir.1987)); Pazzo Pazzo, Inc. v. New Jersey (In re Pazzo Pazzo), 2007 WL 437685, at *5 (Bankr.D.N.J. Feb. 5, 2007) (Winfield, J.); accord United Student Aid Funds v. Espinosa, — U.S. -, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010) (holding erroneous judgments are not per se void pursuant to Rule 60(b)(4)).
Rule 60(b) motions cannot serve as an appeal or relitigation of previously contested issues. If a party may seek the same relief by filing an appeal, granting a Rule 60(b) motion is improper. See Smith v. Evans, 853 F.2d at 158; Pazzo Pazzo, 2007 WL 437685, at *5; cf. Martinez-McBean v. Gov’t of the V.I., 562 F.2d 908, 911 (3d Cir.1977) (prohibiting the use of Rule 60(b)(6) as an appeal of previously determined issues). Courts in this Circuit have looked at the function, rather than the form or caption, of Rule 60(b) motions. See United States v. Fiorelli, 337 F.3d 282, 287-88 (3d Cir.2003); Smith v. Evans, 853 F.2d at 158-59; Turner v. Evers, 726 F.2d 112, 114 (3d Cir.1984). If a motion made under Rule 60(b) seeks only to relitigate the original issues, repeats the arguments previously raised, and raises no new issues, that motion is considered more properly a Fed.R.Civ.P. 59(e) motion for reconsideration. See, e.g., Hazel v. Smith, 190 Fed.Appx. 137, 138 (3d Cir.2006).
A threshold issue to determining whether a Rule 60 motion can prevail is whether the motion is filed timely. Motions filed pursuant to Rule 60(b) must be made within a “reasonable time.” Fed. R.Civ.P. 60(c). Additionally, claims made under Rule 60(b)(1) are untimely per se if made more than one year from the entry of judgment. Id. However, even if Rule 60(b)(1) motions are brought within the one year time frame, they may still be untimely if an unreasonable period of time has passed. In re Diet Drugs Prod. Liab. Litig., 383 Fed.Appx. at 246; Taylor v. Taylor (In re Taylor), 357 B.R. 360, 364 (Bankr.W.D.Pa.2006) (“The one year time period ... is an outer limit and any Rule 60(b) motion is subject to denial if it is not also made within a reasonable time after the basis for relief is known.”) (citing Defeo v. Allstate Ins. Co., 1998 WL 328195, at *5 (E.D.Pa.1998)). What constitutes a reasonable time depends on a case-by-case examination of the circumstances and includes factors such as finality, reason for delay, the practical ability for the litigant to learn of the ground relied upon earlier, and potential prejudice to other parties. In re Diet Drugs Prod. Liab. Litig., 383 Fed.Appx. at 246 (citing Kagan v. Caterpillar Tractor Co., 795 F.2d 601, 610 (7th Cir.1986)).
Analysis AND OpinioN of Law
At the outset, the Court acknowledges it has independent, discretionary authority to review, amend, correct, or clarify its own Opinion and other orders under its inherent equitable power. See Utica Leaseco, LLC v. GMI Land Co., LLC, 2011 WL 2458065, at *5 (W.D.Pa. June 16, 2011) (“Bankruptcy courts generally have ‘inde*280pendent authority’ to reconsider their own orders pursuant to Section 105.”); see also Zurich Am. Ins. Co. v. Int’l Fibercom, Inc. (In re Int’l Fibercom, Inc.), 503 F.3d 933, 945 (9th Cir.2007) (“Aside from Rule 60(b)(6), the bankruptcy court also had the discretionary power to reconsider its order.”); Rodriguez v. EMC Mortgage Corp. (In re Rodriguez), 252 F.3d 435, at *2 (5th Cir. Mar. 15, 2001) (per curiam) (“[T]he bankruptcy court had jurisdiction to interpret its own order, thereby giving it the power to entertain the motion for clarification.”); cf. G.W. Palmer & Co., Inc. v. Dye (In re Tanimura Distrib., Inc.), 2011 WL 3299933, at *6 (9th Cir. BAP Mar. 11, 2011) (“As courts of equity, bankruptcy courts have broad discretion under Rule 9024 to reconsider, vacate, or modify past orders. [Rule 9024] does not restrict the bankruptcy court’s power to reconsider any of its previous orders when equity so requires.”) (internal citations omitted).
Here, NYCHA is asking the Court to clarify its intent in stating that “the alleged asbestos-containing products that are the subject of the claim are non-friable asbestos-containing floor tiles (‘VAT’).” G-I argues that Rule 60(a) is inapplicable because the scope of the requested relief goes beyond the correction of a mechanical mistake or typographic error.
The conflicting interpretations do not arise from a single mechanical error but from parsing the language of the December 14, 2010 Opinion. It is not just one sentence in the Background section that gives rise to G-I’s reading of our holding but references throughout the Opinion to “VAT” as the subject of the NYCHA Claim. Merely mechanically replacing “VAT” with “asbestos-containing materials” would not be a simple exchange of equivalent terms nor would it be the remedy requested by NYCHA. The Court finds Rule 60(a) inapplicable to this situation.
G-I also argues that Rule 60(b) does not apply in this situation because NYCHA did not bring its Motion in a reasonable time and because, it alleges, the Motion is an attempt to relitigate issues decided in the December 14, 2010 Opinion.
Turning first to the procedural considerations, the Court holds the Motion was brought not only within the statutorily-defined one year period but also within a reasonable time. The Motion to Correct Mistake was filed 356 days after the December 22, 2010 Order was entered, which satisfies the rule 60(c) requirement. With respect to reasonableness, the Court finds there was no unreasonable delay on NY-CHA’s part. The last paragraph of Subsection F is ambiguously constructed and could have given rise to multiple interpretations. Thus, it is not unreasonable that each party could have proceeded with discovery unaware of the differing readings of the Opinion until a disagreement over the proper scope of production arose. Further, the Court finds any prejudice to the Debtors from the clarification of the Opinion would arise simply from the delay in litigation and the expanded scope of discovery.8 While the potential cost of protracted litigation would not be de min-*281imus, the Court is not convinced the increased cost would outweigh the result of limiting the subject matter of the NYCHA Claim without allowing NYCHA to present proofs in support of its claims. Thus, the Court finds the Motion to Correct Mistake was brought within a reasonable time.
The Court also finds NYCHA is not attempting to use a Rule 60(b)(1) motion to relitigate issues previously before the Court. NYCHA does not argue the Court was incorrect in its December 14, 2010 Opinion nor does it ask the Court to reevaluate the sufficiency of its non-VAT asbestos-containing materials claims. The only discussion of whether NYCHA has provided sufficient support for its restitution and indemnity claims based on the abatement of roofing, Calsilite (TSI), or raw asbestos fiber is found in the Debtors’ papers. NYCHA has requested the Court clarify its Opinion, not reevaluate it. Thus, the Court finds Debtors’ reliance on Smith v. Evans; Hazel v. Smith; and In re Pazzo Pazzo, Inc. to be misplaced and that NYCHA is not attempting to reliti-gate issues determined in the December 14, 2010 Opinion.
We do not find, however, Rule 60(b)(1) is applicable to the instant request. While the instant Motion is styled a “Motion to Correct Mistake,” the relief requested is not correction of a mistake, either legal or factual. NYCHA argues the last sentence in Subsection F of the Opinion contains a factual mistake because it did not file any additional supporting documentation after its First Supplemental Submission on November 17, 2008. No “mistake” was made, however. The sentence is ambiguous, but it does not state supplemental documentation was filed after November 17, 2008.
The Court is not being asked to modify or change its Opinion, but to clarify it. Neither G-I nor NYCHA are asking the Court to change its mind or its determination of whether claims for asbestos-containing materials other than VAT are allowed or disallowed. Instead, each argues its own interpretation was that which the Court intended. In light of the nature of the request, we hold the inquiry is more properly determined under the Court’s equitable powers, not Rule 60.
The Court does not agree with Debtors’ argument that granting the Motion to Correct Mistake would be akin to “unraveling the entire Opinion.” NYCHA correctly characterized the Opinion as an examination of whether certain pleading standards had been met with respect to the NYCHA Claim and a holding that there was an insufficient record before the Court to make a factual determination as to the indemnity and restitution claims at that time. And as G-I indicated, the Court set forth a list of the issues of fact that would need to be determined in order for the Court to make a factual finding as to the sufficiency of the claims for indemnity and restitution.
[20] The Opinion did not decide whether NYCHA had supported its claim with respect to the different types of asbestos-containing materials. There is only one instance where the different types of materials are distinguished, which is the last paragraph of Subsection F. Throughout the rest of the Opinion, the Court continued to use ‘VAT” as a reference to the asbestos-containing materials that are the subject of the NYCHA Claim.9 Complete*282ly absent from the Opinion is any explanation as to either the allowance or disallowance of claims based on the abatement of certain asbestos-containing materials as distinct from others.
The December 14, 2010 Opinion explicitly held that Debtors’ Motion to Disallow was premature as to restitution and indemnity claims without further development of the factual record and that NY-CHA would be allowed a future opportunity to present proofs in support. To limit the subject asbestos-containing materials without some explanation or without allowing NYCHA that opportunity would create a reading of the Opinion in which it contradicted itself. The Court did not intend to limit the subject of the NYCHA Claim to VAT tiles to the exclusion of other asbestos-containing materials because to do so at this point would be premature. NYCHA will have an opportunity to present further proofs related to each type of asbestos-containing material included in its Proof of Claim and Supplemental Submission with respect to the issues of fact identified in the December 14, 2010 Opinion.
CONCLUSION
For the forgoing reasons and to the extent that NYCHA asks the Court to clarify that NYCHA’s claims include all the product types specified in its claim and supplemental submission, the Motion to Correct Mistake in the Court’s December 14, 2010 Opinion is GRANTED. An order shall be submitted in accordance with this decision.
. For a more complete procedural history, see In re G-I Holdings, Inc., 443 B.R. 645 (Bankr.D.N.J.2010); United States v. G-I Holdings, Inc. (In re G-I Holdings, Inc.), 2009 WL 4911953 (D.N.J. Dec. 14, 2009); In re G-I Holdings, Inc., 2006 WL 2595264 (D.N.J. Sept. 8, 2006); In re G-I Holdings, Inc., 2006 WL 2403531 (Bankr.D.NJ. Aug. 11, 2006); Official Comm. of Asbestos Claimants v. Bldg. Materials Corp. of Am. (In re G-I Holdings, Inc.), 338 B.R. 232 (Bankr.D.N.J.2006), vacated, 2006 WL 1751793 (D.N.J. Jun. 21, 2006); G-I Holdings, Inc. v. Bennett (In re G-I Holdings, Inc.), 328 B.R. 691 (D.N.J.2005); Official Comm. of Asbestos Claimants v. G-I Holdings, Inc. (In re G-I Holdings, Inc.), 385 F.3d 313 (3d Cir.2004); G-I Holdings, Inc. v. Bennett (In re G-I Holdings, Inc.), 380 F.Supp.2d 469 (D.N.J.2005); Official Comm. of Asbestos Claimants v. Bank of N.Y. (In re G-I Holdings, Inc.), 318 B.R. 66 (D.N.J.), aff'd, 122 Fed.Appx. 554 (3d Cir.2004); In re G-I Holdings, Inc., 218 F.R.D. 428 (D.N.J.2003); In re G-I Holdings, Inc., 2003 WL 22273256 (D.N.J. Aug. 8, 2003); Official Comm. of Asbestos Claimants v. G-I Holdings, Inc. (In re G-I Holdings, Inc.), 295 B.R. 502 (D.N.J.2003); United States v. G-I Holdings, Inc. (In re G-I Holdings, Inc.), 295 B.R. 222 (D.N.J.2003); Official Comm. of Asbestos Claimants v. G-I Holdings, Inc. (In re G-I Holdings, Inc.), 295 B.R. 211 (D.N.J.2003); Official Comm. of Asbestos Claimants v. G-I Holdings, Inc. (In re G-I Holdings, Inc.), 327 B.R. 730 (Bankr.D.N.J.2005); In re G-I Holdings, Inc., 323 B.R. 583 (Bankr.D.N.J.2005); G-I Holdings, Inc. v. Those Parties Listed on Ex. A (In re G-I Holdings, Inc.), 313 B.R. 612 (Bankr.D.N.J.2004); In re G-I Holdings, Inc., 308 B.R. 196 (Bankr.D.N.J.2004); In re G-I Holdings, Inc., 292 B.R. 804 (Bankr.D.N.J.2003); G-I Holdings, Inc. v. Hartford Accident & Indem. Co. (In re G-I Holdings, Inc.), 278 B.R. 376 (Bankr.D.N.J.2002); G-I Holdings, Inc. v. Reliance Ins. Co. (In re G-I Holdings, Inc.), 278 B.R. 725 (Bankr.D.N.J.2002).
. For ease of reference, the Reorganized Debtors will be collectively referred to as "Debtors” or "G-I.”
. The Court notes that NYCHA did not at any point in the November 17, 2008 supplementary Sling categorize the vinyl asbestos floor tiles as “friable” or "non-friable.”
. NYCHA refers to the claims as "non-discharged.” The December 14, 2010 Opinion, however, held that certain claims were not disallowed at present but determined a decision as to whether the claims were allowed would be premature.
. G-I expressly maintains its position that all of NYCHA's claims, including those for indemnity and restitution, are time barred. G-I Opp'n at 3 n. 1, 10 n. 24; cf. G-I Opp'n at 20 nn. 32-33.
. Rule 26(b)(1) provides:
(1) Scope in General. Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense— including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter.
.The Order Granting in Part and Denying in Part Debtors’ Mot. to Disallow was entered on December 22, 2010. The instant Motion was filed on December 13, 2011, or 356 days after the Order was entered.
. In so finding, the case of Law Offices of William W. McVay v. Szeg is informative. In that case, appellants argued that prolonging litigation would result in unfair prejudice and that the Rule 60(b) motion was merely a stall tactic by the appellees. The court held that while granting the Rule 60(b) motion would result in prolonged litigation, the Rule "certainly contemplates that some judgments will be vacated” and thus the lengthened proceedings did not prejudice the appellants. The court also held that whether the use of a Rule 60(b) motion as a litigation tactic was proper had no bearing on whether appellants were prejudiced. 2006 WL 2850627, at *5.
. The Court does not find convincing G-I's argument that since the term "VAT” appeared more frequently than the names of other types of asbestos-containing materials, the Court had explicitly limited the subject of the NY-CHA Claim to VAT. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488703/ | PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
No. 21-3317
_______________
JOHAN MANUEL GONZALEZ AQUINO,
Petitioner
v.
ATTORNEY GENERAL UNITED STATES OF AMERICA
_______________
On Petition for Review of a Final Order of the
Board of Immigration Appeals
(Agency No. A057-135-446)
Immigration Judge: Mirlande Tadal
_______________
Argued: September 14, 2022
Before: KRAUSE, BIBAS, and RENDELL, Circuit Judges
(Filed: November 22, 2022 )
_______________
Stephanie E. Norton [ARGUED]
SETON HALL UNIVERSITY SCHOOL OF LAW
CENTER FOR SOCIAL JUSTICE
833 McCarter Highway
Newark, NJ 07102
Counsel for Petitioner
Robert Lundberg [ARGUED]
Sarah Pergolizzi
UNITED STATES DEPARTMENT OF JUSTICE
OFFICE OF IMMIGRATION LITIGATION
P.O. Box 878
Ben Franklin Station
Washington, DC 20044
Counsel for Respondent
_______________
OPINION OF THE COURT
_______________
BIBAS, Circuit Judge.
“No harm, no foul” is usually good law. If someone spots a
flaw in his agency proceeding and asks for a remand, he nor-
mally must show that the flaw prejudiced his outcome. Excep-
tions to this requirement are rare.
Johan Manuel Gonzalez Aquino says the procedural flaws
in his removal hearing qualify for such exceptions. They do
not. Nor did they prejudice the outcome. So we will deny his
petition for review.
I. GONZALEZ AQUINO FACES REMOVAL
Gonzalez Aquino is a citizen of the Dominican Republic
and a lawful permanent resident of the United States. Over the
past decade, he has been convicted of burglary, escape, theft,
trespass, and more. His two most recent convictions, theft and
conspiracy to commit theft, were aggravated felonies and thus
2
made him removable. So the government began removal
proceedings.
Gonzalez Aquino sought to defer his removal under the
Convention Against Torture. He claimed that if he returned to
the Dominican Republic, he would face two separate threats.
First, as a teenager, he got into a gambling dispute with a man
who belonged to a well-known criminal gang. The man threat-
ened to kill him, so he moved to the United States.
Second, while in the United States, Gonzalez Aquino was
arrested for murdering another Dominican. The murder
charges were later dropped, but the damage was done: the mur-
der and arrest had been publicized in the Dominican Republic.
The victim’s family then threatened to kill him if he returned.
After a hearing, the Immigration Judge rejected his argu-
ments, finding that he had not shown that he would likely be
tortured or that the Dominican government would acquiesce to
any torture. The proceedings were less than ideal: the judge
used legal jargon without explaining it, said little about what
evidence he needed to present, and asked few questions. Plus,
the videoconference was malfunctioning: though the judge
could see him, he could not see her. But the Board of Immigra-
tion Appeals still dismissed the appeal.
Gonzalez Aquino now petitions for review, challenging
both the hearing’s procedure and the Board’s substantive deci-
sion. Because he is removable for committing an aggravated
felony, we lack jurisdiction to review the Board’s factual or
discretionary decisions. 8 U.S.C. § 1252(a)(2)(C). But we re-
view its legal conclusions and Gonzalez Aquino’s
3
constitutional claims de novo. § 1252(a)(2)(D); Myrie v. Att’y
Gen., 855 F.3d 509, 515 (3d Cir. 2017).
II. ALMOST ALL ERRORS REQUIRE PROOF OF PREJUDICE
Gonzalez Aquino argues that he need not prove that certain
errors prejudiced him. We have held that when an agency vio-
lates “a regulation protecting fundamental statutory or consti-
tutional rights,” we will remand without requiring proof of
prejudice. Leslie v. Att’y Gen., 611 F.3d 171, 180 (3d Cir.
2010). But we have not yet defined what rights are “fundamen-
tal” under this test. It is time to do so.
For most constitutional violations, we ask whether any er-
ror was harmless. Arizona v. Fulminante, 499 U.S. 279, 306–
07 (1991); Serrano-Alberto v. Att’y Gen., 859 F.3d 208, 213
(3d Cir. 2017). But in Leslie, we went one step further: we
required automatic remand—regardless of prejudice—for vio-
lations of regulations protecting fundamental rights. Though
we did not define fundamental rights, we were concerned with
rights that, if violated, make an agency proceeding “fundamen-
tally unfair.” Leslie, 611 F.3d at 181. Leslie focused both on
the significance of the right for fair hearings and on the struc-
ture needed to secure the right. See id. at 176, 181 (drawing on
United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260,
266–67 (1954), which prevented the Attorney General from
“sidestep[ping] the Board or dictat[ing] its decision”).
Criminal procedure has a direct analogue for Leslie’s ap-
proach: structural errors that make trials fundamentally unfair.
A structural error “ ‘affect[s] the framework within which the
trial proceeds,’ rather than being ‘simply an error in the trial
process itself.’ ” Weaver v. Massachusetts, 137 S. Ct. 1899,
4
1907 (2017) (quoting Fulminante, 499 U.S. at 310). There are
three categories of structural errors. But outside of direct crim-
inal appeals, only one category requires automatic remand. See
id. at 1911–12; Barney v. Adm’r of N.J. State Prisons, 48 F.4th
162, 165 (3d Cir. 2022). That category comprises errors that
“always result[ ] in fundamental unfairness,” such as being de-
nied the right to counsel. Weaver, 137 S. Ct. at 1908.
Leslie also took aim at “fundamental unfairness,” typified
by denial of the right to counsel. 611 F.3d at 181 (internal quo-
tation marks omitted). Leslie involved a regulation requiring
immigration judges to tell aliens of their right to counsel and
to give them a list of pro bono lawyers. 8 C.F.R.
§ 1240.10(a)(2)–(3) (2010). This regulation protects the funda-
mental right to counsel. We held that a violation of that right
so undermines the structure of the hearing that we must auto-
matically remand. Leslie, 611 F.3d at 180–82.
But we have declined to extend Leslie any further. See, e.g.,
FDRLST Media, LLC v. NLRB, 35 F.4th 108, 120–21 (3d Cir.
2022) (requiring proof of prejudice for NLRB venue regula-
tion); B.C. v. Att’y Gen., 12 F.4th 306, 314, 318–19 & n.9 (3d
Cir. 2021) (holding that denying an alien an interpreter preju-
diced the alien and thus violated due process, but declining to
reach the Leslie issue). Our reluctance fits Leslie and Weaver’s
rationale: the question is not just how important the right is in
the abstract, but also whether the violation undermines the
structure of the hearing and necessarily prejudices the
outcome.
So to clarify Leslie, we hold that for a regulation to protect
a fundamental right, a violation must be a structural error that
5
necessarily makes proceedings fundamentally unfair. Very few
rights will fit this extraordinary category. By analogy to
Weaver, these include the rights to counsel and to an unbiased
judge. But rights outside this category are not fundamental
enough to trigger Leslie’s “presumption of prejudice.”
Calderon-Rosas v. Att’y Gen., 957 F.3d 378, 390 n.9 (3d Cir.
2020).
III. GONZALEZ AQUINO SHOWS
NO FUNDAMENTAL OR PREJUDICIAL ERROR
Gonzalez Aquino alleges four procedural errors. But none
triggers Leslie’s presumption, and none affected the outcome.
See Serrano-Alberto, 859 F.3d at 213 (describing the required
prejudice).
A. Using jargon neither violated a fundamental right
nor caused prejudice
Gonzalez Aquino claims that the Immigration Judge did not
“explain [the charges] in non-technical language.” 8 C.F.R.
§ 1240.10(a)(6). He is right: in describing his convictions, she
used technical terms like “aggravated felony” and “crimes in-
volving moral turpitude nor [sic] arising out of a single scheme
of criminal misconduct” without explaining them. AR 157–60.
He asserts a fundamental due-process right to have judges ex-
plain jargon, but he cites no authority for that claim. We see no
fundamental right here. Legal jargon has long confused people.
Our system handles this confusion not by banning jargon, but
by guaranteeing the fundamental right to counsel. Plus, jargon
causes problems at discrete points in a hearing rather than un-
dermining the entire hearing’s framework. So the error is not
structural, and Gonzalez Aquino must prove prejudice.
6
He does not. Gonzalez Aquino notes a technical misunder-
standing during the hearing. Pet’r’s Br. 14. But in that misun-
derstanding, the judge was substantively right. AR 161. And
Gonzalez Aquino does not dispute that the judge correctly
identified his convictions or that those convictions make him
removable. So he suffered no prejudice.
B. The judge adequately advised Gonzalez Aquino that
he had to present evidence
Gonzalez Aquino next says that the judge told him only
once that he needed to put on evidence and never told him what
specific kind of evidence he needed. A regulation requires im-
migration judges at removal hearings to advise aliens that they
will have a reasonable chance to put on evidence, examine and
object to adverse evidence, and cross-examine government
witnesses. 8 C.F.R. § 1240.10(a)(4). But that requirement goes
to specific pieces of evidence that Gonzalez Aquino failed to
introduce or challenge, not to the framework of the proceeding.
Unlike a violation of the right to counsel, a violation of the
right to present evidence can be addressed on appeal discretely.
Petitioners can identify the evidence they would have put on,
and we can evaluate whether it would have made a difference.
So violations of this right do not trigger Leslie’s presumption
of prejudice.
In any event, the judge here complied with the regulation.
She told Gonzalez Aquino that “you need to provide very spe-
cific details and evidence in support of your claim.” AR 162.
And she specified that “you need to establish that it is more
likely than not that you would be tortured, if not by the gov-
ernment but at the consent, acquiescence or willful blindness
7
of the government if you returned to [the] Dominican Repub-
lic.” Id. This advice satisfied her regulatory duty to tell Gonza-
lez Aquino that he could present evidence.
Gonzalez Aquino complains that the judge should have
done more, but he shows no prejudice. He protests that he
offered to name his persecutors and that he did not know that
his father had not submitted an affidavit. But he knew what
kind of evidence he needed to present. After all, he asked his
father to submit the affidavit. And when the government in-
formed him that the affidavit was not in evidence, he expressed
no surprise that he was able or expected to produce evidence.
Instead, he testified that he “thought it was done.” AR 191. He
also offered a notarized report from his hometown describing
the first threat to his life. This was the kind of specific, relevant
evidence that he needed to present. And at oral argument, coun-
sel could not name anything else that he would have introduced
that might have changed the outcome. Nor did his brief suggest
what difference these additional pieces of evidence would have
made. So even if the judge should have said more, that failure
did not prejudice him.
The government objects that we should not even be consid-
ering this claim because Gonzalez Aquino never exhausted it.
But exhaustion is a low bar. It requires only a basic effort to
inform the Board that a claim exists. Hernandez Garmendia v.
Att’y Gen., 28 F.4th 476, 485 (3d Cir. 2022). He did that here.
In his notice of appeal, he wrote, “I believe that the judge said
that I was credible but did not have enough evidence. I don’t
remember her telling me what kind of evidence I needed or
giving me a chance to explain why I couldn’t get more
8
evidence.” AR 124. That statement was enough to notify the
Board and exhaust the claim.
C. The one-way videoconference did not prejudice
Gonzalez Aquino
Next, Gonzalez Aquino points to the lack of two-way video
at his hearing. His detention center’s technology kept failing:
immigration judges could see detainees but not vice versa.
Regulations allow hearing by videoconference but require an
alien’s consent to hold a hearing by telephone. 8 C.F.R.
§§ 1003.25(c), 1229a(b)(2)(B). As Gonzalez Aquino correctly
observes, videoconferencing protects two important interests:
“The Respondent can be seen by those present in the court, and
the Respondent can see those present in the court.” AR 81. By
contrast, a telephonic hearing is purely auditory. As the Immi-
gration Judge could see Gonzalez Aquino, his hearing was a
defective videoconference rather than a telephonic hearing. In
any event, because Gonzalez Aquino does not argue that this
glitch violated a fundamental right, we ask whether he has
shown prejudice. He has not.
He argues that the judge switched the exhibit numbers on
two pieces of evidence—Gonzalez Aquino’s own exhibits—
but does not explain how that harmed him. And he says that
the one-way video made him less coherent and persuasive. Yet
the Immigration Judge found his testimony “credible … candid
and responsive.” AR 130. And he does not point to any mate-
rial argument that he would have made more persuasively. So
the one-way video did not prejudice him either.
9
D. The Immigration Judge adequately developed the
record
Gonzalez Aquino also argues that the judge failed in her
duty to develop the record. The parties quibble about how far
this duty extends. Regardless, he has not shown prejudice. He
argues that the judge did not ask enough questions. But the
government’s lawyers developed the record by asking plenty
of questions. Plus, Gonzalez Aquino does not point to any fact
that would have emerged connecting the Dominican govern-
ment to the threats. He also says that the judge should have
considered country-conditions evidence more carefully, but
that evidence would have shown only general corruption and
brutality. Gonzalez Aquino needed to show that conditions
existed that would affect him personally. So this argument fails
too.
IV. THE BOARD CORRECTLY DENIED
GONZALEZ AQUINO’S TORTURE CLAIM
Finally, Gonzalez Aquino argues that the Board substan-
tively erred in analyzing his Convention Against Torture claim.
Although we cannot review factual determinations for most of
Gonzalez Aquino’s appeal, that is not the case for his torture
claim. Grijalva Martinez v. Att’y Gen., 978 F.3d 860, 871 n.11
(3d Cir. 2020). Here, we apply the deferential substantial-evi-
dence standard. Id. The Board needed to answer two questions:
Would he be tortured if he were removed to the Dominican
Republic? And would the Dominican government cause or ac-
quiesce to that torture? Myrie, 855 F.3d at 516. He insists that
the Board ignored key evidence and answered these questions
incorrectly.
10
But Gonzalez Aquino failed to meet his burden of proving
government acquiescence. At his hearing, he admitted that he
“d[id]n’t see any reason why the Dominican Republic or the
Dominican government would seek to do [him] any harm if
[he] returned.” AR 192. He did speculate that his persecutors
could have a relationship with the government. But he admitted
that he did not know of any such relationship and had no proof
of one. Because he bore the burden of proof, this admission is
fatal. And it undermines counsel’s speculation at oral argument
that further questioning might have revealed that the criminal
group that threatened him was linked to the government. Gon-
zalez Aquino also says he should have been able to develop the
record on other points. But no elaboration on the dangerous-
ness of his persecutors, the severity of his fear, or the govern-
ment’s corruption can make up for that missing proof of gov-
ernment involvement or acquiescence. So the Board correctly
denied relief.
*****
The Board got it right on the merits: Gonzalez Aquino ad-
mitted that he had no evidence that the Dominican government
would torture him or acquiesce to torture. And he cannot prove
that any procedural error in his hearing prejudiced him. His
only hope is to show that, under Leslie, one of the procedural
errors was structural and necessarily made his hearing funda-
mentally unfair. He cannot. So we will deny his petition for
review.
11 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488729/ | J-S27011-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
COMMONWEALTH OF PENNSYLVANIA IN THE SUPERIOR COURT
OF PENNSYLVANIA
Appellee
v.
ERIC GERMAN
Appellant No. 2139 EDA 2021
Appeal from the Order Entered September 30, 2021
In the Court of Common Pleas of Lehigh County
Criminal Division at No.: CP-39-CR-0004517-2008
BEFORE: STABILE, J., NICHOLS, J., and SULLIVAN, J.
MEMORANDUM BY STABILE, J.: FILED NOVEMBER 22, 2022
Appellant appeals from the September 30, 2021 order entered in the
Court of Common Pleas of Lehigh County (“trial court”), following the denial
of his self-styled “Motion to Modify Sentence Nunc Pro Tunc” (the “Motion”).
Upon review, affirm.
The facts and procedural history of this case are undisputed. As
recounted by a prior panel of this Court in connection with Appellant’s appeal
from the denial of his petition filed pursuant to the Post Conviction Relief Act
(“PCRA”):
On January 13, 2009, Appellant entered a plea of guilty to Rape
of a Child [(18 Pa.C.S.A. § 3121(c))]. Appellant was sentenced to
a term of imprisonment of not less than ten (10) years nor more
than forty (40) years in a state correctional institution [and
deemed a sexually violent predator (SVP)]. On August 28, 2009,
Appellant filed a direct appeal. On June 18, 2010, the Superior
Court affirmed this court’s judgment of sentence. Thereafter, a
motion for writ of habeas corpus was filed on September 7, 2010,
J-S27011-22
and an amended [PCRA petition] was filed on October 29, 2010.
Then, on November 22, 2010, Appellant withdrew his [PCRA
petition]. Thereafter, on February 4, 2011, Appellant filed a
second motion for writ of habeas corpus, which the court denied
on April 6, 2011. Also, on June 13, 2011, Appellant filed a pro se
motion for writ of habeas corpus, and on June 15, 2011, Appellant
filed a pro se supplemental motion for writ of habeas corpus. The
court denied said motion on July 26, 2011. Then, Appellant filed
another petition seeking post conviction collateral relief on July
12, 2012, that the court subsequently denied. Appellant filed
another [PCRA petition] on December 10, 2014. After providing
Appellant with notice of its intent to dismiss this subsequent
motion for [collateral relief], the court denied Appellant’s
requested relief on January 13, 2015. Thereafter, on August 17,
2017, Appellant filed a sixth [PCRA] petition. The court again
provided Appellant with notice of its intent to dismiss this petition
on August 23, 2017. Thereafter, on September 13, 2017, the
court denied said petition. The within appeal followed on or about
September 20, 2017.
Commonwealth v. German, No. 3120 EDA 2017, unpublished
memorandum, at *1-2 (Pa. Super. filed August 9, 2018) (unnecessary
capitalizations, brackets and footnotes omitted). On August 9, 2018, we
affirmed the denial of Appellant’s sixth PCRA petition, concluding it was
untimely.
On September 16, 2021, Appellant filed the Motion at issue, seeking the
nunc pro tunc reinstatement of his right to file post-sentence motions. Upon
reinstatement, Appellant intends to request the modification of his sentence
for purposes of removing the no-contact provision with his victim, his
biological daughter, whom he raped when she was 10 years old. On
September 30, 2021, the trial court denied the motion. Appellant timely
-2-
J-S27011-22
appealed. The trial court did not direct Appellant to file a Pa.R.A.P. 1925(b)
statement of errors complained of on appeal.
On appeal, Appellant presents a single issue for our review.
[I.] Did the lower court abuse its discretion when it denied nunc
pro tunc relief from a no-contact provision in the sentencing order,
prohibiting Appellant from contacting his daughter, where: (1)
Appellant has made reasonable efforts at rehabilitation; (2) the
victim is currently over the age of 18; and (3) Appellant’s daughter
contacted him requesting assistance.
Appellant’s Brief at 3 (unnecessary capitalizations omitted).
At the outset, we note that the Motion should have been treated as one
falling under the PCRA. The plain language of the PCRA provides that “[t]he
[PCRA] shall be the sole means of obtaining collateral relief and encompasses
all other common law and statutory remedies for the same purpose.” 42
Pa.C.S.A. § 9542. Cognizant of the stated purpose of the PCRA, we have held
that any petition filed after an appellant’s judgment of sentence becomes final
must be treated as a PCRA petition where the PCRA provides for a potential
remedy. See, e.g., Commonwealth v. Taylor, 65 A.3d 462, 466 (Pa. Super.
2013) (“all motions filed after a judgment of sentence is final are to be
construed as PCRA petitions”) (citation omitted); Commonwealth v. Evans,
866 A.2d 442, 442-44 (Pa. Super. 2005) (where defendant’s motion for
modification of sentence was filed after conclusion of 10-day post-sentence
and 30-day appeal filing periods, motion was properly treated as PCRA
petition); Commonwealth v. Eller, 807 A.2d 838, 842 (Pa. 2002) (noting
that if relief is available under the PCRA, the PCRA is the exclusive means of
-3-
J-S27011-22
obtaining the relief sought). Accordingly, the Motion should have been treated
as a PCRA petition.
Having established that the Motion should be treated as PCRA petition,1
we now must determine whether the PCRA court had jurisdiction to entertain
it. A court cannot consider a PCRA petition unless the petitioner has first
satisfied the applicable filing deadline. The PCRA contains the following
restrictions governing the timeliness of any PCRA petition.
(b) Time for filing petition.--
(1) Any petition under this subchapter, including a second or
subsequent petition, shall be filed within one year of the date the
judgment becomes final, unless the petition alleges and the
petitioner proves that:
(i) the failure to raise the claim previously was the
result of interference by government officials with the
presentation of the claim in violation of the
Constitution or laws of this Commonwealth or the
Constitution or laws of the United States;
(ii) the facts upon which the claim is predicated were
unknown to the petitioner and could not have been
ascertained by the exercise of due diligence; or
(iii) the right asserted is a constitutional right that was
recognized by the Supreme Court of the United States
or the Supreme Court of Pennsylvania after the time
period provided in this section and has been held by
that court to apply retroactively.
____________________________________________
1Our standard of review is whether the PCRA court’s findings are free of legal
error and supported by the record. Commonwealth v. Martin, 5 A.3d 177,
182 (Pa. 2010) (citation omitted).
-4-
J-S27011-22
(2) Any petition invoking an exception provided in paragraph (1)
shall be filed within one year of the date the claim could have been
presented.[2]
(3) For purposes of this subchapter, a judgment becomes final at
the conclusion of direct review, including discretionary review in
the Supreme Court of the United States and the Supreme Court
of Pennsylvania, or at the expiration of time for seeking the
review.
42 Pa.C.S.A. § 9545(b). Section 9545’s timeliness provisions are
jurisdictional. Commonwealth v. Ali, 86 A.3d 173, 177 (Pa. 2014).
Additionally, we have emphasized repeatedly that “the PCRA confers no
authority upon this Court to fashion ad hoc equitable exceptions to the PCRA
time-bar in addition to those exceptions expressly delineated in the Act.”
Commonwealth v. Robinson, 837 A.2d 1157, 1161 (Pa. 2003) (citations
omitted).
Here, the record reflects that on June 18, 2010, a panel of this Court
affirmed Appellant’s judgment of sentence. Commonwealth v. E.G., 4 A.3d
692 (Pa. Super. 2010). As Appellant did not file a petition for allowance of
appeal, his judgment of sentence became final on July 19, 2010. See 42
Pa.C.S.A. § 9545(b)(3); Pa.R.A.P. 903(a). Accordingly, because Appellant
had one year from July 19, 2010, to file his PCRA petition, the Motion is facially
untimely given it was filed on September 16, 2021, more than ten years late.
____________________________________________
2 Section 9545(b)(2) was amended, effective December 24, 2018, to extend
the time for filing from sixty days of the date the claim could have been
presented to one year. The amendment applies only to claims arising on or
after December 24, 2017.
-5-
J-S27011-22
The one-year time limitation, however, can be overcome if a petitioner
alleges and proves one of the three exceptions set forth in Section
9545(b)(1)(i)-(iii) of the PCRA. See Commonwealth v. Marshall, 947 A.2d
714, 719 (Pa. 2008). Here, Appellant has failed to allege, let alone prove, at
any stage of the proceeding any exceptions to the one-year time bar. The
Motion, properly treated as a PCRA petition, was untimely. Accordingly, the
PCRA court did not err in dismissing the Motion.3
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
____________________________________________
3While our rationale differs from the PCRA court insofar as it did not conduct
a jurisdictional analysis, it is well-settled that we may affirm on any basis.
See Commonwealth v. Clouser, 998 A.2d 656, 661 n.3 (Pa. Super. 2010),
appeal denied, 26 A.3d 1100 (Pa. 2011).
-6- | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488714/ | J-S27001-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
ANTHONY MARK WHITE : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
MICHAEL URBAN :
:
Appellant : No. 394 EDA 2022
Appeal from the Order Entered December 29, 2021
In the Court of Common Pleas of Bucks County
Civil Division at No: 2021-61552
BEFORE: STABILE, J., NICHOLS, J., and SULLIVAN, J.
MEMORANDUM BY STABILE, J.: FILED NOVEMBER 22, 2022
Appellant, Michael Urban (“Michael”), appeals from the December 29,
2021 order entered in the Court of Common Pleas of Bucks County, prohibiting
Michael from having any contact with Appellee, Anthony Mark White
(“Anthony”). Michael argues that the trial court erred as a matter of law when
it determined that Anthony had standing to file a petition against Michael
under the Protection from Abuse (“PFA”) Act, 23 Pa.C.S.A. § 6101, et seq. We
agree with Michael that Anthony lacks standing because Michael and Anthony
are not “family or household members” as defined in Section 6102 of the Act.
Because the trial court erred when it found standing, we vacate the December
29, 2021 order.
The trial court summarized the procedural history of this case in its Rule
1925(a) opinion, explaining that Anthony filed a petition on August 30, 2021,
J-S27001-22
seeking a PFA order against Michael. A temporary order was entered in
response. Michael filed a motion for reconsideration. The temporary order
was extended until December 29, 2021, when the court conducted a hearing.
At the conclusion of the hearing, the court denied Michael’s reconsideration
motion and entered a final order granting Anthony’s PFA petition for a period
of three-years.1 This timely appeal followed. Both Michael and the trial court
complied with Pa.R.A.P. 1925.
Michael asks us to consider one issue in this appeal:
Whether the trial court erred as a matter of law in finding that
[Anthony] had standing to file a petition under the [PFA] Act,
23 Pa.C.S.A. § 6101, et seq. as [Michael] and [Anthony] are not
“family or household members, sexual or intimate partners, or
persons who share biological parenthood.” 23 Pa.C.S.A. § 6102.
Michael’s Brief at 4.
Initially, we note that our standard of review “regarding an issue of
standing under the [PFA] Act is de novo and our scope of review is plenary.”
B.R.S. v. J.L., 236 A.3d 1167, 1168 (Pa. Super. 2020) (citing McCance v.
McCance, 908 A.2d. 905, 908 (Pa. Super. 2006)). In B.R.S., this Court
explained that
[t]he goal of the PFA Act is protection and prevention of further
abuse by removing the perpetrator of the abuse from the
____________________________________________
1 Relevant provisions of the order direct Michael not to “abuse, harass, stalk,
or threaten or attempt to use physical force” that would be expected to cause
bodily injury to Anthony or any other protected person. Order at ¶ 1. Further,
Michael is prohibited from stalking or harassing Traci Urban (“Traci”), who is
identified in the order as Anthony’s “Girlfriend.” Id. at ¶ 3. As will be
discussed herein, Traci is also Michael’s estranged wife.
-2-
J-S27001-22
household and/or from the victim for a period of time. As for
individuals who may seek refuge within the confines of the Act,
the statute’s protective sphere encompasses “family or household
members.” In section 6102 of the Act, the term “family or
household members” is defined as,
Spouses or persons who have been spouses, persons living
as spouses, parents and children, other persons related
by consanguinity or affinity, current or former sexual or
intimate partners or persons who share biological
parenthood.
Id. at 1168-69 (cleaned up) (quoting McCance, 908 A.2d at 908).
The trial court summarized the testimony presented at the December
29, 2021 hearing as follows:2
During the hearing, Michael testified that Anthony is dating
[Michael’s] wife Traci. [Michael] explained that he, from day one,
has had an “open” relationship with Traci. He was aware that she
was having sex with other men, including Anthony. The petition
for protection against abuse order filed by Anthony checked off
the box listing Michael as a “current or former sexual or intimate
partner with Anthony.” To dispute this, Michael testified that he
is not currently having a sexual relationship with Anthony and has
not had an intimate relationship with him. Michael stated that he
has never been in the same room as Anthony other than when he
first saw him in the Prothonotary’s Office on January 6, 2021,
while Michael was filing a PFA against Traci and Traci was, at the
same time, filing a PFA against Michael.
Traci testified that Anthony is now her live-in boyfriend. Michael
is her soon-to-be ex-husband and they had been legally separated
for about one year at the time of the hearing. She met Anthony
at the pool room where she worked. She had known him for four
years and has been romantically involved with him almost two
years.
____________________________________________
2 While the trial court referred to the involved individuals by their full names,
including their respective roles in this appeal, we have taken the liberty of
referring to them by their first names, i.e., Michael, Anthony, and Traci.
-3-
J-S27001-22
Traci explained that one of Michael’s sexual fetishes was to “watch
Traci be with other men and watch, listen, and participate on
occasion.” Because of this, when Traci discovered that Anthony
was interested in her, she told Michael. Michael approved,
requested, and encouraged Traci to have a sexual relationship
with Anthony so he could listen to them have sex. In fact, Michael
wanted to meet Anthony, and later introduced himself to Anthony
and shook his hand at Traci’s New Year’s Eve 2019 to 2020 work
party. Also, “Traci would be encouraged and asked by Michael to
go have sex with Anthony. And then Anthony would ejaculate into
her vagina, and she would go home and Michael would orally take
it out of her vagina.”
Anthony did not originally know that Traci was going to call
Michael on the phone and place him on speaker so he could listen
to them having sex, but later, did know and consent to it. In
addition, Michael and Anthony negotiated for time spent with
Traci. Once, while Traci was in bed with Anthony at his house,
Michael and Anthony discussed, over the phone, that Anthony
could have Traci, but Michael wanted her for Friday nights,
“whether it be sexual or dinner or whatever,” and insisted that
Anthony respect that request.
Traci did not know of any occasion where both men were
physically in the same room or house when she was having sex
with Anthony.
Traci and Anthony had become closer, started to exclude Michael
from their relationship, and Traci told Michael that she wanted to
leave him. Traci planned to separate from Michael in December
of 2020.
Trial Court Rule 1925(a) Opinion (“TCO”), 5/10/22, at 4-5 (references to notes
of testimony omitted).
The court noted that problems arose after Michael was removed from
the triangular relationship. “They now menace each other as they (at the
same time) seek PFAs against each other.” Id. at 6 (footnote omitted).
-4-
J-S27001-22
The trial court explained that, after listening to the testimony, the court
“found that there was an ‘intimate’ relationship between [Michael, Anthony,
and Traci] because they were all aware of and consented to a triangle sexual
and intimate relationship. They openly, verbally shared [Traci] sexually and
the time they each spent with her.” Id. at 6. Quoting McCance, the court
agreed with Anthony that the PFA Act “is designed to promote peace and
tranquility of households, and among family members and intimate partners
who reside or have resided together.” Id. (quoting McCance, 908 A.3d at
907). The court also quoted this Court’s opinion in B.R.S. in which we
reiterated that
the persons who undoubtedly fit the Act’s definition of family or
household members—e.g., spouses, parents, children, relatives,
paramours, and persons who undertake romantic
relationships—typically share some significant degree of
domestic, familial and/or intimate interdependence. There
is often an obvious emotional bond. Frequently, these individuals
interface in very practical areas of private life—a mutual
residence, common family obligations and/or shared
involvement in the affairs of day-to-day living. . . . In sum,
the persons protected by the Act as a family or household
members have a connection rooted in blood, marriage, family-
standing, or a chosen romantic relationship.
Id. at 7 (emphasis added by trial court) (quoting B.R.S., 236 A.3d at 1169)
(in turn quoting Scott v. Shay, 928 A.2d 312, 315 (Pa. Super. 2007)).3
____________________________________________
3As discussed infra, this Court again quoted the language from B.R.S. and
Shay, as well as the federal law definition of “intimate partners,” in
Commonwealth v. Getkin, 251 A.3d 425 (Pa. Super. 2021). See n. 6.
-5-
J-S27001-22
Interpreting the case law, the trial court “affirmed that the parties in
this case had a prior intimate relationship and/or affinity to one another
encircling romantic and family matters[.]” Id. The court repeated its
statement made at the conclusion of the December 29, 2021 hearing, noting:
[T]he facts that have been established—and they include that
there was a permission given by Michael for his wife and Anthony
to be engaged in sexual relationships and that there was
participation on the part of Michael even though it was on a
segmented and from a temporal standpoint—it was segmented in
time. But in terms of transactions and the relationship matter was
one that was a continuing single episode [sic].
As a result, there were sexual relationships as I find the testimony
of Traci as being credible. And, frankly, there was confirmation of
that credible testimony of wife by Michael when he admitted that
he gave permission for that sexual relationship to take place.
Therefore the relationships were sufficiently intimate for purposes
of activating the standing for bringing an action under the PFA Act.
And, therefore the court concludes that standing does exist. And
Anthony may proceed as a potential protected party under the
Act.
Id. at 7 (quoting Notes of Testimony, 12/29/21, at 46-47).4
As noted at the outset, our standard of review regarding the issue of
standing under the PFA Act is de novo and our scope of review is plenary.
B.R.S., 236 A.3d at 1168. To qualify for protection under the PFA Act,
Anthony must demonstrate that he is “family or household member” under
____________________________________________
4 Again, we have taken the liberty of using the first names of the individuals
involved. We note that after the court decided the issue of standing, the
hearing proceeded in order to determine whether the PFA should be granted.
-6-
J-S27001-22
23 Pa.C.S.A. § 6102, i.e., “[s]pouses or persons who have been spouses,
persons living as spouses or who lived as spouses, parents and children, other
persons related by consanguinity or affinity, current or former sexual or
intimate partners or persons who share biological parenthood.” Clearly,
Michael and Anthony are not now, nor have they ever been, spouses, persons
living as spouses, parents, or children. Nor are they persons related by
consanguinity or affinity, or persons who share biological parenthood.5
Therefore, unless Michael and Anthony are “current or former sexual or
intimate partners,” as Anthony represented in his PFA petition, Anthony is not
entitled to protection under the PFA Act.
The record clearly reflects that Michael and Traci were spouses, and that
Anthony and Traci qualify as current sexual or intimate partners. However,
the issue here is the relationship between Michael and Anthony, and whether
____________________________________________
5 Although the trial court found, or at least suggested, Michael and Anthony
were related by affinity, see TCO, 5/10/22, at 7, we do not find affinity under
the facts here. Michael and Anthony are not “in-laws” or married to each
other’s in-laws, as was the case in B.R.S. In B.R.S., we concluded that the
petitioner had standing to seek a PFA order against his wife’s sister’s husband,
because a “person related by . . . affinity” includes all definitions of a brother-
in-law or sister-in-law. Id., 236 A.3d at 1169. See also Commonwealth v.
Walsh, 36 A.3d 613, 618 (Pa. Super. 2012) (explaining that “affinity,” while
not defined in the PFA Act, is defined in Webster’s American Dictionary, 14
(2nd College ed.2000) as, inter alia, “related by marriage or by ties other than
those of blood,” and that affinity existed between victim and appellant because
victim’s two half-siblings were natural children of appellant and victim’s
mother).
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Michael and Anthony were sexual or intimate partners so as to establish
standing under the PFA Act.
As Michael correctly notes, this Court acknowledged in Scott that the
Act does not define partners. Michael’s Brief at 8 (citing Scott, 928 A.2d at
315). Because “the term ‘partners’ is not free of all ambiguity, . . . we must
interpret the term in light of the legislators’ intent. As we have already made
clear, their intent was to prevent domestic violence and to promote peace and
safety within domestic, familial and/or romantic relationships.” Scott, 928
A.2d at 315.6
____________________________________________
6 Although in a context different from the case before us, in Commonwealth
v. Getkin, 251 A.3d 425 (Pa. Super. 2021), this Court discussed firearms
disqualifications applicable to persons who commit crimes of domestic violence
against an “intimate partner.” The Court noted that federal law defines
“intimate partner” as, “with respect to a person, the spouse of the person, a
former spouse of the person, an individual who is a parent of a child of the
person, and an individual who cohabitates or has cohabitated with the
person.” Id. at 430 (quoting 18 U.S.C. § 921(a)(32)). The Court in Getkin
further noted that while the PFA Act does not define the term, this Court had
explored the term as well as legislative intent with respect to the term in
Scott, and went on to quote the language from Scott that this Court adopted
in B.R.S., and which the trial court included in its opinion. Id.
Other jurisdictions similarly define “intimate partners,” including Kansas
(“‘Intimate partners or household members’ means persons who are or have
been in a dating relationship, persons who reside together or who have
formerly resided together or persons who have had a child in common.”
K.S.A. § 60-3012(b)); Nebraska (See State v. Gay, 18 Neb.App. 163, 166,
778 N.W.2d 494, 497 (2009) (“Section 28–323(7) defines an ‘intimate
partner’ as ‘a spouse; a former spouse; persons who have a child in common
whether or not they have been married or lived together at any time; and
persons who are or were involved in a dating relationship.’ Section 28–
323(7) goes on to define a ‘dating relationship’ as ‘frequent, intimate
(Footnote Continued Next Page)
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In this case, Anthony testified that Michael threatened to “fuck him up,”
and charged at him—in Michael’s driveway—with a hockey stick and with a
rake on separate occasions. Anthony claimed he felt threatened by Michael’s
actions and by his reputation for violent tendencies. N.T., 12/29/21, at 52-
59. However, as the Court recognized in Scott:
We must not lose sight of the fact that the Act was passed because
the criminal law was sometimes an inadequate mechanism for
dealing with violence that arose in the intimate environs of
domestic life. . . . [S]ubjecting Appellant to a PFA order would in
no way help to cultivate peace or safety in a household troubled
by familial violence because the parties to this case do not and did
not share a household or similar interaction. It is not within our
authority to expand the Act beyond the arena in which it was
intended to operate.
. . . By construing “partners” to mean those persons who mutually
choose to enter relationships, we give effect to the provisions of
the statute in a way that promotes its purpose of preventing
____________________________________________
associations primarily characterized by the expectation of affectional or sexual
involvement, but does not include a casual relationship or an ordinary
association between persons in a business or social context.’”); Washington
(“‘Intimate partners’ means: (a) Spouses or domestic partners; (b) former
spouses or former domestic partners; (c) persons who have a child in common
regardless of whether they have been married or have lived together at any
time; (d) adult persons presently or previously residing together who have or
have had a dating relationship; (e) persons 16 years of age or older who are
presently residing together or who have resided together in the past and who
have or have had a dating relationship; or (f) persons 16 years of age or older
with whom a person 16 years of age or older has or has had a dating
relationship.” Rev. Code. Wash. (ARCW) § 10.99.020(8)). While not binding
on us, we find these definitions from our sister states instructive and
consistent with the federal law definition employed by this Court in Getkin.
-9-
J-S27001-22
violence among people with a domestic, familial or romantic bond,
past or present. More simply, our interpretation means that
persons who choose to have intimate or sexual relationships are
within the purview of domestic relations law.
Also relevant is the fact that the criminal law already affords
protection from harassment, stalking, assault and a multitude of
other crimes. The Legislature has not determined that the
criminal law is inadequate to deal with interactions between an
assailant and a victim who are not in a family setting. There is no
suggestion that police or prosecutors would be unable or unwilling
to enforce the criminal law between Appellant and Appellee if the
facts warranted its application.
Id., 928 A.2d at 315-16.
That same sentiment was reiterated in Evans v. Braun, 12 A.3d 395
(Pa. Super. 2010), where the Majority determined that a woman had standing
to seek a PFA order against a co-worker. In dissent, the Honorable John M.
Cleland observed:
Evans’ testimony established that she and Braun were co-workers
who had gone on two dates. She did not testify they were
particularly intimate, either sexually or emotionally. Under the
facts of this case, I do not agree Evans and Braun can be
considered “current or former sexual or intimate partners” as that
term is used either in the statute or discussed in our caselaw.
Their relationship simply did not entail the “significant degree of
domestic, familial and/or intimate interdependence” the Act is
intended to address. Scott, 928 A.2d at 315.
The majority further concludes the “criminal law proved to be an
ineffective avenue for Evans to seek protection from Braun” and,
therefore, “bolsters our conclusion that Evans had standing to
seek protection under the statute.” Majority Opinion at 400.
However, arguably it was not the criminal law that proved to be
ineffective. The criminal law “already affords protection from
harassment, stalking, assault and a multitude of other crimes.”
Scott, 923 A.2d at 316. If the police failed to recognize the
possibility Evans was the victim of criminal acts and afford her the
- 10 -
J-S27001-22
protection of the Crimes Code, their failure does not bolster her
into an “intimate partner” as defined by the Legislature in the
Protection from Abuse Act.
As we noted in Scott, “the Act is concerned with persons who
have or who have had domestic, familial and/or romantic
relationships. It is a domestic relations statute, not a statute
governing persons without any such relations.” Id. at 314. I do
not believe the Legislature, given its stated intent, intended to
authorize a trial court to grant the expansive relief provided in the
Act based on a two-date relationship. That is the realm of the
criminal law.
Evans, 12 A.3d at 400 (Cleland, J. dissenting).
As in Scott, and as discerned by the dissent in Evans, the PFA Act is
not concerned with persons who do not have “domestic, familial and/or
romantic relationships.” Scott, 923 A.2d at 314. The Crimes Code provides
for protection of individuals without such relations. Whereas in Evans, the
police did not pursue a criminal investigation or charges at Evans’ urging, here
the testimony reflected that police did respond to calls regarding Michael’s
actions. See N.T., 12/29/21, at 74. And Michael testified that he had
contacted the police “close to 20 times” regarding Anthony’s behavior. Id. at
93. As was the situation in Scott, “[t]here is no suggestion that police or
prosecutors would be unable or unwilling to enforce the criminal law between
Appellant and Appellee if the facts warranted its application.” Scott, 912 A.2d
at 316.
While the relationship between the two men in the instant case has been
contentious, Michael and Anthony were not sexual or intimate partners, nor
were they in a domestic, familial, or romantic relationship. They were both
- 11 -
J-S27001-22
involved in a relationship with a third person, Traci. Michael and Anthony were
parties to what could be most delicately described as a warped love triangle.
If we were to find that Anthony had standing under the PFA Act as a “family
or household member,” we would be expanding the definition of that term to
include any participant in a love triangle, even if there was no family or
household relationship between the individuals by whom and against whom
the PFA order was being sought. This is not a situation the PFA Act was
designed to address. There are criminal statutes available for such purposes.
As this Court observed in Scott, “The Legislature has passed criminal statutes
dealing with crimes and domestic statutes dealing with domestic relations.”
Scott, 928 A.2d at 316.
In his petition, Anthony sought protection against Michael as a “current
of former sexual or intimate partner.” Because Michael was not Anthony’s
current or former sexual or intimate partner, and because he did not otherwise
qualify as a family or household member, we find the trial court erred by
concluding that Anthony had standing under the PFA Act. Therefore, we
vacate the December 19, 2021 order.
Order vacated.7
Judge Sullivan joins the memorandum.
____________________________________________
7 We recognize that the order entered by the trial court also prohibited Michael
from stalking or harassing Traci, and that vacating the order erases that
prohibition. See n.1. However, there is no question that Traci has standing
to pursue a PFA against Michael should she elect to do so.
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Judge Nichols concurs in the results.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
- 13 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488721/ | J-A27013-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
IN RE: ADOPTION OF: N.S.D., A : IN THE SUPERIOR COURT OF
MINOR : PENNSYLVANIA
:
:
APPEAL OF: A.M., FATHER :
:
:
:
: No. 1138 MDA 2022
Appeal from the Decree Entered July 13, 2022
In the Court of Common Pleas of York County Orphans' Court at No(s):
2021-0153a
BEFORE: DUBOW, J., McLAUGHLIN, J., and COLINS, J.*
MEMORANDUM BY DUBOW, J.: FILED: NOVEMBER 22, 2022
A.M. (“Father”) appeals from the Decree terminating his parental rights
to minor child, N.S.D. (“Child”). After careful review, we affirm.
Child was born in March 2020 and suffered withdrawal symptoms due
to the prenatal drug addiction of Child’s mother (“Mother”). The York County
Offices of Children, Youth, and Families (“the Agency”) removed Child from
Mother’s custody soon after her birth.1, 2 The court adjudicated Child
dependent and granted custody to the Agency on April 7, 2020. The Agency
placed Child in her pre-adoptive kinship foster home in April 2020. Following
numerous permanency review hearings, the court changed Child’s
____________________________________________
* Retired Senior Judge assigned to the Superior Court.
1 Child’s birth certificate does not contain a father’s name.
2 The court ultimately terminated Mother’s parental rights. She is not a party
to this appeal.
J-A27013-22
permanency goal on June 21, 2022, from reunification with a parent to
adoption, with a concurrent goal of placement with legal custodian relative.
On July 9, 2021, the Agency filed a Petition to Involuntarily Terminate
Parental Rights of Mother (“TPR Petition”) and two named putative fathers.3
However, at the end of July 2021, when Child was nearly 17 months old,
Mother provided Father’s name to the Agency. Father and Mother had married
in 2017 and, although Father had been aware of Mother’s pregnancy in 2019,
he had had no contact with Mother since September 2019. Father moved to
Wisconsin in December 2019. The Agency contacted Father at the end of July
2021, and Father then indicated that he wanted to be a resource for Child.
Father began to pay child support, requested photographs and visits
with Child, and sent gifts for Child at Christmas, Easter, and her birthday.
Because Child’s permanency goal had been changed to adoption in June 2021,
Father did not have a family service plan. The Agency and Father had
“sporadic” communication, and Father “often would not respond to Agency
attempts to contact him.”4 Although Father secured permission from the court
to participate in the permanency review hearing in December 2021 via video
____________________________________________
3 The court granted the Agency’s motion for an order to serve the petition for
involuntary termination via publication after Mother and the two putative
fathers could not be located for service in person or by mail. Notably, the
Agency did not name Father in this TPR Petition because Mother had not
identified him yet.
4 Brief of Appellee and GAL at 12.
-2-
J-A27013-22
conference, Father did not log on or otherwise participate. In addition, Father
would not return to Pennsylvania.
On April 20, 2022, the Agency filed an amended TPR Petition, requesting
to terminate the parental rights of Mother, Father, and the two named putative
fathers. The Agency served Father in Wautoma, Wisconsin, where he then
resided under probationary supervision.5
On July 13, 2022, when Child was just over 27 months old, the court
held a hearing on the termination petition.6 Mother and the two named
putative fathers, each of whom had been served by publication, did not
appear. Father appeared via video conference and was represented by
counsel. The pre-adoptive parents also appeared at the hearing with Child.
The court heard testimony from Karen Rose, a supervisor with the
Agency and Father. The court also admitted the record from the dependency
proceedings into evidence. Ms. Rose testified that because the Agency learned
____________________________________________
5 Father had pled guilty in December 2017 to a charge of Simple Assault in
connection with a September 2017 attack on Child’s mother in Lancaster
County, as well as drug possession charges and accident involving damage to
a vehicle. The court sentenced him to a term of probation in December 2017.
N.T. TPR Hearing at 31. Father fled to his home state of Wisconsin when he
was released from jail. Ultimately, he returned to Pennsylvania and the
Pennsylvania probation authorities allowed Father to move to Wisconsin where
his probation is monitored by Wisconsin probation authorities.
6 Child’s guardian ad litem also served as Child’s legal counsel and the trial
court found that counsel’s dual status did not present a conflict. See N.T. TPR
Hearing at 48. The judge who presided at each dependency hearing also
presided at the parental rights termination hearing.
-3-
J-A27013-22
of Father’s existence only a week prior to the goal change, Father did not have
a family service plan prior to or after the Agency was able to connect with
him. She also testified that Child had never met Father. Ms. Rose further
testified that, although Father had been assessed for $407 per month in child
support, he stopped paying on March 1, 2022, and is over $2,000 in arrears.
In addition, she stated that Father has never provided documentation as to a
lawful source of income or safe, stable, and appropriate housing for himself
and Child.
With respect to Child’s best interests, Ms. Rose testified that she has
observed Child with her pre-adoptive foster parents in their home, which she
opined is safe and secure, and that Child refers to her foster parents as
“mommy” and “daddy.”7 Ms. Rose further testified that removing Child from
her pre-adoptive parents would negatively impact Child because it is the only
home, and they are the only parents, that Child has ever known. Ms. Rose
concluded that termination of Father’s parental rights would not negatively
impact Child and would, in fact, provide permanency to Child.
Father testified that he has lived with his grandmother in Wautoma,
Wisconsin, for the past year, and is a trained chef. However, he suffered a
serious car accident in February 2022 and lost his job as a result. He stated
that he has not been able to work since the car accident due to his physical
rehabilitation efforts and requires a medical release to get back to work, which
____________________________________________
7 Id. at 18-19.
-4-
J-A27013-22
he has not yet received. Father further testified that, although he was aware
in September 2017 that mother was pregnant, he learned of Child’s birth from
a Facebook post. He also stated that Mother would not respond to his efforts
to reach her because “[a]s she would say, I abandoned her.” N.T. TPR Hearing
at 38. Father stated that although he had been addicted to drugs, he had
been clean for two years but would not move back to Pennsylvania because it
was where his drug addiction began and moving back “wouldn’t be in the
interest of me or [C]hild.” Id. at 40-41. Father further testified that he knew
Mother was a drug addict when they were together but stated that at no point
did he try to reach out to the Agency to inquire about Child after learning of
Child’s birth. In fact, it was not until July 2021 when the Agency reached him
that he began to inquire about Child’s status. Id.
At the close of testimony, Child’s GAL/legal counsel made a statement
that it would be in Child’s best interests, as well as in Child’s legal interests,
to terminate Father’s parental rights.8
The court then terminated Father’s parental rights pursuant to 23
Pa.C.S. § 2511(a)(1), (2), (5), (8) and (b). The court emphasized, among
other things, that Child does not know Father and Father “has presented no
reasonable plan for him to get to know [C]hild or to complete any of the
services that would be required such that we could move [C]hild to his care
____________________________________________
8 See id. at 47-48 (where GAL/legal counsel opines it would be against Child’s
best interests to remove her from the only home and the only parents she has
known in her entire life “minus eight days” and “presumes” that Child’s legal
interest would be to stay with her current “mommy and daddy.”).
-5-
J-A27013-22
and custody, nor that that would occur within a reasonable time.” N.T. TPR
Hearing at 56. With respect to Section 2511(b), the court noted that it
observed Child interact with the foster parents throughout the termination
proceeding, and that “[i]t is extremely clear that she is bonded [with them],
that she feels comfortable, that she is well taken care of, and that it would be
extremely detrimental to uproot her from the only home she has ever known
and move her across the country to live with a stranger who has not availed
himself of the opportunities that he could have taken to come here and be
more involved.” Id. at 57.
Father timely appealed. Both Father and the trial court complied with
Pa.R.A.P. 1925.
Father challenges the trial court’s involuntary termination of his parental
rights under subsections (1), (2), (5), and (8) of 23 Pa.C.S. § 2511(a). When
we review a trial court’s decision to grant or deny a petition to involuntarily
terminate parental rights, we must accept the findings of fact and credibility
determinations of the trial court if the record supports them. In re T.S.M.,
71 A.3d 251, 267 (Pa. 2013). “If the factual findings are supported, appellate
courts review to determine if the trial court made an error of law or abused
its discretion.” Id. (citation omitted). “Absent an abuse of discretion, an error
of law, or insufficient evidentiary support for the trial court’s decision, the
decree must stand.” In re R.N.J., 985 A.2d 273, 276 (Pa. Super. 2009)
(citation omitted). We may not reverse merely because the record could
support a different result. T.S.M., 71 A.3d at 267. We give great deference
-6-
J-A27013-22
to the trial courts “that often have first-hand observations of the parties
spanning multiple hearings.” Id. Moreover, “[t]he trial court is free to believe
all, part, or none of the evidence presented, and is likewise free to make all
credibility determinations and resolve conflicts in the evidence.” In re M.G.,
855 A.2d 68, 73-74 (Pa. Super. 2004) (citation omitted).
Section 2511 of the Adoption Act, 23 Pa.C.S. § 2511, governs
termination of parental rights, and requires a bifurcated analysis. “Initially,
the focus is on the conduct of the parent.” In re Adoption of A.C., 162 A.3d
1123, 1128 (Pa. Super. 2017) (citation omitted). “The party seeking
termination must prove by clear and convincing evidence that the parent’s
conduct satisfies the statutory grounds for termination delineated in Section
2511(a).” Id. (citation omitted). If the court determines that the parent’s
conduct warrants termination of his or her parental rights, the court then
engages in “the second part of the analysis pursuant to Section 2511(b):
determination of the needs and welfare of the child under the standard of best
interests of the child.” Id. (citation omitted). Notably, we need only agree
with the court’s decision as to any one subsection of Section 2511(a), as well
as Section 2511(b), to affirm the termination of parental rights. In re K.Z.S.,
946 A.2d 753, 758 (Pa. Super. 2008).
Appellant challenges the court’s termination of his parental rights
pursuant to Section 2511(a)(2). Section 2511(a)(2) provides for termination
of parental rights where the petitioner demonstrates by clear and convincing
evidence that “[t]he repeated and continued incapacity, abuse, neglect or
-7-
J-A27013-22
refusal of the parent has caused the child to be without essential parental
care, control or subsistence necessary for his physical or mental well-being
and the conditions and causes of the incapacity, abuse, neglect or refusal
cannot or will not be remedied by the parent.” 23 Pa.C.S. § 2511(a)(2); In re
Adoption of S.P., 47 A.3d 817, 827 (Pa. 2012). The grounds for termination
of parental rights under Section 2511(a)(2) due to parental incapacity are not
limited to affirmative misconduct; those grounds may also include acts of
refusal as well as incapacity to perform parental duties. In re N.A.M., 33
A.3d 95, 100 (Pa. Super. 2011). Thus, sincere efforts to perform parental
duties may still be insufficient to remedy an incapacity. In re Z.P., 994 A.2d
1108, 1117 (Pa. Super 2010). This is because subsection (a)(2) “emphasizes
the child’s present and future need for essential parental care, control or
subsistence necessary for his physical or mental well-being,” especially “where
disruption of the family has already occurred and there is no reasonable
prospect for reuniting it.” Id. (citation and emphasis omitted).
In his brief, Father contends that after the Agency contacted him, he
made “repeated requests for Interstate Compact investigation that would have
assess[ed] his ability to serve as a parent to [] Child” but “that investigation
never took place.” Father’s Br. at 9, 14.9 Father also argues that “he testified
____________________________________________
9Although Father alleges that he asked the Agency to conduct an investigation
under the Interstate Compact for the Placement of Children (“ICPC”), 62 P.S.
§ 761, the court found on April 21, 2022, that Father had not requested an
ICPC investigation. See Permanency Review Order, 4/21/22, at 1. Father has
(Footnote Continued Next Page)
-8-
J-A27013-22
that he has housing, family support and employment in Wisconsin” and has
complied with the terms of his probation, including treatment for domestic
violence and substance abuse. Id. He concludes that the Agency did not
show by clear and convincing evidence that he is incapable of parenting. Id.
In finding that the Agency met its burden under subsection (a)(2), the
trial court concluded that, while the evidence showed Father had made some
efforts toward establishing a connection with Child after being contacted by
the Agency, “[t]here are many things Father could have done that he has not
done.” Trial Ct. Op., dated 8/11/22, at 8.
This is not to question that Mother put up obstacles [to prevent
Father’s involvement in the dependency proceedings], that
geography created an obstacle, or that he has [had] physical
limitations in the past few months. But he has known that he had
a child since the birth of [C]hild. A period of over two years. What
is most concerning for the [c]ourt is that this child may have been
in the care or he may have believed [C]hild to be in the care of
Mother or someone, and even still took no steps to contact anyone
in authority in York county to ensure the safety of the child to
whom he owed a duty of care.
Id. at 8-9.
The court also noted its appreciation that Father “has stepped up” and
found credible testimony that Mother herself put up some obstacles to prevent
his involvement in the dependency proceedings. Id. at 5. The court
____________________________________________
not cited to a relevant portion of the record to support his assertion and our
review of the dependency and adoption records reveals no such evidence
exists. We further note that the ICPC explicitly does not apply to a legal parent
bringing his or her child to another state to live with a relative or non-agency
guardian. 62 P.S. § 761, Art. VIII(a).
-9-
J-A27013-22
nonetheless expressed that many of the obstacles that stopped Father from
becoming involved in Child’s life from the beginning were “of his own making.”
Id. at 5. The court noted case law holding that a parent must take the effort
to maintain a place of importance in the child’s life with good faith efforts and
utilize all available resources to preserve a parental relationship while resisting
obstacles placed in the path of the parent/child relationship. See id. at 5-6
(citing In re: B., N.M., 856 A.2d 847, 855 (Pa. Super. 2004)).
In summary, being a parent is an affirmative responsibility.
Notably, during the testimony, essentially at one point Father
indicated that he was working on himself but [C]hild was in his
mind. While we appreciate that he may love and care about
[C]hild and that he was taking time to work on himself, a child is
not in a deep freeze waiting for a more convenient time for him to
be a parent. Given the circumstances, it is unreasonable for him
to have continued to completely absent himself from
Pennsylvania, even though his probation was out of Lancaster
County, such that he could not even perform a paternity test, let
alone anything else related to his parental duties.
Id. at 7-8.
Based on our review of the record, we conclude that the court’s factual
findings are supported by the record and the court did not abuse its discretion
or err as a matter of law in involuntarily Father’s parental rights pursuant to
Section 2511(a)(2). As noted by the court, Father made no effort to find Child
after learning of her birth and Father remained a stranger to Child at the time
of the termination hearing. While he made some efforts to connect with Child
after the Agency called him in July 2021, his efforts were minimum at best
and did not show that he was utilizing all resources available to him and taking
- 10 -
J-A27013-22
affirmative steps to overcome his obstacles to institute a parent/child
relationship where none had existed in Child’s short life.
Accordingly, we affirm the Decree terminating Father’s parental rights
to Child.10
Decree affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
____________________________________________
10Father has not challenged the court’s finding that the Agency had showed
that termination was appropriate under 23 Pa.C.S. § 2511(b). Any issue he
could have raised is, thus, waived. We nonetheless observe that the trial
court’s findings of fact regarding the lack of a bond between Child and Father
and the strong bond Child has with her pre-adoptive family with whom she
has lived her entire life are supported by the record. As the record supports
the trial court’s findings regarding Section 2511(b), we conclude that the
court did not abuse its discretion or err as a matter of law determining that it
would be in Child’s best interests to terminate Father’s parental rights.
- 11 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488718/ | J-S36016-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
IN THE INTEREST OF: P.N. : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
:
:
:
:
:
APPEAL OF: C.H., MOTHER : No. 490 WDA 2022
Appeal from the Order Entered March 30, 2022
In the Court of Common Pleas of Allegheny County
Civil Division at No(s): CP-02-AP-0000139-2021
BEFORE: STABILE, J., KING, J., and COLINS, J.*
MEMORANDUM BY KING, J.: FILED: NOVEMBER 22. 2022
Appellant, C.H. (“Mother”), appeals from the order entered in the
Allegheny County Court of Common Pleas, granting the petition of Appellee,
the Allegheny County Office of Children, Youth and Families (“CYF”), for
involuntary termination of Mother’s parental rights to her minor child, P.N.
(“Child”). We affirm.
The relevant facts and procedural history of this appeal are as follows.
CYF first became involved with the family in 2015, when it received a referral
because Mother and her oldest child had tested positive for marijuana. CYF
received additional referrals in 2015, 2017, and 2018. Child was born in April
2018. In February 2019, CYF opened a case after Mother was hospitalized
____________________________________________
* Retired Senior Judge assigned to the Superior Court.
J-S36016-22
due to a physical altercation with a neighbor, and she had no one to care for
her children while in the hospital. At that time, CYF implemented in-home
services and referred Mother for a drug and alcohol assessment.
Despite CYF’s involvement, the court adjudicated Child dependent on
November 20, 2019. CYF placed Child into foster care where she has
remained ever since. Around this time, CYF developed a family service plan
(“FSP”) and identified goals for Mother, including improvement of her mental
health, maintaining sobriety, and the development of parenting skills.
Nevertheless, Mother failed to meet these objectives.
On August 3, 2021, CYF filed a petition to terminate the parental rights
of Mother and W.W. (“Father”). The court conducted a termination hearing
on March 4, 2022. At the hearing, the court heard testimony from Angela
Cameron, one of Mother’s in-home service providers, and Deborah Moncrieff,
a CYF supervisor. Mother did not attend the hearing or present witnesses, but
her attorney was present to cross-examine the CYF witnesses and argue on
Mother’s behalf. By order entered March 30, 2022, the court terminated
Mother’s parental rights.1 On April 27, 2022, Mother timely filed a notice of
appeal and concise statement of errors per Pa.R.A.P. 1925(a)(2)(i).
Mother now raises one issue for our review:
Did the trial court abuse its discretion and/or err as a matter
of law in concluding that CYF met its burden of proving by
____________________________________________
1The court also involuntarily terminated Father’s parental rights, but he is not
a party to the current appeal.
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clear and convincing evidence that termination of Mother’s
parental rights would best serve the needs and welfare of
the child pursuant to 23 Pa.C.S. § 2511(b)?
(Mother’s Brief at 6).
Appellate review in termination of parental rights cases implicates the
following principles:
In cases involving termination of parental rights: “our
standard of review is limited to determining whether the
order of the trial court is supported by competent evidence,
and whether the trial court gave adequate consideration to
the effect of such a decree on the welfare of the child.”
In re Z.P., 994 A.2d 1108, 1115 (Pa.Super. 2010) (quoting In re I.J., 972
A.2d 5, 8 (Pa.Super. 2009)).
Absent an abuse of discretion, an error of law, or
insufficient evidentiary support for the trial court’s
decision, the decree must stand. … We must employ
a broad, comprehensive review of the record in order
to determine whether the trial court’s decision is
supported by competent evidence.
In re B.L.W., 843 A.2d 380, 383 (Pa.Super. 2004) (en
banc), appeal denied, 581 Pa. 668, 863 A.2d 1141 (2004)
(internal citations omitted).
Furthermore, we note that the trial court, as the finder
of fact, is the sole determiner of the credibility of
witnesses and all conflicts in testimony are to be
resolved by [the] finder of fact. The burden of proof
is on the party seeking termination to establish by
clear and convincing evidence the existence of
grounds for doing so.
In re Adoption of A.C.H., 803 A.2d 224, 228 (Pa.Super.
2002) (internal citations and quotation marks omitted). The
standard of clear and convincing evidence means testimony
that is so clear, direct, weighty, and convincing as to enable
the trier of fact to come to a clear conviction, without
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hesitation, of the truth of the precise facts in issue. In re
J.D.W.M., 810 A.2d 688, 690 (Pa.Super. 2002). We may
uphold a termination decision if any proper basis exists for
the result reached. In re C.S., 761 A.2d 1197, 1201
(Pa.Super. 2000) (en banc). If the court’s findings are
supported by competent evidence, we must affirm the
court’s decision, even if the record could support an opposite
result. In re R.L.T.M., 860 A.2d 190, 191[-92] (Pa.Super.
2004).
In re Z.P., supra at 1115-16 (quoting In re Adoption of K.J., 936 A.2d
1128, 1131-32 (Pa.Super. 2007), appeal denied, 597 Pa. 718, 951 A.2d 1165
(2008)).
CYF filed a petition for the involuntary termination of Mother’s parental
rights on the following grounds:
§ 2511. Grounds for involuntary termination
(a) General rule.— The rights of a parent in regard to
a child may be terminated after a petition filed on any of the
following grounds:
* * *
(2) The repeated and continued incapacity,
abuse, neglect or refusal of the parent has caused the
child to be without essential parental care, control or
subsistence necessary for his physical or mental well-
being and the conditions and causes of the incapacity,
abuse, neglect or refusal cannot or will not be
remedied by the parent.
* * *
(5) The child has been removed from the care of
the parent by the court or under a voluntary agreement
with an agency for a period of at least six months, the
conditions which led to the removal or placement of the
child continue to exist, the parent cannot or will not
remedy those conditions within a reasonable period of
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time, the services or assistance reasonably available to
the parent are not likely to remedy the conditions which
led to the removal or placement of the child within a
reasonable period of time and termination of the parental
rights would best serve the needs and welfare of the
child.
* * *
(8) The child has been removed from the care of
the parent by the court or under a voluntary agreement
with an agency, 12 months or more have elapsed from
the date of removal or placement, the conditions which
led to the removal or placement of the child continue to
exist and termination of parental rights would best serve
the needs and welfare of the child.
* * *
(b) Other considerations.―The court in terminating
the rights of a parent shall give primary consideration to the
developmental, physical and emotional needs and welfare
of the child. The rights of a parent shall not be terminated
solely on the basis of environmental factors such as
inadequate housing, furnishings, income, clothing and
medical care if found to be beyond the control of the parent.
With respect to any petition filed pursuant to subsection
(a)(1), (6) or (8), the court shall not consider any efforts by
the parent to remedy the conditions described therein which
are first initiated subsequent to the giving of notice of the
filing of the petition.
23 Pa.C.S.A. § 2511(a)(2), (5), (8), (b). “Parental rights may be involuntarily
terminated where any one subsection of Section 2511(a) is satisfied, along
with consideration of the subsection 2511(b) provisions.” In re Z.P., supra
at 1117.
On appeal, Mother argues that the record does not include sufficient
evidence demonstrating that termination best serves the needs and welfare
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of Child. Mother claims that the record lacks any expert opinions to support
the court’s determination. Mother maintains that she underwent a
psychological evaluation, but CYF did not provide evidence of the evaluation
for the court’s consideration. Mother insists that CYF also failed to offer
evidence of the impact “that termination would have on [Child], psychological
or otherwise.” (Mother’s Brief at 11). Mother emphasizes that both of CYF’s
witnesses “acknowledged the love and bond between Mother and [Child].”
(Id. at 16). Additionally, Mother complains that Child was at an appropriate
age and development level to express a position regarding the preservation
of the parent-child relationship, yet the court did not hear from Child. Based
upon the foregoing, Mother concludes that this Court must reverse the order
terminating her parental rights.2 We disagree.
Under Section 2511(b), the court must consider whether termination
will meet the child’s needs and welfare. In re C.P., 901 A.2d 516, 520
(Pa.Super. 2006). “Intangibles such as love, comfort, security, and stability
are involved when inquiring about the needs and welfare of the child. The
court must also discern the nature and status of the parent-child bond, paying
close attention to the effect on the child of permanently severing the bond.”
Id. (internal citations omitted).
In this context, the court must take into account whether a
bond exists between child and parent, and whether
____________________________________________
2 In her brief, Mother does not include a challenge to the evidence supporting
termination under Section 2511(a).
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termination would destroy an existing, necessary and
beneficial relationship.
When conducting a bonding analysis, the court is not
required to use expert testimony. Social workers and
caseworkers can offer evaluations as well. Additionally,
Section 2511(b) does not require a formal bonding
evaluation.
In re Z.P., supra at 1121 (internal citations omitted).
“The statute permitting the termination of parental rights outlines
certain irreducible minimum requirements of care that parents must provide
for their children, and a parent who cannot or will not meet the requirements
within a reasonable time following intervention by the state, may properly be
considered unfit and may properly have his or her rights terminated.” In re
B.L.L., 787 A.2d 1007, 1013 (Pa.Super. 2001).
There is no simple or easy definition of parental duties.
Parental duty is best understood in relation to the needs of
a child. A child needs love, protection, guidance, and
support. These needs, physical and emotional, cannot be
met by a merely passive interest in the development of the
child. Thus, this [C]ourt has held that the parental
obligation is a positive duty which requires affirmative
performance.
This affirmative duty encompasses more than a financial
obligation; it requires continuing interest in the child and a
genuine effort to maintain communication and association
with the child.
Because a child needs more than a benefactor, parental duty
requires that a parent exert [herself] to take and maintain
a place of importance in the child’s life.
Parental duty requires that the parent act affirmatively with
good faith interest and effort, and not yield to every
problem, in order to maintain the parent-child relationship
to the best of his or her ability, even in difficult
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circumstances. A parent must utilize all available resources
to preserve the parental relationship, and must exercise
reasonable firmness in resisting obstacles placed in the path
of maintaining the parent-child relationship. Parental rights
are not preserved by waiting for a more suitable or
convenient time to perform one’s parental responsibilities
while others provide the child with his or her physical and
emotional needs.
In re B., N.M., 856 A.2d 847, 855 (Pa.Super. 2004), appeal denied, 582 Pa.
718, 872 A.2d 1200 (2005) (internal citations omitted).
Instantly, the court conducted the termination hearing on March 4,
2022.3 CYF presented Ms. Cameron, who testified that Mother is one of her
clients. Ms. Cameron continues to meet with Mother once each week. (See
N.T. Termination Hearing at 7). Ms. Cameron testified that CYF’s goals for
Mother included enrollment in parenting classes, a drug and alcohol
assessment, and improved mental health. (See id. at 8). Mother had mixed
success in completing her goals. Although Mother completed a parenting
class, she did not find a mental health program that would accept her.
Additionally, Ms. Cameron explained that the drug and alcohol program at
Pathways “did not believe [Mother] needed any treatment.” (Id. at 9).
CYF then presented Ms. Moncrieff, who testified that “Mother’s very
____________________________________________
3 Mother correctly notes that Child did not testify at the hearing. Our review
of the record, however, reveals that Child’s counsel was present at the
hearing. Counsel indicated that she met with Child regarding the termination
petition. During this meeting, Child “was not able to state a preference
regarding termination and adoption due to her age and level of development.”
(N.T. Termination Hearing, 3/4/22, at 81).
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attentive to the children when I’m around. Loving and caring.” (Id. at 40).
Ms. Moncrieff explained, however, that Mother’s visits with Child were
inconsistent, and Mother does not always provide confirmation prior to visiting
Child. This lack of consistent contact “weakened the bond between mother
and child.” (Id.) Ms. Moncrieff acknowledged that Mother’s visits were
impacted by the COVID-19 pandemic, but Mother’s visits continued to be
inconsistent after pandemic-related restrictions eased. Specifically, Mother
attended only three (3) out of nineteen (19) scheduled visits with Child
between August 2020 and December 2020.4 (See id. at 35). Mother began
to visit Child “more regularly” beginning in March 2021. (See id. at 37).
In May 2021, Mother became entitled to weekly in-home visits, but she
did not always confirm the visits. (See id. at 38). Ms. Moncrieff explained
that Mother meets Child’s psychological needs when she participates in weekly
visits, which Child enjoys. Mother does not, however, meet Child’s educational
or developmental needs. Rather, Ms. Moncrieff emphasized that foster mother
meets Child’s educational, psychological, and developmental needs, and Child
calls foster mother “mommy.” (See id. at 41).
Ms. Moncrieff further described why CYF sought termination of Mother’s
parental rights:
The prior referral is her giving birth to all of the children
while smoking marijuana during her pregnancy. History of
____________________________________________
4 Ms. Moncrieff clarified that three (3) of the missed visits were not the fault
of Mother. (See N.T. Termination Hearing at 36).
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being depressed and mental health issues interfering with
her ability to parent and not addressing her mental health
issues. She’ll get into treatment and leave. Doesn’t stay
long in treatment. She has a history of neglecting the
children, leaving them home alone. Her history of a
warrant, being arrested. The conditions which led the
children being removed not addressed. Mental health
sobriety. History of THC usage. DUI. And fighting, making
poor decisions with the neighbors. [Interpersonal violence]
history with her partner. Everything else that goes into
parenting, civility, staying out of violence, confrontation,
staying sober, address her mental health, not being
arrested, not neglecting her children when she feels
overwhelmed.
(Id. at 41-42). Based upon the foregoing, Ms. Moncrieff opined that
termination was in Child’s best interests. Child receives care and stability with
foster mother. Despite the presence of some bond between Mother and Child,
“[Child] needs stability. She needs to be able to feel safe and be able to thrive
and grow without being in fear of what is next to come.” (Id. at 43).
The court considered this testimony and determined that CYF presented
sufficient evidence under Section 2511(b):
There was clear and convincing evidence presented that
Mother was not meeting [Child’s] medical needs,
educational needs, emotional needs nor psychological
needs. There were multiple times CYF discovered Mother
leaving young children alone to fend for themselves. There
is no doubt to [the c]ourt that Mother has love for [Child].
However, she has failed to establish her ability to provide a
safe and stable home for [Child] nor her other children. At
the March 4, 2022 termination of parental rights hearing,
[the c]ourt considered all of Mother’s progress, and
determined that Mother has not shown her ability to
properly care for [Child] since [Child] came into care in
October of 2019. [The c]ourt believes the testimony from
both the casework[er] and CYF supervisor was credible.
There was absolutely no testimony that Mother had the
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ability to keep [Child] safe nor meet her needs.
(Trial Court Opinion, 7/22/22, at 11). We accept the court’s determination.
To the extent that Mother now argues the court should have considered
expert testimony about the impact of termination, such testimony is not
required.5 See In re Z.P., supra. Here, the inconsistency of Mother’s contact
with Child has weakened their bond. (See N.T. Termination Hearing at 41-
42). Although Mother exhibits love and care to Child during the visits she
attends, Mother has been unable to maintain the parent-child relationship.
See In re B., N.M., supra. Terminating Mother’s parental rights would not
destroy an existing, necessary, and beneficial relationship for Child. See In
re Z.P., supra. Based upon the foregoing, the record supports the court’s
conclusion that CYF presented clear and convincing evidence warranting
termination under Section 2511(b). See id. Consequently, we affirm the
order terminating Mother’s parental rights to Child.
Order affirmed.
____________________________________________
5 Additionally, Ms. Moncrieff testified that she did not yet have the
psychologist’s individual evaluation of Mother at the time of the termination
hearing. (See N.T. Termination Hearing at 32).
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
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https://www.courtlistener.com/api/rest/v3/opinions/8488727/ | J-A17005-22
J-A17006-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
COMMONWEALTH OF PENNSYLVANIA : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
MICHAEL ROBEL :
:
Appellant : No. 2466 EDA 2021
Appeal from the Judgment of Sentence Entered October 14, 2021
In the Court of Common Pleas of Chester County
Criminal Division at No(s): CP-15-CR-0003414-2019
COMMONWEALTH OF PENNSYLVANIA : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
KAREEM JOHNSON :
:
Appellant : No. 2470 EDA 2021
Appeal from the Judgment of Sentence Entered October 14, 2021
In the Court of Common Pleas of Chester County
Criminal Division at No(s): CP-15-CR-0003415-2019
BEFORE: PANELLA, P.J., NICHOLS, J., and COLINS, J.*
MEMORANDUM BY PANELLA, P.J.: FILED NOVEMBER 22, 2022
Appellants Michael Robel and Kareem Johnson appeal from the
judgment of sentence following their convictions for failing to provide required
financial information. Robel and Johnson argue their alleged criminal conduct
constituted at most a de minimis infraction and therefore the charge should
____________________________________________
* Retired Senior Judge assigned to the Superior Court.
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have been dismissed. We consolidate these appeals pursuant to Pa.R.A.P. 513
and we vacate the judgment of sentence after finding that the omission was
a de minimis violation of the applicable statute.
The essential facts of both cases are largely undisputed. Robel and
Johnson were elected constables tasked with, among other duties, preserving
peace at polling places. Robel was a constable for Northumberland County,
while Johnson was a constable for Chester County. As a condition of holding
these offices, both men were required to file an annual statement of financial
interest documenting any source of income over $1300 they received while in
office.
Perhaps most importantly to this case, in 2018, both men were
employed as security officers by the company Raven Knights, LLC during the
construction of the Mariner East Pipeline in Chester County but failed to list
this fact in their statement of financial interest. As a result, the Chester County
District Attorney’s Office charged both men with accepting bribes,1 official
____________________________________________
1 18 Pa.C.S.A. § 4701(a)(3).
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oppression,2 conflict of interest,3 accepting improper influence,4 and failing to
properly complete their statements of financial interest.5
At the conclusion of their jury trial, Robel and Johnson moved for
judgment of acquittal. The trial court acquitted them of four of their five
charges. The jury then convicted them of the only remaining charge against
each, the failure to properly complete the statement of financial interest.
Initially, we note that Robel and Johnson were tried together as co-
defendants in the trial court and petitioned for their appeals to be consolidated
before this Court. Their petition was denied, but they were granted permission
to argue together before this panel. Pa.R.A.P. 513 provides that we may, in
our discretion, consolidate appeals. See Always Busy Consulting, LLC v.
Babford & Company, Inc., 247 A.3d 1033, 1042 (Pa. 2021). The issues
raised and arguments made are substantially the same for each appellant.
Based on this, we consolidate these appeals sua sponte.
Next, we analyze the timeliness of this appeal. Robel and Johnson argue
that their post-sentence motions, which were electronically filed, were timely
____________________________________________
2 18 Pa.C.S.A. § 5301(2).
3 18 Pa.C.S.A. § 1103(a).
4 18 Pa.C.S.A. § 1103(c).
5 18 Pa.C.S.A. § 1105(a).
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under the circumstances and that their appeal was, in turn, also timely. We
agree.
On October 14, 2021, both Robel and Johnson were sentenced to pay a
$250.00 fine and court costs. They filed post-sentence motions electronically
pursuant to Pa.R.Crim.P. 576.1, which allows a party to timely submit a filing
electronically. Those motions were filed on October 25, 2021, the final day
for timely filing. Counsel received an electronic mail confirmation of the
submission of this filing. However, he then received additional electronic mail
the following morning, on October 26, 2021, stating the filing had been
rejected. The motions were administratively rejected by the trial court due to
an issue with the electronic filing. Counsel claimed that the filing was rejected
because the electronic “tag” on the document was incorrect, however, it was
the only “tag” available for selection at the time of filing. Counsel re-filed the
post-sentence motions that same morning with a different tag. Given these
circumstances, we conclude the post-sentence motions were timely filed.6
____________________________________________
6 “[W]hile the Prothonotary must inspect documents that are sent for filing to
ensure they are in the proper form, the power to reject such documents is
limited to notifying the proper party that the document is defective so that the
defect may be corrected through amendment or addendum. To hold otherwise
would be to confer on the Prothonotary the power to implement the Rules ...
to determine, based upon criteria other than the date they are received, which
[documents] are timely. Such a power is inconsistent with our supreme court's
pronouncement that a document is filed when the Prothonotary receives it.”
Commonwealth v. Alaouie, 837 A.2d 1190, 1192 (Pa. Super. 2003). Here,
the Prothonotary promptly notified counsel of the technical issue, and counsel
promptly corrected the filing.
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And, as the post-sentence motions were denied on October 27, 2021, the
notices of appeal were timely filed 7
We now turn to the merits of these appeals. Robel and Johnson raise
two issues for our review. First, they claim that if they committed an infraction
under the relevant statute, it was not the type of behavior that the legislature
intended to punish. Next, they argue that the evidence presented at trial was
insufficient to establish beyond a reasonable doubt that they purposefully
omitted information from their financial statements.
Johnson and Robel’s first argument centers around the purpose and
scope of the State Ethics Act. They argue that any violation of the Act they
committed was de minimis in nature and we should therefore vacate their
convictions. See Appellant’s Brief at 18.8 Johnson and Robel argue that the
trial court misapplied the law and exercised manifestly unreasonable judgment
in denying their motion for acquittal. See id. at 20.
When reviewing a trial court’s decision regarding whether an action
constitutes a de minimis infraction, we employ an abuse of discretion
____________________________________________
7The thirtieth day was Friday, November 26, 2021, a court holiday. Therefore,
pursuant to our Rules of Appellate Procedure, the appeal period ran to the
next day the court was open for filing, Monday, November 29, 2021. See
Pa.R.A.P. 107; 1 Pa.C.S.A. § 1908.
8 As we noted in our discussion on consolidation, Robel and Johnson have filed
separate appeals. However, their issues and arguments are identical. To
simplify this memorandum, our citations refer to the documents filed in
Robel’s appeal at 2466 EDA 2021.
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standard. See Commonwealth v. Przybyla, 722 A.2d 183, 184 (Pa. Super.
1998). We will find an abuse of discretion has occurred when a trial court has
overridden or misapplied the law, or used manifestly unreasonable, biased or
prejudiced judgment as reflected in the record. See Commonwealth v.
LeClair, 236 A.3d 71, 78 (Pa. Super. 2020). The legislature has codified the
procedure for handling a de minimis infraction in 18 Pa.C.S.A. § 312(a) as
follows:
General rule.—The court shall dismiss a prosecution if, having regard to
the nature of the conduct charged to constitute an offense and the
nature of the attendant circumstances, it finds that the conduct of the
defendant:
(1) was within a customary license or tolerance, neither expressly
negatived by the person whose interest was infringed nor
inconsistent with the purpose of the law defining the offense;
(2) did not actually cause or threaten the harm or evil sought to
be prevented by the law defining the offense or did so only to an
extent too trivial to warrant the condemnation of conviction; or
(3) presents such other extenuations that it cannot reasonably be
regarded as envisaged by the General Assembly or other authority
in forbidding the offense.
18 Pa.C.S.A. § 312(a).
The legislature codified this power intending to allow trial courts to
dismiss charges when they amount to petty infractions that have not harmed
a victim or society. See Commonwealth v. Stetler, 95 A.3d 864, 892 (Pa.
Super. 2014).
Robel and Johnson were found guilty of violating 65 Pa.C.S.A. § 1105(a),
which required them to file a statement of financial interests form and to
provide all requested information to the best of their “knowledge, information
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and belief”. The statute is part of the Public Official and Employee Ethics Act
which seeks to provide guidelines for public officials to follow, specifically
regarding their finances, to maintain transparency and public confidence in
government. See 65 Pa.C.S.A. §§ 1101 - 1101.1. The statement of financial
interests form requires disclosure of “any direct or indirect source of income
totaling in the aggregate $1,300 or more”. See id. at § 1105(b)(5).
Robel and Johnson were charged with failing to fully disclose the sources
of their personal income for 2018. See N.T. 7/13/21, Vol. 2 of 3, at 196 and
203. Robel and Johnson both filed Statement of Financial Interest Forms for
the calendar year 2018. See id. However, neither appellant disputes that they
failed to disclose their income from Raven Knights on their initial 2018
statement of financial interest. See Appellant’s Brief at 15. Robel did not
disclose Raven Knights, Off Duty Services, and Northumberland County as
sources of his income for the year. See id. at 13. Johnson did not disclose
Raven Knights or Chester County as a source of income. See Johnson’s Brief
at 17.
The trial court found that Robel and Johnson caused harm under the
Ethics Act by failing to “report several thousand dollars, over $36,000 as
alleged, in outside income as a security guard.” Trial Court Opinion,
1/24/2022, at 3. Specifically, the trial court reasoned that Robel and Johnson’s
failure to disclose their employment by Raven Knights harmed the “important
goal of preserving public confidence in its public officials[.]” See id. at 4.
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Johnson and Robel argue that their actions did not threaten the harm or
evil the statute seeks to prevent. See Appellant’s Brief at 21. They argue the
statute’s purpose is to provide guidance to public officials to prevent financial
conflicts of interest. See id. Further, they note that the State Ethics
Commission’s guidelines allow for a period to rectify deficient filings once they
are discovered. See 51 Pa. Code § 19.3.
Johnson and Robel highlight that they filed amended statements that
disclosed their employment by Raven Knights after they were charged in this
matter. See Appellant’s Brief at 24-30; See N.T. 7/13/21, Vol. 2 of 3, at 196-
99. The Executive Director of the State Ethics Commission testified that the
statute is not intended to be punitive, and that, in certain situations, filers are
notified of deficiencies in their forms and given time to rectify them. See N.T.
7/14/21 at 75-78. Neither Robel nor Johnson was notified of the deficiencies
in their forms prior to being charged. See id. They argue that their efforts to
amend their forms once charged further indicate the lack of their intent to
cause harm. See Appellant’s Brief at 24.
The Commonwealth argues on appeal that Robel and Johnson’s actions
do not constitute de minimis infractions because of the amount of
compensation they received from Raven Knights. See Commonwealth’s Brief
at 8. However, the statement of financial interest form does not require filers
to disclose the amount of income received, only the sources of income over
$1,300. See, e.g., Commonwealth’s Exhibit C-32. This absence of any
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requirement to report the amount of income undercuts the Commonwealth’s
argument that the amount of undisclosed income is sufficient, by itself, to
justify a finding of actual harm.
Rather, we conclude that under the circumstances of this case, the
Commonwealth was required to identify some reason why the undisclosed
source of income could lead a reasonable citizen to question whether Robel
and Johnson’s performance of public duties was improperly influenced. We
decline to opine on whether there exists an amount of income that is sufficient,
by itself, to establish actual harm under the Ethics Act; we merely hold that
the amounts at issue here are not so great as to obviate the need to identify
a nexus between the undisclosed source and a defendant’s public duties in
order to defeat a claim that a violation of the Ethics Act was de minimis.
Neither the trial court nor the Commonwealth identify any such nexus.
See Trial Court Opinion, 1/24/2022, at 4; Commonwealth’s Brief at 12-13.
Further, our review of the record reveals no evidence of such a nexus. Johnson
and Robel’s public duties did not involve any obvious authority, discretionary
or otherwise, involving the pipeline or Raven Knights. Under these
circumstances, we conclude the trial court abused its discretion in finding that
the appellants caused actual harm to the public by failing to disclose their
employment with Raven Knights in their initial filings.
To the extent the trial court’s determination that there was harm caused
by Robel and Johnson rests on the jury’s guilty verdict, we conclude that
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J-A17006-22
reasoning to be an abuse of discretion as well. The statute governing de
minimis infractions is clear that it is the court’s duty, not the jury’s, to
determine whether an infraction is to be deemed de minimis. See 18 Pa.C.S.A.
§ 312.
We do not reach the merits of Robel and Johnson’s second issue on
appeal, regarding the sufficiency of the evidence, as it is simply an alternative
argument to the issue we have already resolved. Appeals consolidated.
Convictions vacated.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
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https://www.courtlistener.com/api/rest/v3/opinions/8488723/ | J-A21018-22
2022 Pa Super 198
MANDY MICHELLE DEROSA : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
WILLIAM JOSEPH GORDON AND :
KERRON REGIS, INTERVENER :
: No. 1121 EDA 2022
:
APPEAL OF: WILLIAM JOSEPH :
GORDON :
Appeal from the Order Entered March 22, 2022
In the Court of Common Pleas of Delaware County
Civil Division at 2018-007523
MANDY MICHELLE DEROSA : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
WILLIAM JOSEPH GORDON AND :
KERRON REGIS, INTERVENER :
: No. 1122 EDA 2022
:
APPEAL OF: WILLIAM JOSEPH :
GORDON :
Appeal from the Order Entered March 22, 2022
In the Court of Common Pleas of Delaware County
Civil Division at 2018-007523
J-A21018-22
KERRON REGIS : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
MANDY MICHELLE DEROSA AND :
WILLIAM JOSEPH GORDON :
: No. 1123 EDA 2022
:
APPEAL OF: WILLIAM JOSEPH :
GORDON :
Appeal from the Order Entered March 22, 2022
In the Court of Common Pleas of Delaware County
Domestic Relations at 2019-001947
KERRON REGIS : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
MANDY MICHELLE DEROSA AND :
WILLIAM JOSEPH GORDON :
: No. 1124 EDA 2022
:
APPEAL OF: WILLIAM JOSEPH :
GORDON :
Appeal from the Order Entered March 22, 2022
In the Court of Common Pleas of Delaware County
Domestic Relations at 2019-001947
BEFORE: LAZARUS, J., MURRAY, J., and McCAFFERY, J.
OPINION BY MURRAY, J.: FILED NOVEMBER 22, 2022
In these consolidated appeals, William Joseph Gordon (Husband),
appeals from two related orders granting the request of Kerron Regis
-2-
J-A21018-22
(Appellee), who sought DNA testing in the separate paternity and custody
actions involving Husband, Mandy Michelle DeRosa (Mother), and the male
child (L.G.), born in August 2016.1
The trial court entered the two orders at the paternity and custody
dockets. Husband’s appeals at 1123 EDA 2022 and 1124 EDA 2022 are from
the paternity docket; his appeals at 1121 EDA 2022 and 1122 EDA 2022 are
from the custody docket. After careful consideration, we affirm the orders at
1123 EDA 2022 and 1124 EDA 2022 (paternity docket), and quash the
duplicative appeals at 1121 EDA 2022 and 1122 EDA 2022 (custody docket).2
The trial court summarized the underlying facts as follows:
L.G. was born to [Mother, while married to Husband]. [Mother]
testified that she and [Husband] established a sexually open
marriage and were both “swingers” who tolerated each other’s
sexual encounters with others. L.G., being born biracial[,] was
not remarkable to [Husband,] since [Husband] was aware of the
ongoing sexual relationship and [M]other’s routine sexual
intercourse with [Appellee], who is African American. All of the
parties appear to have either expressly and/or tacitly
acknowledged [Appellee] as a peculiarly special person in L.G.’s
life.2 There has been some testimony that the parties
acknowledge [Appellee’s] probable paternity of L.G., since they
have referred to [Appellee] as the “sperm donor” for L.G.
____________________________________________
1 Although interlocutory, an order requiring blood tests to determine paternity
is immediately appealable. Jones v. Trojak, 634 A.2d 201, 204 (Pa. 1993).
2 On March 22, 2022, at both dockets, the trial court entered an: (1) order
granting Appellee’s petition to intervene in the custody action; (2) order
granting Appellee’s petition for DNA testing to proceed in the paternity action;
and (3) order and opinion granting both petitions.
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J-A21018-22
2Testimony presented to the court made it clear that after L.G.’s
birth, all three parties were aware L.G. was fathered by
[Appellee].
Order, 3/22/22, at 2 (footnote in original).
Appellee testified that he went to the hospital when L.G. was born. N.T.,
6/24/19, at 40, 44-45, 52-53. He testified that Husband indicated Appellee
was L.G.’s father, and “handed [L.G.] over to me.” Id. at 53. However,
Appellee declined when Husband asked whether Appellee wanted his name on
L.G.’s birth certificate. Id. at 40, 44-45, 52-53. Appellee stated, “I did not
for the simple fact that I thought it would create problems in their marriage
[and] their household.” Id. at 53. Husband is named as the father on L.G.’s
birth certificate.
In August 2018, when L.G. turned two, Mother separated from Husband
and relocated with L.G.3 N.T., 1/24/22, at 54. On September 24, 2018,
Mother filed for divorce from Husband, and included a custody count in her
divorce complaint.4 On January 2, 2019, Appellee filed a petition to intervene
in the custody matter; Husband filed preliminary objections and a new matter
in response.
____________________________________________
3 Appellee and Mother testified that their sexual relationship ended around
July 2018. N.T., 6/24/19, at 33, 65.
4 The parties’ divorce remained pending during the paternity and custody
proceedings.
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On March 6, 2019, Appellee initiated a paternity action contesting the
presumption of Husband’s paternity and requesting a DNA test.5 Petition to
Establish Paternity, 3/6/19, at ¶ 9. Appellee further requested, if DNA testing
established his paternity, that the trial court issue an order designating him
as L.G.’s father. Husband filed preliminary objections, which included a new
matter asserting that Appellee’s request was barred by the doctrines of
presumption of paternity and paternity by estoppel.
The trial court held an evidentiary hearing on June 24, 2019.6 Husband
testified and presented the testimony of Appellee as on cross. Mother also
testified. The trial court denied Husband’s preliminary objections on October
22, 2019, by two separate orders entered on the custody and paternity
dockets.7 The trial court scheduled an evidentiary hearing on Appellee’s
petitions for December 2, 2019.
____________________________________________
5 On January 7, 2019, Mother filed a “Petition to Disestablish” Husband’s
paternity at the Pennsylvania Child Support Enforcement System (PACSES)
docket associated with her child support action against Husband. Husband
filed preliminary objections. Mother’s petition is pending.
6 The notes of testimony are not in the certified record. However, Husband
has included a copy of the notes of testimony in his reproduced record.
Because no party disputes their authenticity, we consider the notes of
testimony in Husband’s reproduced record. See Commonwealth v.
Holston, 211 A.3d 1264, 1276 (Pa. Super. 2019) (en banc)
(citing Commonwealth v. Brown, 52 A.3d 1139, 1145 n.4 (Pa. 2012)).
7 By separate orders on October 21, 2019, filed at both the PACSES and
custody dockets, the trial court denied Husband’s preliminary objections
and/or motion to dismiss Mother’s petition to disestablish paternity.
-5-
J-A21018-22
On November 12, 2019, Husband filed an answer and new matter to
Appellee’s petition to establish paternity. Husband repeated his claims of
presumption of paternity and paternity by estoppel. Husband asserted that
he and Mother “have held out” L.G. as Husband’s child, “and of the marriage
since before the minor child’s birth.” Answer to Petition to Establish Paternity
and New Matter, 11/12/19, at ¶ 15. Appellee filed an answer to the new
matter on November 21, 2019. The hearing was continued to March 16, 2020.
For reasons unspecified in the record, the hearing did not occur.
Appellee filed the next relevant pleading on the paternity docket on
February 16, 2021. Appellee repeated his request for DNA testing, and if the
testing confirmed Appellee’s paternity, an order designating Appellee as L.G.’s
father and scheduling a custody trial. Petition to Order DNA Testing, 2/16/21,
at ¶¶ 9, 11. Husband filed an answer and new matter on March 1, 2021.
On December 17, 2021, Mother filed an emergency custody petition
alleging, inter alia, that Husband had sexually abused L.G. during an overnight
visit.8 Emergency Petition, 12/17/21, at ¶¶ 16-21. Mother requested sole
legal custody and the suspension of Husband’s partial physical custody.
Although Appellee’s petition to intervene was pending, Appellee filed a
____________________________________________
8An April 22, 2020 custody order was in effect at the time. Mother and
Husband shared legal custody; Mother had primary physical custody; and
Husband had partial physical custody every Wednesday and alternating
weekends.
-6-
J-A21018-22
response to Mother’s emergency petition and requested that the court grant
Mother relief. Husband filed a motion seeking to strike Appellee’s answer
because he was not a party to the custody action. Appellee answered that his
petition to intervene
was filed years ago and never heard by the [c]ourt, yet the
[c]ourt, after several interim hearings, has repeatedly stated that
Intervenor is considered a part of the action. The failure of
Intervenor’s Petition to Intervene to be heard has been no fault of
Intervenor.
Answer to Motion to Strike, 12/21/21, at ¶ 2. Finally, on January 21, 2022,
Husband filed an amended answer to the emergency petition, new matter,
and motion to strike Appellee’s answer.
The court convened a hearing on January 24, 2022. Mother testified,
and presented testimony from Appellee, as well as Mother’s mother, L.K., and
caseworker, Eric Urgiles, who was present when L.G. was interviewed about
Mother’s allegations of sexual abuse. Husband testified, and presented
testimony from his girlfriend, La.Gl. The child, L.G., was five years old and in
kindergarten at the time. The trial court interviewed L.G. in camera. By order
entered January 27, 2022, the court denied Mother’s emergency custody
petition and directed that Mother and Husband adhere to the April 22, 2020
custody order.
On March 22, 2022, the trial granted Appellee’s petition for DNA testing
in orders entered on the paternity and custody dockets. The court also
granted Appellee’s petition to intervene and directed that Appellee “be named
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J-A21018-22
as a party in this custody action.” Order, 3/22/22. Finally, by order and
opinion entered on the custody and paternity dockets, the court (1) granted
Appellee’s petition to order DNA testing and petition to intervene; (2) directed
the parties to advise the court within ten days whether an additional hearing
was required for Mother’s petition to disestablish paternity filed on the PACSES
docket; and (3) provided “should the court receive no notice from the parties
within ten (10) days, a date shall be set for a hearing on” the paternity and
custody actions. Order and Opinion, 3/22/22. The court explained:
[Appellee] contends DNA testing should be ordered to ascertain
his paternity of [L.G.] … [Husband] contend[s] the doctrines of
presumption of paternity and paternity by estoppel bar such DNA
testing to establish [Appellee]’s paternity and his subsequent
intervention in the pending custody proceedings pertaining to L.G.
After a review of the record, a hearing held on January 24, 2022,
and written briefs submitted on behalf of the parties, this [c]ourt
finds the arguments against [Appellee]’s intervention in the
custody matter and DNA testing unavailing for the reasons set
forth hereinbelow. This court shall grant [Appellee]’s intervention
and order the requested DNA testing. Depending upon the results
thereof, this [c]ourt shall address the paternity suit of [Appellee]
and determine whether a modification of custody is in the best
interests of the child.
Order and Opinion, 3/22/22, at 3.
On April 21, 2022, Husband timely filed four separate notices of appeal
along with concise statements of errors complained of on appeal pursuant to
-8-
J-A21018-22
Pa.R.A.P. 1925(a)(2)(i) and (b), which this Court consolidated sua sponte.9
The trial court filed a Rule 1925(a) opinion on June 9, 2022.
Husband presents the following issues for review:
1. Did the [t]rial [c]ourt err by granting the request for DNA
testing prior to deciding and disposing of the [p]aternity by
[e]stoppel claim?
2. Did the [t]rial [c]ourt err by deciding the [p]aternity by
[e]stoppel claim without a hearing on the matter?
3. Did the [t]rial [c]ourt err by failing to provide notice that the
[p]aternity by [e]stoppel claim was being heard?
4. Did the [t]rial [c]ourt err by failing to analyze the best
interest factors when deciding the [p]aternity by [e]stoppel claim?
5. Did the [t]rial [c]ourt err by deciding the [p]aternity by
[e]stoppel claim because the record does not support the
decision?
Husband’s Brief at 8.10
We review the trial court’s orders granting paternity testing for an abuse
of discretion. Vargo v. Schwartz, 940 A.2d 459, 462 (Pa. Super. 2007).
An abuse of discretion exists if the trial court has overridden or
misapplied the law, or if there is insufficient evidence to sustain
the order. Moreover, resolution of factual issues is for the trial
court, and a reviewing court will not disturb the trial court’s
findings if they are supported by competent evidence. It is not
____________________________________________
9 As discussed above, Husband’s appeals at 1121 EDA 2022 and 1122 EDA
2022 are from two orders entered on the custody docket. Husband’s appeals
at 1123 EDA 2022 and 1124 EDA 2022 are from the same two orders entered
on the paternity docket.
10 Husband’s fourth issue is waived because he fails to address it in the
argument section of his brief.
-9-
J-A21018-22
enough [for reversal] that we, if sitting as a trial court, may have
made a different finding.
Id. (citing Doran v. Doran, 820 A.2d 1279, 1282 (Pa. Super. 2003) (citations
omitted)). It is well-settled that the trial court, sitting as factfinder, weighs
the evidence and assesses credibility. Thus, the court “is free to believe all,
part, or none of the evidence[,] and [we, as an appellate court,] will not
disturb the credibility determinations of the court below.” Vargo v.
Schwartz, 940 A.2d at 462 (citation omitted).
The legal determination of paternity of a child conceived or born during
marriage derives from common law.
[F]irst, one considers whether the presumption of paternity
applies to [the] particular case. If it does, one then considers
whether the presumption has been rebutted. Second, if the
presumption has been rebutted or is inapplicable, one then
questions whether estoppel applies. Estoppel may bar either a
plaintiff from making the claim or a defendant from denying
paternity.
N.C. v. M.H., 923 A.2d 499, 502–03 (Pa. Super. 2007) (quoting Brinkley v.
King, 701 A.2d 176, 180 (Pa. 1997) (plurality opinion)).
The presumption of paternity is inapplicable when there is no longer an
intact marriage to preserve. Fish v. Behers, 741 A.2d 721, 723 (Pa. 1999).
Instantly, Husband does not claim error or abuse of discretion with the trial
court’s determination that the presumption of paternity does not apply. The
record supports the court’s finding that Husband and Mother were “in the
midst of divorce and related custody and support proceedings. [Mother]’s and
[Husband]’s marriage is no longer an intact marriage.” Order and Opinion,
- 10 -
J-A21018-22
3/22/22, at 3 (citation omitted). Even if the presumption applied, we would
agree with the trial court that the presumption was rebutted because “the
parties participated in an open marriage and no question exists that [Child] is
of multiracial ethnicity[, while Mother and Husband are] Caucasian[.]” Id. at
5.
The trial court also considered whether Appellee was estopped from
claiming paternity. The Pennsylvania Supreme Court has held that “paternity
by estoppel continues to pertain in Pennsylvania, but it will apply only where
it can be shown, on a developed record, that it is in the best interests of the
involved child.” K.E.M. v. P.C.S., 38 A.3d 798, 810 (Pa. 2012). The Court
has explained:
Estoppel in paternity is merely the legal determination that
because of a person’s conduct (e.g., holding out the child as his
own, or supporting the child) that person, regardless of his true
biological status, will not be permitted to deny parentage, nor will
the child’s mother who has participated in this conduct be
permitted to sue a third party for support, claiming that the third
party is the true father.
Fish, 741 A.2d at 723 (citing Freedman v. McCandless, 654 A.2d 529, 532–
533 (Pa. 1995)).
The doctrine of paternity by estoppel “is based on the public policy that
children should be secure in knowing who their parents are. If a certain person
has acted as the parent and bonded with the child, the child should not be
required to suffer the potentially damaging trauma that may come from being
- 11 -
J-A21018-22
told that the father he has known all his life is not in fact his father.” Fish,
741 A.2d at 724 (citing Brinkley, 701 A.2d at 180).
Here, the trial court was tasked with deciding whether Appellee’s
conduct estopped Appellee from claiming paternity. See C.T.D. v. N.E.E. and
M.C.E., 653 A.2d 28, 31 (Pa. Super. 1995) (holding putative father’s failure
to act during child’s first two years of life “may have effectively estopped him
from now raising his claim of paternity.”).
Husband first contends the trial court erred by not disposing of the
estoppel issue prior to granting Appellee’s request for DNA testing. Husband’s
Brief at 22-23 (citing Jones v. Trojak, 634 A.2d 201, 206 (Pa. 1993) (“before
an order for a blood test is appropriate to determine paternity, the actual
relationship of the presumptive father and natural mother must be
determined.”)). We agree that “where the [estoppel] principle is operative,
blood tests may be irrelevant, for the law will not permit a person in these
situations to challenge the status which he or she has previously accepted.”
Fish, 741 A.2d at 724 (citation omitted). However, contrary to Husband’s
contention, the trial court addressed Husband’s claim that paternity by
estoppel “prevents the [c]ourt from proceeding with … DNA testing.” Order
and Opinion, 3/22/22, at 4.
The court found the doctrine inapplicable, stating:
This case does not involve the situation where the likely biological
father, [Appellee], has not been involved in L.G.’s life. Also, this
[c]ourt finds that [Appellant] (and [Mother]) did not hold
[Husband] out, to the exclusion of [Appellee], as the only father
- 12 -
J-A21018-22
of L.G. It appears, to the contrary, that [Mother] embraced and
acknowledged the fact that [Appellee] was [Child]’s
biological father. Therefore, the history of the behavior of the
parties involved here all point to a likelihood that [Appellee] is the
biological father of L.G.
Id. at 4-5 (emphasis added).
In the alternative, Husband argues in his second and third issues that
the trial court violated his right to due process under the Fourteenth
Amendment to the United States Constitution by deciding the estoppel issue
without a separate hearing and/or proper notice. Husband’s Brief at 28-33.
Husband claims the January 24, 2022, hearing related only to Mother’s
emergency custody petition and not paternity. Husband thus asserts he was
deprived of the opportunity to develop a record regarding his paternity by
estoppel claim. Husband relies on K.E.M., 38 A.3d at 810, where the
Pennsylvania Supreme Court stated, “paternity by estoppel continues to
pertain in Pennsylvania, but it will apply only where it can be shown on a
developed record that it is in the best interests of the involved child.” We are
not persuaded by Husband’s argument.
“A question regarding whether a due process violation occurred is a
question of law for which the standard of review is de novo and the scope of
review is plenary.” S.T. v. R.W., 192 A.3d 1155, 1160 (Pa. Super.
2018) (citation omitted). “Procedural due process requires, at its core,
adequate notice, opportunity to be heard, and the chance to defend oneself
before a fair and impartial tribunal having jurisdiction over the case.” Garr v.
- 13 -
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Peters, 773 A.2d 183, 191 (Pa. Super. 2001) (citation omitted). “Due process
is flexible and calls for such procedural protections as the situation
demands.” In re Adoption of Dale A., 683 A.2d 297, 300 (Pa. Super.
1996) (citation omitted).
Referencing the record, the trial court observed that the “facts
surrounding the issues of estoppel and presumption of paternity were
addressed” in multiple pleadings and proceedings, including the June 24,
2019, evidentiary hearing on Husband’s preliminary objections. Trial Court
Opinion, 6/9/22, at 14. The court granted Appellee’s request for DNA testing
“following considerable review.” Id. Further, the court observed that
Pa.R.C.P. 1910.15(c) does not require a hearing “for the sole purpose of
determining paternity by estoppel.”11 Id. The court also recognized its
obligation under Pa.R.C.P. 1910.15(c) to “dispose promptly of the issue.” Id.
The court reasoned that it could resolve the estoppel and presumption of
paternity issues from the existing record without further delay. Id.
____________________________________________
11 The Rule provides:
(c) Estoppel and Presumption of Paternity. If either party or
the court raises the issue of estoppel or the issue of whether the
presumption of paternity is applicable, the court shall dispose
promptly of the issue and may stay the order for genetic testing
until the issue is resolved.
Pa.R.C.P. 1910.15(c).
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Our review confirms the parties provided extensive evidence regarding
the estoppel issue and L.G.’s best interests, most notably at the June 24,
2019, and the January 24, 2022, hearings. Appellee, Husband, and Mother
testified at both hearings. During the latter hearing, the court interviewed
L.G. in camera. Accordingly, the record belies Husband’s claim that he was
deprived of the opportunity to develop a record regarding his estoppel defense
in contravention of his right to due process.
Husband also argues the trial court erred in finding Appellee’s paternity
claim was not barred by the doctrine of paternity by estoppel. Husband’s Brief
at 34-42. Contrary to Husband’s assertion, the trial court explained:
[Appellee] spent regular time with L.G., alternating weekends on
Sundays[, and] spending between two (2) and seven (7) hours
with him. L.G. even calls [Appellee] by a special name, that is,
“Chubby.” Credible testimony established that [Appellee] has
visited with L.G. on average twice weekly since L.G.’s birth. L.G.
has also grown to know [Appellee’s] children from separate
relationships, [such] as his half-sibling[,] who is approximately
the same age as L.G.
It does not appear [Mother] objected to or took any steps to block
or prevent [Appellee] from being in L.G.’s life. In fact, it appears
to this [c]ourt that [Mother] has, by her prior actions, essentially
conceded that it is in L.G.’s best interests to have [Appellee] in his
life. It would appear almost unnatural to suddenly have
[Appellee] removed from L.G.’s nurturing and development since
[Mother] has acquiesced, if not encouraged, [Appellee’s]
involvement in L.G.’s life.
[Mother] testified that [Appellee] continues to be a regular part of
L.G.’s life and visits L.G. during her scheduled custody or visitation
with L.G. [Appellee] has and continues to also spend time with
L.G. and L.G.’s half-sister. The interview with L.G., at this stage,
revealed he calls or variously thinks of both [Husband] and
[Appellee] as father-figures. It is plain to this court [Appellee] is
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well known to L.G. and no stranger to the child. Further, it is clear
to this [c]ourt that all parties believe [Appellee] is the biological
father of L.G.
Trial Court Opinion, 3/22/22, at 2-3 (emphasis in original).
The record supports the trial court’s findings. Appellee testified that
during the two years from L.G.’s birth to Mother’s and Husband’s separation,
Appellee saw L.G. “a couple times a week.” N.T., 6/24/19, at 29. Appellee
testified that the parties encouraged L.G. to refer to him as “Chubby.” Id. at
30. Appellee explained he visited L.G. at Mother’s and Husband’s home, or
Mother brought L.G. to Appellee’s place of employment. Id. at 29-30. Mother
testified that before she separated from Husband, “things got more tense
within the home,” and Appellee became “more uncomfortable, so he didn’t
come over quite as often, but I would go to him more often. I would take L.G.
up to his job.” Id. at 84-85.
After Mother and L.G. moved from the marital home, Appellee visited
L.G. on Tuesdays and Thursdays. Id. at 85. Appellee also testified that
Mother would bring L.G. to his house on Sundays, when L.G. would spend time
with Appellee’s daughter, who was approximately four months younger than
L.G. Id. at 30-31, 34. The parties do not dispute the relationship between
L.G. and his half-sister. Id. at 48, 57.
Appellee testified that he most recently saw L.G. during Mother’s
custodial weekends. N.T., 1/24/22, at 120. Mother testified she permits
Appellee to have custody of L.G. on her custodial Sundays, usually between
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noon and 5:00 p.m. Id. at 56-57. Mother also testified to her belief that
Appellee is L.G.’s biological father, and described her relationship with
Appellee as “amicable.” Id. at 56. Appellee testified he has no doubt L.G. is
his son. N.T., 6/24/19, at 51. Appellee referenced L.G.’s physical appearance,
stating, “I mean, it speaks for itself.” Id. Appellee testified that L.G. refers
to him as “Chubby or, if my daughter is around, only when she’s around[,] he
will refer to me as dad or daddy.” N.T., 1/24/22, at 120.
During his in camera interview, L.G. referred to Husband as “Smokey”
and Appellee as “Chubby.” Id. at 179, 181-182. L.G. testified, “I only got
one dad,” and identified “Smokey.” Id. at 170. L.G. responded to the
following questions from the trial court:
Q. [W]ould you be okay if you went and started spending some
time with Smokey again?
A. Um-hum.
Q. And will you be okay with spending time with Chubby?
A. Um-hum.
Q. And will you be okay with spending time with mommy?
A. Um-hum.
Id. at 185.
Consistent with the foregoing, the trial did not err in determining
paternity by estoppel was not applicable in this case, as it would be “almost
unnatural to suddenly have [Appellee] removed from L.G.’s nurturing and
development[.]” Trial Court Opinion, 3/22/22, at 2 (unpaginated).
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Accordingly, we affirm the orders granting DNA testing on the paternity
docket, and quash as duplicative the appeals from the custody docket.
Orders at 1123 EDA 2022 and 1124 EDA 2022 affirmed. Appeals at
1121 EDA 2022 and 1122 EDA 2022 quashed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
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https://www.courtlistener.com/api/rest/v3/opinions/8488719/ | J-A18035-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
IN RE: TRUST AGREEMENT OF JAMES : IN THE SUPERIOR COURT OF
CASTELLI, DATED OCTOBER 9, 1985 : PENNSYLVANIA
:
:
APPEAL OF: SAMUEL F. NAPOLI, :
PERSONAL REPRESENTATIVE OF THE :
ESTATE OF ANITA CASTELLI NAPOLI :
:
: No. 155 WDA 2021
Appeal from the Order Entered January 5, 2021
In the Court of Common Pleas of Washington County Orphans' Court at
No(s): No. 63-15-0083
BEFORE: STABILE, J., MURRAY, J., and McLAUGHLIN, J.
MEMORANDUM BY McLAUGHLIN, J.: FILED: NOVEMBER 22, 2022
Samuel F. Napoli, Personal Representative of the Estate of Anita Castelli
Napoli,1 appeals from the order removing Anita Napoli (“Napoli”) as trustee of
the Trust of James Castelli, Dated October 9, 1985 (“Trust”). The order also
enjoined the dissipation and spoliation of assets and former assets of the
Trust. Napoli argues the court erred in permanently removing her as trustee,
issuing an injunction sua sponte and without considering the preliminary
injunction factors.
We dismiss Napoli’s challenge to her removal as trustee as moot. We
conclude the court improperly issued a preliminary injunction and therefore
____________________________________________
1Anita Napoli was a party to the litigation in the trial court and filed the notice
of appeal. She passed away during the pendency of this appeal. Samuel F.
Napoli, Personal Representative of the Estate of Anita Castelli Napoli, was
substituted as a party pursuant to Pennsylvania Rule of Appellate Procedure
502(a). We will use “Napoli” when referring to both the appellant and Anita
Napoli.
J-A18035-22
reverse the portion of the order that enjoined transfer, dissipation, or
spoliation of trust assets.
In April 2016, Victor Castelli, Jr., (“Victor”) filed a petition to remove
Napoli as trustee of the Trust.2, 3 Victor alleged, among other things, that
Napoli had engaged in self-dealing and transferred assets from the Trust to a
company she owned with her sister, Darietta Oliverio.
The court held a non-jury trial on January 28, 29, 30, and 31, with an
additional day scheduled for March 5, 2020. The trial was limited “solely to
the ultimate issue of Anita Napoli’s removal as trustee.” Order, Jan. 17, 2020.
In February 2020, Napoli voluntarily submitted her resignation, eliminating
the need for the last day of testimony. On March 5, 2020, the court entered
an order removing Napoli as trustee:
AND NOW, this 5th day of March, 2020, based on the
testimony and evidence heard, and the resignation
submitted and filed by trustee Anita Napoli executed
February 26, 2020, and filed with the Register of Wills on
February 27, 2020, the Court hereby accepts the
resignation, and hereby permanently removes Ms. Napoli as
a trustee of the trust under the agreement of James Castelli
dated October 9, 1985.
The Court further orders that Ms. Napoli hereafter shall not
be considered as a trustee of that family trust.
____________________________________________
2The Trust’s settlor, James Castelli died in March 1993. At his death, the Trust
had three co-trustees, Napoli, Dario D. Castelli, and Victor Castelli, Sr. Dario
Castelli and Victor Castelli, Sr. have since passed away.
3 In January 2015, Victor filed a petition for rule to show cause why an
accounting should not be filed. Napoli filed an accounting in November 2015,
and Victor filed objections.
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Order, Mar. 5, 2020.
The order appointed AmeriServ Trust & Financial Services as corporate
trustee and stated that in a separate order, the court would appoint “an
appropriate member of the bar as a co-trustee.” Id. It also placed restrictions
on the trust property:
The Court orders that Anita Napoli deliver all trust property
forthwith to AmeriServ Trust & Financial Services, that she
provide an accounting within sixty (60) days of today’s date
of all trust assets, and that no other assets be subject to
spoliation or dissipation, including but not limited to the
assets now or formerly of Super Outdoor Theaters, until
such time as the accounting can be resolved in any
remaining matters in that regard.
Id.
In May 2020, Victor filed a motion to clarify and amend the order. Victor
argued, among other things, that the court should have included a finding that
Napoli breached her duties as trustee and included “additional language to
prevent any further spoliation or dissipation of assets of all Castelli family
entities.” Brief in Support of Motion to Clarify and Amend the March 5, 2020
Order, filed June 19, 2020, at 7. Napoli filed a response to Victor’s motion and
a cross-motion to modify the order, asking the court to remove certain
language: “based on the testimony and evidence heard,” “permanently
removes,” and “including but not limited to the assets now or formerly of
Super Outdoor Theaters.” Napoli’s Response to Petitioner’s Motion to Clarify
and Amend the March 5, 2020 Order of Court and Respondent’s Cross Motion
to Modify, filed July 27, 2020, at ¶ 31.
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The court heard argument and issued an amended order. The order
contained the following paragraph accepting Napoli’s resignation and
“permanently” removing her as trustee:
Based on the testimony and evidence presented, and the
resignation submitted by trustee Anita Napoli, executed
February 26, 2020 and filed with the Register of Wills on
February 27, 2020, the Court hereby accepts the resignation
and permanently removes Ms. Napoli as a trustee of the
trust under the Trust Agreement of James Castelli, dated
October 9, 1985; Anita Napoli shall not be considered a
trustee of said trust hereafter.
Order, dated Oct. 9, 2020.4
It further ordered that assets and former assets of the trust not be
subject to spoliation or dissipation, and enjoined the transfer, dissipation, and
spoliation of assets or former assets of the trust:
It is further ORDERED that Anita Napoli deliver all trust
property forthwith to the successor trustees, AmeriServ and
[Nora Gieg] Chatha, and ORDERS that no other assets of
the trust and assets formerly of the trust be subject to
spoliation or dissipation, and that all such assets, including
but not limited to any Castelli family entity, Super Outdoor
Theaters, Inc., Castelli Brothers Company, LP, or any
successor entities to the aforementioned, are hereby
enjoined from transfer, dissipation or spoliation until such
time as the accounting of the former trustee and any
remaining matters relating to the trust property are
resolved, and further order of court.
Id. Napoli filed a notice of appeal.
Napoli raises the following issues:
____________________________________________
4 This order was dated October 9, 2020, but was not docketed until January
5, 2021.
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1. Whether the Lower Court erred in sua sponte entering an
injunction and purporting to enjoin entities that are not
parties to these proceedings?
2. Whether the Lower Court [e]rred in Ordering that Anita
Napoli is “permanently removed” as Trustee “based on the
testimony and evidence presented” after Anita Napoli had
already resigned as Trustee before the factual hearing was
concluded and therefore the Petition to remove her as
Trustee was moot?
3. Whether the Lower Court erred in (a) entering the
January 17, 2020 Order of Court which granted Petitioner,
Victor Castelli’s, pretrial (i) Motion in Limine to Limit the
Scope of Trial To Petitioner’s Amended Petition and May 13,
2016 Citation Issued to Trustee Anita Napoli by the
Washington County Clerk for the Orphans’ Court and
Proposed Order of Court, and (ii) Petitioner’s Motion in
Limine to Exclude from Trial the Testimony and Reports of
Richard F. Brabender, JD, CVA and Proposed Order of Court,
and (b) denying Anita Napoli's Motion to Frame Issues for
Trial and to Limit Testimony Regarding Damages?
4. Whether this appeal is timely?
Napoli’s Br. at 5-6 (suggested answers omitted).
We will address Napoli’s second, third, and fourth claims first, for ease
of disposition. In her second claim, Napoli challenges the order removing her
as a trustee. She maintains the court erred in entering an order “permanently
remov[ing]” her as trustee “based on the testimony and evidence presented.”
Id. at 25. Napoli argues the issue had been made moot by her prior
resignation, in February 2020. Id. at 39. She maintains the court cannot
remove someone who already resigned, the court cannot make factual
findings without a complete record, and the words “permanently removed”
were offensive and unnecessary. Id. at 25-26. Napoli also contends the court
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should not have drawn a negative inference from her decision not to testify.
She states she did not testify because the issue of her removal was moot.
In her third issue, the trial court erred in granting Victor’s motions in
limine which limited the trial to the issue of the removal of Napoli as trustee
and excluded evidence from her expert and in denying her motions.
In her fourth claim, Napoli argues that the appeal is timely. She points
out that the trial court invited requests to amend the order and accepted
argument on the motion to clarify and her response. She further claims the
order did not merely “clarify” the order but replaced it with a new one.
As Napoli has passed away during the pendency of this appeal, her
challenges to the language of the order removing her as trustee and to the
pre-trial motions related to the trial to determine whether she should be
removed as trustee are dismissed as moot.5 There no longer is “an actual
____________________________________________
5 Further, the appeal of the order removing her as trustee and of the pre-trial
orders was untimely. Pennsylvania Rule of Appellate Procedure 342 provides
that certain appeals may be taken as of right from orders issued in the
Orphans’ Court Division, including “[a]n order determining the status of
fiduciaries, beneficiaries, or creditors in an estate, trust, or guardianship.”
Pa.R.A.P. 342(a)(5). That rule further provides that the failure to appeal an
order appealable under Rule 342(a)(1)-(7) constitutes a waiver: “Failure to
appeal an order that is immediately appealable under paragraphs (a)(1)-(7)
of this rule shall constitute a waiver of all objections to such order and such
objections may not be raised in any subsequent appeal.” Pa.R.A.P. 342(c).
In March 2020, the trial court accepted Napoli’s resignation and
permanently removed her as trustee. Napoli did not appeal. That order, which
determined the status of fiduciaries, was appealable as of right, and she
waived her objections to the order removing her as trustee when she failed to
appeal. See id. The March 2020 and October 2020 orders as related to her
(Footnote Continued Next Page)
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J-A18035-22
claim or controversy” for our review. See In re Appointment of a Guardian
of Gerber, 824 A.2d 1204, 1206 (Pa.Super. 2003) (noting that “[i]f events
occur to eliminate the claim or controversy at any stage in the process, the
case becomes moot”).6
Turning to her first issue, Napoli challenges the court’s enjoining of
dissipation and spoliation of trust property. Napoli maintains that the court
should not have issued an injunction because the requirements for doing so
were not met. She also faults the court for issuing an injunction against those
who were not parties to the action, and an entity allegedly no longer is in
existence. She also argues that the court improperly entered the injunction
sua sponte, as Victor only sought her removal and a surcharge, and points out
that Victor did not post a bond. She disagrees with the trial court that it did
not issue an injunction, stating there is no way to interpret the order other
than as an injunction. She argues that contrary to the court’s conclusion, it
did not have “equitable powers” over the assets, and she disputes the finding
that she engaged in self-dealing.
____________________________________________
removal as trustee are virtually indistinguishable, with just minor changes in
sentence structure. The court made no substantive changes. That the trial
court invited the parties to raise with it any concerns did not alter that Napoli
had to file a timely appeal and a failure to do so would result in a waiver of
the objections. See id. Napoli therefore waived any objection to her removal
as trustee when she failed to appeal the March 2020 order.
6 These issues do not involve “an important public interest that is capable of
repetition but is likely to continually evade appellate review.” In re
Appointment of a Guardian of Gerber, 824 A.2d at 1206.
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The court maintained that it did not enter a preliminary injunction, but
rather included language to protect the trust assets from dissipation or
spoliation. Trial Court Opinion, dated Dec. 22, 2021, at 10 (“1925(a) Op.”). It
reasoned that the language was an exercise of its equitable powers over the
assets of the Trust to ensure the assets belonging to the Trust are preserved.
Id. The court referenced testimony from Victor’s expert regarding breaches
by Napoli and from Napoli’s expert’s testimony, who testified at trial, that he
believed Napoli had engaged in self-dealing. Id. at 10-14.
An orphans’ court has a “broad grant of judicial authority” that includes
“all legal and equitable powers required for or incidental to the exercise of its
jurisdiction.” In re Estate of Damario, 412 A.2d 842, 844 (Pa. 1980). If a
court finds a breach of trust, the remedies available include the ordering of
“any appropriate relief,” which may include voiding an act of a trustee,
imposing a lien or constructive trust on trust property, or recovering trust
property. 20 Pa.C.S.A. § 7781(b)(9)(i)-(iii). However, any such order is
subject to statutory provisions protecting those who deal with trustees. 20
Pa.C.S.A. §§ 7781(b)(9), 7790.2 (providing for protection of people dealing
with trustee).
We cannot agree with the trial court that it did not issue an injunction.
The amended order barred the “transfer, dissipation or spoliation” of the
trust’s assets and former assets, including “any Castelli family entity, Super
Outdoor Theaters, Inc., Castelli Brothers Company, LP, or any successor
entities to the aforementioned”:
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It is further ORDERED that Anita Napoli deliver all trust
property forthwith to the successor trustees, AmeriServ and
Attorney Chatha, and ORDERS that no other assets of the
trust and assets formerly of the trust be subject to spoliation
or dissipation, and that all such assets, including but not
limited to any Castelli family entity, Super Outdoor
Theaters, Inc., Castelli Brothers Company, LP, or any
successor entities to the aforementioned are hereby
enjoined from transfer, dissipation or spoliation until such
time as the accounting of the former trustee and any
remaining matters relating to the trust property are
resolved, and further order of court.
Order, Oct. 9, 2020 (emphasis added). This portion of the order works as a
preliminary injunction, both requiring and prohibiting certain actions, and it
was appealable as of right. See Pa.R.A.P. 311(a)(4). Unlike the failure to
appeal orders appealable under Rule 342(a), a failure to appeal an
interlocutory order under Rule 311 does not waive objections thereto.
Pa.R.A.P. 311(g).
We review the grant of a preliminary injunction for an abuse of
discretion. Duquesne Light Co. v. Longue Vue Club, 63 A.3d 270, 275 (Pa.
Super. 2013) (citation omitted).
A court may issue a preliminary injunction “only after written notice and
hearing unless it appears to the satisfaction of the court that immediate and
irreparable injury will be sustained before notice can be given or a hearing
held.” Pa.R.C.P. 1531(a). Similarly, the Orphans’ Court rules provide that the
court may, upon petition, grant a preliminary injunction to prevent the
dissipation of assets. See Pa.O.C.R. 7.4 (“[u]pon petition, the court may issue
a preliminary, special, or permanent injunction in accordance with the rules
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and procedures provided in Pa.R.C.P. 1531”); Ambrogi v. Reber, 932 A.2d
969, 975 (Pa.Super. 2007) (upholding preliminary injunction that prevented
the sale of real property without placing the net proceeds into a court
supervised escrow account).
To establish entitlement to preliminary injunctive relief, a party must
show that: (1) “an injunction is necessary to prevent immediate and
irreparable harm that cannot be adequately compensated by damages[;]” (2)
“greater injury would result from refusing an injunction than from granting it,
and, concomitantly, that issuance of an injunction will not substantially harm
other interested parties in the proceedings[;]” (3) a preliminary injunction
“will properly restore the parties to their status as it existed immediately prior
to the alleged wrongful conduct[;]” (4) “the activity it seeks to restrain is
actionable, that its right to relief is clear, and that the wrong is manifest, or,
in other words, must show that it is likely to prevail on the merits[;]” (5) the
injunction it seeks is “reasonably suited to abate the offending activity[;]” and
(6) “a preliminary injunction will not adversely affect the public interest.”
Summit Towne Ctr., Inc. v. Shoe Show of Rocky Mount, Inc., 828 A.2d
995, 1001 (Pa. 2003).
Here, the trial court abused its discretion. It acted on its own motion
and failed to make findings about any of the six factors required to issue a
preliminary injunction. Furthermore, although there was a hearing, the
hearing focused on whether Napoli should be removed as trustee, and not on
whether the court should grant injunctive relief. We must therefore reverse
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the portion of the order providing that the assets and former assets of the
trust “including but not limited to any Castelli family entity, Super Outdoor
Theaters, Inc., Castelli Brothers Company, LP, or any successor entities to the
aforementioned are hereby enjoined from transfer, dissipation or spoliation.”
Order, dated Oct. 9, 2020.
Accordingly, we dismiss the appeal from the portions of the October
2020 order removing Napoli as a trustee of the Trust and mandating or
prohibiting her taking certain acts as moot. We reverse the portion of the order
enjoining the dissipation and spoliation of assets.
Appeal dismissed in part. Order reversed in part. Case remanded.
Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
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https://www.courtlistener.com/api/rest/v3/opinions/8488726/ | J-S27015-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
COMMONWEALTH OF PENNSYLVANIA IN THE SUPERIOR COURT
OF PENNSYLVANIA
Appellee
v.
MICHAEL E. RUSSELL
Appellant No. 2079 EDA 2021
Appeal from the Judgment of Sentence Entered June 28, 2021
In the Court of Common Pleas of Northampton County
Criminal Division at No: CP-48-CR-0002841-2020
BEFORE: STABILE, J., NICHOLS, J., and SULLIVAN, J.
JUDGMENT ORDER BY STABILE, J.: FILED NOVEMBER 22, 2022
Appellant, Michael E. Russell, appeals from the June 28, 2021 sentence
imposing an aggregate five to ten years of incarceration after he pled guilty
to 20 counts of violating a protective order (18 Pa.C.S.A. § 4955). We affirm.
The instant matter and its companion at Nos. 1839 EDA 2021 and 1862
EDA 2021 arise of Appellant’s domestic abuse of the victim, Traci White. In
this case, Appellant was charged with 54 counts of violations of the trial court’s
order that he not contact the victim. Appellant pled guilty to 20 counts in
exchange for the Commonwealth’s agreement to dismiss the remaining 34.
As per the parties’ negotiated sentence, Appellant received a consecutive
three to six months of incarceration for each of the 20 offenses.
Appellant did not challenge the validity of his plea during the sentencing
hearing or in a post-sentence motion. After the appeal period expired,
J-S27015-22
Appellant sought nunc pro tunc reinstatement of his direct appeal rights, and
the trial court granted relief with the Commonwealth’s consent. He filed this
nunc pro tunc appeal on October 1, 2021. His brief to this Court presents four
questions, all of which challenge the validity of his plea. We will not address
these questions on the merits, as Appellant has failed to preserve them for
Appellate review.
“In order to preserve an issue related to a guilty plea, an appellant must
either “object[ ] at the sentence colloquy or otherwise raise[ ] the issue at the
sentencing hearing or through a post-sentence motion.” Commonwealth v.
Monjaras-Amaya, 163 A.3d 466, 468-69 (Pa. Super. 2017) (quoting
Commonwealth v. D'Collanfield, 805 A.2d 1244, 1246 (Pa. Super. 2002));
See also Pa.R.Crim.P. 720(A)(1), (B)(1)(a)(i); Pa.R.A.P. 302(a). Otherwise,
this issue is waived. “The purpose of this waiver rule is to allow the trial court
to correct its error at the first opportunity, and, in so doing, further judicial
efficiency.” Id.
In the absence of a timely post-sentence motion, the defendant may
seek leave to file a post-sentence motion nunc pro tunc. “To be entitled to
file a post-sentence motion nunc pro tunc, a defendant must, within 30 days
after the imposition of sentence, demonstrate sufficient cause, i.e., reasons
that excuse the late filing.” Commonwealth v. Dreves, 839 A.2d 1122,
1128 (Pa. Super. 2003) (en banc). The trial court must expressly grant
permission for the untimely post-sentence motion for the thirty-day appeal
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period to be tolled. Id. Furthermore, a trial court’s nunc pro tunc
reinstatement of direct appeal rights does not automatically carry with it the
reinstatement of Appellant’s right to file a post-sentence motion.
Commonwealth v. Wright, 846 A.2d 730, 734 (Pa. Super. 2004). Rather,
the appellant must expressly seek, and the trial court must expressly grant,
that relief. Id.
The record reveals that the trial court informed Appellant of his post-
sentence and appellate rights, including the filing deadlines. N.T. Hearing,
6/28/21, at 37. Appellant signed a written colloquy explaining the same. Id.
at 24-25. Nonetheless, Appellant did not file a timely post-sentence motion
or seek leave to file a nunc pro tunc post-sentence motion within 30 days of
the judgment of sentence. He concedes that the order permitting this nunc
pro tunc direct appeal did not expressly grant the right to file post-sentence
motions. Appellant’s Brief at 9-10. Based on all of the foregoing, Appellant
has failed to preserve the issues he seeks to raise.
Judgment of sentence affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
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https://www.courtlistener.com/api/rest/v3/opinions/8488725/ | J-S33007-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
COMMONWEALTH OF PENNSYLVANIA : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
MARCUS WOMACK :
:
Appellant : No. 2090 EDA 2020
Appeal from the PCRA Order Entered October 13, 2020,
in the Court of Common Pleas of Philadelphia County
Criminal Division at No(s): CP-51-CR-0002836-2016
COMMONWEALTH OF PENNSYLVANIA : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
MARCUS WOMACK :
:
Appellant : No. 2091 EDA 2020
Appeal from the PCRA Order Entered October 13, 2020,
in the Court of Common Pleas of Philadelphia County
Criminal Division at No(s): CP-51-CR-0002889-2015.
COMMONWEALTH OF PENNSYLVANIA : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
MARCUS WOMACK :
:
Appellant : No. 2092 EDA 2020
J-S33007-22
Appeal from the PCRA Order Entered October 13, 2020,
in the Court of Common Pleas of Philadelphia County,
Criminal Division at No(s): CP-51-CR-0007878-2015.
BEFORE: KUNSELMAN, J., KING, J., and SULLIVAN, J.
MEMORANDUM BY KUNSELMAN, J.: FILED NOVEMBER 22, 2022
Marcus Womack appeals from the order denying his first petition for
relief pursuant to the Post Conviction Relief Act (“PCRA”). 42 Pa.C.S.A. §§
9541-46. We affirm.
The pertinent facts and procedural history are as follows. On June 28,
2017, Womack entered open guilty pleas at the above dockets to firearm and
related charges stemming from the straw purchase of guns.1 On October 19,
2017, the trial court imposed an aggregate term of five to ten years of
incarceration plus five years of probation. Womack did not file a post-
sentence motion and his pro se direct appeals were dismissed as untimely
filed.
On September 5, 2018, Womack filed a timely PCRA petition. The PCRA
court appointed counsel. On January 15, 2020, PCRA counsel filed an
amended petition in which Womack asserted that his plea counsel rendered
ineffective assistance by advising him to plead guilty. On March 13, 2020,
the Commonwealth filed a motion to dismiss. On August 11, 2020, the PCRA
court issued a Pa.R.Crim.P. 907 notice of its intent to dismiss Womack’s
____________________________________________
1 All charges in a third case were nolle prossed on November 20, 2017.
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petition. Womack did not file a timely response. By order entered October
13, 2020, the PCRA court denied Womack’s petition. Womack filed an appeal
at each docket, which this Court consolidated sua sponte on December 30,
2020. Both Womack and the PCRA court have complied with Pa.R.A.P. 1925.2
Womack raises the following two issues on appeal:
A. Should [this] Court quash [Womack’s] appeals as
untimely?
B. Did PCRA counsel render ineffective assistance by not
alleging plea counsel’s ineffectiveness for assuring
[Womack] that he would be sentenced to three to six
years of incarceration?
Womack’s Brief at 5.
We first note that the Commonwealth agrees with Womack that his
appeal should not be quashed as untimely. See Commonwealth’s Brief at 12-
13. Our review of this Court’s docket reveals that although timely filed from
the October 13, 2020, order dismissing his PCRA petition, Womack identified
the earlier Rule 907 notice as the final order. Nevertheless, as the appeal was
timely filed from the PCRA court’s final order dismissing Womack’s PCRA
petition, we need not remand. Instead, we have corrected the captions
accordingly. See Pa.R.A.P. 902 (providing that the “[f]ailure of an appellant
____________________________________________
2Substantial delay occurred before this appeal was ready to be listed for panel
consideration. Our prothonotary twice sent overdue notices regarding the
overdue record and its was not received in this Court until November 17, 2021.
Thereafter, both Womack and the Commonwealth requested multiple
extensions of time to file their brief. Ultimately, the Commonwealth filed its
brief on August 26, 2022, and the case was assigned to this panel.
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to take any step other than the timely filing of a notice of appeal does not
affect the validity of the appeal, but is subject to such action as the appellate
court deems appropriate which includes, but is not limited to remand of the
matter to the lower court so that the omitted procedural step may be taken”).
Thus, we address Womack’s second issue.
This Court’s standard of review for an order dismissing a PCRA petition
is to ascertain whether the order “is supported by the evidence of record and
is free of legal error. The PCRA court’s findings will not be disturbed unless
there is no support for the findings in the certified record.” Commonwealth
v. Barndt, 74 A.3d 185, 191-92 (Pa. Super. 2013) (citations omitted).
The PCRA court has discretion to dismiss a petition without
a hearing when the court is satisfied that there are no
genuine issues concerning any material fact, the defendant
is not entitled to post-conviction collateral relief, and no
legitimate purpose would be served by further proceedings.
To obtain a reversal of a PCRA court’s decision to dismiss a
petition without a hearing, an appellant must show that he
raised a genuine issue of material fact which, if resolved in
his favor, would have entitled him to relief, or that the court
otherwise abused its discretion in denying a hearing.
Commonwealth v. Blakeney, 108 A.3d 739, 750 (Pa. 2014) (citations
omitted).
Womack’s claim alleges the ineffective assistance of PCRA counsel for
the first time on appeal pursuant to Commonwealth v. Bradley, 261 A.3d
381 (Pa. 2021). To obtain relief under the PCRA premised on a claim that
counsel was ineffective, a petitioner must establish, by a preponderance of
the evidence, that counsel's ineffectiveness so undermined the truth-
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determining process that no reliable adjudication of guilt or innocence could
have taken place. Commonwealth v. Johnson, 966 A.2d 523, 532 (Pa.
2009). “Generally, counsel’s performance is presumed to be constitutionally
adequate, and counsel will only be deemed ineffective upon a sufficient
showing by the petitioner.” Id. This requires the petitioner to demonstrate
that: (1) the underlying claim is of arguable merit; (2) counsel had no
reasonable strategic basis for his or her action or inaction; and (3) counsel’s
act or omission prejudiced the petitioner. Id. at 533.
Before considering the merits of Womack’s claim, we must first address
the Commonwealth’s assertion that he waived the issue because he did not
challenge initial PCRA counsel’s ineffectiveness in his Rule 1925(b) statement
of errors claimed of on appeal. See Commonwealth’s Brief at 13-14. A review
of Womack’s Rule 1925(b) statement reveals that his ineffectiveness claims
were only raised as to plea counsel; Womack did not present a claim of layered
ineffectiveness by including a claim regarding initial PCRA counsel. Thus, the
PCRA court did not have an opportunity to address Womack’s layered claim
that PCRA counsel was ineffective for not claiming plea counsel was ineffective
for allowing him to enter a guilty plea based on plea counsel’s promise of a
three to six-year sentence.
In Commonwealth v. Parrish, 273 A.3d 989 (Pa. 2022), our Supreme
Court was divided over whether, in light of Bradley, supra, Parrish preserved
a claim of initial PCRA counsel’s ineffectiveness in his Rule 1925(b) statement.
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J-S33007-22
At issue in Parrish was whether the petitioner’s new PCRA counsel adequately
preserved a layered claim that initial PCRA counsel was ineffective.
Specifically, in his brief Parrish argued that his first PCRA counsel was
ineffective for failing to adequately argue trial counsel failed to consult with
him about filing an appeal. However, in his Rule 1925(b) statement to his
PCRA appeal, his new PCRA counsel only faulted PCRA counsel for failing to
challenge trial counsel’s ineffectiveness in not filing a requested notice of
appeal.
Writing for the majority, Justice Donahue found that Parrish “adequately
raised and preserved his layered claim of the ineffective assistance of trial and
initial PCRA counsel by raising it at the first opportunity to do so, specifically
in his [Rule] 1925(b) Statement and in his brief filed with [the Supreme Court]
in this appeal.” Parrish, 273 A.3d at 1002. According to Justice Donahue,
Parrish preserved the failure to consult claim because “a failure to consult
argument, at base, must assert that counsel failed to file an appeal that would
have been requested.” Parrish, 273 A.3d at 1000, n.9. She further noted
that, according to the language of Rule 1925(b), each error identified in the
statement “will be deemed to include every subsidiary issue that raised in the
trial court[.]” Id. citing Pa.R.A.P. 1925(b)(4)(v). Justice Donahue then
concluded that “Parrish’s framing of the issue in paragraph seventeen [of his
Rule 1925(b) statement] adequately encompasses” the failure to consult
claim.
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In his dissent, Justice Dougherty, joined by two justices, stressed the
importance of strictly reading the Rule 1925(b) statement. After citing prior
cases, including Parrish’s prior appeal, Justice Dougherty found Parrish waived
his ineffectiveness claim because he failed to raise the specific claim of initial
PCRA counsel’s ineffectiveness in his Rule 1925(b) statement. According to
Justice Dougherty, the failure to consult with an appellant is a distinct issue
from failing to file a requested appeal. Because failure to consult claim was
not raised with specificity in Parrish’s Rule 1925(b) statement, it was waived.
See Parrish, 273 A.3d at 1007-1011.
Although our high court was divided over whether the specific claim of
initial PCRA counsel’s ineffectiveness raised by Parrish in his Rule 1925(b)
statement encompassed the claim of initial PCRA counsel’s ineffectiveness for
failing to consult, both decisions stress that a claim of PCRA counsel’s
ineffectiveness must be raised in the Rule 1925(b) statement. Here, by
contrast, Womack’s Rule 1925(b) statement does not reference PCRA counsel,
but rather speaks only to the ineffectiveness of plea counsel.
In Commonwealth v. Alston, 279 A.3d 1283, *7 (Pa. Super. 2022)
(non-precedential decision), this Court found waiver when the pro se PCRA
petitioner did not raise the claim of PCRA counsel’s ineffectiveness in the Rule
1925(b) statement. As in Alston, because new PCRA counsel did not raise
Womack’s layered claim of ineffectiveness in his Rule 1925(b) statement, we
agree with the Commonwealth that Womack’s second issue is waived.
-7-
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Even absent waiver, however, our review of the record refutes
Womack’s claim that his initial PCRA counsel was ineffective. See Bradley,
261 A.2d at 402 (explaining that an appellate court may address
straightforward claims of PCRA counsel’s ineffectiveness).
In making a layered claim of ineffectiveness, a PCRA petitioner “must
properly argue each prong of the three-prong ineffectiveness test for each
separate attorney.” Commonwealth v. Rykard, 55 A.3d 1177, 1190 (Pa.
Super. 2012). “In determining a layered claim of ineffectiveness, the critical
inquiry is whether the first attorney that the defendant asserts was ineffective
did, in fact, render ineffective assistance of counsel.” Commonwealth v.
Burkett, 5 A.3d 1260, 1270 (Pa. Super. 2010). “If that attorney was
effective, then subsequent counsel cannot be deemed ineffective for failing to
raise the underlying issue.” Id. Thus, we first consider whether plea counsel
was ineffective.
Regarding claims of ineffectiveness in relation to the entry of plea, we
note:
Ineffective assistance of counsel claims arising from the plea
bargaining-process are eligible for PCRA review. Allegations
of ineffectiveness in connection with the entry of a guilty
plea will serve as a basis for relief only if the ineffectiveness
caused the defendant to enter into an involuntary or
unknowing plea. Where the defendant enters his plea on
the advice of counsel, the voluntariness of the plea depends
on whether counsel’s advice was within the range of
competence demanded of attorneys in criminal cases.
The standard for post-sentence withdrawal of guilty pleas
dovetails with the arguable merit/prejudice requirements
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for relief based on a claim of ineffective assistance of plea
counsel, . . . under which the defendant must show that
counsel’s deficient stewardship resulted in a manifest
injustice, for example, by facilitating the entry of an
unknowing, involuntary, or unintelligent plea. This standard
is equivalent to the “manifest injustice” standard applicable
to all post-sentence motions to withdraw a guilty plea.
Commonwealth v. Kelley, 136 A.3d 1007, 1012-13 (Pa. Super. 2016)
(citations omitted).
Moreover, “[o]ur law presumes that a defendant who enters a guilty
plea was aware of what he was doing,” and “[h]e bears the burden of proving
otherwise.” Commonwealth v. Pollard, 832 A.2d 517, 523 (Pa. Super.
2003) (citations omitted).
The longstanding rule of Pennsylvania law is that a
defendant may not challenge his guilty plea by asserting that
he lied while under oath, even if he avers that counsel
induced the lies. A person who elects to plead guilty is bound
by the statements he makes in open court while under oath
and may not later assert grounds for withdrawing the plea
which contradict the statements he made at his plea colloquy.
Id. On appeal, this Court evaluates the adequacy of the plea colloquy and
the voluntariness of the resulting plea by looking at the totality of the
circumstances. Commonwealth v. Yeomans, 24 A.3d 1044, 1047 (Pa.
Super. 2011).
With these standards in mind, we need only briefly address Womack’s
claim that plea counsel promised him a sentence of no more than three to six
years of imprisonment. This claim contradicts the answers Womack gave in
both his oral and written guilty plea colloquies. At his oral guilty plea colloquy,
Womack acknowledged that, due to a prior conviction, plea counsel had
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informed him that he was facing a mandatory five to ten years of
imprisonment. See N.T., 6/28/17, at 11-12. Additionally, Womack
acknowledged that no promises had been made in return for his guilty plea.
See id. at 17.
In sum, Womack waived his claim of initial PCRA counsel’s
ineffectiveness for failing to raise the claim in his Rule 1925(b) statement.
Even absent waiver, the record readily refutes Womack’s claim that he was
promised a lesser sentence in return for his guilty plea. We therefore affirm
the order denying Womack post-conviction relief.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
- 10 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488730/ | J-A18004-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
COMMONWEALTH OF PENNSYLVANIA : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
RICHARD J. DESABETINO, II :
:
Appellant : No. 1435 WDA 2021
Appeal from the Judgment of Sentence Entered June 27, 2019
In the Court of Common Pleas of Allegheny County
Criminal Division at No: CP-02-CR-0013014-2014
BEFORE: STABILE, J., MURRAY, J., and McLAUGHLIN, J.
MEMORANDUM BY STABILE, J.: FILED: NOVEMBER 22, 2022
Appellant, Richard DeSabetino, II, appeals from the judgment of
sentence entered on June 27, 2019 in the Court of Common Pleas of Allegheny
County, following his conviction of a multitude of offenses. Appellant contends
that the trial court abused its discretion by refusing to accept Appellant’s mid-
trial guilty plea. Following review, we affirm.
We provide the following factual and procedural background for context.
Appellant was charged in relation to a series of events that occurred on August
6, 2014. After Appellant’s first trial ended in a mistrial, Appellant proceeded
to a second jury trial before a different judge in March 2019. At the beginning
of the March 2019 trial, Appellant confirmed on the record that he was
rejecting a global plea offer of seven and a half to fifteen years in prison for
the instant case and other pending proceedings. On the second day of trial,
J-A18004-22
Appellant stated on the record that he wanted trial counsel “off his case.” 1 He
then elected not to be present for the day’s proceedings.
Before testimony was presented on the third day of trial, Appellant’s
counsel asked if the trial court would allow Appellant to consider a plea
carrying a term of imprisonment of eight and a half to twenty years. Following
a side bar discussion with Appellant, the trial court announced it would not
take a plea.
At the conclusion of the March 2019 proceedings, the jury convicted
Appellant of robbery, fleeing and eluding, theft by unlawful taking, accident
involving death or personal injury, driving under suspension, and four counts
of recklessly endangering another person. However, the jury was hung on
two counts of aggravated assault. A subsequent jury found Appellant guilty
on both aggravated assault counts. On June 26, 2019, the trial court
sentenced Appellant to an aggregate sentence of twenty years and eight
months to forty-one years and four months in prison.2 A timely appeal
followed. Trial Court Opinion, 12/19/19, at 1-2.
Appellant’s appeal was eventually dismissed due to then-counsel’s
failure to file a brief. His direct appeal rights were ultimately reinstated on
____________________________________________
1 See Notes of Testimony, Trial, 3/6/19, at 242-47.
2The trial court explained that “[t]his sentence included seven other cases in
which a global plea agreement was reached but are not the subject of this
appeal.” Trial Court Opinion, 12/19/19, at 2 n.4.
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October 29, 2021 and this timely appeal followed. Appellant filed his concise
statement of errors, raising eight issues. The trial court filed a Rule 1925(a)
opinion, incorporating its responses to the eight claimed errors as previously
set forth in its December 19. 2019 opinion.
On appeal to this Court, Appellant asks us to consider two of the eight
alleged errors raised in his Rule 1925(b) statement:
I. Whether the trial court abused its discretion by rejecting a
reasonable plea agreement which was offered by the
Commonwealth and agreed to knowingly, voluntarily, and
intelligently by [Appellant] during the March 2019 trial.
II. Whether the trial court erred by rejecting a reasonable plea
agreement which was offered by the Commonwealth and
agreed to knowingly, voluntarily, and intelligently by
[Appellant] during the March 2019 trial because [Appellant]
asserted a constitutional right.
Appellant’s Brief at 6. We shall consider these related issues together.
We review the trial court’s decision not to accept the plea agreement for
abuse of discretion. As this Court explained in Commonwealth v. Chazin,
873 A.2d 732 (Pa. Super. 2005):
“The Pennsylvania Rules of Criminal Procedure grant the trial court
broad discretion in the acceptance and rejection of plea
agreements. There is no absolute right to have a guilty plea
accepted.” Commonwealth v. Hudson, 820 A.2d 720, 727–28
(Pa. Super. 2003). Accordingly, our Courts have reaffirmed that
“[w]hile the Commonwealth and a criminal defendant are free to
enter into an arrangement that the parties deem fitting, the terms
of a plea agreement are not binding upon the court. Rather the
court may reject those terms if the court believes the terms do
not serve justice.” Commonwealth v. White, 787 A.2d 1088,
1091 (Pa. Super. 2001). As these holdings make apparent, the
Commonwealth’s offer of [a] plea, even if accepted by the
defendant unequivocally, does not dispose of a criminal
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prosecution; indeed, the plea bargain is of no moment until
accepted by the trial court.
Id. at 737. Further, as this Court observed in Commonwealth v. Ritz, 153
A.3d 336 (Pa. Super. 2016),
a plea agreement does not become binding on the parties upon
their consent to terms; rather, a plea agreement is not valid and
binding until it is evaluated and accepted by a third party, i.e.,
a trial court. See Pa.R.Crim.P. 590(A)(3) (stating that a judge
may refuse to accept a plea of guilty or nolo contendere and that
the judge shall not accept the plea unless the judge determines
after inquiry of the defendant that the plea is voluntarily and
understandingly tendered).
Id. at 342.
As the above passages reflect, even if a defendant accepts the terms of
a plea offer, the agreement is not binding unless and until the trial court
evaluates and accepts the offer. Here, the record reflects the following
exchanges (with minor redactions) between Appellant and the trial court on
the third day of trial:
THE COURT: So, Mr. DeSabetino, counsel have approached at
side bar here to ask me whether I would consider allowing you to
consider a plea offer at this stage of the proceedings. . . .
So as I told them at side bar, I am concerned at this point
that you would not be in a circumstance where you could accept
a plea knowingly, intelligently and voluntarily for a couple reasons.
One is that you told me that you think [trial counsel] was
ineffective, and so I don’t want to force you to take a plea because
of that. And two - -
APPELLANT: You have a point.
THE COURT: Pardon?
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J-A18004-22
APPELLANT: No. I said you have a point.
THE COURT: And 2, because before the trial began, there was a
plea offer and you told me quite adamantly that you were rejecting
it.
So I’m going to ask you some additional questions, and once
again, you remain under oath. We are on the record.
You rejected the plea offer that was made before trial,
correct?
APPELLANT: Correct.
THE COURT: Now, there is a plea offer that’s been relayed to
[trial counsel], and he relayed it to you; is that correct?
APPELLANT: Yes.
THE COURT: Okay. And would you like to consider that plea
offer?
APPELLANT: I would like to, but I was just in discussion with my
attorney, and I thought – I know the first plea was for 7-and-a-
half to 15, and I just asked him if he could possibly raise it with
them – I thought it could be nolo contendere for 8-and-a-half to
16, but they said prosecution wants an 8-and-a-half to 20 years
sentence.
THE COURT: Well, I don’t engage in plea discussions. So the
offer on the table is what it is that [the prosecutor related to trial
counsel] and read to you. . . .
And I can’t force either side – I can’t ask the Commonwealth
to make a plea offer. I can’t force you to take one, and I wouldn’t.
That would not be justice.
So the offer is what it is. Do you want to take a chance to
consider that offer, and if you do, understand it is going to be a
limited window here, because I have a jury sitting upstairs. . . .
APPELLANT: Can I discuss something with my attorney, real
quick?
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J-A18004-22
THE COURT: Yes, you may.
-----
(Whereupon, a brief recess was taken.)
-----
THE COURT: Okay. So have you had a chance to discuss the
offer with [trial counsel]?
APPELLANT: Yes, I did, Your Honor.
THE COURT: Do you need any more time?
APPELLANT: No. From my understanding, [trial counsel] is going
to go and see if [another judge involved in the proposed global
settlement] is willing to work with us, and if she is, I’m going to
have them out [sic] and call it a day.
THE COURT: Okay. Going back to the original concern that I had,
because you can choose to accept a plea offer, but I don’t have to
accept. You understand that?
APPELLANT: Yes, Your Honor.
THE COURT: And I won’t accept it if what you’re telling me is that
you think [trial counsel] has been ineffective as an attorney and
that you’re only taking this plea because you think he has done a
bad job representing you.
APPELLANT: I mean, he just negotiated a good plea for me. I
mean so - -
THE COURT: No. That’s not the question I’m asking. He had
negotiated a plea for you before as well, and you rejected that
plea. So the question I’m asking, and I’m going to be very clear
here, okay. I don’t need more work.
APPELLANT: I understand.
THE COURT: So I don’t want to write frivolous opinions on appeal.
APPELLANT: I understand.
THE COURT: I also don’t want to have somebody take a plea
because they feel that they are being forced to do so, for whatever
reason, whether it’s because their attorney tells them that they
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J-A18004-22
are going to lose the case or whether it is because the defendant
believes the attorney is doing a bad job and has been ineffective
in representation.
APPELLANT: . . . [W]e have an understanding right now, if that’s
what you’re trying to get at, with an understanding, and
everything is okay with his representation as of right now forward.
THE COURT: So contrary to what you told me on [the second day
of trial], contrary to what you told your mother on the phone,
contrary to what you told the deputy in the hallway and contrary
to what you told me [on the second day of trial], you’re now telling
me that you do think [trial counsel] has done a good job
representing you? You may not agree with every decision he has
made, but you’re not going to claim that he has done a bad job,
that he has been ineffective, that he has made errors in his trial
strategy or in the presentation of your case that forced you to
need to take a plea.
APPELLANT: Yes. He hasn’t forced me to do anything. He helped
me out – he helped me get a plea. That’s what I was here for.
They either get a plea or finish this trial and be immediately
sentenced. He has helped me out, yes.
THE COURT: So he has helped you out with negotiating a plea,
but he did that before the trial, too.
APPELLANT: Yes, he did.
THE COURT: And then between that time and now, you have
accused him of being ineffective, that he is doing a terrible job.
That’s what you were saying.
Are you taking a plea today because you think he has been
ineffective?
APPELLANT: I mean, can I plead the Fifth on that?
THE COURT: No. I’m not going to take a plea. Let’s bring the
jury down.
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J-A18004-22
Notes of Testimony, Trial, 3/8/19, at 404-10.3
In its opinion, after providing a brief synopsis of the above exchange,
the trial court explained:
From his answer to this court’s direct inquiry [as to taking a plea
because he believed counsel has been ineffective], his history of
dissatisfaction with every lawyer he had, and from statements
made by Appellant, this court concluded that Appellant was setting
up a subsequent challenge to the voluntary aspect of his plea by
suggesting that he was forced to enter a plea because his lawyer
was ineffective. Therefore, [the court] did not err in refusing to
accept a plea under these circumstances.
Trial Court Opinion, 12/19/19, at 5 (unnumbered).
Again, and as Appellant acknowledged:
A trial court’s decision to reject a plea agreement is subject to an
abuse of discretion standard. “An abuse of discretion is not merely
an error of judgment, but if in reaching a conclusion the law is
overridden or misapplied or the judgment exercised is manifestly
unreasonable, or the result of partiality, prejudice, bias, or ill will,
as shown by the record, discretion is abused.” Commonwealth
v. Herbert, 85 A.3d 558, 561 (Pa. Super. 2014).
Appellant’s Brief at 5.
Appellant contends the trial court abused its discretion in rejecting the
plea agreement, arguing that his willingness to acknowledge fault in his case—
by accepting a lengthy prison term—indicates that the interests of justice
would be served by accepting the agreement. Appellant’s Brief at 26-27.
However, the trial court’s concern, as reflected in its opinion, was that
Appellant was attempting to set up a challenge to the voluntary aspect of his
____________________________________________
3 No proceedings took place on March 7, 2019.
-8-
J-A18004-22
plea. Trial Court Opinion, 12/19/19, at 5 (unnumbered). As such, the plea
would not serve the interests of justice. We find no abuse of discretion in this
regard.
We next address Appellant’s assertion that the trial court rejected the
plea in retaliation for Appellant asserting a Fifth Amendment right. We dismiss
that assertion. As the above exchange reflects, the trial court noted
Appellant’s stated dissatisfaction with trial counsel’s representation and asked
Appellant if he wanted to accept the plea because he thought counsel has
been ineffective. In response, Appellant replied, “I mean, can I plead the Fifth
on that?” Notes of Testimony, Trial, 3/6/19, at 410. Whether Appellant’s
question was rhetorical or sincere, it was a question, not the assertion of a
Fifth Amendment right. Appellant simply asked a question in response to a
question from the trial court—a question that could not have subjected
Appellant to any criminal liability. More importantly, the trial court’s stated
reason for its decision to reject the plea—the concern that Appellant was
attempting to set up a challenge to the voluntary aspect of his plea—dispels
any notion that the court was acting in retaliation for Appellant’s “assertion”
of a constitutional right.
We find no abuse of discretion in the trial court’s rejection of the plea
deal offered at the beginning of proceedings on the third day of Appellant’s
March 2019 trial. Therefore, we shall not disturb its ruling.
Judgment of sentence affirmed.
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J-A18004-22
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
- 10 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488738/ | J-S20003-22
2022 PA Super 200
ANGELA MARIE BARRETT : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellant :
:
:
v. :
:
:
M&B MEDICAL BILLING, INC. AND : No. 1442 WDA 2021
SANDRA CASEY :
Appeal from the Judgment Entered January 18, 2022
In the Court of Common Pleas of Allegheny County Civil Division at
No(s): No. GD-17-005863
BEFORE: NICHOLS, J., MURRAY, J., and KING, J.
OPINION BY NICHOLS, J.: FILED: NOVEMBER 22, 2022
Appellant Angela Marie Barrett appeals from the judgment awarding her
$1,000 in damages. Appellant argues that the trial court erred by allowing
co-Appellee Sandra Casey (Casey), who is not an attorney, to represent co-
Appellee M&B Medical Billing, Inc. (M&B) at trial and to present evidence that
was not relevant to damages. Appellant also claims that the trial court’s
damages award is against the weight of the evidence. We affirm in part,
vacate in part, and remand for a new trial as to damages.
The trial court summarized the factual and procedural history as follows:
Appellant . . . filed a complaint against her former employers,
[M&B and Casey]. The complaint alleges that Appellees
committed defamation [per se], intentional infliction of emotional
distress, [tortious] interference with contractual relationships and
demanded both compensatory and punitive damages. [Appellant]
claimed that she had been employed as a medical coder for
J-S20003-22
Appellees until December of 2015. After several of her paychecks
were late, she tendered her resignation on December 26, 2015.
[Appellant’s] claim is that . . . [a] prospective employer, UPMC,
sent a request for information to Appellees concerning
[Appellant’s] former employment with them, in order to determine
whether [Appellant] would be a suitable and prospective employee
of UPMC.
Appellees returned UPMC’s requested response, which included a
statement that [Appellant] took proprietary client information with
her, and disclosed that [information. Also, Appellee stated that]
contrary to [Appellant’s] representations to UPMC, [Appellant’s]
position with [Appellees] was merely as a data analyst clerk and
not a medical coder.
Thus, [Appellees] filed an answer and new matter and
counterclaim, denying [Appellant’s] allegations and noting that
[Appellant] violated her employment contract by her use of
proprietary information, when she contacted Appellee[s’] clients,
to solicit them for letters of recommendation for her job search.
Appellees informed UPMC and answered that [Appellant] was not
employed as a medical coder by the [Appellees], as her complaint
represented.
. . . Counsel for Appellee[s later] withdrew from representing
[Appellees] and [after that withdrawal, Appellees] failed to
respond to [Appellant’s] discovery [requests]. The Honorable
Robert J. Colville awarded [Appellant] $1,000.00, for sanctions
and granted a default verdict in favor of [Appellant on April 29,
2019]. Thus, Appellees were prevented from putting on a defense
at the time of this damages only trial.
Trial Ct. Op., 2/24/22, at 1-2 (unpaginated) (formatting altered).
The trial court held a non-jury trial limited to damages only on
November 3, 2021. Casey appeared for trial and stated that she was
representing both herself and M&B. N.T. Trial at 3. Appellant’s counsel
objected to Casey’s representation of M&B because a corporation must be
represented by counsel. Id. at 3-4. The trial court replied: “We’ll just start
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J-S20003-22
the [trial] and see where we go.”1 Id. at 4. At no point during the trial did
the trial court instruct Casey that she could only represent herself and not the
corporation. During the trial, Casey cross-examined Appellant and testified
on her own behalf as part of Appellees’ case. Id. at 25-63, 65-68.
That same day, the trial court entered a verdict in favor of Appellant in
the amount of $1,000. Appellant filed a timely post-trial motion2 on November
10, 2021, requesting that the trial court reassess the damages or, in the
alternative, award Appellant a new trial. In her post-trial motion, Appellant
argued, among other things, that the trial court erred in allowing Casey to
represent M&B because a corporation may appear in court only through
counsel. On November 18, 2021, the trial court denied Appellant’s post-trial
motion.
Appellant filed a notice of appeal on December 2, 2021.3 Appellant
subsequently filed a court-ordered Pa.R.A.P. 1925(b) statement and the trial
____________________________________________
1 We note that the trial court asked the parties to attempt to negotiate a
settlement, and the trial commenced after the parties represented to the trial
court that they were unable to settle this matter. N.T. Trial at 4, 12-15.
2Appellant captioned her motion as a “motion for reconsideration.” However,
a motion captioned as a motion for reconsideration that is filed within the ten-
day period set forth in Pa.R.C.P. 227.1(c) and seeks to modify the trial court’s
decision may be treated as a timely-filed post-trial motion. See Gemini
Equip. Company v. Pennsy Supply, Inc., 595 A.2d 1211, 1214 (Pa. Super.
1991).
3According to the notice of appeal, Appellant purports to appeal from the trial
court’s November 3, 2021 verdict. Additionally, Appellant filed her notice of
appeal prior to the entry of judgment on that verdict. Generally, an appeal to
(Footnote Continued Next Page)
-3-
J-S20003-22
court issued an opinion addressing Appellant’s claims that it erred by
considering evidence related to liability at a trial limited to damages, reducing
Appellant’s damages against M&B, and that its damages award was against
the weight of the evidence. See Trial Ct. Op. at 3-5 (unpaginated).
Appellant raises the following issues for our review, which we restate as
follows:
1. Whether the trial court erred by allowing co-Appellee Sandra
Casey, acting pro se, to represent the interests of co-Appellee
M&B, at trial?
2. Whether the trial court erred by allowing co-Appellee Sandra
Casey to introduce liability evidence at the trial limited to
damages?
3. Whether the trial court erred by reducing damages against co-
Appellee M&B when it was not represented by counsel at trial?
4. Whether the trial court’s damages award was against the
weight of properly admitted evidence?
Appellant’s Brief at 5 (formatting altered).
____________________________________________
this Court properly lies from the entry of judgment. See, e.g., Mackall v.
Fleegle, 801 A.2d 577, 580 (Pa. Super. 2002). Nevertheless, a final
judgment entered during the pendency of an appeal is sufficient to perfect
appellate jurisdiction. See Drum v. Shaull Equip. and Supply Co., 787
A.2d 1050, 1052 n.1 (Pa. Super. 2001).
On January 18, 2018, this Court issued a rule to show cause directing
Appellant’s counsel to enter judgment on the trial court docket and provide a
copy to this Court. Appellant filed a response on February 1, 2022, indicating
that she had complied. Because the trial court entered final judgment on
January 18, 2022, Appellant’s notice of appeal relates forward to January 18,
2022. See Pa.R.A.P. 905(a)(5) (stating that a notice of appeal filed after a
court’s determination but before the entry of an appealable order shall be
treated as filed after such entry and on the day thereof). Therefore, we have
jurisdiction to consider the instant appeal.
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J-S20003-22
In her first issue, Appellant argues that the trial court erred in allowing
co-Appellee Casey, who is not a licensed attorney, to represent co-Appellee
M&B at trial. Id. at 11-12. Appellant contends that Pennsylvania law prohibits
an officer of a corporation, who is not licensed to practice law, from
representing that corporation in legal proceedings. Id. at 11-12 (citing, inter
alia, Walacavage v. Excell 2000, Inc., 480 A.2d 281, 284-85 (Pa. Super.
1984)).
In reviewing Appellant’s claim, we are guided by the following principles:
Our appellate role in cases arising from non-jury trial verdicts is
to determine whether the findings of the trial court are supported
by competent evidence and whether the trial court committed
error in any application of the law. The findings of fact of the trial
judge must be given the same weight and effect on appeal as the
verdict of a jury. We consider the evidence in a light most
favorable to the verdict winner. We will reverse the trial court
only if its findings of fact are not supported by competent evidence
in the record or if its findings are premised on an error of law.
However, where the issue concerns a question of law, our scope
of review is plenary.
The trial court’s conclusions of law on appeal originating from a
non-jury trial are not binding on an appellate court because it is
the appellate court’s duty to determine if the trial court correctly
applied the law to the facts of the case.
Bank of N.Y. Mellon v. Bach, 159 A.3d 16, 19 (Pa. Super. 2017) (Bach)
(citation omitted).
The following standard of review applies to our review of the trial court’s
denial of a motion for a new trial:
We will reverse a trial court’s decision to deny a motion for a new
trial only if the trial court abused its discretion. We must review
the court’s alleged mistake and determine whether the court erred
-5-
J-S20003-22
and, if so, whether the error resulted in prejudice necessitating a
new trial. If the alleged mistake concerned an error of law, we
will scrutinize for legal error. Once we determine whether an error
occurred, we must then determine whether the trial court abused
its discretion in ruling on the request for a new trial.
Carlini v. Glenn O. Hawbaker, Inc., 219 A.3d 629, 643 (Pa. Super. 2019)
(citation omitted).
Section 2501 of the Judicial Code guarantees an individual’s right to self-
representation in civil matters. See 42 Pa.C.S. § 2501(a) (stating that “[i]n
all civil matters before any tribunal every litigant shall have a right to be heard,
by himself and his counsel, or by either of them”); see also In re Lawrence
Cty. Tax Claim Bureau, 998 A.2d 675, 680 (Pa. Cmwlth. 2010) (discussing
the right to self-representation).4 However, it well settled that, with certain
exceptions, non-attorneys may not represent other parties before
Pennsylvania courts. See, e.g., Dauphin Cty. Bar Ass’n v. Mazzacaro, 351
A.2d 229, 233-35 (Pa. 1976) (holding that a public adjuster may not represent
accident victims in settlement negotiations against alleged tort-feasors or
their insurers). Further, the unauthorized practice of law is prohibited and
criminalized in Pennsylvania. See 42 Pa.C.S. § 2524(a).
Additionally, the Courts of this Commonwealth have held that artificial
entities, such as corporations, may only appear in court through counsel. See,
e.g., Skotnicki v. Ins. Dep’t, 146 A.3d 271, 284 (Pa. Cmwlth. 2016)
____________________________________________
4Although decisions of the Commonwealth Court are not binding on this Court,
they may provide persuasive authority. See Maryland Cas. Co. v. Odyssey
Contracting Corp., 894 A.2d 750, 756 n.2 (Pa. Super. 2006).
-6-
J-S20003-22
(explaining that “corporations may not act pro se in court, and that non-
attorneys may not represent them, regardless of the individual’s status as the
corporation’s officer, director, shareholder[] or employee” (citations and
footnote omitted)); Walacavage, 480 A.2d at 283-85 (holding that a
corporation may not appear in court and be represented by a corporate officer
and shareholder who is not an attorney); accord Norman for Est. of
Shearlds v. Temple Univ. Health Sys., 208 A.3d 1115, 1121 (Pa. Super.
2019) (concluding that a non-attorney administrator of an estate could not
represent the estate pro se), appeal denied, 223 A.3d 668 (Pa. 2020), cert.
denied, 141 S.Ct. 301 (2020).
Our Supreme Court recently held that a plaintiff who is not an attorney
may litigate a wrongful death action pro se in their individual capacity, but
that same pro se plaintiff may not represent the estate of the decedent as its
administrator. Bisher v. Lehigh Valley Health Network, 265 A.3d 383 (Pa.
2021). Additionally, in other jurisdictions, courts have held that while a
corporate officer who has been sued in his or her personal capacity may
proceed pro se, that officer cannot represent the interests of the co-defendant
corporation if he or she is not an attorney.5 See, e.g., Alexander & Baldwin,
LLC v. Armitage, 508 P.3d 832, 843-49 (Haw. 2022) (Armitage) (holding
that an unincorporated entity, like a corporation, may not appear in court
____________________________________________
5This Court may rely on the decisions of other states for persuasive authority.
See Hill v. Slippery Rock Univ., 138 A.3d 673, 679 n.3 (Pa. Super. 2016)
(noting that “the decisions of other states are not binding authority for this
Court, although they may be persuasive” (citation omitted)).
-7-
J-S20003-22
through non-attorney agents); Flathead Bank of Bigfork v. Masonry by
Muller, Inc., 383 P.3d 215, 219 (Mont. 2016) (Flathead Bank) (affirming
the trial court’s conclusion that corporation’s president “could only represent
himself personally and could not appear on behalf of [the corporation]”);
Office of Attorney Gen., Dep’t of Legal Affairs v. Nationwide Pools,
Inc., 270 So.3d 406, 408 n.1 (Fla. Dist. Ct. App. 2019) (Nationwide Pools)
(noting that “[u]nlike the corporate defendants, an individual may defend
himself or herself without an attorney”).
Our courts have the authority to sua sponte intervene to prevent the
unauthorized practice of law. Bisher, 265 A.3d at 406; accord Armitage,
508 P.3d at 844. In Bisher, our Supreme Court held that the unauthorized
practice of law is a curable defect. See Bisher, 265 A.3d at 403-07.
Further, the Bisher Court explained:
Significantly, we stress that we decide only that the court has the
discretion to permit a remedy in . . . situations [involving the
unauthorized practice of law], not that it must do so. The default
position in such cases should be that the offending party should
be given a “reasonable opportunity” to cure. But we are not
convinced that the rule is absolute. . . . [T]here may be cases in
which the unauthorized practice of law is an attempt to game the
system.
Bisher, 265 A.3d at 409; see also id. at 406 (affirming this Court’s decision
to order the pro se administrator to retain counsel on behalf of the appellant
estate in order to proceed with the appeal).
Likewise, in Armitage, the Supreme Court of Hawaii reversed a
judgment against an unincorporated entity known as the “Reinstated Hawaiian
-8-
J-S20003-22
Nation” because the trial court allowed two non-attorney agents of that entity,
one of whom was a co-defendant sued in his personal capacity, to represent
the entity before the trial court. Armitage, 508 P.3d at 838-40. The
Armitage Court explained that
[a]s an unincorporated entity, the Reinstated Hawaiian Nation
may only appear in court through an attorney representative.
[The agents], as non-attorneys, should not have been allowed to
represent its interests before the [trial] court. The [trial] court
should have sua sponte exercised its power to prevent the
unauthorized practice of law by preventing [the agents] from
representing the Reinstated Hawaiian Nation.
* * *
[W]hen confronted with an attempt by a layperson to represent
an entity, the court should continue the proceedings to allow the
entity to obtain counsel; if the entity fails to do so within a
reasonable period, the court should enter a default or take other
remedial action.
Armitage, 508 P.3d at 843-44 (citation omitted).
The Supreme Court of Hawaii also concluded that the unauthorized
practice of law on behalf of an entity is a curable defect in the proceedings.
Id. at 845-48 (citing, inter alia, Bisher, 265 A.3d at 408-10). With respect
to the Reinstated Hawaiian Nation, the Armitage Court concluded that while
the unauthorized practice of law “was apparently unwitting, the pervasiveness
of the representation, and the policy goals behind [the prohibition against the
unauthorized practice of law] require vacatur here.” Id. at 848.
Here, the trial court did not address Casey’s unauthorized practice of
law on behalf of M&B in its Rule 1925(a) opinion.
-9-
J-S20003-22
Based on our review of the record, we conclude that the trial court erred
in allowing Casey to represent M&B. See Bach, 159 A.3d at 19. Although
Casey has the right to proceed pro se with respect to the claims against her
in her individual capacity, she could not represent M&B at trial because she is
not an attorney. See Skotnicki, 146 A.3d at 284; Walacavage, 480 A.2d
at 283-85; accord Armitage, 508 P.3d at 843-49; Flathead Bank, 383 P.3d
at 219; Nationwide Pools, 270 So.3d at 408 n.1.
Further, we conclude the trial court abused its discretion by denying
Appellant’s motion for a new trial. See Carlini, 219 A.3d at 643. Casey
represented M&B throughout the trial, and repeatedly raised liability issues
during a trial limited to damages over objections from Appellant’s counsel.
See N.T. Trial at 11, 12, 28, 29, 31, 54, 65-67. Further, the trial court
awarded only nominal damages against M&B. See Trial Ct. Op. at 4-5
(unpaginated). For this reason, we conclude that Casey’s unauthorized
practice of law resulted in prejudice necessitating a new trial. See Carlini,
219 A.3d at 643; accord Armitage, 508 P.3d at 848 (reversing judgement
against unincorporated entity where unauthorized practice of law by its agents
was pervasive and reversal served the policy goals of prohibiting the
unauthorized practice of law).
- 10 -
J-S20003-22
Therefore, we vacate the judgment entered on the verdict with respect
to damages and remand this matter for a new trial limited to damages. 6 The
trial court shall provide M&B a reasonable time period to obtain counsel. See
Bisher, 265 A.3d at 409; accord Armitage, 508 P.3d at 843-44. However,
if M&B fails to obtain counsel in a reasonable time, the trial court may proceed
to trial in the absence of M&B. See, e.g., Dublin Sportswear v. Charlett,
403 A.2d 568, 571 (Pa. 1979) (holding that pursuant to Pa.R.C.P. 218, a trial
may be held in the absence of the defendant if the defendant is absent without
satisfactory excuse); accord Armitage, 508 P.3d at 844 (noting that default
could be entered against a corporation that failed to retain counsel within a
reasonable period). In light of our disposition, we need not address
Appellant’s remaining issues.
Judgment affirmed in part and vacated in part. Case remanded for
further proceedings consistent with this opinion. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
____________________________________________
6 We stress that our ruling is limited to Casey’s representation of the
corporation and nothing in our decision prevents Casey from proceeding pro
se at the new trial if she so chooses. See 42 Pa.C.S. § 2501(a); Lawrence
Cty. Tax Claim Bureau, 998 A.2d at 680.
- 11 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488731/ | J-S20015-22
2022 PA Super 201
COMMONWEALTH OF PENNSYLVANIA : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
BRYAN WILLIAM CONLEY :
:
Appellant : No. 935 WDA 2021
Appeal from the Judgment of Sentence Entered July 15, 2021
In the Court of Common Pleas of Erie County Criminal Division at No(s):
CP-25-CR-0002061-2018
BEFORE: NICHOLS, J., MURRAY, J., and KING, J.
OPINION BY NICHOLS, J.: FILED: NOVEMBER 22, 2022
Appellant Bryan William Conley appeals from the judgment of sentence
imposed following the revocation of his county intermediate punishment (CIP)
and his consecutive terms of probation. This matter returns to this Court after
we remanded for the filing of an amended Anders/Santiago1 brief or an
advocate’s brief. Appellant has filed an advocate’s brief challenging both the
discretionary aspects and the legality of his revocation sentence. We vacate
the judgment of sentence and remand for further proceedings consistent with
this opinion.
The underlying facts of this matter are well known to the parties. See
Trial Ct. Op., 6/12/19, at 5-10. Briefly, Appellant and Andrea Delsandro (the
victim) separated in May of 2018 after dating for approximately five years. At
____________________________________________
1Anders v. California, 386 U.S. 738 (1967); Commonwealth v. Santiago,
978 A.2d 349 (Pa. 2009).
J-S20015-22
the time of their separation, they had a three-year-old child, and the victim
was pregnant with their second child. On June 25, 2018, the victim obtained
a Protection From Abuse (PFA) order against Appellant. The victim gave birth
at St. Vincent Hospital on June 27, 2018. Although Appellant had been served
with the PFA order and hospital staff denied him entry, Appellant circumvented
hospital security to reach the victim. During the encounter at the hospital,
Appellant threatened to kill the victim, their newborn child, and the victim’s
father. The victim called a nurse for help, and Appellant left the victim’s
hospital room. The nurse alerted hospital security, and the hospital was
placed on lockdown.
Appellant was subsequently charged with two counts each of terroristic
threats, disorderly conduct, and harassment, and one count of simple assault.2
Following a non-jury trial on November 28, 2018, Appellant was convicted of
two counts of terroristic threats (one graded as a felony of the third degree
and the other as a misdemeanor of the first degree) and one count each of
simple assault, disorderly conduct, and harassment. The trial court acquitted
Appellant of one count each of disorderly conduct and harassment.
The trial court held a sentencing hearing on February 13, 2019. At the
hearing, Appellant argued that his misdemeanor terroristic threats and simple
assault convictions should merge with the felony terroristic threats conviction.
____________________________________________
2 18 Pa.C.S. §§ 2706(a)(1), 5503(a)(1), 2709(a)(1), and 2701(a)(3),
respectively.
-2-
J-S20015-22
However, the trial court disagreed and sentenced Appellant on all three
counts. The trial court sentenced Appellant to an aggregate term of four years
of CIP followed by three years of probation.3
On direct appeal, Appellant challenged the sufficiency of the evidence
supporting his convictions for terroristic threats, simple assault, and disorderly
conduct. Commonwealth v. B. Conley, 496 WDA 2019, 2020 WL 3989174,
at *4 (Pa. Super. filed July 15, 2020) (B. Conley I) (unpublished mem.).
Ultimately, a panel of this Court concluded that the evidence was sufficient to
sustain Appellant’s convictions. Id. at *4-6. However, the Court did not
address whether any of Appellant’s convictions should have merged for
sentencing purposes.
While he was serving his CIP sentence, Appellant was detained after
admitting to his probation officer that he had been using methamphetamine.
____________________________________________
3 Specifically, for count one, the felony terroristic threats conviction, the trial
court sentenced Appellant to four years’ CIP, which included a term of 205
days’ incarceration followed by three months’ electronic monitoring, and then
followed by three months’ intensive supervision. For count two, the
misdemeanor terroristic threats conviction, the trial court sentenced Appellant
to a consecutive term of two years’ probation. For count three, simple assault,
the trial court sentenced Appellant to one year of probation concurrent to
count two. For count four, disorderly conduct, the trial court imposed a
consecutive term of nine months’ probation. Lastly, for count six, harassment,
the trial court imposed a consecutive term of three months’ probation. See
Sentencing Order, 2/13/19, at 1 (unpaginated). The trial court also gave
Appellant credit for ninety-nine days’ time served. See id. at 2 (unpaginated).
-3-
J-S20015-22
On July 15, 2021, the trial court held a violation of probation4 (VOP) hearing.
Appellant conceded that he had violated the conditions of his CIP because he
had used methamphetamine, and the trial court revoked his CIP and his
consecutive terms of probation. See N.T. VOP Hr’g, 7/15/21, at 4. Both
Appellant and his probation officer, Ashley Clark, testified at the VOP hearing.
Id. at 6-10, 13-16. Officer Clark stated that Appellant had accrued twenty-
five misconducts while incarcerated. Id. at 6-7. She also stated that she had
received letters from Appellant containing sexual messages. Id. at 7-8; see
also id. at 12-13. Appellant admitted that he sent those letters to Officer
Clark, but he claimed that he had “acted out of character to be noticed[,]”
because the prison authorities had mistreated him, and he apologized to
Officer Clark during the hearing. Id. at 8-11, 14. At the conclusion of the
hearing, the trial court resentenced Appellant to an aggregate term of three-
and-a-half to seven years’ incarceration followed by one year of probation.5
____________________________________________
4 During the revocation portions of the proceedings on July 15, 2021, the trial
court and parties referred to Appellant’s sentence as probation, even though
he was serving his CIP sentence at that time. Compare N.T. VOP Hr’g,
7/15/21, at 2-4 with id. at 16 and Sentencing Order, 2/13/19, at 1
(unpaginated). As discussed further below, at the time of the VOP hearing,
the General Assembly had reclassified CIP as a form of probation with
restrictive conditions. See 42 Pa.C.S. § 9804(a) (am. eff. Dec. 18, 2019).
However, for consistency, we refer to the original sentence imposed at count
one as CIP.
5 Specifically, the trial court imposed consecutive terms of incarceration as
follows: two to four years for felony terroristic threats, one to two years for
the misdemeanor terroristic threats, and six months to one year for simple
assault. The trial court also reimposed consecutive terms of probation as
(Footnote Continued Next Page)
-4-
J-S20015-22
Appellant filed a timely post-sentence motion requesting reconsideration
and modification of his sentence, which the trial court denied. Appellant then
filed a timely appeal and court-ordered Pa.R.A.P. 1925(b) statement. The trial
court issued a Rule 1925(a) opinion addressing Appellant’s challenge to the
discretionary aspects of his sentence. See Trial Ct. Op., 12/20/21, at 6-9.
As noted previously, this case returns to this Court after we remanded
for the filing of an amended Anders/Santiago brief or an advocate’s brief.
Commonwealth v. B. Conley, 935 WDA 2021, 2022 WL 3151832, at *10
(Pa. Super. filed Aug. 8, 2022) (B. Conley II) (unpublished mem.).
On appeal, Appellant has filed a counseled advocate’s brief raising three
issues, which we have reordered as follows:
1. Did the [trial] court err in its revocation of the sentences of
probation, when they had not yet started at the time of
[Appellant’s] violation?
2. Did the [trial] court commit[] reversible error in failing to
merge the felony and misdemeanor counts [of terroristic
threats] for purposes of sentencing [Appellant]?
3. Did the [trial] court commit reversible error in that its sentence
was manifestly excessive and clearly unreasonable, and not
individualized as required by law, when it did not refer to
having reviewed a pre-sentence investigation at the time of
sentencing?
Appellant’s Brief at 3.6
____________________________________________
follows: nine months for disorderly conduct and three months for harassment.
See Sentencing Order, 7/15/21, at 1 (unpaginated).
6 The Commonwealth did not file a responsive brief.
-5-
J-S20015-22
Revocation of Consecutive Probation
Appellant first argues that the trial court lacked the authority to revoke
his probation, because at the time the trial court revoked his CIP sentence, he
had not begun serving his consecutive terms of probation. Id. at 16-17 (citing
Commonwealth v. Simmons, 262 A.3d 512 (Pa. Super. 2021) (en banc)).
Appellant contends that although Simmons did not address the revocation of
probation that runs consecutive to a term of CIP, the same rationale applies
to his case. Id. Therefore, Appellant concludes that the trial court’s VOP
sentence is illegal under Simmons. Id.
“It is axiomatic that a sentence imposed without statutory authority is
an illegal sentence.” Commonwealth v. K. Conley, 266 A.3d 1136, 1140
(Pa. Super. 2021) (citation omitted). Challenges to the legality of the
sentence are non-waivable and may be raised for the first time on appeal.
See Commonwealth v. Martinez, 153 A.3d 1025, 1030 n.2 (Pa. Super.
2016). Our standard of review is de novo and our scope of review is plenary.
Id. at 1030. “An illegal sentence must be vacated.” Commonwealth v.
Tucker, 143 A.3d 955, 960 (Pa. Super. 2016) (citation omitted).
Initially, we reiterate that the trial court imposed Appellant’s original CIP
sentence in February of 2019.7 However, in December of 2019, the General
____________________________________________
7 At that time, the Sentencing Code classified probation and CIP as different
sentencing alternatives. See 42 Pa.C.S. § 9721(a)(1), (6) (listing “[a]n order
of probation” and “county intermediate punishment” as separate sentencing
alternatives available to the trial court), subsection (a)(6) repealed by Act of
(Footnote Continued Next Page)
-6-
J-S20015-22
Assembly amended the Sentencing Code to reclassify CIP as a type of
probation.8 See 42 Pa.C.S. § 9804(a) (providing that “[c]ounty intermediate
punishment programs are restrictive conditions of probation”), as amended
by Act of Dec. 18, 2019, P.L. 776, No. 115.
Further, at the time the trial court revoked Appellant’s probation in
2021, this Court’s case law permitted anticipatory revocations of probation.
See, e.g., Commonwealth v. Wendowski, 420 A.2d 628, 630 (Pa. Super.
1980) (holding that “[i]f, at any time before the defendant has completed the
maximum period of probation, or before he has begun service of his probation,
he should commit offenses of such nature as to demonstrate to the trial court
that he is unworthy of probation . . . the trial court could revoke or change
the order of probation” (citations omitted)).
____________________________________________
Dec. 18, 2019, P.L. 776, No. 115; see also Commonwealth v. Wegley, 829
A.2d 1148, 1153 (Pa. 2003) (observing that, under the prior version of the
Sentencing Code, CIP was “a distinct, and more severe, sanction than
traditional probation”).
8 Additionally, the General Assembly repealed the statute authorizing a trial
court to revoke a CIP sentence. See 42 Pa.C.S. § 9773, repealed by Act of
Dec. 18, 2019, P.L. 776, No. 115. Nevertheless, our Supreme Court has
observed that because CIP is now classified as a form of probation, 42 Pa.C.S.
§ 9771 (modification or revocation of order of probation), authorizes a trial
court to revoke a CIP sentence. See Commonwealth v. Hoover, 231 A.3d
785, 790 (Pa. 2020) (plurality).
-7-
J-S20015-22
However, in Simmons,9,10 an en banc panel of this Court overruled
Wendowski and its progeny, explaining:
Simply stated, Wendowski was incorrect in holding that a trial
court may anticipatorily revoke an order of probation and in
reasoning that “a term of probation may and should be construed
for revocation purposes as including the term beginning at the
time probation is granted.” Wendowski, 420 A.2d at 630
(quotations omitted). No statutory authority exists to support this
understanding. Rather, the plain language of the relevant
statutes provides that: a trial court may only revoke an order of
probation “upon proof of the violation of specified conditions of
the probation;” the “specified conditions” of an order of probation
are attached to, or are a part of, the order of probation; and, when
the trial court imposes an “order of probation” consecutively to
another term, the entirety of the “order of probation” — including
the “specified conditions” — do not begin to commence until the
prior term ends.
____________________________________________
9 Simmons was decided after Appellant filed his notice of appeal. It is well
settled that “Pennsylvania appellate courts apply the law in effect at the time
of the appellate decision. This means that we adhere to the principle that a
party whose case is pending on direct appeal is entitled to the benefit of
changes in law which occur before the judgment becomes final.”
Commonwealth v. Chesney, 196 A.3d 253, 257 (Pa. Super. 2018) (citations
omitted and formatting altered).
10 We note that the Commonwealth did not file a petition for allowance of
appeal to our Supreme Court after this Court announced its decision in
Simmons. However, our Supreme Court subsequently granted the
Commonwealth’s petition for review in an unrelated matter, which directly
implicates our holding in Simmons. See Commonwealth v. Rosario, 271
A.3d 1285 (Pa. 2022) (granting the Commonwealth’s petition for allowance of
appeal to consider whether the Simmons Court erred in holding that trial
courts lack the statutory authority to anticipatorily revoke a defendant’s
probation that has not yet commenced). In any event, we remain bound by
Simmons “as long as the decision has not been overturned by our Supreme
Court.” Commonwealth v. Reed, 107 A.3d 137, 143 (Pa. Super. 2014)
(citations omitted).
-8-
J-S20015-22
Simmons, 262 A.3d at 524-25 (footnote omitted); see also K. Conley, 266
A.3d at 1140 (concluding that “under Simmons, [the defendant] was not yet
required to comply with the probation portion of the imposed order of sentence
before he began serving it; thus, his noncompliance did not permit the
anticipatory revocation of his order of probation”). The Simmons Court
vacated the defendant’s sentence and remanded the case with instructions for
the trial court to reinstate the original order of probation. Simmons, 262
A.3d at 527; see also K. Conley, 266 A.3d at 1140.
Although this Court has not yet applied Simmons in matters where the
defendant is serving multiple, consecutive terms of probation,11 we conclude
that the same rationale applies in the instant case. Here, the trial court
revoked Appellant’s CIP sentence and anticipatorily revoked his consecutive
probation sentences, which he had not yet begun to serve.12,13 However,
because Appellant had not yet begun serving his consecutive terms of
probation at the time he violated the conditions of his CIP, he was not yet
required to comply with the conditions of his consecutive terms of probation.
____________________________________________
11As noted above, a CIP sentence is now considered a form of probation with
restrictive conditions.
12 As stated above, Appellant’s original probationary sentence was composed
of three consecutive terms of probation: two years for count two, nine months
for count four, and three months for count six. The trial court also sentenced
Appellant to a term one year of probation for count three, concurrent to count
two.
13The trial court did not address the applicability of Simmons in its Rule
1925(a) opinion.
-9-
J-S20015-22
See Simmons, 262 A.3d at 525 (explaining that “when the trial court imposes
an ‘order of probation’ consecutively to another term, the entirety of the ‘order
of probation’ — including the ‘specified conditions’ [of probation] — do not
begin to commence until the prior term ends” (footnote omitted)). Therefore,
we conclude that the trial court lacked the statutory authority to anticipatorily
revoke Appellant’s consecutive terms of probation. Accordingly, we are
constrained to vacate the July 15, 2021 judgment of sentence and remand for
the trial court to reinstate the original February 13, 2019 orders imposing
consecutive terms of probation. See id. at 527.
Merger
Appellant also argues that his conviction for count two: terroristic
threats, graded as a misdemeanor of the third degree, should merge with his
conviction for count one: terroristic threats, graded as a felony of the first
degree. Appellant’s Brief at 13-16. Appellant contends that all of the elements
of required for his misdemeanor terroristic threats conviction are included in
his conviction for felony terroristic threats, which has the additional element
of causing “the occupants of the building . . . to be diverted from their normal
or customary operations . . . .” Id. at 14-15 (quoting 18 Pa.C.S. § 2706).
Appellant contends that because he committed a single act, these two offenses
should have merged. Id. at 13, 15-16 (citing, inter alia, 42 Pa.C.S. § 9765).
“A claim that crimes should have merged for sentencing purposes raises
a challenge to the legality of the sentence.” Martinez, 153 A.3d at 1029-30
(citation omitted).
- 10 -
J-S20015-22
Section 9765 of the Sentencing Code provides that:
No crimes shall merge for sentencing purposes unless the crimes
arise from a single criminal act and all of the statutory elements
of one offense are included in the statutory elements of the other
offense. Where crimes merge for sentencing purposes, the court
may sentence the defendant only on the higher graded offense.
42 Pa.C.S. § 9765.
This Court has explained, “[t]he statute’s mandate is clear. It prohibits
merger unless two distinct facts are present: 1) the crimes arise from a single
criminal act; and 2) all of the statutory elements of one of the offenses are
included in the statutory elements of the other.” Martinez, 153 A.3d at 1030
(citations omitted).
“If the offenses stem from two different criminal acts, merger analysis
is not required.” Commonwealth v. Williams, 958 A.2d 522, 527 (Pa.
Super. 2008) (citation omitted).
The Martinez Court further explained:
When considering whether there is a single criminal act or multiple
criminal acts, the question is not whether there was a “break in
the chain” of criminal activity. The issue is whether the actor
commits multiple criminal acts beyond that which is necessary to
establish the bare elements of the additional crime, then the actor
will be guilty of multiple crimes which do not merge for sentencing
purposes.
In determining whether two or more convictions arose from a
single criminal act for purposes of sentencing, we must examine
the charging documents filed by the Commonwealth.
Martinez, 153 A.3d at 1030-31 (citations omitted and formatting altered).
- 11 -
J-S20015-22
Terroristic threats is defined, in relevant part, as follows:
(a) Offense defined.—A person commits the crime of terroristic
threats if the person communicates, either directly or indirectly, a
threat to:
(1) commit any crime of violence with intent to terrorize
another;
* * *
(d) Grading.—An offense under subsection (a) constitutes a
misdemeanor of the first degree unless the threat causes the
occupants of the building . . . to be diverted from their normal or
customary operations, in which case the offense constitutes a
felony of the third degree.
18 Pa.C.S. § 2706(a)(1), (d).
In Commonwealth v. Burkhart, 1916 MDA 2019, 2020 WL 6778766
(Pa. Super. filed Nov. 18, 2020) (unpublished mem.), 14 a panel of this Court
examined whether a misdemeanor count of terroristic threats merged with a
felony count of terroristic threats. Burkhart, 2020 WL 6778766, at *4-7. In
that case, a hospital was placed on lockdown after the defendant made threats
to hospital staff, telling staff that he had previously ‘done time in jail,’ and he
would have his motorcycle gang come to the hospital to ‘make things ugly [.]”
Id. at *1. The defendant was convicted of two counts of terroristic threats,
one graded as a felony of the third degree and one graded as a misdemeanor
of the first degree. Id. On appeal, the defendant argued that his sentences
for the two counts of terroristic threats should have merged. Id. at *2. This
____________________________________________
14We may cite to unpublished memorandum decisions of this Court filed after
May 1, 2019, for their persuasive value. See Pa.R.A.P. 126(b).
- 12 -
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Court explained that “it is undisputed that all of the elements of the
misdemeanor-graded terroristic threats offense are included within the felony-
graded offense.” Id. at *5. The Burkhart Court examined the amended
criminal information to determine if the charges involved identical conduct by
the defendant. Id. at *5-7. This Court concluded that because both counts
alleged “identical conduct in the amended criminal information, and nothing
in the record suggests that the jury considered separate conduct as the factual
basis for each offense,” the defendant’s misdemeanor terroristic threats
conviction should have merged with his felony terroristic threats conviction.
Id. at *7.
Here, the Commonwealth charged Appellant as follows:
[COUNT ONE:]
. . . on or about June 28, 2018, in the said County of Erie and
[Commonwealth] of Pennsylvania, the said [Appellant] did
otherwise cause serious public inconvenience, or cause terror or
serious public inconvenience with reckless disregard of the risk of
causing such terror or inconvenience, to-wit: the said [Appellant]
did state to the victim Andrea Delsandro, he was going to kill her
and/or her new born infant and/or her father at a time when there
was an active PFA in place causing the hospital staff to relocate
the victim as a patient to another room and floor and/or the
hospital occupants to be diverted from their existing operations .
. . thereby the said [Appellant] did commit the crime of terroristic
threats, a felony of the third degree. [18 Pa.C.S. § 2706(a)(1).]
COUNT TWO:
. . . that on the day and year aforesaid in the said County of Erie
and [Commonwealth] of Pennsylvania, the said [Appellant] did
communicate, either directly or indirectly, a threat to commit any
crime of violence with intent to terrorize another, to-wit: the said
[Appellant] did state he was going to kill victim Andrea
Delsandro’s new born infant and/or her father and bury him
- 13 -
J-S20015-22
and/or that he would go get his guns and blow off the victim’s
head . . . thereby the said [Appellant] did commit the crime of
terroristic threats, a misdemeanor of the first degree. [18 Pa.C.S.
§ 2706(a)(1)].
Criminal Information, 8/23/18, at 1 (formatting altered); see also id. at 4
(setting forth the statutes under which the Commonwealth charged
Appellant).
The trial court did not address the issue of merger in either its June 12,
2019 Rule 1925(a) opinion for Appellant’s direct appeal nor in its December
20, 2021 Rule 1925(a) opinion for the instant appeal. However, in its June
12, 2019 Rule 1925(a) opinion, the trial court concluded that the same
evidence was sufficient to sustain Appellant’s terroristic threats convictions at
counts one and two. See Trial Ct. Op., 6/12/19, at 10-11.
Based on our review of the record, it is clear that the Commonwealth
charged Appellant for identical conduct at counts one and two of the criminal
information. Specifically, both charges describe the incident in which
Appellant threatened to kill the victim, her newborn child, and her father. See
Criminal Information, 8/23/18, at 1; see also Trial Ct. Op., 6/12/19, at 10-
11 (discussing the identical evidence for counts one and two). Therefore, we
conclude that Appellant’s convictions arose from the same criminal act. See
Martinez, 153 A.3d at 1030-31; see also Burkhart, 2020 WL 6778766 at
*7. Further, all of the statutory elements of misdemeanor terroristic threats
are included in the statutory elements of felony terroristic threats. See 18
Pa.C.S. § 2706(a)(1), (d); see also Burkhart, 2020 WL 6778766 at *5. For
- 14 -
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these reasons, we conclude that Appellant’s misdemeanor terroristic threats
conviction should have merged with the felony count for sentencing purposes.
See Martinez, 153 A.3d at 1030. Although we do not disturb Appellant’s
conviction for misdemeanor terroristic threats, we vacate the sentence
imposed on count two. See, e.g., Tucker, 143 A.3d at 968 (affirming the
defendant’s convictions but vacating an illegal sentence).
For these reasons, we vacate the judgment of sentence and remand for
resentencing consistent with this opinion.15 See Commonwealth v. Thur,
906 A.2d 552, 569 (Pa. Super. 2006) (stating that if this Court’s “disposition
upsets the overall sentencing scheme of the trial court, we must remand so
that the court can restructure its sentence plan” (citation omitted)).
Judgment of sentence vacated. Case remanded for resentencing with
instructions to reinstate the original orders of probation except as to count
two, consistent with our disposition that count two merges with count one for
purposes of sentencing. Jurisdiction relinquished.
____________________________________________
15 In light of our disposition, we decline to address Appellant’s claim regarding
the discretionary aspects of his sentence. See Commonwealth v. Barnes,
167 A.3d 110, 125 n.13 (Pa. Super. 2017) (en banc) (concluding that when
this Court remands a matter for resentencing, the Court “need not address”
the defendant’s challenge to the discretionary aspects of his sentence, and
stating that “[w]hen a sentence is vacated and the case remanded for
resentencing, the sentencing judge should start afresh” (citation omitted)).
- 15 -
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
- 16 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488732/ | J-S32003-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
COMMONWEALTH OF PENNSYLVANIA : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
DONSHAY LAMAR CALHOUN :
:
Appellant : No. 212 MDA 2022
Appeal from the Judgment of Sentence Entered November 10, 2021
In the Court of Common Pleas of York County
Criminal Division at No(s): CP-67-CR-0005052-2019
COMMONWEALTH OF PENNSYLVANIA : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
DONSHAY LAMAR CALHOUN :
:
Appellant : No. 213 MDA 2022
Appeal from the Judgment of Sentence Entered November 10, 2021
In the Court of Common Pleas of York County
Criminal Division at No(s): CP-67-CR-0003607-2019
BEFORE: PANELLA, P.J., BENDER, P.J.E., and LAZARUS, J.
MEMORANDUM BY PANELLA, P.J.: FILED: NOVEMBER 22, 2022
In these consolidated appeals, Donshay Lamar Calhoun appeals from
the judgments of sentence entered against him following his convictions, at
two separate dockets, of statutory sexual assault and related offenses based
on charges that he sexually assaulted two of his paramour’s daughters.
J-S32003-22
Calhoun now challenges the weight of the evidence supporting his convictions
and the admission of certain expert testimony. After careful review, we affirm.
Calhoun became romantically involved with the complainants’ mother
(“Mother”) in 2012, and he moved into the family’s home on West King Street
in York, Pennsylvania shortly thereafter.1 At the time, A.K. was approximately
13 years old and N.K. was approximately 11 years old.2 Calhoun often
supervised the children while Mother was at work or school. Eventually, A.K.
and N.K. began to view Calhoun as a father figure.
The family moved to a house on Prospect Street in Lower Windsor
Township, York, Pennsylvania. The first assault against A.K. occurred in spring
2013, while Mother was at work. A.K. described laying on Mother’s bed, and
Calhoun “put his penis into [her] vagina,” then ejaculated into her mouth. See
N.T. (Jury Trial), 3/2/21, at 156-59. A.K. testified that these assaults occurred
weekly, and sometimes more frequently, while they lived at the Prospect
Street house. See id. at 159-50. Calhoun never used a condom. See id. at
160. On one occasion, Calhoun gave A.K. a “small yellow pill” and instructed
her to take it. See id. at 162; see also id. at 172 (wherein A.K. testified, “For
about two to three months, anytime that he would ever ejaculate and there
would be anything left inside of me, he would give me a plan B pill.”).
____________________________________________
1 In addition to A.K. and N.K., Mother had three other children.
2 Calhoun is approximately 18 years older than A.K. and nearly 20 years older
than N.K.
-2-
J-S32003-22
The family later moved to a house on Locust Street in York. The assaults
on A.K., who was 14 years old at that time, continued while they lived at this
address. See id. at 165. Around this time, Calhoun also performed oral sex
on A.K., and A.K. performed oral sex on Calhoun. See id. at 165-66.
A.K.’s relationship started to change when she was 15 and the family
moved to a house on Jackson Street in York. A.K. stated that the sexual
incidents were still occurring but became more sporadic. See id. at 169-70.
She described being in high school, “growing up wanting to experience new
different things, and [Calhoun] was very against that.” Id. at 170. Around this
time, A.K. began to deny Calhoun’s requests for sex; Calhoun would
sometimes try to convince her but eventually backed down. See id. at 172.
The family also moved to North Carolina, where A.K. stated the assaults
continued, albeit less frequent. See id. at 177-78. A.K. explained that she
“didn’t want to continue doing it because at that point [she] kind of understood
that this was wrong and it shouldn’t have been happening.” Id. According to
A.K., she was 18 years old at the time of her last sexual contact with Calhoun.
See id. at 179.
The first assault against N.K. occurred in the Locust Street home, when
N.K. was 13 years old. See N.T. (Jury Trial), 3/3/21, at 237. Calhoun
expressed to N.K. that he had a dream about her and asked if they could “do
something together.” Id. Calhoun asked to rub his penis on N.K.’s tongue,
and when N.K. stated that she was scared, Calhoun told her to close her eyes.
-3-
J-S32003-22
See id. at 238-39. At some time after that incident, Calhoun told N.K. to lie
on Mother’s bed and “he touched all over [her] body.” See id. at 240-41; see
also id. at 242 (clarifying that Calhoun touched N.K.’s breasts, vagina,
stomach, and legs, both over and under her clothing).
Later, Calhoun asked N.K. to perform oral sex on him, and eventually,
he initiated vaginal sex. See id. at 243-50. N.K. recalled the assaults occurring
“at least every month.” Id. at 251. This pattern of behavior continued after
the family moved to the Jackson Street house. See id. at 258.
N.K. testified the abuse continued in North Carolina and continued after
the family later moved to South Carolina. See id. at 260-64. While living in
South Carolina in 2017, when N.K. was 16 years old, N.K. became pregnant.
See id. at 264. At trial, the parties stipulated to the DNA results indicating a
99.99995% probability that Calhoun was the father of N.K.’s child. 3 See
Commonwealth’s Exhibit 10 (NMS Labs Forensic Biology Final Report). N.K.
testified that Calhoun initially instructed her to hide the pregnancy with
clothing, and when Calhoun determined they needed to leave, N.K. packed
her things and the two spent several weeks in Florida. See N.T. (Jury Trial),
3/3/21, at 269-72.4
____________________________________________
3 N.K.’s child was born in December 2017.
4 While any offenses committed in North Carolina and South Carolina are not
at issue in the instant case, this series of events is relevant in that it prompted
N.K. to confide in A.K. See N.T. (Jury Trial), 3/3/21, at 268-69.
-4-
J-S32003-22
A.K. first reported Calhoun via a written statement provided to police in
South Carolina in 2017, after she learned about N.K.’s pregnancy. See N.T.
(Jury Trial), 3/2/31, at 215-18. She was told she had to speak with
Pennsylvania police, which she did a few days later. See id. at 216. N.K. spoke
with police in October 2018. See N.T. (Jury Trial), 3/3/21, at 295-96. Based
on the girls’ reports and the DNA testing results, police arrested and charged
Calhoun.
Prior to trial, the Commonwealth filed notice of its intention to present
Amber Crawford Wagman5 as an expert in factors surrounding sexual violence,
victims’ responses to sexual violence, and the impact of sexual violence of
victims during and after being assaulted pursuant to 42 Pa.C.S.A. § 5920.6
____________________________________________
5 Wagman has a master’s degree in social work and is a licensed social worker.
6Section 5920 governs expert testimony in cases involving sexual offenses
and provides, in relevant part, as follows:
(b) Qualifications and use of experts.--
(1) In a criminal proceeding subject to this section, a witness
may be qualified by the court as an expert if the witness has
specialized knowledge beyond that possessed by the average
layperson based on the witness’s experience with, or
specialized training or education in, criminal justice, behavioral
sciences or victim services issues, related to sexual violence or
domestic violence, that will assist the trier of fact in
understanding the dynamics of sexual violence or domestic
violence, victim responses to sexual violence or domestic
violence and the impact of sexual violence or domestic violence
on victims during and after being assaulted.
(Footnote Continued Next Page)
-5-
J-S32003-22
Calhoun filed an objection arguing, inter alia, that Wagman’s testimony would
be based on conjecture and speculation because the testimony would be based
on categorical opinions. Following a hearing, the trial court denied Calhoun’s
motion and permitted the Commonwealth to introduce Wagman as an expert
witness.
The cases were consolidated for a jury trial. At trial court docket No.
3607-2019, relating to A.K., Calhoun was convicted of two counts each of
statutory sexual assault – 11 or more years older than complainant, indecent
assault – complainant less than 16 years of age, and corruption of minors,
and one count of involuntary deviate sexual intercourse (“IDSI”) –
complainant less than 16 years of age. At trial court docket No. 5052-2019,
relating to N.K., Calhoun was convicted of two counts each of statutory sexual
assault – 11 or more years older than complainant, IDSI – complainant less
than 16 years of age, indecent assault – complainant less than 16 years of
____________________________________________
(2) If qualified as an expert, the witness may testify to facts
and opinions regarding specific types of victim responses and
victim behaviors.
(3) The witness’s opinion regarding the credibility of any other
witness, including the victim, shall not be admissible.
42 Pa.C.S.A. § 5920(b)(1)-(3).
-6-
J-S32003-22
age, and corruption of minors, and one count of aggravated indecent assault
– complainant less than 16 years of age.7, 8
The trial court deferred sentencing pending completion of a pre-
sentence investigation report, as well as an assessment by the Sexual
Offender Assessment Board (“SOAB”) to determine whether Calhoun is a
sexually violent predator (“SVP”). Following the combined SVP and sentencing
hearing, the court designated Calhoun an SVP and notified him of his sexual
offender registration requirements.9 The trial court sentenced Calhoun, at No.
3607-2019, to an aggregate term of 28 years, 9 months to 57½ years in
prison, and at No. 5052-2019, to an aggregate term of 37½ to 75 years in
prison.
____________________________________________
7Under both dockets, offenses with multiple counts reflect incidents occurring
at different locations.
8 See 18 Pa.C.S.A. §§ 3122.1(b), 3126(a)(8), 6301, 3123(a)(7), 3125(a)(8).
9 While it is not immediately clear from the record, based on the time period
in which Calhoun committed these offenses, the trial court imposed the
registration requirements under the Sex Offender Registration and Notification
Act (“SORNA”), see 42 Pa.C.S.A. §§ 9799.10-9799.41. See Commonwealth
v. Martinez, 147 A.3d 517, 522 (Pa. 2016) (explaining that Megan’s Law,
see 42 Pa.C.S.A. §§ 9791-9799.7, expired on December 20, 2012, when
SORNA became effective). The sexual offender registration notice provided to
Calhoun states the registration requirements are contained in Megan’s Law
but identifies the requirements for updating registration information after the
effective date of December 20, 2012. Further, the trial court’s opinion
describes the SVP factors provided under section 9799.24 of SORNA.
-7-
J-S32003-22
Calhoun filed a timely post-sentence motion arguing, inter alia, that the
sentences imposed for his statutory sexual assault convictions were beyond
the statutory maximum and therefore illegal. See 18 Pa.C.S.A. § 1103(1)
(establishing a maximum sentence of 20 years in prison for a first-degree
felony). The trial court withdrew the relevant sentences at both dockets. At
No. 3607-2019, the trial court imposed concurrent sentences of 114 to 228
months, for an amended aggregate sentence of 20 years, 3 months to 40½
years in prison. At No. 5052-2019, the trial court imposed sentences of 117
to 234 months, to run concurrent with one another, for an amended aggregate
sentence of 27 years, 9 months to 55½ years in prison. Additionally, the court
directed the sentences imposed at each docket to run consecutive with one
another, for a total aggregate sentence of 48 to 96 years in prison. After a
hearing, the trial court denied Calhoun’s post-sentence motion in all other
respects. Calhoun filed timely notices of appeal, one at each docket number,
and a court-ordered Pa.R.A.P. 1925(b) concise statements of errors
complained of on appeal.10
In his first claim, Calhoun asserts the verdict was against the weight of
the evidence. See Appellant’s Brief at 21. Calhoun claims the testimony
advanced by A.K. and Mother about Calhoun’s work schedule contradicted
N.K.’s testimony, and the inconsistencies undermined Calhoun’s availability to
____________________________________________
10 This Court consolidated Calhoun’s appeals sua sponte.
-8-
J-S32003-22
commit the offenses. See id. at 21-22. Further, Calhoun “submits that the
testimony of both victims that the abuse occurred in the home with at least 5
other people present without anyone noticing is unlikely considering the size
and layout of the houses in which they lived.” Id. at 22.11
A weight of the evidence claim is addressed to the discretion of the trial
court:
Appellate review of a weight claim is a review of the exercise of
discretion, not of the underlying question of whether the verdict
is against the weight of the evidence. Because the trial judge has
had the opportunity to hear and see the evidence presented, an
appellate court will give the gravest consideration to the findings
and reasons advanced by the trial judge when reviewing a trial
court’s determination that the verdict is against the weight of the
evidence. One of the least assailable reasons for granting or
denying a new trial is the lower court’s conviction that the verdict
was or was not against the weight of the evidence and that a new
trial should be granted in the interest of justice.
Commonwealth v. Talbert, 129 A.3d 536, 545-46 (Pa. Super. 2015)
(citation omitted).
In its order and opinion denying Calhoun’s post-sentence motion, the
trial court reviewed the “cherry-picked inconsistencies” as follows:
The magnitude of inconsistency is not what [Calhoun]
portrays it as. For instance, as noted above, [Calhoun] claims that
neither of the [complainants] identified the King Street address as
a location they had resided at, which is patently false. … Of course,
____________________________________________
11Calhoun’s entire argument on this issue consists of only two pages. Further,
despite vaguely referencing inconsistencies between the complainants’ and
Mother’s testimony, Calhoun has failed to direct us to the relevant portions of
the trial transcripts. See Pa.R.A.P. 2119(a) (providing an appellant’s
argument must include citation and discussion of relevant authorities), (c)
(directing appellants to cite relevant portions of the record).
-9-
J-S32003-22
[Calhoun] is likely trying to indicate that the King Street address
was not identified by the [complainants] as an address where
abuse occurred. We respond with a resounding “And?” The jury
was free to find the facts. Discrepancies are to be expected—
especially where a crime occurs over a period of years against
young victims and in different locations. Of course investigators
and [complainants’] memory and recording of details will contain
inconsistencies. Yet, the amount of detail in the breadth of such
crimes presented by the [complainants] was astounding and
credible.
As to A.K.’s identifying the date of the first instance of abuse
and, previously, matching it to an impossible date of the week,
the testimony also shows that A.K. testified that she was confused
on details due to attempts to put the abuse behind her.
Additionally, as was elicited on redirect, by the time of trial, some
eight years had elapsed. The jury was presented an explanation
for this inconsistency that seems entirely plausible considering the
extended timeline of abuse.
Arguably, there are pieces of evidence which undermine the
Commonwealth’s case; however, the test is not whether there is
any evidence that goes against the Commonwealth’s assertions.
Rather, [the trial c]ourt is to examine whether the verdict was so
contrary to the evidence as to shock one’s sense of justice. It was
not. In light of the compelling and consistent evidence favoring
conviction, we were not shocked and, therefore, we were barred
from overturning it. Upon receiving the verdict, we did not lose
our breath or threaten to slip from the bench. In spite of some
inconsistencies, present in all cases, but especially in the he-said-
she-said sort involving sexual abuse, Lady Justice is still firmly
rooted atop her pedestal.
Trial Court Opinion and Order, 12/30/21, at 3-4 (quotation marks and citations
to the record omitted).
Calhoun essentially asks us to reassess the credibility of A.K. and N.K.
and to reweigh the evidence presented at trial. However, even “in instances
where there is conflicting testimony, it is for the jury to determine the weight
to be given the testimony. The credibility of a witness is a question for the
- 10 -
J-S32003-22
fact-finder.” Commonwealth v. Hall, 830 A.2d 537, 542 (Pa. 2003) (citation
omitted). Upon review, we conclude the evidence adequately supports the trial
court’s determination that the verdict was not so contrary to the evidence as
to shock its conscience. Therefore, Calhoun is not entitled to relief on this
claim.
In his second claim, Calhoun avers Wagman’s testimony improperly
bolstered the complainants’ credibility. See Appellant’s Brief at 23. Calhoun
claims the expert testified about the complainants’ behaviors (i.e., delayed
reporting, feelings of affection for Calhoun) without personally interacting with
the complainants. See id. at 24. According to Calhoun, the expert’s testimony
implies “that there is no behavior the fact-finder should find strange or
possibly demonstrating a motive to lie or make[ ]up events.” Id. at 24.12
We review evidentiary rulings for an abuse of discretion. See
Commonwealth v. Cramer, 195 A.3d 594, 605 (Pa. Super. 2018).
In terms of the applicable law, expert testimony is generally
admissible if: the witness has a specialized knowledge beyond that
possessed by the average layperson; such knowledge will help the
trier of fact to understand the evidence or determine a fact in
issue; and the expert’s methodology is generally accepted in the
relevant field. See Pa.R.E. 702. Under longstanding Pennsylvania
precedent pertaining to jury trials, however, determining witness
credibility is exclusively the function of jurors, and expert
witnesses are specifically prohibited from invading this province.
____________________________________________
12Calhoun has failed to cite to specific portions of Wagman’s testimony in
which he believes Wagman rendered an inappropriate opinion concerning the
complainants’ credibility. See Pa.R.A.P. 2119(a), (c).
- 11 -
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Commonwealth v. Maconeghy, 171 A.3d 707, 712 (Pa. 2017) (some
citations omitted).
Calhoun correctly points out that our Supreme Court in Maconeghy
recognized a concern that expert testimony could improperly bolster the
credibility of a child witness in an abuse case. See id. at 713. In Maconeghy,
the pediatrician who testified as an expert opined the child victim had been
victimized based on the history the child provided, where a physical
examination revealed no indication of abuse. See id. at 108. The Court
concluded the pediatrician’s testimony improperly bolstered the victim’s
testimony under those circumstances and held that “an expert witness may
not express an opinion that a particular complainant was a victim of sexual
assault based upon witnesses accounts couched as a history, at least in the
absence of physical evidence of abuse.” Id. at 712.
Here, unlike in Maconeghy, Wagman did not provide an expert opinion
on the issue of whether A.K. and N.K. had been abused based on their own
recounting. As Calhoun acknowledges in his brief, Wagman had not spoken
with A.K. or N.K., reviewed police reports, or otherwise been provided with
details about this case. See Appellant’s Brief at 23. Wagman did not offer an
opinion about the victims’ testimony or whether their responses to the sexual
abuse was “normal.” Rather, our review of the trial transcripts reveals that
Wagman provided only general testimony about how victims of sexual abuse
might respond to trauma and factors that could affect the trauma responses.
- 12 -
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See Cramer, 195 A.3d at 608 (concluding that expert’s testimony did not
improperly bolster victim’s credibility where expert was not provided with a
factual account of case, had not spoken to the victim, and “she testified
generally about the manner in which victims of sexual abuse respond to an
assault.”). Accordingly, Wagman’s testimony complied with the requirements
of section 5920, and we discern no abuse of the trial court’s discretion in
permitting Wagman’s expert testimony. Calhoun is not entitled to relief on this
claim.
Based upon the foregoing, we affirm Calhoun’s judgment of sentence.
Judgment of sentence affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
- 13 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488704/ | NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________
No. 21-2951
___________
SHAN CHAUDHARY,
Petitioner
v.
ATTORNEY GENERAL OF THE UNITED STATES OF AMERICA,
Respondent
________________
On Petition for Review of a Final Order
of the Board of Immigration Appeals
(No. A072-762-476)
Immigration Judge: Robert M. Lewandowski
________________
Submitted Under Third Circuit L.A.R. 34.1(a)
November 14, 2022
Before: AMBRO, KRAUSE, and BIBAS, Circuit Judges
(Opinion filed November 22, 2022)
___________
OPINION*
___________
AMBRO, Circuit Judge,
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
Shan Chaudhary petitions us to review the denial by the Board of Immigration Appeals
(“BIA”) of his attempt to overturn his removal order. We deny his petition.
I.
Chaudhary, a citizen and native of Pakistan, arrived in the United States in 1986 at age
five and became a permanent resident in 1995. In August 2019, he pled guilty to five counts of
possession of child pornography in violation of 11 Del. C. § 1111 and was sentenced to three
years in prison. In August 2020, the Department of Homeland Security (“DHS”) took
Chaudhary into immigration custody and issued a Notice to Appear that charged him with
removability for being convicted of an aggravated felony relating to his possession of child
pornography. 8 U.S.C. § 1227(a)(2)(A)(iii). In October 2020, DHS filed an additional charge of
removability based on Chaudhary’s conviction of “a crime of child abuse, child neglect, or child
abandonment.” 8 U.S.C § 1227(a)(2)(E)(i).
The Immigration Judge (“IJ”) denied the aggravated felony charge of removability
because the state statute was overbroad and not a categorial match of the federal statute.
However, he sustained the child abuse charge of removability because the BIA’s definition of
child abuse covers the conduct criminalized in § 1111. The IJ then determined that, although
Chaudhary was statutorily eligible for discretionary cancellation of removal, his circumstances
did not warrant a favorable grant. In making this decision, the IJ considered a wide array of
factors, including the length of time Chaudhary has lived in the United States, his family
connections in the United States, his lack of family connections in Pakistan, the care he provided
to his parents with serious health problems, the sexual abuse he experienced as a child, his
employment history, and his remorse for the crimes he committed. The IJ also considered
Chaudhary’s testimony that he watched child pornography “a few days a week” for four or five
2
years as well as his admitted 25-year history of marijuana use, which also involved a prior
possession conviction. App. at 52.
Chaudhary appealed the IJ’s decision to the BIA, which dismissed the appeal, ruling that
the IJ properly held possession of child pornography is a crime of child abuse and defending the
IJ’s decision as a matter of discretion in denying cancellation of removal.
The BIA had jurisdiction to review the IJ’s removal decision under 8 C.F.R.
§§ 1003.1(b)(3) and 1240.15. Because only the BIA can issue a final order of removal, our
jurisdiction is limited to review of its decision. Guzman Orellana v. Att’y Gen., 956 F.3d 171,
177 (3d Cir. 2020). However, “we also review the IJ’s decision to the extent it is adopted,
affirmed, or substantially relied upon by the BIA.” Id. We have limited jurisdiction to review a
final order of removal under 8 U.S.C. § 1252(a)(1). While we can review legal determinations
relating to a final order of removal, we are barred from reviewing purely discretionary decisions
under 8 U.S.C. § 1252(a)(2)(B).
II.
A. Possession of Child Pornography Is a Crime of Child Abuse.
Chaudhary argues the BIA erred in concluding that possession of child pornography
under 11 Del. C. § 1111 qualifies as a “crime of child abuse” rendering him removable under the
Immigration and Nationality Act (“INA”). Under federal law, “[a]ny alien who at any time after
admission is convicted of a crime of domestic violence, a crime of stalking, or a crime of child
abuse, child neglect, or child abandonment is deportable.” 8 U.S.C § 1227(a)(2)(E)(i).
While the INA does not define “child abuse” in the statute, we have deferred to the BIA’s
broad definition of
any offense involving an intentional, knowing, reckless, or criminally negligent act
or omission that constitutes maltreatment of a child or that impairs a child’s
3
physical or mental well-being, including sexual abuse or exploitation. At a
minimum, this definition encompasses convictions for offenses involving the
infliction on a child of physical harm, even if slight; mental or emotional harm,
including acts injurious to morals; sexual abuse, including direct acts of sexual
contact, but also including acts that induce (or omissions that permit) a child to
engage in prostitution, pornography, or other sexually explicit conduct; as well as
any act that involves the use or exploitation of a child as an object of sexual
gratification . . . .
Salmoran v. Att’y Gen., 909 F.3d 73, 83 (3d Cir. 2018) (quoting Matter of Velazquez-Herrera, 24
I. & N. Dec. 503, 512 (B.I.A. 2008)). Typically, we compare the entire statute criminalizing the
petitioner’s conduct with this definition to determine if he committed a crime of child abuse
using the categorical approach. Id. at 76 n.7. Under this approach, we do not consider the facts
of the particular case; instead, we look at whether the “least serious conduct” punishable by the
state statute matches the federal offense. Borden v. United States, 141 S. Ct. 1817, 1832 (2021).
However, because the statute at issue, § 1111, is divisible into two distinct offenses—subsection
(1) criminalizing possession of pornography depicting real children, and subsection (2)
criminalizing possession of pornography depicting computer-generated images of children—the
modified categorical approach is the appropriate analytical framework. Singh v. Att’y Gen., 839
F.3d 273, 279 (3d Cir. 2016). If applying it, we must “determine which of the alternative
elements was the actual basis for the underlying conviction” by “examining the charging
document[s] and jury instructions, or in the case of a guilty plea, the plea agreement, plea
colloquy, or some comparable judicial record of the factual basis for the plea.” Id. (internal
quotation marks omitted). Then we compare only that subsection of the statute to the BIA’s
definition of a crime of child abuse. Id.
The BIA and IJ erred in applying the categorical approach, instead of the modified
categorical approach, when comparing the entirety of § 1111 to the BIA’s definition of child
abuse. Despite this, remand is not necessary because the “(1) [the analysis] is purely legal; (2) it
4
does not implicate the agency’s expertise; (3) review would be de novo; and (4) no fact-finding is
necessary.” Vurimindi v. Att’y Gen., 46 F.4th 134, 140 (3d Cir. 2022). This determination we
can do ourselves.
Here, Chaudhary’s amended indictment quotes the exact language from subsection (1) of
§ 1111, the subsection involving possession of pornography depicting images of real children.
Further, neither party disputes that the images were of real children. We have previously held
that possession of child pornography under New Jersey law qualifies as a “crime of child abuse”
because it circulates the permanent record of a child’s abuse in a way that perpetuates that abuse
and exacerbates the harm to the child. Salmoran, 909 F.3d at 83. This reasoning applies equally
to Delaware’s § 1111(1) because they have nearly identical language. Compare N.J. Stat. Ann. §
2C:24-4(b)(1)(a), (b)(5)(b) (criminalizing “knowing[] possess[ion]” of media that “depicts a
child engaging in a prohibited sexual act or in the simulation of such an act”) with 11 Del. C. §
1111(1) (criminalizing “knowing[] possess[ion] [of] any visual depiction of a child engaging in a
prohibited sexual act or in the simulation of such an act”).
Chaudhary argues that because he never attempted to have any inappropriate physical
contact with a minor, he did not commit a crime of child abuse. We squarely rejected this
argument in Salmoran. 909 F.3d at 83 (internal quotation marks omitted) (explaining that a
crime can still be one of child abuse even with no “proof of actual harm or injury to the child”).
Ultimately, the IJ and BIA correctly held Chaudhary is removable because, even absent physical
contact with a minor, the Delaware statute is clearly a crime of child abuse under Salmoran.
B. This Court Does Not Have Jurisdiction to Review the BIA’s Exercise of Discretion.
Chaudhary argues we should reverse the BIA’s decision because the IJ erred when he
exercised his discretion to deny cancellation of removal. Specifically, Chaudhary seeks relief
5
under § 1229b, which allows discretionary cancellation of removal for any alien who “(1) has
been an alien lawfully admitted for permanent residence for not less than 5 years, (2) has resided
in the United States continuously for 7 years after having been admitted in any status, and (3) has
not been convicted of any aggravated felony.” 8 U.S.C. § 1229b(a). Our appellate jurisdiction
does not extend to reviewing denials of discretionary relief. 8 U.S.C. § 1252(a)(2)(B). As
relevant here, the INA states that “no court shall have jurisdiction to review . . . any judgment
regarding the granting of relief under section . . . 1229b.” Id. at (a)(2)(B)(i). Section
1252(a)(2)(D) makes an exception for “review of constitutional claims or questions of law.” Yet
it doesn’t apply here because Chaudhary does not allege any legal defect in the BIA or IJ’s
exercise of discretion. What occurred more resembles a “garden-variety abuse of discretion
argument . . . [that] does not amount to a legal question under § 1252(a)(2)(D).” Alvarez Acosta
v. Att’y Gen., 524 F.3d 1191, 1196-97 (11th Cir. 2008). Moreover, we lack jurisdiction to review
the BIA’s weighing of positive and negative factors under § 1229b. Alimbaev v. Att’y Gen., 872
F.3d 188, 200 (3d Cir. 2017). Therefore, absent an allegation that the BIA violated a rule of law
or provision of the Constitution, we lack jurisdiction to review its exercise of discretion to deny
cancellation of removal.
* * * * *
We thus deny Chaudhary’s petition for review.
6 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488712/ | Filed 11/22/22 In re W.J. CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
In re W.J., a Person Coming 2d Juv. No. B316006
Under the Juvenile Court Law. (Super. Ct. No. MJ24919)
(Los Angeles County)
THE PEOPLE,
Plaintiff and Respondent,
v.
W.J.,
Defendant and Appellant.
W.J. appeals the juvenile court’s order sustaining
allegations of one count of vandalism (Penal Code, § 594, subd.
(a)) and one count of battery (Id., § 242). (Welf. & Inst. Code,
§ 602.) He claims the evidence was insufficient to support either
count. W.J. also contends we should strike his maximum
confinement time because the juvenile court did not remove him
from parental custody. We affirm the findings on the vandalism
and battery counts but strike the maximum term of confinement.
FACTS AND PROCEDURAL BACKGROUND
Fifteen-year-old W.J. and two other boys approached a
parked truck occupied by 68-year-old Gary Poindexter in the
early morning of October 12, 2020. They repeatedly asked for
money. He grew frustrated and told them he did not “have
money to give away” and that they needed “to go get a job.”
The boys did not welcome Poindexter’s advice. One sprayed
an unknown substance into the truck’s cab. Poindexter grabbed
a copper pipe lying next to his seat, got out of the truck, and
swung the pipe at the boys. They dispersed but soon returned
and began hurling bricks at Poindexter. One broke his truck’s
windshield, and another struck his finger. Poindexter later
identified W.J. as the one who threw the brick at the windshield.
The People filed a Welfare and Institutions Code section
602 petition alleging W.J. committed felony vandalism and
misdemeanor battery during the altercation. Poindexter testified
as the People’s only witness. The juvenile court sustained the
petition and placed W.J. on home probation. It found his
maximum term of confinement to be three years and six months.
DISCUSSION
A. Vandalism and Battery Counts
W.J. contends the juvenile court lacked substantial
evidence to find he committed vandalism or battery. (See People
v. Zamudio (2008) 43 Cal.4th 327, 357 [substantial evidence “is
reasonable, credible, and of solid value”].) We view the evidence
“in the light most favorable to the prosecution and presume in
support of the [court’s findings] the existence of every fact [it]
could reasonably have deduced from the evidence.” (Ibid.)
“‘Conflicts and even testimony [that] is subject to justifiable
suspicion do not justify the reversal of a judgment, for it is the
exclusive province of the [juvenile court] to determine the
2
credibility of a witness and the truth or falsity of the facts upon
which a determination depends.’” (Ibid.)
W.J. argues that Poindexter’s testimony formed an
insufficient basis for the juvenile court’s findings. Defense
counsel confronted Poindexter at trial about inconsistencies
between his testimony and his initial statements to police. He
gave different reasons, for example, about why he was sitting in
his truck at 3:45 a.m. and why the boys first approached him.1
His responses revealed gaps in his memory about the altercation
and what he told police afterward. W.J. insists the People failed
to prove its allegations because it based them on such unreliable
testimony. The juvenile court acknowledged these
inconsistencies but found the “core of the events” described by
Poindexter supported the People’s allegations. We agree. The
appellate court reviews a cold record and, “unlike a trial court,
[has] no opportunity to observe the appearance and demeanor of
the witnesses. . . . It is not an appellate court’s function, in short,
to redetermine the facts. . . . Absent indisputable evidence of
abuse – evidence no reasonable trier of fact could have rejected –
we must therefore affirm the juvenile court’s determination.” (In
re Sheila B. (1993) 19 Cal.App.4th 187, 199-200.)
W.J. next argues the People failed to prove W.J. did not act
in self-defense. He refers to those parts of the record suggesting
he threw the brick because he feared being hit by the copper pipe.
We need not reverse where, as here, appellant can assemble a
narrative more favorable to his defenses than that adopted by the
1 Poindexter initially told police he had just dropped off a
friend when the boys approached and asked for a ride. In
contrast, he testified at trial that he had just returned to his
truck after painting a house when they approached and asked for
money. He could not remember if they also asked for a ride.
3
trier of fact. (See In re Matthew A. (2008) 165 Cal.App.4th 537,
540 [“The same standard governs review of the sufficiency of
evidence in adult criminal cases and juvenile cases: we review the
whole record in the light most favorable to the judgment to decide
whether substantial evidence supports the conviction”].)
B. Maximum Term of Confinement
The juvenile court placed W.J. home on probation with his
parents. It found his maximum term of confinement to be three
years and six months. The parties agree we must strike the
latter finding. “[W]here a juvenile court’s order includes a
maximum confinement term for a minor who is not removed from
parental custody, the remedy is to strike the term.” (In re A.C.
(2014) 224 Cal.App.4th 590, 592.)
DISPOSITION
The maximum term of confinement finding is stricken. The
order sustaining the petition is otherwise affirmed.
NOT TO BE PUBLISHED.
CODY, J.*
We concur:
GILBERT, P.J. BALTODANO, J.
* Judge of the Ventura Superior Court assigned by the
Chief Justice pursuant to article VI, section 6 of the California
constitution.
4
Brian C. Yep, Judge
Superior Court County of Los Angeles
______________________________
Elana Goldstein, under appointment by the Court of
Appeal, for Defendant and Appellant.
Rob Bonta, Attorney General, Lance E. Winters, Chief
Assistant Attorney General, Susan Sullivan Pithey, Senior
Assistant Attorney General, Roberta L. Davis, David E. Madeo,
and Blake R. Armstrong, Deputy Attorneys General, for Plaintiff
and Respondent.
5 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488734/ | J-S23013-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
COMMONWEALTH OF PENNSYLVANIA IN THE SUPERIOR COURT
OF PENNSYLVANIA
Appellee
v.
TIMOTHY D. BOZEK
Appellant No. 1220 MDA 2021
Appeal from the Judgment of Sentence Entered August 17, 2021
In the Court of Common Pleas of Luzerne County
Criminal Division at No.: CP-40-CR-0002917-2014
BEFORE: STABILE, J., McLAUGHLIN, J., and COLINS, J.*
MEMORANDUM BY STABILE, J.: FILED: NOVEMBER 22, 2022
Appellant Timothy D. Bozek appeals from the August 17, 2021 judgment
of sentence entered in the Court of Common Pleas of Luzerne County (“trial
court”) following the revocation of his special probation for failure to obtain
approved housing. After careful review, we affirm.
Unless otherwise specified, the facts of this case come from the trial
court’s November 19, 2021 opinion. See Trial Court Opinion, 11/19/21, at 2-
9. On May 19, 2015, following a jury trial, Appellant was convicted of ten
counts of sexual abuse of children—possession of child pornography and one
count of criminal use of a communication facility.1 On August 14, 2015, the
____________________________________________
* Retired Senior Judge assigned to the Superior Court.
1 18 Pa.C.S.A. §§ 6312(d) and 7512(a), respectively.
J-S23013-22
trial court sentenced Appellant to an aggregate term of 30 to 60 months’
imprisonment for possession of child pornography followed by five years’
probation for criminal use of a communication facility. The trial court also
ordered Appellant to register for life as sexual offender under the Sexual
Offender Registration and Notification Act (“SORNA”), 42 Pa.C.S.A.
§§ 9799.10-9799.41. On May 13, 2021, Appellant’s five-year maximum term
of incarceration expired.
However, via a letter dated May 10, 2021, a few days before Appellant’s
maximum term expired, the Pennsylvania Parole Board (the “Board”)
requested that the trial court hold a status conference and issue a detainer
because Appellant did not have an approved residence or home plan. The
letter stated in relevant part:
On May 13, 2021, the Scranton District Office received the above
named offender, from the Parole Staff at SCI Rockview, following
the offender reaching his maximum expiration of sentence on May
13, 2021. He has a five-year special probation imposed by Your
Honor.
At the current time, [Appellant] has no approved residence, and
is a registered sex offender who will be homeless.
The Board is requesting, that a detainer be lodged against [him]
and that a status hearing be scheduled in order to address
[Appellant’s] homelessness. It should be noted that [Appellant]
has an extensive mental health history requiring intensive
monitoring and poses a significant risk to public.
Letter, May 10, 2021, at 1 (sic) (emphasis added). The Board was concerned
that, as a registered sex offender, Appellant would be homeless upon his
release from prison.
-2-
J-S23013-22
Additionally, Appellant has serious health issues. While in prison, his
physical and mental condition deteriorated to the point where he could not
walk, used a wheelchair, wore adult diapers and could not hear clearly.
Considering his health conditions, the Board deemed it critical for him to have
appropriate housing upon his release.
Seemingly agreeing with the Board’s request,2 the trial court issued a
detainer pursuant to which Appellant was moved to Luzerne County
Correctional Facility (“LCCF”) upon his release from prison on May 13, 2021.3
As a result, Appellant commenced his term of probation at LCCF.
On May 19, 2021, as per the Board’s request, the trial court held a status
conference,4 at the start of which Appellant complained that the Board would
not “let [him] go live [with his] friends” or “find a home to live [in].” N.T.,
Hearing, 5/19/21, at 4.-5. Appellant explained that he had a friend that he
could go live with, but that he did not know this friend’s address. Id. at 5.
According to Appellant, this friend lived in either Dallas or Trucksville and that
he knew how to get to the residence. Id. (“I know at the light you turn left,
go up the top of the hill and make a right.”). When asked, Appellant testified
that his friends’ name was Maribel and Ennio Badilla. Id. He further testified
____________________________________________
2 The record is silent on whether, prior to or concurrently with the Board’s
request for a detainer, Appellant was notified that he violated a condition of
probation.
3 Because Appellant does not challenge the trial court’s authority to ex parte
issue a detainer in the absence of a probation violation, technical or otherwise,
we decline to examine the propriety of the trial court’s action in this regard.
4 At this hearing, the witnesses were not sworn in or placed under oath.
-3-
J-S23013-22
that he believed Ennio was affiliated with Badilla Construction, a roofing
company. Id. Appellant also conceded that he had not spoken with his friends
in over six years and did not know their phone number. Id. at 8-9, 13-14.
With respect to nursing home placement, Appellant was adamant that
he did not want to go to a nursing home or personal care home because they
would take his Social Security payments. Id. at 12. Appellant explained that
he owed money to his brother and Badilla and he would not be able to repay
them if he were placed in a nursing home. Id.
Appellant appeared at the status conference in a decompensated state.
He was in a wheelchair and unable to walk without assistance. Id. at 15.
Appellant is diabetic and lost a toe during his incarceration due to diabetes
complications. Id. at 16-17. Moreover, Appellant is deaf, wears adult diapers,
and cannot not use the bathroom without assistance. When Appellant
reported to the Board’s office, two agents had to assist him in changing his
diaper. Id. at 14. Finally, Appellant stated that he was on suicide watch at
the LCCF.5 Id. at 18-19.
The Commonwealth presented the testimony of Agent Jeremiah
Johnson, State Parole, who testified that the Board requested this hearing to
address the issue of Appellant’s homelessness and his current health status.
Id. at 5-6, 11. Agent Johnson testified that the Area Agency on Aging
____________________________________________
5The record is bereft of any indication whether the Commonwealth considered
Appellant eligible for commitment under the Mental Health Procedures Act, 50
P.S. § 7101, et seq. in light of his suicidal ideations.
-4-
J-S23013-22
determined that Appellant was qualified for placement in a nursing home. Id.
According to Agent Johnson, during the last couple of months, while he was
incarcerated, Appellant was presented with placement options. Id. at 6.
Appellant declined all options.
On numerous occasions he refused to go to those—to any of those
locations, refused to sign releases of information so he could be
considered for placement in any of those facilities. And he was
very combative verbally to each of the social workers when they
did try to attempt it.
Id. Agent Johnson further testified that the Board spoke with Appellant’s
brother who indicated that he would arrange for a hotel room for Appellant for
only one night. Id. at 6-7. The brother was not offering permanent housing
or medical assistance. The Board rejected Appellant’s proposed home plan
involving his brother because the brother was willing to pay for a room for
only a single night and because Appellant could not be supervised in a hotel.
Id. at 7. Agent Johnson explained that because of state conditions prohibiting
sex offenders from residing in a building that houses minors and the potential
for minors to stay in the same hotel at any given time, the Board determined
that a hotel was not a viable home plan. Id.
With respect to Maribel and Badilla, Agent Johnson testified that
Appellant had not provided any information on these individuals prior to the
status conference and an internet search for Badilla construction yielded no
results. Id. at 10, 13.
-5-
J-S23013-22
According to Agent Johnson, the Board was trying to secure a safe
location for Appellant to reside because he is unable to care for himself to the
extent that if he were homeless, he would be a harm to himself. Id. at 14.
Appellant clearly could not maintain his daily life necessities. Id.
At the close of the hearing, Appellant’s counsel agreed to try to contact
Badilla and Appellant’s brother to see if they were willing to assist with
securing suitable housing and obtaining medical care. Id. at 10, 19.
Appellant’s counsel also indicated that the social workers in the public
defender’s office had experience in finding housing for individuals with a
higher level of need and would assist Appellant in this regard. Id. at 17. A
follow-up status conference was scheduled for May 28, 2021.
On May 20, 2021, the Board, for the first time, issued a revocation notice
to Appellant, alleging technical violations of his special probation. In
particular, the Board claimed that Appellant violated, inter alia, the second
condition of his probation: “Your residence may not be changed without
written permission of the parole supervising staff.” In support, the Board
claimed that Appellant had not submitted a home plan and that he refused
possible home plan options offered to him on April 20, April 21, and April 22,
-6-
J-S23013-22
2021, while incarcerated. On May 24, 2021, Appellant waived his Gagnon I6
hearing.
At the May 28 Gagnon II hearing, it was determined that the issue of
Appellant’s lack of suitable housing remained unsolved and his health issues
made it virtually impossible for him to live alone. Moreover, Appellant’s
attorney indicated that she was unable to locate the Badillas and that,
although she attempted to contact Appellant’s brother, she was unable to
speak with him. N.T., Hearing, 5/28/21, at 5, 7. The attorney also confirmed
that the social workers from the public defender’s office were working on
finding Appellant a placement, but that it would likely take more time because
of the serious nature of Appellant’s needs and his sexual offender registration
status. Id. at 5.
Next, Agent Johnson testified that the Board was able to contact
Appellant’s brother and that the brother indicated he did not want anything to
do with Appellant. Id. at 10-11. Agent Johnson further testified that there
were two treatment providers for sexual offenders located in Luzerne County
____________________________________________
6 In Gagnon v. Scarpelli, 411 U.S. 778 (1973), the Supreme Court
determined a two-step procedure was required before parole or probation may
be revoked:
[A] parolee [or probationer] is entitled to two hearings, one a
preliminary hearing [Gagnon I] at the time of his arrest and
detention to determine whether there is probable cause to believe
that he has committed a violation of his parole [or probation], and
the other a somewhat more comprehensive hearing [Gagnon II]
prior to the making of a final revocation decision.
Id. at 781-82.
-7-
J-S23013-22
and that neither one of them would provide treatment to individuals, such as
Appellant, who deny having committed any sexual offenses and assert their
innocence. Id. at 11, 13.
At the conclusion of the hearing, the trial court continued the revocation
hearing to June 25, 2021 to allow the public defender’s office additional time
to find an appropriate housing for Appellant. On June 21, 2021, the June 25
hearing was rescheduled to June 30, 2021.
At the June 30 hearing, Appellant stated that he was not feeling any
better. N.T., Hearing, 6/30/21, at 3. He further stated he needed 48 hours
to locate his friends in Trucksville or Dallas. Id. at 3-4. When questioned
whether he would accept placement at South Hills Rehab or any facility where
he would be considered for admission, Appellant answered in the affirmative.
Id. at 18-19, 25-27.
His attorney stated that, given Appellant’s convictions, his registration
status, and the higher level of care required for him, the social workers from
the public defender’s office were not yet able to locate housing for Appellant.
Id. at 4, 16 (“[W]e have not found anywhere that will accept both the
registration status and can provide the level of care. I know we have places
that can do one or the other.”). Appellant’s attorney also stated that she
would research South Hills Rehab, a facility initially proposed by the Board
and that considered accepting him, but which Appellant refused prior to his
release from state prison. Id. at 17-18, 22. Appellant’s attorney noted on
the record that the Department of Corrections and the Area Agency on Aging
-8-
J-S23013-22
contacted numerous nursing homes to find suitable housing for Appellant. Id.
at 21. However, their efforts were unsuccessful because some of the
contacted facilities advised them that they either would not accept Appellant,
or that there was no availability. Id. The remaining facilities simply failed to
respond to the inquiries. Id.
Agent Johnson testified that when Appellant was given an opportunity
to go to a nursing home, arrangement for which was to be made by the
Department of Corrections prior to his release, Appellant refused to do what
was then necessary to be considered for placement. Id. at 5. He further
testified that the Board searched, without success, for the names and locations
for individuals who Appellant previously indicated might be able to provide
him housing and care. Id.
At the conclusion of the hearing, the trial court again continued the
revocation hearing to August 17, 2021 to allow additional time to find a
suitable placement for Appellant.
At the August 17 hearing, the Commonwealth laid out its basis for
seeking the revocation of Appellant’s special probation. N.T., Hearing,
8/17/21, 5. In this regard, the Commonwealth reiterated its claim that
Appellant committed a technical violation of his probation. Id. Specifically,
he violated the second condition of his probation, i.e., residence may not be
changed without written permission. Id. In support, the Commonwealth
alleged that Appellant failed to provide a home plan and that he refused to
accept possible home plan options offered to him. Id. at 5-6. The
-9-
J-S23013-22
Commonwealth noted that to the extent Appellant submitted a home plan, it
was rejected because it involved his brother securing a hotel room for him for
a single night. Id. at 7. Indeed, the brother indicated to the Board that he
would not assist Appellant in finding appropriate housing. Id. Agent Johnson
testified that he was not aware of any facility in this Commonwealth that would
accept Appellant. Id. at 12-13. Agent Johnson also requested that, upon
revocation of Appellant’s probation, the trial court make Appellant eligible for
immediate parole upon imposing a prison sentence. Id. at 15.
I would state if he could be made immediately eligible for parole
by the court so that he may be placed onto parole supervised by
the state, not on special probation, at that point we may be able
to put him into a facility where he would be able to be in
treatment, as well as no longer incarcerated.
Id.
Appellant, who appeared at the hearing using a walker, testified that he
signed papers to be considered for placement at South Hills Rehab and another
facility, but never heard back. Id. at 9, 11. Agent Johnson, however, testified
that he was unaware of Appellant signing papers. N.T., Hearing, 8/17/21, at
11.
Based on this evidence, the trial court found that Appellant had “[n]o
viable options at this point.” Id. at 13. As a result, the trial court revoked
Appellant’s special probation for his underlying conviction of criminal use of a
communication facility and resentenced him to three months to five years’
- 10 -
J-S23013-22
incarceration. Id. at 16. The trial court awarded Appellant 96 days’ credit for
time served from May 13, 2021 until August 17, 2021. Id. at 17.
Appellant did not file any post-sentence motions, but filed a timely
notice of appeal to this Court. The trial court directed Appellant to file a
Pa.R.A.P. 1925(b) statement of errors complained of on appeal. Appellant
complied, challenging the trial court’s authority to anticipatorily revoke his
probation for a technical violation. In this regard, he asserted that his
probation was revoked while he was incarcerated and prior to the
commencement of probation. In response, the trial court issued a Pa.R.A.P.
1925(a) opinion.
On appeal,7 the crux of Appellant’s argument is that the Commonwealth
failed to present sufficient evidence to prove that Appellant violated the
second condition of his probation.8 In other words, Appellant does not
____________________________________________
7 “Revocation of a probation sentence is a matter committed to the sound
discretion of the trial court and that court’s decision will not be disturbed on
appeal in the absence of an error of law or an abuse of discretion.”
Commonwealth v. Smith, 669 A.2d 1008, 1011 (Pa. 1996).
8 Insofar as Appellant relies upon Commonwealth v. Simmons, 262 A.3d
512 (Pa. Super. 2021) (en banc) to argue that the trial court anticipatorily
revoked his probation, the reliance is misplaced because Simmons is factually
distinguishable. In Simmons, this Court overruled longstanding precedent
that allowed courts to anticipatorily revoke probation based on crimes
committed while a defendant was on parole. The Court in Simmons held that
where a court has imposed a sentence of probation to be served consecutive
to a term of incarceration and a defendant commits a crime while on parole,
the trial court may find only a violation of parole. Simmons, 262 A.3d at
523-27. The court cannot find an anticipatory violation of probation. Id.
Here, unlike in Simmons, Appellant’s probation was not revoked
(Footnote Continued Next Page)
- 11 -
J-S23013-22
challenge any condition of his probation, but merely argues that the evidence
was insufficient to prove that he violated the second condition.
A challenge to the sufficiency of the evidence supporting the revocation
of probation is a question of law subject to plenary review. Commonwealth
v. Perreault, 930 A.2d 553, 558 (Pa. Super. 2007), appeal denied, 945
A.2d 169 (Pa. 2008). We must determine whether the evidence admitted at
the revocation hearing and all reasonable inferences drawn therefrom, when
viewed in the light most favorable to the Commonwealth, is sufficient to
support the conclusion that the probationer violated the terms of probation.
Id.
Before the trial court may revoke probation, the court must find, “based
on the preponderance of the evidence, that the probationer violated a specific
condition of probation or committed a new crime[.]” Commonwealth v.
Parson, 259 A.3d 1012, 1019 (Pa. Super. 2021) (citations omitted). “Unlike
a criminal trial where the burden is upon the Commonwealth to establish all
of the requisite elements of the offenses charged beyond a reasonable doubt,
at a revocation hearing the Commonwealth need only prove a violation of
probation by a preponderance of the evidence.” Commonwealth v.
Moriarty, 180 A.3d 1279, 1286 (Pa. Super. 2018) (citation omitted). As our
____________________________________________
anticipatorily. Appellant was released from state prison upon serving his
maximum term. Upon release, he was shuttled to LCCF to begin his term of
probation. While serving his probationary term, Appellant was slapped with
technical violations, which resulted in the revocation of his probation. Simply
put, the revocation was not anticipatory as he was on probation.
- 12 -
J-S23013-22
Supreme Court has explained, “preponderance of the evidence is ‘a more likely
than not inquiry,’ supported by the greater weight of the evidence; something
a reasonable person would accept as sufficient to support a decision.”
Commonwealth v. Batts, 163 A.3d 410, 453 (Pa. 2017) (citations omitted).
With the foregoing principles in mind, and based upon our extensive
review of the record, viewed in the light most favorable to the Commonwealth,
we cannot agree with Appellant that the Commonwealth failed to present
sufficient evidence to establish that he violated the second condition of his
probation.9 Here, as detailed earlier, on May 13, 2021, upon completion of
his five-year maximum sentence for multiple counts of possession of child
pornography, Appellant was whisked away to LCCF on a detainer issued on
the Board’s concern that Appellant lacked a home plan and would become
homeless upon his release from SCI Rockview.10 As a result, Appellant
commenced his five-year term of special probation at LCCF. During the
hearings that followed, it became clear that the Board felt compelled to detain
Appellant at LCCF because he simply had nowhere to go and would become
homeless if not detained. An ancillary concern was that, given his physical
____________________________________________
9 Appellant does not argue that the Commonwealth failed to present any
evidence that an approved home plan was a condition of his probation.
Nonetheless, we note the record is devoid of any evidence that homelessness,
while a basis of the revocation, was a violation of Appellant’s probation.
10 The court suggested that, if not imprisoned, Appellant would either be
homeless or fail to properly register under SORNA, resulting in arrest and
criminal charges.
- 13 -
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and medical conditions, Appellant could not care for himself and, therefore,
required placement in a nursing facility.
The trial court noted that, prior to his release from prison, Appellant
repeatedly refused to do what was then necessary to be considered for
placement in a nursing home. Even after his release, especially during the
May 19 status hearing, Appellant was adamant in his refusal to be placed in a
nursing home. He reasoned that a nursing home or a personal care home
would take his social security payments. Appellant did not want to part with
his social security payments because, as he explained, he needed that money
to repay debts he owed to his brother and friends. To the extent Appellant
claims that he signed papers to be considered for placement, Agent Johnson’s
testimony directly contradicted Appellant’s claim. See Commonwealth v.
Sanchez, 848 A.2d 977, 982 (Pa. Super. 2004) (in sufficiency of evidence
review, conflicts in testimony are resolved in favor of the verdict winner). In
Sanchez, we noted that “[w]hile there is a great deal of contradictory
testimony in this case, we are constrained to resolve all conflicts in favor of
the Commonwealth. In so doing, we are compelled to find that appellant’s
convictions were supported by sufficient evidence.” Id. Here, the trial court
credited Agent Johnson’s testimony on this issue, considering that the court
found in favor of the Commonwealth and revoked Appellant’s probation.
Further, his continued denial that he committed any crime rendered him
ineligible for placement at two facilities in Luzerne County.
- 14 -
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Moreover, Appellant also did not present any viable, non-nursing home
options. The trial court found that his brother was not a resource because the
brother was willing to put Appellant up in a hotel room for a single night and
could not provide or arrange for any medical care for him. Appellant’s
proposal to live with his friends likewise was not viable because he had not
spoken to them in over six years and he did not know their telephone number
or where they lived. It was thus solely on the basis of his refusal to be placed
in a nursing home and failure to submit any non-nursing home alternatives
that the Commonwealth charged Appellant with a technical violation of his
probation for failure to submit a suitable home plan. In light of the record
evidence, and given the unique circumstances of this case, we are constrained
to agree with the trial court that the Commonwealth presented sufficient
evidence to prove that Appellant violated the second condition of his
probation.
Accordingly, we affirm Appellant’s judgment of sentence following
revocation of his probation.
Judgment of sentence affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
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https://www.courtlistener.com/api/rest/v3/opinions/8488747/ | Filed 11/22/22 P. v. Dumbrava CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
THE PEOPLE,
Plaintiff and Respondent, G060115
v. (Super. Ct. No. 20HF0081)
SEBASTIAN BOGDAN DUMBRAVA, OPI NION
Defendant and Appellant.
Appeal from a judgment of the Superior Court of Orange County, Scott A.
Steiner, Judge. Affirmed.
William G. Holzer, under appointment by the Court of Appeal, for
Defendant and Appellant.
Rob Bonta, Attorney General, Lance E. Winters, Chief Assistant Attorney
General, Charles C. Ragland, Assistant Attorney General, Eric A. Swenson and Heather
M. Clark, Deputy Attorneys General, for Plaintiff and Respondent.
* * *
Appellant Sebastian Bogdan Dumbrava, after being detained at a mental
health treatment facility, received notice he was prohibited from owning, possessing,
controlling, receiving, or purchasing any firearm for a period of five years, absent court
authorization. Firearm components and ammunition were subsequently found in his
bedroom and he was convicted of two crimes: an attempt to possess a firearm and
possession of ammunition. He was sentenced to serve consecutive prison terms totaling
three years and eight months.
Dumbrava contends his judgment should be reversed because there was
insufficient evidence about his detention, as required by the possession statutes he was
convicted of violating, as well as insufficient evidence he attempted to possess a firearm.
He also contends Penal Code section 654’s prohibition of multiple punishments for the
same act should be applied to stay his eight-month sentence for possession of
ammunition by a prohibited person. We affirm the judgment.
FACTS
In 2019, law enforcement officers interviewed Dumbrava as a result of
threatening comments he posted on social media and thereafter transported Dumbrava to
UCI Medical Center (UCI). After he entered the hospital, an employee came out and
requested the officers write an application for Dumbrava to be evaluated for a 72-hour
1
hold as authorized by Welfare and Institutions Code section 5150.
Dumbrava was placed on an involuntary hold, and then transferred to
Canyon Ridge Hospital (Canyon Ridge), and involuntarily admitted to the hospital on the
basis of being a danger to others. He was assessed and stayed at this facility until he was
released two days later, when he was given a written advisement explaining he could not
legally possess a firearm absent court authorization.
1
All further undesignated statutory references are to the Welfare and Institutions
Code.
2
In 2020, after being alerted to Dumbrava’s Twitter account which contained
threats against the University of Irvine and campus police, law enforcement officers
executed a search warrant on Dumbrava’s bedroom. Inside a storage container, they
found a locked duffel bag containing firearm components, a jig kit, tools necessary to
build a civilian version of an assault rifle, 37 magazines for holding ammunition, and
1,199 rounds of ammunition. The search also yielded two nonfunctioning firearm
receivers, a shipping label for one of them, and a box containing instructions on how to
assemble a rifle.
Dumbrava was initially charged in an information on 25 felony counts:
receipt of a large capacity magazine (Pen. Code, § 32310, subd. (a) [counts 1 through
22]); attempting to possess a firearm as a prohibited person (Pen. Code, § 8103, subd.
(f)(1) & (i) [count 23]); and prohibited ownership of ammunition (Pen. Code, § 30305,
subd. (a)(1) [count 24]). The trial court granted the defense’s motion to dismiss counts 1
through 22.
A court trial was conducted on counts 23 and 24. The prosecution
presented witnesses from Canyon Ridge, as well as a firearms expert who had executed
the search warrant. The expert testified that Dumbrava had obtained all the necessary
parts to build an assault rifle and that Dumbrava could assemble them into a functioning
rifle in two to four hours.
The trial court convicted Dumbrava on both counts, and sentenced him to
serve consecutive prison terms of three years on count 23 and eight months on count 24.
DISCUSSION
Dumbrava raises two claims on appeal. He contends there was insufficient
evidence to convict him of either offense. Alternatively, he argues his eight-month
sentence on count 24 for prohibited possession of ammunition should be stayed under
Penal Code section 654.
3
I. Sufficiency of the Evidence
Standard of Review
“In reviewing a sufficiency of evidence claim, the reviewing court’s role is
a limited one,” where we “‘“must presume in support of the judgment the existence of
every fact the trier could reasonably deduce from the evidence. [Citation.].)”’” (People
v. Smith (2005) 37 Cal.4th 733, 738-739.) We “‘review the whole record in the light
most favorable to the judgment to determine whether it discloses substantial evidence—
that is, evidence that is reasonable, credible, and of solid value—such that a reasonable
trier of fact could find the defendant guilty beyond a reasonable doubt.’” (People v. Story
(2009) 45 Cal.4th 1282, 1296; see Jackson v. Virginia (1979) 443 U.S. 307, 319 [“the
relevant question is whether, after viewing the evidence in the light most favorable to the
prosecution, any rational trier of fact could have found the essential elements of the crime
beyond a reasonable doubt”].)
Relevant Law
Section 8103 provides in relevant part that “[a] person who has been (i)
taken into custody as provided in Section 5150 because that person is a danger to himself
. . . or to others, (ii) assessed within the meaning of Section 5151, and (iii) admitted to a
designated facility within the meaning of Sections 5151 and 5152 because that person is a
danger to himself . . . or others, shall not own, possess, control, receive, or purchase, or
attempt to own, possess, control, receive, or purchase, any firearm for a period of five
years after the person is released from the facility.” (Id., subd. (f)(1)(A), italics added.)
Section 5150 provides in relevant part as follows: “When a person, as a
result of a mental health disorder, is a danger to others, or to himself . . . , a [person
authorized by the section] may, upon probable cause, take, or cause to be taken, the
person into custody for a period of up to 72 hours for assessment, evaluation, and crisis
intervention, or placement for evaluation and treatment in a facility designated by the
4
county for evaluation and treatment and approved by the State Department of Health
Care Services. At a minimum, assessment, as defined in Section 5150.4, and evaluation,
as defined in subdivision (a) of Section 5008, shall be conducted and provided on an
ongoing basis.” (Id., subd. (a), italics added.)
Section 5150.4 states in its entirety that: “‘Assessment’ for the purposes of
this article[, i.e., containing sections 5150 through 5155], means the determination of
whether a person shall be evaluated and treated pursuant to Section 5150.” Section 5151
states in relevant part as follows: “If the facility designated by the county for evaluation
and treatment admits the person, it may detain the person for evaluation and treatment for
a period not to exceed 72 hours. . . . [¶] Prior to admitting a person to the facility for
treatment and evaluation pursuant to Section 5150, the professional person in charge of
the facility or a designee shall assess the individual to determine the appropriateness of
the involuntary detention.” (Id., subds. (a) & (b).)
Penal Code section 30305 provides in relevant part that “[n]o person
prohibited from owning or possessing a firearm under . . . 8103 of the Welfare and
Institutions Code, shall own, possess, or have under custody or control, any ammunition
or reloaded ammunition.” (Pen. Code, § 30305, subd. (a)(1).)
Application
The elements of section 8103 are supported by substantial evidence. The
evidence at trial showed Dumbrava directly acted with the intent to own, possess, control,
receive, or purchase a firearm within five years of being released from the second
medical center. He was “taken into custody as provided in Section 5150 because” he was
determined to be a danger to others; at a minimum, he was “assessed within the meaning
of Section 5151” at Canyon Ridge; and he was “admitted to a designated facility within
the meaning of Sections 5151 and 5152 because” he was determined to be a danger to
others. (§ 8103, subd. (f)(1)(A)(i)-(iii).) Substantial evidence also supports a finding that
5
Dumbrava attempted to possess a firearm and possessed ammunition as proscribed by the
statutes he was convicted of violating: section 8103 and Penal Code section 30305.
Dumbrava asserts two theories to argue the trial evidence was insufficient
for his convictions. First, he argues that for both convictions there was insufficient
evidence he was “assessed within the meaning of Section 5151,” as required by section
8103, subdivision (f)(1)(A)(ii). The argument rests on the premise that the first facility
where Dumbrava was detained—the hospital—was the only location where an
assessment could have been conducted. This premise is contradicted by the statutory
scheme of the Lanterman-Petris-Short Act (§ 5000 et seq.) (the Act), the legislation that
contains section 5150 and governs its framework.
The purpose of an assessment “within the meaning of section 5151” is “to
determine the appropriateness of [an] involuntary detention” authorized by the Act.
(§ 5151, subdivision (b).) The legislation provides that assessments for a detention be
“conducted and provided on an ongoing basis,” as circumstances require. (§ 5151, subd.
(a)). The Act contemplates that an individual may be treated at more than one facility
within the authorized 72-hour detention, which is what happened in this case. (See
§ 5150, subd. (i)(1) [required information for detained person includes the proposition
that the person “may request to be evaluated or treated at a facility of [his or her]
choice”]; see § 5008, subd. (n) [defining meaning of “‘facility designated by the county
for evaluation and treatment’”].)
Dumbrava’s detention at Canyon Ridge was subject to section 5151’s
assessment requirement. (§ 5151, subd. (b) [“Prior to admitting a person to the facility
for treatment and evaluation pursuant to Section 5150, the professional person in charge
of the facility or a designee shall assess the individual to determine the appropriateness of
the involuntary detention”].) The trial evidence included direct testimony by a nurse who
worked at the facility, who testified that Dumbrava was assessed at the beginning of his
detention there. Accordingly, although no direct evidence was presented at trial on
6
whether Dumbrava was assessed at UCI, his assessment at this first facility is of no
moment because there was substantial evidence that an assessment required by section
8103, subdivision (f)(1)(A)(ii), occurred at the second facility, namely Canyon Ridge.
Second, Dumbrava contends his conviction for violating section 8103
should be reversed because there was insufficient evidence he attempted to possess a
firearm. Generally, “[a]n attempt to commit a crime consists of two elements: a specific
intent to commit the crime, and a direct but ineffectual act done toward its commission.”
(Pen. Code, § 21a; see People v. Moses (2020) 10 Cal.5th 893, 906.) Dumbrava’s claim
of insufficient evidence focuses on the second element—whether there was a direct but
ineffectual act that went beyond mere preparation. Here, the argument is made that
Dumbrava’s conviction should be reversed because the evidence shows only acts of
preparation. We disagree.
Our Supreme Court has explained: “‘[b]etween preparation for the attempt
and the attempt itself, there is a wide difference. The preparation consists in devising or
arranging the means or measures necessary for the commission of the offense; the
attempt is the direct movement toward the commission after the preparations are made.’
[Citation.] ‘“[I]t is sufficient if it is the first or some subsequent act directed towards that
end after the preparations are made.’” [Citation.] (People v. Superior Court (Decker)
(2007) 41 Cal.4th 1, 8.)
“Although a definitive test has proved elusive, we have long recognized
that ‘[w]henever the design of a person to commit crime is clearly shown, slight acts in
furtherance of the design will constitute an attempt.’ [Citations.]” (People v. Superior
Court (Decker), supra, 41 Cal.4th at p. 8.) This is known as the “slight-acts rule.” (Id. at
p. 10.) In Decker, our Supreme Court stated: “The purpose of requiring an overt act is
that until such act occurs, one is uncertain whether the intended design will be carried
out. When, by reason of the defendant’s conduct, the situation is ‘without any
7
equivocality,’ and it appears the design will be carried out if not interrupted, the
defendant’s conduct satisfies the test for an overt act. [Citations.]” (Id. at pp. 13-14.)
Here, Dumbrava’s intent was clear—to possess a functioning assault-style
rifle and he had taken several steps in furtherance of his plan. His actions went beyond
mere preparation as he had obtained all of the firearm’s components, procured
information on how to assemble the firearm, gathered the tools he needed for the
assembly, acquired 37 magazines to load ammunition into the firearm, and amassed
1,199 rounds of ammunition. Considering all of these actions together, we have no
problem concluding there was sufficient evidence Dumbrava’s actions went beyond mere
preparation and are sufficient to constitute an attempt.
In People v. Nguyen (2013) 212 Cal.App.4th 1311, we concluded the
defendant, who had acquired the parts for an assault firearm, was properly convicted of
the attempted possession of an assault weapon because he had gone beyond mere
preparation by bending the flat receiver so the firearm could be assembled. (Id. at
p. 1323.) Here, we find substantial evidence Dumbrava went beyond mere preparation
by gathering the tools he needed to assemble the firearm and by obtaining substantial
numbers of magazine and rounds of ammunition; this conduct satisfies the overt act
requirement. It is for this reason we find Nguyen is consistent with our analysis here.
Dumbrava contends the evidence was insufficient because he had not
drilled the receiver and the firearm remained unassembled. He asserts that even if he had
started to put the rifle together, he had two to four hours of work to complete before he
had a functioning rifle. This argument misapprehends the difference between the
completed crime of possession of a firearm and an attempt to possess a firearm. Within
two to four hours of starting the assembly, Dumbrava would have had an operable
firearm and be guilty of possession of a firearm, not attempted possession of a firearm.
Given the record, Dumbrava’s position on the sufficiency of the trial
evidence ignores the plain statutory language of section 8103, which shows the
8
Legislature elected to specify that either an attempted possession or successful possession
of a firearm would equally violate the law. We decline to nullify the statutory phrase
“attempt to” explicitly included in the conduct proscribed by section 8103.
We find poignant the Supreme Court’s discussion of the law of attempts:
“‘“One of the purposes of the criminal law is to protect society from those who intend to
injure it. When it is established that the defendant intended to commit a specific crime
and that in carrying out this intention he committed an act that caused harm or sufficient
danger of harm, it is immaterial that for some collateral reason he could not complete the
intended crime.” [Citation.] Accordingly, the requisite overt act “need not be the last
proximate or ultimate step towards commission of the substantive crime . . . . [¶]
Applying criminal culpability to acts directly moving toward commission of crime . . . is
an obvious safeguard to society because it makes it unnecessary for police to wait before
intervening until the actor has done the substantive evil sought to be prevented. It allows
such criminal conduct to be stopped or intercepted when it becomes clear what the actor’s
intention is and when the acts done show that the perpetrator is actually putting his plan
into action.” [Citations.]’” (People v. Moses, supra, 10 Cal.5th at p. 899.)
Here, Dumbrava’s intent was clear and he had started putting his plan into
action by acquiring the parts he needed to have a functioning assault-style rifle, obtaining
the tools to complete the assembly, and gathering the magazines and ammunition to use
once the assembly was complete. It was unnecessary for police to wait until he had
completed the assembly before intervening.
II. Sentencing
Dumbrava contends we should apply Penal Code section 654 to stay
execution of his consecutive eight-month sentence for possession of ammunition on
Count 24. The statute provides in relevant part that: “An act or omission that is
punishable in different ways by different provisions of law may be punished under either
9
of such provisions, but in no case shall the act or omission be punished under more than
one provision.” (Id., subd. (a).)
Given that Dumbrava’s conduct underlying counts 23 and 24 did not occur
through a single physical act, we consider whether Dumbrava’s “course of criminal
conduct is divisible”—whether it reflected a single intent and objective for the purpose of
Penal Code section 654 analysis. (People v. Corpening (2016) 2 Cal.5th 307, 311.)
Substantial evidence supports the trial court’s implied findings that
Dumbrava had maintained separate intents and objectives when he committed the acts
underlying his convictions for counts 23 and 24. (People v. Jones (2002)
103 Cal.App.4th 1139, 1143 [“Whether [Penal Code] section 654 applies in a given case
is a question of fact for the trial court, which is vested with broad latitude in making its
determination”].) Dumbrava attempted to possess a firearm and did possess over 1,100
rounds of ammunition, which were not loaded into a firearm. Presuming all facts the
court could reasonably have deduced, the record supports a finding that Dumbrava may
have been planning multiple attacks on multiple targets. Dumbrava relies on cases that
hold where a firearm is found loaded with ammunition, the possession of both cannot
justify the imposition of two punishments. (See, e.g., People v. Lopez (2004)
119 Cal.App.4th 132, 137-138.) Those cases are inapplicable here because the
ammunition Dumbrava possessed was not loaded into a firearm.
10
DISPOSITION
The judgment is affirmed.
MARKS, J.*
WE CONCUR:
O’LEARY, P. J.
DELANEY, J.
*Judge of the Orange County Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
11 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488736/ | J-A24017-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
AMANDA COLLINS N/K/A AMANDA : IN THE SUPERIOR COURT OF
CONNELLY : PENNSYLVANIA
:
Appellant :
:
:
v. :
:
: No. 1253 EDA 2022
MICHAEL COLLINS :
Appeal from the Order Entered April 18, 2022
In the Court of Common Pleas of Bucks County
Civil Division at No(s): 2018-60181
BEFORE: PANELLA, P.J., BENDER, P.J.E., and SULLIVAN, J.
MEMORANDUM BY PANELLA, P.J.: FILED NOVEMBER 22, 2022
Amanda Connelly (“Mother”) and Michael Collins (“Father”) entered into
a stipulated custody agreement regarding their now five-year-old child, A.C.
(“Child”), and the Bucks County Court of Common Pleas entered an order
approving the agreement. The court ultimately modified the custody order,
allowing Father’s younger sister, C.K., (“Paternal Aunt”) to have unsupervised
contact with Child during Father’s custodial time and allowing Father’s mother
(“Paternal Grandmother”) to have supervised contact with Child during
Father’s custodial time. Mother appeals that modified order, arguing that this
modification puts Child’s safety at risk and is not in Child’s best interests. She
also complains the court abused its discretion by finding that Father was not
in contempt of the order. After review, we find that Mother has either waived
J-A24017-22
her claim or failed to establish the court abused its discretion. We therefore
affirm.
The facts leading up to the modification of the custody order are not in
dispute. Mother initially filed a complaint in custody for Child in February 2018,
and Mother and Father entered into a stipulated custody agreement. The court
entered a custody order approving that agreement on February 8, 2018.
Under that order, Mother and Father shared legal custody, with Mother having
primary physical custody and Father having partial physical custody every
other Friday night. The stipulated order also specifically provided that “at no
time during Father’s partial custody or at any other time shall Father have
[Child] in the company of [Father’s older sister, J.C.] or [Paternal
Grandmother].” Custody and Stipulation Order, 2/8/18, at 2, ¶ 11.
Mother sought a temporary protection from abuse (“PFA”) order against
Father in June 2020, which the trial court granted. The PFA order limited
Father’s contact with Child to phone/Facetime and Zoom calls, and awarded
temporary sole physical custody to Mother. This PFA order was in effect from
July 27, 2020 through July 25, 2021.
On June 17, 2021, Mother filed a petition to modify the custody order,
seeking sole physical and legal custody of Child. Mother asked that Father only
be allowed supervised visitation as she had recently become aware that Father
had been convicted of sexual assault in 2004.
-2-
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Father also filed a petition for modification of the custody order in July
2021. In this petition, Father sought additional time with Child and requested
that “there be no restrictions such as supervised visit[ation] nor avoidance of
[Father’s] family members.” Petition on Behalf of Defendant Michael For
Modification of a Custody Order, 7/31/21, at 3. The court scheduled a
conference on both Mother’s and Father’s modification petitions for October
15, 2021.
Mother and Father, however, entered into another stipulated custody
agreement, which the trial court entered as an order on October 28, 2021.
This stipulated order awarded Mother primary physical custody, but it also
provided Father with additional custody time. Specifically, Father was to have
physical custody of Child: one weekday from 5 p.m. to 7 p.m. every week,
every other weekend from Friday evening through Sunday evening, on certain
holidays, and for two weeks of vacation each year. The stipulated order further
provided that “[u]nder no circumstances shall a person with a violent criminal
history be permitted around [Child].” Stipulation and Agreement Regarding
Child Custody, 10/27/21, at 4, ¶ 6. The order also provided that “neither party
shall disparage the other in front of [Child], nor allow others to do so in
[Child’s] presence, during his/her respective period of custody.” See id. at 4,
¶ 10.
Mother filed a petition of contempt just days after the court entered the
stipulated custody order. In her petition, Mother argued generally that Father
-3-
J-A24017-22
had violated the custody order by disparaging her in front of Child and by
allowing Child to be around individuals with a violent criminal history. She did
not name those individuals in the petition.
A custody conference was held on the petition, but the parties were not
able to fully resolve the issues and the matter was listed for a hearing. In her
report, the custody conference officer noted Mother’s and Father’s unresolved
dispute regarding whether Paternal Aunt and Paternal Grandmother should be
permitted any contact with Child. The report included Mother’s concerns
regarding Paternal Grandmother, who had been convicted of child
endangerment in 1996, and Paternal Aunt, who had been convicted of armed
robbery and assault in 2016. The report also noted Father’s position that Child
should be allowed to have contact with Paternal Grandmother, given the age
of the endangerment conviction at issue, and that Child should also be allowed
to have contact with Paternal Aunt, as she had recently been released from
prison after serving her sentence for the armed robbery. See Report of the
Custody Conference Officer, 12/16/21, at 2-3.
The matter proceeded to a hearing on April 6, 2022, with the issues
limited to whether Father was in contempt of the custody order because he
had made disparaging remarks about Mother or allowed Child to be around
Paternal Grandmother and Paternal Aunt, and whether the custody order
-4-
J-A24017-22
should be modified to allow Child to be in the company of Paternal
Grandmother and Paternal Aunt during Father’s custodial time.1
Mother testified at the hearing. She essentially maintained that both
Paternal Grandmother and Paternal Aunt were violent individuals who should
not have any contact with Child. To that end, Mother testified that Paternal
Grandmother had been convicted of child endangerment and had a past of
being violent towards her children, causing their removal from her care at one
point. Mother further testified that Paternal Aunt had been convicted of
robbery involving a firearm and then was convicted in November 2021 for an
offense stemming from her involvement in a physical altercation. Mother also
maintained that Child had been around both Paternal Grandmother and
Paternal Aunt during Father’s custody time, which violated the terms of their
custody order prohibiting contact with individuals with a violent criminal
history. According to Mother, Father had also violated the custody order by
making disparaging remarks about her on Facebook posts and in text
messages, which were admitted into evidence. Mother also testified that she
had a current PFA order against Father.
____________________________________________
1 Prior to the hearing, Mother filed a modification and amended contempt
petition, wherein she requested that the custody order be modified to
specifically name the individuals who were prohibited from being in Child’s
presence. Presumably, Mother’s request included Paternal Grandmother and
Paternal Aunt. In his answer, Father averred that neither Paternal
Grandmother or Paternal Aunt were violent individuals.
-5-
J-A24017-22
Paternal Aunt testified after Mother. Paternal Aunt reported she had
been released from prison for the robbery conviction in August 2020 and
following that release, had been convicted of disorderly conduct. She shared
she had a history of drug addiction and mental illness, but was sober and
attending support programs, though she was not currently in treatment.
Paternal Aunt further testified she had been removed from the care of Paternal
Grandmother when she was a child, and agreed she had a “traumatic
childhood.” N.T., 4/6/22, at 64. However, according to Paternal Aunt, she now
sees Paternal Grandmother on an almost-daily basis, and Paternal
Grandmother loves Child very much and does not pose any threat to him. See
id. at 67.
Father then took the stand. He testified that Mother and Paternal
Grandmother had a history of fighting. He conceded he had been removed
from Paternal Grandmother’s care when he was a child due to violence and
that her behavior can be erratic. Father asserted, however, that he wanted
Child to have a relationship with Paternal Grandmother and Paternal Aunt
because they love Child. See id. at 77-78. He insisted he had never seen
Paternal Grandmother or Paternal Aunt hurt or berate Child. See id. at 78.
Following the hearing, the court entered an order denying the petition
for contempt, citing insufficient evidence. The court also modified the custody
order so Paternal Aunt “shall not be restricted from having contact with
[Child]” and Paternal Grandmother “shall only be allowed to be in the presence
-6-
J-A24017-22
of [Child] if Father is physically present with her at the time.” Order, 4/19/22,
at 2.2
Mother filed a timely notice of appeal. Although Mother presents four
separate questions in her statement of questions presented section, she
provides only a single argument in the argument section of her brief. In
essence, Mother contends the trial court abused its discretion by modifying
the custody order to allow Paternal Aunt and Paternal Grandmother, who
Mother asserts have criminally violent backgrounds, to have contact with Child
and also abused its discretion by not finding Father in contempt. We conclude
Mother has failed to establish that the trial court committed an abuse of
discretion on either front.
“Our standard of review over a custody order is for a gross abuse of
discretion.” A.L.B. v. M.D.L., 239 A.3d 142, 147 (Pa. Super. 2020) (citation
omitted). Such an abuse of discretion will only be found if the “trial court, in
reaching its conclusion, overrides or misapplies the law, or exercises judgment
which is manifestly unreasonable, or reaches a conclusion that is the result of
partiality, prejudice, bias or ill will as shown by the evidence of record.” Id.
(citation omitted).
Additionally, when we review a custody order:
We must accept findings of the trial court that are supported by
competent evidence of record, as our role does not include making
____________________________________________
2 The order also specifically provided that K.K., Father’s stepfather, is not
allowed to have any contact with Child. That modification is not contested.
-7-
J-A24017-22
independent factual determinations. In addition, with regard to
issues of credibility and weight of the evidence, we must defer to
the presiding trial judge who viewed and assessed the witnesses
first-hand. However, we are not bound by the trial court’s
deductions or inferences from its factual findings. Ultimately, the
test is whether the trial court’s conclusions are unreasonable as
shown by the evidence of record.
Id. at 147-148. (citation omitted).
As with any custody matter, including petitions for modification, the
paramount concern is the best interest of the child involved. See Johns v.
Cioci, 865 A.2d 931, 936 (Pa. Super. 2004). Relevant to the case at hand, if
it is in the best interest of a child to have contact with a third party, the trial
court may allow for that contact. See MacDonald v. Quaglia, 658 A.2d 1343,
1346 (Pa. Super. 1995).
Here, Mother claims the court erred by modifying the custody
agreement to allow Child to be in the presence of Paternal Grandmother and
Paternal Aunt. In support, Mother recites testimony given at the hearing, and
makes general references to the evidence she presented at the hearing about
Paternal Aunt’s and Paternal Grandmother’s criminal history, history of drug
abuse and mental illness and lack of a bond with Child. She summarily asserts
that this evidence “should be sufficient enough to find a finding that Paternal
Aunt and Paternal Grandmother should not be around [Child], and can be
detrimental to [Child’s] wellbeing and safety.” Appellant’s Brief at 11.
In effect, Mother’s entire argument amounts to no more than a
disagreement with the court’s determination that, based on the testimony and
-8-
J-A24017-22
evidence presented, it was in Child’s best interest to allow Paternal
Grandmother and Paternal Aunt to be in the company of Child during Father’s
custodial time. Merely expressing one’s disagreement with the court’s
decision, as Mother does here, simply does not establish that the court’s
conclusions were unreasonable in light of the record or that the court
committed a gross abuse of discretion by allowing contact between Child and
Child's two paternal relatives. See M.D.L., 239 A.3d at 147-148.
Nor do we discern any abuse of discretion by the trial court, which
extensively explained its reasons for allowing the contact:
Although there may have been criminal acts in the past by
Paternal Aunt and Paternal Grandmother, said acts were both
attenuated in time and place, and had not been directed toward
[Child]. Further, there was no evidence presented that Paternal
Aunt had ever been violent toward [Child], or any other child.
Mother did not present any reports or clinical notes from
therapists, doctors, teachers, or counselors supporting her
petition to bar Paternal Aunt and/or Paternal Grandmother from
contact with [Child].
Paternal Aunt conceded that she had been involved in an
armed robbery for which she completed her sentence. … Paternal
Aunt said she had been in therapy for drug addiction, and [had]
been in [various support] programs.
Paternal Grandmother and Paternal Aunt have both been
diagnosed as bipolar and are prescribed Seroquel. Paternal Aunt
credibly testified that Paternal Grandmother loves [Child] and
does not constitute a threat to him. Nonetheless, the Court did
place the restriction that Father must be in [the] presence of
Paternal Grandmother and [Child], at all times, during any periods
of contact.
***
-9-
J-A24017-22
Father disputed Mother’s claims that Paternal Grandmother
and/or Paternal Aunt posed a threat to [Child]. Father testified
that both the Paternal Grandmother and the Paternal Aunt loved
[Child] and would never harm [him].
On cross-examination, Father conceded that a video of an
altercation between Paternal Grandmother and Mother was
authentic, but he said it dated back to approximately 2017. Father
testified that Paternal Grandmother had been violent towards him
when he was a child. Mother testified that she herself had been
the victim of child abuse in her youth, and that Father and her
shared a background of having been abused as youngsters.
No evidence was adduced at the April 6, 2022 hearing that
Paternal Grandmother or Paternal Aunt had ever committed any
violent act against [Child] or threatened [Child] with violence.
Also, although Paternal Aunt had been incarcerated for
participating in a robbery, she had served her time and obtained
post release counseling.
Trial Court Opinion, 5/24/22, at 8-10 (citations to notes of testimony omitted).
The court stated that after hearing “the testimony and evidence
presented by both Father and Mother[, it] had reasonably determined under
the applicable standard of review that the best interests of [Child] were to
permit contact [with] the Paternal Aunt, and supervised contact [with] the
Paternal Grandmother.” Id. at 6. Again, we see no abuse of discretion in the
trial court’s conclusion, and Mother’s bald protests to the contrary do not
convince us otherwise.
Mother also summarily asserts that Paternal Aunt and Paternal
Grandmother have no standing in this custody matter, and therefore no
custodial rights to Child. In the first place, this argument is waived for its sheer
lack of development. See Commonwealth v. Love, 896 A.2d 1276, 1287
- 10 -
J-A24017-22
(Pa. Super. 2006) (stating that arguments that are not sufficiently developed
are waived).
However, even if not waived, the issue lacks merit. As the trial court
repeatedly stated, it had not vested any independent custodial rights in
Paternal Aunt or Paternal Grandmother, but rather, had merely allowed them
to have contact with Child during Father’s custodial time pursuant to Father’s
custodial rights. That contact was, the trial court explained, merely a
modification of Father’s custodial rights as outlined in the order. Mother does
not even address these conclusions by the trial court, much less establish they
were in any way erroneous.
We add that neither Paternal Aunt nor Paternal Grandmother filed any
petition seeking any kind of custodial rights to Child. Rather, it was Father’s
and Mother’s filings which sought clarification in the custody order as to
whether Paternal Grandmother and Paternal Aunt were permitted to be in the
presence of Child during Father’s custody time. The court modified Father’s
custody rights in the custody order in response to those filings. Accordingly,
in the end, Mother has failed to show, and we fail to see, an abuse of discretion
on the trial court’s part when it modified the custody order.
Mother also argues the court abused its discretion by denying her
petition for contempt. Much like in her first issue, Mother summarily claims
the trial court abused its discretion by not finding the evidence she presented
at the hearing established Father had made disparaging remarks about Mother
- 11 -
J-A24017-22
in front of Child. She points out the trial court found that Father only told
Mother he was going to make disparaging remarks to Child, not that he had.
Mother asserts, however, that her testimony and the Facebook posts she
presented as exhibits at the hearing showed Father had, in fact, done so.
Nowhere in her brief does Mother specify what testimony or which Facebook
posts she is referring to, where they are in the record, or how their content
supports her contentions. This claim is waived. See Love, 896 A.2d at 1287;
Pa.R.A.P. 2119(c) (providing that when an appellate brief references a matter
appearing in the record, the brief must identify the place in the record where
the matter appears); Pa.R.A.P. 2119(d) (stating that when the refusal to find
a fact is argued, the argument must “contain a synopsis of all the evidence on
the point, with a reference to the place in the record where the evidence may
be found”).
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2022
- 12 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488739/ | United States Court of Appeals
For the First Circuit
No. 21-1206
IN RE: TERRENCE P. KRISS,
Debtor,
TERRENCE P. KRISS,
Appellant,
v.
UNITED STATES,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Paul J. Barbadoro, U.S. District Judge]
Before
Lynch and Kayatta, Circuit Judges,
and Woodlock,* District Judge.
John A.E. Pottow and Timothy Chevalier for appellant.
Julie Ciamporcero Avetta, Attorney, Tax Division, Department
of Justice, with whom John J. Farley, Acting United States
Attorney, David A. Hubbert, Acting Assistant Attorney General, and
Ellen Page DelSole, Attorney, Tax Division, Department of Justice,
were on brief, for appellee.
* Of the District of Massachusetts, sitting by designation.
November 22, 2022
KAYATTA, Circuit Judge. Terrence Kriss failed to file
income tax returns when due for 1997 and 2000. Nor did he pay the
taxes that were owed. In March of 2003, without the benefit of a
return (or any other help from Kriss), the IRS assessed the tax
believed to be due, including penalties and interest, for tax year
1997, in the amount of $30,568. Six months later, it calculated
-- again on its own -- $46,344 in tax, penalties, and interest due
for tax year 2000. The IRS thereafter undertook unsuccessful
collection efforts. Subsequently, in 2007, Kriss filed Forms 1040
for years 1997 and 2000, but did not pay the long-overdue taxes.
Five years later, Kriss filed a chapter 13 petition for bankruptcy.
After he received a discharge in 2017, Kriss and the IRS joined
issue on whether his discharge covered his debts to the IRS for
the taxes due for 1997 and 2000.
The bankruptcy court held that the tax liabilities
relevant here had not been discharged, and the district court
affirmed. We review the bankruptcy court's conclusions of law de
novo. In re Healthco Int'l, Inc., 132 F.3d 104, 107 (1st Cir.
1997).
Resolution of this dispute turns on the interpretation
of a particularly puzzling section of the Bankruptcy Code, 11
U.S.C. § 523(a)(1)(B)(i)–(ii), which provides:
(a) A discharge . . . does not discharge an
individual debtor from any debt--
- 3 -
(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[.]
Until 2005, the Bankruptcy Code did not define "return"
for purposes of this section. Then, as part of the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005, Pub. L.
No. 109-8, 119 Stat. 23, Congress added the following unenumerated
subsection, denoted as section 523(a)(*):
For purposes of this subsection, the term
"return" means a return that satisfies the
requirements of applicable nonbankruptcy law
(including applicable filing requirements).
Such term includes a return prepared pursuant
to section 6020(a) of the Internal Revenue
Code of 1986, or similar State or local law,
or a written stipulation to a judgment or a
final order entered by a nonbankruptcy
tribunal, but does not include a return made
pursuant to section 6020(b) of the Internal
Revenue Code of 1986, or a similar State or
local law.
This section requires us to decide whether Kriss's
returns "satisf[y] the requirements of applicable nonbankruptcy
law (including applicable filing requirements)." In 2015, we
- 4 -
decided a case presenting a similar inquiry. In re Fahey, 779
F.3d 1 (1st Cir. 2015). In that case, the debtor owed
Massachusetts income tax, so we looked to Massachusetts state law
as the applicable nonbankruptcy law. Id. at 4. That law included
a requirement that returns be filed by a specified date. Id. And
because the debtor's return was filed after that specified date,
we held that the return was not a "return" within section 523(a)(*)
(the so-called "one-day-late" rule). Id. at 5.
At least on its face, Fahey does not directly control
this appeal because Massachusetts's filing requirements are not
applicable given that the debt here arises under federal law. One
might nevertheless think that distinction easily erased. After
all, federal tax law required Kriss to file his returns before he
did. See 26 U.S.C. § 6072. The United States, though, makes clear
that it nonetheless regards many late-filed federal returns to be
returns within the meaning of section 523(a)(*).
Ultimately, we need not decide whether Fahey entirely
applies to federal returns just as it applies to Massachusetts
returns. Nor need we consider the cogent arguments well marshalled
by Kriss on appeal for rethinking Fahey. Rather, even if Fahey
does not control, Kriss loses because his much belated filings did
not qualify as returns under section 523(a)(*) even under the
alternative test put forward by Kriss in the bankruptcy court.
See United States v. Lara, 970 F.3d 68, 78 (1st Cir. 2020) ("We
- 5 -
need not decide which standard applies in this case, as
[appellant's] challenge fails under either standard."); United
States v. Burgos-Montes, 786 F.3d 92, 105 (1st Cir. 2015).
Kriss contends that this case should turn on the
application of the four requirements of the so-called Beard test.
Beard v. Comm'r, 82 T.C. 766 (1984), aff'd, 793 F.2d 139 (6th Cir.
1986). Beard provides that "a document must meet four requirements
to be a tax return: (1) it must purport to be a return, (2) it
must be executed under penalty of perjury, (3) it must contain
sufficient data to allow calculation of tax, and (4) it must
represent an honest and reasonable attempt to satisfy the
requirements of the tax law." In re Giacchi, 856 F.3d 244, 248
(3d Cir. 2017) (paraphrasing Beard). Kriss correctly contends
that he satisfies the first three requirements of the Beard test.
So the parties train their debate on whether Kriss's filings
represent "an honest and reasonable attempt to satisfy the
requirements of the Federal income tax law." Beard, 82 T.C. at
779.
On appeal, Kriss argues that he would win
"automatically" under the objective version of the "honest and
reasonable" requirement adopted in In re Colsen, 446 F.3d 836 (8th
Cir. 2006). Under that version of the test, "the honesty and
genuineness of the filer's attempt to satisfy the tax laws [is]
determined from the face of the form itself, not from the filer's
- 6 -
delinquency or the reasons for it. The filer's subjective intent
is irrelevant." Id. at 840. As Kriss describes, "'Protest
returns' of all zeros, etc., fail this objective test . . . . But
a properly completed Form 1040, as is at issue in this appeal,
would satisfy this prong as a matter of law."
Kriss, however, never made this argument in the
bankruptcy court. To the contrary, in direct response to the
government's assertion that Fahey's "one-day-late rule" applied,
Kriss urged the bankruptcy court instead to apply the Beard test
as defined in In re Justice, 817 F.3d 738 (11th Cir. 2016), In re
Giacchi, 856 F.3d 244 (3d Cir. 2017), and In re Smith, 828 F.3d
1094 (9th Cir. 2016), all of which rejected the Colsen objective
test. Those cases adopted a "subjective" test that, as Kriss
describes, "turns to the taxpayer's conduct and looks beyond the
return itself." Under this test, "[f]ailure to file a timely
return, at least without a legitimate excuse or explanation,
evinces the lack of a reasonable effort to comply with the law."
In re Justice, 817 F.3d at 744; see also In re Giacchi, 856 F.3d
at 248 ("[T]he timing of the filing of a tax form is relevant to
determining whether the form evinces an honest and reasonable
attempt to comply with tax law."); In re Smith, 828 F.3d at 1097
(rejecting the argument that courts can look "only at the face of
the filing," and holding that a return filed seven years after its
- 7 -
initial due date "was not an 'honest and reasonable' attempt to
comply with the tax code").
During the bankruptcy court hearing, Kriss stated that
"if we're not defining ['return'] with a one-day-late rule, we
have to propose an alternative," and went on to quote In re Justice
for the point that "all of the taxpayer's conduct with respect to
[the] relevant tax years" must be considered in evaluating the
fourth Beard factor. See In re Justice, 817 F.3d at 746. Far
from asserting that only the face of the form need be consulted,
Kriss argued that the "analysis in the case law" focuses on whether
"there [was] a reasonable effort based on all the facts and
circumstances." Following the logic of this subjective test, Kriss
asserted that his delinquency in filing was excusable because "he
was lied to [by his spouse] and he thought that [the tax returns]
had been filed."
Kriss's argument on appeal for applying an objective
test as in Colsen is therefore waived. See Ondine Shipping Corp.
v. Cataldo, 24 F.3d 353, 355 (1st Cir. 1994) ("[The] dispositive
answer is that plaintiff never broached this argument before the
bankruptcy court. . . . Not only is it 'a bedrock rule' that a
party who has not presented an argument below 'may not unveil it
in the court of appeals,' but also, no principle is more firmly
anchored in the jurisprudence of this circuit." (quoting United
States v. Slade, 980 F.2d 27, 30 (1st Cir. 1992))).
- 8 -
Under the subjective version of the Beard test, Kriss's
alleged facts, even viewed most favorably to him, fall well short
of plausibly qualifying as descriptions of a reasonable effort to
file timely returns. Kriss's only excuse for his very belated
filings is that his wife falsely assured him that she had filed
the returns for him. But the United States tells us that Kriss
and his wife were filing separate returns -- an assertion that
Kriss does not challenge. Kriss also makes no allegation
explaining why he did not respond to notices sent by the IRS
inquiring about the status of his unfiled returns. He does not
even allege that he ever signed any returns for 1997 or 2000 until
2007. Therefore, applying the Beard test that Kriss urged the
bankruptcy court to adopt, he never filed "returns" for the tax
years relevant here.1
For the foregoing reasons, the judgment of the district
court is affirmed.
1 The United States argues that a return filed after the IRS
estimates and assesses a tax on its own can never be the product
of an honest and reasonable effort to comply. Given our holding,
we need not decide whether that is so.
- 9 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488742/ | NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
No. 22-1087
_______________
CONTINENTAL CASUALTY CO.,
Appellant
v.
PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE CO.
_______________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2:17-cv-04183)
District Judge: Honorable Mitchell S. Goldberg
_______________
Submitted Under Third Circuit L.A.R. 34.1(a)
on November 18, 2022.
Before: AMBRO, KRAUSE, and BIBAS, Circuit Judges
(Filed: November 22, 2022)
_______________
OPINION *
_______________
Krause, Circuit Judge.
Continental Casualty Co. (Continental) appeals the judgment of the District Court
in favor of Pennsylvania National Mutual Casualty Insurance Co. (Penn). We will affirm.
*
This disposition is not an opinion of the full Court and, under I.O.P. 5.7, is not binding
precedent.
I. BACKGROUND
This case arose out of an accident involving employees of Penn’s insured, Shady
Maple Smorgasboard, Inc. (Shady Maple), and Continental’s insured, Sight & Sound
Ministries, Inc. (Sight & Sound). Kathryn Marquet-Sandt—an employee of Shady
Maple—planned to attend a trade show. Because William Luckenbaugh planned to do the
same for his employer, Sight & Sound, he suggested that they travel together in Sight &
Sound’s company car, and accepted Marquet-Sandt’s offer to do the driving for the first
hour and a half. At that point, Luckenbaugh told her to pull over at a nearby McDonald’s
so he could use the bathroom and take over the driving. But in attempting to find the exit,
Marquet-Sandt collided with a motorcyclist named Jeremy Esakoff.
Esakoff sued Marquet-Sandt for negligence and Shady Maple and Sight & Sound
for vicarious liability, and the parties eventually settled for $10 million. While Continental
contributed $8.7 million towards the settlement, Penn refused to pay any portion.
Continental filed this action against Penn, seeking equitable contribution and a
declaratory judgment that Penn’s insurance of Shady Maple obligated Penn to provide
funds for the Esakoff settlement. Both of Shady Maple’s policies with Penn included
clauses covering “[a]nyone else while using with your [Shady Maple’s] permission [any]
‘auto’ you own, hire, or borrow . . . .” App. 7. So to determine if Marquet-Sandt was
insured by Penn, the District Court held a bench trial on whether Shady Maple, acting
through Marquet-Sandt, “borrowed” Sight & Sound’s vehicle for purposes of those
coverage provisions. Concluding that it did not, the District Court held that Marquet-Sandt
was not an insured under Penn’s policies at the time of the accident and that Continental
2
was therefore not entitled to equitable contribution.
In a motion to amend the judgment, Continental argued that Penn’s coverage of
Marquet-Sandt was not dispositive because Penn’s policies, in any event, covered her
employer, Shady Maple. Although the District Court granted Continental’s motion, it sua
sponte reentered judgment in Penn’s favor, reasoning that equitable contribution was still
unwarranted as Shady Maple would be entitled to full indemnity from Marquet-Sandt for
any liability to Esakoff.
II. DISCUSSION 1
A. Marquet-Sandt’s Status Under the Penn Policies
Continental challenges the District Court’s ruling that Marquet-Sandt was not
insured by Penn at the time of the accident because Shady Maple, through the actions of
Marquet-Sandt, did not “borrow” the Sight & Sound car. But the District Court correctly
interpreted the Penn policies.
Recognizing that Pennsylvania courts have not yet expressed a clear view on the
precise meaning of “borrow” in insurance coverage provisions, the District Court surveyed
other jurisdictions’ interpretations of that term and identified two competing approaches: a
minority of courts define borrowing as the temporary use of an object for the benefit of the
1
The District Court had jurisdiction under 28 U.S.C. § 1332(a). We have jurisdiction
under 28 U.S.C. § 1291. When assessing a district court’s decision in a bench trial, we
review the court’s “findings of fact for clear error and its conclusions of law de novo.”
Lehman Bros. Holdings v. Gateway Funding Diversified Mortg. Servs., L.P., 785 F.3d 96,
100 (3d Cir. 2015) (citation omitted). By contrast, our review of a sua sponte summary
judgment “is plenary, and we apply the same standard as the [d]istrict [c]ourt,” viewing
all facts in the light most favorable to the party against whom judgment was rendered.
Forrest v. Parry, 930 F.3d 93, 105 (3d Cir. 2019) (citation omitted).
3
borrower; 2 but the majority require, in addition, that the borrower obtain possession,
dominion, or control over the object. 3 The District Court concluded that Pennsylvania
courts would most likely adopt the majority position, and we agree. That approach avoids
the minority interpretation’s overbreadth. See Schroeder, 591 So. 2d at 346 (“When a
person uses his auto to pick up a prescription for a sick friend, he may confer a significant
benefit on the invalid, but no one would say that the bedridden friend had borrowed the
auto used for the errand.”). Thus, even the judiciary of California, which first articulated
the minority view, see Swearinger, 214 Cal. Rptr. at 386, has since repudiated it, see Am.
Int’l Underwriters Ins. Co. v. Am. Guarantee & Liab. Ins. Co., 105 Cal. Rptr. 3d 64, 73–
74 (Ct. App. 2010).
Under the majority approach, Shady Maple, acting through Marquet-Sandt, did not
“borrow” the Sight & Sound vehicle because she never acquired possession, dominion, or
control. Put differently, she did not take the car from Luckenbaugh because he never
relinquished it to her. See NGM Ins. Co. v. Pillsbury, 416 F. Supp. 3d 57, 65 (D. Mass.
2019); Hanneman, 575 N.W.2d at 452. Rather, Luckenbaugh remained in the car, dictated
its ultimate destination, and directed Marquet-Sandt to pull over. That Marquet-Sandt was
2
See Andresen v. Emps. Mut. Cas. Co., 461 N.W.2d 181, 185 (Iowa 1990); Travelers
Indem. Co. v. Swearinger, 214 Cal. Rptr. 383, 386 (Ct. App. 1985).
3
See Farmers All. Mut. Ins. Co. v. Ho, 68 P.3d 546, 549 (Colo. App. 2002); Hanneman
v. Cont’l W. Ins. Co., 575 N.W.2d 445, 452 (N.D. 1998); Davis v. Cont’l Ins. Co., 656
N.E.2d 1005, 1008 (Ohio Ct. App. 1995); Schroeder v. Bd. of Supervisors of La. State
Univ., 591 So. 2d 342, 346 (La. 1991); Reliance Ins. Co. v. Lexington Ins. Co., 361
S.E.2d 403, 406 (N.C. Ct. App. 1987); F & M Schaefer Brewing Co. v. Forbes Food
Div., Chem. Leaman Tank Lines, Inc., 376 A.2d 1282, 1287 (N.J. Super. Ct. Law Div.
1977); Liberty Mut. Ins. Co. v. Am. Emps. Ins. Co., 556 S.W.2d 242, 244–45 (Tex. 1977).
4
sharing in the driving does not compel the contrary conclusion. See Hanneman, 575
N.W.2d at 452; 8A Steven Plitt et al., Couch on Insurance § 118:50 (3d ed. 2022).
As Shady Maple, through the actions of Marquet-Sandt, did not “borrow” the Sight
& Sound car, the District Court correctly ruled that she was not insured under Penn’s
policies at the time of the accident.
B. The Sua Sponte Judgment
Continental next objects that the District Court’s sua sponte judgment violated
Federal Rule of Civil Procedure 56(f) because the Court did not provide “notice and a
reasonable time to respond” before issuing its ruling. Fed. R. Civ. P. 56(f). That was
indeed error, but inadequate notice alone does not entitle Continental to relief. Rather, we
have recognized “an exception to the notice requirement of Rule 56 in those cases where
summary judgment is granted sua sponte” when three conditions are met: “(1) the point at
issue is purely legal; (2) the record was fully developed[;] and (3) the failure to give notice
does not prejudice the party[.]” Gibson v. Mayor & Council of Wilmington, 355 F.3d 215,
219 (3d Cir. 2004).
This exception applies here because the viability of Continental’s equitable-
contribution claim depended on undisputed facts and thus presented a purely legal issue,
see In re Visual Indus., Inc., 57 F.3d 321, 324 (3d Cir. 1995); the record was fully
developed; and there was no prejudice, as the factual and legal points Continental now
contends it would have made would not entitle it to relief in any event, see Acumed LLC v.
Advanced Surgical Servs., Inc., 561 F.3d 199, 224 (3d Cir. 2009). Specifically, the facts
Continental allegedly would have highlighted were either explicitly considered by the
5
District Court in granting sua sponte judgment 4 or were not relevant to that ruling. 5
The handful of legal arguments Continental purportedly would have raised fares no
better. First, it contends that Shady Maple is not entitled to indemnification from Marquet-
Sandt because Shady Maple did not provide funds for the Esakoff settlement, but the
District Court merely observed—correctly—that Shady Maple would be entitled to
indemnification from Marquet-Sandt for any liability in the Esakoff suit, and exercised its
considerable discretion in balancing the equities between Continental and Penn. 6 See 30A
C.J.S. Equity § 5 (2022). Second, Continental’s assertion that Shady Maple was primarily
liable for the accident ignores the distinction between the primary liability of Marquet-
Sandt as the tortfeasor-agent and the secondary liability of Shady Maple as the principal.
See Scampone v. Highland Park Care Ctr., LLC, 57 A.3d 582, 597–98 (Pa. 2012). And
third, Continental’s ratification argument fails because ratification is relevant to whether a
principal can be held liable for the acts of its agent, not whether indemnification is proper.
See Alumni Ass’n, Delta Zeta Zeta of Lambda Chi Alpha Fraternity v. Sullivan, 535 A.2d
1095, 1100 n.2 (Pa. Super. Ct. 1987), aff’d, 572 A.2d 1209 (Pa. 1990).
4
The District Court expressly observed, for instance, that Shady Maple remained a
defendant in the Esakoff action when it settled, that Penn insured Shady Maple, that Penn
did not participate in the Esakoff negotiations nor contribute funds towards the
settlement, and that Continental paid $8.7 million to settle the Esakoff suit. App. 24–25.
5
For example, neither Shady Maple’s failure to file a crossclaim for indemnity in
Esakoff, which did not impair Shady Maple’s ability to seek indemnity from Marquet-
Sandt, see MIIX Ins. Co. v. Epstein, 937 A.2d 469, 472 (Pa. Super. Ct. 2007), nor Shady
Maple’s exposure in excess of its insurance coverage, has any bearing on the District
Court’s reasoning.
6
Continental’s related argument that subrogation would be impermissible fails for the
same reason.
6
Finally, Continental’s arguments concerning public policy and the unclean hands
doctrine 7 are unpersuasive. “Public policy is to be ascertained by reference to the laws and
legal precedents and not from general considerations of supposed public interest,” Hall v.
Amica Mut. Ins. Co., 648 A.2d 755, 760 (Pa. 1994) (quoting Muschany v. United States,
324 U.S. 49, 66 (1945)), and Pennsylvania law has long recognized a vicariously liable
principal’s right to indemnity from its tortfeasor-agent, see Builders Supply Co. v. McCabe,
77 A.2d 368, 370 (Pa. 1951). Unclean hands requires an inequitable act that “is directly
connected with the matter in controversy,” Stauffer v. Stauffer, 351 A.2d 236, 244 (Pa.
1976) (citation omitted), but Continental does not identify an inequitable act directly
related to Shady Maple’s right to indemnification. 8
As Continental was not prejudiced by the sua sponte judgment, the exception to
Rule 56(f)’s notice requirement is satisfied. See Gibson, 355 F.3d at 219.
III. CONCLUSION
For the foregoing reasons, we will affirm the judgment of the District Court.
7
Continental also raises bad faith as a separate equitable defense, but bad faith is a
component of unclean hands. See Jacobs v. Halloran, 710 A.2d 1098, 1103 (Pa. 1998)
(quoting Shapiro v. Shapiro, 204 A.2d 266, 268 (Pa. 1964)).
8
The two acts discussed by Continental miss the mark. Though Continental alleges
Shady Maple and Penn misled Marquet-Sandt into believing she was covered by Shady
Maple’s policies with Penn, warning Marquet-Sandt that she was not insured by Penn at
the time of the accident would not have altered the fact that she was a sole active
tortfeasor from whom Shady Maple, as the vicariously liable principal, could seek
indemnity. Similarly, Continental asserts that Shady Maple and Penn promised not to sue
Marquet-Sandt, but Pennsylvania law permits courts to impose indemnity by molding
verdicts even when a principal has not filed a claim against its agent. Ragan v. Steen, 331
A.2d 724, 731 (Pa. Super. Ct. 1974).
7 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488740/ | United States Court of Appeals
For the First Circuit
No. 21-1689
JAMILET GONZÁLEZ-ARROYO, in representation of her minor son,
ALG,
Plaintiff-Appellant,
v.
DOCTORS' CENTER HOSPITAL BAYAMÓN, INC.; DR. BENITO HERNÁNDEZ-
DIAZ; JANE DOE, CONJUGAL PARTNERSHIP HERNÁNDEZ-DOE,
Defendants-Appellees,
JOHN DOES 1,2, AND 3; A, B, AND C CORPORATIONS; UNKNOWN
INSURANCE COMPANIES A THROUGH H,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Raúl M. Arias-Marxuach, U.S. District Judge]
Before
Barron, Chief Judge,
Howard and Thompson, Circuit Judges.
David Efron, with whom Law Offices of David Efron, P.C. was
on brief, for appellant.
Roberto Ruiz Comas, with whom RC Legal & Litigation Services,
PSC was on brief, for appellee Doctors' Center Hospital Bayamón,
Inc.
Giovanni Picorelli Ayala for appellee Dr. Benito Hernández-
Diaz.
November 22, 2022
THOMPSON, Circuit Judge. Alleging negligent conduct
during the birth of her son ALG, Jamilet González-Arroyo
("González") brought a medical malpractice suit on his behalf in
the District of Puerto Rico against Doctors' Center Hospital
Bayamón ("DCHB") and Dr. Benito Hernández-Diaz ("Hernández" and
all together, the "Hospital"). González claimed that the Hospital
failed to notice and treat ALG's oxygen-loss at birth, which caused
him serious cognitive injury -- he would later be diagnosed with
autism and cerebral palsy.
To connect the Hospital's alleged conduct to ALG's
injuries (what we call causation), González hired an expert to
review her medical files and submit a report with his opinions
(standard practice in these types of actions). Ultimately, this
dispute is over that report. Before the parties went to trial,
the district court, on the Hospital's motion, struck the expert's
report and testimony, reasoning that it was too speculative and
otherwise failed to conform to established rules for such reports.
Without it, the district court concluded González could not make
her case and granted the Hospital's summary judgment motion,
dismissing González's lawsuit with prejudice. Only then did
González try to supplement the report and fix its apparent
deficiencies, and with that she asked the district court to
reconsider its prior rulings. In the interim, González appealed
to us, so the district court decided it had lost jurisdiction over
- 3 -
the case and denied the reconsideration motion. González says the
district court got it all wrong. We largely disagree and affirm
the district court's grant of the motion in limine and motion for
summary judgment. We also affirm the denial of the motion for
reconsideration, albeit for different reasons than the district
court, which we will get to.
BACKGROUND
We start with some relevant background of ALG's birth,
but with a caveat: the record before us contains no medical files
or exhibits, so we've done our best to weave together what happened
solely from the parties' filings below, two expert reports and one
expert deposition.
In October 2010, González, a couple months pregnant with
ALG, began to see Hernández for prenatal care, expecting to give
birth sometime in May 2011. González had been pregnant twice
before; one had ended in a miscarriage, and the other she delivered
by cesarean section (commonly called a C-section). Early in the
morning of April 26, 2011, González, who was then about thirty-
eight weeks along, arrived at DCHB experiencing contractions and
abdominal pain -- considered to be in early labor. Once admitted,
González received antibiotics, her regular epilepsy medicine and
pain medicine. At 10:45 AM, after ingesting the pain medication,
González experienced an isolated instance of elevated blood
pressure. Throughout the morning, ALG's heart rate was observed
- 4 -
with a fetal heart rate monitor.1 At 11:45 AM, González was taken
to the operating room for a C-section, where she began spinal
anesthesia and by 12:05 PM the spinal was completed. During this
twenty-minute window, González experienced lowered blood pressure.
González's C-section began at 12:10 PM, ALG entered the world at
12:12 PM, and the whole procedure wrapped up at 12:25 PM.
According to González, at some point before ALG's birth, he
experienced a sudden loss of oxygen, resulting in brain injury.
After ALG's delivery, he seemed to be healthy as
reflected in normal APGAR scores of eight and nine (the test of a
newborn's physical health shortly after birth).2 But two days
after his birth, ALG was admitted to an intensive care unit for
suspected sepsis, jaundice, and other conditions, and spent a
little over a week there receiving treatment before heading home.
Then three years later, ALG was diagnosed with autism and cerebral
palsy. González asserts in her complaint that the Hospital caused
1 The parties refer to the monitor's output as "strips," so
we do the same. They also dispute what time the monitoring
stopped, which we address later.
2"APGAR is a quick test performed on a baby at 1 and 5 minutes
after birth. The 1-minute score determines how well the baby
tolerated the birthing process. The 5-minute score tells the
health care provider how well the baby is doing outside the
mother's womb." Apgar score, National Library of Medicine (last
visited Nov. 18, 2022),
http://medlineplus.gov/ency/article/003402.htm. The test
examines the baby's breathing effort, heart rate, muscle tone,
reflexes, and skin color. Id.
- 5 -
these cognitive and developmental disabilities by failing to
timely perform her C-section, by failing to appropriately monitor
ALG's heart rate, and/or by failing to properly resuscitate ALG.
In response to these events, González, in January 2017,
filed a complaint lodging a single count of negligence against the
Hospital, with estimated damages at over $10 million. After a
lull in activity the parties and the court eventually worked out
a discovery schedule, all of which was to be complete by the end
of April 2018. As pertinent here, each side would exchange expert
reports, and both González and her expert, Dr. Barry Schifrin,
would sit for depositions.
In February 2018, the Hospital deposed Dr. Schifrin,
where counsel throughout challenged the conclusions in his report.
Notably, Dr. Schifrin had written his report in December 2016,
before González had even filed her complaint and accordingly, it
was prepared without the benefit of any formal discovery. His
report refers to prenatal, labor and delivery, and neonatal records
from DCHB, as well as ALG's follow-up medical chart (not from
DCHB), but notes that he did not have (and thus did not review)
the fetal monitoring strips, therefore writing that "the facts of
this case are significantly compromised." In the report, Dr.
Schifrin wrote that he "believe[s] that [ALG's oxygen-loss]
develops as a result of the frequent contractions, placental
[abruption] . . . and the [drop in blood pressure] associated with
- 6 -
the spinal anesthesia." At the deposition, however, Dr. Schifrin
explained that the basis for his report's statement that ALG
experienced oxygen-loss at birth came from "[s]omebody put[ting]
[it] in this baby's subsequent medical record," not from DCHB's
birth records. Hospital counsel then presented Dr. Schifrin with
at least some of the fetal monitoring strips, those generated up
until about 10:40 AM or 90 minutes before González's C-section.3
After reviewing the strips, Dr. Schifrin testified that he could
not point to any evidence of placental abruption4 ("I don't know.
It's just a potential explanation."), and that the strips he
reviewed showed "there are no frequent contractions." Dr. Schifrin
further testified, again after reviewing the strips, "I am happy
to tell you the baby is not injured up to 10:40," so there were
"details" of his report he was "going to change." "Assuming [the
strips] were [consistent] to the time of the spinal," Dr. Schifrin
3 We say "some" because counsel showed Dr. Schifrin strips
that appear to end around 10:40 AM, while the Hospital's expert,
Dr. Francisco Gaudier, wrote that he reviewed strips ending at
11:27 AM. The record contains no explanation of this time
difference, but González's counsel asserts that the remaining
strips were withheld and/or spoliated. We'll deal with that
contention in a bit.
4 "Placental abruption occurs when the placenta partly or
completely separates from the inner wall of the uterus before
delivery. This can decrease or block the baby's supply of oxygen
and nutrients and cause heavy bleeding in the mother." Placental
abruption, Mayo Clinic (last visited Nov. 18, 2022),
http://www.mayoclinic.org/diseases-conditions/placental-
abruption/symptoms-causes/syc-20376458.
- 7 -
said, "if there is any injury, it's related to the events of the
spinal," because González's blood pressure dropped during it, and
the timeline of the spinal suggested a delay from anesthetizing
González to getting the baby out. Prior to reviewing the strips
at the deposition, however, Dr. Schifrin hedged, "[I]f I say there
was a potential loss of oxygen with a drop in the maternal blood
pressure, I don't have a problem saying that. Did it cause the
injury? That's for somebody else to state." Then, after reviewing
the strips that were made available, Dr. Schifrin testified, "I
just can't tell you . . . the effect of the spinal" because that
segment of the monitoring strips was not available. Post-
deposition, Dr. Schifrin did not supplement or amend his original
report until after the district court had dismissed González's
complaint.
The Hospital brought in its own big gun expert, Dr.
Francisco Gaudier, who submitted his expert report in March 2018.
Indicating that he reviewed monitoring strips up until 11:27 AM
(shortly before González went to the OR), among other hospital
records, Dr. Gaudier concluded that there was no evidence to
suggest ALG suffered oxygen-loss prior to his birth, nor was there
evidence of frequent contractions or a significant drop in blood
pressure (hypotension) from the spinal anesthesia, and therefore
the Hospital did not cause ALG's injuries. González, it appears,
- 8 -
opted not to depose Dr. Gaudier, nor did she challenge the district
court's consideration of his report.
From there, discovery concluded, and all signs pointed
to trial. In August 2019, the court scheduled a final pretrial
conference for late March and a trial date for April of 2020. But
then, a month before the pretrial conference, DCHB filed a motion
in limine, joined by Hernández, urging the court to exclude Dr.
Schifrin's report and testimony on several bases, including that
he failed to supplement his report, specify a national standard of
care, cite medical literature as Fed. R. Civ. P. 26 requires, and
provide conclusions based on objective and verifiable methodology
as Fed. R. Evid. 702 and Daubert (the seminal expert evidence case)
demand.
Over González's written objection, which did not include
a request for a hearing, the district court, based on the written
submissions, granted the Hospital's motion in limine. In its
opinion and order, the court first reasoned that the report was
"improperly founded and therefore inadmissible," as Dr. Schifrin
"ma[de] assumptions in the absence of . . . data," such as the
monitoring strips, notations regarding González's contractions
which would show their frequency, intensity or duration, and any
neuroradiological examinations of ALG (like an MRI). As to the
strips, the court pointed out that, "[e]ven though [Dr. Schifrin]
had not examined [them] at the time he rendered his expert report,"
- 9 -
he had nonetheless concluded that the Hospital breached the
standard of care because attending personnel did not "'properly
understand the evolution of changes in the fetal heart rate
pattern,'" an opinion based on what he assumed the strips and other
medical documentation would show. As the court held, providing
opinions based on assumptions rather than on "sufficient facts or
data [or] the product of reliable principles" rendered the report
inadmissible. Continuing, the court highlighted two other
deficiencies with the report: it failed to cite any medical
literature, as Rule 26 requires, and it failed to specify whether
the standard of care mentioned in the report was, as Puerto Rico
law requires, the national standard of care.5 Given the
deficiencies it identified in the expert report, the district court
found that "Dr. Schifrin's expert report would not assist the trier
of fact with regards to identifying, let alone understanding the
applicable standard of care and any deviation from it by the
Defendants." Finally, the court found that Dr. Schifrin had a
duty to supplement his report after testifying at his deposition
that the strips showed no injury to ALG up until 90 minutes before
his birth.
In his report, Dr. Schifrin wrote, "The standard of care in
5
a patient with a previous cesarean section complaining of
contractions requires the application of a fetal monitor."
- 10 -
Meanwhile, the district court rescheduled trial from
April 12, 2020, down the road to November 2021 because of COVID-
19's pandemic sweep across Puerto Rico (as elsewhere). But in the
interim, DCHB, again joined by Hernández, filed a motion for
summary judgment in December 2020, based on their successful motion
in limine: without an expert, they urged, González could not prove
elements of her negligence claim, and therefore had no case. In
a written opposition to the Hospital's motion, González argued as
relevant to this appeal that even without Schifrin's testimony,
she could still make her case by relying on the Hospital's expert,
Dr. Gaudier, whom she had reserved the right to utilize at trial.
Agreeing with appellees that without Dr. Schifrin, González could
not establish causation as González pointed to nothing in Dr.
Gaudier's report that would support such a finding, the district
court granted the motion and in July 2021, entered judgment for
the Hospital, dismissing González's action in its entirety.
After judgment entered, González filed a motion for
reconsideration as to both the dismissal and exclusion of Dr.
Schifrin's testimony and report and in doing so attached a recently
amended expert report from Dr. Schifrin. While the motion for
reconsideration was pending, González filed her first notice of
appeal, prompting the district court to deny the motion, believing
it had lost jurisdiction over the case. González then re-filed
her notice of appeal and here we are.
- 11 -
DISCUSSION
González appeals the district court's grant of the
Hospital's motion in limine and for summary judgment, and denial
of her motion for reconsideration. The spoiler, though, is that
the bulk of González's problems flow from the exclusion of her
expert; without one, she cannot make out a medical malpractice
claim.6 So, we begin with González's protestations over the
district court's grant of appellees' motion in limine and move on
to her remaining objections to the district court's summary
judgment and reconsideration rulings.
Exclusion of Expert Testimony
González challenges the exclusion of Dr. Schifrin's
testimony and report.7 Accordingly, we review a "district court's
decision to admit or exclude expert testimony for abuse of
discretion." Milward v. Rust-Oleum Corp. (Milward II), 820 F.3d
6 In Puerto Rico, whose substantive law controls this
diversity suit, "to prevail on a medical malpractice claim, . . .
a plaintiff must prove by a preponderance of the evidence both
that the standard of care was not met, and that the failure to
meet an acceptable standard caused the harm." Pagés-Ramírez v.
Ramírez–González, 605 F.3d 109, 113 (1st Cir. 2010). To establish
both elements, "a trier of fact will generally need the assistance
of expert testimony." Id.
7A note about our appellate jurisdiction -- González's appeal
from the district court's final judgment "encompass[es] not only
[that] but also all interlocutory orders," like the order excluding
Dr. Schifrin's testimony, "that merge into it." López-Ramírez v.
Toledo-González, 32 F.4th 87, 93 n.4 (1st Cir. 2022) (quoting
Martínez-Serrano v. Quality Health Servs. of P.R., Inc., 568 F.3d
278, 283 (1st Cir. 2009)).
- 12 -
469, 472 (1st Cir. 2016). Under that standard, we give "broad
deference to the determination made by the district court as to
the reliability and relevance of expert testimony." Beaudette v.
Louisville Ladder, Inc., 462 F.3d 22, 25 (1st Cir. 2006). And we
will reverse only if "the ruling at issue was predicated on an
incorrect legal standard or we reach a 'definite and firm
conviction that the court made a clear error of judgment.'" United
States v. Corey, 207 F.3d 84, 88 (1st Cir. 2000) (quoting United
States v. Shay, 57 F.3d 126, 132 (1st Cir. 1995)); see also
Schubert v. Nissan Motor Corp. in U.S.A., 148 F.3d 25, 30 (1st
Cir. 1998) ("In the context of the admission or exclusion of
opinion evidence, we have stated that we will uphold the district
court's ruling in this area unless it is manifestly erroneous.")
(internal quotation marks and citation omitted).
Reliability of Dr. Schifrin's Report
Before tackling González's arguments, a bit more
background on the admissibility of expert evidence would be
helpful. As we've previously noted, to provide admissible
testimony, an expert must render conclusions "'in a scientifically
sound and methodologically reliable fashion.'" Milward v. Acuity
Specialty Prods. Grp., Inc. (Milward I), 639 F.3d 11, 15 (1st Cir.
2011) (quoting Ruiz-Troche v. Pepsi Cola of Puerto Rico Bottling
Co., 161 F.3d 77, 85 (1st Cir. 1998)). Yes, a district court
should admit an expert "[s]o long as [their] scientific testimony
- 13 -
rests upon 'good grounds,' based on what is known." Id. (quoting
Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 590 (1993)).
But neither Daubert nor Rule 702 permits expert opinions grounded
only in the unsupported assertions of the expert. See López-
Ramírez, 32 F.4th at 94 (quoting Gen. Elec. Co. v. Joiner, 522
U.S. 136, 146 (1997)). If that's the case, a "'court may conclude
that there is simply too great an analytical gap between the data
and the opinion proffered,'" provided "that gap is not 'of the
district court's making.'" Id. (first quoting Gen. Elec. Co., 522
U.S. at 146, then quoting Milward I, 639 F.3d at 22).
The district court excluded Dr. Schifrin's testimony, in
part, because it found that Dr. Schifrin based his conclusions on
assumptions about the fetal monitoring strips and other medical
records without having reviewed these records beforehand. And
when confronted with all but the last 90 minutes of these unseen
documents during his deposition, Dr. Schifrin not only conceded
the records up until then demonstrated no fetal stress, but he
also went on to simply hypothesize an alternative theory of injury
from the spinal anesthesia without identifying the basis for such
an opinion. In other words, Dr. Schifrin's failure to point to
and consider material medical records before offering a scientific
opinion produced, from the district court's perspective, a
significant analytical gap in the report. In response to the
district court's ruling, González lobs a few counterarguments.
- 14 -
But each misses the mark, and none attacks the district court's
central point that Dr. Schifrin failed to connect his opinions to
sufficient, reliable data. But we'll take on the incoming.
As a threshold matter, González argues that the district
court should have held a Daubert hearing -- we gather sua sponte
-- on the admissibility of Dr. Schifrin's testimony before
excluding it on the motion in limine papers. Yet González cites
no authority for the proposition that a court abuses its discretion
by declining to hold a hearing, and even concedes (rightly) that
"there is no particular procedure that [the court] is required to
follow," unless the motion raises a novel legal issue. See United
States v. Phillipos, 849 F.3d 464, 471 (1st Cir. 2017) (district
court not required to hold Daubert hearing to make reliability
determination of proffered expert); United States v. Pena, 586
F.3d 105, 111 n.4 (1st Cir. 2009) (no abuse of discretion when
district court excluded expert without a hearing if no novel issue
is raised). Indeed, we have imposed no such requirement that the
district court hold a hearing, and González has not developed any
argument that the motion in limine raised a novel or even
particularly complicated issue for the district court to consider.
Next, González defends Dr. Schifrin's report itself from
the district court's scorn. She contends that, despite not having
reviewed the fetal monitoring strips, Dr. Schifrin's causation
analysis "complies completely" with Daubert and Rule 702 -- that
- 15 -
is, it should not have been excluded as unreliable. Why? González
insists Dr. Schifrin's report was admissible because it opined on
a cause of injury to ALG and "the only thing [he] could not
specifically indicate is the precise timing of the injury." She
blames the Hospital for not producing the fetal monitoring strips
for Dr. Schifrin's review, accusing them, in passing fashion, of
withholding or spoliating a key portion of the strips, specifically
the last 90 minutes. Then, she claims that Dr. Schifrin's report
nevertheless complies with Daubert and Rule 702 because he employs
an inherently reliable methodology -- a so-called differential
diagnosis -- to formulate his scientific opinion.
Let's talk about González's claim of spoliation. To
demonstrate the same, González would need to show that the strips
had been "destroyed or not preserved." Gomez v. Stop & Shop
Supermarket Co., 670 F.3d 395, 399 (1st Cir. 2012). Although
González does throw around the word "spoliation" in her brief, she
makes no real argument in support of such an assertion, nor does
she point to any evidence in the record that would make such a
showing. Thus, we deem the argument waived. See Vargas-Colón v.
Fundación Damas, Inc., 864 F.3d 14, 24 (1st Cir. 2017) (quoting
United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990) (Arguments
raised in a "perfunctory manner . . . are deemed waived.")).
Moving to the withholding accusation regarding the fetal
monitoring strips, González has similarly failed to explain in her
- 16 -
briefs how this supposedly happened. See id. Even if we were
willing to overlook this waiver -- and we are not -- her argument
would still fail. Taking our own walk through the record, we
conclude there is nothing in it to save her withholding claim.
Here's what we find. Like we earlier mentioned, Dr. Schifrin wrote
his original report in December 2016 before González filed suit,
meaning at that juncture, there was no formal discovery to be had
and therefore no chance for DCHB to withhold anything. Then, Dr.
Schifrin was deposed about fourteen months after he wrote his
report, while discovery was ongoing. The week prior, DCHB sent a
Dropbox link with documents they planned to use at the deposition
to counsel for González. Counsel for González conceded at oral
argument that the link contained at least some of the strips but
claimed that neither he nor Dr. Schifrin had time to review them
beforehand.8 Once at the deposition, Dr. Schifrin confirmed that
he had yet to receive or review the strips until opposing counsel
presented them. Only then did Dr. Schifrin review the strips, but
he was only presented with a portion of them, up until 10:40 AM.
Counsel for González did not make an on-the-record request for the
8 Counsel asserted that the Hospital sent the link to his
office (not him) on a Friday afternoon, right before he spent the
weekend traveling to defend Dr. Schifrin's deposition the
following Monday morning, so there was no chance for him or Dr.
Schifrin to review it beforehand. Counsel misspoke -- the e-mail
transmitting the link was sent to a "davidefron" on the Wednesday
morning before he began his travels.
- 17 -
remaining strips, nor does González point us to any evidence in
the record, nor have we found any, that she ever formally requested
production of the strips or that there was a discovery dispute
over them, before or after Dr. Schifrin's deposition.9 That's all
we have. DCHB may very well have withheld the strips, but nothing
in the record or the trial court docket explains what happened.
So that's that.
Notwithstanding any concerns about spoliation or
withholding (which, we add, amount mostly to red herrings), the
district court never identified the timing of the injury as an
issue impinging upon the reliability of Dr. Schifrin's report or
methodology; instead, the court found the report unreliable
because it made conclusions about what certain material evidence
must have shown without Dr. Schifrin ever having looked at it
before issuing his report. More on that in a bit.
We turn next to González's contention that Dr.
Schifrin's methodology was fundamentally reliable. This is so,
González says, because in forming his opinion Dr. Schifrin utilized
a methodology described as a "differential diagnosis,"10 which she
9 At oral argument, DCHB's counsel stated that González only
made one request for medical records, all prior to filing her
complaint, but never made a formal discovery request for medical
records (including the strips) after litigation commenced.
González's counsel declined to rebut that description of events.
10A differential diagnosis is when a provider puts together
a list of conditions with similar symptoms, then conducts
additional tests that might rule out some of these conditions and
- 18 -
notes "has been the hallmark of the medical profession for
generations of doctors," and in this case, "is scientifically
reliable [as] . . . to the relationship of the fetal heart rate
pattern and oxygenation." Problem is, Dr. Schifrin's report or
testimony never explains the term differential diagnosis or how he
applied it, nor does González discuss it below in more than a
passing line or explain it in her briefing to us. (Probably for
that reason, the district court chose not to explicitly address
it.) On that basis alone, we have affirmed the district court's
exclusion in a similar instance. See López-Ramírez, 32 F.4th at
96 (no abuse of discretion where district court excluded expert
testimony as unreliable and plaintiff failed to argue that
reliability conclusions were erroneous) (citing Zannino, 895 F.2d
at 17).
Moreover, our case law explicitly rejects the inherent
reliability of a differential diagnosis. See Milward II, 820 F.3d
at 476. While a "differential diagnosis can be a reliable method
of medical diagnosis," the expert proffering it "still must show
that the steps taken as part of that analysis — the 'ruling out'
and the 'ruling in' of causes — were accomplished utilizing
lead to a final diagnosis. Differential Diagnosis, Cleveland
Clinic (last visited Nov. 18, 2022),
https://my.clevelandclinic.org/health/diagnostics/22327-
differential-diagnosis; see also Milward II, 820 F.3d at 472
(describing differential diagnosis as "essentially a process of
elimination").
- 19 -
scientifically valid methods." Id. (cleaned up and emphasis
added).
Here, the district court took issue with the reliability
of Dr. Schifrin's analysis on the whole because (and not to be
redundant) he made assumptions about causation and injury without
knowing if the evidence would support them and never modified his
opinion when he learned he assumed wrongly. The court stressed
how Dr. Schifrin "repeatedly states" he lacked the fetal monitoring
strips altogether and any notes about the frequency and duration
of González's contractions.
And with respect to the data that was available to Dr.
Schifrin, González never explains, here or below, why the data he
did review, when viewed through a differential diagnosis lens,
would be sufficient to form a reliable opinion. Nor does González
explain, by pointing to any record evidence or any challenge to
the court's reasoning, how the district court abused its discretion
in calling out Dr. Schifrin's methodological shortcomings. See
id. (concluding that district court did not abuse its discretion
in excluding differential diagnosis opinion where plaintiffs
failed to show any reliable method for ruling in potential cause).
Rather than giving us some analysis, what González hands us instead
are several pages of unhelpful quotes from a sampling of our prior
expert opinion cases without explaining how anything in those
opinions helps her out.
- 20 -
All said, we conclude that the district court did not
abuse its discretion in excluding Dr. Schifrin's testimony as
unreliable and affirm the district court's decision to grant the
motion in limine on reliability grounds.11
Summary Judgment
Next, we deal with González's contention that,
regardless of the district court's exclusion of Dr. Schifrin's
testimony, the court still erred in granting summary judgment to
the Hospital. Our review is de novo. Garcia-Garcia v. Costco
Wholesale Corp., 878 F.3d 411, 417 (1st Cir. 2017). "To defeat a
motion for summary judgment, the nonmoving party must demonstrate
the existence of a trialworthy issue as to some material fact,"
that is, a fact that could "affect the suit's outcome." López-
Ramírez, 32 F.4th at 97 (quoting Cortés-Irizarry v. Corporación
Insular De Seguros, 111 F.3d 184, 187 (1st Cir. 1997)). While we
take the record in the light most favorable to González, she cannot
"rely on an absence of competent evidence, but must affirmatively
point to specific facts that demonstrate the existence of an
11 Despite her half-hearted arguments that the district
court's reliability analysis was wrong, González spills the most
ink to argue the district court erred in excluding the report for
violating Rule 26, largely that exclusion was "too severe" a
sanction. We have considered her arguments, but we need not
address them any further. See López-Ramírez, 32 F.4th at 94 n.5
(declining to consider argument that exclusion under Rule 26 was
"too severe of a sanction" when Rule 702 and Daubert provided
independent basis for exclusion).
- 21 -
authentic dispute." Feliciano-Muñoz v. Rebarber-Ocasio, 970 F.3d
53, 62 (1st Cir. 2020) (quoting McCarthy v. Nw. Airlines, Inc., 56
F.3d 313, 315 (1st Cir. 1995)); see also Garcia-Garcia, 878 F.3d
at 417.
As we explained, and as González does not dispute, given
the nature of her claim she needs an expert to establish elements
of her negligence cause of action (i.e., causation). See Martínez-
Serrano, 568 F.3d at 286. But since we affirm the exclusion of
Dr. Schifrin's testimony, González can't rely on any of it to
withstand the summary judgment sickle. See Garside v. Osco Drug,
Inc., 895 F.2d 46, 50 (1st Cir. 1990) (explaining that inadmissible
expert evidence can't be used to defeat summary judgment). So,
without Dr. Schifrin, González is left arguing only that her case
survives summary judgment because she could make it at trial
relying on the Hospital's expert, Dr. Gaudier, and other unnamed
"opposing witnesses" to prove causation. González appears to argue
that the mere existence of an admissible expert is enough to
surpass the summary judgment blade. Unfortunately for González,
that's not how it works -- González does not, as she must, point
to any specific finding in Dr. Gaudier's report to support her
claim, or any other admissible evidence to boot.12 See Feliciano-
Muñoz, 970 F.3d at 62.
12 Our own dive into Dr. Gaudier's report confirms that
conclusion. In fact, it would wreck González's case. As to the
- 22 -
Thus, we affirm the district court's grant of summary
judgment.
Motion for Reconsideration
Last, we take on González's challenge to the district
court's order denying her motion for reconsideration (brought as
a Rule 59(e) motion). She contends that the court wrongly
concluded it had lost jurisdiction over the case (and thus, her
motion too) when she filed her first notice of appeal. She insists
that the court should have instead considered the motion, in part
because it included Dr. Schifrin's newly amended expert report.
Bear with us for a brief play-by-play. González filed
a motion for reconsideration days after the district court entered
judgment. With it, she attached for the first time an amended
expert report from Dr. Schifrin, urging the district court to take
it into account. While that motion was pending, González filed
her first notice of appeal of the judgment. The district court
subsequently denied the motion. While González offered a few bases
for reconsideration, which we'll address shortly, the court gave
one reason for denying it -- that after the notice of appeal, it
no longer had jurisdiction over the case. González then filed a
so-called "Amended Notice of Appeal," which states, like her first
monitoring strips, for example, Dr. Gaudier reviewed strips up
until 11:27 AM and concluded they were "reassuring" and there was
"absolutely no indication" for continuous monitoring of ALG.
- 23 -
notice, that she "appeals . . . the Judgment" of the district
court.13
We begin with the district court's conclusion that it
lost jurisdiction over the case, and over the Rule 59(e) motion
too, when González filed her first notice of appeal. We review
the district court's denial of a Rule 59(e) motion for abuse of
discretion. Biltcliffe v. CitiMortgage, Inc., 772 F.3d 925, 930
(1st Cir. 2014). "A Rule 59(e) motion briefly suspends finality"
of a judgment so the district court can "fix any mistakes and
thereby perfect its judgment before a possible appeal." Banister
v. Davis, 140 S. Ct. 1698, 1708 (2020). In line with that
principle, even after González filed her notice of appeal, the
district court legally maintained jurisdiction then to resolve her
Rule 59(e) motion on the merits. And Federal Rule of Appellate
Procedure 4(a)(4)(B)(i) specifically provides district courts with
jurisdiction to rule on pending motions for reconsideration after
a litigant files her notice of appeal, explaining that the notice
"becomes effective" once the district court resolves that motion.
See also Fed. R. App. P. 4(a)(4)(A)(i)-(vi) (listing post-judgment
motions that fall under this Rule, including Rule 59(e) motions);
13The parties dispute whether we have jurisdiction to review
the motion for reconsideration. Because "the merits are easily
resolved in favor of the party who would benefit from a finding
that jurisdiction is wanting," we assume jurisdiction. Caribbean
Mgmt. Grp., Inc. v. Erikon LLC, 966 F.3d 35, 41-42 (1st Cir. 2020)
(citations omitted).
- 24 -
Fontanillas-Lopez v. Morell Bauzá Cartagena & Dapena, LLC, 832
F.3d 50, 62 n.10 (1st Cir. 2016) (explaining same and that Rule
4(a)(4)(B)(i) is an exception to the principle that filing a notice
of appeal usually "divests" the district court of jurisdiction
over the case (quoting Griggs v. Provident Consumer Disc. Co., 459
U.S. 56, 58 (1982) (per curiam))). Thus, the district court
erroneously denied González's motion on jurisdictional grounds.
But our work does not end there. As we explain next, González has
made no showing that she is entitled to relief under Rule 59(e),
so we still affirm the denial of her motion, albeit for a different
reason than the district court. See Fisher v. Kadant, Inc., 589
F.3d 505, 512 (1st Cir. 2009) (affirming post-judgment ruling "on
an alternate ground that is evident in the record," "in lieu of
remanding," despite district court's legal error in disposing of
the motion).
To obtain Rule 59(e) relief, "the movant must demonstrate
either that newly discovered evidence (not previously available)
has come to light or that the rendering court committed a manifest
error of law." Palmer v. Champion Mortg., 465 F.3d 24, 30 (1st
Cir. 2006). And "a party moving for Rule 59(e) relief may not
repeat arguments previously made during summary judgment, nor may
it present new arguments on a Rule 59(e) if such arguments could,
and should, have been made before judgment issued." Markel Am.
Ins. Co. v. Diaz-Santiago, 674 F.3d 21, 32 (1st Cir. 2012)
- 25 -
(internal quotation marks and citation omitted). With this
exacting standard in mind, we need not linger. Here, González's
Rule 59(e) motion regurgitates many of the same arguments put forth
in her summary judgment briefing. She argues -- by citing to the
same cases as before -- that preclusion of her expert is too severe
a sanction under the circumstances and that even without her
expert, she could still prevail at trial by relying upon the
Hospital's expert. The district court rejected these contentions,
and so have we. González's only "new" argument centers on Dr.
Schifrin's amended expert report, which she argues explains the
Hospital's withholding of the monitoring strips and fills any gaps
in Dr. Schifrin's prior report. There is a significant problem
with that contention, however. González introduced the amended
report for the first time with her Rule 59(e) motion, and the
report was authored after the district court entered judgment and
dismissed her case, despite Dr. Schifrin's deposition occurring
several years prior, and the court's grant of the motion in limine
one year prior. Thus, Dr. Schifrin's amended report is not newly
discovered evidence, rather Dr. Schifrin could have filed it any
time after his 2018 deposition when he was shown the monitoring
strips, as he said he'd do during the deposition.
Because González has made no showing that she is entitled to
Rule 59(e) relief, we affirm the denial of her motion.
- 26 -
CONCLUSION
With that, we affirm the district court's grant of the
Hospital's motion in limine and motion for summary judgment, and
its denial of the motion for reconsideration. Each side shall
bear its own costs.
- 27 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488741/ | NON-PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 21-2889
_____________
UNITED STATES OF AMERICA
v.
THOMAS LANZANA,
Appellant
_____________
On Appeal from the United States District Court for the
District of New Jersey
(D.C. No. 2:19-cr-00592-001)
District Judge: Hon. John Michael Vasquez
_____________
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
on November 15, 2022
Before: HARDIMAN, RESTREPO, and PORTER Circuit Judges
(Opinion filed: November 22, 2022)
_________
OPINION*
_________
*
This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7, does not
constitute binding precedent.
RESTREPO, Circuit Judge.
Thomas Lanzana appeals his 36-month sentence for his involvement in a $900,000 wire
fraud scheme in violation of 18 U.S.C. § 1343.1 For the reasons that follow, we will affirm the
District Court’s judgment of sentence.
I.
Between 2013 and 2017, Appellant Thomas Lanzana, then a registered broker with the
Financial Industry Regulatory Authority (“FINRA”), operated two purported investment funds:
Black Box Pulse LLC and Unique Forex. Lanzana solicited approximately $900,000 from at
least twenty investors through these purported funds, and sent false monthly account statements
to the victims, including statements supposedly held by Black Box Pulse and Unique Forex at
brokerage houses, and annual tax documents reporting fake gains. He was arrested in January
2019 and indicted in August 2019 on two counts of wire fraud2 and one count of
embezzlement.3
On October 22, 2020, Lanzana pled guilty to one count of wire fraud, in violation of 18
U.S.C. § 1343. The Pre-Sentence Investigation Report (“PSR”) recommended a sentencing
guideline range of 41–51 months. In October 2021, the District Court imposed a below-range
sentence of 36 months, granting a 5-month downward variance, as well as 36 months of
supervised release.
1
See PSR ¶ 39 (App. 123); App. 71 (stating that Lanzana solicited $900,000). We note,
however, that Lanzana was sentenced based on an amount greater than $250,000 but less
than $550,000. App. 85.
2
See 18 U.S.C. § 1343 and 18 U.S.C. § 2.
3
See 7 U.S.C. § 13(a)(1) and 18 U.S.C. § 2.
2
II.4
Lanzana argues that the District Court imposed a procedurally and substantively
unreasonable sentence in violation of 18 U.S.C. § 3553(a). Under 18 U.S.C. § 3742(a)(1), a
defendant may seek appellate review of a final sentence if the court’s sentence was “imposed in
violation of law.” The legality of a sentence must be based on a set of reasonableness factors
enumerated in 18 U.S.C. § 3553(a). Sentences that fall within the applicable guideline range
may be entitled to a presumption of reasonableness. See United States v. Handerhan, 739 F.3d
114, 119–20 (3d Cir. 2014).
This Court reviews claims for procedural and substantive error for abuse of discretion.
Gall v. United States, 552 U.S. 38, 51 (2007). If, however, the asserted procedural error was not
raised during the sentencing proceedings, we review for plain error, as is the case here. United
States v. Flores-Mejia, 759 F.3d 253, 255 (3d Cir. 2014) (en banc). Therefore, this Court
reviews the procedural reasonableness of Lanzana’s sentence for plain error and its substantive
reasonableness for abuse of discretion. See Flores-Mejia, 759 F.3d at 255 (holding that the
“party must object to the procedural error complained of after sentence is imposed in order to
avoid plain error review on appeal”); United States v. Woronowicz, 744 F.3d 848, 851 (3d Cir.
2014) (holding that this Court reviews a sentence’s “substantive reasonableness under an abuse
of discretion standard.”).
4
The District Court had jurisdiction over this case pursuant to 18 U.S.C. § 3231. This
Court has appellate jurisdiction pursuant to 28 U.S.C. § 1291 and 18 U.S.C. § 3742(a).
3
“An error is plain if it is ‘clear’ or ‘obvious,’ ‘affects substantial rights,’ and
‘affects the fairness, integrity or public reputation of judicial proceedings.’” Flores-
Mejia, 759 F.3d at 259 (quoting United States v. Dragon, 471 F.3d 501, 505 (3d Cir.
2006)). “An error ‘affects substantial rights’ when it is prejudicial, that is, when it
‘affected the outcome of the District Court proceedings.’” Id. (quoting United States v.
Olano, 507 U.S. 725, 734 (1993)). Under plain error review, we pay great deference to
the sentencing judge. Id. at 266.
Additionally, a sentencing court abuses its discretion only if “no reasonable
sentencing court would have imposed the same sentence on that particular defendant for
the reasons the district court provided.” United States v. Merced, 603 F.3d 203, 214 (3d
Cir. 2010) (citing United States v. Tomko, 562 F.3d 558, 568 (3d Cir. 2009)). This
inquiry is highly deferential, and we will affirm “[a]s long as a sentence falls within the
broad range of possible sentences that can be considered reasonable in light of the [18
U.S.C.] § 3553(a) factors.” United States v. Wise, 515 F.3d 207, 218 (3d Cir. 2008).
III.
Lanzana argues the District Court procedurally erred by failing to adequately
consider the 18 U.S.C. § 3553(a) factors; specifically, his history and characteristics, and
the need for him to remain at home to care for his fiancée. He further contends that his
36-month sentence is substantively unreasonable because no reasonable sentencing court
would have imposed the same sentence.
4
A.
Failing to consider the § 3553(a) factors constitutes a significant procedural error.
Gall, 552 U.S. at 51. Procedural reasonableness is ensured if “the record as a whole
reflects rational and meaningful consideration of the factors enumerated in 18 U.S.C. §
3553(a).” United States v. Grier, 475 F.3d 556, 571 (3d Cir. 2007). To demonstrate
meaningful consideration, a district court should “set forth enough to satisfy the appellate
court that [it] has considered the parties’ arguments and has a reasoned basis for
exercising [its] own legal decisionmaking authority.” Rita v. United States, 551 U.S.
338, 356 (2007).
During Lanzana’s sentencing, the District Court weighed each of the § 3553(a)
factors. With respect to Lanzana’s history and characteristics, the District Court
acknowledged Lanzana’s age, the loss of his father and mother, his relationship with his
sisters, his upbringing, his family’s financial situation, his divorce, and his long-term
relationship with his fiancée. The District Court further acknowledged Lanzana’s
physical and mental health, lack of substance abuse problems, his work history, and lack
of prior criminal history. However, the District Court highlighted the ongoing nature and
length of his fraud scheme, including the amount of time that Lanzana dedicated to
operating this scheme. Finally, the District Court also addressed Lanzana’s status as the
primary caretaker for his ill fiancée and generously granted a 5-month downward
variance.
5
Given the District Court’s sufficient consideration of the § 3553(a) factors,
balancing of mitigating factors, and explained reasoning on the record, we find no
procedural error.
B.
Reviewing the substantive reasonableness of a sentence, this Court looks to
“whether the final sentence, wherever it may lie within the permissible statutory range,
was premised upon appropriate and judicious consideration of the relevant factors.”
United States v. Young, 634 F.3d 233, 237 (3d Cir. 2011). Lanzana argues the District
Court imposed a substantively unreasonable sentence because no reasonable sentencing
court would have imposed the same 36-month sentence. Specifically, he notes that the
District Court failed to give enough weight to his personal circumstances. We disagree.
Lanzana’s sentence not only fell within the applicable guideline range, but far below it,
so we can presume it was not unreasonably harsh. Cf. Handerhan, 739 F.3d at 124
(within-Guidelines sentences presumed reasonable). Furthermore, “a district court’s
failure to give mitigating factors the weight a defendant contends they deserve” does not
render a sentence substantively unreasonable. United States v. Bungar, 478 F.3d 540,
546 (3d Cir. 2007). As previously discussed, the District Court carefully considered the
mitigating factors, tethered Lanzana’s sentence to the facts of the case, and explained its
reasoning for not granting a greater downward variance. A similarly reasonable
sentencing court may have sentenced Lanzana to an even greater term of imprisonment,
as would nonetheless be presumed reasonable given his guideline range.
6
IV.
We therefore affirm the District Court’s judgment of sentence.
7 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488746/ | Filed 11/22/22 Tevis v. Satin CA3
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(El Dorado)
----
NANCY TEVIS et al., C093838
Plaintiffs and Appellants, (Super. Ct. No. PC20200273)
v.
HEATHER SATIN et al.,
Defendants and Respondents.
Plaintiffs Larry Tevis and Nancy Tevis appeal the trial court’s order declaring
them vexatious litigants. They argue the trial court’s designation was not supported by
substantial evidence. We affirm.
BACKGROUND
We derive the facts and procedural history, as best as we are able, from the limited
record provided on appeal.
Plaintiffs filed the underlying action against the defendants, which according to
plaintiffs’ opening brief, appears to involve claims relating to negligence, elder abuse,
1
and breach of fiduciary duty. Defendants moved the trial court for an order declaring
plaintiffs to be vexatious litigants and to dismiss the case due to plaintiffs’ failure to pay
court fees. The trial court granted the motion, declaring plaintiffs vexatious litigants on
the ground that “the claims made in the instant action were or could have been litigated in
the earlier case of Tevis, et al. v. Mittelstadt, et al., El Dorado County Superior Court
Case No. SC20180043,” which plaintiffs “voluntarily dismissed with prejudice.” The
court dismissed the current action.
Plaintiffs timely appealed. We denied plaintiffs’ request for permission to appeal
the order dismissing the action with prejudice. Plaintiffs were allowed to proceed with
the appeal solely on the issue of whether the trial court erred in declaring them vexatious
litigants and in entering a prefiling order. We received no briefing from defendants.
DISCUSSION
Plaintiffs argue the trial court abused its discretion in designating them as
vexatious litigants, claiming the court’s findings were not supported by substantial
evidence.1 We disagree.
A vexatious litigant is a person who, “[a]fter a litigation has been finally
determined against the person, repeatedly relitigates or attempts to relitigate, in propria
persona, either (i) the validity of the determination against the same defendant or
defendants as to whom the litigation was finally determined or (ii) the cause of action,
claim, controversy, or any of the issues of fact or law, determined or concluded by the
final determination against the same defendant or defendants as to whom the litigation
was finally determined.” (Code Civ. Proc., § 391, subd. (b)(2).) A litigation is
determined adversely to a plaintiff for purposes of the vexatious litigant statute if the
1 Plaintiffs additionally argue this court and the trial judge perpetrated fraud on the court.
We decline to address this claim because plaintiffs’ appeal is limited to the propriety of
the trial court’s vexatious litigant designation.
2
plaintiff voluntarily dismisses the case. (Garcia v. Lacey (2014) 231 Cal.App.4th 402,
406; Tokerud v. Capitolbank Sacramento (1995) 38 Cal.App.4th 775, 781.)
“In order to demonstrate error, an appellant must supply the reviewing court with
some cogent argument supported by legal analysis and citation to the record.” (City of
Santa Maria v. Adam (2012) 211 Cal.App.4th 266, 286-287.) A reviewing court may
disregard arguments not supported by accurate citations to the record or pertinent legal
authority, as well as conclusory arguments. (Id. at p. 287.)
“A court exercises its discretion in determining whether a person is a vexatious
litigant. [Citation.] We uphold the court’s ruling if it is supported by substantial
evidence. [Citations.] On appeal, we presume the order declaring a litigant vexatious is
correct and imply findings necessary to support the judgment. [Citation.]” (Bravo v.
Ismaj (2002) 99 Cal.App.4th 211, 219.)
Here, the record before us consists of 17 pages of the clerk’s transcript.2 It shows
the trial court considered a prior action filed by plaintiffs against the defendants, and
concluded plaintiffs’ claims in the instant action “were or could have been litigated” in
the earlier case. On this basis, the court declared plaintiffs vexatious litigants. Nothing
in the record demonstrates the nature of the claims raised in either the instant action or
the prior action, or otherwise disproves the trial court’s findings. We must therefore
presume the court’s order is correct and imply necessary findings to support this
conclusion. (Bravo v. Ismaj, supra, 99 Cal.App.4th at p. 219.)
On appeal, plaintiffs made no argument concerning the trial court’s finding that
they relitigated or attempted to relitigate issues that were determined adversely to them in
the instant action. They instead argue the trial court’s findings were not supported by
2 We decide the appeal on the record, the opening brief, and any oral argument by
plaintiffs because the defendants failed to file a brief on appeal. (Cal. Rules of Court,
rule 8.220(a)(2).)
3
substantial evidence because “plaintiff’s [sic] [prior] litigation was in good faith” and the
trial court “fail[ed] to make substantive findings of plaintiffs [sic] litigation to be
frivolous, to harass, and cause delay,” citing federal authority. But these arguments have
nothing to do with the trial court’s findings. They also provide no citation to the record
in support of these arguments. Moreover, the federal cases relied on by plaintiffs are not
binding on this court. (Nunez v. Nevell Group, Inc. (2019) 35 Cal.App.5th 838, 847-848
[“Federal decisional authority does not bind the California Courts of Appeal on matters
of state law”].) Absent any cogent analysis, an adequate record, or citations to support in
the record provided, plaintiffs have not carried their burden to demonstrate any error.
(City of Santa Maria v. Adam, supra, 211 Cal.App.4th at p. 287.)
DISPOSITION
The trial court’s order is affirmed. Because defendants did not file a brief and
nothing in the record suggests they incurred any costs on appeal, no costs are awarded.
/s/
BOULWARE EURIE, J.
We concur:
/s/
ROBIE, Acting P. J.
/s/
KRAUSE, J.
4 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488750/ | COURT OF CHANCERY
OF THE
STATE OF DELAWARE
KATHALEEN ST. JUDE LEONARD L. WILLIAMS JUSTICE CENTER
MCCORMICK 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
CHANCELLOR
November 22, 2022
Elizabeth Wilburn Joyce “J” Jackson Shrum
Megan Ix Brison Jack Shrum, P.A.
Pinckney, Weidinger, Urban & Joyce LLC 919 N. Market Street, Suite 1410
2 Mill Road, Suite 204 Wilmington, DE 19801
Wilmington, DE 19806
Re: Paul Elton, LLC v. Rommel Delaware, LLC et al.,
C.A. No. 2019-0750-KSJM
Dear Counsel:
Defendants Rommel Delaware, LLC, Rommel Motorsports Delaware, Inc., and
David Rommel (together, “Defendants”) have moved pursuant to Court of Chancery Rules
59(e), 59(f), and/or 60(b) for reargument of the court’s letter opinion dated August 3, 2022,
to reopen discovery, or, in the alternative, to complete a new appraisal of the 2.5 acres of
Additional Space at issue.1 Plaintiff has opposed these motions and moved for fee-
shifting.2 For the reasons that follow, the motions for reargument and to reopen discovery
are denied, but Defendants’ alternative request for leave to complete a new appraisal of the
2.5 acres of Additional Space is granted. Plaintiff’s request for fee-shifting is denied.
1
C.A. No. 2019-0750-KSJM, Docket (“Dkt.”) 102 (“Defs.’ Mot. for Reconsideration and
to Reopen Disc.”); see also Dkt. 101 (“Aug. 3, 2022 Letter Op.”). Defined terms used in
this letter have the meaning ascribed to them in the court’s order dated December 30, 2021,
granting Plaintiff’s motion for partial summary judgment. See Dkt. 77 (“Dec. 30, 2021
Order”).
2
Dkt. 104 (“Pl.’s Opposition”) at 1, 13–14.
C.A. No. 2019-0750-KSJM
November 22, 2022
Page 2 of 9
By way of background, on December 30, 2021, I issued an order finding Defendants
liable on summary judgment for breach of Plaintiff’s Proceeds Right arising out of several
agreements between the parties.3 As relief, I ordered Defendants to specifically perform
their obligation to participate in the Appraisal Process.4
A dispute arose during the Appraisal Process. The Purchase Agreement provides
that if the parties cannot agree on the value of the Additional Space after a sale, they shall
each “select an appraiser to complete an appraisal of the value of the lease of the Additional
Space.”5 If the two appraisals are less than 5% divergent in value, “then the average of the
two appraisals shall be the price.”6 If the two appraisals are more than 5% divergent,
however, “then the two appraisers shall . . . select a third appraiser and the average of the
two closest appraisals shall be” the value of the Additional Space.7 The parties selected
their respective appraisers and obtained appraisals, but the appraisal were more than 5%
divergent.8 Plaintiff’s appraiser valued the Additional Space at $5.6 million,9 and
Defendants’ appraiser valued the Additional Space at $1.74 million.10
3
Dec. 30, 2021 Order ¶¶ 12–13, 15–16, 32.
4
Id. ¶ 32.
5
Dkt. 91 (“Defs.’ Mot.”), Ex. A (Purchase Agreement) § 4.
6
Id.
7
Id.
8
Dkt. 83 ¶¶ 1–2; Dkt. 84; Dkt. 85; Dkt. 87; Dkt. 88.
9
Dkt. 92 (“Pl.’s Mot.”), Ex. B (“Pl.’s Appraisal”) at 2.
10
Pl.’s Mot., Ex. A (“Defs.’ Appraisal”) at 11.
C.A. No. 2019-0750-KSJM
November 22, 2022
Page 3 of 9
Part of the discrepancy in appraisal values derived from the appraisers’ different
understandings of the term “Additional Space,” defined in the Purchase Agreement as
“additional space on the Property which is not required for the operations of the primary
tenant of the Property.”11 To identify the Additional Space on the 5.75-acre lot, Plaintiff’s
appraiser reviewed “[t]he land development application for the proposed Royal Farms site
[that] was submitted to the New Castle County Planning Department in August 2017 and
the final plan [that] was recorded on June 28, 2018, subsequent to the retrospective date of
value.”12 Based on these site plans, Plaintiff’s appraiser found that 3.25 acres of the
Property supported “the existing improvements,” including the former Harley-Davidson
dealership, while the remaining 2.5 acres supported “the proposed Royal Farms
improvements.”13 Plaintiff’s appraiser thus identified the 2.5 acres as the Additional Space
subject to appraisal.
Defendants’ appraiser relied instead on an August 9, 2010 plat of the property
entitled “Paul Elton LLC, 2160 New Castle Avenue” showing “the majority of the property
in support of the existing dealership building and its site improvements, with a” 1.25-acre
“potential pad site” at the northeast corner.14 Defendants’ appraiser considered it
“abundantly clear from the lease agreement language that the primary use of the property
11
Purchase Agreement § 4.
12
Pl.’s Appraisal at 1.
13
Id.
14
Defs.’ Appraisal at 3, 5.
C.A. No. 2019-0750-KSJM
November 22, 2022
Page 4 of 9
was the dealership and that no ‘additional use’ should degrade or minimize the value of
that primary business operation.”15 Because the 2.5-acre pad site for the Royal Farms
location was double the size of the site in the 2010 plat, and because building the 2.5-acre
site “required demolition of the dealership improvements,” Defendants’ appraiser valued
the 1.25-acre pad site as the Additional Space.16
Once the parties realized that the valuations were more than 5% divergent, they
began negotiating a stipulation governing the process for engaging the third appraiser.17
The negotiations failed, and the parties filed competing motions for entry of a second order
governing the appraisal process.18 Those cross-motions forced me to reevaluate the
question of what constitutes Additional Space.
Defendants argued that the definition of Additional Space provided the third
appraiser all necessary authority and guidance to complete the third appraisal, obviating
the need for court intervention.19 Because Defendants’ argument spoke, in essence, to the
subject-matter jurisdiction of this court to interpret the meaning of Additional Space, I
15
Defs.’ Appraisal at 4.
16
Id.
17
Pl.’s Mot. ¶ 13; Pl.’s Mot., Exs. C–D.
18
See Dkt. 90.
19
Defs.’ Mot. at 6–9 (“The Purchase Agreement provides sufficient information regarding
the appraisal process in which the parties must participate[.]”).
C.A. No. 2019-0750-KSJM
November 22, 2022
Page 5 of 9
considered it first, and concluded that interpreting the contractual term was a matter left to
the court and not contractually delegated to the third appraiser.20
I then analyzed Plaintiff’s argument that the size of the Additional Space had already
been revealed through Plaintiff’s motion for summary judgment. Ruling in Plaintiff’s
favor, I held that the Additional Space referred to the 2.5 acres as represented by Plaintiff.21
I then gave Defendants two options.22 One was to double Defendants’ appraised value for
the 1.25 acres. The other was to allow Defendants to commission a new appraisal of the
2.5 acres. I asked Defendants to report on their position “within five days.”23
On the sixth business day after I issued the August 3, 2022 Letter Opinion,
Defendants filed their Motions pursuant to Court of Chancery Rules 59(f), 59(e), and
60(b).24
Where a court has not issued a final order, neither the requirements for Rule 60(b)
nor Rule 59(e) are met.25 Because the August 3, 2022 Letter Opinion was interlocutory
20
Aug. 3, 2022 Letter Op. at 6–10.
21
Id. at 11–12.
22
Id. at 12 (noting as well that there “may be others”).
23
Id.
24
Defs.’ Mot. for Reconsideration and to Reopen Disc.
25
Cantor Fitzgerald, L.P. v. Cantor, 2001 WL 536911, at *2 (Del. Ch. May 11, 2001).
C.A. No. 2019-0750-KSJM
November 22, 2022
Page 6 of 9
rather than final, neither Rule 59(e) nor 60(b) apply. Therefore, I only consider
Defendants’ Motions under the standard iterated in Court of Chancery Rule 59(f).
Under Rule 59(f), “[t]he Court will deny a motion for reargument ‘unless the Court
has overlooked a decision or principle of law that would have a controlling effect or the
Court has misapprehended the law or the facts so that the outcome of the decision would
be affected.’”26 If a motion for reargument “merely rehashes arguments already made by
the parties and considered by the Court” in rendering the decision for which reargument is
sought, the motion must be denied.27 On a motion for reargument, the movant bears a
“heavy burden.”28
Defendants advance two arguments under Rule 59(f). They first argue that I erred
in the August 3, 2022 Letter Opinion by relying on the “Exploratory Resubdivision Plan”
submitted as an exhibit to Plaintiff’s Motion for Summary Judgment.29 The plan, which
Rommel executed in August 2017, described a 2.5-acre plot on which he proposed the
construction of a new “Royal Farms Convenience store with Gas Station.”30 They next
26
Nguyen v. View, Inc., 2017 WL 3169051, at *2 (Del. Ch. July 26, 2017) (quoting Stein
v. Orloff, 1985 WL 21136, at *2 (Del. Ch. Sept. 26, 1985)).
27
Wong v. USES Hldg. Corp., 2016 WL 1436594, at *1 (Del. Ch. Apr. 5, 2016).
28
In re ML/EQ Real Est. P’ship Litig., 2000 WL 364188, at *1 (Del. Ch. Mar. 22, 2000)
(quoting Arnold v. Soc’y for Savs. Bancorp, 1995 WL 408769, at *1 (Del. Ch. June 30,
1995)).
29
Dkt. 49, Ex. 17 to the Transmittal Aff. of Megan Ix Brison (“Brison Aff.”).
30
Aug. 3, 2022 Letter Op. at 12 (citing Brison Aff., Ex. 17 (Exploratory Resubdivision
Plan) at PE001136, PE001138).
C.A. No. 2019-0750-KSJM
November 22, 2022
Page 7 of 9
argue that I should reopen discovery to complete the factual record as to the meaning of
Additional Space.31
Defendants’ first argument does not work. Defendants argue that I erred by looking
beyond the plain language of the Purchase Agreement to extrinsic evidence when
interpreting the meaning of “Additional Space.”32 They further say that the record of
extrinsic evidence was incomplete because I precluded discovery pending resolution of
Plaintiff’s motion for summary judgment.33 They submitted a supplemental affidavit of
Mr. Rommel asserting facts disputing the evidentiary weight of the Exploratory
Resubdivision Plan.34 Based on that affidavit, Defendants argue that the Exploratory
Resubdivision Plan was a “non-final plan for the later development of the property and not
any actual information regarding the operations of the dealership on the property in April
2018, the operative date of the appraisal, or afterwards.”35
The problem with Defendants’ argument is that “[r]eargument under Rule 59(f) is
only available to re-examine the existing record,”36 not to present new evidence, and not
31
Defs.’ Mot. for Reconsideration and to Reopen Disc. at 12 (“The Court made its ruling
without allowing any discovery, although it relied itself on extrinsic parole evidence
outside of the four corners of the Purchase Agreement.”).
32
Id. at 12–13.
33
Id.
34
Defs.’ Mot. for Reconsideration and to Reopen Disc., Supplemental Aff. of David
Rommel (“Rommel Aff.”).
35
Defs.’ Mot. for Reconsideration and to Reopen Disc. at 9.
36
See Those Certain Underwriters at Lloyd’s, London v. Natl’s Installment Ins. Servs.,
Inc., 2008 WL 2133417, at *1 (Del. Ch. May 21, 2008).
C.A. No. 2019-0750-KSJM
November 22, 2022
Page 8 of 9
to present evidence that does not qualify as “newly discovered.”37 Although it is true that
I foreclosed wide-sweeping discovery into irrelevant issues while summary judgment was
pending, nothing stopped Defendants from submitting the information in Rommel’s latest
supplemental affidavit when they filed opposition briefing. Defendants argued against
summary judgment partially on the basis that defining Additional Space “requires extrinsic
evidence as to what portion of the Property was not required for the dealership
operations[.]”38 When Defendants made that argument, they had a chance to dispute the
evidentiary weight of the Exploratory Resubdivision Plan, which Plaintiff had attached as
an exhibit to the summary judgment motion.39 I tacitly rejected Defendants’ argument.
Defendants’ second argument fails for the same reason. Had Defendants raised
disputes of material fact at the summary judgment phase, I might have given greater
thought to their request for further discovery. But they did not, and I will not consider
them now.
With their motions, Defendants alternatively requested sixty days to conduct a new
appraisal. Although Defendants’ request was untimely (because it was not “within five
business days”40), it is granted, but on a truncated timeline given the delay caused by my
37
See Ct. Ch. R. 60(b).
38
Dkt. 71 (Def’s Opposition to Pl.’s Mot. for Summ. J.) at 25.
39
See Brison Aff., Ex. 17 (Exploratory Resubdivision Plan).
40
See Aug. 3, 2022 Letter Op. at 12.
C.A. No. 2019-0750-KSJM
November 22, 2022
Page 9 of 9
need to consider Defendants’ motions. Defendants are granted thirty days to conduct a
new appraisal.
In its opposition to the motions, Plaintiff requested fee-shifting in connection with
“Defendants’ obstreperous litigation conduct.”41 A cynic might agree with Plaintiff, given
that the motions were quite broad and further delayed Plaintiff’s requested relief. I am
willing, however, to give Defendants the benefit of the doubt. Although Defendants’
arguments ultimately fail, Plaintiff has not shown that Defendants have done more than
take a zealous litigation posture. The request for fee-shifting is denied.
IT IS SO ORDERED.
Sincerely,
/s/ Kathaleen St. Jude McCormick
Kathaleen St. Jude McCormick
Chancellor
cc: All counsel of record (by File & ServeXpress)
41
Pl.’s Opposition at 1, 13–14. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488749/ | Filed 11/22/22 Estes v. D W W III Co. CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
JOSEPHINE ESTES,
Plaintiff and Appellant, G060501
v. (Super. Ct. No. 30-2020-01168325)
D W W III CO., INC., et al., OPI NION
Defendant and Respondent.
Appeal from a judgment of the Superior Court of Orange County, Glenn R.
Salter, Judge. Reversed. Request for judicial notice. Granted.
John L. Dodd & Associates and John L. Dodd; Gregory L. Bartone for
Plaintiff and Appellant.
Hallstrom, Klein & Ward, Grant J. Hallstrom and Paul J. Kurtzhall for
Defendant and Respondent.
* * *
This appeal arises from a demurrer sustained without leave to amend.
While a new complaint was filed within the requisite time period, the complaint
incorrectly listed the case number of a previously filed complaint that had been dismissed
without prejudice. The clerk, rather than assign a new case number to the new complaint,
rejected the filing, and waited a month to notify the plaintiff who was self-represented but
assisted by counsel, and then engaged in a protracted back-and-forth with plaintiff’s
counsel that misled counsel into believing the new complaint would be filed. By the time
it became clear the clerk would not accept the filing, the statute of limitations had run.
Plaintiff ultimately filed her new complaint, but suffered a dismissal after the trial court
sustained the demurrer based on the statute of limitations.
It was error for the trial court to sustain the demurrer and dismiss the case
on the basis of the statute of limitations. The new complaint that was initially submitted
for filing having sufficiently complied with the rules. The clerk should have filed the
complaint and assigned a new case number, disregarding the old case number. At
minimum, the court should have deemed the new complaint filed on the date of the
original attempted filing date of June 1, 2020. Accordingly, we reverse.
FACTS
Because this appeal turns entirely on the procedural history of the case, we
will provide only a brief summary of the facts alleged in the complaint. The complaint
asserts causes of action for negligence and intentional infliction of emotional distress.
Plaintiff Josephine Estes (Estes) alleges she was harassed, intimidated, and physically
assaulted by employees of defendant Toyota of Huntington Beach (Toyota HB). The
physical assault allegedly occurred on June 2, 2018. It is unclear what relationship Estes
had with Toyota HB, though the complaint suggests that she was a customer. The parties
are in agreement that a two-year statute of limitations applies to these claims. (See Code
Civ. Proc., § 335.1.)
2
In May 2019, Estes, filed a complaint against Toyota HB, case number 30-
2019-01068705 (the 2019 complaint). Toyota HB’s demurrer was sustained with leave
to amend. Estes, acting in pro per, but with the assistance of an attorney, opted not to
amend the complaint and instead filed a dismissal without prejudice in September 2019.
Although that complaint is not in our record, there was sworn testimony below that the
facts alleged in the 2019 complaint were the same as the present complaint.
On June 1, 2020, Estes again acting in pro per and with the assistance of
counsel attempted to electronically file a new complaint using the same case number of
the 2019 complaint. Plaintiff’s counsel sent the complaint via his attorney service with a
notation, “[t]he statute of limitations runs tomorrow, June 2, 2020. Please confirm
receipt and filing with the court.” The clerk rejected the filing with the following
comment: “Claim already exists and was dismissed. Request a motion for court to set
aside dismissal so that you can [file] new papers.” The e-filing rejection notice was not
mailed until July 8, 2020.
According to Estes’s trial attorney, his office immediately called the court
clerk, and after a discussion, the clerk said “he would try to get it pulled to get it
stamped.” However, on October 29, 2020, the clerk’s office e-mailed Estes’s attorney,
stating, “The rejection stands. Page one of the complaint received in the transaction
contained number 30-2019-01068705. A clerk would not delete the case number to file it
as a new case. Please correct your documents and resubmit them.”
On November 3, 2020, Estes filed the new complaint under case number,
30-2020-01168325 (the 2020 complaint) which was then amended on November 13,
1
2020. Toyota HB demurred to the amended complaint on statute of limitations grounds.
In opposition, Estes’s counsel explained the procedural history of the case recounted
1
For purposes of our analysis, the amended complaint is irrelevant.
3
above. The court sustained the demurrer and subsequently entered a judgment of
dismissal. Estes timely appealed.
DISCUSSION
Estes contends the court erred in sustaining the demurrer. We review the
court’s ruling de novo. (People for Ethical Operation of Prosecutors etc. v. Spitzer
(2020) 53 Cal.App.5th 391, 398.) We agree the court erred.
We begin our discussion with an instructive case: Rojas v. Cutsforth
(1998) 67 Cal.App.4th 774 (Rojas). There, in a personal injury action, the plaintiff filed a
complaint, but it was rejected by the clerk because “a declaration for court assignment
was not signed and the summons contained the address of the wrong branch of the court.
In the meantime, the statute of limitations passed.” The trial court ultimately entered
summary judgment on statute of limitations grounds. The Court of Appeal reversed. (Id.
at p. 775.)
Although the defects in Rojas are not the same as the defects here, the
court’s discussion of the clerk’s duties are directly applicable. “It is difficult enough to
practice law without having the clerk’s office as an adversary. Here, paltry nit-picking
took the place of common sense and fairness. [¶] Where, as here, the defect, if any, is
insubstantial, the clerk should file the complaint and notify the attorney or party that the
perceived defect should be corrected at the earliest opportunity. [Citation.] That should
create no more difficulty than returning all the documents with a notice pointing out the
defects. To deny [plaintiff] her cause of action for lack of a signature makes a mockery
of judicial administration.” (Rojas, supra, 67 Cal.App.4th 774 at p. 777.) “The functions
of the clerk are purely ministerial. [Citation.] The clerk has no discretion to reject a
complaint that substantially conforms to the local rules.” (Ibid.) “[A] paper is deemed
filed when it is deposited with the clerk with directions to file the paper. [Citation.]
4
Because here the clerk had no proper basis for rejecting [plaintiff’s] complaint, it must be
deemed filed when it was [initially] presented . . . .” (Id. at p. 778.)
Likewise, here, common sense and fairness has taken a back seat to
technicalities. Appending the wrong case number to a complaint is an easily remedied
defect. The clerk’s office could have easily cleared up any confusion, and permitted the
filing of the complaint under a new case number as of the date it was received.
Moreover, there is nothing in the Code of Civil Procedure or Rules of Court
that would permit the clerk’s office to wholesale reject a filing under these circumstances.
California Rules of Court, rule 1.20 establishes a presumption that a document tendered
to a court clerk should be filed: “Unless otherwise provided, a document is deemed filed
on the date it is received by the court clerk.” We have not located, nor have the parties
cited, any rule that would permit the clerk to reject a filing on the ground that the wrong
case number is listed. To the contrary, Superior Court of Orange County, Local Rule 309
required Estes to include the case number of the previously dismissed case so that it
could be assigned to the same judicial officer. Even assuming Estes included that
information in the wrong box (we do not actually have the original filing in the record,
probably because it was not filed), the fact that she was required to include the prior case
number makes the mistake even more trivial.
Toyota HB’s initial response is that we should ignore all of the
circumstances surrounding the filing because they are outside the four corners of the
complaint. We reject that argument for two reasons. First, in its opposition below,
Toyota HB did not object to the court considering the procedural history of the case.
Indeed, it even cited some of that history in its demurrer. Even if Toyota HB had
objected, Estes could have filed a motion for judicial notice. By failing to object, Toyota
HB waived the objection. Second, this court on its own motion, could take judicial notice
of the clerk’s records which confirms that a complaint was timely submitted and rejected
on June 2, 2020, based on the incorrect case number. We decline to do so at this juncture
5
since the records are already part of the appellate record, which was not objected to
below. However, suffice it to say there no hurdles to overcome when considering the
procedural history in resolving this appeal.
Toyota HB’s additional argument is to point out the various procedural
vehicles plaintiff could have pursued as relief from her mistake, such as a motion
requesting that the court deem the original complaint filed as of June 2, 2020, a motion to
set aside the earlier dismissal, or the filing of a new complaint within the extended statute
2
of limitations period. Whatever the merit of those suggestions, they miss the mark,
which is that the clerk should have initially filed the 2020 complaint which would have
occurred prior to the running of the statute of limitations thus obviating the need for Estes
to avail herself of additional costly options. Moreover, the court did not need a separate
motion to deem the complaint filed on the date it was first tendered, especially in light of
the already congested calendars due to Covid which served as a backdrop to the
procedural history in this case.
2
Due to the effects of the Covid pandemic, the Judicial Council adopted California
Rules of Court, appendix l, Emergency Rules Related to COVID-19, emergency rule 9,
subdivision (a), which tolled the statute of limitations until October 1, 2020. Estes filed a
motion requesting that we take judicial notice of certain legislative history materials
relevant to amendments the Legislature made to provide relief for deadlines during the
Covid pandemic. That motion is granted, though we do not find it necessary to our
analysis to consider those materials.
6
DISPOSITION
The judgment of dismissal is reversed. The matter is remanded with
instructions to deem the new complaint filed as of June 2, 2020. Estes shall recover her
costs incurred on appeal.
MARKS, J.*
WE CONCUR:
O’LEARY, P. J.
SANCHEZ, J.
*Judge of the Orange County Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
7 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488748/ | Filed 11/22/22 P. v. Becerra CA5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
THE PEOPLE,
F084057
Plaintiff and Respondent,
(Super. Ct. No. 1489464)
v.
ISAIAS JEROME BECERRA, OPINION
Defendant and Appellant.
THE COURT *
APPEAL from an order of the Superior Court of Stanislaus County. Carrie M.
Stephens, Judge.
James E. Jones, under appointment by the Court of Appeal, for Defendant and
Appellant.
Rob Bonta, Attorney General, Lance E. Winters, Chief Assistant Attorney
General, Michael P. Farrell, Assistant Attorney General, Louis A. Vasquez, Lewis A.
Martinez and Joseph Penney, Deputy Attorneys General, for Plaintiff and Respondent.
-ooOoo-
* Before Detjen, Acting P. J., Smith, J. and Snauffer, J.
Defendant Isaias Jerome Becerra contends on appeal the trial court’s order
denying his petition for resentencing must be reversed and the matter remanded with
instructions to the trial court to grant his petition for resentencing and reduce his sentence
from 11 years to nine years because the trial court erred when it denied the petition. We
reverse the trial court’s order denying defendant’s petition for resentencing. Defendant’s
Penal Code section 667.51 enhancements are stricken, and the trial court is directed to
issue an amended abstract of judgment to reflect the modification. In all other respects,
we affirm.
PROCEDURAL SUMMARY
On July 10, 2015, the Stanislaus County District Attorney filed a complaint
against defendant, alleging he committed robbery (§ 211; count 1), and assault with a
deadly weapon (§ 245, subd. (a)(1); count 2). It was also alleged, as to count 1, that
defendant personally used a dangerous or deadly weapon, to wit, a knife (§ 12022,
subd. (b)). It was further alleged, as to counts 1 and 2, that defendant personally inflicted
great bodily injury on the victim (§ 12022.7, subd. (a)), that defendant had a prior serious
felony “strike” conviction within the meaning of the “Three Strikes” law (§§ 667,
subds. (b)–(i), 1170.12, subds. (a)–(d)), that also constituted a prior serious felony
conviction (§§ 667, subd. (a), 1192.7, subd. (c)), and that defendant had served
seven prior terms in prison (§ 667.5, former subd. (b)).
On October 27, 2015, defendant entered a plea of no contest to count 1 (§ 211),
admitted the prior strike conviction (§§ 667, subds. (b)–(i), 1170.12,
subds. (a)–(d)), admitted the great bodily injury allegation (§ 12022.7, subd. (a)), and
admitted two prior prison terms (§ 667.5, former subd. (b)). Defendant agreed to a
stipulated sentence, pursuant to a plea agreement, to serve 11 years in prison: six years
on count 1 (the midterm, doubled pursuant to the prior strike conviction), plus a
1 All statutory references are to the Penal Code unless otherwise noted.
2.
three-year great bodily injury enhancement (§ 12022.7, subd. (a)), plus two one-year
prior prison term enhancements (§ 667.5, former subd. (b)). Defendant was found to
have credit for 76 actual days, and 11 days conduct credit, for a total of 87 days credit for
time served. He was ordered to pay various fines and fees.
On December 20, 2021, defendant filed a petition for resentencing with the trial
court. Defendant filed a second petition for resentencing with the trial court on
February 7, 2022. On February 7, 2022, the Stanislaus County District Attorney’s Office
filed its opposition to defendant’s petitions. On February 24, 2022, after a hearing on the
matter, the trial court denied defendant’s petition.
On March 9, 2022, defendant filed a timely notice of appeal.
FACTUAL SUMMARY
On June 8, 2015, defendant attempted to steal a set of power tools from a
hardware store. As he was passing the register, an employee of the store attempted to
stop defendant. Defendant then produced a knife and stabbed the employee in the
shoulder.
DISCUSSION
Defendant contends the trial court’s order denying his petition for resentencing
must be reversed and remanded, with instructions to the trial court to resentence
defendant and strike his section 667.5 former subdivision (b) enhancements, because the
trial court improperly denied his petition. He contends the trial court abused its
discretion by denying his petition for resentencing because it improperly weighed the
evidence when finding that defendant posed a risk for future violence under
section 1172.75, subdivision (d)(1). The People agree defendant’s case must be
remanded for resentencing because defendant’s prior prison term enhancements have
been invalidated. However, the People argue that we need not reach the issue of whether
the trial court erred in finding defendant posed a risk of future violence because that
assessment should be addressed upon resentencing. We agree with the parties that the
3.
trial court’s order denying defendant’s petition for resentencing must be reversed, but
conclude defendant’s two one-year prior prison term enhancements must be stricken and
remand would be futile because defendant agreed to a stipulated sentence pursuant to a
plea agreement.
A. Background
On October 27, 2015, at defendant’s initial sentencing, the parties agreed to a
stipulated sentence pursuant to a plea agreement and the trial court accordingly sentenced
defendant to a term of 11 years in prison, including one year for each of two prior prison
terms, pursuant to section 667.5, former subdivision (b). When asked whether there was
a plea agreement, defense counsel stated,
“Yes, there is. It will be a no contest plea to [c]ount 1, [section] 211,
for the midterm of three years.
“The [section 667.5, subdivision] (d) prior will be admitted. That’s
times two.
“[Defendant] will be admitting the [section] 12022.7 enhancement
for an additional three, and the first two [section 667.5, subdivision] (b)
priors for an additional two for a total of 11 years.”
When defendant filed a petition for resentencing in February 2022, the trial court
denied his petition pursuant to section 1172.75, subdivision (d)(1), finding that imposing
a lesser sentence would endanger public safety.
B. Law
Senate Bill No. 136 (2019–2020 Reg. Sess.) (Senate Bill 136) eliminated prior
prison term enhancements except for those based on sexually violent offenses as defined
in the Welfare and Institutions Code. (§ 667.5, subd. (b); Stats. 2019, ch. 590, § 1;
People v. Lopez (2019) 42 Cal.App.5th 337, 340–341.)
Senate Bill No. 483 (2021–2022 Reg. Sess.) (Senate Bill 483) explicitly made the
changes implemented by Senate Bill 136 retroactive. (Stats. 2021, ch. 728, § 1 [“it is the
intent of the Legislature to retroactively apply … Senate Bill 136 of the 2019–20 Regular
4.
Session to all persons currently serving a term of incarceration in jail or prison for these
repealed sentence enhancements”].) The bill took effect on January 1, 2022, also adding
former section 1171.1 to the Penal Code. (Stats. 2021, ch. 728, § 3.) The Legislature
recently renumbered former section 1171.1 without substantive change—it is now
section 1172.75. (Stats. 2022, ch. 58, § 12, effective June 30, 2022.) Section 1172.75
provides: “[a]ny sentence enhancement that was imposed prior to January 1, 2020,
pursuant to subdivision (b) of [s]ection 667.5, except for any enhancement imposed for a
prior conviction for a sexually violent offense … is legally invalid.” (§ 1172.75,
subd. (a).)
Section 1172.75 also gives defendants a remedy for those legally invalid
enhancements. The Department of Corrections and Rehabilitation (CDCR) and the
county correctional administrator must identify individuals currently serving terms that
include the invalidated enhancement. (§ 1172.75, subd. (b).) The officials must provide
the sentencing courts with the names of those individuals, along with their dates of birth
and the relevant case or docket numbers. (Ibid.) “Upon receiving the information,” if the
court determines that a judgment includes an invalidated enhancement, “the court shall
recall the sentence and resentence the defendant.” (§ 1172.75, subd. (c).) In resentencing
the defendant, the court shall “apply any other changes in law that reduce sentences or
provide for judicial discretion so as to eliminate disparity of sentences and to promote
uniformity of sentencing.” (§ 1172.75, subd. (d)(2).) The resentencing “shall not result
in a longer sentence than the one originally imposed.” (§ 1172.75, subd. (d)(1).) Rather,
it “shall result in a lesser sentence …, unless the court finds by clear and convincing
evidence that imposing a lesser sentence would endanger public safety.” (Ibid.)
Moreover, when the Legislature enacted the resentencing statute, its uncodified findings
and declarations specified its intent that “any changes to a sentence as a result of [Senate
Bill 483] … shall not be a basis for a prosecutor or court to rescind a plea agreement.”
(Stats. 2021, ch. 728, § 1.)
5.
C. Analysis
Defendant contends the trial court erred when it denied his petition for
resentencing based on its finding that he posed a risk for future violence pursuant to
section 1172.75, subdivision (d)(1). He contends his two enhancements under
section 667.5, former subdivision (b) must be stricken during a resentencing hearing
because he qualifies for the ameliorative relief mandated by section 1172.75,
subdivision (a). The People agree defendant’s prior prison term enhancements have been
invalidated, regardless of any findings the trial court made under section 1172.75,
subdivision (d)(1), and that the matter should be remanded to the trial court for
resentencing. However, the People argue that the trial court can evaluate whether
defendant poses a risk for future violence under section 1172.75, subdivision (d)(1),
during the resentencing hearing to determine whether a lesser sentence would endanger
public safety. We agree with the parties that defendant’s prior prison term enhancements
have been invalidated, but here, remand is futile because defendant was sentenced
pursuant to a plea agreement.
In this case, the trial court imposed two one-year prior prison term enhancements
in 2015 under section 667.5, former subdivision (b), but the enhancements are now
“legally invalid.” (§ 1172.75, subd. (a).) Defendant’s prior prison terms were for petty
theft with a prior conviction (§ 666). As none of defendant’s prior prison terms were for
sexually violent offenses, he qualifies for relief pursuant to section 1172.75,
subdivision (a). (§ 1172.75, subd. (a); Welf. & Inst. Code, § 6600, subd. (b).)
Section 1172.75, subdivision (d)(1)’s public safety finding by the trial court does not
eliminate the need to strike (or otherwise eliminate) the prior prison term enhancements
that have been invalidated by section 1172.75, subdivision (a), as is the case here. Here,
the trial court improperly denied defendant’s motion to modify his sentence in
February 2022 because it determined he posed a risk of future violence, pursuant to
section 1172.75, subdivision (d)(1), without first conducting a resentencing hearing. A
6.
trial court may evaluate whether a defendant poses a risk of future violence pursuant to
section 1172.75, subdivision (d)(1), upon resentencing the defendant. If so, its option
would be to resentence the defendant to a total term that does not exceed the original
sentence and does not include the invalidated portions of the sentence. In this case, the
trial court denied defendant’s petition and retained the invalid portions of his sentence,
improperly relying on the procedure specified by section 1172.75, subdivision (d)(1).
Here, however, defendant agreed to a stipulated sentence pursuant to a plea
agreement between the parties that he be sentenced to the middle term of three years,
doubled due to the prior strike conviction, plus a three-year great bodily injury
enhancement and two one-year prior prison term enhancements. Senate Bill 483 makes
clear that the proper remedy in the present case is to strike the invalid prior prison term
enhancements while leaving the remainder of the plea agreement intact. Further,
section 1192.5, subdivision (b), provides, in relevant part, that when a “plea is accepted
by the prosecuting attorney in open court and is approved by the court, … the court may
not proceed as to the plea other than as specified in the plea.” Defendant was sentenced
pursuant to a plea agreement, which set out the specific term of imprisonment for the
count of conviction and each enhancement. The trial court therefore could not resentence
defendant to a sentence other than the remainder of the sentence permitted by the plea
agreement after striking the invalid prior prison term enhancements—a term of
nine years. Accordingly, remanding for resentencing would not serve any purpose and
would be an idle act. (See People v. McDaniels (2018) 22 Cal.App.5th 420, 425.)
Accordingly, the trial court’s order denying defendant’s petition for resentencing
must be reversed. We modify the judgment by striking the two one-year prior prison
term enhancements.
DISPOSITION
The trial court’s order denying defendant’s petition for resentencing is reversed
and defendant’s two section 667.5 enhancements are stricken. The trial court is directed
7.
to issue an amended abstract of judgment to reflect the modification, and forward copies
to the appropriate entities. In all other respects, we affirm.
8. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488753/ | Electronically Filed
Supreme Court
SCEC-XX-XXXXXXX
22-NOV-2022
08:01 AM
Dkt. 14 ODMR
SCEC-XX-XXXXXXX
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
________________________________________________________________
JAMES RYAN MALISH and KARL O. DICKS, Plaintiffs,
vs.
SCOTT NAGO, acting in official capacity of Chief Election
Officer, STATE OF HAWAIʻI OFFICE OF ELECTIONS,
and ELECTIONS COMMISSION, Defendants.
________________________________________________________________
ORIGINAL PROCEEDING
ORDER DENYING MOTION FOR RECONSIDERATION
(By: Recktenwald, C.J., Nakayama, McKenna, Wilson, and Eddins, JJ.)
Upon consideration of Plaintiffs’ motion for
reconsideration of this court’s November 14, 2022 order
dismissing complaint in part, and the record, this court has not
overlooked or misapprehended points of law or fact. See Hawaiʻi
Rules of Appellate Procedure Rule 40(b). Accordingly, it is
ordered that the motion is denied.
DATED: Honolulu, Hawaii, November 22, 2022.
/s/ Mark E. Recktenwald
/s/ Paula A. Nakayama
/s/ Sabrina S. McKenna
/s/ Michael D. Wilson
/s/ Todd W. Eddins | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488761/ | NOT RECOMMENDED FOR PUBLICATION
File Name: 22a0472n.06
Case No. 22-1397
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
) Nov 22, 2022
PATRICIA M. ROBINSON, DEBORAH S. HUNT, Clerk
)
Plaintiff-Appellant, )
) ON APPEAL FROM THE
v. ) UNITED STATES DISTRICT
) COURT FOR THE EASTERN
COMMISSIONER OF SOCIAL SECURITY, ) DISTRICT OF MICHIGAN
Defendant-Appellee. )
) OPINION
)
Before: SUTTON, Chief Judge; COLE and THAPAR, Circuit Judges.
COLE, Circuit Judge. Patricia Robinson’s application for social security benefits was
denied after an administrative law judge found that she was not disabled within the meaning of the
Social Security Act. She subsequently filed suit in district court, asserting a lack of substantial
evidence to support the Commissioner of Social Security’s adverse decision. Based on a finding
of substantial evidence, the district court adopted the magistrate judge’s recommendation to deny
Robinson’s motion for summary judgment, grant the Commissioner’s motion for summary
judgment, and affirm the Commissioner’s decision. Because substantial evidence supports the
Commissioner’s evaluation of Robinson’s carpal tunnel syndrome and therefore the finding that
she is not disabled, we AFFIRM the district court’s decision.
Case No. 22-1397, Robinson v. Commissioner of Soc. Sec.
I. BACKGROUND
Patricia Robinson applied for social security disability benefits due to hypothyroidism and
carpal tunnel syndrome in both hands. After her claim was initially denied, she requested a video
hearing before an Administrative Law Judge (“ALJ”).
Following Robinson’s hearing, the ALJ applied the governing five-step analysis and
ultimately found that Robinson was not disabled. See 20 C.F.R. § 404.1520(a)(4). Between steps
three and four of her analysis, the ALJ determined Robinson’s capacity for work, ultimately
concluding that Robinson could perform “light work,” subject to a range of limitations and
exceptions. In so finding, the ALJ considered Robinson’s symptoms and impairments, as well as
the medical evidence on the record, including at least seven separate sets of findings. Two of these
sets of findings are relevant to this appeal: those of a hand surgeon, Dr. Curtis Young, and an
occupational therapist, Delores Valtena. Considering Robinson’s age, education, and work
experience, a vocational expert testified that a similarly situated individual with the capacity for
light work would be able to perform the requirements of “representative occupations,” and
provided three examples encompassing 110,000 jobs in the national economy. Based on these
findings, the ALJ concluded that Robinson was not disabled within the meaning of the Social
Security Act, rendering her ineligible for benefits.
The Appeals Council summarily denied Robinson’s request for review of the ALJ’s
disability determination, making the ALJ’s decision the final decision of the Commissioner of
Social Security. Robinson filed suit in district court to challenge this decision. The parties cross-
moved for summary judgment. In his report and recommendation, the magistrate judge found that
the Commissioner’s decision was supported by substantial evidence on the record, and
recommended denying Robinson’s motion, granting the Commissioner’s motion, and affirming
-2-
Case No. 22-1397, Robinson v. Commissioner of Soc. Sec.
the Commissioner’s decision. Over Robinson’s objections, the district court adopted the
magistrate judge’s report and recommendation, therefore denying Robinson’s motion, granting the
Commissioner’s motion, and affirming the Commissioner’s decision.
Robinson timely appealed. On appeal, Robinson contends that because the ALJ failed to
follow the agency’s rules and regulations at multiple points, the Commissioner’s conclusion was
not supported by substantial evidence. We disagree.
II. ANALYSIS
A. Legal Standard
When the Appeals Council denied Robinson’s request for review of the ALJ’s decision,
that decision became the Commissioner’s final decision. 20 C.F.R. § 404.981. The district court
had jurisdiction to review such a final decision under 42 U.S.C. § 405(g). As the district court
entered its own final decision and Robinson timely appealed, we have appellate jurisdiction
under 28 U.S.C. § 1291 and can review the Commissioner’s decision—incorporating the ALJ’s
analysis and findings—under § 405(g).
We review the district court’s decision in a social security case de novo, Johnson v.
Commissioner of Soc. Sec., 652 F.3d 646, 648 (6th Cir. 2011), and our review is limited to whether
the Commissioner applied the correct legal standards and if the Commissioner’s decision was
based on substantial evidence. 42 U.S.C. § 405(g); Rogers v. Commissioner of Soc. Sec., 486 F.3d
234, 241 (6th Cir. 2007).
Substantial evidence is “more than a scintilla . . . but less than a preponderance; it is such
relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” Rogers,
486 F.3d at 241 (quoting Cutlip v. Secretary of Health & Human Servs., 25 F.3d 284, 286 (6th Cir.
1994)). This is not a high threshold: it is reached so long as the Commissioner’s decision is
-3-
Case No. 22-1397, Robinson v. Commissioner of Soc. Sec.
supported by substantial evidence, even if the opposite conclusion is also supported by substantial
evidence, Crum v. Sullivan, 921 F.2d 642, 644 (6th Cir. 1990), and even if not every piece of
relevant medical evidence is discussed, Loral Defense Sys.-Akron v. NLRB, 200 F.3d 436, 452–53
(6th Cir. 1999) (citing NLRB v. Beverly Enterprises-Massachusetts, 174 F.3d 13, 26 (1st Cir.
1999)). Failing to follow agency rules and regulations constitutes a de facto lack of substantial
evidence regardless of a conclusion’s justification elsewhere in the record. Miller v. Commissioner
of Soc. Sec., 811 F.3d 825, 833 (6th Cir. 2016) (quoting Gentry v. Commissioner of Soc. Sec., 741
F.3d 708, 722 (6th Cir. 2014)).
B. Analysis
To be eligible for social security benefits, a claimant must be found to be “disabled” as
defined by the Social Security Act. 42 U.S.C. § 423(a)(1)(E). The Commissioner uses a five-step
sequential evaluation process to determine whether a claimant has a qualifying disability.
20 C.F.R. § 404.1520(a)(4). When moving through the steps, “there are certain governing
standards to which an [agency] must adhere.” Rogers, 486 F.3d at 242. One such standard requires
the Commissioner to consider and assess the persuasiveness of any “medical opinion.” 20 C.F.R.
§ 404.1520c(a). A medical opinion is a “statement from a medical source about what you can still
do despite your impairment(s).” Id. § 404.1513(a)(2). A medical opinion is distinct from
“objective medical evidence,” id. § 404.1513(a)(1), or “other medical evidence,” id.
§ 404.1513(a)(3), neither of which are required to be considered or assessed for their
persuasiveness, see id. § 404.1520c(a). Even for a medical opinion, there is no requirement to
cite to every piece of evidence or conclusion, id. § 404.1520c(b)(1), nor must the agency give
controlling weight to any medical opinion, id. § 404.1520c(a).
-4-
Case No. 22-1397, Robinson v. Commissioner of Soc. Sec.
Central to Robinson’s appeal, between steps three and four of the evaluation process, the
Commissioner determined Robinson’s “residual functional capacity” (“RFC”). RFC measures the
most physical and mental work an individual can do despite any limitations or impairments.
20 C.F.R. §§ 404.1520(e), 404.1545(a)(1). The Commissioner then factored Robinson’s RFC into
its analysis at steps four and five, where he determined whether Robinson could perform any past
relevant work—step four—or other work considering her RFC as well as her age, education, and
work experience—step five. See 20 C.F.R. §§ 404.1520(a)(4), 404.1545(a)(5). While the
Commissioner stated his consideration of Robinson’s “complaints of [symptoms], the objective
findings in the record, and the opinion evidence” in coming to his RFC conclusion, Robinson
disagrees.
Specifically, Robinson argues that the Commissioner failed to consider and articulate the
persuasiveness of findings by one of her treating physicians, hand surgeon Dr. Young, which she
claims constituted a medical opinion, and that this evidence should have been considered either
way. Robinson further challenges the interpretation of a functional capacity evaluation by an
occupational therapist, Valtena, despite her evidence being contrary to the Commissioner’s
conclusion. We take these challenges in turn, ultimately concluding that the Commissioner’s
determination is supported by substantial evidence based on the proper legal standards.
1. Dr. Young’s Findings
First, Dr. Young’s findings do not constitute medical opinions, so the Commissioner was
not required to assess their persuasiveness or explain why the opinions were not adopted. See 20
C.F.R. § 404.1520c(a); Social Security Ruling, 1996 WL 374184, 96-8p (SSA 1996). Dr. Young
reiterated Robinson’s diagnosis of bilateral carpal tunnel syndrome and provided test results in
raw numbers. There is a difference between what Dr. Young provided—“[s]tatic two-point
-5-
Case No. 22-1397, Robinson v. Commissioner of Soc. Sec.
discrimination on the right is 7 mm in the thumb and 6 mm in the index through small finger”—
and what the Commissioner considered a medical opinion—“no limitation with low body mobility
. . ., ability to sit approximately 1-2 hours . . . [and] lift a maximum of 10 pounds.” The latter
describes “what [Robinson] can still do despite [her] impairment(s).” See 20 C.F.R.
§ 404.1513(a)(2).
Albeit tangential to Robinson’s “ability to perform physical demands of work activities”—
an ability relevant to medical opinions, see id. § 404.1513(a)(2)(i)—Dr. Young’s numbers
themselves do not describe what Robinson can or cannot do during the workday. The term
“medical opinion” cannot be understood to encompass every piece of information that describes
“what [a claimant] can still do” only after manipulation and interpretation with supplemental
evidence. See id. § 404.1513(a)(2). To do so would collapse the distinction between “medical
opinions” on one hand, and “laboratory findings” and “clinical findings” on the other—the latter
two of which need not be assessed, even if they could be interpreted as providing insight on work
activities. Whether Dr. Young’s findings instead constitute “objective medical evidence,” see id.
§ 404.1513(a)(1), or “other medical evidence,” see id. § 404.1513(a)(3), does not change that the
Commissioner was under no obligation to assess their persuasiveness.
Moreover, regardless of label, the Commissioner properly considered Dr. Young’s
findings. That the Commissioner did not specifically refer to Dr. Young’s grip strength and
discrimination testing is immaterial. See Loral Defense Sys., 200 F.3d at 452–53 (not all
information needs to be discussed); Dunlap v. Commissioner of Soc. Sec., 509 F. App’x 472, 476
(6th Cir. 2012) (unnecessary to discuss all evidence, particularly when the information is
considered implicitly). The Commissioner referenced Robinson’s June 2019 appointment with
Dr. Young, including Robinson’s rejection of the suggested treatment. And the Commissioner
-6-
Case No. 22-1397, Robinson v. Commissioner of Soc. Sec.
expressly acknowledged Robinson’s decreased bilateral strength and grip strength, demonstrated
by Dr. Young’s numerical findings. Such decreased strength factored into the Commissioner’s
determination to add limitations and exceptions to Robinson’s RFC, constituting adequate
consideration of the relevant medical evidence in compliance with the regulations. See 20 C.F.R.
§ 404.1520(e); Amir v. Commissioner of Soc. Sec., 705 F. App’x 443, 450 (6th Cir. 2017) (finding
no error in not discussing a specific test result when the broader pain measured by that test was
factored into limitations).
Combined, the Commissioner’s evaluation of Robinson’s carpel tunnel syndrome is
supported by substantial evidence, including evidence from Dr. Young, so the findings are
conclusive, see 42 U.S.C. § 405(g), and failure to further consider or assess Dr. Young’s test results
was not error.
2. Valtena’s Findings
While we do not find Robinson’s objections to the Commissioner’s alleged lack of or
improper consideration of Valtena’s reports waived, the Commissioner’s analysis of Robinson’s
carpal tunnel syndrome adequately addressed Valtena’s findings. As to the waiver point, we agree
with Robinson that while Valtena was not mentioned by name in Robinson’s objections to the
magistrate’s report, her tests and findings were, and these tests and findings go to her objection to
the Commissioner’s handle and finger finding. As such, this specific issue was properly preserved
for appellate review.
Unlike Dr. Young’s test results, Valtena provided a medical opinion regarding what tasks
Robinson can perform at work despite her impairments, so the Commissioner evaluated the
opinion’s persuasiveness. See 20 C.F.R.§ 404.1520c(a). In doing so, the Commissioner discussed
both Valtena’s ultimate conclusion—that Robinson can handle the physical demands of sedentary
-7-
Case No. 22-1397, Robinson v. Commissioner of Soc. Sec.
work—and her underlying findings—including test results and the reported variance in Robinson’s
lifting ability, ranging from zero to ten pounds depending on the height of the lift. This alone
satisfies the Commissioner’s burden as it relates to Valtena’s medical opinion. See 20 C.F.R.
§ 404.1520c(a)-(b)(1). That the evidence overall, including Valtena’s opinion, could support two
inconsistent conclusions regarding Robinson’s RFC—the capacity to perform sedentary work
versus light work—does not change that the Commissioner’s pick of the two is supported by
substantial evidence. See American Textile Mfrs. Inst., Inc. v. Donovan, 452 U.S. 490, 522–523
(1981) (quoting Consolo v. FMC, 383 U.S. 607, 620 (1966)).
In sum, the Commissioner’s decision that Robinson is not disabled as defined in the Social
Security Act complies with the agency’s regulations and is supported by substantial evidence.
III. CONCLUSION
For the foregoing reasons, we affirm the district court’s order adopting the magistrate
judge’s Report and Recommendation.
-8- | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488759/ | NOT RECOMMENDED FOR PUBLICATION
File Name: 22a0470n.06
No. 22-1142
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT FILED
Nov 22, 2022
DEBORAH S. HUNT, Clerk
)
UNITED STATES OF AMERICA,
)
Plaintiff-Appellee, ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
v. ) COURT FOR THE EASTERN
) DISTRICT OF MICHIGAN
TONALYNN BERNARD, )
Defendant-Appellant. )
OPINION
)
Before: SILER, NALBANDIAN, and READLER, Circuit Judges.
NALBANDIAN, Circuit Judge. Tonalynn Bernard pleaded guilty to a drug charge under
21 U.S.C. §§ 841(a)(1) and 846 and the district court sentenced her to 30 months in prison. After
being released to a halfway house, she began a period of supervised release. During her supervised
release, she was arrested twice more on drug charges. The district court sentenced her to 24 months
in prison for these violations. Bernard appeals this sentence as procedurally and substantively
unreasonable. We disagree and affirm.
I. Background
Tonalynn Bernard was convicted in federal court for conspiracy to possess with intent to
distribute a controlled substance based on activity from June 2015 to February 2017. In January
2018, the court adjourned her sentencing hearing to give her a chance to show rehabilitation based
on her argument that her drug activity stemmed from her drug addiction. But in March 2018,
No. 22-1142, United States v. Bernard
Bernard was arrested after fleeing from the police searching her home. The police recovered nine
grams of cocaine, as well as scales, money, and packaging material during their search.
Bernard pleaded guilty to state drug charges and received a 1-to-40-year sentence. She
also pleaded guilty to federal charges. The district court sentenced her to 30 months in prison,
concurrent with the state sentence.
In October 2020, Bernard was released to a halfway house. In April 2021, she began a
period of supervised release as part of her federal sentence. Her new troubles began in August
2021, when a search warrant targeted at her son led officers to search her room, where they found
crack cocaine and Adderall. Bernard was once again charged in state court with drug possession.
The Probation Office released a report listing three supervised release violations. The court then
ordered Bernard released on bond pending a hearing on the violations.1
In November 2021, police again arrested Bernard—this time, related to drug sales in a hotel
parking lot. The state filed charges and the Probation Office submitted a new report listing five
violations. The district court issued a new warrant. And Bernard self-surrendered. She admitted
to three of the five violations on the new probation report. Bernard asked the court to allow her to
undergo intensive drug treatment for her ongoing mental-health and substance-abuse problems
rather than send her to prison. The government countered that Bernard had been through treatment
before, making a Guidelines sentence appropriate.
The district court, who had been presiding over Bernard’s case from the start, sentenced
Bernard to 24 months in prison — the statutory maximum and within the Guidelines range of 24
to 30 months. The court noted that Bernard had tested clean for drugs “for an extended period”
1
At the time of her supervised release violation hearing, Bernard had not yet been convicted for
the state-level offense, but her attorney informed the court that she planned to plead guilty to
possession with intent to distribute.
2
No. 22-1142, United States v. Bernard
but had repeatedly engaged in drug dealing. (R. 140, Supervised Release Violation Hearing, at
25). Bernard objected to the length of the sentence but not to its reliance on allegedly
unsubstantiated facts. She now appeals, arguing that her sentence is both procedurally and
substantively unreasonable.
II. Standard of Review
We generally review a sentence for procedural and substantive reasonableness for an abuse
of discretion — whether the sentence is within or outside the Guidelines range. Gall v. United
States, 552 U.S. 38, 51 (2007); United States v. Robinson, 778 F.3d 515, 518 (6th Cir. 2015).
Defendants need not raise substantive reasonableness to preserve it for appeal. United States v.
Penson, 526 F.3d 331, 337 (6th Cir. 2008). But they must raise procedural reasonableness in the
district court and on appeal. Id. Otherwise, plain error review applies. United States v. Vonner,
516 F.3d 382, 386 (6th Cir. 2008) (en banc). Under that test, we can correct an error not raised in
the district court. There must be (1) “error,” (2) that is “plain,” (3) that “affects substantial rights,”
and (4) that “seriously affect[s] the fairness, integrity, or public reputation of judicial
proceedings.” Johnson v. United States, 520 U.S. 461, 467 (1997) (alteration in original) (citations
and quotations omitted).
III. Analysis
A. Whether the Sentence Was Procedurally Unreasonable
We first consider procedural reasonableness. Gall, 552 U.S. at 51. Procedural
reasonableness requires that the district court must have
(1) properly calculated the applicable advisory Guidelines range; (2) considered the other
[18 U.S.C.] § 3553(a) factors as well as the parties’ arguments for a sentence outside the
Guidelines range; and (3) adequately articulated its reasoning for imposing the particular
sentence chosen, including any rejection of the parties’ arguments for an outside-
Guidelines sentence and any decision to deviate from the advisory Guidelines range
3
No. 22-1142, United States v. Bernard
United States v. Adams, 873 F.3d 512, 517 (6th Cir. 2017) (alteration in original) (quoting United
States v. Bolds, 511 F.3d 568, 581 (6th Cir. 2007)).
A sentencing court can commit procedural error by relying on “clearly erroneous facts.”
Id. (citation omitted). “In challenges to the evidence considered by the sentencing judge, the
defendant must establish that the challenged evidence is materially false or unreliable, and that
such false or unreliable information actually served as the basis for the sentence.” United States
v. Robinson, 898 F.2d 1111, 1116 (6th Cir. 1990); see Adams, 873 F.3d at 517. Because Bernard
did not object to this particular alleged procedural error during the supervised release violation
hearing, we review for plain error. See United States v. Harmon, 607 F.3d 233, 237 (6th Cir.
2010).
The district court confirmed that Bernard was stipulating to three of the five violations of
her probation conditions, that the relevant Guidelines range was 24 – 30 months, and that the
relevant, applicable statutory maximum was 24 months.2 The court discussed the 18 U.S.C.
§ 3553(a) factors, including the seriousness of the offense, the need for deterrence and promotion
of respect for law, and Bernard’s status as a repeat offender. (R. 140, Supervised Release Violation
Hearing, at 24–26). And the district court explained the reasons for the sentence, including why
it was rejecting Bernard’s request for a non-custodial sentence. The court emphasized Bernard’s
repeated engagement in drug distribution (rather than personal drug use) as justification for
imposing a custodial sentence. (R. 140, Supervised Release Violation Hearing, at 24–26).
Bernard argues that the district court relied on clearly erroneous facts in reaching its
sentence. In particular, she argues that the court’s statement that Bernard had received treatment,
“seem[ed] to imply that she received drug and mental-health treatment during the 10 months she
2
Bernard has a Criminal History Category of IV.
4
No. 22-1142, United States v. Bernard
had been on supervision.” (Appellant Brief at 10). Bernard notes that she had last received
inpatient drug treatment in 2016, five years before the violation hearing. (Appellant Brief at 13).
She also says that she never attended the specific type of treatment program proposed by her
counsel — one “where she would receive mental-health treatment, drug treatment, and transitional
housing assistance.” (Appellant Brief at 13).
Bernard’s argument goes too far. The district court said that she had received treatment,
but never specified the type or when she had received it. (R. 140, Supervised Release Violation
Hearing, at 25). And the court recognized Bernard’s argument that her behavior stemmed from
addiction brought on by mental health struggles. Bernard’s defense counsel told the court at the
supervised release violation hearing that “she had done inpatient back about, in 2015” and
suggested that if the court sent her back, her results “could look different this time.” (R. 140,
Supervised Release Violation Hearing, at 17).
The court, which had handled Bernard’s case since her original sentencing, simply rejected
the argument. The court stated that
as appealing as the argument from the defense is that Ms. Bernard is an addict with mental
health issues, what emerges from the full picture here is that she’s simply someone who
has despite whatever other issues she may have, she is somebody who has put herself on
the wrong side of the law time and time again.
(R. 140, Supervised Release Violation Hearing, at 25). The court did not suggest that Bernard had
received treatment since 2016 or that she had attended precisely the sort of treatment that her
counsel recommended. To suggest otherwise is speculative.
Bernard relies on two cases to argue that the district court’s decision was procedurally
unreasonable. In Adams, we found a sentence to be procedurally unreasonable when the district
court relied on the government’s unsupported statement that drug addicts needed 18 months to
“reset” their brains for effective future treatment. 873 F.3d at 519. The court laid out a two-part
5
No. 22-1142, United States v. Bernard
test to determine whether a sentence is procedurally unreasonable in this context: “(1) whether the
[] contested propositions are materially false or unreliable; and (2) whether they were ‘important
factors’ in calculating [the defendant’s] sentence, such that [the] sentence may have been different
in their absence.” Id. at 518. We found that the government’s bare assertions that addicts needed
18 months for their brains to reset was unreliable “because it is an unsubstantiated assertion that
has the veneer of accuracy due to its supposed status as a product of scientific research.” Id. at
519. But the government provided no supporting evidence of this timeline. Id. at 519 n.3. And
the district court in Adams had explicitly relied on this information in sentencing, telling the
defendant that he needed an 18-month sentence “to reset.” Id. at 519 (emphasis in original).
Here, the district court did not rely on any erroneous facts. It’s not even clear that the court
drew the erroneous inferences that Bernard alleges. The district court never said that Bernard had
attended rehab during supervised release or that she had attended the type of rehab her counsel
recommended. The court acknowledged the argument that Bernard struggled with addiction and
mental health problems but found that her recidivism was enough to justify a custodial sentence.
(R. 140, Supervised Release Violation Hearing, at 25 (“[Bernard’s] real problem this morning is
that she was in possession of drugs that she intended to distribute.”).)
Bernard also cites United States v. Smith to support her argument. 400 F. App’x 96 (7th
Cir. 2010). In Smith, the district court extensively discussed socio-political events outside the
scope of the record while sentencing the defendant. Id. at 98 (linking the defendant to “a grand
criminal enterprise” that was “ruining Mexico” and remarking on “President Obama’s visits with
Mexican President Felipe Calderon, Mexican gangs, border violence, and the high kidnaping rates
in Arizona, concluding that ‘this is all created by people like you’”). The Seventh Circuit found
that the “district court’s comments at sentencing ventured too far from the record and provided an
6
No. 22-1142, United States v. Bernard
insufficient factual basis for its sentencing determination.” Id. at 99. It emphasized that although
“sentencing is an individual, and at times idiosyncratic, process,” it is “inappropriate to blame [the
defendant] for issues of broad local, national, and international scope that only tangentially relate
to his underlying conduct.” Id. (internal citation omitted).
That’s not our situation. The court did not stray from the facts of Bernard’s specific case.
Rather, the court found those facts were not sufficient to overcome the judgment that Bernard had
chosen to repeatedly engage in crime. This was hardly an unreasonable conclusion. Bernard had
a history of treatment. She also consistently tested negative on her drug tests. And she repeatedly
either possessed or sold large drug amounts. There is no evidence to suggest the district court
erred, much less plainly, when it found that “this is not a case of a sick addict who cannot rid
herself of the demon of drugs for her personal use,” but rather a drug dealer who has “put herself
on the wrong side of the law time and time again.” (R. 140, Supervised Release Violation Hearing,
at 25).
B. Whether the Sentence Was Substantively Unreasonable
In determining whether a sentence is substantively reasonable, “[w]e must take into
account the totality of the circumstances.” Adams, 873 F.3d at 517 (internal quotation marks and
citations omitted). A “sentence within the applicable Guidelines range is accorded a presumption
of [substantive] reasonableness.” Id. (alteration in original) (internal quotation marks and citations
omitted); United States v. Price, 901 F.3d 746, 749 (6th Cir. 2018). The presumption, however,
is rebuttable and is not binding. Adams, 873 F.3d at 520 (citing Rita v. United States, 551 U.S.
338, 347 (2007)); see United States v. Liou, 491 F.3d 334, 337 (6th Cir. 2007).
A sentence is substantively unreasonable if “the district court ‘selects a sentence arbitrarily,
bases the sentence on impermissible factors, fails to consider relevant sentencing factors, or gives
7
No. 22-1142, United States v. Bernard
an unreasonable amount of weight to any pertinent factor.’” Price, 901 F.3d at 749 (quoting United
States v. Lapsins, 570 F.3d 758, 772 (6th Cir. 2009)). Although the court must consider the
relevant sentencing factors, “a district court does not commit reversible error simply by
‘attach[ing] great weight’ to a few factors.” United States v. Robinson, 892 F.3d 209, 214 (6th
Cir. 2018) (alteration in original) (quoting Gall, 552 U.S. at 57). A sentence should not be
overturned just because the appellate court would balance the factors differently than the district
court did. United States v. Gardner, 32 F.4th 504, 532 (6th Cir. 2022) (“Our review ‘looks to
whether the sentence is reasonable,’ not to whether we ‘would have imposed the same sentence’
in the first instance.” (internal citation omitted)).
Here, the district court extensively discussed the factors leading to Bernard’s sentence. The
seriousness of the offense, combined with Bernard’s pattern of re-offending and the lack of
evidence that addiction had driven her actions, led the court to impose a custodial sentence. In the
court’s words, “prior efforts of dealing with Ms. Bernard’s addiction have been attempted and her
continuing violations of the law to this Court don’t seem to be simply a product of addiction, but
a calculated decision to be on the wrong side of the law for the wrong reasons.” (R. 140,
Supervised Release Violation Hearing, at 26).
Bernard’s sentence is like the one that we found substantively reasonable in Price. 901
F.3d at 752. In that case, the defendant argued that it was unreasonable for the court to revoke a
term of supervised release and impose a 24-month sentence where he was eligible for inpatient
substance abuse treatment. Id. at 751. Price had repeatedly violated the terms of his supervised
release, both by using and possessing cocaine. Id. The district court considered Price’s request
for treatment, but found that concerns about “public safety, accountability, and breach of trust
outweighed” the benefits of providing him with treatment. Id. at 752. In upholding the district
8
No. 22-1142, United States v. Bernard
court’s sentence, we noted that Price’s “argument that the sentencing factors should have been
balanced differently is not sufficient to rebut [the] presumption” of substantive reasonableness
given a within-Guidelines sentence. Id.
The district court judge here acknowledged his “preference for finding noncustodial ways
of addressing violations of the law,” but dismissed those as inadequate in this case. (R. 140,
Supervised Release Violation Hearing, at 25). He also explained that Bernard’s sentence was
imposed in response to her status as a drug dealer rather than a drug user. (R. 140, Supervised
Release Violation Hearing, at 25). As such, the court explained why it was imposing a custodial
sentence.
Finally, there is nothing to suggest that the length of the sentence was unreasonable.
Although 24 months was the statutory maximum sentence, it was at the low end of the Guidelines
range. Because it was within the Guidelines range, we accord the sentence a presumption of
reasonableness. Adams, 873 F.3d at 517. Bernard claims that the court did not tie the length of
her sentence to anything but her choice to be on the wrong side of the law. (Appellant Brief at
18). But the court’s reasons for imposing its sentence included the serious nature of Bernard’s
crimes, the failure of previous attempts to address her addiction, and her recidivism.
Here, the district court acted well within its discretion in imposing Bernard’s sentence.
Bernard no doubt is unhappy with how the district court balanced the sentencing factors. But as
this court has repeatedly made clear, that will not lead us to overturn the sentence.
IV. Conclusion
For the reasons laid out above, we affirm the sentence imposed by the district court.
9 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488760/ | NOT RECOMMENDED FOR PUBLICATION
File Name: 22a0471n.06
Case No. 22-5219
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
Nov 22, 2022
) DEBORAH S. HUNT, Clerk
TIMOTHY JOSEPH MCILWAIN,
)
Plaintiff-Appellant, )
) ON APPEAL FROM THE
v. ) UNITED STATES DISTRICT
) COURT FOR THE WESTERN
ALLEN P. DODD, III; ELIZABETH DODD; ) DISTRICT OF KENTUCKY
ALLEN M. DODD, )
Defendants-Appellees. ) OPINION
)
Before: SUTTON, Chief Judge; COLE and GRIFFIN, Circuit Judges.
COLE, Circuit Judge. Timothy McIlwain and Brooke Berry are the parents of minor child
H.D.M. In March 2019, McIlwain and Berry began custody proceedings in Kentucky state court,
during which Berry retained Elizabeth Dodd as her attorney. In June 2021, McIlwain filed suit
against Elizabeth Dodd, Allen P. Dodd, III, and Allen M. Dodd alleging, inter alia, conspiracy to
deprive McIlwain of his rights under 42 U.S.C. § 1985(3), malicious prosecution, and negligent
infliction of emotional distress. The Dodds moved to dismiss the complaint, McIlwain responded,
and the Dodds replied. McIlwain then moved to amend his complaint, realleging the conspiracy
and malicious prosecution claims and converting the negligent infliction of emotional distress
claim into an intentional infliction of emotional distress claim. The district court determined that
the motion to amend would be futile. Accordingly, the district court denied McIlwain’s motion to
Case No. 22-5219, McIlwain v. Dodd, et al.
amend and granted the Dodds’ motion to dismiss. Because we agree that McIlwain failed to allege
facts sufficient to support his claims, we AFFIRM.
I. BACKGROUND
A. Facts
Timothy McIlwain and Brooke Berry are parents to minor child H.D.M. McIlwain and
Berry raised H.D.M together until February 2019 when both parties filed for custody in Kentucky.
In March 2019, the Kentucky court granted McIlwain and Berry joint legal custody. McIlwain
alleges that between February and April 2019, Berry prevented McIlwain from seeing his daughter
during prescribed visitation periods. In April 2019, McIlwain filed a motion to make up the lost
visitation time. Around the same time, Berry retained Elizabeth Dodd (“Elizabeth”) to represent
her in the custody proceedings. McIlwain alleges that the Dodds “undoubtedly counseled” Berry
to engage in a parent alienation protocol to prevent H.D.M from seeing her father. In May 2019,
Elizabeth filed a response to McIlwain’s outstanding motion to make up the visitation time and
filed a motion for a protective order, also referred to as a domestic violence order (“DVO”).
McIlwain alleges that the motion for the protective order was filed based on false information from
Berry. In May 2019, the Kentucky court entered the DVO, preventing McIlwain from coming
within 500 feet of Berry.
After the DVO was entered, McIlwain maintains that Elizabeth created situations meant to
force McIlwain into violating the DVO. For example, McIlwain alleges that Elizabeth arranged
for Berry to arrive an hour early to pick up H.D.M from school so that Berry and McIlwain would
cross paths.
On August 6, 2019, Berry was deposed at the office of Doug Haynes, McIlwain’s family
law attorney. A judicial order prohibited McIlwain from being present at this deposition.
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Case No. 22-5219, McIlwain v. Dodd, et al.
Allegedly advised by his attorney to get a transcript of the court’s rulings, McIlwain went to the
courthouse that afternoon. McIlwain states that the deposition ended at 3:00 PM, and he arrived
at the courthouse at 4:20 PM to avoid contact with Elizabeth and Berry. McIlwain avers that Berry
and Elizabeth went to the courthouse following the deposition and waited there for McIlwain.
Once McIlwain had arrived, Elizabeth “ran” to get the sheriff and made allegedly false statements
that McIlwain violated the DVO and followed them to the courthouse. The sheriff arrested
McIlwain, who then spent the night in jail before being released.
McIlwain alleges that prosecutors reviewed courthouse video showing that Elizabeth and
Berry were “lying in wait.” (Proposed Am. Compl., R. 24-2, PageID 292.) Ultimately, the charges
against McIlwain were dropped following his stipulation to probable cause for the arrest.
McIlwain maintains that this stipulation was limited and did not extend to Elizabeth.
Later in August 2019, McIlwain’s time in jail following his arrest at the courthouse was
used as one reason for a complaint filed against him with Kentucky Child Protective Service.
According to McIlwain’s proposed amended complaint, Child Protective Service found none of
the allegations against him to be true or worthy of action.
In September 2019, the Kentucky court overseeing the custody suit denied McIlwain’s
motions for a hearing and immediate visitation, allegedly due to Elizabeth’s misrepresentations to
the judge’s secretary regarding McIlwain’s statements. In January 2020, McIlwain agreed to new,
“unfavorable” visitation terms to reestablish contact with his daughter.
Finally, McIlwain alleges that Elizabeth and Berry made sexually explicit videos with
H.D.M to gain an advantage in the custody dispute, accused McIlwain of sexually abusing his
daughter, and enlisted H.D.M.’s pediatrician to make false claims about H.D.M.’s health that
would prevent McIlwain from seeing his daughter. In his original complaint, McIlwain also
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Case No. 22-5219, McIlwain v. Dodd, et al.
alleged that in October or November 2019, Elizabeth and Berry sent his daughter to a “handpicked
New York therapist to get evidence to block the child from the father permanently.” (Compl., R.
1, PageID 31.)
B. Procedural History
On June 22, 2021, McIlwain filed a complaint against Elizabeth Dodd, Allen P. Dodd, and
Allen McKee Dodd (“Dodds”) alleging conspiracy to violate his rights under 42 U.S.C. § 1985(3),
false imprisonment, malicious prosecution, abuse of process, fraud-deceit, negligent
misrepresentation, negligent infliction of emotional distress, and negligent supervision and
training. The Dodds moved to dismiss all counts pursuant to Federal Rule of Civil Procedure
12(b)(6). McIlwain filed a response which addressed the arguments concerning the malicious
prosecution, negligent infliction of emotional distress, and § 1985(3) conspiracy claims. The
Dodds replied. On December 12, 2021, McIlwain moved to amend his complaint. His new
complaint realleged claims of conspiracy under 42 U.S.C. § 1985(3), false imprisonment,
malicious prosecution, abuse of process, and fraud-deceit, made no mention of the negligent
misrepresentation or negligent supervision and training claims, converted the negligent infliction
of emotional distress into an intentional infliction of emotional distress claim, and added additional
claims against new defendants Brooke Berry, Leah Berry, and John Doe Sheriffs.
The district court denied the motion to amend, finding that the claims against the new
defendants failed because of lack of notice and failure to file the motion to amend within 120 days
of the original complaint. See Fed. R. Civ. P. 15(c). The district court also determined that the
claims in the proposed amended complaint were futile because these claims would not survive a
motion to dismiss. Accordingly, the district court denied McIlwain’s motion to amend the
complaint and granted the Dodds’ motion to dismiss. McIlwain appeals.
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Case No. 22-5219, McIlwain v. Dodd, et al.
II. ANALYSIS
On appeal, we address only the claims alleging conspiracy under 42 U.S.C. § 1985(3),
malicious prosecution, and intentional infliction of emotional distress. The district court properly
dismissed as abandoned the remaining negligence claims that were neither addressed in
McIlwain’s response to the motion to dismiss nor mentioned in the proposed amended complaint.
See Bazinski v. JPMorgan Chase Bank, Nat’l Ass’n., 597 F. App’x 379, 380–81 (6th Cir. 2015)
(per curiam). Additionally, on appeal McIlwain addresses neither the lower court’s dismissal of
his abuse of process, fraud-deceit, and false imprisonment claims nor the denial of the motion to
amend to add new claims against new defendants. We consider those claims abandoned. Doe v.
Michigan State Univ., 989 F.3d 418, 425 (6th Cir. 2021).
We review de novo dismissals pursuant to Rule 12(b)(6). In re NM Holdings Co., LLC,
622 F.3d 613, 618 (6th Cir. 2010). “In reviewing a motion to dismiss, we must accept non-
conclusory allegations of fact in the complaint as true and determine if the plaintiff has stated a
plausible claim for relief.” Orton v. Johnny’s Lunch Franchise, LLC, 668 F.3d 843, 846 (6th Cir.
2012). But, “[a] pleading that offers labels and conclusions or a formulaic recitation of the
elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked
assertion[s] devoid of further factual enhancement.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(internal quotation marks and citation omitted).
We also review de novo the denial of a motion to amend based on futility. Doe, 989 F.3d
at 426. Denying a motion to amend because it is futile is a determination that the claims in the
proposed amended complaint would not survive a motion to dismiss. Williams v. City of
Cleveland, 771 F.3d 945, 949 (6th Cir. 2014). Therefore, the pertinent question on appeal is
whether the amended complaint alleges sufficient facts to state a plausible claim for relief. Id.
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Case No. 22-5219, McIlwain v. Dodd, et al.
A. Conspiracy Pursuant to 42 U.S.C. § 1985(3)
1. Statute of Limitations
In Kentucky, the statute of limitations for a conspiracy claim brought under 42 U.S.C
§ 1985(3) is one year. Because § 1985(3) does not provide a statute of limitations, this court looks
to the law of the state where the cause of action arose to provide the applicable limitations period.
Burnett v. Grattan, 468 U.S. 42, 49 (1984). We previously determined that claims brought under
§ 1985(3) fall within the one-year limitations period defined in Kentucky Revised Statutes
§ 413.140(1). Bowden v. City of Franklin, 13 F. App’x 266, 272 (6th Cir. 2001) (per curiam). The
Bowden court determined “that Section 413.140 ‘is the most analogous to § 1985(3) in that it is
directed at conspiracies.’” Id. (quoting Bedford v. Univ. of Louisville Sch. of Med., No. 88-6423,
1989 WL 123143, at *3 (6th Cir. Oct. 19, 1989) (table op.)). Therefore, a claim for relief under
§ 1985 must be brought within one year of the date of accrual.
McIlwain’s argument that the five-year limitations period from Kentucky Revised Statutes
§§ 413.120(2), (6) should apply is unavailing. McIlwain supports this argument only by advancing
his own interpretation of sections 413.120(2) and (6). He fails to direct the court to—and the court
has been unable to find—any case law supporting his view.
We are also unpersuaded by McIlwain’s arguments that the district court erred in its
determination of the accrual date for the claim under § 1985(3). Though state law determines the
limitations period, federal law determines when a cause of action accrues. Sevier v. Turner,
742 F.2d 262, 272 (6th Cir. 1984). A cause of action under a civil rights statute accrues “when the
plaintiff knows or has reason to know of the injury that is the basis of his action.” Id. at 273.
Under the “last overt act” doctrine, a claim accrues on the date of the last overt act by the
defendants that caused injury to the plaintiff. See, e.g., United States ex rel. Griffith v. Conn,
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Case No. 22-5219, McIlwain v. Dodd, et al.
117 F. Supp. 3d 961, 987 (E.D. Ky. 2015) (discussing Sixth Circuit precedent regarding
application of the last overt act doctrine to civil conspiracies).
Here, McIlwain alleges that the Dodds and Berry undertook a series of actions aimed at
depriving him of his fundamental right to parent. Reviewing both the amended complaint and the
original complaint, the last act undertaken by Elizabeth that caused injury to McIlwain occurred
either in August or September 2019 when Dodd allegedly made misrepresentations to the family
court judge, or in October or November 2019, when H.D.M, was sent to a “handpicked New York
therapist to get evidence to block the child from the father permanently.” (Compl., R. 1, PageID
31.) The original complaint was filed in June 2021, more than a year after either of these events.
Dismissal of the charge alleging violation of the DVO cannot be a basis for accrual because
dismissal of this charge against McIlwain was neither an act undertaken by the Dodds, nor did it
cause injury to McIlwain. Therefore, his claim under § 1985(3) was untimely.
2. Merits
Independent of the statute of limitations, the district court properly dismissed McIlwain’s
claim under § 1985(3) because McIlwain failed to establish both that he is a member of a protected
class and that the Dodds’ actions were motivated by class-based animus.
To plead a claim under § 1985(3), a plaintiff must show
(1) a conspiracy involving two or more persons (2) for the purpose of depriving,
directly or indirectly, a person or class of persons of the equal protection of the laws
and (3) an act in furtherance of the conspiracy (4) which causes injury to a person
or property, or a deprivation of any right or privilege of a citizen of the United
States. Plaintiff must also establish that the conspiracy was motivated by a class-
based animus.
Johnson v. Hills & Dales Gen. Hosp., 40 F.3d 837, 839 (6th Cir. 1994) (citations omitted).
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Case No. 22-5219, McIlwain v. Dodd, et al.
Both the Supreme Court and this court have reiterated that class-based animus is an element
of a § 1985(3) conspiracy claim. See, e.g., Griffin v. Breckenridge, 403 U.S. 88, 102 (1971)
(“[T]here must be some racial, or perhaps otherwise class-based, invidiously discriminatory
animus behind the conspirators’ action.”); United Brotherhood of Carpenters & Joiners Local 610
v. Scott, 463 U.S. 825, 835–38 (1983) (reaffirming Griffin’s interpretation of § 1985(3)); Post v.
Trinity Health-Michigan, 44 F.4th 572, 580 (6th Cir. 2022) (“We have held that § 1985(3) reaches
only conspiracies targeting a person based on a classification (like racial discrimination) that would
receive heightened scrutiny under the Supreme Court’s equal-protection framework.”). Given this
consistent precedent, McIlwain’s argument that it is unnecessary to prove class membership to
succeed on a claim brought under § 1985(3) fails.
McIlwain insufficiently pleaded both membership in a protected class and that the
conspiracy was undertaken because of discriminatory animus. First, McIlwain argues that he is
part of the protected class of “single fathers.” There is no case law supporting the notion that
single fathers constitute a protected class for purposes of a claim under § 1985(3). Indeed, several
district courts have considered the issue and found the opposite. See Nielson v. Legacy Health
Sys., 230 F. Supp. 2d 1206, 1211 (D. Or. 2001) (declining to find that a single father is a member
of a protected class for the purposes of a claim under § 1985(3)); Humphrey v. Court of Common
Pleas, 640 F. Supp. 1239, 1243 (M.D. Pa. 1986) (same); Darian v. Cashe, No. 17-52, 2017 WL
3326976, at *7 (M.D. La. July 17, 2017) (same); Walsh v. Krantz, No. 1:07-CV-0616, 2008 WL
2329130, at *4–5 (M.D. Pa. June 4, 2008) (same); see also Borlawsky v. Town of Windham, 115
F. Supp. 2d 27, 29 (D. Me. 2000) (finding single mothers do not constitute a protected class in the
§ 1985(3) context).
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Case No. 22-5219, McIlwain v. Dodd, et al.
None of the cases cited by McIlwain to support his argument establish that single parents
of either gender are a protected class for the purposes of a claim under § 1985(3). Rather, these
cases establish a fundamental right to parent for the purposes of procedural and substantive due
process. See Stanley v. Illinois, 405 U.S. 645 (1972); Meyer v. Nebraska, 262 U.S. 390 (1923);
Troxel v. Granville, 530 U.S. 57 (2000) (plurality opinion). Stanley v. Illinois held that a single
father’s parental rights cannot be terminated without a hearing to determine parental fitness. 405
U.S. at 649. Meyer v. Nebraska confirmed that parents have the right to direct the education of
their children. 262 U.S. at 400. Troxel v. Granville considered an as-applied challenge to a
Washington state statute that a plurality of the Supreme Court determined violated a mother’s right
to direct the upbringing of her children. 530 U.S. at 74–75. In other words, none of these cases
establish that single fathers are a protected class for the purpose of a claim under § 1985(3).
Even if McIlwain had established that single fathers constitute a protected class, he has
failed to allege facts that show the conspiracy was undertaken because he is a single father.
Nothing in the record indicates that the Dodds acted out of animus towards single fathers as a
group nor that they treated McIlwain differently because of his status as a single father. See Hills
& Dales Gen. Hosp., 40 F.3d at 839.
McIlwain fails to plead facts sufficient to support a claim under § 1985(3). Even if he had,
the claim was untimely. We affirm the district court’s dismissal of this claim.
B. State Law Claims
McIlwain also alleges several state law claims. As a preliminary matter, McIlwain asserts
that this court has jurisdiction to hear the state law claims under 28 U.S.C. § 1332 because he and
the Dodds are citizens of different states. But, the amended complaint includes facts that suggest
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Case No. 22-5219, McIlwain v. Dodd, et al.
McIlwain, like the Dodds, is a citizen of Kentucky. If McIlwain is a citizen of Kentucky, this
would defeat diversity jurisdiction. See 28 U.S.C. § 1332.
But, regardless of McIlwain’s state citizenship, this court can exercise supplemental
jurisdiction over the state law claims under 28 U.S.C. § 1367(a) because McIlwain’s state law
claims and federal claim originate from a common nucleus of operative fact. See Kubala v. Smith,
984 F.3d 1132, 1137–38 (6th Cir. 2021). The allegations underlying the malicious prosecution
claim and the intentional infliction of emotional distress claim, discussed below, are part of the
alleged conspiracy to violate McIlwain’s civil rights under § 1985(3), and so, supplemental
jurisdiction is appropriate.
1. Malicious Prosecution
McIlwain filed a malicious prosecution claim against Elizabeth for her actions in bringing
about his arrest for the alleged violation of the DVO. To prevail on a malicious prosecution claim
in Kentucky, a plaintiff must prove that:
1) the defendant initiated, continued, or procured a criminal or civil judicial
proceeding, or an administrative disciplinary proceeding against the plaintiff;
2) the defendant acted without probable cause; 3) the defendant acted with malice,
which, in the criminal context, means seeking to achieve a purpose other than
bringing an offender to justice; and in the civil context, means seeking to achieve a
purpose other than the proper adjudication of the claim upon which the underlying
proceeding was based; 4) the proceeding . . . terminated in favor of the person
against whom it was brought; and 5) the plaintiff suffered damages as a result of
the proceeding.
Martin v. O’Daniel, 507 S.W.3d 1, 11–12 (Ky. 2016).
Factor two—whether Elizabeth acted without probable cause in informing arresting
officers of McIlwain’s alleged violation of the DVO—and factor four—whether the underlying
proceeding terminated in McIlwain’s favor—are at issue here.
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Case No. 22-5219, McIlwain v. Dodd, et al.
First, McIlwain failed to allege facts sufficient to show that Elizabeth acted without
probable cause. Under Kentucky law, a general stipulation to probable cause in the underlying
proceeding forecloses an individual’s later malicious prosecution claim. Broaddus v. Campbell,
911 S.W.2d 281, 283–84 (Ky. Ct. App. 1995). In Broaddus, the Kentucky Court of Appeals
affirmed the dismissal of a malicious prosecution action in part because the plaintiff stipulated to
probable cause in the underlying action. Id. at 284. Even though the plaintiff “strenuously
contend[ed] that it was his intent” that the stipulation did not extend to the defendant in the
malicious prosecution case, the Broaddus court found no such limitation and explained that it
would have been easy to construct the stipulation to reflect this type of limitation. Id.
Here, McIlwain was arrested and charged with violating the DVO after Elizabeth informed
courthouse sheriffs of the suspected violation. The charge against McIlwain was dismissed after
he stipulated to probable cause. Despite McIlwain’s assertions to the contrary, the state court
dismissal reflects no limitation on the probable cause stipulation. The court is permitted to
consider this state court record because it is a public record, it was attached to the Dodds’ motion
to dismiss, it is central to the alleged claims, and the dismissal is referred to in the complaint. See
Bassett v. Nat’l Collegiate Athletic Ass’n, 528 F.3d 426, 430 (6th Cir. 2008). Additionally, when
a document in the pleadings contradicts facts alleged in the complaint, the document prevails. In
re Flint Water Cases, 960 F.3d 303, 329 (6th Cir. 2020). Here, the state court dismissal reflects
no limitations on McIlwain’s probable cause stipulation, making the facts of his case nearly
identical to those in Broaddus. Thus, under Kentucky law, McIlwain has failed to establish that
Elizabeth acted without probable cause in alerting the sheriffs to the suspected violation of the
DVO.
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Case No. 22-5219, McIlwain v. Dodd, et al.
Because we conclude that the general stipulation to probable cause forecloses the malicious
prosecution claim under Broaddus, we do not consider whether McIlwain’s allegations that
Elizabeth and Berry were “lying in wait” at the courthouse would establish that Elizabeth acted
without probable cause.
Irrespective of probable cause, McIlwain fails to allege a claim for malicious prosecution
because he cannot establish that the underlying proceedings terminated in his favor. The Broaddus
court held “that as a matter of law one may not elect to settle a criminal action, stipulate probable
cause and maintain that the action was favorable to him on the merits.” Broaddus, 911 S.W.2d at
285. The court rested its reasoning on the Second Restatement of Torts, which explains that a
dismissal resulting from compromise does not qualify as a favorable termination for the purposes
of a malicious prosecution action because dismissal by compromise leaves open the question of
the accused’s guilt or innocence. Id. at 284–85 (citing Restatement (Second) of Torts § 660 (Am.
L. Inst. 1977)). Here, the charges against McIlwain were dismissed following his stipulation to
probable cause. This is precisely the type of dismissal that the Broaddus court determined was
insufficient to establish that the underlying proceedings terminated in the plaintiff’s favor, and thus
foreclosed a malicious prosecution claim.
We are not persuaded by McIlwain’s argument that, following the Supreme Court’s
decision in Thompson v. Clark, 142 S. Ct. 1332 (2022), a plaintiff only needs to show a termination
other than conviction to establish favorable termination. The Supreme Court’s holding in
Thompson applies narrowly to Fourth Amendment claims under 42 U.S.C. § 1983 alleging
malicious prosecution. 142 S. Ct. at 1337. It is true that the Supreme Court examined analogous
state malicious prosecution claims as these claims existed in 1871 to guide its interpretation of
Fourth Amendment malicious prosecution claims brought under § 1983. Id. at 1338–40. But, the
- 12 -
Case No. 22-5219, McIlwain v. Dodd, et al.
Court did so only to decide the “narrow dispute” in front of it and to discern “the elements of a
constitutional claim under § 1983.” Id. at 1337. Here, McIlwain brought his malicious prosecution
claim pursuant to state tort law against private individuals, not under federal law against state
actors. So, Thompson’s narrow holding does not extend to McIlwain’s case.
McIlwain did not sufficiently allege essential elements of his malicious prosecution claim:
namely, that Elizabeth acted without probable cause and that the underlying proceeding terminated
in his favor. We affirm the district court’s dismissal of this claim.
2. Intentional Infliction of Emotional Distress
In Kentucky, to prevail on a claim for intentional infliction of emotional distress, a plaintiff
must prove that (1) the wrongdoer’s conduct was intentional or reckless; (2) this conduct was
outrageous, intolerable, and offended standards of decency; (3) this conduct caused the plaintiff’s
emotional distress; and (4) the emotional distress suffered was severe. Osborne v. Payne,
31 S.W.3d 911, 913–14 (Ky. 2000).
The district court found that “fabricating violations of domestic restraining orders and
falsely accusing plaintiff of child abuse” does not qualify as extreme and outrageous conduct. (Op.
& Order, R. 25, PageID 339 (quoting Am. Compl., R. 24-2, PageID 313).) We disagree.
Kentucky courts have found the following to be examples of extreme and outrageous
conduct: (1) continuous surveilling of a woman, making threats to put her husband in jail, and
driving so as to force her car into oncoming traffic; (2) intentionally failing to warn a plaintiff that
a building in which he was working contained asbestos; (3) sale of a plaintiff’s beloved horses for
slaughter after agreeing to care for the horses; (4) repeatedly subjecting a plaintiff to daily racial
indignities over seven years; and (5) engaging in a carefully constructed plan involving fraud,
deceit, and slander. Stringer v. Wal-Mart Stores, Inc., 151 S.W.3d 781, 789–90 (Ky. 2004)
- 13 -
Case No. 22-5219, McIlwain v. Dodd, et al.
(collecting cases), overruled on other grounds by Toler v. Süd-Chemie, Inc., 458 S.W.3d 276 (Ky.
2014). In contrast, Kentucky courts have determined the following conduct did not rise to the
level of extreme and outrageous behavior: (1) refusing to pay medical expenses following a
worker’s compensation claim; (2) negligently permitting a vehicle to leave the road resulting in
the death of a child; (3) telling a patient to “shut up” following the death of her stillborn child; and
(4) displaying a “billboard referencing defendant’s status as a convicted child molester.” Id. at
790–91 (collecting cases).
The district court relied particularly on the latter two examples in reaching its determination
here. Allen v. Clemons, 920 S.W.2d 884 (Ky. Ct. App. 1996), the case involving the sign
referencing an individual’s conviction for child sexual abuse, is the most analogous to the present
matter. But the Allen court’s determination that displaying the sign was not extreme or outrageous
relied on the fact that the individual’s conviction for child sexual abuse was public information
and had previously been discussed by local news outlets. Allen, 920 S.W.2d at 886.
Unlike in Allen, there is no evidence here that McIlwain was criminally charged with or
convicted of child abuse. Indeed, McIlwain asserted that the Kentucky Cabinet for Health and
Family Services dismissed a Child Protective Service complaint against him. Here, McIlwain
alleges that Elizabeth and Berry fabricated claims of sexual child abuse. Accepting these
statements as true, as we must during a 12(b)(6) analysis, McIlwain’s amended complaint does
allege facts sufficient to establish extreme and outrageous conduct.
But McIlwain did not adequately plead severe emotional distress. His amended complaint
does nothing more than restate this element of the tort without providing any additional factual
support, which is insufficient. See Iqbal, 556 U.S. at 678. Though custody proceedings
- 14 -
Case No. 22-5219, McIlwain v. Dodd, et al.
undoubtedly can cause emotional distress, McIlwain provides no facts that demonstrate how any
emotional distress has manifested, nor that this distress is severe.
In sum, while we disagree with the district court’s determination regarding extreme and
outrageous conduct, we affirm the district court’s denial of the motion to amend as futile because
McIlwain failed to allege facts to support severe emotional distress.
C. Rooker-Feldman Doctrine
Finally, the Dodds reassert their argument that the Rooker-Feldman doctrine prevents
federal jurisdiction over this matter. McIlwain responded that this argument was waived because
it was not cross appealed. But were we to dismiss the suit due to a lack of jurisdiction under
Rooker-Feldman, it would merely be an alternate ground for dismissal. Ruling on these grounds
would neither enlarge the Dodds’ rights nor diminish McIlwain’s rights under the judgment,
meaning that a cross-appeal would be unnecessary. See Smith v. Kentucky State Univ., 97 F. App’x
22, 25–26 (6th Cir. 2004); see also Bullard v. Sercon Corp., 846 F.2d 463, 467–68 (7th Cir. 1988)
(explaining that appellees defending the dismissal of the action have not been required to cross-
appeal additional jurisdictional arguments); 15A Charles Alan Wright & Arthur R. Miller, Federal
Practice & Procedure § 3904 (3d ed. Sept. 2022 update).
Even so, the district court was correct that the present matter does not fall within the narrow
boundaries of the Rooker-Feldman doctrine. In Exxon Mobil Corp. v. Saudi Basic Indus. Corp.,
the Supreme Court limited the Rooker-Feldman doctrine’s applicability to cases that mirrored the
procedural posture of the cases from which the doctrine originated. 544 U.S. 280, 291–93 (2005).
The doctrine only applies to cases where “the losing party in state court filed suit in federal court
after the state proceedings ended, complaining of an injury caused by the state-court judgment and
seeking review and rejection of that judgment.” Id. at 291. Here, McIlwain does not ask this court
- 15 -
Case No. 22-5219, McIlwain v. Dodd, et al.
to review a state court judgment, nor does he claim that his injuries arise from a state court
judgment. Rather, his asserted injuries arise from the allegedly impermissible actions taken by the
Dodds in connection with their representation of Berry. Thus, the Rooker-Feldman doctrine does
not bar McIlwain’s claims.
III. CONCLUSION
For the foregoing reasons, we affirm the district court’s grant of the Dodds’ motion to
dismiss and its denial of McIlwain’s motion to amend.
- 16 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488757/ | FILED
IN THE SUPREME COURT OF TENNESSEE ue
AT NASHVILLE Appellate Courts
Assigned on Briefs June 28, 2022
IN RE: JOSEPH H. CRABTREE, JR., BPR #011451
No. M2022-00339-SC-BAR-BP
This is an attorney discipline proceeding concerning Tennessee attorney Joseph H.
Crabtree, Jr. and his representation of several clients with varying legal issues. The Board
of Professional Responsibility (“the Board”) filed formal petitions for discipline against
Mr. Crabtree in February 2019. A Hearing Panel of the Board (“Hearing Panel”)
adjudicated the petitions and rendered a judgment suspending Mr. Crabtree for two years
and ordering him to serve six months as active suspension and the remainder on probation.
It also directed Mr. Crabtree to pay restitution to two clients, to reimburse one client for
any costs assessed against her upon the dismissal of her case, and to reimburse the
Tennessee Lawyers Fund for Client Protection (“TLFCP”) for any money it pays to the
complainants in this matter. Mr. Crabtree failed to perfect an appeal from the Hearing
Panel’s decision, and the Board petitioned this Court for an order enforcing the Hearing
Panel’s judgment. Pursuant to Tennessee Supreme Court Rule 9, sections 15.4(d) and (e),
we determined that the punishment imposed by the Hearing Panel appeared inadequate.
Thus, we proposed to increase it. Based on our careful consideration of the entire record,
“with a view to attaining uniformity of punishment throughout the State and
appropriateness of punishment under the circumstances of each particular case,” we modify
the judgment of the Hearing Panel to impose a three-year suspension, with one year served
as active suspension and the remainder on probation. Tenn. Sup. Ct. R. 9, § 15.4(b), (d).
During the first year of the probationary period, Mr. Crabtree shall engage a practice
monitor at his own expense to supervise his compliance with trust account rules and office
management procedures in accordance with Tennessee Supreme Court Rule 9, section
12.9. Finally, as a condition of reinstatement, Mr. Crabtree shall complete twelve hours of
continuing legal education (“CLE”), with six hours focused on ethics and six hours on law
office management, in addition to the annual fifteen-hour CLE requirement. In all other
respects, including payment of restitution to his clients and reimbursement to TLFCP, the
decision of the Hearing Panel is affirmed.
Tenn. Sup. Ct. R. 9, § 15.4; Judgment of the Hearing Panel Modified in Part;
Affirmed in Part.
ROGER A. PAGE, C.J., delivered the opinion of the court, in which SHARON G. LEE, JEFFREY
S. BIVINS, HOLLY KIRBY and SARAH K. CAMPBELL, JJ., joined.
James W. Milam, Brentwood, Tennessee, for the Petitioner, Board of Professional
Responsibility.
Joseph H. Crabtree, Jr., Athens, Tennessee, Respondent, pro se.
OPINION
I. FACTUAL & PROCEDURAL HISTORY
This matter involves an attorney disciplinary proceeding governed by Tennessee
Supreme Court Rule 9. In 2019 and 2020, the Board of Professional Responsibility filed
three petitions for discipline (initial, supplemental, and second supplemental) against
attorney Joseph H. Crabtree, Jr. of Athens, Tennessee. Mr. Crabtree has been licensed to
practice law in Tennessee since 1985. The petitions alleged violations of the Tennessee
Rules of Professional Conduct (“RPC”) based on four complaints from Mr. Crabtree’s
former clients: Jerry Wilson, Cynthia and Stephen Kyker, Crystal Velez, and Vickie
Haberbosch. The Wilson, Kyker, and Velez complaints were included in the initial and
supplemental petitions for discipline. After Mr. Crabtree failed to file answers to the
petitions, the court entered default judgments against him and deemed admitted the
allegations of the initial and supplemental petitions. Mr. Crabtree filed an answer to the
second supplemental petition, which contained the Haberbosch complaint. As a result, a
disciplinary hearing was convened both to adjudicate Ms. Haberbosch’s complaint and to
determine an appropriate sanction for the allegations of the initial and supplemental
petitions, which included the Wilson, Kyker, and Velez complaints.
The disciplinary hearing convened via Zoom on January 13, 2021. Three witnesses
testified: Ms. Haberbosch, Mrs. Kyker, and Mr. Crabtree. The following is a summary of
the facts deemed admitted by the default judgments against Mr. Crabtree and the proof
presented at the disciplinary hearing.
Wilson Complaint
In January 2017, Mr. Wilson retained Mr. Crabtree to provide legal advice about a
workers’ compensation settlement that Mr. Wilson agreed upon with his employer’s
counsel. Mr. Wilson asked Mr. Crabtree to review the agreement because his employer’s
counsel deducted social security from the agreed upon settlement amount. Mr. Crabtree
advised Mr. Wilson that the social security offsets were inappropriate and claimed that he
could help Mr. Wilson obtain a greater settlement. Because of that assurance, Mr. Wilson
agreed to retain Mr. Crabtree to represent him. However, when Mr. Crabtree corresponded
with the employer’s counsel, he learned that his advice to Mr. Wilson was erroneous
because legal precedent authorized social security offsets against the proposed settlement
amount. Mr. Crabtree failed to inform Mr. Wilson that his advice was erroneous and also
failed to finalize the settlement agreement with employer’s counsel. Mr. Wilson attempted
to contact Mr. Crabtree several times regarding the status of the claim. Mr. Crabtree failed
to timely respond or otherwise communicate with Mr. Wilson, ultimately allowing the
statute of limitations to expire on the claim. He excused his behavior by stating that a new
workers’ compensation law came into effect while the case was pending, causing him to
miss some deadlines.
In July 2018, Mr. Wilson sued Mr. Crabtree for legal malpractice. Mr. Crabtree
negotiated a settlement of the malpractice claim with Mr. Wilson. Mr. Crabtree did this
without advising Mr. Wilson to seek advice from independent legal counsel before settling
the malpractice claim. In September 2018, Mr. Crabtree presented Mr. Wilson with two
forms: “Release of All Claims and Indemnity Agreement” and “Agreed Order of Dismissal
with Prejudice.” Once again, he failed to advise Mr. Wilson in writing to seek the advice
of independent legal counsel before executing the settlement documents. Mr. Wilson
executed the documents and in exchange received $8,638.27 as a settlement from Mr.
Crabtree. At the disciplinary hearing, Mr. Crabtree stated that Mr. Wilson was “made
whole” by the settlement.
Kyker Complaint
In November 2012, Mrs. Kyker and her husband retained Mr. Crabtree to represent
them in a lawsuit seeking damages for personal injuries and loss of consortium. The claim
involved Mrs. Kyker’s injuries allegedly sustained in a laser hair removal procedure. In
January 2013, Mr. Crabtree sent pre-suit notice to one of the defendants, the clinic’s
licensed physician assistant (“PA”), but the notice only mentioned Mrs. Kyker as a plaintiff
a3 =
and failed to list Mr. Kyker. In March 2013, Mr. Crabtree filed suit on behalf of both Mr.
and Mrs. Kyker against the PA and the other defendants who were involved with the
procedure and the clinic.
The case remained pending for several years. During that time, Mr. Crabtree filed
several pleadings for the Kykers. In July 2017, Mr. Crabtree filed a response to a motion
for summary judgment and a motion for a trial date and a scheduling order. In July 2018,
Mr. Crabtree filed an agreed scheduling order for the disclosure of all expert witnesses. In
August 2018, after consulting Mrs. Kyker and obtaining her approval, Mr. Crabtree filed a
response declining a settlement offer.
Though Mr. Crabtree sporadically worked on the case, Mrs. Kyker described having
difficulty communicating and meeting with him. She testified that, on more than one
occasion, several months passed with no communication from him at all. On February 12,
2019, seven years after initiating the lawsuit, Mrs. Kyker sent Mr. Crabtree a certified letter
in an attempt to establish communication. Days later, Mrs. Kyker visited the trial court
clerk’s office to inquire about the status of the case and get copies of her records. During
this visit, she learned several updates about her case for the first time. In March 2014, the
trial court dismissed Mr. Kyker’s loss of consortium claim for failure to comply with
statutory pre-suit notice requirements, and granted the PA’s motion for discretionary costs.
This dismissal was due to Mr. Crabtree’s failure to add Mr. Kyker as a plaintiff on the pre-
suit notice sent to the PA in 2013. Tenn. Code Ann. § 29-26-121(a)(1) (2012). In
December 2018, the trial court entered an order granting the defendants’ joint motion to
dismiss Mrs. Kyker’s case without prejudice because Mr. Crabtree failed to file any
opposition to the motion to dismiss, failed to comply with two court orders, and failed to
prosecute the case. In the spring of 2019, the trial court entered two orders granting a
motion to assess the discretionary costs of one of the defendants against both plaintiffs:
$2,629.42 against Mrs. Kyker and $2,260.42 against Mr. Kyker. Mr. Crabtree failed to file
a response to either motion and did not notify his clients of the debts against them. Finally,
Mrs. Kyker testified that a treating physician paid her $3,730.00 to release him from the
case. After Mr. Crabtree received the money, he placed it into a trust account, but he never
disbursed the funds to Mrs. Kyker.
In Mr. Crabtree’s testimony, he acknowledged that Mr. and Mrs. Kyker likely had
difficulty reaching him. He described having difficulty scheduling depositions because the
case involved so many parties and lawyers and the parties were hard to reach. However,
in his testimony, Mr. Crabtree stated: “I, frankly, dropped the ball. I’m not going to try to
-4-
say that anything was justified or excusable at that time.” He explained that he attempted
to mediate the case and alleged that he even expended over $6,000 of his own funds on
depositions. He admitted to receiving the funds from the physician and to owing Mrs.
Kyker $1,230.00, representing the balance remaining of the settlement subtracted by
payments Mr. Crabtree made for certain litigation expenses.
Velez Complaint
Ms. Crystal Velez allegedly fractured her toe when she fell at a Walmart store in
June 2017. A few days later, she retained Mr. Crabtree to represent her in a personal injury
lawsuit against the company. However, Mr. Crabtree allowed the statute of limitations to
expire on her claim without taking any action. Ms. Velez filed a complaint with the Board.
In an email response to a Board inquiry, Mr. Crabtree stated that he “issued a letter to
Walmart to preserve evidence.” When the Board asked him to provide a copy of the letter,
Mr. Crabtree did not provide the letter or further respond to Board inquiries. He also failed
to file a formal response to the supplemental petition for discipline.
At the disciplinary hearing, Mr. Crabtree admitted that he failed to calendar the case
and failed to advise Ms. Velez about the expiration of the statute of limitations. Mr.
Crabtree described Ms. Velez’s claim as weak, but he expressed “regret” for failing to
follow up with her about not wanting to pursue the case. More specifically, he said he “did
not wish to pursue the case . . . because . . . [it was] not going to be a very fruitful case
really for anyone, including her.”
Haberbosch Complaint
Ms. Haberbosch retained Mr. Crabtree in March 2019 to provide legal services
related to her business, Family Home Care Services, LLC. In particular, she asked Mr.
Crabtree to prepare and send several cease-and-desist letters, to prepare a separation
agreement for a co-owner of her business, and to prepare a new operating agreement. Ms.
Haberbosch signed a retainer agreement and paid Mr. Crabtree a $2,500.00 retainer.
Despite back-and-forth emails and Ms. Haberbosch’s repeated requests, Mr. Crabtree never
sent the cease-and-desist letters. He also never prepared the revised operating agreement.
Though he did prepare the separation agreement, which the required party signed in mid-
April, the letter was not dated, making it incomplete. After mid-April and multiple emails
back and forth, Ms. Haberbosch was unable to reach Mr. Crabtree for over a month.
-5-
Frustrated with the situation, Ms. Haberbosch emailed Mr. Crabtree asking for a
refund and stating that she was going to get another attorney. Since she could not reach
Mr. Crabtree, Ms. Haberbosch took her legal matters into her own hands. Ms. Haberbosch
negotiated an agreement on her own with one of the people who was supposed to receive
a cease-and-desist letter. She made her own revisions to the operating agreement for the
LLC and paid a different attorney to review it. Ms. Haberbosch then filed a complaint with
the Board, after which Mr. Crabtree offered to refund half of her retainer in the amount of
$1,250.00. However, Mr. Crabtree never paid the refund.
In his testimony, Mr. Crabtree admitted to neglecting Ms. Haberbosch’s requests,
as described above. He further admitted that he was difficult to reach during the time he
agreed to represent Ms. Haberbosch, but he stressed that he told her when she hired him
that he would be very busy in the coming days with a trial. He denied being as difficult to
reach as Ms. Haberbosch testified. He believed revising the operating agreement was
unnecessary. He also acknowledged agreeing to pay the refund, but the refund was not
paid by the time of the disciplinary hearing at issue on appeal here.
Hearing Panel’s Judgment
The Hearing Panel issued its judgment on February 10, 2021, finding that Mr.
Crabtree violated the following Tennessee Rules of Professional Conduct from Supreme
Court Rule 8:
RPC 1.1 (Competence), which provides: “A lawyer shall provide competent
representation to a client. Competent representation requires the legal knowledge,
skill, thoroughness, and preparation reasonably necessary for the representation[;]”
RPC 1.3 (Diligence), which provides: “A lawyer shall act with reasonable diligence
and promptness in representing a client[;]”
RPC 1.4 (Communication), which provides:
(a) A lawyer shall:
(1) promptly inform the client of any decision or
circumstance with respect to which the client’s informed
consent . . . is required by these Rules;
(2) reasonably consult with the client about the means
by which the client’s objectives are to be accomplished;
(3) keep the client reasonably informed about the status
of the matter;
(4) promptly comply with reasonable requests for
information; and
(5) consult with the client about any relevant limitation
on the lawyer’s conduct when the lawyer knows that the client
expects assistance not permitted by the [RPC] or other law.
(b) A lawyer shall explain a matter to the extent reasonably
necessary to permit the client to make informed decisions
regarding the representation[;]
RPC 1.8(h) (Conflict of Interest: Current Clients; Specific Rules), which provides:
(h) A lawyer shall not:
(1) make an agreement prospectively limiting the
lawyer’s liability to a client or prospective client for
malpractice; or
(2) settle a claim or potential claim for such liability
with an unrepresented client or former client unless the lawyer
fully discloses all the terms of the agreement to the client in a
manner that can reasonably be understood by the client and
advises the client in writing of the desirability of seeking
[independent legal counsel] and gives the client a reasonable
opportunity to seek the advice of independent legal counsel in
connection therewith[;]
RPC 3.2 (Expediting Litigation), which provides: “A lawyer shall make reasonable
efforts to expedite litigation;”
RPC 3.4(c) (Fairness to Opposing Party and Counsel), which provides: “A lawyer
shall not .. . knowingly disobey an obligation under the rules of a tribunal, except
for an open refusal based on an assertion that no valid obligation exists;”
RPC 8.1(b) (Bar Admission and Disciplinary Matters), which provides:
[A] lawyer .. . in connection with a disciplinary matter, shall
not:
(b) fail to disclose a fact necessary to correct a
misapprehension known by the person to have arisen in the
matter, or knowingly fail to respond to a lawful demand for
information from an admissions or disciplinary authority, .. .
[unless] otherwise protected by RPC 1.6;
RPC 8.4(a), (c), and (d) (Misconduct), which provide:
It is professional misconduct for a lawyer to:
(a) violate or attempt to violate the [RPC], knowingly assist or
induce another to do so, or do so through the acts of another;
(c) engage in conduct involving dishonesty, fraud, deceit, or
misrepresentation;
(d) engage in conduct that is prejudicial to the administration
of justice.
The Hearing Panel then considered the ABA Standards for Imposing Lawyer
Sanctions (‘ABA Standards”),! identifying Standards 4.42,” 7.2,° and 8.24 as the applicable
standards. These standards establish a presumptive, baseline sanction of suspension for
Mr. Crabtree’s ethical violations. ABA Standard 9 allows for the Hearing Panel to use
aggravating and mitigating factors to help decide on punishment. Based on that provision,
the Hearing Panel identified four aggravating circumstances: (1) multiple offenses; (2)
prior disciplinary history; (3) substantial experience in the practice of law (thirty-five
years); and (4) Mr. Crabtree’s “refusal to acknowledge the wrongful nature of much of his
conduct.” See ABA Standard § 9.22. Mr. Crabtree’s prior disciplinary history consists of
three private informal admonitions in 2010, 2012, and 2016, and a 2011 public censure.
The instances leading to discipline consisted of failing to file orders, failing to keep clients
apprised of dates, failing to communicate, and neglecting representation. The Hearing
Panel determined that there were no mitigating circumstances in Mr. Crabtree’s case. The
Hearing Panel imposed a two-year suspension, with six months served as active suspension
and the remainder on probation. As conditions precedent to reinstatement, the Hearing
Panel ordered Mr. Crabtree to pay restitution of $1,250.00 to Ms. Haberbosch and
$1,230.00 to Mrs. Kyker. It also ordered Mr. Crabtree to reimburse Mrs. Kyker for any
costs, fines or penalties against her resulting from his mishandling of her claim. It directed
Mr. Crabtree to reimburse the TLFCP for any money it pays to the complainants in this
case.
' Standards for Imposing Lawyer Sanctions (Am. Bar. Ass’n 1986) [hereinafter ABA Standard].
2 ABA Standard 4.42 provides: “Suspension is generally appropriate when: (a) a lawyer knowingly
fails to perform services for a client and causes injury or potential injury to a client; or (b) a lawyer engages
in a pattern of neglect and causes injury or potential injuries to a client.”
3 ABA Standard 7.2 provides: “Suspension is generally appropriate when a lawyer knowingly
engages in conduct that is a violation of a duty owed as a professional, and causes injury or potential injury
to a client, the public, or the legal system.”
4 ABA Standard 8.2 provides: “Suspension is generally appropriate when a lawyer has been
reprimanded for the same or similar misconduct and engages in further similar acts of misconduct that cause
injury or potential injury to a client, the public, the legal system, or the profession.”
=O
Mr. Crabtree filed a Petition for Review in the McMinn County Chancery Court
pursuant to Tennessee Supreme Court Rule 9, section 33.1(a), on May 17, 2021.> Later,
the trial court ordered Mr. Crabtree to submit a record of the evidence by June 9 and file
his pre-trial brief by August 31. Mr. Crabtree failed to file either the transcript or his brief.
Thus, the Board moved to dismiss his Petition for Review, to which Mr. Crabtree also
failed to respond. The trial court granted the motion and dismissed the appeal.
Mr. Crabtree filed a notice of appeal to this Court pursuant to Tennessee Supreme
Court Rule 9, section 33.1(d), which provides that
Either party dissatisfied with the decree of the circuit or chancery court may
prosecute an appeal directly to the Court where the cause shall be heard upon
the transcript of the record from the circuit or chancery court, which shall
include the transcript of the evidence before the hearing panel.®
The Board moved to dismiss Mr. Crabtree’s appeal to this Court, noting that he
failed to file the transcript and therefore did not provide a record for this Court to review.
See Tenn. Sup. Ct. R. 9, § 33.1(d). The Chancery Court for McMinn County filed a
statement in this Court advising that Mr. Crabtree failed to comply with the Tennessee
Rules of Appellate Procedure because he failed to file a transcript or statement of the
evidence. Id. § 33.1(b). Mr. Crabtree did not respond to either the Board’s motion to
dismiss or the statement of the Chancery Court. On February 23, 2022, this Court granted
the Board’s motion and dismissed Mr. Crabtree’s appeal.
> Rule 9, section 33.1(a) provides, in pertinent part:
The respondent or petitioning attorney or the Board may appeal the judgment of a hearing
panel by filing within sixty days of the date of entry of the hearing panel’s judgment a
Petition for Review in the circuit or chancery court of the county in which the office of the
respondent or petitioning attorney was located at the time the charges were filed with the
Board.
6 This section was amended in March 2022, but the changes do not affect the portions the Board
relied on in support of its motion to dismiss.
= io -
After the dismissal of the appeal, the Board filed a notice of submission pursuant to
Tennessee Supreme Court Rule 9, section 15.4(d),’ along with a proposed order of
enforcement incorporating the Hearing Panel’s decision. This Court reviewed the
materials and the punishment recommended to it “with a view to attaining uniformity of
punishment throughout the State and appropriateness of punishment under the
circumstances of each particular case.” Tenn. Sup. Ct. R. 9, § 15.4(d). Pursuant to
Tennessee Supreme Court Rule 9, section 15.4(d) and (e), this Court entered an order
proposing to increase the punishment. We directed the Board to file the record of the
disciplinary hearing, including the transcript of the proceeding, by no later than April 27,
2022. We also set a briefing schedule and stated that this matter would be submitted for
decision on the record and the briefs, without oral argument.
The Board timely filed the record of the disciplinary proceeding. Mr. Crabtree then
requested and was granted an extension to file his brief. However, he failed to file a brief
or seek a further extension. This Court entered an order declaring that Mr. Crabtree
forfeited his right to file a brief, directed the Board to file its brief by June 27, 2022, and
reiterated that the Court would decide this case upon the record and the Board’s brief,
without oral argument. The Board timely filed its brief, and the case is now before this
Court for decision.
II. STANDARD OF REVIEW
This Court is the “final and ultimate arbiter of the propriety of the professional
conduct of all lawyers practicing in Tennessee.” Flowers v. Bd. of Prof’! Resp., 314 8.W.3d
882, 891 (Tenn. 2010) (citing Sneed v. Bd. of Prof'l Resp., 301 S.W.3d 603, 612 (Tenn.
2010)). As a result, this Court promulgates and enforces the rules that govern the legal
profession in this State. Bd. of Prof’l Resp. v. MacDonald, 595 $.W.3d 170, 181 (Tenn.
7Tn pertinent part, Rule 9, section 15.4(d) provides:
If the judgment of a hearing panel is appealed to the circuit or chancery court pursuant to
Section 33 and the trial court enters a judgment disbarring or suspending the respondent
attorney for any period of time or imposing a public censure, and no appeal is perfected
within the time allowed, the Board shall file in the Nashville office of the Clerk of the
Supreme Court a Notice of Submission with an attached copy of its judgment.
-ll-
2020) (citing Walwyn v. Bd. of Prof’! Resp., 481 S.W.3d 151, 162 (Tenn. 2015) and Bd. of
Prof'l Resp. v. Cowan, 388 S.W.3d 264, 267 (Tenn. 2012)).
Tennessee Supreme Court Rule 8 contains the Rules of Professional Conduct, and
Rule 9 establishes the framework for disciplinary enforcement. Rule 9, section 15
prescribes the process for attorney disciplinary matters. Complaints against attorneys are
investigated by disciplinary counsel for the Board. Tenn. Sup. Ct. R. 9, § 15.1(b). At the
conclusion of the investigation, disciplinary counsel may recommend dismissal, private
informal admonition, private reprimand, public censure, or prosecution of formal charges.
Id. When a complaint proceeds to prosecution by formal charges, and in the absence of an
agreement between the Board and the attorney, the matter is typically decided by a hearing
panel. See Tenn. Sup. Ct. R. 9, § 15.2(a), (d). At the hearing, “[d]isciplinary [counsel
must prove the case by a preponderance of the evidence.” Jd. § 15.2(h). The hearing panel
must submit “its findings and judgment, in the form of a final decree of a trial court, to the
Board within thirty days after the conclusion of the hearing.” Jd. § 15.3(a). Ifa hearing
panel enters a judgment recommending discipline, the attorney can either appeal the
decision or accept the judgment. See id. § 33. Ifthe punishment is disbarment, suspension,
or public censure, and no appeal is perfected from the hearing panel’s decision, the Board
files with this Court a notice of submission, the judgment, a proposed order of enforcement,
and a protocol memorandum. Jd. § 15.4(b); In re Walwyn, 531 S.W.3d 131, 137 (Tenn.
2017).
We review hearing panel judgments even if neither party appeals pursuant to our
“inherent authority” under the Tennessee Constitution to supervise and regulate the
practice of law in Tennessee. Jn re Sitton, 618 S.W.3d 288, 294 (Tenn. 2021); see also In
re Cope, 549 §.W.3d 71, 73 (Tenn. 2018); In re Vogel, 482 S.W.3d 520, 530 (Tenn. 2016).
Our review in such instances focuses on “attaining uniformity of punishment throughout
the State and appropriateness of punishment under the circumstances of each particular
case.” Tenn. Sup. Ct. R. 9, § 15.4(d); see also id. § 15.4(b). If the punishment appears
“inadequate or excessive,” this Court “issue[s] an order advising the Board and the
respondent attorney that it proposes to increase or to decrease the punishment.” Jd. §
15.4(c). When this Court proposes to increase the punishment, as is the case here, the Court
directs the Board to file the record of the disciplinary hearing and allows the attorney and
the Board to file briefs after the record is filed. Jd.
“[OJur standard of review as to the recommended punishment is de novo.” Jn re
Walwyn, 531 S.W.3d 131, 137 (Tenn. 2017) (citing Tenn. Sup. Ct. R. 9, § 15.4(b)-(c) and
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Hughes v. Bd. of Prof’! Resp., 259 S.W.3d 631, 640 (Tenn. 2008)). This Court is “required
to review all of the circumstances of the particular case and also, for the sake of uniformity,
sanctions imposed in other cases presenting similar circumstances.” In re Cope, 549
S.W.3d 71, 74 (Tenn. 2018) (quoting Bd. of Prof’l Resp. v. Allison, 284 8.W.3d 316, 327
(Tenn. 2009)). After considering the record and the briefs, this Court “may modify the
judgment of the hearing panel . . . in such manner as it deems appropriate. There shall be
no petition for rehearing.” Tenn. Sup. Ct. R. 9, § 15.4(c).
It. ANALYSIS
Mr. Crabtree forfeited his opportunity to file a brief in this Court. The Board
acknowledges in its Brief that the Hearing Panel correctly identified suspension as the
appropriate presumptive sanction under the ABA Standards for Mr. Crabtree’s ethical
violations. The Board nevertheless asserts that a longer period of suspension would be
more appropriate given the degree of misconduct, the aggravating circumstances, and the
lack of mitigating circumstances. Instead of the two-year suspension the Hearing Panel
imposed, the Board asks this Court to order a four-year suspension with a minimum of one
year served on active suspension and the remaining three years served on probation. Along
with that, the Board suggests requiring Mr. Crabtree to engage a practice monitor during
at least two years of the probationary period and complete twelve additional CLE hours
(six focused on ethics, six focused on law office management). The Board also asks this
Court to require Mr. Crabtree to pay Cynthia and Stephen Kyker for any amounts they owe
for discretionary costs assessed against them, pay restitution of $1,230.00 to Cynthia
Kyker, pay restitution of $1,250.00 to Vickie Haberbosch, reimburse the TLFCP for any
money it pays to the complainants in this case, and pay the costs of this appeal.
We agree with the Board that the Hearing Panel properly considered the ABA
Standards and correctly identified suspension as the proper sanction. Tenn. Sup. Ct. R. 9,
§ 15.4(a); In re Vogel, 482 S.W.3d 520, 533 (Tenn. 2016). The Hearing Panel next
considered aggravating and mitigating factors to determine whether the presumptive
sanction should be increased or decreased. Jn re Vogel, 482 S.W.3d at 533-34 (citing Bd.
Of Prof’! Resp. v. Maddux, 148 S.W.3d 37, 41 (Tenn. 2004)). We also agree that the
Hearing Panel correctly identified the four aggravating circumstances and correctly
determined that there were no mitigating circumstances.
Our only disagreement with the Hearing Panel’s decision is the length of the
suspension and the period of active suspension. As the Hearing Panel determined, this
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matter involves multiple offenses. As explained below, we conclude that the circumstances
of this case and the goal of attaining uniformity of punishment warrant a more significant
suspension than that imposed by the Hearing Panel.
We begin our review with an overview of the circumstances of this case. As the
Hearing Panel determined, this matter involves multiple offenses. Mr. Crabtree has
accumulated four disciplinary complaints since 2018. These complaints involved Mr.
Crabtree disregarding multiple ethical obligations in his representation of several clients
over a period of six years. As the Hearing Panel determined, he has refused to acknowledge
the wrongful nature of much of his misconduct. Indeed, in several instances, he attempted
to justify or mitigate his misconduct.
For instance, Mr. Crabtree characterized his inappropriate settlement of Mr.
Wilson’s legal malpractice claim against him as making his client “whole.” In response to
Mr. and Mrs. Kyker’s and Ms. Haberbosch’s complaints that he failed to communicate,
Mr. Crabtree testified that the clients also were difficult to reach and that he warned them
he would be busy. In response to allowing the statute of limitations to run on Ms. Velez’s
personal injury claim, even though he was hired shortly after the injury allegedly occurred,
Mr. Crabtree described her claim as weak. Concerning that same claim, Mr. Crabtree failed
to produce a copy of an evidence-preservation letter he claimed to have sent to the
defendant. While he acknowledged failing to perform two of the three specific tasks for
which Ms. Haberbosch hired him, Mr. Crabtree characterized one of the tasks he failed to
perform as unnecessary.
Mr. Crabtree also exhibited a pattern of disregarding or neglecting court orders in
this proceeding and in the representation of his clients. For example, Mrs. Kyker’s claim
was dismissed in part because Mr. Crabtree failed to comply with two court orders.
Additionally, beginning in the trial court and continuing in this Court, Mr. Crabtree failed
to comply with filing and briefing deadlines, resulting in both the trial court and this Court
dismissing his appeals. Even after this Court entered an order notifying him that it
proposed to increase his sanction and after he requested and received an extension of the
briefing deadline in this Court, Mr. Crabtree simply failed to file a brief or a motion
requesting an additional extension of time. He chose to do nothing at all, consistent with
the pattern of misconduct he exhibited in representing his former clients.
Mr. Crabtree’s apathetic and unconcerned attitude toward his professional ethical
obligations and this serious proceeding is inexplicable. As the Hearing Panel determined,
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Mr. Crabtree has substantial experience in the practice of law in Tennessee, having been
licensed since 1985. He also has a prior disciplinary history, having received three private
informal admonitions and a public censure. These less serious sanctions have seemingly
failed to convey to Mr. Crabtree the importance of complying with professional ethical
obligations. That certainly militates against a lenient sanction.
As the Board argues, Mr. Crabtree’s multiple offenses, the circumstances of the
offenses, his refusal to acknowledge the wrongful nature of much of his conduct, his prior
disciplinary history, and his overall lack of diligence throughout this appeal compel us to
conclude that a more significant period of suspension than that imposed by the Hearing
Panel is warranted to impress upon Mr. Crabtree the serious nature of his ethical
misconduct and to allow him an opportunity to correct course.
Our consideration of similar cases also convinces us that a more significant period
of suspension than that imposed by the Hearing Panel is warranted. No two cases are
factually identical, but there are similar cases involving attorneys with substantial
experience in the practice of law and prior disciplinary history. The attorneys in these cases
violated multiple ethical obligations to clients, and some involved multiple aggravating
circumstances,
In Beard v. Board of Professional Responsibility, 288 S.W.3d 838, 841 (Tenn.
2009), three petitions for discipline involving multiple client complaints were filed against
the attorney. A hearing panel found the attorney violated twenty-six ethical rules. Jd. at
859. It also found four aggravating circumstances, including the attorney’s substantial
experience in the practice of law, his disciplinary history consisting of six prior sanctions,
his pattern of misconduct, and “his bad faith obstruction of the disciplinary proceeding by
intentionally failing to comply with rules or orders of the disciplinary agency.” Jd. at
858-59. The hearing panel found no mitigating factors. Jd. at 859. The panel imposed a
two-year active suspension as to each complaint, with the suspensions served concurrently.
Td. at 852, 859.
In another case, In Re Matthew David Dunn, the client complained about the
attorney’s inaction. In Re Matthew David Dunn, M2019-01751-SC-BAR-BP, BOPR No.
2018-2825-6-AW (Tenn. Oct. 8, 2019); Dunn Protocol Memorandum, 1. The petition for
discipline alleged that Mr. Dunn knowingly and intentionally failed to diligently respond
to discovery requests; failed to respond to motions filed by opposing counsel; failed to
comply with discovery obligations set forth in the Rules of Civil Procedure; failed to appear
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for scheduled court hearings; and failed to take any action to set aside the dismissal of his
client’s case. Dunn Protocol Memorandum, 1. The attorney’s lack of diligence resulted in
the dismissal of his client’s case with prejudice, but Mr. Dunn did not promptly inform his
client of the dismissal of her action. Jd. Instead, the attorney took advantage of his personal
relationship with his client and his knowledge of her circumstances. Jd. He pressured her
to settle her legal malpractice claim and withdraw her disciplinary complaint. Jd. Mr.
Dunn also led the Board to believe his client accepted his offer to compensate her for the
loss of her action. Jd.
A hearing panel found Mr. Dunn violated RPC 1.3 (Diligence), RPC 1.4
(Communication), RPC 1.8(h)(2) (Conflict of Interest), RPC 3.2 (Expediting Litigation),
RPC 3.4(c) and (d) (Fairness to Opposing Party/Counsel), RPC 8.l(a) (Disciplinary
Matters), and RPC 8.4(a), (c), and (d) (Misconduct). /d. Mr. Dunn’s violations are nearly
identical to those of Mr. Crabtree. The hearing panel found six aggravating circumstances:
Mr. Dunn’s multiple offenses, his refusal to acknowledge the wrongful nature of his
conduct, his dishonest or selfish motive in attempting to convince his client to drop her
disciplinary complaint, his false statements to the Board, the vulnerability of his client, and
his substantial experience in the practice of law. Jd. at 3-6. Unlike Mr. Crabtree’s case,
the hearing panel found a mitigating circumstance: Mr. Dunn had no prior disciplinary
history. Id. at 4.
Ultimately, the hearing panel imposed a five-year suspension, with three years
served as active suspension and two years on probation. Jd. at 132. He was also ordered
to engage a practice monitor, complete additional CLE hours, and contact the Tennessee
Lawyer Assistance Program. Jd. Though he received a strict suspension, it did not impress
upon him the importance of his ethical obligations. Unfortunately, he did not correct
course and has since been permanently disbarred for subsequent ethical violations.*
The analysis of Beard and Dunn illustrates that attorneys typically receive a
significant period of suspension when the following circumstances are present: violation
of multiple ethical rules in the representation of clients, the existence of multiple
aggravating circumstances, and the lack of mitigating circumstances. That is precisely the
situation here.
8 In re Matthew David Dunn, BPR #030759, No. M2021-00094-SC-BAR-BP, BOPR No. 2020-
3066-6-TL, Order (Tenn. Jan. 29, 2021).
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Mr. Crabtree’s actions show a pattern of disregard and neglect of court orders, both
in the representation of his clients and in the representation of himself in this proceeding.
As for his clients, his neglect led to the dismissal of their cases and the expiration of statutes
of limitations on their claims, leaving them without legal recourse. With regard to this
proceeding, Mr. Crabtree failed to meet deadlines, resulting in the dismissal of his appeals.
Even after this Court proposed an increased sanction and granted him more time to file a
brief, Mr. Crabtree chose to do nothing at all. His lack of action is unsurprisingly consistent
with the pattern of misconduct he showed in representing his former clients.
We note that Tennessee requires at least thirty days of active suspension, and the
ABA Standards contemplate suspensions of no less than six months. Tenn. Sup. Ct. R. 9,
§ 12.2(a); ABA Standard 2.3. Therefore, based on the above analysis, and in consideration
of the parameters in Rule 9 and in the ABA Standards for minimum suspensions, as well
as the Board’s requests, we conclude that the circumstances of this case warrant imposition
of a three-year suspension, with one year served as active suspension and the remainder on
probation. During the first year of the probationary period, Mr. Crabtree shall engage a
practice monitor at his own expense to supervise his compliance with trust account rules,
accounting procedures, and office management procedures in accordance with Tennessee
Supreme Court Rule 9, section 12.9. Finally, as a condition of reinstatement, Mr. Crabtree
shall complete twelve hours of CLE, with six hours focused on ethics and six hours on law
office management, in addition to the fifteen-hour annual CLE requirement. In all other
respects, the decision of the Hearing Panel is affirmed.
The conditions of reinstatement are consistent with the purposes of the attorney
disciplinary process: to “safeguard the administration of justice, protect the public from
the misconduct or unfitness of members of the legal profession, and preserve the
confidence of the public in the integrity and trustworthiness of lawyers in general.” Jn re
Cope, 549 S.W.3d 71, 76-77 (Tenn. 2018) (quoting Hornbeck v. Bd. Of Prof’l Resp., 545
S.W.3d 386, 396-97 (Tenn. 2018)); see also ABA Standard 1.1.
IV. CONCLUSION
Based on our careful consideration of the entire record “with a view to attaining
uniformity of punishment throughout the State and appropriateness of punishment under
the circumstances of each particular case,” we modify the judgment of the Hearing Panel
to impose a three-year suspension, with one year served as active suspension and the
remainder on probation. Tenn. Sup. Ct. R. 9, § 15.4 (b), (d). In all other respects, including
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the conditions set forth above, payment of restitution to his clients, and reimbursement to
TLFCP, the decision of the Hearing Panel is affirmed. Costs in this Court shall be paid by
Joseph H. Crabtree, Jr., for which execution may issue if necessary.
ROGER A. PAGE, CHIEF JUSTICE
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