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https://www.courtlistener.com/api/rest/v3/opinions/8484056/ | 11/15/2022
IN THE SUPREME COURT OF THE STATE OF MONTANA Case Number: OP 22-0470
QP 22-0470
Fi"
COY YARBER,
NOV 1 5 2022
Bowen Greenwood
Court
Petitioner, Cleric of Supreme
state of Montana
v. ORDE.R
JAMES SALMONSEN, Warden,
Respondents.
Coy Yarber petitions this Court for rehearing of a September 20, 2022 Order where
this Court denied and dismissed his Petition for Writ of Habeas Corpus because Yarber did
not demonstrate a facially invalid sentence or illegal restraint, pursuant to § 46-22-101(1),
MCA.
Yarber contends that the District Court did not transfer jurisdiction of his Youth
Court case to District Court because the cause number remained the same. Yarber provides
additional attachments. He argues that he is entitled to credit for time served under
Montana law, citing to §§ 46-18-203(7)(b) and 46-18-403, MCA. Yarber states that his
criminal case (DC-18-496) was not a sentence upon revocation. Section 46-18-201, MCA.
This Court "will consider a petition for rehearing presented only upon . . . [t]hat it
overlooked some fact material to the decision[,] . . . or [t]hat its decision conflicts with a
statute or controlling decision not addressed by the supreme court." M. R. App. P.
20(1)(a)(i) and (iii). "Absent clearly demonstrated exceptional circumstances, the supreme
court will not grant petitions for rehearing of its orders disposing of motions or petitions
for extraordinary writs." M. R. App. P. 20(1)(d).
Yarber is entitled to rehearing because this Court overlooked some fact material to
the decision. Yarber raises the issue of whether he is due credit for time served on a
sentence that was not a revocation. Section 46-18-201(9), MCA (2017). He includes a
copy of the sentence calculations. Yarber may be entitled to credit for time served for the
sentence imposed by the Cascade County District Court (ADC-18-496), pronounced on
February 20, 2019.
Therefore, upon review of Yarber's Petition for Rehearing about his sentence and
no credit for time served awarded, we deem it appropriate to require a response. This Court
will address his other claims after the response is received.
IT IS ORDERED that Yarber's Petition for Rehearing is GRANTED IN PART to
elicit a response from the Attorney General or counsel for the Department of Corrections.
IT IS FURTHER ORDERED that the Attorney General or counsel for the
Department of Corrections is GRANTED thirty days from the date of this Order in which
to prepare, file, and serve a written response to the petition for rehearing with appropriate
documentary exhibits concerning Yarber's claim of credit for time served.
The Clerk of the Supreme Court is directed to provide a copy of this Order to the
Attorney General; to counsel for the Department of Corrections; and to Coy Yarber
personally.
DATED this 1 6 day of November, 2022.
Chief Jus ce
LA•saltr ,
Justices | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484057/ | 11/15/2022
DA 21-0660
Case Number: DA 21-0660
IN THE SUPREME COURT OF THE STATE OF MONTANA
2022 MT 229
TAI TAM, LLC,
Plaintiff and Appellant,
v.
MISSOULA COUNTY, acting by and through its
BOARD OF COUNTY COMMISSIONERS,
Defendant and Appellee.
APPEAL FROM: District Court of the Fourth Judicial District,
In and For the County of Missoula, Cause No. DV-21-853
Honorable John W. Larson, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Alan F. McCormick, Garlington, Lohn & Robinson, PLLP, Missoula,
Montana
For Appellee:
Kirsten H. Pabst, Missoula County Attorney, John W. Hart, Dylan Jaicks,
Civil Deputy County Attorneys, Missoula, Montana
Submitted on Briefs: November 9, 2022
Decided: November 15, 2022
Filed:
ir,-6ta•--if
__________________________________________
Clerk
Justice Ingrid Gustafson delivered the Opinion of the Court.
¶1 Plaintiff and Appellant Tai Tam, LLC (Tai Tam), appeals from the December 2,
2021 Order Granting Defendant’s Motion to Dismiss issued by the Fourth Judicial District
Court, Missoula County. The District Court’s order granted the August 30, 2021 motion
to dismiss filed by Defendant and Appellee Missoula County, acting by and through its
Board of County Commissioners (Board), after determining Tai Tam’s complaint was both
time-barred and insufficiently pled.
¶2 We address the following restated issues on appeal:
1. Did the District Court err when it determined a claim pursuant to § 76-3-625(1),
MCA (2019), is subject to a 30-day statute of limitations?
2. Did the District Court err when it determined the Appellant’s 42 U.S.C. § 1983
claims lacked a sufficient protected property interest to survive an M. R. Civ. P.
12(b)(6) motion to dismiss for failure to state a claim?
¶3 We reverse.
FACTUAL AND PROCEDURAL BACKGROUND
¶4 Tai Tam is the owner of real property in Missoula County. The subject property at
issue in this case consists of a 28.3-acre parcel, known as McCauley Meadows. In 2018,
Tai Tam submitted a subdivision proposal for McCauley Meadows, which sought to
subdivide the parcel into 17 lots and set aside a 2.5-acre parcel for permanent agricultural
use. The Board denied Tai Tam’s subdivision application, in part because it determined
the proposal failed to adequately mitigate the loss of agricultural soils. Tai Tam later
submitted a second application to subdivide McCauley Meadows, this time seeking to
subdivide the parcel into 14 lots and set aside a 3.8-acre parcel for permanent agricultural
2
use. On June 31, 2021, this proposal was denied after the Board determined the proposal
failed to adequately mitigate the loss of agricultural soils and mitigate the impact to bird
habitat.
¶5 Several years before Tai Tam’s first application to the Board, a prior landowner had
sought to subdivide the parcel into a 12-lot subdivision to be known as Reilly Acres. The
Board did not approve the application and suggested the applicant redesign the subdivision
to mitigate the loss of agricultural soils. The applicant redesigned the proposed
subdivision, but did not resubmit the application to the Board. In late 2015, the Missoula
Consolidated Planning Board sent a recommendation to the Board to approve standards for
mitigating the loss of agricultural land in subdivisions. In January 2016, the Board declined
to adopt the proposed standards. McCauley Meadows is also subject to several planning
documents, including the Missoula County Subdivision Regulations, 2016 Missoula
County Growth Policy, 2019 Missoula Area Land Use Element, and the Target Range
Neighborhood Plan. The relevant planning documents contained a land use designation
for McCauley Meadows as “residential,” with a density of one dwelling unit per acre. This
designation is the same as the adjacent residential developments around McCauley
Meadows.
¶6 Tai Tam filed its Complaint in this matter on July 14, 2021. In its Complaint, Tai
Tam made a claim for statutory damages against the Board pursuant to § 76-3-625(1),
MCA (2019), as well as equal protection, takings, and due process claims alleging
deprivation of rights under 42 U.S.C. § 1983. The Board moved to dismiss Tai Tam’s
Complaint for failure to state a claim upon which relief can be granted pursuant to M. R.
3
Civ. P. 12(b)(6). The Board’s motion asserted Tai Tam’s claims brought under
§ 76-3-625(1), MCA (2019), were subject to a 30-day statute of limitations and were not
timely filed, while the § 1983 claims failed to state a sufficient protected property interest
and were not well-pled. After the parties briefed the matter, the District Court granted the
Board’s motion to dismiss. The court determined Tai Tam’s § 76-3-625(1), MCA (2019),
claims were barred by a 30-day statute of limitations and its § 1983 claims failed to state a
claim upon which relief could be granted, as the Complaint failed to show Tai Tam had a
sufficient protected property interest and its claims were not well-pled.
¶7 Tai Tam appeals. Additional facts will be discussed as necessary below.
STANDARD OF REVIEW
¶8 We review a district court’s ruling on a motion to dismiss pursuant to M. R. Civ. P.
12(b)(6) de novo. Dickson v. Marino, 2020 MT 196, ¶ 6, 400 Mont. 526, 469 P.3d 159. A
district court should not dismiss a complaint for failure to state a claim unless it appears
beyond doubt the plaintiff can prove no set of facts in support of his claim that would entitle
him to relief. Marshall v. Safeco Ins. Co., 2018 MT 45, ¶ 6, 390 Mont. 358, 413 P.3d 828.
A district court’s determination that a complaint has failed to state a claim for which relief
can be granted is a conclusion of law which we review for correctness. Cossitt v. Flathead
Indus., 2018 MT 82, ¶ 7, 391 Mont. 156, 415 P.3d 486.
4
DISCUSSION
¶9 1. Did the District Court err when it determined a claim pursuant to § 76-3-625(1),
MCA (2019), is subject to a 30-day statute of limitations?
¶10 The District Court determined Tai Tam’s action for statutory damages under
§ 76-3-625(1), MCA (2019), was barred by a 30-day statute of limitations. On appeal, Tai
Tam asserts the District Court erred by importing the 30-day statute of limitations provided
for in § 76-3-625(2), MCA (2019), to Tai Tam’s claims brought under § 76-3-625(1), MCA
(2019), which does not contain a specific statute of limitations. The Board contends the
District Court correctly construed § 76-3-625, MCA (2019), as a whole when it determined
claims brought under § 76-3-625(1), MCA (2019), were subject to a 30-day statute of
limitations. We agree with Tai Tam.
¶11 “All civil actions must be commenced within the periods prescribed in [Title 27,
Chapter 2, Part 2, MCA] except when another statute specifically provides a different
limitation.” Section 27-2-105, MCA. The Board argued, and the District Court
determined, that § 76-3-625, MCA (2019), specifically provided for a different
limitation—30 days. That statute stated, in full:
(1) A person who has filed with the governing body an application for a
subdivision under this chapter may bring an action in district court to sue the
governing body to recover actual damages caused by a final action, decision,
or order of the governing body or a regulation adopted pursuant to this
chapter. The governing body’s decision, based on the record as a whole,
must be sustained unless the decision being challenged is arbitrary,
capricious, or unlawful.
(2) A party identified in subsection (3) who is aggrieved by a decision of the
governing body to approve, conditionally approve, or deny an application
and preliminary plat for a proposed subdivision or a final subdivision plat
may, within 30 days from the date of the written decision, appeal to the
5
district court in the county in which the property involved is located. The
petition must specify the grounds upon which the appeal is made. The
governing body’s decision, based on the record as a whole, must be sustained
unless the decision being challenged is arbitrary, capricious, or unlawful.
(3) The following parties may appeal under the provisions of subsection (2):
(a) the subdivider;
(b) a landowner with a property boundary contiguous to the proposed
subdivision or a private landowner with property within the county or
municipality where the subdivision is proposed if that landowner can show a
likelihood of material injury to the landowner’s property or its value;
(c) the county commissioners of the county where the subdivision is
proposed; and
(d)
(i) a first-class municipality, as described in 7-1-4111, if a
subdivision is proposed within 3 miles of its limits;
(ii) a second-class municipality, as described in 7-1-4111, if a
subdivision is proposed within 2 miles of its limits; and
(iii) a third-class municipality or a town, as described in
7-1-4111, if a subdivision is proposed within 1 mile of its limits.
(4) For the purposes of this section, “aggrieved” means a person who can
demonstrate a specific personal and legal interest, as distinguished from a
general interest, who has been or is likely to be specially and injuriously
affected by the decision.
Section 76-3-625, MCA (2019).1
¶12 The 30-day limitation the District Court determined was applicable to Tai Tam’s
claims in this case is located in § 76-3-625(2), MCA (2019). The District Court’s Order
1
This statute has since been amended by the Legislature to include a 180-day statute of limitations
for actions brought under subsection (1). See § 76-3-625(1), MCA (2021 Mont. Laws ch. 190,
§ 2).
6
found “any claim under § 76-3-625(2), MCA, is barred.” While correct, the court’s finding
was not necessary in this case because Tai Tam’s Complaint specifically brought claims
under § 76-3-625(1), MCA (2019), not § 76-3-625(2), MCA (2019). What remained for
the District Court to determine, then, was whether the 30-day limitation of § 76-3-625(2),
MCA (2019), claims was necessarily imported to claims brought under § 76-3-625(1),
MCA (2019), when interpreting the statue as a whole.
¶13 “In the construction of a statute, the office of the judge is simply to ascertain and
declare what is in terms or in substance contained therein, not to insert what has been
omitted or to omit what has been inserted. Where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give effect to all.”
Section 1-2-101, MCA. We interpret a statute first by looking to its plain language and
“will not interpret the statute further if the language is clear and unambiguous.” Mont.
Sports Shooting Ass’n v. State, 2008 MT 190, ¶ 11, 344 Mont. 1, 185 P.3d 1003. “If the
intent of the legislature can be determined from the plain meaning of the words used in the
statute, the plain meaning controls, and this Court need go no further nor apply any other
means of interpretation.” Mont. Vending, Inc. v. Coca-Cola Bottling Co., 2003 MT 282,
¶ 21, 318 Mont. 1, 78 P.3d 499 (citing Gulbrandson v. Carey, 272 Mont. 494, 500, 901
P.2d 573, 577 (1995)).
¶14 In finding that a 30-day statute of limitations applied to claims brought under
§ 76-3-625(1), MCA (2019), the District Court noted both § 76-3-625(1), MCA (2019),
and § 76-3-625(2), MCA (2019), contain identical language which states that “[t]he
governing body’s decision, based on the record as a whole, must be sustained unless the
7
decision being challenged is arbitrary, capricious, or unlawful.” Section 76-3-625(1), (2),
MCA (2019). While it is true that actions brought pursuant to subsection (1) and those
brought pursuant to subsection (2) have the same standard of review, that does not mean
any other provisions contained within those subsections are automatically transferable
between the other. Section 76-3-625(1), MCA (2019), allows for a “person who has filed
with the governing body an application for a subdivision” to bring an “action . . . to recover
actual damages[.]” Section 76-3-625(2), MCA (2019), meanwhile, permits a subdivider,
certain landowners, county commissioners, or municipalities who are “aggrieved by a
decision . . . to approve, conditionally approve, or deny an application and preliminary plat
for a proposed subdivision or a final subdivision plat” to “appeal to the district court,” with
the added caveat that such appeal must be made “within 30 days from the date of the written
decision[.]” Beyond the standard of review noted by the District Court, the language of
subsections (1) and (2) is simply different, and the plain language of § 76-3-625(1), MCA
(2019), does not contain a 30-day statute of limitations. Because the language is clear and
unambiguous, there is no need to go beyond the plain language of the statute in this case
to find a 30-day statute of limitations for claims under § 76-3-625(1), MCA (2019), which
does not exist in the text. Mont. Sports Shooting Ass’n, ¶ 11. To determine otherwise
would require this Court “to insert what has been omitted or to omit what has been
inserted,” in violation of § 1-2-101, MCA.
¶15 Ultimately, we find the plain language of § 76-3-625(1), MCA (2019), is not
ambiguous and does not contain a 30-day statute of limitations. Prior to the 2021
amendments by the Legislature, § 76-3-625(1), MCA (2019), “did not specify a time-limit
8
to bring” an action. Lewis & Clark Cty. v. Wirth, 2022 MT 105, ¶ 29, 409 Mont. 1, 510
P.3d 1206 (interpreting the substantially similar § 76-3-625(1), MCA (2015)).2 Had the
Legislature intended for claims brought pursuant to § 76-3-625(1), MCA (2019), to have
the same 30-day statute of limitations as those brought under § 76-3-625(2), MCA (2019),
it could have written that into the statute. It did not. The District Court therefore erred
when it determined Tai Tam’s claims brought under § 76-3-625(1), MCA (2019), were
subject to a 30-day statute of limitations and dismissed them pursuant to M. R. Civ. P.
12(b)(6).
¶16 2. Did the District Court err when it determined the Appellant’s 42 U.S.C. § 1983
claims lacked a sufficient protected property interest to survive an M. R. Civ. P.
12(b)(6) motion to dismiss for failure to state a claim?
¶17 In addition to the statutory claims brought under § 76-3-625(1), MCA (2019), Tai
Tam’s Complaint also brought claims under 42 U.S.C. § 1983 for deprivation of rights.
The District Court determined Tai Tam’s Complaint failed to state a sufficient protected
property interest, were not well-pled, and dismissed the claims pursuant to M. R. Civ. P.
12(b)(6). The District Court, in dismissing the § 1983 claims, determined there was no
protected property interest in a subdivision application. On appeal, Tai Tam does not
contend it had a protected property interest in its subdivision application, but asserts its
§ 1983 claims are based on its inherent rights as a landowner of land affected by Missoula
County’s exercise of its police power. The Board, meanwhile, asserts Tai Tam’s rights
2
In Wirth, we incorrectly stated there “is now a 140-day time limit to file a claim after an agency
action under” § 76-3-625(1), MCA. Wirth, ¶ 29 n.6. It is in fact a 180-day time limit. Section
76-3-625(1), MCA (2021 Mont. Laws ch. 190, § 2).
9
inherent as a landowner are insufficient to show a protected property interest in this case
arising out of the subdivision process. The Board further asserts if this Court determines
Tai Tam’s inherent rights as a landowner are sufficient to show a protected property interest
for § 1983 purposes, that Tai Tam failed to state sufficient facts to survive a motion to
dismiss.
¶18 To begin, we must note the procedural posture of this case. This matter is before us
following the District Court’s M. R. Civ. P. 12(b)(6) dismissal for failure to state a claim.
A motion to dismiss is “viewed with disfavor and rarely granted.” Fennessy v. Dorrington,
2001 MT 204, ¶ 9, 306 Mont. 307, 32 P.3d 1250. In reviewing a Rule 12(b)(6) dismissal,
“we construe the complaint in the light most favorable to the plaintiff, and all allegations
of fact contained therein are taken as true.” Barthel v. Barretts Minerals Inc., 2021 MT
232, ¶ 9, 405 Mont. 345, 496 P.3d 541 (citing Robinson v. State, 2003 MT 110, ¶ 20, 315
Mont. 353, 68 P.3d 750). We are not, however, required to take as true any allegations in
the complaint that are legal conclusions. Barthel, ¶ 9 (citing Cowan v. Cowan, 2004 MT
97, ¶ 14, 321 Mont. 13, 89 P.3d 6). Ultimately, a complaint should not be dismissed under
Rule 12(b)(6) “unless it appears beyond doubt that the plaintiff can prove no set of facts in
support of his claim that would entitle him to relief.” Barthel, ¶ 9 (citing Cowan, ¶ 10).
Because this comes to us following a Rule 12(b)(6) dismissal, there is not a developed
factual record and we simply take all well-pled allegations from Tai Tam’s complaint as
true. The following discussion makes no judgments on whether Tai Tam’s claims could,
or would, win at trial, or even survive a Rule 56 motion for summary judgment following
further development of the factual record. With that in mind, we turn to whether Tai Tam’s
10
claims, as pled, are sufficient to survive a Rule 12(b)(6) motion to dismiss. We find they
are.
¶19 Tai Tam asserted three claims under 42 U.S.C. § 1983—violation of due process,
taking of real property without just compensation, and violation of equal protection. 42
U.S.C. § 1983 provides for a cause of action when state actors violate a federally protected
constitutional right. Renenger v. State, 2018 MT 228, ¶ 8, 392 Mont. 495, 426 P.3d 559.
That statute states:
Every person who, under color of any statute, ordinance, regulation, custom,
or usage, of any State or Territory or the District of Columbia, subjects, or
causes to be subjected, any citizen of the United States or other person within
the jurisdiction thereof to the deprivation of any rights, privileges, or
immunities secured by the Constitution and laws, shall be liable to the party
injured in an action at law, suit in equity, or other proper proceeding for
redress, except that in any action brought against a judicial officer for an act
or omission taken in such officer’s judicial capacity, injunctive relief shall
not be granted unless a declaratory decree was violated or declaratory relief
was unavailable.
42 U.S.C. § 1983.
¶20 “In order to state a viable § 1983 claim, the plaintiff must first establish it possesses
a protected interest since the guarantees of the Fifth and Fourteenth Amendments ‘apply
only when a constitutionally protected liberty interest or property interest is at stake.’”
Kiely Constr. L.L.C. v. City of Red Lodge, 2002 MT 241, ¶ 23, 312 Mont. 52, 57 P.3d 836
(quoting Tellis v. Godinez, 5 F.3d 1314, 1316 (9th Cir. 1993)). Whether Tai Tam has a
sufficient protected property interest to survive a motion to dismiss its § 1983 claims is
therefore a “threshold question,” which must be “answered in the affirmative[.]” Seven Up
11
Pete Venture v. State, 2005 MT 146, ¶ 26, 327 Mont. 306, 114 P.3d 1009 (quoting Kiely,
¶ 25).
¶21 On appeal, the Board, in part, asserts § 1983 claims are not allowed because Tai
Tam has sufficient remedies under the Montana Subdivision and Platting Act (MSPA),
found in Title 76, chapter 3, MCA. To allow such claims to go forward when Tai Tam also
brought claims under § 76-3-625(1), MCA (2019), according to the Board, “would
effectively insert an attorney fees provision into the MSPA in violation of the American
Rule regarding attorney fees.” Neither of these contentions were raised before the District
Court. “The general rule in Montana is that this Court will not address either an issue
raised for the first time on appeal or a party’s change in legal theory.” Unified Indus., Inc.
v. Easley, 1998 MT 145, ¶ 15, 289 Mont. 255, 961 P.2d 100 (citing Day v. Payne, 280
Mont. 273, 276, 929 P.2d 864, 866 (1996)). We generally follow this rule because it is
fundamentally unfair to fault the trial court for failing to rule correctly on an issue it was
never given the opportunity to consider. Gateway Hosp. Grp. Inc. v. Phila. Indem. Ins.
Co., 2020 MT 125, ¶ 15, 400 Mont. 80, 464 P.3d 44.3 We therefore decline to address
3
The Dissent asserts it does not make sense to follow our general rule of not addressing the issues
which have been raised by the Board for the first time on appeal in this case because the “reasoning
supporting the general rule is inapplicable” when the result would be to uphold, rather than reverse
the District Court in this case. Dissent, ¶ 38. Our general rule declining to address issues raised
for the first time on appeal does not only concern itself with our results towards a district court’s
ruling, however, because it is also “unfair to allow a party to choose to remain silent in the trial
court in the face of error” and take its chances on a favorable outcome. Day, 280 Mont. at 277,
929 P.2d at 866 (citation omitted). The Board took its chances on the District Court agreeing with
its theory all § 1983 claims were precluded in this case because Tai Tam was a subdivider and
prevailed, wrongly, based on that theory below. Rewarding this strategy because this Court later
delved into federal law regarding § 1983 claims—an astute reader will discover that nearly all of
the federal cases cited in both this Opinion and in the Dissent are nowhere to be found in the briefs
filed by the parties either below or on appeal here—and discovered there may be issues which
12
whether under the circumstances of this case where Tai Tam asserts claims as a landowner,
not a subdivider, it would have a sufficient remedy under the MSPA or whether allowing
§ 1983 claims impermissibly inserts an attorney fees provision into the MSPA.4
¶22 Pursuant to M. R. Civ. P. 8(a), Tai Tam must state a “short and plain statement of
the claim” showing it is entitled to relief along with a demand for the relief sought. In its
Complaint, Tai Tam noted it was not bringing its § 1983 claims as a subdivider, because
“a subdivider does not have a protected property interest in a subdivision application,” but
as a landowner with “rights inherent in the ownership of land which are protected by 42
U.S.C. §1983 and the Fifth Amendment to the United States Constitution.” The District
Court, in dismissing Tai Tam’s § 1983 claims, noted Tai Tam “concede[d]” it did not have
a protected property interest in the approval of a subdivision application, and therefore its
Complaint failed to state a cause of action for due process and takings claims. While the
District Court was correct that Tai Tam lacked a protected property interest in a subdivision
application, as Tai Tam specifically conceded in its Complaint, the court failed to address
could prevent Tai Tam from being allowed to assert § 1983 claims depending on how the record
in this case is developed would certainly be “unfair” in this case.
4
Parratt v. Taylor, 451 U.S. 527, 101 S. Ct. 1908 (1981) (overruled, in part, by Daniels v.
Williams, 474 U.S. 327, 330-31, 106 S. Ct. 662, 664 (1986)) and its progeny “hold that a
deprivation of liberty or property is not cognizable under section 1983 when a state’s
post-deprivation remedies are adequate to protect a victim’s procedural due process rights.” Wood
v. Ostrander, 879 F.2d 583, 588 (9th Cir. 1989). “However, ‘the Parratt line of cases does not
focus on the relevance of procedural protections to alleged violations of substantive constitutional
rights.’” Wood, 879 F.2d at 588 (quoting Smith v. City of Fontana, 818 F.2d 1411, 1414 (9th Cir.
1987 (overruled, in part, by Hodgers-Durgin v. De La Vina, 199 F.3d 1037, 1040 n.1 (9th Cir.
1999) (en banc))). We note that any contention regarding Tai Tam’s availability of state remedies
will need to be developed in further proceedings.
13
whether Tai Tam’s status as a landowner was sufficient to allow it to bring § 1983 claims
in this case. Under the pertinent standard of review following a Rule 12(b)(6) motion to
dismiss, we find Tai Tam’s ownership of McCauley Meadows is sufficient to state a
protected property interest and bring § 1983 claims against the Board in this case.
¶23 We have previously held that ownership of real property constitutes a
“constitutionally protected property interest[.]” Helena Sand & Gravel, Inc. v. Lewis &
Clark Cty. Planning & Zoning Comm’n, 2012 MT 272, ¶ 48, 367 Mont. 130, 290 P.3d 691;
see also Kafka v. Mont. Dep’t of Fish, Wildlife & Parks, 2008 MT 460, ¶ 66, 348 Mont.
80, 201 P.3d 8 (finding a compensable property interest arising out of the ownership of real
and personal property). Rather than apply this interest to Tai Tam’s § 1983 claims, the
District Court took Tai Tam’s concession it did not have a protected property interest in
the subdivision application and ended its inquiry there. This was in error, as the District
Court was required to address whether Tai Tam’s rights inherent in its ownership of
McCauley Meadows were violated by the Board’s actions, and inactions, in this case.
¶24 Having determined Tai Tam’s ownership of property was a sufficient protected
property interest such that it could make § 1983 claims, we must also determine whether
its claims, as pled, survive a Rule 12(b)(6) motion to dismiss for failure to state a claim.
When it comes to local governments, 42 U.S.C. § 1983 provides a limited remedy, first
spelled out by the United States Supreme Court in Monell v. Dep’t of Soc. Servs., 436 U.S.
658, 98 S. Ct. 2018 (1978). As we have stated in recognizing the Monell principle, “[a]
local governmental entity may be held liable under § 1983 only when it is shown that the
entity itself caused the constitutional violation at issue through the implementation of a
14
policy or custom of that governmental entity.” Dorwart v. Caraway, 1998 MT 191, ¶ 115,
290 Mont. 196, 966 P.2d 1121 (overruled, in part, on other grounds by Trs. of Ind. Univ.
v. Buxbaum, 2003 MT 97, ¶ 46, 315 Mont. 210, 69 P.3d 663). “Stated another way, in
evaluating a local government’s § 1983 liability, courts must determine: (1) whether
plaintiff’s harm was caused by a constitutional violation, and (2) if so, whether the local
government unit is responsible for that violation.” Miller v. City of Red Lodge, 2003 MT
44, ¶ 21, 314 Mont. 278, 65 P.3d 562 (citing Collins v. City of Harker Heights, 503 U.S.
115, 120, 112 S. Ct. 1061, 1066 (1992)). “[I]n order to impose liability on a local
governmental entity under § 1983, a plaintiff must establish[:] (1) that he possessed a
constitutional right of which he was deprived; (2) that the municipality had a policy;
(3) that this policy amounts to deliberate indifference to the plaintiff’s constitutional right;
and (4) that the policy is the moving force behind the constitutional violation.” Dorwart,
¶ 115 (internal quotation marks and citation omitted).5 Tai Tam’s Complaint alleged the
Board violated its rights to due process and equal protection, and constituted a taking of
Tai Tam’s property without just compensation, when the Board “implemented policies to
protect viewsheds, protect generic ecologic values, and protect adjacent property owners,
despite having no such adopted regulations,” and “[h]aving adopted plans acknowledging
much of the prime agricultural soils in the Target Range area have been developed, the
5
Our 4-part test was adopted from, and is identical to, the elements to maintain a claim against a
local government under Monell as set forth by the Ninth Circuit in Oviatt v. Pearce, 954 F.2d 1470,
1474 (9th Cir. 1992) (citing City of Canton v. Harris, 489 U.S. 378, 389-91, 109 S. Ct. 1197,
1205-06 (1989)).
15
Board now requires the few remaining landowners to unfairly shoulder the burden of
preserving what remains via policies and actions carried out under color of state law.”
While Tai Tam’s Complaint does not set forth the 4-part test in detail, under our liberal
pleading rules and considering that neither party raised or briefed this issue, we find the
Complaint sufficiently sets forth a § 1983 claim. 6
¶25 Under the Constitutions of both Montana and the United States, a person may not
be deprived of life, liberty, or property without due process of law. Mont. Const. art. II,
§ 17; U.S. Const. amend. V; U.S. Const. amend. XIV. The guarantee of due process has
both a procedural and a substantive component, and “the requirements for procedural due
process are (1) notice, and (2) opportunity for a hearing appropriate to the nature of the
case.” Montanans for Justice v. State ex rel. McGrath, 2006 MT 277, ¶¶ 29-30, 334 Mont.
237, 146 P.3d 759. This Court has “previously stated that ‘due process generally requires
notice of a proposed action which could result in depriving a person of a property interest
and the opportunity to be heard regarding that action.’” Geil v. Missoula Irrigation Dist.,
2002 MT 269, ¶ 53, 312 Mont. 320, 59 P.3d 398 (quoting Pickens v. Shelton-Thompson,
2000 MT 131, ¶ 13, 300 Mont. 16, 3 P.3d 603). “The fundamental requirement of due
process is the opportunity to be heard ‘at a meaningful time and in a meaningful manner.’”
Smith v. Bd. of Horse Racing, 1998 MT 91, ¶ 11, 288 Mont. 249, 956 P.2d 752 (quoting
Connell v. Dep’t of Soc. & Rehab. Servs., Child Support Enf’t Div., 280 Mont. 491, 496,
6
It is noted, though, that Tai Tam will be required to establish each of these four elements to
successfully prosecute the § 1983 claim.
16
930 P.2d 88, 91 (1997)). The allegations of Tai Tam’s Complaint, when taken as true—as
we must when reviewing a Rule 12(b)(6) motion to dismiss for failure to state a claim—
set forth a claim that its right to due process is being violated by the Board not
implementing the regulations it has adopted and by implementing policies for which Tai
Tam has not had a notice and opportunity to be heard. Specifically, Tai Tam asserts the
Board has “implemented policies to protect viewsheds, protect generic ecologic values,
and protect adjacent property owners, despite having no such adopted regulations.”
(Emphasis added.) Tai Tam’s complaint alleges the Board is both failing to implement
regulations it has adopted and implementing policies which are not based on any adopted
regulations at all. Taken as true, these allegations set forth a claim that Tai Tam, regardless
of the hearings held on its actual subdivision application in 2020, has not been given an
opportunity to be heard at a meaningful time and in a meaningful manner regarding the
Board’s adoption and implementation of policies and regulations which could deprive Tai
Tam of its property interest as a landowner. Smith, ¶ 11.
¶26 As pled, the allegations set forth in Tai Tam’s complaint are sufficient to survive
the Board’s Rule 12(b)(6) motion to dismiss and the District Court erred by dismissing Tai
Tam’s due process claim. Whether it is sufficient, after further development of the record,
to defeat a Rule 56 motion for summary judgment or to win at trial is not relevant at this
stage of the proceedings and is simply a matter for another day.
¶27 Turning to Tai Tam’s takings claim, under the Montana Constitution, “[p]rivate
property shall not be taken or damaged for public use without just compensation to the full
extent of the loss having been first made to or paid into court for the owner. In the event
17
of litigation, just compensation shall include necessary expenses of litigation to be awarded
by the court when the private property owner prevails.” Mont. Const. art. II, § 29.
Similarly, under the United States Constitution, private property shall not be taken for
public use without just compensation. U.S. Const. amend. V. “[E]ven when a
compensable property interest still retains economic value, just compensation may be
required if ‘“justice and fairness” require that economic injuries caused by public action
be compensated by the government, rather than remain disproportionately concentrated on
a few persons.’” Kafka, ¶ 69 (quoting Penn Cent. Transp. Co. v. New York City, 438 U.S.
104, 124, 98 S. Ct. 2646, 2659 (1978)). As we have noted, “[d]etermining when such
compensation is required is essentially an ad hoc, factual inquiry based on the
circumstances of each case.” Kafka, ¶ 69 (internal quotation marks omitted). Taking the
allegations of Tai Tam’s Complaint as true, which we must at this stage in the proceedings,
Barthel, ¶ 9, we find Tai Tam has sufficiently pled a takings claim in this case. According
to the Complaint, Tai Tam alleges the Board is applying rules and regulations to the
development of McCauley Meadows which have not been adopted with proper notice and
opportunity to be heard and is unfairly requiring Tai Tam to shoulder the burden of
preserving agricultural lands and viewsheds which was not imposed on other landowners.
Whether these burdens are so unfair that they require compensation is, again, a question
for another day.
¶28 The Dissent contends no takings claim can lie in this case due to our precedent that
“the discretionary denial of a desired land-use permit under existing law does not give rise
to a successful takings claim because it does not sufficiently interfere with reasonable
18
investment-backed expectations or economic value under Penn Central.” Dissent, ¶ 39.
As previously explained, determining when compensation for a takings claim is required
is “essentially an ad hoc, factual inquiry based on the circumstances of each case,” Kafka,
¶ 69 (internal quotation marks omitted), and therefore dismissal of a takings claim such as
Tai Tam’s is generally inappropriate at the Rule 12(b)(6) stage. Nevertheless, the Dissent
maintains that, based upon our decisions in Richards v. Cty. of Missoula, 2012 MT 236,
366 Mont. 416, 288 P.3d 175, and Helena Sand & Gravel, Tai Tam’s taking claim fails as
a matter of law. Richards involved a subdivision application which was denied “due to its
lack of compliance with state law, lack of compliance with Missoula County Growth Plan,
and lack of compliance with Missoula County Subdivision Regulations.” Richards, ¶ 10.
We found the landowner in that case could not “allege economic loss when he should have
appreciated the risk that, due to existing law, his subdivision may never have materialized.”
Richards, ¶ 35. Notably, this decision was reached following a grant of summary
judgment, after the factual record was developed, and not after a motion to dismiss such as
the one here. In contrast to the proposed subdivision which violated the law in Richards,
the allegations of Tai Tam’s complaint here set forth a claim that its proposed subdivision
does comply with state law, Missoula County Subdivision Regulations, 2016 Missoula
County Growth Policy, 2019 Missoula Area Land Use Element, and the Target Range
Neighborhood Plan, but the Board is nevertheless arbitrarily using its regulatory power to
take value from Tai Tam’s property by imposing regulations which have not been adopted
and requiring Tai Tam to shoulder the burden of preserving agricultural lands and
viewsheds which was not imposed on other landowners. At this stage, we must take this
19
assertion as true. Tai Tam’s allegation it is being economically injured due to the Board’s
actions which disproportionately concentrated the responsibility to preserve agricultural
lands and viewsheds on Tai Tam, but not adjacent landowners, constitutes a quintessential
takings claim, see Kafka, ¶ 69, and it should be allowed to test that claim following further
development of the factual record. It is only after the development of the factual record
when one could determine, as the Dissent prematurely attempts to here, whether the risk
the proposed development would never materialize was “reflected in the fair market price
at the time of the purchase,” Dissent, ¶ 44, how the Board’s unwritten standards interplay
with Tai Tam’s investment-backed expectations, whether the unwritten standards alleged
by Tai Tam in this case constitute a “a policy or custom of [the Board]” which “amounts
to deliberate indifference to [Tai Tam’s] constitutional right[s],” Dorwart, ¶ 115, and many
other questions raised in this case. The Dissent appears to contend that, as long as the
Board does not write down its regulatory burdens after a party purchases property, any
unwritten standards used to frustrate a proposed development cannot constitute the
imposition of a new regulatory burden. Dissent, ¶ 44 n.4. This apparent assertion is
incorrect. “The Supreme Court has made clear that policies can include written policies,
unwritten customs and practices, failure to train municipal employees on avoiding certain
obvious constitutional violations, and, in rare instances, single constitutional violations
[which] are so inconsistent with constitutional rights that even such a single instance
indicates at least deliberate indifference of the municipality[.]” Benavidez v. Cty. of San
Diego, 993 F.3d 1134, 1153 (9th Cir. 2021) (internal citation omitted, emphasis added).
The relevant allegation of Tai Tam’s Complaint, which we must take as true at this stage
20
of the proceedings, is that the Board, through its use of unwritten policies which have never
been formally adopted, is imposing new regulatory burdens on Tai Tam’s land. The
allegations of the Complaint are sufficient to survive the Board’s Rule 12(b)(6) motion to
dismiss, and the District Court erred by dismissing Tai Tam’s § 1983 takings claim.
¶29 Finally, the District Court also dismissed Tai Tam’s equal protection claim under
§ 1983 as insufficiently pled. As we have already determined Tai Tam’s ownership of the
property at issue in this case provides a sufficient protected property interest to allow it to
bring § 1983 claims, we need not address that issue further here. The District Court
determined Tai Tam “failed to state an adequate cause of action for equal protection and
that it was treated differently than other subdivision applicants in the same circumstances.”
¶30 “The Equal Protection Clause of the Fourteenth Amendment commands that no
State shall ‘deny to any person within its jurisdiction the equal protection of the laws,’
which is essentially a direction that all persons similarly situated should be treated alike.”
City of Cleburne v. Cleburne Living Ctr., 473 U.S. 432, 439, 105 S. Ct. 3249, 3254 (1985)
(quoting U.S. Const. amend. XIV). Tai Tam’s Complaint sought to bring a “class of one”
equal protection claim. Tai Tam can bring an equal protection claim as a “class of one” by
alleging it was intentionally treated differently from others similarly situated and there was
no rational basis for the difference in treatment. Totem Beverages, Inc. v. Great Falls-
Cascade Cty. City-Cty. Bd. of Health, 2019 MT 273, ¶ 29, 397 Mont. 527, 452 P.3d 923;
see also Village of Willowbrook v. Olech, 528 U.S. 562, 564, 120 S. Ct. 1073, 1074-75
(2000). The factual allegations of Tai Tam’s complaint—that surrounding property has
been allowed to be developed in the same pattern as that desired by Tai Tam; that Tai Tam
21
has been subjected to policies which Missoula County has not formally adopted and are
applied on an ad hoc basis; that Tai Tam is being forced to preserve its property for
agriculture when other landowners in the area were allowed to develop their properties;
and that the Board is not following the 2019 Missoula Area Land Use Element regarding
McCauley Meadows—when taken as true for the purposes of a Rule 12(b)(6) motion to
dismiss, are sufficient to state a “class of one” equal protection claim sufficient to overcome
a motion to dismiss.
¶31 The Dissent contends Tai Tam is not similarly situated to previous developers
because it is “a late arrival,” one who arrived after there was no longer “abundant open
space available.” Dissent, ¶ 46. “The basic rule of equal protection is that persons similarly
situated with respect to a legitimate governmental purpose of the law must receive like
treatment.” Rausch v. State Comp. Ins. Fund, 2005 MT 140, ¶ 18, 327 Mont. 272, 114
P.3d 192. The 2019 Missoula Area Land Use Element applicable to McCauley Meadows,
as set forth in Tai Tam’s complaint, reflects that the property is entirely designated for
“Rural Residential and Small Agriculture” with a density of one to two dwellings per
acre—making it “similarly situated” with those previous developers of the area who were
allowed to develop residential property from land designated for residential property.
Regarding the Dissent’s contention the Board had a rational basis to treat Tai Tam
differently so as to preserve “some baseline level of undeveloped land in the area,” Dissent,
¶ 46, the 2019 Missoula Area Land Use Element in fact removed a “parks and open space”
designation from a portion of Tai Tam’s parcel of land and designated it entirely as one for
“Rural Residential and Small Agriculture.” Taking the allegations of the complaint as true,
22
Tai Tam has stated a claim that the County had no rational basis to require Tai Tam to
shoulder the burden of preserving open space in the area in contravention of the plain
language of the 2019 Missoula Area Land Use Element which designates Tai Tam’s
property for residential use.
¶32 Tai Tam is not, at this stage in the litigation, required to show a likelihood of success
on the merits of its § 1983 claims. To defeat a Rule 12(b)(6) motion to dismiss, a party is
simply required to state sufficient facts that, if true, demonstrate it would be entitled to
relief. Marshall, ¶ 6. In this case, Tai Tam has met that burden and the District Court erred
by granting the Board’s motion to dismiss.
CONCLUSION
¶33 The District Court erred by determining Tai Tam’s § 76-3-625(1), MCA, claim was
subject to a 30-day statute of limitations and time-barred. The District Court further erred
by concluding Tai Tam’s 42 U.S.C. § 1983 claims lacked a sufficient protected property
interest and were insufficiently pled to survive an M. R. Civ. P. 12(b)(6) motion to dismiss
for failure to state a claim.
¶34 Reversed and remanded.
/S/ INGRID GUSTAFSON
We concur:
/S/ LAURIE McKINNON
/S/ JAMES JEREMIAH SHEA
/S/ JIM RICE
23
Chief Justice Mike McGrath, concurring and dissenting.
¶35 While I concur with the Majority on Issue One that the District Court erred in
determining that Tai Tam’s claim pursuant to § 76-3-625(1), MCA (2019), was subject to
a 30-day statute of limitations, I dissent to the holding that the District Court erred in
determining that Tai Tam’s due process, regulatory takings, and equal protection claims
brought pursuant to 42 U.S.C. § 1983 were subject to M. R. Civ. P. 12(b)(6) dismissal.
Tai Tam has not shown that it would be entitled to relief pursuant to the relevant legal
standards even when the factual allegations in the complaint are taken as true.
¶36 A claim is subject to M. R. Civ. P. 12(b)(6) dismissal if it “fails to state sufficient
facts that, if true, would entitle the claimant to relief under that claim.” Anderson v.
ReconTrust Co., N.A., 2017 MT 313, ¶ 8, 390 Mont. 12, 407 P.3d 692 (emphasis added,
citations omitted). In other words, the validity of a plaintiff’s factual allegations need not
be tested through the fact-finding process if it can be determined as a matter of law that
such factual allegations, even if true, could not satisfy the elements necessary to succeed
on the claim. See Commonwealth Edison Co. v. State, 189 Mont. 191, 194, 615 P.2d 847,
849 (1980) (dismissal for failure to state a claim warranted “if as a matter of law, under
any view of the alleged facts, plaintiffs cannot prevail”).
¶37 Tai Tam raises three theories under its § 1983 claim, asserting that the Board’s
refusal to permit its proposed subdivision is: (1) a due process violation, (2) a constitutional
taking, and (3) a violation of Tai Tam’s equal protection rights.
24
¶38 With regard to Tai Tam’s Due Process claim alleging that the Board’s
decision-making process is essentially standardless,1 the Majority correctly acknowledges
that, under Parratt v. Taylor, 451 U.S. 527, 101 S. Ct. 1908 (1981), § 1983 claims for
procedural due process violations are not cognizable where there are available adequate
state procedures with which to seek redress. See Wood v. Ostrander, 879 F.2d 583, 588
(9th Cir. 1989) (deprivation of liberty or property is not cognizable under §1983 when a
state’s post-deprivation remedies are “adequate to protect a victim’s procedural
[as opposed to substantive] due process rights.” (citing Parratt, 451 U.S. at 541-44, 101
S. Ct. 1916-17); McRorie v. Shimoda, 795 F.2d 780, 786 (9th Cir. 1986 (“[A] procedural
due process violation . . . does not occur until the state deprives the individual of a
procedure for redress.”). Though the MSPA—which provides for judicial review of
adverse subdivision decisions to determine if they are “arbitrary, capricious, or unlawful,”
§ 76-3-625, MCA (2019)—obviously provides sufficient process under state law to address
Tai Tam’s claims and should thereby bar Tai Tam’s § 1983 procedural due process claim,
the Majority declines to so hold because the Board failed to raise this argument below.
See Opinion, ¶ 21. However, as noted by the Majority, the reason for our general rule of
declining to address an issue not raised below is to avoid faulting a District Court for failing
to rule correctly on an issue it did not have the opportunity to consider. Opinion, ¶ 21;
1
E.g., In re Miserocchi, 749 A.2d 607, 611 (Vt. 2000) (with regard to insufficient criteria to
determine whether to approve a change in nonconforming use, “such ad hoc decision-making
denies . . . due process of law”); Town of Westford v. Kilburn, 300 A.2d 523, 526
(Vt. 1973) (reasoning that absent sufficient land use standards, “the door is opened to the exercise
of . . . discretion in an arbitrary or discriminatory fashion”).
25
see Gateway Hosp. Grp. Inc. v. Phila. Indem. Uns. Co., 2020 MT 125, ¶ 15, 400 Mont. 80,
464 P.3d 44. Here, however, the District Court ruled to dismiss Tai Tam’s due process
claim on different grounds. Consideration of the applicable Parratt rule here on appeal
would not have the effect of unfairly faulting the District Court, as the result would be to
uphold, rather than reverse, that court. Blinding ourselves to the dispositive legal principle
simply because it was not raised below makes no sense here where the reasoning
supporting the general rule is inapplicable. Moreover, further development of the factual
record is not necessary to resolve the purely legal question of whether, under Parratt, the
MSPA bars Tai Tam’s procedural due process claim.
¶39 Turning to Tai Tam’s remaining claims, Tai Tam’s complaint alleged that property
was zoned as “residential,” other developers in the area had previously been approved, and
the Board had implied in its dealings with a previous owner of the property that a
properly-designed subdivision could be approved, but that, after Tai Tam purchased the
property, the Board essentially reached a de facto conclusion that the property would not
be allowed to be developed under any circumstances. As the Majority notes, whether a
regulatory burden on property that still retains some economic value amounts to a
constitutional taking generally turns on consideration of (1) the “character” of the
governmental action, (2) the regulation’s interference with “distinct investment-backed
expectations,” and (3) the economic impact of the regulation on the claimant. Opinion,
¶ 27; Kafka v. Mont. Dep’t of Fish, Wildlife & Parks, 2008 MT 460, ¶ 69, 348 Mont. 80,
201 P.3d 8 (citing Penn Central Transp. Co. v. New York City, 438 U.S. 104, 124, 98 S.
Ct. 2646, 2659 (1978)). While, as a general matter, the fact-specific nature of Penn
26
Central’s regulatory taking standard outlined in Kafka may not easily lend itself to
disposition at the 12(b)(6) stage, this particular case is subject to dismissal without further
fact-finding because of our precedent providing that the discretionary denial of a desired
land-use permit under existing law does not give rise to a successful takings claim because
it does not sufficiently interfere with reasonable investment-backed expectations or
economic value under Penn Central.
¶40 In Richards v. County of Missoula a developer, Richards, purchased property
intending to build a subdivision. 2012 MT 236, ¶ 6, 366 Mont. 416, 288 P.3d 175. The
developer’s application for a subdivision permit was repeatedly denied despite efforts to
work with state authorities to mitigate expected wildlife impacts. Richards, ¶¶ 6-10.
Responding to the developer’s takings claim on appeal, we focused on the fact that
Richards had acquired the property with full knowledge and acceptance of the risk that it
might not be approved for subdivision under existing law:
Richards purchased the property with the intent of creating a subdivision.
Richards fully understood, however, that he lawfully could subdivide the
land only with County approval. Richards cannot now allege economic loss
when he should have appreciated the risk that, due to existing law, his
subdivision may never have materialized. Richards stands in the same place
today that he was when he purchased the property—the owner of a 200-acre
parcel that remains subject to subdivision review. Richards can sustain no
takings claim under these circumstances.
Richards, ¶ 35.
¶41 Richards bought the property knowing that a subdivision might be approved, or it
might not. Though the latter possibility proved to be the one that materialized, the state of
affairs which Richards had relied upon when making his investment had not changed.
27
See Loveladies Harbor v. United States, 28 F.3d 1171, 1177 (Fed. Cir. 1994) (“In legal
terms, the owner who bought with knowledge of the restraint could be said to have no
reliance interest, or to have assumed the risk of any economic loss. In economic terms, it
could be said that the market had already discounted for the restraint, so that a purchaser
could not show a loss in his investment attributable to it.”). This principle is reflected in
our caselaw repeatedly finding that an unfavorable discretionary land-use permitting
decision is not a taking because the property owner had no compensable property interest
in receiving a favorable discretionary decision. See Madison River R.V. Ltd. v. Town of
Ennis, 2000 MT 15, ¶¶ 7, 44, 298 Mont. 91, 994 P.2d 1098 (upholding district court ruling
that plaintiff had not stated a claim for which relief could be granted where plaintiff alleged
that municipality’s denial of plat approval to build a campground constituted a regulatory
taking); Roe v. City of Missoula, 2009 MT 417, ¶¶ 9, 43, 354 Mont. 1, 221 P.3d 1200
(denial of proposed boundary line relocation not a taking; no property right in discretionary
approval); Seven Up Pete Venture v. Montana, 2005 MT 146, ¶ 28, 327 Mont. 306, 114
P.3d 1009 (right to mine is conditioned on acquisition of a permit which would constitute
a cognizable property interest “only when the discretion of the issuing agency is so
narrowly circumscribed that approval of a proper application is virtually assured” (internal
quotation omitted)); Germann v. Stephens, 2006 MT 130, ¶ 31, 332 Mont. 303, 137 P.3d
545 (no property right in issuance of a liquor license where city ordinance that was subject
of takings claim was alleged to prevent plaintiff from operating bar and casino).
¶42 In contrast, in Helena Sand & Gravel, Inc. v. Lewis & Clark Cty. Planning & Zoning
Comm’n, Helena Sand & Gravel, Inc. (HSG) had received a permit from the Department
28
of Environmental Quality (DEQ) to mine gravel on 110 acres of its property. 2012 MT
272, ¶ 7, 367 Mont. 130, 290 P.3d 691. However, the County then created a special zoning
district that would prohibit industrial mining operations on the remaining 311 acres of the
property, for which HSG had apparently also been considering pursuing a mining permit.
Helena Sand & Gravel, ¶¶ 7, 12, 40. On appeal from summary judgment, we preliminarily
held that HSG did not have a compensable property interest in obtaining a discretionary
mining permit from DEQ. Helena Sand & Gravel, ¶¶ 35-45. However, we remanded to
the District Court to conduct an analysis of the Penn Central factors to determine whether
the County’s actions potentially prohibiting the expansion of gravel mining on land that
HSG already owned and was seeking to extend mining operations on impinged upon
HSG’s rights as a property owner2 to the point of constituting a regulatory taking. Helena
Sand & Gravel, ¶¶ 46-48.
2
Helena Sand & Gravel’s holding—that, while there is no compensable property interest in
receiving a discretionary land use permitting approval, rights generally attendant to property
ownership remain otherwise in play—appears to have been the genesis of the unnecessary and
confusing debate over whether Tai Tam is best categorized as a landowner or a subdivider.
See Opinion, ¶¶ 22-23 (citing Helena Sand & Gravel, ¶ 48). Quite simply, because (1) Tia Tam
sought to develop land and (2) Tai Tam owns that land, it is both a subdivider and a property
owner. See § 76-3-103(15), MCA (defining “subdivider” as “a person who causes land to be
subdivided or who proposes a subdivision of land”); Helena Sand & Gravel, ¶ 46 (“protections of
‘private property’ . . . apply to real property owned in fee”). Tai Tam enjoys the protections the
law extends both to subdividers—including the statutory right to seek judicial review of an
unfavorable decision—and to property owners—including the constitutional rights to due process
and just compensation for deprivation of compensable property interests. Section 76-3-625, MCA;
Helena Sand & Gravel, ¶ 46. Below, Tai Tam apparently attempted to shift the focus away from
the specific question of whether it had a compensable property interest in receiving subdivision
approval—conceding that our caselaw is clear that it does not—and towards the general rights and
interests afforded to an owner of real property by the Constitution, an effort the Majority now
credits. Opinion, ¶¶ 22-23. The District Court correctly, in my view, rejected this strategy.
Tai Tam’s legal status as a subdivider under Title 76, chapter 3 never provided it with a right to
just compensation for an unfavorable subdivision permitting decision, and Tai Tam’s legal status
29
¶43 Helena Sand & Gravel, particularly as contrasted with Richards, therefore stands
for the proposition that an unfavorable discretionary land-use permitting decision made
pursuant to a preexisting regulatory framework (such as the DEQ mining permit) cannot
form the basis of a takings claim, but a new regulatory structure implemented after the
property was purchased to target a property owner (such as the new County zoning district)
can. The critical distinction lies in the reasonable expectations of the plaintiffs upon
acquisition of the property, the second of the Penn Central factors. See Helena Sand &
Gravel, ¶ 46 (HSG ability to bring a takings claim subject to the Penn Central analysis
“by virtue of its investment in 421 acres of real property” and the “impact of the zoning
regulations on the value of that parcel of property” (emphasis added)); Kafka, ¶ 69. In
other words, this factor limits takings claims to “those who can ‘demonstrate that they
bought their property in reliance on a state of affairs that did not include the challenged
regulatory regime.’” Kafka, ¶ 72 (quoting Rose Acre Farms, Inc. v. United States, 373
F.3d 1177, 1190 (Fed. Cir. 2004)). HSG had no compensable property interest in the
discretionary grant of a mining permit from DEQ pursuant to preexisting regulations—like
the plaintiffs in Richards, Roe, Seven Up Pete Venture, and Germann—in part because
HSG acquired the property with the knowledge that it was subject to discretionary DEQ
approval upon which it could have no reasonable reliance and which would have been
reflected in the property’s fair market value. See Helena Sand and Gravel, ¶ 45 (because
DEQ mining permit is discretionary, “HSG is foreclosed from basing its takings claim on
as a property owner, as outlined above, is similarly unavailing to Tai Tam’s claim under controlling
takings law.
30
any alleged lost opportunity to mine its additional 310 acres”). See also Loveladies
Harbor, 28 F.3d at 1177 (describing how an owner who bought with knowledge of the
restraint has no reliance interest, and has assumed the risk of any economic loss and that
the market would have already discounted for the restraint, such that the purchaser could
show no loss); Kafka, ¶¶ 72-73 (describing role of market value in Penn Central analysis);
Richards, ¶ 35. However, in Helena Sand & Gravel, unlike in Richards, the government
subjected the property owner to an unforeseen new and additional regulatory impediment
after the property was acquired and partially permitted by DEQ, thus potentially
diminishing the property’s fair market value and frustrating HSG’s reasonable,
investment-backed expectations of a gravel mine. See Helena Sand & Gravel, ¶ 46; Kafka,
¶¶ 69, 72.
¶44 Tai Tam’s attempt to bring a takings claim on the basis of the discretionary denial
of its development permit is easily dismissed pursuant to these established legal principles.
Tai Tam purchased the property with the full understanding that it could not be subdivided
without Board approval and cannot now allege economic loss based on the known risk that
the subdivision may never have materialized. See Richards, ¶ 35.3 Tai Tam does not allege
3
Though, as noted by the Majority, the Richards decision was issued on summary judgment, not
at the Rule 12(b)(6) stage, the relevance of Richards is not its procedural posture but, rather, the
substantive rule of law that it set forth, namely that an unfavorable development permitting
decision does not constitute a regulatory taking. Opinion, ¶ 28; see Richards, ¶¶ 34-35. Richards’
reasoning referenced no factual peculiarities of that particular case. It is against this simple legal
standard that Tai Tam’s well-pled, non-conclusory factual allegations must be tested at the Rule
12(b)(6) stage here. Anderson, ¶ 8 (Rule (12(b)(6) dismissal is appropriate where claim “fails to
state sufficient facts that, if true, would entitle the claimant to relief under that claim”). Because
the facts alleged by Tai Tam, even if proven true or further developed through a fact-finding
process, do not entitle Tai Tam to relief under the relevant takings jurisprudence, Rule 12(b)(6)
dismissal is appropriate.
31
a new regulatory burden was imposed subsequent to Tai Tam’s purchase of the property,
only a hindsight realization that the risk Tai Tam willingly assumed, as would have been
reflected in the fair market price at the time of the purchase, materialized in a foreseeable
but undesired manner here. Tai Tam’s complaint alleges that the Board’s unfavorable
decision was marred by imprecise legal standards, consideration of some factors Tai Tam
believes should not have been considered, and a failure to consider other factors that Tai
Tam argues merited more attention.4 While these allegations might be relevant to a claim
that the Board’s decision was arbitrary, capricious, or unlawful pursuant to judicial review
provided for by § 76-3-625, MCA (2019), they do not constitute facts which, if true, would
entitle Tai Tam to relief for a takings claim. Thus, even taking Tai Tam’s factual
allegations as true, Tai Tam is not entitled to relief under relevant Montana takings
jurisprudence, and the claim should therefore be subject to M. R. Civ. P. 12(b)(6)
dismissal.5
4
To the extent that Tai Tam alleges it has been subjected to a de facto adoption of a new unwritten
agreement by the Board to set aside Tai Tam’s land as open space, these arguments are better
addressed through provisions for judicial review for arbitrary and capricious decisions under
§ 76-3-625(1), MCA (2019). Attempting to recast an unfavorable discretionary decision as a
newly-adopted regulatory policy would vitiate our holdings distinguishing unfavorable
discretionary permitting decisions pursuant to application of existing regulation (not a regulatory
taking) from the adoption of new regulatory burdens upon the property (potentially a regulatory
taking).
5
Though the Majority asserts that preserving the area’s remaining agricultural lands and viewsheds
on Tai Tam’s property after other open space in the area was developed constitutes a quintessential
takings claim, Opinion, ¶ 28, neither the Majority nor Tai Tam cites to any case in which such
facts have been found to constitute a taking. Further development of the record is not necessary
to determine that Tai Tam cannot establish the existence of a constitutional taking on the basis of
the alleged facts.
32
¶45 Additionally, as noted by the Majority, to succeed on an equal protection claim, Tai
Tam must show that the Board intentionally treated Tai Tam differently from other
similarly-situated developers without a rational basis for the distinction. Opinion, ¶ 30;
Totem Bevs. Inc. v. Great Falls-Cascade Cty. City-Cty. Bd. of Health, 2019 MT 273, ¶ 29,
397 Mont. 527, 452 P.3d 923. Tai Tam alleged in its complaint that “[h]aving adopted
plans acknowledging much of the prime agricultural soils in the Target Range area have
been developed, the Board now requires the few remaining landowners to unfairly
shoulder the burden of preserving what remains via policies and actions carried out under
color of state law.” (Emphasis added.) However, Tai Tam essentially concedes that its
pleadings do not contain a factual allegation that similarly-situated developers were treated
differently, stating on appeal that it is “not arguing [that] some other property owner in a
similar circumstance received a subdivision approval.”
¶46 Instead, Tai Tam states that it is “arguing [that] the [Board], having already
permitted most of the area to develop in one form or another, is singling out Tai Tam’s
property for preservation as one of the few remaining undeveloped properties.” This
“singling out” or “preserv[ation of] what remains” allegation does not constitute an equal
protection claim under the relevant legal standard because the facts set forth in Tai Tam’s
Complaint demonstrate that Tai Tam was not similarly situated to others in the area who
were permitted to proceed with development. Tai Tam’s Complaint asserts that its property
is one of the few remaining undeveloped properties in the area and that, as a “remaining
landowner[],” Tai Tam is being forced to “preserv[e] what remains.” Thus, the facts
alleged in Tai Tam’s Complaint demonstrate that previous developers sought development
33
permits when there was still abundant open space available. Tai Tam, as a late arrival, is
not similarly situated. Likewise, the facts in the Complaint establish a rational basis for
the differential treatment: serving a legitimate interest in preserving some baseline level of
undeveloped land in the area. Thus, even if Tai Tam can establish as true the factual
allegation that the Board is “singling out Tai Tam’s property for preservation as one of the
few remaining undeveloped properties,” it would not be entitled to relief under equal
protection jurisprudence and its claim is therefore subject to Rule 12(b)(6) dismissal. Tai
Tam points to no authority suggesting that the Equal Protection Clause requires that those
seeking to develop the last remaining open space be treated the same as those who
developed when undeveloped space was plentiful,6 and testing or developing these factual
allegations through a fact-finding process is therefore unnecessary to the resolution of this
case.
¶47 Tai Tam has not shown on appeal that the factual allegations in the Complaint, when
taken as true, entitle Tai Tam to relief under applicable legal standards for due process,
regulatory takings, and equal protection claims. Tai Tam’s claims are therefore subject to
dismissal pursuant to M. R. Civ. P. 12(b)(6) without necessitating further fact finding.
See e.g., Commonwealth Edison Co., 189 Mont. at 194, 615 P.2d at 849 (“examin[ing] the
6
Willowbrook v. Olech, 528 U.S. 562, 564-65, 120 S. Ct. 1073, 1075 (2000), cited to by Tai Tam
on appeal in support of its equal protection claim, involved an allegation that a municipality
conditioned the connection of the plaintiff’s property to the municipal water supply on the grant
of a larger easement to the municipality than was demanded of other, similarly-situated property
owners. Willowbrook is inapplicable here, where the facts as pled allege that Tai Tam, which owns
“one of the few remaining undeveloped properties” is not similarly situated to those who
developed when there was adequate open space remaining.
34
pleadings” and “factual matters which plaintiffs allege would invalidate the tax” before
conducting a lengthy analysis of the law and concluding that the challenged coal tax was
valid as a matter of law). For these reasons, I contend that the District Court did not err in
dismissing Tai Tam’s 42 U.S.C. § 1983 claims.
¶48 I therefore dissent with regard to Tai Tam’s due process, regulatory takings, and
equal protection claims brought pursuant to 42 U.S.C. § 1983.
/S/ MIKE McGRATH
Justice Beth Baker and Justice Dirk Sandefur join in the Concurrence and Dissent of Chief
Justice Mike McGrath.
/S/ BETH BAKER
/S/ DIRK M. SANDEFUR
35 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492282/ | ORDER
JOHN L. PETERSON, Chief Judge.
In this adversary proceeding, the Chapter 7 Panel Trustee (“Trustee”) filed a complaint on July 28, 1995, to avoid transfer of real property as an alleged fraudulent conveyance. The Defendants, Debtor Genia Gale Demis Eggebrecht, E. Howard Eggebrecht, et al., (“Defendants”) in the action filed an amended answer July 31, 1995, denying the substantive basis of the complaint, and pleading four affirmative defenses, including an allegation that the Statute of Limitations on the Trustee’s avoidance powers bars this action. All parties acknowledge the Court has jurisdiction in the matter under 28 U.S.C. § 1334 and this is a core proceedings under 28 U.S.C. § 157(b)(2)(H).
After due notice hearing was held on December 14, 1995, in which the parties appeared represented by counsel. The Trustee offered the testimony of three witnesses, Debtor Genia Gale Demis (“Debtor”), Pauline Eggebrecht and Debra Demis, and Debtor testified for the Defendants. The parties also mutually submitted exhibits 1-20, 22-29 and 30 into evidence as well as Exhibits A and B.
The Trustee contends, inter alia, the two year state law statute of limitations for avoidance of fraudulent conveyances does not bar this action since, although the Debtor executed two quit-claim deeds to the same real property in the case in 1991 and 1992, the only valid transfer took place within two years before the filing of bankruptcy or other actions by creditors. The Trustee claims the earlier of the two quit-claim deeds is either “inoperable” or void because at the time of its execution, a Colorado court had temporarily enjoined Debtor from conveying any property in a divorce action, and therefore the earlier purported conveyance could not begin the limitations clock running. In the alternative, the Trustee also argues the statute of limitations for a fraudulent conveyance does not begin to run until a judgment giving rise to a debt was entered for creditor.
Defendants admit in their amended answer the Colorado divorce court issued a restraining order against Debtor and the injunction was in effect at the time Debtor executed the first quit-claim deed. Nevertheless, Defendants argue the Debtor’s transfer, although in violation of the injunction, does not void or otherwise impair the properly executed, recorded and perfected quit-claim deed from Debtor to the Eggebrechts of real property in the jurisdiction of Montana. Defendants conclude the earlier transfer having occurred more than two years prior to Debtor’s filing for bankruptcy, the Trustee may not now avoid it. The issue of the statute of limitations being dispositive, the Court finds for the Defendants.
I.
In portions of the “Parties Agreed Statement of Facts” filed December 12, 1995, the litigants formally specified in writing to the following relevant facts.
1. Debra Kay Demis, (“Debra”), a resident of Colorado, is a creditor of the Debtor in this case. (Parties Agreed Statement of Facts, p. 2.)
2. In 1987, Debra and Debtor entered into a contract retaining a lawyer to represent them both in a suit to determine their interest in certain real property in Roosevelt and Yellowstone Counties, Montana, owned among Debtor, Defendants Eggebrecht, the Estate of Mark K. Eggebrecht, David Kent Eggebrecht and Debra as a joint venture. Debra and Debtor each agreed to pay half of the fees and costs incurred, but as to the obligation to the lawyer’s firm, both were jointly and severally liable. In accord with the contract, the lawyer appeared on behalf of Debra and Debtor in DV 87-1061, Thirteenth Judicial District, Yellowstone County, *854Montana, Demis v. Eggebrecht (hereafter “the 1987 Demis v. Eggebrecht action”). (Parties Agreed Statement of Facts, p. 5.)
3. Subsequently, Debtor failed to pay fees and costs due the lawyer, including accountant’s fees for the accountant obtained as an expert witness, and, during the pen-dency of the 1987 Demis v. Eggebrecht action, directed the lawyer to withdraw the firm as Debtor’s counsel. Thereafter Debtor acted pro se in the lawsuit. (Parties Agreed Statement of Facts, p. 6.)
4. On October 24, 1989, in a Colorado divorce proceeding running parallel with the 1987 Demis v. Eggebreeht action, Debtor and Peter Demis, Debtor’s spouse, entered into a “Stipulated Agreement re: Temporary Restraining Order and Injunction” that provided Debtor “shall not, without an Order of Court or written agreement of the parties, dismiss, liquidate, transfer or assign her cause of action or property rights associated with” the 1987 Demis v. Eggebreeht action. The Colorado court entered an Order dated November 16, 1989, in the Demis divorce action approving the stipulated agreement. (Parties Agreed Statement of Facts, p. 6.)
5. By Judgment dated November 6,1991, and docketed November 6, 1991, in the 1987 Demis v. Eggebreeht action, the court determined that Debra had an undivided one-fourth interest in certain of the properties at issue and an undivided one-sixth interest in other of the subject properties. Debra’s net equitable share in the properties was determined to be $279,238.00. (Parties Agreed Statement of Facts, pp. 6-7.)
6. Debtor executed a quit-claim deed dated December 17,1991, transferring her interests in the real property located in Yellowstone County, Montana, subject to the 1987 Demis v. Eggebreeht decision. The deed was recorded with the Yellowstone County Clerk and Recorder on December 17, 1991. (Parties Agreed Statement of Facts, p. 7.; Plaintiff’s Exhibit 3.) Debtor executed a second quit-claim deed on the property providing the same legal description in a slightly different format on June 11, 1992. (Parties Agreed Statement of Facts, p. 8; Plaintiff’s Exhibit 4.)
7.The December 17, 1991, deed contained the following language describing the real property transferred from Debtor to the Eggebreehts.
1. Lot 3, except the West 20 feet, Block 12, of Sweet Acres Subdivision, 6th Filing, in the City of Billings, Yellowstone County, according to the official plat on file in the office of the Clerk and Recorder of said County, under Document No. 788630; and the building located thereon; and
2. Lot 4, Block 12, of Sweet Acres Subdivision, 6th Filing, in the City of Billings, Yellowstone County, Montana, according to the official plat on file in the office of the Clerk and Recorder of said County, under Document No. 788630; and
3. The North 136.125 feet of the South 544.5 feet of Lot 21, of Arnold Subdivision, Second Filing, in the City of Billings, Yellowstone County, Montana, according to the official plat on file in the office of the Clerk and Recorder of said County, under Document No. 413840, EXCEPT the Westerly 10 feet thereof condemned by the City of Billings, Yellowstone County, Montana, for street and highway purposes by virtue of Judgment and Final Order of Condemnation, Civil Case No. 83083, Yellowstone County, Montana, a certified copy of which was recorded June 2,1978, in Book 1194, Page 4998, under Document No. 1091692, records of Yellowstone County, Montana; and
4. Phases I and II:
Tract 2, Amended Certificate of Survey 1492, filed under Document No. 1054076, records of Yellowstone County, Montana;
Subject to that certain Mortgage dated November 24,1975, with E. Howard Eg-gebrecht, a/k/a Eugene Howard Egge-brecht, a/k/a Howard Eggebreeht and M. Pauline Eggebreeht, a/k/a Pauline Eggebreeht, husband and wife, Genia Gale Eggebreeht, a single woman, and Debra Kay Eggebreeht, a single woman, as Mortgagors, and Valley Credit Union, as Mortgagee, recorded December 9, 1975, in Book 1085, Page 673, under *855Document No. 1004945, records of Yellowstone County, Montana, which Mortgage is modified by Loan Modification Agreement dated February 11, 1987, recorded February 27, 1987, in Book 1303, Page 4534, under Document No. 1431052, records of Yellowstone County, Montana; and
Subject to that certain Mortgage dated October 27,1977, with E. Howard Egge-brecht, a/k/a Eugene Howard Egge-brecht, a/k/a Howard Eggebrecht and M. Pauline Eggebrecht, a/k/a Pauline Eggebrecht, husband and wife, and Debra Kay Eggebrecht, a single woman, and Genia Gale Demis, i/k/a Genia Gale Eggebrecht and Peter P. Demis, wife and husband, as Mortgagors, and Valley Credit Union, as Mortgagee, recorded October 28, 1977, in Book 1175, Page 1010, under Document No. 1068748, records of Yellowstone County, Montana, which mortgage is modified by Loan Modification Agreement dated February 11, 1987, recorded February 27, 1987, in Book 1303, Page 4534, under Document No. 1431051, records of Yellowstone county, Montana; and
5. Phase III:
Tract 1-A, 2nd Amended Certificate of Survey 1492, filed under Document No. 1195958, records of Yellowstone County, Montana; and
6. Phase TV:
Beginning at a point which is the southwest corner of Tract 1-B of the 2nd Amended Certificate of Survey No. 1492 situated in the W. N.W. ¡4 See. 11, T. 1 S, R. 25 E., P.M.M., Yellowstone County, Montana; thence from said true point of beginning along the easterly right-of-way line of Shiloh Road North 00 Degrees 05 Minutes 39 Seconds West a distance of 471.45 feet; thence North 89 Degrees 41 Minutes 55 Seconds East a distance of 1257.87 feet to a point on the north-south /tsth line of said Section 11; thence along said JMh line South 00 Degrees 07 Minutes 18 Seconds East a distance of 471.45 feet to the southeast comer of said Tract 1-B of the 2nd Amended Certificate of Survey No. 1492; thence along the south line of said Tract 1-B South 89 Degrees 41 Minutes 55 Seconds West a distance of 1258.10 feet to the point of beginning, containing 13.6151 acres, which is part of Tract 1-B-1B Amended Tract 1-B-l of Certificate of Survey 1492.
Subject to that certain Agreement dated January 1, 9184, by and between Earl T. Gilbert and Virginia Gilbert, husband and wife, and E. Howard Eggebrecht and M. Pauline Eggebrecht, husband and wife.
The above described property is hereafter referred to as the “Real Property.”1 (Parties Agreed Statement of Facts, pp. 3-4; Plaintiffs Exhibit 3.)
8. Debra received payment from Defendants Eggebrecht in satisfaction of the judgment in the 1987 Demis v. Eggebrecht action. On or about December 19,1991, Debra delivered to Defendants Eggebrecht and Debtor quit-claim deeds of Debra’s interests in the Real Property, in favor of the Eggebrechts, Debtor, David Kent Eggebrecht and the Estate of Mark Kevin Eggebrecht. At the same time, Debra also delivered a copy of a release and assignment of attorney’s claim (filed that same date in DV 87-1061) by which Hendrickson, Everson & Noennig, P.C., acknowledged payment in full of fees and costs by Debra and Assignment to Debra of the firm’s rights against Debtor under the attorney contract. Finally, Debra delivered to Defendants Eggebrecht and Debtor with the quit-claim deeds and the copy of the release and assignment of attorney’s claim a letter expressly giving notice of Debra’s in*856tent to bring suit against Debtor for Debtor’s share of the fees and costs incurred in the litigation, and further notice that any transfer of the interest of Debtor in the real property involved in the litigation in derogation or diminishment of Debra’s claims would be challenged as a fraudulent transfer. (Parties Agreed Statement of Facts, p. 7.)
9. Debra commenced an action in Colorado, being Demis v. Demis, District Court Arapahoe County, Colorado, Case No. OB-CV 1480, upon which she recovered judgment against Debtor for the fees and costs owed by Debtor in prosecution of the 1987 Demis v. Eggebrecht action, including the accountant’s fees, on August 29,1994, in the amount of $44,571.98, with interest accruing thereupon at 8% per annum until satisfied in full. (Parties Agreed Statement of Facts, p. 9.)
In addition to the foregoing agreed facts, the Court makes the following findings of fact from review of the record; to wit:
1. At the time of the transfer by quitclaim executed on December 17, 1991, the Colorado restraining order prohibiting Debt- or from alienating the Real Property was in full effect. (See Plaintiffs Exhibit 8.)
2. Finally, while the Eggebrechts did not give value in return for the transfer of the Real Property from Debtor, the Court finds no evidence in the record to indicate the Eggebrechts, the transferees in the Debtor’s quit-claim deeds, had any knowledge of the Colorado restraining order at the time Debt- or delivered the deed, and owing to Debtor’s former spouse’s substantial wealth, they had no reasonable cause to believe Debtor was insolvent.
II.
A. Statute of Limitations.
This avoidance action was brought under 11 U.S.C. § 544(b)2 giving a bankruptcy trustee the right to avoid transfers voidable by unsecured creditors under state law. Thus Montana law determines the limitation period barring nullification of the purportedly fraudulent conveyance at bar. Wyle v. C.H. Rider & Family (In re United Energy Corp.), 944 F.2d 589, 593 (9th Cir.1991) (applying section 544(b) to avoid fraudulent transfers under state law). The applicable law in this instance is Montana’s version of the Uniform Fraudulent Transfer Act (“UFTA”), codified at Mont.Code Ann. §§ 31-2-327 through 31-2-342 (1991). The Trustee’s complaint alleges Debtor transferred property to the Eggebrechts in an effort to “hinder, delay, or defraud” a creditor, specifically Debra Demis, and that Debt- or made the transfer without receiving in exchange a reasonably equivalent value for the property at a time Debtor reasonably should have believed that Debtor would incur debts in two Colorado lawsuits beyond Debtors ability to pay as they became due.
For fraudulent conveyance actions, courts must apply the statute in effect at the time of the transfer, not the statute in effect at the time the underlying claim arose. Sands v. New Age Family Partnership, Ltd., 897 P.2d 917, 920 (Colo.App.1995). The earliest transfer alleged in this action purportedly occurred on December 17, 1991. Montana enacted the Uniform Fraudulent Transfer Act (“UFTA” or “the Act”) on April 4, 1991, and the statute went into effect October 1, 1991. 1991 Mont.Laws Ch. 324; Mont.Code Ann. § 1-2-201. Therefore the Court must adjudicate the Trustee’s complaint under the UFTA.
The first claim pertains to UFTA sub-part 333(l)(a), while the latter claim addresses UFTA sub-part 333(l)(b). Mont. Code Ann. § 31-2-333(1) provides:
Transfers fraudulent as to present and future creditors.
(1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before *857or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
(a) with actual intent to hinder, delay, or defraud any creditor of the debtor; or
(b) without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor:
(i) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(ii) intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due....
The Debtor, however, asserts the two year statute of limitations has expired on this claim, having begun running no later than December 17, 1991. The burden of proof on an affirmative defense such as the statute of limitations rests with the party asserting the defense. F.R.B.P. Rule 7008; F.R.Civ.P. 8(e); E.F. Matelich Construction Co., Inc. v. Goodfellow Brothers, Inc., 217 Mont. 29, 32, 702 P.2d 967, 969 (Mont.1985).
Interpreting the Montana’s version of the Uniform Fraudulent Conveyance Act (“UFCA”), as opposed to the UFTA, formerly codified at MontCode Ann. §§ 31-2-301 through 31-2-325 (1989), and the relevant statute of limitations thereto, Mont.Code Ann. § 27-2-203 (1989),3 the Montana Supreme Court has held that “where an alleged fraudulent transfer occurs prior to the time that a judgment is obtained against the transferor, a cause of action does not accrue, and the statutory [limitations] period does not begin to run, until the judgment is obtained.” Murphy v. Atkinson, 262 Mont. 164, 168-169, 864 P.2d 273, 276 (Mont.1993). Subsequent to that decision, however, in 1991, the Montana legislature repealed the UFCA and enacted the UFTA replacing both the substantive terms of the act, and the relevant statute of limitations. 1991 Mont. Laws Ch. 324 §§ 10-11. Thus, neither the Murphy holding nor § 27-2-203 apply to actions under the recently enacted UFTA.
Despite the displacement of the UFCA by the UFTA the holding of Murphy, 864 P.2d 273, would seem to bind the Court in the instant ease, and require a finding that the statute of limitations did not begin on the Trustee’s fraudulent conveyance action until August 29,1994, when Debra’s claims against Debtor were reduced to a judgment. (See Paragraph 9, Part I, supra.) In Murphy, eventual judgment creditors (the Murphys) lodged counterclaims that resulted in the judgment against "the debtor (Lewis) after the challenged conveyance occurred. Upon entry of the judgment, the Murphys brought a fraudulent conveyance action under the UFCA.
In deciding Murphy, the Montana Supreme Court reasoned that under the facts of the case, allowing the limitations period to run from the date of the transfer would have the effect of requiring the judgment creditors to file a fraudulent transfer action before “they had a right to do so.” Id. In such anomalous circumstances, the statute of limitations under Mont.Code Ann. § 27-2-203 began to run only upon the entry of judgment. Id. Noting the unique nature of the facts, the court “made clear that under circumstances such as this, where an alleged fraudulent transfer occurs prior to the time that a judgment is obtained against the transferor, a cause of action does not accrue, and the statutory period does not begin to run, until the judgment is obtained.” Id. (citing Finch v. Kent, 24 Mont. 268, 279, 61 P. 653, 658 (Mont.1900)).
Murphy, however, does not control for two reasons. First, its facts are clearly distinguishable from the case at bar, and second, as has already been shown, the legislature has since wholly displaced the applicable statute of limitations. According to the stipulated facts sub judice, Debtor refused to pay any attorney’s or accountant’s fees when *858due sometime before November 6,1991, after which the court entered judgment in the 1987 Demis v. Eggebrecht action. (See Parties Agreed Statement of Pacts, p. 6.) Because the contract between Debra and Debtor provided for joint and several liability, Debra had a claim as defined by the UFTA the moment Debtor defaulted on the 1987 agreement to pay attorneys fees arising from the 1987 Demis v. Eggebrecht action. Mont. Code Ann. § 31-2-828(3) (1991).4 Thus, either on recording of the December 17, 1991, quit-claim deed, or at the time of the later transfer, Debra had under the UFTA both a claim against Debtor and a cause of action for fraudulent transfer. Mont.Code Ann. § 31-2-333 (1991); Prescott v. Baker, 644 So.2d 877, 879-880 (Ala.1994) (remedies under Alabama Uniform Fraudulent Transfer Act, to which the Statute of Limitations of the Act applied, available even though creditor’s claim not reduced to judgment). Therefore, unlike the claimants in Murphy, Debra had a right to sue for fraudulent transfer at the time of either of the conveyances alleged to be fraudulent in this case, and did not have to wait until a court reduced the underlying claim to a judgment to bring such action.
When, by legislative act, the UFTA displaced the statute of limitations applicable to the UFCA in Murphy, 1991 Mont.Laws Ch. 324 § 11,5 the relevant statute of limitations for fraudulent conveyance actions under the UFTA became Mont.Code Ann. § 31-2-341 (1991).6 The UFTA extinguishes claims under sub-parts 333(l)(a) and (b) not pressed “within 2 years after the transfer was made.” Section 31-2-341(1) also contains a provision which allows an extension of the limitations period to “within 1 year after the transfer or obligation was or could reasonably have been discovered by the claimant.” Thus, while the statute of limitations in Murphy contained no such specific statutory mandate to instruct on when the limitations period began to run, the current UFTA specifically prescribes that the limitations period under the Act begins to run at the time of the challenged transfer, not upon entry of judgment on an underlying claim.
Interpreting the UFTA, the plain meaning of its terms controls. Gulbrandson v. Carey, 272 Mont. 494, 901 P.2d 573, 577 (Mont.1995). Finding the language of § 32-2-341 plain, clear and unambiguous, the Court must hold that under the UFTA, a creditor like Debra in the ease at bar must lodge a fraudulent conveyance action within two years of the challenged transfer, “or, if later, within 1 year after the transfer or obligation was or could reasonably have been discovered by the claimant.” McMaster v. Farmer, 76 Wash.App. 464, 886 P.2d 240, 241-242 (Wash.App.1994).
B. Validity of the transfer.
Courts have inherent power to void acts done in violation of injunctions. All Minerals Corp. v. Kunkle, 105 Nev. 835, 784 P.2d 2, 4 (Nev.1989). Nevertheless, courts so holding have limited those powers. Specifically, courts have refused to define acts done in violation of an injunction as mere nullities or void. Rather, only a party obtaining an injunction may challenge violations of the injunction “when that party attacks the action in a proper manner,” and then only for remedies against the transgressing *859party — not against the act itself — such as an order directing the violator to rectify the enjoined act, or an order holding the party malefactor in contempt of court. Id. (citing Candler v. Wallace Candler, Inc., 365 Mich. 613, 113 N.W.2d 901 (Mich.1962) (holding conveyance made in violation of injunction is not void or inoperative as to anyone except those for whose benefit court granted injunction) and Town of Fond du Lac v. City of Fond du Lac, 22 Wis.2d 525, 126 N.W.2d 206 (Wis.1964) (stating act in contempt of court’s order not invalid because injunction has no in rem effect)). See also, Pioneer Annuity Life Ins. Co. v. National Equity Life Ins. Co., 159 Ariz. 148, 765 P.2d 550, 558 (Ariz.Ct.App.1988) (“Generally, the remedy [for violation of an injunction] is confined to contempt, not invalidation of the transaction.”).
Courts have so refused to nullify acts done in violation of an injunction because an injunction is in personam, not in rem. Kunkle, 784 P.2d at 4. “In other words, the court may punish the party that violates the injunction with a fine or imprisonment but may not alter property rights resulting from the violation.” Id. See, e.g., Candler, 113 N.W.2d at 903-904; Gallaway v. Smith, 70 Ariz. 364, 220 P.2d 857 (Ariz.1950) (foreclosure was not void or voidable by third party notwithstanding that a restraining order in a divorce action had prohibited the previous owner from disposing of such property at the time of the foreclosure); Lonergan v. Strom, 145 Ariz. 195, 700 P.2d 893 (Ariz.Ct.App.1985) (holding a domestic relations Court injunction in effect at the time of the execution and recording of the deeds in question does not make the proscribed conveyances invalid automatically). Contra, Bearden v. Knight, 224 S.W.2d 273, 275 (Tex.Civ.App.1949) (enjoined transfer made to party with notice of injunction passes no title).
Courts have followed a similar line of reasoning in holding that, although a divorce court may enjoin the transfer of out-of-state property by parties over which the court has jurisdiction in personam, and cite disobedient parties for contempt if they violate the injunction, such courts have no jurisdiction over the title to land in another state. Larrabee v. Larrabee, 31 Colo.App. 493, 504 P.2d 358, 360 (Colo.App.1972) (citing Fall v. Eastin, 215 U.S. 1, 30 S.Ct. 3, 54 L.Ed. 65 (1909)). Indeed, Colorado recognizes “that a divorce court in one state does not have the power directly to affect, by means of its decree, the title to real property situated in another state.” Id.
Thus, even if a divorce court enjoins the transfer of real property by the parties to a divorce, if one of the parties violates the injunction by conveying property held out-of-state, the validity of the transfer is unaffected.7 Again, although the issuing court may hold the transgressing party in contempt, see Pioneer Annuity Life, 765 P.2d at 558, order the party to reconvey the land and even jail the party to enforce compliance, see Phillips v. Phillips, 224 Ark. 225, 272 S.W.2d 433 (Ark.1954), neither the injunction itself, nor a subsequent decree purportedly voiding transfers in violation of the injunction, has any effect whatsoever on title to out-of-state real property. Gammon v. Gammon, 210 Mont. 463, 684 P.2d 1081, 1085 (Mont.1984.) (“Insofar as the [foreign] court attempted to directly transfer title to Montana real property, its attempt was void for want of jurisdiction,” citing Fall v. Eastin, supra). What is more, only a party to an injunction may seek relief for violation of the injunction. Kunkle, 784 P.2d at 4; Candler, 113 N.W.2d at 903-904. That excludes the Plaintiff in this ease.
III.
Applying the foregoing analysis to the transfer in question at bar, the evidence shows and the parties have agreed that Debtor executed a quit-claim deed to the Eggebrechts on December 17,1991, and that the deed was recorded the same day. (See Plaintiff’s Exhibit 8.) The Trustee argues that because of an injunction issued by a Colorado divorce court in effect at the time prohibiting transfer of property by Debtor, the deed is void. The Court, however, dis*860agrees. Under the general rule that injunctions do not automatically void actions taken in their violation, Kunkle, 784 P.2d at 4, and the Colorado and Montana rules that a divorce court cannot by its order effect title to real property in a foreign jurisdiction, Larra-bee, supra, Gammon, supra, the Colorado injunction against Debtor, and the subsequent Colorado decree deeming the quitclaim deed “frivolous and groundless” has no effect whatsoever on the transfer of real property conveyed and recorded in Montana. In any event, neither Debra nor the Trustee were parties to the original injunction, and neither therefore may obtain relief for its violation. Kunkle, 784 P.2d at 4. Thus, the date of the allegedly fraudulent transfer sub judice was December 17,1991.
Accordingly, the statute of limitations for challenging the Debtor’s allegedly fraudulent conveyance under the UPTA expired two years after the transfer, on December 18,1993. Mont.Code Ann. § 31-2-341(1) and (2). The Trustee filed the instant adversary complaint June, 28, 1995. Thus the Trustee’s claims are barred, unless they have been asserted within one year after the time when Debra could reasonably have first discovered the transfer. Mont.Code Ann. § 31-2-341(1).
The Court notes, regarding the recording on December 17, 1991, of the first quit-claim deed from Debtor to the Eggebrechts, “the recording statutes import notice to all interested parties in matters affecting title to real property.” Hauseman v. Koski, 259 Mont. 498, 502, 857 P.2d 715, 717 (Mont.1993). As a creditor with a colorable fraudulent conveyance action against Debtor, Debra was an interested party to the transfer. Thus Montana law charges Debra with notice of the challenged transfer at bar fully two and one-half years prior to the filing of the Trustee’s complaint.
In addition, the parties agree that Debra threatened Debtor with a fraudulent transfer action “on or about December 19, 1991.” The Court infers from this reference that at the time, Debra expected Debtor to attempt to fraudulently transfer the real property in question. Further, Debra obviously contemplated asserting such a claim when making the threat. Anticipating such a move by Debtor, Debra should reasonably have checked with the recording office to determine ownership of the parcels. Debtor had already made the transfer, which a simple and brief inspection of the records would have shown. Thus, given Debra’s suspicions, the Court concludes that Debra could reasonably have been expected to discover the conveyance in question at the time Debra sent the letter threatening legal action. Under this finding, Mont.Code Ann. § 31-2-341(1) does not extend the two year limitations period one day.
Furthermore, even should the Court find that Debra could only have reasonably learned of the transfer as late as one year from that date of Debra’s threat, the limitations period would still have expired 18 months prior the Trustee’s filing of the instant adversary complaint. Furthermore, in light of Debra’s constructive notice of the transfer as of December 17, 1991, there is certainly no basis in the record for a finding that Debra could reasonably have learned of the transfer a year before the filing of the instant action, or over two and one-half years after threatening a fraudulent transfer action against a conveyance that had been recorded at the time Debra made the original threat. Thus, under either Mont.Code Ann. § 31-2-341(1) or § 31-2-341(2), the statute of limitations bars the fraudulent conveyance claims asserted by the Trustee.
CONCLUSION
The UFTA statute of limitations for the claims asserted by the Trustee under Mont. Code Ann. § 31-2-331 expired two years after the date the Debtor transferred the real property in question to the Eggebrechts, or within one year of when Debra could have discovered the conveyance. Debtor transferred the property to the Eggebrechts on December 17, 1991. Debtor did violate a Colorado state court injunction by so conveying the property, and may have been in contempt of that court by so doing, but the transfer is nevertheless valid. Consequently, the two year statute of limitations on Debra’s fraudulent conveyance claims expired December 18,1993.
*861Moreover, Debra had constructive notice of the first transfer as of December 17,1991. Debra also could reasonably have discovered the allegedly fraudulent transfer Debra suspected would occur when Debra made the threat to sue Debtor on December 19, 1991, or at the latest within one year of making the threat. Thus, Debra and therefore the Trustee enjoy no extension of the limitations period under Mont.Code Ann. § 31-2-341(1). Therefore, the UFTA statute of limitations bars the fraudulent conveyance claims asserted by the Trustee in the instant adversary proceeding.
IT IS ORDERED a separate Judgment on the merits shall be entered in favor of the Defendants, dismissing all counts of the Complaint.
. The Parties Agreed Statement of Facts referred to a parcel described as E1/2S1/4, Sec. 8, T.27 N., R. 48 E., M.P.M., Roosevelt County, as part of the “Real Property,” as did the Final Pretrial Order, but the quit-claim deeds in the record before the Court did not include this property. (Plaintiff's Exhibit 3; Plaintiff's Exhibit 4.) Although Debtor’s 1991 tax return (Plaintiff's Exhibit 5), lists this parcel as part of the gift transfer in question, no deeds in the record refer to the Roosevelt County parcel and the Court therefore cannot determine who currently owns the land, when it may have been transferred, and between whom the transaction may have taken place.
. 11 U.S.C. § 544 provides:
Trustee as lien creditor and as successor to certain creditors and purchasers
‡ ‡ ‡
(b) The 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.
. Montana Code Ann. § 27-2-203 (1989) provides:
Actions for relief on ground of fraud or mistake.
The period prescribed for the commencement of an action for relief on the ground of fraud or mistake is within 2 years, the cause of action in such case not to be deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud or mistake.
. Mont.Code Ann. § 31-2-328(3) reads:
"Claim” means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed contingent, matured, unma-tured, legal, equitable, secured or unsecured.
. Section 11 provides:
Supplementary provisions. Unless displaced by the provision of [sections 1 through 11], the principles of law and equity, including the law merchant and the law relating to principal and agent, estoppel, laches, fraud misrepresentation, duress, coercion, mistake, insolvency, or other validating or invalidating cause, supplement its provisions.
.Mont.Code Ann. § 31-2-341 (1991) provides in pertinent part:
Extinguishment of cause of action.
A cause of action with respect to a fraudulent transfer or obligation under this part is extinguished unless action is brought under:
(1) 31-2-333(l)(a) within 2 years after the transfer was made or the obligation was incurred or, if later, within 1 year after the transfer or obligation was or could reasonably have been discovered by the claimant;
(2) 31-2-333(l)(b) or 31-2-334(1) within 2 years after the transfer was made or the obligation was incurred; ...
. Even were the Court to follow the rule in Bearden, 224 S.W.2d at 275, a Colorado divorce decree could still not effect title to real property in Montana. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492283/ | Memorandum Opinion on the Debtor’s Motion for Order Requiring the Taylors to Execute Deed
BENJAMIN COHEN, Bankruptcy Judge.
On April 13, 1995 this Court entered an order and accompanying memorandum opin*916ion on a complaint to avoid preferential transfer filed by the debtor and on a counterclaim filed by the defendants. In the memorandum opinion the Court described the contractual relationship of the parties as that relationship concerned certain real estate.1 The Court wrote:
The obligation of Mr. Taylor under the contract is to deliver good title to the property to HSP on December 10, 1998. The obligation of HSP is to make the payments described in the promissory note which it executed in favor of Mr. Taylor. The contract encompasses both executory and nonexecutory elements.
Until December 10, 1998, the contract is executory, and Mr. Taylor’s obligation to transfer legal title on that date is dependent on HSP’s obligation to make the payments due under the contract before that date. In fact, the contract contemplates that Mr. Taylor will pay the remaining bond indebtedness with funds paid by HSP under the promissory note and sales contract. Mr. Taylor cannot pass title to the property until he actually acquires title to the property, by exercising the option to purchase provided for in the BIDB lease after satisfaction of the bond indebtedness. Indeed, any transfer of his interest in the property prior to satisfaction of the bond indebtedness, without the consent of all bondholders, would constitute a breach of the lease agreement between BIDB and Mr. Taylor. Also, until the bond indebtedness is satisfied, Mr. Taylor remains obligated under the lease agreement, regardless of his arrangement with HSP, while HSP has no obligation to make payments under the lease agreement to BIDB.
The contract contemplates that Mr. Taylor will not satisfy the bond indebtedness and exercise the purchase option until December 10, 1998, unless HSP elects to prepay the purchase price owed to Mr. Taylor before that date. The benefits anticipated from the contract by Mr. Taylor were that he would eventually receive a profit from his investment and that in the meantime he would be relieved of the burden of making the monthly payments called for under his lease agreement with BIDB. The benefits anticipated from the contract by HSP were that it could pay for the property over time and that, until December 10, 1998, it would have no obligation to pay real estate taxes on the property. For those benefits to be realized, both parties have substantial and material obligations which remain to be performed. Mr. Taylor must deliver good title to HSP on December 10,1998, and, in the meantime, make the monthly lease payments to BIDB. HSP must make the monthly payments due under its contract with Mr. Taylor so that Mr. Taylor can make the monthly lease payments to BIDB.
The contract contemplates that on December 10, 1998, Mr. Taylor will deliver a fee simple deed to HSP and that the portion of the purchase price then remaining unpaid will be secured by a purchase money mortgage on the property. HSP’s obligation to make the payments due under the mortgage beyond that date is dependent on the transfer of legal title of the property from Mr. Taylor. As of that date, but not before, HSP will have the right to require specific performance of the contract on the part of Mr. Taylor. As of December 10, 1998, the contract will, therefore, be executory no longer, and will evolve into an ordinary mortgage relationship. Until that date, however, the contract is executory and must be treated in all respects as an executory contract under 11 U.S.C. § 365.
Health Science Products, Inc., v. Taylor, 183 B.R. 903, 935-936 (Bankr.N.D.Ala.1995) (footnotes omitted).
After that memorandum and its accompanying order were entered, the parties asked the Court for a clarification. The Court did so on May 23, 1995. The pertinent part of that clarification, in the language supplied by, and agreed upon by, the parties, was:
As of that date, or any earlier date that HSP exercises its right to refinance the remaining balance due as provided in the *917Contract, the Debtor will have the right to require specific performance of the contract on the part of Mr. Taylor.
Order on Motion for Clarification at 2 (May 23,1995) (emphasis added).2
No appeal was taken from either of the above orders. On August 21,1995 the Court entered an order granting the debtor’s request to assume the executory contract made subject to the adversary proceeding and setting the parameters the debtor must meet in order to assume the contract. That order was amended on September 21, 1995. Appeals have been taken from both orders. On October 6, 1995, the Court entered an order confirming the debtor’s plan of reorganization. The basis of that plan is the purchase by the debtor from the defendants of the property subject to the executory contract and the resale of that property to a third party. This transaction is referred to as the “Bedford Acquisition.” The property referred to is the debtor’s manufacturing plant and related property located at 1100 11th Court West, Birmingham, Alabama, 35203 and is further described as lots 1 and 2, according to the amended map of Arkadelp-hia Industrial Park First Sector, recorded in map book 101, page 17, in the Probate Office of Jefferson County, Alabama. The funds derived from the resale "will be used to fund the debtor’s reorganization. The matter now before the Court directly relates to the parties’ contractual relationship as described in the adversary proceeding and whether the defendants should be required to perform pursuant to the above described contract.
The debtor, pursuant to Fed. R.Bankr.P. 7070, has asked the Court, because Mr. Taylor has indicated that he will not honor the contract, to enter a judgment requiring the defendants to perform under the contract and to require the defendants specifically to execute a deed to the debtor pursuant to the terms of the contract.3 The defendants object to the motion and to the Court’s jurisdiction of this matter contending that all matters relating to the sale of the property are on appeal, which appeals divest this Court of its subject matter jurisdiction.4 The issue here is not the modification of an order on appeal but whether this Court has the authority to enter an order to give effect to its previously entered, not appealed, order finding that the defendants were required to specifically perform under their contract with the debtor. If the defendants are to be required to perform, this Court must find that the debtor has complied, or will comply, with its part of the contractual bargain, thus triggering the defendants requirement that they perform. To that purpose the Court finds that the debtor’s plan of reorganization, as approved by this Court’s confirmation order entered on October 16, 1995, provides that the debtor will comply with its part of the contractual bargain. As the debtor has met this requirement, the defendants must perform their obligations under the contract.5
*918Debtor’s Amended Motion for Order Requiring the Taylors to Execute Deed
If a party is required to perform a specific act and does not, Fed.R.Civ.P. 70 allows a court either to direct another to perform the act or in the case of a conveyance of land that is located in the court’s district, to enter an order divesting the recalcitrant party of its interest in the land and vesting that interest in another. Rule 70 presupposes however that there is a judgment or order in effect requiring the party to perform a specific act.6 In the instant case there is no such order; however given the debtor’s compliance with the parties’ contract, this Court finds that the defendants should be ordered to comply as well; consequently the Court will enter such an order.7 That order should require the defendants to:
1. Take whatever action is necessary to secure a deed to the property from the Birmingham Industrial Development Board; and,
2. Execute a deed transferring title in the property to the debtor.
The Court will supplement such an order to provide for the contingency of the defendants’ failure to perform as required by the order. Pursuant to Fed.R.Civ.P. 70, if the defendants fail to act pursuant to the order, effective immediately upon that failure, the Court finds that:
A. Those with the power and authority to do so, should be authorized to take whatever action is necessary to transfer title of the property to the defendants; and, that
B. Judgment should be entered divesting the defendants of title to the property and that the property should be conveyed to and title to the property vested in, the debtor.
For the above reasons, the Court finds that the debtor’s Motion for Order Requiring the Taylors to Execute Deed, or in the Alternative, for Entry of Judgment Divesting Title Pursuant to Bankruptcy Rule 7070 is due to be granted. A separate order consistent with this memorandum opinion will be entered.
*919
Order Granting Debtor’s Motion for Order Requiring the Taylors to Execute Deed
In conformity with the memorandum opinion entered contemporaneously herewith, it is ORDERED, ADJUDGED AND DECREED that:1
1. Judgment is entered for the debtor and against the defendants.
2. The property subject to this Order is the debtor’s manufacturing plant and related property located at 1100 11th Court West, Birmingham, Alabama, 35203 and is further described as lots 1 and 2, according to the amended map of Arkadelphia Industrial Park First Sector, recorded in map book 101, page 17, in the Probate Office of Jefferson County, Alabama.
3. The Taylors will execute, acknowledge, prove and record all such documents necessary to secure title to the real estate described above as the property from the Birmingham Industrial Development Board including, but not limited to, consenting to the release of pay-off information by AmSouth and permitting AmSouth to take any and all other acts necessary to close the Bedford Acquisition, as that acquisition is described in the Memorandum Opinion and the confirmed plan of reorganization.
4. The Taylors shall appear at the closing of the Bedford Acquisition and execute, acknowledge, prove and record, in the manner provided by law, a good and sufficient deed of conveyance to the debtor of the said real estate described above as the property, thereby vesting the entire legal title thereof in the debtor, and to deliver said deed of conveyance so executed, acknowledged, proved, and recorded to the debtor.
5. In the event that the Taylors shall fail, neglect, or refuse to consent to Am-South releasing the pay-off information and permitting AmSouth to take any and all other acts necessary to close the Bedford Acquisition, or that the Taylors fail, neglect, or refuse to make, execute, acknowledge, prove, record, or deliver all documents necessary to secure title to the real estate described above as the property from the Birmingham Industrial Development Board, this judgment shall stand and be a good, sufficient, and complete authorization to AmSouth to release any and all information, and take such actions as necessary, to close the Bed-ford Acquisition.
6.In the event that the Taylors shall fail, neglect, or refuse to make, execute, acknowledge, prove, record, and deliver to the Debtor such deed of conveyance at the closing of the Bedford Acquisition, this judgment shall stand and be a good, sufficient, and complete divesting of title of the property from the Taylors pursuant to Rule 70 of the Federal Rules of Civil Procedure as incorporated in Rule 7070 of the Federal Rules of Bankruptcy Procedure, and shall be a good sufficient and complete conveyance from the Taylors to the Debtor of all right, title, and estate of said Jim and Anne Taylor in and to said real estate hereinabove described as the property, and shall be taken and held as good, complete and perfect a deed of conveyance as would be the deed of conveyance hereinbefore specified.
. For purposes of this memorandum opinion and order, the Court adopts the findings of fact and conclusions of law as made in the previous orders and memoranda entered in this case.
. The debtor's reorganization plan as confirmed by the Court on October 6, 1995 proposes the refinancing of the balance due under the contract through the sale of the property the debtor will receive from the defendants.
. Fed.R.Bankr.P. 7070 makes Fed.R.Civ.P. 70 applicable in bankruptcy court adversary proceedings. The defendants contended in argument that there was no adversary proceeding pending and that Fed.R.Bankr.P. 7070 applies only in adversary proceedings. This Court disagrees. Fed.R.Bankr.P. 9014 allows a bankruptcy court to direct that one or more rules in the 7000 rules series applies in a contested matter. Even if the instant matter does not fall within adversary proceeding no. 94-00295, the pending matter certainly qualifies as a contested matter and as such the Court directs that Fed. R.Bankr.P. 7070 applies.
Because the defendants have not as yet refused to perform under the contract, there is some question whether a prerequisite to the application of Fed.R.Civ.P. 70 is for a party to first fail to perform an act. Whether this is a requirement, at least one appeals court has held that if there is error by a bankruptcy court in imposing the rule in anticipation of a failure of a party to perform, that such error is harmless. In the Matter of Texas Extrusion Corp., 844 F.2d 1142, 1153 (5th Cir.1988).
. The defendants requested this Court and the United States District Court for the Northern District of Alabama to stay the matters on appeal but both courts denied those requests.
. The parties agree that Mr. Taylor has indicated that he will not voluntarily perform under the executory contract. Mr. Taylor has not indicated whether he will perform in response to an order requiring him to do so.
. There is support for the proposition that Fed. R.Civ.P. 70 "is operative only after entry of judgment.” Barmat, Inc. v. U.S., 159 F.R.D. 578 (N.D.Ga.1974).
. Fed.R.Civ.P. 70 may, or may not be the procedural device for the debtor to accomplish its goal. "Rule 70 is designed ‘to deal with parties who seek to thwart judgments by refusals to comply with orders to perform specific acts,' ... and is not an appropriate basis for relief in cases where ... the party seeking relief does not allege noncompliance with any order issued by the court.” U.S. v. One (1) Douglas A-26B Aircraft, 662 F.2d 1372, 1374 (11th Cir.1981) (citing 12 C. Wright & A. Miller, Federal Practice & Procedure, Civil § 3021 (1973)). The debtor has on the other hand filed a motion which this Court considers as a contested matter, but if there is any question as to the proper procedure to resolve this matter, or question of this Court's authority to hear this matter, surely this case is one of those where this Court’s sequestered 11 U.S.C. § 105 powers may be used.
The initial litigation between these parties involved the issue of whether their contract was an executory contract or a sales contract. This Court held in the defendants’ favor that it was an executory contract. The second phase of litigation concerned the issue of the assumption of that contract. The Court held for tire debtor and allowed the assumption of the contract. The third phase involved the confirmation of the debtor’s reorganization plan and concerned the issue of whether the debtor could sell the property subject to the initial phase executory contract. For sometime it has been clear that the debtor would seek the defendants’ cooperation in executing their contract. As this Court wrote in denying the defendants' request for a stay on appeal of the Court’s August 21, 1995 and September 21, 1995 orders:
Factually the Taylors cannot be harmed by the Orders' • allowance of the assumption of the executory contract. Either the Debtor's default will be cured within the time specified by the Court or the Taylors will be paid in full on the effective date of HSP’s confirmation, or the Taylors will be free to exercise their options under the contract, all of which are at least equal to what the Taylors would have received if this bankruptcy case had not been filed. This Court’s prior rulings in this case have placed the parties in the posture they would have been in if the case had never been filed. Nothing has been added. Nothing has been taken away.
Order Denying Motion for Stay Pending Appeal at 3 (October 6, 1995).
The time has come for this matter to be completed. If this Court must, albeit reluctantly, invoke its section 105 powers to assure a resolution, then those powers should be exercised.
. The substance of this order is reproduced from a portion of a proposed order prepared by debt- or’s counsel. Debtor’s counsel represents that the language so incorporated has been accepted by the title company associated with the property sale. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484041/ | IN THE SUPREME COURT OF PENNSYLVANIA
MIDDLE DISTRICT
COMMONWEALTH OF PENNSYLVANIA, : No. 272 MAL 2022
:
Respondent :
: Petition for Allowance of Appeal
: from the Order of the Superior Court
v. :
:
:
ERIC SCOTT POPEJOY, :
:
Petitioner :
COMMONWEALTH OF PENNSYLVANIA, : No. 273 MAL 2022
:
Respondent :
: Petition for Allowance of Appeal
: from the Order of the Superior Court
v. :
:
:
ERIC SCOTT POPEJOY, :
:
Petitioner :
ORDER
PER CURIAM
AND NOW, this 15th day of November, 2022, the Petition for Allowance of Appeal
is DENIED. | 01-04-2023 | 11-15-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484043/ | IN THE SUPREME COURT OF PENNSYLVANIA
MIDDLE DISTRICT
COMMONWEALTH OF PENNSYLVANIA, : No. 288 MAL 2022
:
Respondent :
: Petition for Allowance of Appeal
: from the Order of the Superior Court
v. :
:
:
ELLIS WAYNE HESS, :
:
Petitioner :
ORDER
PER CURIAM
AND NOW, this 15th day of November, 2022, the Petition for Allowance of Appeal
is DENIED. | 01-04-2023 | 11-15-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484047/ | Filed 11/15/22 P. v. Thorsson CA1/4
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 publi-
cation or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or o r-
dered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FOUR
THE PEOPLE,
Plaintiff and Respondent,
A164924
v.
LOUIS RICHARD THORSSON, (Solano County
Super. Ct. No. VCR238953)
Defendant and Appellant.
MEMORANDUM OPINION1
Defendant Louis Richard Thorsson was found guilty after a jury trial of
possession of a firearm by a felon (Pen. Code, § 29800, subd. (a)(1)), with
aggravating circumstance found true by the court, and was sentenced to
prison for the midterm of two years. Before trial the court granted
defendant’s Pitchess motion (Pitchess v. Superior Court (1974) 11 Cal.3d 531)
to review the personnel files of the two police officers involved in defendant’s
arrest and in locating the weapon defendant allegedly discarded nearby, and
to produce relevant documents located in the files. The motion requested all
personnel documents relating to the two officers, including “All complaints
and internal affairs inquiries from any and all sources (including but not
1 California Standards of Judicial Administration, section 8.1 provides:
“The Courts of Appeal should dispose of causes that raise no substantial
issues of law or fact by memorandum or other abbreviated form of opinion.”
1
limited to co-worker or inmate complaints, citizen complaints, internal affairs
complaints/investigations and criminal investigations) relating [to] false
arrest, perjury, dishonesty, writing of false police reports, false or misleading
internal reports including but not limited to false overtime or medical
reports, reports related to lack of competence/sloppiness/failure to follow
department procedures, all records related to the use of excessive force and/or
threatening and aggressive behavior/tactics, and any other evidence of
misconduct amounting to moral turpitude within the meaning of People v.
Wheeler (1992) 4 Cal.4th 284,” and “Any other material which is exculpatory
or impeaching within the meaning of Brady v. Maryland (1963) 373 U.S. 83.”
The sergeant in charge of the police department’s internal affairs,
placed under oath, produced the personnel files of both officers, and in
camera the court reviewed both files, consisting of “personnel payroll,
attendance, evaluations, accommodations, discipline, education certificates
and miscellaneous.” As to one officer, the court found “nothing to disclose, . . .
not[ing] in particular [in] the evaluations section, there currently is no
evaluations in there. And in terms of discipline, again, that section again is
empty as well as the evaluations. There is nothing there.” As to the second
officer, the court found one irrelevant citizen complaint 2 and otherwise
“nothing to disclose out of the personnel file . . . not[ing] in particular [in
the]evaluations section, that section is empty. There’s nothing to disclose. As
well as the discipline sections, also empty. And there is nothing contained in
there. So I’ll find that there is nothing to disclose out of the [officer’s] file.”
Defendant’s appeal asserts no errors but simply requests this court “to
conduct an independent examination of the sealed proceedings and materials,
2 A citizen complained that the officer had lacked compassion in failing
to advise a relative reporting a sexual assault to take the victim to a doctor.
2
reviewing both the merits of the trial court’s determination and the adequacy
of the record.” The Attorney General has expressed no objection. After
reviewing the two personnel files, the trial court did not “consistent with
customary procedure” make the sealed records part of the record on appeal so
that this court might independently examine the materials and confirm that
the court did not abuse its discretion in refusing to disclose any of the
contents of the files. (See People v. Hughes (2002) 27 Cal.4th 287, 330; People
v. Samayoa (1997) 15 Cal.4th 795, 827.) Nor did the court have the
documents copied and the copies placed in a sealed envelope, or prepare a list
of the documents considered. Nonetheless, the trial court did “simply state for
the record what documents it examined,” which may be sufficient to permit
meaningful appellate review. (People v. Mooc (2001) 26 Cal.4th 1216, 1229.)
Having reviewed the sealed transcript of the in camera proceedings in which
the trial court examined the complete personnel files and stated explicitly
what the files did and did not contain, we are satisfied the court properly
reviewed the materials and did not abuse its discretion in failing to direct
disclosure of any of their contents. There being no documents even touching
upon the officers’ truthfulness, candor or any questionable conduct or
practices, there simply was nothing to produce.
The judgment is affirmed.
POLLAK, P. J.
WE CONCUR:
STREETER, J.
GOLDMAN, J
3 | 01-04-2023 | 11-15-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484052/ | The slip opinion is the first version of an opinion released by the Chief Clerk of the
Supreme Court. Once an opinion is selected for publication by the Court, it is
assigned a vendor-neutral citation by the Chief Clerk for compliance with Rule 23-
112 NMRA, authenticated and formally published. The slip opinion may contain
deviations from the formal authenticated opinion.
1 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
2 Opinion Number: ________________
3 Filing Date: November 15, 2022
4 No. A-1-CA-39723
5 STATE OF NEW MEXICO,
6 Plaintiff-Appellee,
7 v.
8 SHAWN D. DOYAL,
9 Defendant-Appellant.
10 APPEAL FROM THE DISTRICT COURT OF OTERO COUNTY
11 Steven Blankinship, District Judge
12 Hector H. Balderas, Attorney General
13 Laurie Blevins, Assistant Attorney General
14 Santa Fe, NM
15 for Appellee
16 Gary C. Mitchell, P.C.
17 Gary C. Mitchell
18 Ruidoso, NM
19 for Appellant
1 OPINION
2 BOGARDUS, Judge.
3 {1} Defendant Shawn D. Doyal appeals his conviction for great bodily injury by
4 vehicle (reckless driving), contrary to NMSA 1978, Section 66-8-101(E) (2016).
5 Defendant argues (1) the district court erred in failing to give Defendant’s requested
6 jury instructions; (2) the evidence was insufficient to support his conviction; and (3)
7 the district court erred in the manner in which it seated the witnesses and the jury
8 during the trial due to COVID-19 considerations. We affirm.
9 BACKGROUND
10 {2} Defendant lost control of his truck as he was driving through Cloudcroft, New
11 Mexico, and struck an oncoming car causing serious injuries to both the victims, one
12 on the driver’s side and the other, on the passenger’s side. Defendant was unfamiliar
13 with the road, driving it for the first time the night of the accident. Defendant drove
14 through the populous part of Cloudcroft at the speed limit, but as soon as he left the
15 area, he accelerated from thirty-five to sixty-six miles per hour over a one-half-mile
16 stretch of the highway. Defendant testified that he had seen elk and deer both on and
17 beside the road. The section of the road was curvy and mountainous, and there were
18 numerous signs along the roadside describing dangerous conditions and notifying
19 drivers of the reduced speed limit. These signs included three thirty-five mile-per-
20 hour speed limit signs, a safety corridor sign, a sign recommending truckers to use a
21 lower gear because of a six percent downgrade, and a sign warning of a sharp,
1 fishhook-shaped curve ahead. Defendant drove into the fishhook-shaped curve, lost
2 control of his vehicle, crossed into the oncoming lane, and struck the driver’s side
3 of the victims’ car. Both victims, a husband and wife, were injured; the wife, who
4 was the driver, suffered great bodily harm, including permanent injuries.
5 {3} The State charged Defendant with one count of great bodily harm by vehicle
6 due to reckless driving, one count of driving on the wrong side of the road, and one
7 count of speeding. The trial took place during the COVID-19 pandemic, in a small
8 courtroom where the witnesses, the victims, and spectators sat among the jurors.
9 Everyone sat six feet apart and wore a mask due to social distancing guidelines in
10 effect at the time.
11 {4} At the close of the State’s case, Defendant moved for directed verdict, arguing
12 that speeding alone is insufficient to prove willful and wanton disregard of the safety
13 of others. The district court denied the motion. Further, Defendant requested that the
14 district court give two special jury instructions, which deviated from the uniform
15 jury instructions. Defendant’s requested Jury Instruction No. 4 informed the jury that
16 speeding is insufficient to constitute reckless driving. Defendant’s requested Jury
17 Instruction No. 5 modified the term “reckless” as defined by UJI 14-241 NMRA.
18 The district court refused both of Defendant’s requested jury instructions.
19 {5} The jury found Defendant guilty on all counts. Defendant then moved to set
20 aside the verdict and for a new trial by renewing his motions made at trial,
2
1 “especially [those] considering jury instructions and directed verdict,” and further
2 argued that jury intimidation and influence took place when witnesses sat among the
3 jury. The district court denied Defendant’s motion in a thorough written order.
4 Defendant appeals.
5 DISCUSSION
6 I. The District Court Did Not Err in Refusing to Give Defendant’s
7 Requested Jury Instructions
8 {6} Defendant argues that the district court erred when it refused to give
9 Defendant’s requested jury instructions. “The propriety of denying a jury instruction
10 is a mixed question of law and fact that we review de novo.” State v. Gaines, 2001-
11 NMSC-036, ¶ 4, 131 N.M. 347, 36 P.3d 438. “There is a presumption of correctness
12 in the district court’s rulings. Accordingly, it is [the d]efendant’s burden on appeal
13 to demonstrate any claimed error below.” State v. Aragon, 1999-NMCA-060, ¶ 10,
14 127 N.M. 393, 981 P.2d 1211 (alterations, internal quotation marks, and citation
15 omitted). Jury instructions must present the law fairly and accurately. See Gonzales
16 v. N.M. Dep’t of Health, 2000-NMSC-029, ¶ 28, 129 N.M. 586, 11 P.3d 550. When
17 a uniform jury instruction exists, as in this case, the district court must use the
18 instruction without substantive modification. State v. Caldwell, 2008-NMCA-049,
19 ¶ 24, 143 N.M. 792, 182 P.3d 775. The district court does not err when it declines to
20 use “an instruction that is confusing or misleading.” State v. Soutar, 2012-NMCA-
21 024, ¶ 21, 272 P.3d 154. We consider each requested instruction in turn.
3
1 A. Defendant’s Requested Jury Instruction No. 4
2 {7} The district court refused Defendant’s requested Jury Instruction No. 4, which
3 would have instructed the jury that “speeding alone is insufficient to constitute
4 reckless driving.” Defendant requested the instruction based on State v. Munoz,
5 which held that “speeding alone is insufficient to constitute recklessness.” 2014-
6 NMCA-101, ¶ 10, 336 P.3d 424.
7 {8} Defendant argues that by refusing to give this instruction the district court
8 “fail[ed] to let [the jury] know what the law is.” We disagree. Our Supreme Court
9 resolved this issue in State v. Simpson, 1993-NMSC-073, 116 N.M. 768, 867 P.2d
10 1150. In Simpson, the defendant argued that the district court erred in declining his
11 requested instruction, which stated in part, “a violation of speeding law is not in and
12 of itself sufficient to find the defendant was driving recklessly.” Id. ¶ 20 (alteration
13 and internal quotation marks omitted). Instead, the district court provided an
14 instruction practically identical to the one provided to the jury here. See id. ¶ 21
15 (instructing the jury that “to find that the defendant was driving recklessly, [the jury]
16 must find that [the defendant] drove with willful disregard of the rights or safety of
17 others and at a speed or in a manner which endangered or was likely to endanger any
18 person or property” (emphasis and internal quotation marks omitted)). Our Supreme
19 Court held that it was unnecessary for the district court to give the defendant’s
20 requested instruction because the district court had already instructed the jury that
4
1 speeding alone was insufficient to establish reckless driving. Id. The Supreme Court
2 emphasized that the jury instruction that was given required the prosecution to meet
3 two elements: “willful disregard of the rights or safety of others” and speeding. Id.
4 (internal quotation marks omitted). The two elements in the instruction made it clear
5 to the jury that something besides speeding was required to convict the defendant.
6 See id.
7 {9} The same reasoning applies here. Pursuant to UJI 14-241, the district court
8 instructed the jury that “[f]or you to find that [D]efendant operated a motor vehicle
9 in a reckless manner, you must find that [D]efendant drove with willful disregard of
10 the safety of others and at a speed . . . likely to endanger any person.” (Emphasis
11 added.) Thus, the district court instructed the jury that to find Defendant guilty of
12 reckless driving, it had to find, in addition to speeding, that Defendant “drove with
13 willful disregard of the safety of others.” Accordingly, the district court did not err
14 in denying Defendant’s requested Jury Instruction No. 4.
15 B. Defendant’s Requested Jury Instruction No. 5
16 {10} The district court also refused Defendant’s requested Jury Instruction No. 5,
17 which modified UJI 14-241. Defendant contends that his modification uses the
18 proper criteria and includes elements required by statute and case law that the district
19 court ignored and that UJI 14-241 does not contain. We disagree.
5
1 {11} Defendant’s proposed instruction sought to add the following language to UJI
2 14-241:
3 [D]efendant knew or should have known [his] conduct created a
4 substantial and foreseeable risk, [he] disregarded that risk[,] and [he]
5 was wholly indifferent to the consequences of the conduct and to the
6 welfare and safety of others.
7 Ordinary negligence or careless driving is not a willful disregard
8 of the safety of others.
9 Defendant contends his proposed modification to UJI 14-241 more accurately
10 presents the state of mind requirement as stated in Valencia v. Dixon, 1971-NMCA-
11 108, 83 N.M. 70, 488 P.2d 120. Further, Defendant argues that UJI 14-241, unless
12 modified, fails to present to the jury the element of “conscious wrongdoing” as
13 required by State v. Yarborough, 1996-NMSC-068, ¶ 22, 122 N.M. 596, 930 P.2d
14 131, and State v. Omar-Muhammad, 1985-NMSC-006, ¶¶ 20-22, 102 N.M. 274, 694
15 P.2d 922.1
16 {12} Defendant fails to explain how Valencia modifies the recklessness standard
17 used in UJI 14-241. Valencia is a civil case where this Court reversed a grant of
18 directed verdict for the plaintiff and concluded that the defendant’s guilty plea for
Defendant also argues that the element of due caution and circumspection in
1
NMSA 1978, Section 66-8-113 (1987) creates a requirement of subjective
knowledge by a defendant of the danger or risk involved to others by his actions.
However, this argument was only raised in the reply brief, therefore we do not
address it. See Guest v. Berardinelli, 2008-NMCA-144, ¶ 36, 145 N.M. 186, 195
P.3d 353 (“[W]e do not consider arguments raised in a reply brief for the first time.”).
6
1 reckless driving, together with other facts and circumstances, created an issue of fact
2 regarding whether the defendant was heedless or reckless in operating his vehicle
3 pursuant to the automobile guest statute. 1971-NMCA-108, ¶ 14. In so ruling, this
4 Court identified the defendant’s state of mind to be the distinguishing factor between
5 negligence and reckless disregard. Id. ¶ 17. “To be heedless or reckless, evidence
6 must show that this particular state of mind is one of utter irresponsibility or
7 conscious abandonment of any consideration for the safety of [others].” Id.
8 Consistent with the holding in Valencia, the district court’s instruction here required
9 the jury to find that Defendant “drove with willful disregard of the safety of others.”
10 See UJI 14-241. The instruction given therefore required the State to prove a state of
11 mind beyond civil negligence—one where Defendant acted with a conscious
12 disregard of the safety of others.
13 {13} As to Defendant’s argument that the instruction given by the district court was
14 insufficient because it failed to convey the element of conscious wrongdoing,
15 Defendant ignores Jury Instruction No. 10, which instructed the jury that to find
16 Defendant guilty, the State must prove beyond a reasonable doubt that “[D]efendant
17 acted intentionally when he committed the crime.” See UJI 14-141 NMRA.
18 Conscious wrongdoing is “the purposeful doing of an act that the law declares to be
19 a crime.” State v. Brown, 1996-NMSC-073, ¶ 22, 122 N.M. 724, 931 P.2d 69
20 (internal quotation marks and citation omitted). Considered together, Jury
7
1 Instructions Nos. 6 and 10 fairly and accurately present the law. Accordingly,
2 Defendant has failed to meet his burden to demonstrate that the district court erred
3 in refusing to give Defendant’s requested Jury Instruction No. 5.
4 II. The Evidence Was Sufficient to Support Conviction for Great Bodily
5 Harm by Reckless Driving
6 {14} Defendant challenges the sufficiency of the evidence regarding recklessness,
7 claiming that his only transgression was to drive too fast, which is insufficient to
8 prove he acted in a reckless manner. We conclude that the State provided sufficient
9 evidence, beyond Defendant’s act of speeding, for a rational jury to find that
10 Defendant drove in a reckless manner.
11 {15} “The test for sufficiency of the evidence is whether substantial evidence of
12 either a direct or circumstantial nature exists to support a verdict of guilty beyond a
13 reasonable doubt with respect to every element essential to a conviction.” State v.
14 Montoya, 2015-NMSC-010, ¶ 52, 345 P.3d 1056 (internal quotation marks and
15 citation omitted). “Substantial evidence is relevant evidence that a reasonable mind
16 might accept as adequate to support a conclusion.” Id. ¶ 53 (alteration, internal
17 quotation marks, and citation omitted). When reviewing for substantial evidence, we
18 “view[] the evidence in the light most favorable to the guilty verdict, indulging all
19 reasonable inferences and resolving all conflicts in the evidence in favor of the
20 verdict.” Id. ¶ 52 (internal quotation marks and citation omitted). We also disregard
21 all evidence and inferences that support a different result. See State v. Rojo, 1999-
8
1 NMSC-001, ¶ 19, 126 N.M. 438, 971 P.2d 829. With these principles in mind, we
2 consider whether the jury “could have found the essential elements of the crime
3 beyond a reasonable doubt.” State v. Holt, 2016-NMSC-011, ¶ 20, 368 P.3d 409
4 (internal quotation marks and citation omitted).
5 {16} We measure the sufficiency of the evidence against the jury instructions given,
6 which become the law of the case. See State v. Jackson, 2018-NMCA-066, ¶ 22, 429
7 P.3d 674. The district court instructed the jury that a conviction for great bodily harm
8 by reckless driving required a finding that Defendant “operated a motor vehicle . . .
9 in a reckless manner” and further defined reckless as driving with “willful disregard
10 of the safety of others and at a speed or in a manner that endangered or was likely to
11 endanger any person.” See UJI 14-240D NMRA; UJI 14-241.
12 {17} Defendant concedes that he was speeding, but argues that “speeding alone is
13 insufficient to constitute recklessness.” See Munoz, 2014-NMCA-101, ¶ 10. We
14 agree with this general statement, however, speeding is just one factor for the jury
15 to consider when addressing whether a defendant acted recklessly. See id. ¶ 13.
16 {18} Defendant cites a number of cases in which a driver was convicted of reckless
17 driving that he contends contain facts “far worse than [the facts] here.” Nonetheless,
18 our jurisprudence supports a totality of the circumstances approach in which a jury
19 considers all contributing factors to determine whether a defendant acted recklessly.
20 See id. (holding that speeding “is one of many other contributing factors for the jury
9
1 to consider when addressing whether [the d]efendant acted recklessly”). In assessing
2 the totality of the circumstances, we look to “a driver’s actions leading up to the
3 collision . . . as a factor contributing to recklessness.” Id.
4 {19} For example, in State v. Sandoval, 1975-NMCA-096, ¶ 7, 88 N.M. 267, 539
5 P.2d 1029, the defendant’s driving speed in excess of the legal speed limit, the
6 heavily trafficked street where the accident took place, the defendant’s actions
7 before the accident,2 and the fact that the defendant had been drinking, considered
8 together was sufficient evidence to support the defendant’s conviction of driving
9 recklessly. Similarly, in Munoz, 2014-NMCA-101, ¶ 1, this Court concluded that the
10 defendant disregarding a police warning to slow down, veering his vehicle into the
11 crash zone, laughing, and speeding provided sufficient evidence for a rational jury
12 to find that the defendant acted recklessly.
13 {20} The circumstances presented to the jury in this case, particularly those actions
14 leading up to the collision, were also sufficient to establish recklessness. Before the
15 collision, Defendant encountered numerous signs warning him of the danger of the
16 road ahead. Further, Defendant testified that he was unfamiliar with the road, that it
17 was already dark, and that he was wary of deer and elk on the road. The curvy road
The defendant in Sandoval “revved up his engine, slammed on his breaks,”
2
“engaged in showing off of a ‘hot-rod’ type vehicle,” and would “rev up and slow
down the engine and attempt to ‘leave rubber’ when he passed young members of
the opposite sex.” Id.
10
1 only had two lanes, with no passing lane, and a mountain on one side of the road
2 with a guardrail on the other to prevent vehicles from going over the drop-off.
3 Despite these circumstances, Defendant accelerated from thirty-five to sixty-six
4 miles per hour over a one-half-mile stretch of the highway leading to the curve. The
5 fact that the collision occurred immediately after passing all the warning signs, that
6 it was already dark, and that Defendant was unfamiliar with the road are compelling
7 circumstances from which a reasonable jury could infer that Defendant was not only
8 speeding but that he also willfully disregarded the warnings and the condition of the
9 roadway. It was also reasonable for the jury to find that disregarding the warnings
10 and the hazardous road terrain while accelerating to almost twice the speed limit
11 constituted a disregard for the rights and safety of others.
12 {21} Defendant argues that the excessive number of signs on the highway were not
13 a warning as to the danger of the road ahead, but rather a distraction; moreover, the
14 guardrail and a cut in the trees created the appearance that the road went straight.
15 However, having heard Defendant’s explanation, we presume that the jury found
16 otherwise, and we decline to reweigh the evidence. See Rojo, 1999-NMSC-001, ¶ 19
17 (noting that “the jury is free to reject [the d]efendant’s version of the facts”).
18 {22} Thus, viewing all evidence in the light most favorable to the verdict, and
19 disregarding contrary evidence and inferences, we conclude that there was sufficient
20 evidence to support Defendant’s convictions for great bodily harm by reckless
11
1 driving. See State v. Cunningham, 2000-NMSC-009, ¶ 26, 128 N.M. 711, 998 P.2d
2 176.
3 III. The District Court Did Not Err in the Manner in Which It Seated
4 Witnesses and the Jury Due to COVID-19 Considerations
5 {23} Because of the COVID-19 pandemic, the district court took numerous actions
6 to implement precautionary measures designed to keep court staff and trial
7 participants safe. One such measure during trial was special seating in the gallery of
8 the courtroom in order to accommodate safe social distancing. Jurors, witnesses, and
9 spectators were all seated in the gallery, with the caveat that the individuals would
10 be socially distanced, wearing facemasks, which would conceal any facial
11 expressions, and seated in a forward-facing manner. After the jury found Defendant
12 guilty, Defendant moved to set aside the jury verdict and for a new trial, arguing that
13 the seating arrangement violated his right to a fair trial under both the federal and
14 state Constitutions. The district court denied the motion, and Defendant appeals,
15 arguing that by seating the victims, witnesses, and spectators in the same courtroom
16 area as the jurors, the district court deprived him of a “fair trial by an impartial jury.”
17 However, as we explain, Defendant failed to preserve this issue during trial, and the
18 district court did not err in the manner in which it seated the witnesses and jury.
19 {24} “In order to preserve an issue for appeal, a defendant must make a timely
20 objection that specifically apprises the [district] court of the nature of the claimed
21 error and invokes an intelligent ruling thereon.” Montoya, 2015-NMSC-010, ¶ 45
12
1 (internal quotation marks and citation omitted). A motion for a new trial is not
2 sufficient to preserve an issue that was not otherwise raised during trial proceedings.
3 See State v. Pacheco, 2007-NMSC-009, ¶¶ 7-8, 141 N.M. 340, 155 P.3d 745
4 (determining that because the defendant raised his claim of error for the first time in
5 a motion for a new trial, and the defendant had the ability to object to the error
6 throughout the trial, the claim was not properly preserved for appellate review).
7 {25} Defendant failed to make a timely objection that would have given the district
8 court the opportunity to correct any error. Defendant did not request the district court
9 move the witnesses or spectators from the gallery during trial, nor did Defendant
10 object to the courtroom setup before the trial began. Because Defendant only raised
11 the issue in his post-trial motion, the issue is not preserved absent a showing of
12 fundamental error. See Rule 12-321(B)(2) NMRA (providing an exception to the
13 preservation rule for questions involving fundamental error).
14 {26} The district court did not err in the manner in which it seated witnesses,
15 spectators, and the jury. Defendant argues that seating witnesses, spectators, and
16 jurors together caused jury intimidation and thus deprived Defendant of an impartial
17 jury. “An impartial jury is one in which each and every juror is totally free from any
18 impartiality whatsoever.” Fuson v. State, 1987-NMSC-034, ¶ 5, 105 N.M. 632, 735
19 P.2d 1138 (internal quotation marks and citation omitted). The seating arrangement
20 imposed by the district court simply required the witnesses, spectators, and jurors to
13
1 sit in the gallery to accommodate the requisite social distancing. See New Mexico
2 Supreme Court Order No. 20-8500-025 at 12 (July 6, 2020),
3 https://www.nmcourts.gov/wp-content/uploads/2020/12/Order-No_-20-8500-025-
4 Order-Adopting-PHE-Protocols-for-Safe-and-Effective-Operation-of-NM-Courts-
5 7-6-20-with-PHE-Protocols-Attached-1.pdf (requiring district courts to maintain “a
6 minimum distance of six (6) feet in each direction between every individual
7 participating in the trial proceedings”). Everyone was seated facing forward, socially
8 distanced, wearing facemasks, which necessarily concealed any facial expressions.
9 There is no evidence that any of the witnesses or spectators improperly
10 communicated with the jurors. Nor did any juror express concern to the bailiff who
11 was present with the jury during trial. Seating witnesses, spectators, and jurors
12 together in the gallery to accommodate safe social distancing, without evidence of
13 improper conduct, such as communication, interference, or intimidation is
14 insufficient to establish that Defendant was deprived of an impartial jury.
15 Accordingly, we conclude that the district court did not err in the manner in which
16 it seated the witnesses and the jury.
17 CONCLUSION
18 {27} For the foregoing reasons, we affirm.
19 {28} IT IS SO ORDERED.
20 _________________________________
21 KRISTINA BOGARDUS, Judge
14
1 WE CONCUR:
2 _________________________________
3 SHAMMARA H. HENDERSON, Judge
4 _________________________________
5 MICHAEL D. BUSTAMANTE, Judge, retired, sitting by designation
15 | 01-04-2023 | 11-15-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484054/ | 11/15/2022
IN THE COURT OF CRIMINAL APPEALS OF TENNESSEE
AT NASHVILLE
Assigned on Briefs October 27, 2022 at Knoxville
DONTA LAMAR WEIR v. STATE OF TENNESSEE
Appeal from the Circuit Court for Warren County
No. 19-CR-2399 Larry B. Stanley, Jr., Judge
No. M2021-01254-CCA-R3-PC
The petitioner, Donta Lamar Weir, appeals the summary dismissal of his petition for post-
conviction 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.
Tenn. R. App. P. 3; Judgment of the Circuit Court Affirmed
JAMES CURWOOD WITT, JR., P.J., delivered the opinion of the court, in which ROBERT W.
WEDEMEYER, and CAMILLE R. MCMULLEN, JJ., joined.
Donta Lamar Weir, Only, Tennessee, pro se.
Herbert H. Slatery III, Attorney General and Reporter; David H. Findley, Assistant
Attorney General; Lisa Zavogiannis, District Attorney General; and Nathan Nichols,
Assistant District Attorney General, for the appellee, State of Tennessee.
OPINION
Based upon the meager record before us, we glean that on February 10, 2021,
the petitioner pleaded guilty to one count of the delivery of .5 grams or more of cocaine,
delivery of .5 grams or more of cocaine within 1,000 feet of a preschool, and delivery of a
counterfeit controlled substance. The offense dates on the judgments reflect that the
offenses occurred on March 28, April 4, and April 9, 2019, respectively, and the petitioner
alleged that the offenses arose from separate controlled buys orchestrated by the Warren
County Sheriff’s Department. The trial court imposed a sentence of 9 years’ incarceration
for the conviction of delivery of .5 grams or more of cocaine and concurrent sentences of
12 years and 2 years for the remaining convictions to be served in a community corrections
placement.
The petitioner did not appeal but did file a petition for post-conviction relief
on September 7, 2021. In his petition, the petitioner asserted two related claims. First, he
claimed that the sheriff’s department violated his constitutional rights by not arresting him
immediately following the first controlled buy, arguing that the “unconstitutional policy”
led to the subsequent controlled buys and “caused the defendant excessive felony
convictions and extensive punishment.” Second, he alleged that he was deprived of the
effective assistance of counsel, arguing only that his counsel performed deficiently by “not
challenging the unconstitutional policy . . . of instigating crime and not enforcing the law.”
The post-conviction court summarily dismissed the petition on the same day it was filed,
finding that the petitioner had failed to state a colorable claim for post-conviction relief.
In this appeal, the petitioner challenges the summary dismissal of his petition,
reiterating his claims that “the unconstitutional policies” of the Warren County Sheriff’s
Department and his counsel’s failure to challenge the same “changed the total outcome of
my case.” The State argues that summary dismissal was appropriate because the
petitioner’s claims, even if true, would not entitle him to post-conviction relief.
The Post-Conviction Procedure Act contemplates the summary dismissal of
a post-conviction petition that fails to state a colorable claim for relief. See T.C.A. § 40-
30-106(f) (“[i]f the facts alleged, taken as true, fail to show that the petitioner is entitled to
relief . . . the petition shall be dismissed”); see also Tenn. Sup. Ct. R. 28, § 2(H) (“A
colorable claim is a claim . . . that, if taken as true, in the light most favorable to the
petitioner, would entitle petitioner to relief under the Post-Conviction Procedure Act.”). A
claim of ineffective assistance of counsel has historically been a colorable claim for post-
conviction relief. That being said, the specific claim of ineffective assistance presented by
the petitioner, that his counsel should have challenged the sheriff’s department’s failure to
arrest him, even if true, would not have availed him of post-conviction relief. “There is no
constitutional right to be arrested,” and “[l]aw enforcement officers are under no
constitutional duty to call a halt to a criminal investigation the moment they have the
minimum evidence to establish probable cause.” Hoffa v. United States, 385 U.S. 293, 310
(1966). Consequently, the sheriff’s department committed no constitutional violation
when it elected not to arrest the petitioner immediately after any of the controlled buys in
this case, and counsel could not have performed deficiently by failing to challenge those
actions. Because the single, specific allegation of ineffective assistance of counsel raised
by the petitioner could not avail him of post-conviction relief, the post-conviction court did
not err by summarily dismissing the petition for failure to raise a colorable claim for relief.
Accordingly, the judgment of the post-conviction court is affirmed.
-2-
___________________________________________
JAMES CURWOOD WITT, JR., PRESIDING JUDGE
-3- | 01-04-2023 | 11-15-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484053/ | 11/15/2022
IN THE COURT OF CRIMINAL APPEALS OF TENNESSEE
AT NASHVILLE
Assigned on Briefs October 12, 2022
STATE OF TENNESSEE v. THOMAS ADAM BLACKWELL
Appeal from the Criminal Court for Sumner County
Nos. 199-2020, 461-2017, 464-2017 Dee David Gay, Judge
___________________________________
No. M2020-01171-CCA-R3-CD
___________________________________
Thomas Adam Blackwell, Defendant, claims that the trial court abused its discretion by
revoking his probation, denying an alternative sentence, and ordering his three-year
sentence for fourth offense driving under the influence (“DUI”) to be served consecutively
to the seven-year sentence that he was serving on community corrections when he was
arrested for the DUI. After a thorough review of the record and applicable law, we affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgments of the Criminal Court Affirmed
ROBERT L. HOLLOWAY, JR., J., delivered the opinion of the court, in which TIMOTHY L.
EASTER and JILL BARTEE AYERS, JJ., joined.
Jamie Tarkington (on appeal), Hendersonville, Tennessee, and Paul Walwyn (at hearing),
Madison, Tennessee, for the appellant, Thomas Adam Blackwell.
Herbert H. Slatery III, Attorney General and Reporter; Hannah-Catherine Lackey,
Assistant Attorney General; Ray Whitley, District Attorney General; and Lytle Anthony
James, Assistant District Attorney General, for the appellee, State of Tennessee.
OPINION
On September 13, 2018, Defendant was convicted of one count of Class C felony
aggravated burglary, one count of Class D felony theft of property, and one count of Class
E felony theft of property in Case No. 461-2017; and one count of Class C felony
aggravated burglary, one count of Class D felony theft of property, one count of Class A
misdemeanor theft of property, and five counts of Class E felony forgery in Case No. 464-
2017. The trial court ordered the sentences for all counts in each case to run concurrently
and sentenced Defendant as a Range I standard offender to an effective term of four years
in Case No. 461-2017 and three years in Case No. 464-2017. The court ran the sentences
in the two cases consecutively for an effective total sentence of seven years to be served
on community corrections and ordered Defendant to attend drug court as a condition of his
alternative sentence.
A Drug Court Probation Warrant was issued on January 28, 2019, for failure to
comply with the rules of drug court, breaking the fraternization rule, failing a drug test,
admitting to drinking whiskey and using heroin and fentanyl, and providing a diluted urine
sample. Because Judge Dee David Gay supervised Defendant in drug court, he recused
himself from the probation violation hearing. The Presiding Judge of the Eighteenth
Judicial District assigned Chancellor Louis W. Oliver, III, as “special judge” to preside
over the case. On July 8, 2019, the special judge entered an order sentencing Defendant to
365 days in the Sumner County Detention Center, suspending the sentence to allow
Defendant to attend a twelve-week inpatient rehabilitation program at Homeward Bound,
and allowing Defendant to petition to suspend the remaining incarceration upon
successfully completing the inpatient rehabilitation program. Defendant petitioned for
release after completing the Homeward Bound program. The special judge entered an
Agreed Order on December 5, 2019, releasing Defendant from incarceration to serve the
balance of his sentence on community corrections.
On December 14, 2019, Defendant was arrested for DUI. On April 13, 2020, the
State filed a Motion to Resentence pursuant to Tennessee Code Annotated section 40-36-
106(e)(4). On July 9, 2020, Defendant entered a guilty plea as a Range II multiple offender
to fourth offense DUI with the length of the sentence and manner of service to be
determined at a sentencing hearing.1 A violation of community corrections warrant was
filed on July 13, 2020. The warrant alleged that Defendant had “not properly conducted
himself” and had “violated the conditions of his [c]ommunity [c]orrections rules and
regulations” by being charged with DUI.
A joint sentencing and revocation hearing was conducted on August 7, 2020.
Hendersonville Police Department Officer Charles Ronan testified that at 2:51 a.m. on
December 14, 2019, he responded to a report of a white sedan parked on the shoulder of
Highway 386 with the door open and no lights on. He found Defendant asleep in the
driver’s seat with the keys in the ignition and the vehicle running. Defendant told Officer
Ronan that he drank “one tall beer and had used heroin earlier.” After Defendant performed
unsatisfactorily on the field sobriety test, he was arrested for DUI. Defendant agreed to
submit to a blood test. The Tennessee Bureau of Investigation Official Toxicology and the
1
After his arrest for DUI, Defendant waived any conflict of interest and Judge Gay presided over
the DUI case and the community corrections violation.
-2-
Official Alcohol Report, which were admitted into evidence as Exhibit 2, showed that
Defendant had methamphetamine, amphetamine, and fentanyl in his system and that his
blood alcohol content was .015.
Amy Montgomery, a social worker at the Department of Veterans Affairs (“VA”),
testified by telephone that she interviewed and assessed Defendant and that he was
approved for a twenty-eight-day VA inpatient program in Kentucky, followed by a thirty
to forty-five-day residential treatment program for posttraumatic stress disorder. Ms.
Montgomery opined that Defendant needed structure and that participating in the program
would be in Defendant’s best interest.
Defendant’s grandmother, Joanna Henderson Blackwell, testified that she raised
Defendant and was currently raising Defendant’s three-year-old daughter. She said that
Defendant had another daughter that he had only seen a couple of times since she was born.
She said that Defendant “had so much promise, and these addictions had taken over his
life.” She described the last few years as “heartbreaking.” She thought the Defendant
really tried to change when he was in the drug court program. She said that he got a job,
an apartment, and a phone. She said it was very difficult for her and Defendant’s family
when he relapsed. She asked the court to give Defendant “one last chance.”
Defendant testified about his dismissal from the drug court program and the
revocation of his community corrections sentence. He said that he voluntarily reported
using drugs one time to his drug court liaison and that he thought that he was just going to
be sanctioned, but when the liaison discovered that he had been fraternizing with a female
sentenced to drug court, he was terminated from the program. He said that his father passed
away while he was incarcerated. After completing the Homeward Bound program, he was
released from custody on community corrections. He contacted the VA seeking help
within two hours of being released from custody because he knew he “was going to have
problems with substance abuse and [his] mental health.” He said that, after his release, he
had access to money from his father’s estate but that it was “probably too much access and
too much freedom for someone who’s been locked up like [he had been].” He began using
heroin within three days of being released from custody. He said that what he thought
“was heroin, had methamphetamine and fentanyl in it.”
Defendant said that he was injured in an accident while in the army and began using
opiates. He said that his girlfriend committed suicide two months before he finished his
enlistment and that he suffered from posttraumatic stress disorder as a result of his injury
and his girlfriend’s death. He began drinking heavily and accepted a general discharge
from the army. He said that he needed help with his drug addiction and his mental health.
On cross-examination, Defendant stated that he started using alcohol at age thirteen
and abusing prescription medications at seventeen. He admitted that he had twelve felony
-3-
and sixteen misdemeanor convictions. Defendant said, “In the past, Your Honor, I had
people that I knew would take up my slack and would help me whenever I got in trouble
and that list is dwindling. My father is gone. All I have is my grandmother. I don’t have
any excuses for why I did what I did before.” Defendant told the court, “I need another
chance.” When asked by the court about not being there for his children, Defendant said,
“I’ve been on drugs and in jail the entire time.”
The presentence report, admitted as Exhibit 1, shows that Defendant had twelve
felony convictions — four felony thefts, two aggravated burglaries, five forgeries, and one
Habitual Motor Vehicle Offender violation. The report also shows that he had sixteen
misdemeanor convictions — four thefts, two assaults, three drug offenses, one resisting
arrest, one failure to appear, and four DUIs. Defendant had five prior probation violations.
The trial court found that Defendant “violated his probation for a second time, not
the first time.” The court noted that Defendant “was given an opportunity and he served
his sentence, and then he goes out and commits a crime that’s probably the dread of any
judge that puts somebody on probation . . . . He goes out and commits a DUI . . . and risks
[his] life and the lives of others[.]” The court noted that State had been “very generous” in
not going forward with resentencing.
In sentencing Defendant for the DUI offense, the court found three of the
enhancement factors listed in Tennessee Code Annotated section 40-35-114 applied. First,
the court found that Defendant “had a previous history of criminal convictions or criminal
behavior, in addition to those necessary to establish the appropriate range.” Tenn. Code
Ann. § 40-35-114(1). Additionally, the court found that Defendant “was on probation”
when he was charged with fourth offense DUI. See Tenn. Code Ann. § 40-35-114(8). The
court also found that Defendant “had no hesitation about committing a crime when the risk
to human life is high.” Tenn. Code Ann. § 40-35-114(10). The court found that no
mitigating factors applied. The court noted that, only nine days after being released from
incarceration for his probation violation, Defendant was charged with a fourth offense DUI,
a crime the court found endangered both Defendant and the public. The court advised the
Defendant that he was fortunate that the plea agreement allowed him to plead guilty as a
Range II offender at 35% service rather than a career offender at 60% service.
The trial court found that Defendant was not credible, specifically finding that he
did not tell the complete truth about why his probation was violated when he was in drug
court. Based on Defendant’s criminal history and prior drug use, the court noted that
Defendant’s potential for rehabilitation was a “long shot.” The court reasoned that it “must
look at the citizens and safety of the public and the public welfare.”
The trial court sentenced Defendant to three years’ incarceration as a Range II
multiple offender for his fourth offense DUI. The court revoked Defendant’s community
-4-
corrections and ordered him to serve the balance of his seven-year sentence. The court
found that Defendant was on community corrections when he committed a fourth offense
DUI and that Defendant had an extensive criminal record and ordered the three-year DUI
sentence to run consecutively to the seven-year sentence. The court recommended that
Defendant receive treatment at Lois M. DeBerry Special Needs Facility if the Tennessee
Department of Correction would accept him into that treatment program.
ANALYSIS
On appeal, Defendant claims that the trial court abused its discretion by revoking
his probation, by not sentencing him to an alternative sentence, and by ordering his
sentences to run consecutively. The State argues that the trial court properly exercised its
discretion in revoking probation and sentencing Defendant. We agree with the State.
Revocation of Community Corrections
On March 4, 2022, eight months after the revocation hearing in this case, our
supreme court issued State v. Dagnan, concluding “that probation revocation is a two-step
consideration on the part of the trial court.” State v. Dagnan, 641 S.W.3d 751, 753 (Tenn.
2022). The first step “is to determine whether to revoke probation.” Id. The second step
“is to determine the appropriate consequence upon revocation.” Id. In Dagnan, the
supreme court made it clear that “[s]imply recognizing that sufficient evidence existed to
find that a violation occurred does not satisfy this burden.” Id. at 758-59. The trial court
must place on the record sufficient findings for the appellate court to be able to conduct a
meaningful review of both its decision to revoke probation and its decision to impose a
sentence for the revocation. Id. at 759. If the trial court does so, an abuse of discretion
with a presumption of reasonableness standard of appellate review applies. Id. If a trial
court fails to place on the record its reasoning for revoking probation, unless the defendant
admits to the violation, or fails to place on the record its reasoning for imposing the
sentence, an appellate court may conduct a de novo review if the record is sufficiently
developed for the court to do so or may remand the case to the trial court to make such
findings. Id.
Although there are a few differences, a community corrections sentence “closely
resembles that of probation” and “the same principles are applicable in deciding whether a
community corrections sentence revocation was proper.” State v. Harkins, 811 S.W.2d 79,
82 (Tenn. 1991). Likewise, the same principles are applicable in deciding the sentence to
impose after a trial court finds that a defendant violated the terms of a community
corrections sentence. The two-step consideration for probation revocation hearings
outlined in Dagnan, also applies to revocation of community corrections hearings. State
-5-
v. Gibbs, No. M2021-00933-CCA-R3-CD, 2022 WL 1146294, at *3 (Tenn. Crim. App.
Apr. 19, 2022).
Step One - Violation
The trial court placed its reasons for revoking Defendant’s community corrections
on the record. The court noted that Defendant entered a plea of guilty to fourth offense
DUI, an offense that he committed only nine days after he was released from custody for
previously violating the terms of community corrections. Defendant’s guilty plea was
substantial evidence for the trial court to find “by a preponderance of the evidence that
[D]efendant violated the conditions of his release.” State v. Beard, 189 S.W.3d 730, 734-
35 (Tenn. Crim. App. 2005) (citing Tenn. Code Ann. § 40-35-311(e)). The trial court did
not abuse its discretion by revoking Defendant’s community corrections.
Step Two - Sentence for the Violation
After stating its reason for revoking Defendant’s community corrections, the trial
court did not make any additional findings or state any additional reasons before
announcing its decision to commence the execution of the judgment as originally entered.
Although many of the reasons for revoking community corrections might also be reasons
to support the court’s sentencing decision, the court did not employ a “two-step” process,
and we cannot determine if the court’s sentencing decision was the result of a “separate
exercise of discretion.” Dagnan, 641 S.W.3d at 760. When the trial court fails “to place
its reasoning for a revocation decision on the record,” this court may conduct a de novo
review “if the record is sufficiently developed for the court to do so,” or we “may remand
the case to the trial court to make such findings.” Id. at 759. Therefore, an abuse of
discretion with a presumption of reasonableness standard of appellate review does not
apply to the trial court’s decision to commence the execution of the judgment as originally
entered. Id. We determine that the record is sufficiently developed for this court to
conduct a de novo review.
Tennessee Code Annotated section 40-36-106(e)(3)(B), a section of the Tennessee
Community Corrections Act of 1985, states that: “Failure to comply with the terms of
probation subjects the offender to revocation proceedings conducted by the court pursuant
to § 40-35-311. Tennessee Code Annotated section 40-35-311(e)(2) provides:
If the trial judge revokes a defendant’s probation and suspension of sentence
after finding, by a preponderance of the evidence, that the defendant has
committed a new felony . . . then the trial judge may revoke the probation
and suspension of sentence . . . and cause the defendant to commence the
execution of the judgment as originally entered, which may be reduced by an
-6-
amount of time not to exceed the amount of time the defendant has
successfully served on probation and suspension of sentence prior to the
violation.
Based on our review of the record, we determine that Defendant has an extensive
criminal record. The presentence report shows that Defendant had twelve felony
convictions, sixteen misdemeanor convictions, and five previous probation violations.
Defendant has been incarcerated numerous times. The Revocation Order shows that
Defendant was incarcerated on seven different occasions and received 821 days of pretrial
credit. He also received 276 days of community corrections credit. The current violation
was Defendant’s second violation of probation for his 2018 conviction for two counts of
aggravated burglary, four counts of theft of property, and five counts of forgery. He was
sentenced to serve 365 days for the second probation violation but was released early after
completing an inpatient drug treatment program. He began using heroin within three days
of his release and was arrested for felony DUI nine days after being released from custody.
The Strong-R Needs Assessment Report shows that Defendant is a high risk for continued
alcohol and drug use. It is clear from the record that Defendant cannot or will not comply
with the rules of probation. Defendant has shown a “lack of potential for [his]
rehabilitation.” Tenn. Code Ann. § 40-35-103(5). We determine that there was substantial
evidence to commence the execution of the judgment as originally entered.
Alternative Sentence
When the record clearly establishes that the trial court imposed a sentence within
the appropriate range after a “proper application of the purposes and principles of our
Sentencing Act,” this court reviews the trial court’s sentencing decision under an abuse of
discretion standard with a presumption of reasonableness. State v. Bise, 380 S.W.3d 682,
707 (Tenn. 2012). The party challenging the sentence on appeal bears the burden of
establishing that the sentence was improper. Tenn. Code Ann. § 40-35-401 (2021),
Sentencing Comm’n Cmts.
To facilitate meaningful appellate review, the trial court must state on the record the
factors it considered and the reasons for imposing the sentence chosen. Tenn. Code Ann.
§ 40-35-210(e) (2021); Bise, 380 S.W.3d at 706. While the trial court should consider
enhancement and mitigating factors, such factors are advisory only. See Bise, 380 S.W.3d
at 699 n.33, 704; State v. Carter, 254 S.W.3d 335, 346 (Tenn. 2008). A trial court’s
“misapplication of an enhancement or mitigation factor does not invalidate the sentence
imposed unless the trial court wholly departed from the 1989 Act, as amended in 2005.”
Bise, 380 S.W.3d at 706.
-7-
The abuse of discretion with a presumption of reasonableness standard of review
set by our supreme court in Bise also applies to a trial court’s decision to grant or deny
probation. State v. Caudle, 388 S.W.3d 273, 278-79 (Tenn. 2012) (citing Bise, 380 S.W.
3d at 708). Under the revised Tennessee sentencing statutes, a defendant is no longer
presumed to be a favorable candidate for alternative sentencing. Carter, 254 S.W.3d at
347 (citing Tenn. Code Ann. § 40-35-102(6)). Instead, the “advisory” sentencing
guidelines provide that a defendant “who is an especially mitigated or standard offender
convicted of a Class C, D or E felony, should be considered as a favorable candidate for
alternative sentencing options in the absence of evidence to the contrary.” Tenn. Code
Ann. § 40-35-102(6) (2021).
Tennessee Code Annotated section 40-35-303 states that:
[a] defendant shall be eligible for probation under this chapter if the
sentence actually imposed upon the defendant is ten (10) years or less;
however, no defendant shall be eligible for probation under this chapter if
convicted of a violation of § 39-13-304, § 39-13-402, § 39-13-504, § 39-13-
532, § 39-15-402, § 39-17-417(b) or (i), § 39-17-1003, § 39-17-1004 or §
39-17-1005. A defendant shall also be eligible for probation pursuant to §
40-36-106(e)(3).
Tenn. Code Ann. § 40-35-303(a) (2021). A defendant has the burden of establishing that
he is suitable for probation and “demonstrating that probation will ‘subserve the ends of
justice and the best interest of both the public and the defendant.’” Carter, 254 S.W.3d at
347 (quoting State v. Housewright, 982 S.W.2d 354, 357 (Tenn. Crim. App. 1997)).
Under Tennessee Code Annotated section 40-35-103, the trial court should look to
the following considerations to determine whether a sentence of confinement is
appropriate:
(A) Confinement is necessary to protect society by restraining a
defendant who has a long history of criminal conduct;
(B) Confinement is necessary to avoid depreciating the seriousness of
the offense or confinement is particularly suited to provide an effective
deterrence to others likely to commit similar offenses; or
(C) Measures less restrictive than confinement have frequently or
recently been applied unsuccessfully to the defendant.
Tenn. Code Ann. § 40-35-103(1) (2021).
-8-
Trial courts are encouraged to utilize alternative sentences. See Tenn. Code Ann. §
40-35-102(3)(C) (2021); Ray v. Madison Cty., Tennessee, 536 S.W.3d 824, 833 (Tenn.
2017). “Any sentence that does not involve complete confinement is an alternative
sentence.” State v. Gregory Tyrone Dotson, No. M2018-00657-CCA-R3-CD, 2019 WL
3763970, at *10 (Tenn. Crim. App. Aug. 9, 2019) (citing State v. Fields, 40 S.W.3d 435
(Tenn. 2001)).
In imposing the three-year sentence to be served in the Tennessee Department of
Correction for the fourth offense DUI, the trial court emphasized the seriousness of DUI
and the significant risk that DUI posed to the public and to Defendant. The court noted
that the presentence report showed that Defendant had twelve prior felony convictions,
sixteen prior misdemeanor convictions, and five probation violations. The court found
three of the enhancement factors applied: (1) that Defendant “had a previous history of
criminal convictions or criminal behavior, in addition to those necessary to establish the
appropriate range,” Tenn. Code Ann. § 40-35-114(1); (2) that Defendant was on probation
when he was charged with fourth offense DUI, Tenn. Code Ann. § 40-35-114(8); and (3)
that Defendant “had no hesitation about committing a crime when the risk to human life is
high,” Tenn. Code Ann. § 40-35-114(10). The court found that no mitigating factors
applied.
Although Defendant would be eligible for an alternative sentence after serving one
hundred and fifty consecutive days in the county jail for fourth offense DUI, he failed to
establish his suitability for probation. Defendant’s extensive criminal record and his
inability to comply with the rules of probation do not weigh in favor of an alternative
sentence.
Based on Defendant’s criminal history and prior drug use, the court noted that
Defendant’s potential for rehabilitation was a “long shot.” The court reasoned that it “must
look at the citizens and safety of the public and the public welfare.”
The principles of sentencing in Tennessee Code Annotated section 40-35-103(1)(A)
and (C) support the trial court’s decision to order the sentence to be served in confinement.
The trial court did not abuse its discretion in sentencing the Defendant.
Consecutive Sentences
In State v. Pollard, the Tennessee Supreme Court expanded its holding in Bise to
trial courts’ decisions regarding consecutive sentencing. 432 S.W.3d 851, 859 (Tenn.
2013). “The court may order sentences to run consecutively if the court finds by a
preponderance of the evidence that[] . . . [t]he defendant is an offender whose record of
criminal activity is extensive,” Tenn. Code Ann. § 40-35-115(b)(2) (2015), or the
-9-
defendant is sentenced for an offense committed while on probation. Tenn. Code Ann. §
40-35-115(b)(6) (2015). Any one ground set out in Tennessee Code Annotated section 40-
35-115(b) is “a sufficient basis for the imposition of consecutive sentences.” Pollard, 432
S.W.3d at 862 (citing State v. Dickson, 413 S.W.3d 735, 748 (Tenn. 2013)). “So long as a
trial court properly articulates reasons for ordering consecutive sentences, thereby
providing a basis for meaningful appellate review, the sentences will be presumed
reasonable and, absent an abuse of discretion, upheld on appeal.” Id. (citing Tenn. R. Crim.
P. 32(c)(1)).
The trial court found that Defendant was on probation when he committed a fourth
offense DUI and that Defendant had an extensive criminal record consisting of twelve prior
felony convictions, sixteen prior misdemeanor convictions, and five probation violations.
The court did not abuse its discretion in aligning the sentences consecutively.
Conclusion
We affirm the judgments of the trial court.
____________________________________
ROBERT L. HOLLOWAY, JR., JUDGE
- 10 - | 01-04-2023 | 11-15-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484059/ | Case: 21-20660 Document: 00516545996 Page: 1 Date Filed: 11/15/2022
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
No. 21-20660 FILED
November 15, 2022
Summary Calendar
Lyle W. Cayce
Clerk
Debra-Ann Wellman,
Plaintiff—Appellant,
versus
HEB Grocery Company,
Defendant—Appellee.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:20-CV-3139
Before King, Higginson, and Willett, Circuit Judges.
Per Curiam:*
Debra-Ann Wellman brings various state and federal law claims
against HEB. The district court granted HEB’s motion for judgment on the
pleadings. We AFFIRM.
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 21-20660 Document: 00516545996 Page: 2 Date Filed: 11/15/2022
No. 21-20660
Debra-Ann Wellman was an employee of HEB Grocery Company
(“HEB”). Wellman alleges that HEB employees discriminated against,
abused, stalked, and harassed her for not participating in their purportedly
illegal activities. Proceeding pro se, Wellman sued HEB in district court,
alleging various state and federal claims in her amended complaint. The
district court granted HEB’s motion for judgment on the pleadings. Wellman
appeals.
We review a district court’s decision to grant a motion for judgment
on the pleadings de novo. Edionwe v. Bailey, 860 F.3d 287, 291 (5th Cir. 2017).
First, Wellman alleges that HEB “deliberately” caused her “physical
bodily harm” through alleged tortious acts of its employees. In Texas,
employer liability for intentionally tortious actions of an employee requires
that such actions be “closely connected with the employee’s authorized
duties.” M.D.C.G. v. United States, 956 F.3d 762, 769 (5th Cir. 2020)
(quoting G.T. Mgmt., Inc. v. Gonzalez, 106 S.W.3d 880, 884 (Tex. App.—
Dallas 2003, no pet.)). Wellman does not proffer any evidence suggesting
that the alleged acts were performed within the scope of these employees’
employment. Accordingly, HEB is not liable for any intentional torts
allegedly committed by its employees.
Second, Wellman also brings claims arising under federal statutes,
namely the Americans with Disabilities Act (“ADA”), the Age
Discrimination in Employment Act (“ADEA”), the Genetic Information
Nondiscrimination Act (“GINA”), and Title VII of the Civil Rights Act of
1964 (“Title VII”). We consider these in turn.
Concerning her ADA claim, we understand that Wellman’s alleged
physical disability stems from an October 31, 2019 incident when she was
electrically shocked and thrown to the ground. Wellman suggests that she
was negatively affected after this incident by HEB’s failing to provide
2
Case: 21-20660 Document: 00516545996 Page: 3 Date Filed: 11/15/2022
No. 21-20660
necessary medical care, continuing to stalk her, and interfering with her
ability to obtain counsel. But Wellman’s complaint does not suggest that
HEB’s alleged conduct was on the “basis of [her] disability,” 42 U.S.C.
§ 12112(a), which requires showing, inter alia, “that [she] was subject to an
adverse employment decision on account of [her] disability.” See EEOC v.
LHC Grp., Inc., 773 F.3d 688, 697 (5th Cir. 2014) (emphasis added).
Accordingly, she fails to establish a prima facie case of ADA discrimination.
With respect to her ADEA claim, Wellman did not wait the required
sixty days from filing an EEOC charge to file a civil action; therefore, she did
not exhaust her administrative remedies. 29 U.S.C. § 626(d); Julian v. City
of Houston, 314 F.3d 721, 726 (5th Cir. 2002). Wellman also did not exhaust
administrative remedies for her GINA claim because her EEOC charge did
not allege any GINA-specific facts nor have the requisite checked box
indicating a genetic information discrimination claim. See Jefferson v. Christus
St. Joseph Hosp., 374 F. App’x 485, 490 (5th Cir. 2010) (district court did not
err in determining unchecked claims on EEOC charges were unexhausted).
Concerning her Title VII disparate treatment claim, Wellman’s only
alleged adverse employment action is that she was “never allowed to move
forward or laterally, in her career.” But Wellman does not show the requisite
nexus between this alleged action and any alleged protected status sufficient
for disparate treatment. See Raj v. La. State Univ., 714 F.3d 322, 331 (5th Cir.
2013). With respect to a Title VII retaliation claim, Wellman does not plead
any facts showing that she was engaging in the type of activity that would
qualify her for Title VII’s antiretaliation protections. 42 U.S.C. § 2000e-3(a).
Finally, Wellman’s hostile work environment claim cannot succeed because
Wellman’s proffered evidence of comments from coworkers about her Italian
heritage and Catholic religious affiliations were largely episodic and
insufficient to support such a claim. See White v. Gov’t Emps. Ins. Co., 457 F.
App’x 374, 381–82 (5th Cir. 2012) (evidence of only a few incidents does
3
Case: 21-20660 Document: 00516545996 Page: 4 Date Filed: 11/15/2022
No. 21-20660
“not rise to the level of severity or pervasiveness required to support a hostile
work environment claim.”).
Wellman’s other arguments challenging various aspects of the district
court’s adjudication are similarly without merit. She challenges her lack of
appointed counsel, but in civil cases, a party has “no automatic right to the
appointment of counsel,” and “a federal court has considerable discretion in
determining whether to appoint counsel.” Salmon v. Corpus Christi Indep.
Sch. Dist., 911 F.2d 1165, 1166 (5th Cir. 1990). Her various arguments alleging
impropriety by the district court are not supported by the record.1
For the foregoing reasons, we AFFIRM.
1
Any other arguments Wellman did not raise in her brief are waived, even under
the more liberal standards we afford pro se litigants. Davison v. Huntington Ingalls, Inc., 712
F.3d 884, 885 (5th Cir. 2013).
4 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484064/ | Filed 11/15/22; Unmodified opinion and prior 10/31/22 modification order attached
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
SHAPELL SOCAL RENTAL
PROPERTIES, LLC,
G060411
Plaintiff and Respondent,
(Super. Ct. No. 30-2020-01171096)
v.
ORDER
CHICO’S FAS, INC.,
Defendant and Appellant.
It is ORDERED that the opinion filed on October 17, 2022, be modified as
follows:
On page 15, in the first full paragraph, beginning with the words, “We start
with the unpleasant,” delete the second and third sentences and citation.
On page 17, in the first full paragraph, beginning with the words “As
troubling as the ethical and statutory,” delete the third and fourth sentences and insert in
their place:
Instead, Shapell argues LaSalle is “procedurally, factually, and legally
distinguishable” without acknowledging that an attorney has both an ethical and a
statutory obligation to warn opposing counsel of an impending default.
On page 18, in the second full paragraph, beginning with the words “CIF’s
argument was not specious,” delete the words “It is the law.”
On page 18, footnote 3, line 8, replace the words “should have taken” with
“at least should have considered taking.”
At the end of the second paragraph on page 18, after the sentence “Counsel
breached that duty,” add the following paragraph:
In a petition for rehearing, Shapell argues for the first time that section
583.130 governs only civil actions and does not apply to unlawful detainer actions, which
are special proceedings governed by a different part of the Code of Civil Procedure.
Shapell did not make this argument in its respondent’s brief, at oral argument, or, as far
as we can tell from the record, before the trial court. Arguments cannot be raised for the
first time in a petition for rehearing. (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1092;
Gentis v. Safeguard Business Systems, Inc. (1998) 60 Cal.App.4th 1294, 1308.) The
argument is forfeited. We note, nonetheless, the obligation, confirmed in LaSalle, to
warn opposing counsel of an impending default is an ethical obligation, independently
grounded on case law, that is reinforced by a statutory obligation imposed by section
583.130. (See LaSalle, supra, 36 Cal.App.5th at p. 137.) That obligation arises only if
opposing counsel’s identity is known, which was the situation in LaSalle and the present
case. In addition, section 583.120, subdivision (b) grants a court authority to apply
section 583.130 to special proceedings unless doing so would be “inconsistent with the
character of the special proceeding or the statute governing the special proceeding.” (§
583.120, subd. (b).) Section 583.130 expresses the state policy that all attorneys
cooperate in bringing an action to trial. It seems to us that applying that policy to
unlawful detainer proceedings would not be inconsistent with the character of the
unlawful detainer proceedings or with the statutes governing such proceedings.
2
On page 19, the first sentence in the second full paragraph beginning with
“The first factor” is deleted and the following sentence is inserted in its place:
The first factor is the means by which Shapell obtained the default
judgment.
On page 19, third full paragraph, line 4 and 5, replace the words “From the
undisputed evidence presented in the case” with “From the record presented to us.”
On page 21, delete the first full sentence commencing at the top of the
page, beginning with “In other words,” and insert in its place:
The appellate record establishes that Shapell’s counsel committed an ethical
and statutory violation and engaged in litigation tactics designed to increase the
possibility of CFI’s default.
Respondent’s motion to take additional evidence and petition for rehearing
are DENIED.
The modification does not change the judgment.
SANCHEZ, J.
WE CONCUR:
GOETHALS, ACTING P. J.
MOTOIKE, J.
3
Filed 10/31/22 (unmodified opin. attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
SHAPELL SOCAL RENTAL
PROPERTIES, LLC,
G060411
Plaintiff and Respondent,
(Super. Ct. No. 30-2020-01171096)
v.
ORDER MODIFYING OPINION;
CHICO’S FAS, INC., NO CHANGE IN JUDGMENT
Defendant and Appellant.
It is ordered that the opinion filed on October 17, 2022, be modified as
follows:
On page 20, fifth line of the first paragraph, replace “CFI” with “Shapell”
so that the sentence reads as follows:
CFI investigated the matter and, upon learning the Complaint had been
served on a store employee, directed Foley & Mansfield to immediately contact Shapell
to discuss resolving the dispute.
There is no change in the judgment.
SANCHEZ, J.
WE CONCUR:
GOETHALS, ACTING P. J.
MOTOIKE, J.
Filed 10/17/22 (unmodified version)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
SHAPELL SOCAL RENTAL
PROPERTIES, LLC,
G060411
Plaintiff and Respondent,
(Super. Ct. No. 30-2020-01171096)
v.
OPINION
CHICO’S FAS, INC.,
Defendant and Appellant.
Appeal from a judgment of the Superior Court of Orange County, Derek W.
Hunt, Judge. Reversed and remanded. Motion to dismiss appeal. Denied. Request for
Judicial Notice. Denied.
Foley & Mansfield, Margaret I. Johnson and Angela V. Sayre for
Defendant and Appellant.
Klapach & Klapach, Joseph S. Klapach; Hamburg Karic Edwards &
Martin, Gregg A. Martin and Ann S. Lee for Plaintiff and Respondent.
* * *
INTRODUCTION
An attorney has both an ethical and statutory obligation to warn opposing
counsel, if counsel’s identity is known, of an intent to seek a default and to give counsel a
reasonable opportunity to file a responsive pleading. In LaSalle v. Vogel (2019) 36
Cal.App.5th 127, 137 (LaSalle), a panel of this court confirmed that obligation directly,
unequivocally, and without qualification. The LaSalle court concluded the ethical
obligation is rooted in decades of case authority and, the LaSalle court concluded, is
reinforced by a statutory obligation arising under Code of Civil Procedure section
1
583.130. (LaSalle, supra, at pp. 135-137.) The LaSalle court urged a return to the
professionalism represented by section 583.130 and expressed the hope that before
seeking a default counsel would act with “‘dignity, courtesy, and integrity.’” (LaSalle, at
p. 141.)
This case demonstrates the unfortunate reality that some members of the
legal profession have not demonstrated the yearned-for professionalism and that the
hopes expressed in LaSalle remain a dream. In this unlawful detainer action, counsel for
plaintiff Shapell Socal Rental Properties, LLC (Shapell) requested and obtained a default
and default judgment against defendant Chico’s FAS, Inc. (CFI) in direct violation of the
ethical and statutory obligations confirmed in LaSalle. In the course of the underlying
lease dispute, CFI had asked Shapell to direct communications regarding the subject lease
to CFI’s counsel. Despite that request, and despite LaSalle — which was on the books at
the time — Shapell’s counsel never communicated with CFI’s counsel about an intent to
seek a default and default judgment before requesting one from the trial court. Shapell’s
1
Code of Civil Procedure section 583.130 states: “It is the policy of the
state that a plaintiff shall proceed with reasonable diligence in the prosecution of an
action but that all parties shall cooperate in bringing the action to trial or other
disposition.”
All statutory references are to the Code of Civil Procedure unless otherwise
stated.
2
counsel not only failed to notify CFI’s counsel of the complaint, counsel also as we shall
explain, effected service of the complaint and the request for entry of default and default
judgment in a way intentionally and precisely calculated to create a strong possibility of a
default.
CFI brought a motion under sections 473, subdivision (b) (section 473(b))
and 473.5 to set aside the default and default judgment. In that motion, CFI called out
Shapell on its counsel’s ethical and statutory violation. Shapell’s response was to call
CFI’s argument “specious” — a nose-thumbing at LaSalle.
The trial court inexplicably denied CFI’s motion and failed to address the
breach of ethical and statutory duties by Shapell’s counsel. We cannot abide that result.
Several factors applicable to motions for relief from default, along with counsel’s breach
of ethics and of section 583.130, support our decision to reverse the order denying CFI’s
motion to set aside the default and default judgment.
FACTS AND PROCEDURAL HISTORY
I.
FACTS
CFI is a national chain of retail stores that sells women’s clothing. Shapell
owns and manages commercial real estate.
In May 2015 Shapell and CFI entered into a lease for property in Laguna
Niguel, California for use as a retail store (the Lease). Two provisions of the Lease are of
particular importance here:
1. Section 32.E, entitled “NOTICES,” states: “Any notice or demand
required or permitted by law or by any of the provisions of this Lease shall be in writing.
All notices or demands by Landlord to Tenant shall be deemed to have been properly
given when sent by registered or certified mail, postage prepaid, or via overnight delivery
service, addressed to Tenant at the address set forth in the Fundamental Lease Provisions.
3
All notices or demands by Tenant to Landlord shall be deemed to have been properly
given when sent by registered or certified mail, postage prepaid or overnight delivery
service, addressed to Landlord at the address set forth in the Fundamental Lease
Provisions. Either party hereto may change the place to which notices are to be given by
advising the other party in writing. If any notice or other document is sent by mail or
overnight delivery service as aforesaid, the same shall be deemed served, delivered, and
received when such notice is received or delivery is refused by the recipient party.”
2. Section 3.E granted CFI a one-time right to unilaterally terminate the
Lease following the fifth full year of the Lease term if store revenues did not exceed a
minimum annual sales expectation of $1.5 million. Section 3(E) states in part, “The
Lease shall automatically terminate at 11:59 p.m. on the sixtieth (60th) day following
delivery of written notice of termination to Landlord.” The Lease refers to this right to
terminate the Lease as the “kick-out right.”
CFI made no rent payments for April, May, and June 2020. In May 2020,
CFI’s chief operating officer hosted a conference call for its landlords and announced
CFI’s intent to withhold rents or pay reduced rents and expressed the hope that its
landlords would accept reduced payments. From July through December 2020 CFI paid
Shapell half of the monthly rent due under the Lease. Beginning in January 2021, CFI
resumed paying the full amount but did not make up the prior shortfalls.
By letter dated August 17, 2020, Shapell provided CFI formal notice that it
was in default of the Lease due to failure to pay rent. The Letter was sent to CFI’s
corporate office in Fort Myers, Florida. In a letter to Shapell dated August 24, 2020, CFI
asserted it was not in default or breach of the Lease.
In October 2020, Shapell served CFI with a formal 10-day notice to pay
rent or quit (the 10-day notice). The notice advised CFI it was in default of the Lease for
failure to pay rent, property taxes, insurance, and common area maintenance payments in
4
the total amount of $51,335.42. The 10-day notice was served on CFI by overnight mail
sent to its corporate office in Fort Myers, Florida.
In response to the 10-day notice, CFI’s legal counsel (Foley & Mansfield)
sent a letter to Shapell dated October 22, 2020. The letter advises Shapell that CFI had
retained Foley & Mansfield “for all real estate disputes and affirmative claims arising out
of the effects of COVID-19 in the retail sector.” The letter requests Shapell to
“direct . . . communications to [Foley & Mansfield] via email concerning [CFI] or its
brands or concerning your lease(s) for any such store(s).”
In November 2020, Shapell filed a summons and unlawful detainer
complaint against CFI (the Complaint). Shapell’s counsel did not communicate with
CFI’s counsel about the Complaint or accepting service of it. Instead, on November 20,
2020, at 5:05 p.m., a registered process server appeared at the CFI’s store in Laguna
Niguel and personally served the Complaint on a store employee named “Terra J.”
On November 23, 2020, copies of the Complaint were sent by first class
mail to CFI at the Laguna Niguel store. Shapell’s counsel did not have the summons and
the Complaint served on CFI’s registered agent for service of process in California and
did not have copies of the summons and Complaint mailed to CFI’s counsel or corporate
offices.
On December 11, 2020, Shapell filed a request for entry of default and
default judgment against CFI. The request for entry of default was mailed to the Laguna
Niguel store address. A judgment by default was entered on December 22, 2020.
Shapell’s counsel did not warn or in any way notify CFI’s counsel of an intent to request
entry of default and default judgment.
By letter dated February 17, 2021, CFI gave notice of its intent to terminate
the Lease pursuant to the section 3.E of the Lease. The letter stated, “Such termination
shall be effective 60 days following Landlord’s receipt of Tenant’s notice.” CFI gave a
second notice of intent to terminate the Lease by letter dated April 13, 2021, which also
5
stated, “Such termination shall be effective 60 days following Landlord’s receipt of
Tenant’s notice . . . .” The letter added, “to preserve Tenant’s termination rights set forth
in Section 3 E of the Lease, we are giving notice to terminate.”
II.
CFI’S MOTION TO SET ASIDE THE DEFAULT AND
DEFAULT JUDGMENT
In March 2021, CFI filed a motion pursuant to section 473.5 to set aside the
default and in the alternative to set aside the default and default judgment pursuant to
section 473(b). CFI argued service of the Complaint did not result in actual notice
because (1) service did not comply with the agreed terms of the Lease, which required
service on CFI at its corporate office in Florida, and (2) service was not made on CFI’s
registered agent for service of process in California. CFI also argued its failure to answer
the Complaint was due to inadvertence, surprise, mistake, or excusable neglect in that the
Complaint was served on “an ordinary store associate,” who made an honest mistake by
not forwarding the Complaint to CFI’s corporate office, and neither Shapell nor its legal
counsel contacted Foley & Mansfield to notify it of the complaint or of an intent to seek a
default judgment.
In support if its motion, CFI submitted the declaration of its counsel of
record, Angela V. Sayre, and its senior director of real estate legal, David T. Graham.
Sayre declared, “Neither[] I nor anyone from Foley & Mansfield ever received any
communication from Plaintiff Shapell or its counsel at Hamburg, Karic[,] Edwards &
Martin LLP advising that a Complaint had been filed or served.” Graham declared: “On
December 30, 2020, [CFI] received an unsolicited email from Ilmar Kalviste of Shapell
Socal Rental Properties, LLC, stating Plaintiff had already obtained a judgment against
[CFI]. At the time of the email, no one in [CFI]’s legal department and to the best of my
knowledge, no one in [CFI]’s corporate headquarters had any knowledge of the existence
of the Complaint or that it had been filed or served.” Graham added: “After further
6
investigation, and to my surprise, I found that an Aliso Village store employee had
received a copy of the Complaint on November 20. The Complaint had not been directed
to the attention of [CFI]’s legal department.”
In its opposition to the motion, Shapell argued that CFI knew it was in
default of the Lease and that the Complaint had been served in accordance with the Code
of Civil Procedure. Shapell argued its counsel had no obligation to notify CFI’s counsel
about the Complaint or an intent to seek a default judgment.
After hearing from both sides at the hearing on the motion, the trial court
stated, “I’m getting a very uncomfortable position about this tenant [CFI] playing pretty
fast and loose with whether they pay rent or not, or whether they want to be there or not.”
The court took the matter under submission and several days later issued a minute order
stating: “The cause was briefed, argued, and taken under submission on 04/23/2021.
The court, having now reviewed the moving papers and evidence attached thereto, rules
as follows: Denied.”
In June 2021, CFI filed a notice of appeal from the order denying its motion
2
to set aside the default and default judgment. On the same day, CFI filed a petition for a
writ of mandate directing the trial court to vacate its order denying CFI’s motion. CFI
requested a stay of further trial court proceedings. We requested preliminary opposition
from Shapell and issued an order staying proceedings in the trial court. In July 2021, we
denied CFI’s writ petition and dissolved a previously-issued stay order.
2
An order granting or denying a statutory motion to vacate or set aside a
default and default judgment is appealable under section 904.1, subdivision (a)(2) as an
order made after final judgment. (County of Stanislaus v. Johnson (1996) 43 Cal.App.4th
832, 834.)
7
III.
RELINQUISHMENT OF POSSESSION
On May 14, 2021, the trial court denied CFI’s motion for stay of execution
of judgment for possession. The Orange County Sheriff’s Department arrived at the
leased premises on June 8, 2021, to evict CFI. On the same day, CFI’s counsel asked
Shapell to “call off the Sheriff to allow [CFI] to peacefully remove its property from the
space.” CFI notified Shapell through its counsel that CFI would vacate the leased
premises, remove all of its personal property, and return the premises to Shapell no later
than June 9.
REQUEST FOR JUDICIAL NOTICE
After the briefing in this matter was completed, CFI filed a request for
judicial notice of papers and evidence filed in support of, and in opposition to, an
application for a right to attach order and issuance of a writ of attachment brought by
Shapell in a related Los Angeles Superior Court case. CFI contends those documents are
relevant to show that CFI’s appeal is not moot and Shapell’s motion to dismiss the appeal
as moot should be denied. We deny the request for judicial notice.
By way of background, we note the unlawful detainer action only
adjudicated right to possession. Shapell filed a separate lawsuit for damages in the Los
Angeles Superior Court for breach of contract based on alleged breaches of the lease that
is the subject of the unlawful detainer action. In that breach of contract action, Shapell
filed an application for a right to attach order and issuance of a writ of attachment for
$682,516.06 to cover estimated attorney fees and costs.
CFI’s request for judicial notice is directed to Shapell’s application and
CFI’s opposition papers. Those documents have been submitted to us as two volumes of
exhibits that total 943 pages in length. As court records, those exhibits are subject to
judicial notice under Evidence Code section 452, subdivision (d); however, none of the
exhibits bears a file stamp or any other indicia of being an official court record. The
8
request for judicial notice could be denied for that reason alone. “‘[W]hen a party desires
the appellate court to take judicial notice of a document or record on file in the court
below the parties should furnish the appellate court with a copy of such document or
record certified by its custodian.’” (Ross v. Creel Printing & Publishing Co. (2002) 100
Cal.App.4th 736, 743; see Wolf v. CDS Devco (2010) 185 Cal.App.4th 903, 914 [“such a
court record would normally show a conformed file stamp or other evidence of
reliability”].)
CFI argues the exhibits to its request for judicial notice show the unlawful
detainer action is not moot but remains a live controversy. Shapell opposes the request
for judicial notice on the grounds (1) there is no longer any dispute over the right to
possession and (2) Shapell’s Los Angeles Superior Court case and application for right to
attach order have nothing to do with the right to possession of the leased premises.
We agree with Shapell that its Los Angeles Superior Court case and
application for right to attach order are unrelated to the issue of whether CFI’s appeal is
moot. The question in deciding mootness is whether the appellate court can grant
effective relief. (Wilson & Wilson v. City Counsel of Redwood City (2011) 191
Cal.App.4th 1559, 1574.) Right to possession is distinct from damages for breach of
lease. Our ability to grant effective relief in this appeal is not related to or dependent
upon Shapell’s separate lawsuit suit for damages because an unlawful detainer action
only adjudicates right to possession. Further, as we shall explain, CFI’s appeal is not
moot, and the documents that are the subject of CFI’s request for judicial notice are
unnecessary to reach that decision.
MOTION TO DISMISS THE APPEAL AS MOOT
Shapell seeks dismissal of the appeal on the ground it is impossible to grant
CFI any effective relief because the issue of possession is no longer subject to dispute.
Shapell argues that even if CFI were to prevail on appeal, it cannot regain possession of
9
the leased premises because (1) Shapell has regained possession of the premises and relet
them to a new tenant and (2) CFI twice exercised its right to terminate the Lease pursuant
to the kick-out provision. We deny the motion.
A case is moot and will be dismissed when the appellate court cannot grant
the appellant any effective relief. (Wilson & Wilson v. City Counsel of Redwood City,
supra, 191 Cal.App.4th at p. 1574.) This appeal is not moot because, in the event of
reversal, section 908 grants us authority to order restitution: “When the judgment or
order is reversed or modified, the reviewing court may direct that the parties be returned
so far as possible to the positions they occupied before the enforcement of or execution
on the judgment or order. In doing so, the reviewing court may order restitution on
reasonable terms and conditions of all property and rights lost by the erroneous judgment
or order, so far as such restitution is consistent with rights of third parties and may direct
the entry of a money judgment sufficient to compensate for property or rights not
restored.” (§ 908; see Beach Break Equities, LLC v. Lowell (2016) 6 Cal.App.5th 847,
853-854 [section 908 authorizes reviewing court to order restitution after reversal of
unlawful detainer judgment].) “‘A person whose property has been taken under a
judgment “is entitled to restitution if the judgment is reversed or set aside, unless
restitution would be inequitable.”’” (Gunderson v. Wall (2011) 196 Cal.App.4th 1060,
1064.)
Restitution under section 908 may include restoring an evicted tenant to
possession of the leased premises. In Old National Financial Services, Inc. v. Seibert
(1987) 194 Cal.App.3d 460, a tenant appealed from an unlawful detainer judgment in
favor of the landlord but did not obtain stay of judgment pending appeal. (Id. at pp. 464-
465.) In response to the unlawful detainer judgment, the tenant vacated the premises,
either voluntarily or pursuant to a writ of execution. (Id. at p. 468.) The Court of Appeal
concluded the appeal was not moot because upon reversal of the unlawful detainer
judgment, the court could restore the tenant to possession of the property: “[Tenant] was
10
compelled to give up possession pursuant to the judgment. The fact that he may have
given up possession before he was formally evicted pursuant to the writ of execution does
not make this appeal moot. Effective relief was available to [Tenant] if he had prevailed
on appeal. Upon reversal of the judgment, this court would have been empowered to
restore him to possession of the property.” (Ibid.)
Shapell cites Munoz v. MacMillan (2011) 195 Cal.App.4th 648 (Munoz) for
the proposition that “[CFI] cannot recover possession of the leased premises even if the
judgment were ultimately reversed on appeal.” Munoz does not support that proposition.
The issue in Munoz was whether a tenant may bring a breach of contract action based on
the tenant’s eviction when the eviction was effected by a writ of possession following
judgment for the landlord in an unlawful detainer action, but the judgment is reversed.
(Id. at p. 653) In resolving this issue, the Court of Appeal first addressed whether such a
tenant may recover under any theory for losses caused by enforcement of an ultimately
reversed judgment. (Id. at p. 657.) The court explained that section 908 gives the
reviewing court authority to order restitution, which can be recovered in the underlying
unlawful detainer action. (Munoz, at p. 657.)
To make the point that restitution might be a prevailing tenant’s only
recovery, the Munoz court stated: “‘A few old . . . cases actually restored possession to
ousted tenants prevailing on appeal (although the circumstances were unusual, involving
enforcement of war time laws against Japanese tenants). [Citation.] But in most
[unlawful detainer cases], appellate courts are not apt to invoke [section] 908 to reinstate
a tenant’s right to possession after years have gone by . . . especially if the landlord has
already leased (or perhaps sold) the property to a third party . . . . [¶] Thus, for all
practical purposes, the only appropriate remedy for vacating tenants who prevail on
appeal, but who failed to obtain a stay, may be a monetary award “sufficient to
compensate [the tenant] for the property rights not restored” . . . .’” (Munoz, supra, 195
11
Cal.App.4th at p. 658 (some italics added); Friedman et al., Cal. Practice Guide:
Landlord-Tenant [(The Rutter Group 2021)] ¶ 9:470.1.)
The Rutter Group treatise, and hence Munoz, do not stand for the
proposition that possession can never be restored to an ousted tenant who succeeds in
obtaining a reversal of an unlawful detainer judgment. Rather, the Rutter Group treatise
and Munoz support the premise that although section 908 grants an appellate court the
power to reinstate the tenant’s right to possession, it is not likely a court will do so
particularly if years have gone by and the property has been leased to another party. Not
likely is not the same as never.
In addition to restitution under section 908, CFI may seek a monetary
restitution award from the trial court in the event of reversal. (Beach Break Equities,
LLC v. Lowell, supra, 6 Cal.App.5th at p. 854.) “[E]ven without an order from the
reviewing court, the party prevailing on appeal may seek restitutionary relief through a
motion in the remanded matter, rather than by filing a new cross-complaint or filing an
independent action.” (Ibid.)
Shapell argues CFI cannot regain possession or restitution in the event of a
reversal because CFI voluntarily relinquished possession of the leased premises on June
9, 2021. CFI relinquished possession when the deputy sheriffs showed up at the store to
evict it. CFI asked Shapell to “call off the Sheriff” so that it could peacefully remove its
property. CFI was compelled by the unlawful detainer judgment to give up possession
and therefore did not waive the ability to regain possession if the judgment were
reversed. (See Old National Financial Services, Inc. v. Seibert, supra, 194 Cal.App.3d at
p. 468.)
Shapell argues that CFI voluntarily terminated the Lease by twice
exercising its right under the kick out provision. The first time was by letter dated
February 17, 2021, and the second time was by letter dated April 13, 2021. The notices
of intent to terminate the Lease do not render the appeal moot. If the unlawful detainer
12
judgment is reversed, then the issue would arise whether the termination notices were
valid and effective. Shapell asserts neither notice is valid because both were served at a
time when CFI was in default of the Lease and the Lease had been terminated for Chico’s
failure to pay rent. We are not in the position to resolve such factual disputes.
Reversal, however, could provide CFI effective relief by giving it the
opportunity to terminate the Lease under more favorable terms and conditions offered by
voluntary termination. If the notices were valid and effective to terminate the Lease, the
legal obligations of the parties, and CFI’s exposure to damages, would be different than if
the Lease were terminated by Shapell. In other words, the consequences of unilateral
Lease termination by CFI would be different from the consequences of Lease termination
by virtue of CFI being in default of the Lease.
DISCUSSION
I.
APPLICABLE LAW AND STANDARD OF REVIEW
Section 473(b) authorizes the court to set aside a default judgment upon a
showing that the default resulted from mistake, inadvertence, surprise, or excusable
neglect. (Manson, Iver & York v. Black (2009) 176 Cal.App.4th 36, 42.) The motion for
relief must be made within six months after entry of the default, and the party moving to
set aside the default has the burden of showing good cause for relief. (Id. at p. 49.)
Section 473.5 authorizes the court to set aside a default or default judgment
“[w]hen service of a summons has not resulted in actual notice to a party in time to
defend the action . . . .” (Id., subd. (a).) A defendant seeking to set aside a default or
default judgment under section 473.5 must show, by affidavit, that his or her lack of
actual notice in time to defend the action was not caused by his or her avoidance of
service or inexcusable neglect. (Id., subd. (b).)
13
We review an order granting or denying relief under section 473(b) or
section 473.5 under the abuse of discretion standard. (Rios v. Singh (2021) 65
Cal.App.5th 871, 885 [§ 473.5]; McClain v. Kissler (2019) 39 Cal.App.5th 399, 413
[§ 473(b)].) “However, the trial court’s discretion is not unlimited and must be
‘“exercised in conformity with the spirit of the law and in a manner to subserve and not
to impede or defeat the ends of substantial justice.”’” (Elston v. City of Turlock (1985)
38 Cal.3d 227, 233, superseded by statute as stated in Tackett v. City of Huntington
Beach (1994) 22 Cal.App.4th 60.) “‘“[T]he provisions of section 473 . . . are to be
liberally construed and sound policy favors the determination of actions on their merits.”
[Citation.]’ [Citation.] ‘[B]ecause the law strongly favors trial and disposition on the
merits, any doubts in applying section 473 must be resolved in favor of the party seeking
relief from default.’” (Maynard v. Brandon (2005) 36 Cal.4th 364, 371-372.) An order
denying relief is therefore scrutinized more carefully than an order granting relief and
permitting trial on the merits. (Elston, at p. 233.)
The test for abuse of discretion is traditionally recited as whether the trial
court’s decision exceeded the bounds of reason. (Shamblin v. Brattain (1988) 44 Cal.3d
474, 478-479.) In more practical terms, the abuse of discretion standard measures
whether, in light of the evidence, the lower court’s decision falls within the permissible
range of options set by the legal criteria. (Bank of America, N.A. v. Superior Court
(2013) 212 Cal.App.4th 1076, 1089.) The scope of the court’s discretion is limited by
law governing the subject of the action taken. (Ibid.) An action that transgresses the
bounds of the applicable legal principles is deemed an abuse of discretion. (Ibid.) A trial
court’s decision is an abuse of discretion if it is based on an error of law (In re Tobacco II
Cases (2009) 46 Cal.4th 298, 311; Pfizer Inc. v. Superior Court (2010) 182 Cal.App.4th
622, 629) or if the court’s factual findings are not supported by substantial evidence
(Millview County Water Dist. v. State Water Resources Control Bd. (2016) 4 Cal.App.5th
759, 769).
14
II.
THE TRIAL COURT ABUSED ITS DISCRETION BY
DENYING CFI’S MOTION TO SET ASIDE THE
DEFAULT AND DEFAULT JUDGMENT
A. Shapell’s Counsel Breached Its Ethical and Statutory Obligations to Notify CFI of
Shapell’s Intent to Request Entry of Default and Default Judgment
We start with the unpleasant but necessary task of concluding that Shapell’s
trial counsel breached its ethical and statutory obligation to advise CFI’s counsel of the
intent to seek entry of a default judgment. That obligation was confirmed by a panel of
this court in LaSalle, supra, 36 Cal.App.5th 127 in these direct and unambiguous words:
“[I]t is now well acknowledged that an attorney has an ethical obligation to warn
opposing counsel that the attorney is about to take an adversary’s default.” (Id. at
p. 135.)
The obligation to advise opposing counsel of an impending default is part
of an attorney’s responsibility to the court and the legal profession and takes precedence
over the obligation to represent the client effectively. (LaSalle, supra, 36 Cal.App.5th at
pp. 134, 137.) That duty, and counsel’s responsibility to behave with professional
courtesy, existed long before LaSalle was issued. (See id. at pp. 132-135.) The LaSalle
court not only reaffirmed counsel’s ethical duty to warn opposing counsel of an
impending default judgment but concluded that obligation is imposed by statute: “So to
the extent it was possible for a party seeking a default with unseemly haste to commit an
ethical breach without creating a legal issue, that distinction was erased by section
583.130. The ethical obligation to warn opposing counsel of an intent to take a default is
now reinforced by a statutory policy that all parties ‘cooperate in bringing the action to
trial or other disposition.’ [Citation.] Quiet speed and unreasonable deadlines do not
qualify as ‘cooperation’ and cannot be accepted by the courts.” (Id. at p. 137.) Attorneys
15
who do not comply with that obligation are “practicing in contravention of the policy of
the state and menacing the future of the profession.” (Id. at p. 141.)
When Shapell had the Complaint served and when it sought to have a
default and default judgment entered, it knew CFI was represented by counsel. By letter
dated October 22, 2020, CFI’s attorney, Angela V. Sayre, notified Shapell that the law
firm of Foley & Mansfield represented CFI and requested Shapell to direct any
communications regarding the Lease to that firm. The Complaint was filed and served in
November 2020. Shapell’s trial counsel did not communicate with Ms. Sayre, any other
attorney at Foley & Mansfield, or anybody representing CFI, about the Complaint or
service of it. On December 11, 2020, Shapell’s counsel filed a request for entry of
default and default judgment. Shapell’s counsel did not communicate with Ms. Sayre,
any other attorney at Foley & Mansfield, or anybody representing CFI, about the intent to
file the request for entry of default and default judgment.
Neither Shapell nor its counsel deny knowing who was representing CFI
when the Complaint and request for entry of default and default judgment were filed.
Neither Shapell nor its counsel deny failing to warn CFI’s counsel that Shapell intended
to request a default judgment. In opposing the motion to set aside the default judgment,
Shapell submitted a declaration from its counsel, Gregg A. Martin, and he said nothing
about having communicated with CFI’s counsel or anybody representing CFI before the
request for entry of default and default judgment was filed, or at any time.
In addition, Shapell’s counsel did not have the Complaint or the request for
entry of default and default judgment served on or mailed to CFI’s registered agent for
service of process in California, CFI’s corporate headquarters, or the address given in the
Lease for service of notices to CFI. It would have been easy enough for Shapell’s
counsel to do so. As members of a profession and officers of the court, counsel had the
responsibility to treat opposing counsel with “‘dignity, courtesy, and integrity.’”
16
(LaSalle, supra, 36 Cal.App.5th at p. 134.) Here, “[d]ignity, courtesy, and integrity
were conspicuously lacking.” (Ibid.)
As troubling as the ethical and statutory violations are, the refusal by
Shapell and its counsel to acknowledge any duty to notify counsel for CFI before taking
its default is even more troubling. In the respondent’s brief, Shapell ignores its counsel’s
breach of ethics altogether. Instead, Shapell argues LaSalle is “procedurally, factually,
and legally distinguishable” without once acknowledging the black-letter rule that an
attorney has both an ethical and a statutory obligation to warn opposing counsel of an
impending default. Even at oral argument, counsel for Shapell neither accepted
responsibility, nor acknowledged its trial counsel’s violation of the ethical and statutory
duties confirmed by LaSalle.
LaSalle is distinguishable from the present case—but not in a way
favorable to Shapell. The most important distinction is that the breach of ethics and
statutory duty committed by Shapell’s counsel was markedly worse than the one
condemned in LaSalle. In LaSalle, the defendant was personally served with the
summons and complaint. (LaSalle, supra, 36 Cal.App.5th at p. 131 & fn. 4.) After 35
days passed, the plaintiff’s counsel notified the defendant by e-mail that a responsive
pleading was past due and threatened to request entry of default unless a responsive
pleading was filed the next day. (Ibid.) When the plaintiff’s counsel did not receive a
response from the defendant by the deadline, counsel filed a request for entry of default
and e-mailed a copy to the defendant. (Ibid.) Here, in contrast, service on CFI was made
on “an ordinary store associate.” Shapell’s counsel never warned CFI by e-mail or
otherwise that its responsive pleading was past due and never warned CFI by e-mail or
otherwise of its intent to seek a default judgment. The defendant in LaSalle was “notified
by unsatisfactory means of an unreasonably short deadline” (LaSalle, at p. 140) but at
least received notice of some kind. No such notice was given by Shapell.
17
The only justification or explanation ever offered by Shapell appears in its
opposition to CFI’s motion to set aside the default and default judgment. There, Shapell
asserted: “Throughout its brief, [CFI] complains that Shapell did not attempt to contact
its lawyers before the response to the summons and complaint was due [or] before the
default was entered, supposedly to warn [CFI] that it was running out of time to respond.
Again, this argument is specious and, if adopted, would impose a completely unfair and
unnecessary procedural hurdle upon aggrieved parties seeking Court redress.”
CFI’s argument was not specious: It is the law. Shapell’s trial counsel had
an ethical and statutory duty to advise CFI’s counsel of the intent to seek entry of default
and default judgment. (LaSalle, supra, 36 Cal.App.5th 135.) Counsel breached that
duty.
B. Factors Leading Us to Conclude the Trial Court Erred
3
Counsel’s breach of ethics is subject to reproval but does not in itself
compel reversal of the order denying CFI’s motion to set aside the default and default
judgment. In addition to counsel’s ethical violation, the LaSalle court considered
“standards now applicable to such motions” to conclude the trial court had abused its
discretion by denying the defendant’s motion to set aside the default. (LaSalle, supra, 36
Cal.App.5th at p. 137.) The LaSalle court stated it was not holding that “every section
473 motion supported by a colorable declaration must be granted.” (Id. at p. 140.)
3
Canon 3(D)(2) of the California Code of Judicial Ethics states,
“Whenever a judge has personal knowledge . . . that a lawyer has . . . violated any
provision of the Rules of Professional Conduct, the judge shall take appropriate
corrective action.” The advisory committee commentary regarding canon 3(D)(2) states
that “[a]ppropriate corrective action could include direct communication with
the . . . lawyer who has committed the violation, . . . other direct action, . . . or a report of
the violation to the . . . appropriate authority. (Cal. Code Jud. Ethics, canon 3(D)(2).) The
trial court should have taken such corrective action regarding the breach of ethical and
statutory duties by Shapell’s counsel. The court did not do so, and, therefore, our
disposition will direct the Presiding Judge of the superior court to assign the case to a
different judge on remand.
18
Several factors in combination with counsel’s breach of ethics and violation
of section 583.130 lead us to conclude the trial court abused its discretion by denying
CFI’s motion to set aside the default judgment.
The first factor is what is best described as Shapell’s use of stealth and
deviousness to obtain the default judgment. The evidence established the Complaint was
served on an employee at CFI’s Laguna Niguel store at a most inconvenient time: after
5:00 p.m. on the Friday the week before the Thanksgiving holiday. Shapell did not effect
service on CFI’s registered agent for service of process in California or on CFI at its
corporate headquarters in Florida. Shapell’s counsel did not communicate with CFI’s
counsel about the Complaint. Shapell mailed copies of the Complaint to the CFI’s
Laguna Niguel store address, but not to CFI’s counsel, registered agent, or corporate
headquarters. While the plaintiff’s counsel in LaSalle warned the defendant of the
impending default by e-mail, here, neither Shapell nor its counsel communicated in any
manner with anybody representing CFI before seeking entry of default and default
judgment.
In the usual case, we must infer the trial court made any and all findings
necessary to support an order. (See Pulte Homes Corp. v. Williams Mechanical, Inc.
(2016) 2 Cal.App.5th 267, 272 [findings implied in support of order denying relief under
sections 473(b) and 473.5].) But this is not the usual case. From the undisputed evidence
presented in this case, only one reasonable finding can be made: Shapell intentionally
served the Complaint, and sought entry of default and default judgment, in a manner
precisely calculated to keep CFI in the dark about what was going on and to produce a
substantial possibility of a default. The trial court had no discretion to find otherwise.
The second factor is the complete lack of prejudice to Shapell from setting
aside the default judgment. (See LaSalle, supra, 36 Cal.App.5th at pp. 138-139.) Shapell
does not even attempt to identify any prejudice it might suffer if the default judgment
were set aside.
19
The third factor is the relative speed with which CFI acted once it learned
of the default judgment. On December 30, 2020, CFI received an e-mail from Ilmar
Kalviste of Shapell advising that Shapell had already obtained a judgment in an unlawful
detainer action. CFI investigated the matter and, upon learning the Complaint had been
served on a store employee, directed Foley & Mansfield to immediately contact CFI to
discuss resolving the dispute. Attorneys from Foley & Mansfield started negotiations
with Shapell on January 6, 2021. Graham started negotiating with Shapell in early
January 2021. We cannot fault CFI for waiting until negotiations proved to be
unsuccessful in order to bring its motion to set aside the default judgment.
Shapell argues the trial court was the sole judge of witness credibility and
therefore was entitled to disbelieve the declarations of Sayre and Graham. In the usual
case that would have been correct: The trial court determines the credibility of witnesses
presenting testimony by declaration. (Cornerstone Realty Advisors, LLC v. Summit
Healthcare REIT, Inc. (2020) 56 Cal.App.5th 771, 804-805.) But we are not bound by
credibility determinations that are arbitrary or unreasonable. (See People v. Ogunmowo
(2018) 23 Cal.App.5th 69, 79-80 [trial court’s credibility determination not entitled to
deference where “the conclusion is not supported by the record”]; Feduniak v. California
Coastal Com. (2007) 148 Cal.App.4th 1346, 1364, fn. 9 [“we can conceive of no rational
basis for the court to reject Cave’s testimony and do not feel compelled to disregard it”];
Beck Development Co. v. Southern Pacific Transportation Co. (1996) 44 Cal.App.4th
1160, 1204 [court may not arbitrarily reject uncontradicted evidence or do so without a
rational basis].)
The record in the present case does not support a finding that Sayre and
Graham lacked credibility. Shapell submitted no evidence to counter or contradict any
representations made in the Sayre and Graham declarations. There were no conflicts in
the declarations for the trial court to resolve. Shapell fails to challenge or contradict
representations made by Sayre and Graham that Shapell’s counsel never contacted them
20
about the Complaint or advised them of Shapell’s intent to request a default judgment. In
other words, the evidence established beyond dispute that Shapell’s counsel committed
an ethical and statutory violation and engaged in underhand litigation tactics calculated
virtually to ensure CFI would default. The Sayre and Graham declarations, rather than
show that CFI knew of the Complaint and decided to do nothing, demonstrate instead that
CFI acted promptly on learning of the default judgment and by early January 2021 was
negotiating with Shapell to resolve the dispute. In these circumstances, wholesale
rejection of the Sayre and Graham declarations was arbitrary and unreasonable.
It is true, as Shapell argues, that CFI did not submit a declaration from the
store employee who was served with the Complaint. In light of the standard of review
and the policy favoring trial on the merits, CFI’s omission of such a declaration carries
little weight in our careful scrutiny of the order denying relief. When the party in default
moves promptly for relief, and the party opposing the motion will not suffer prejudice if
relief is granted, “‘very slight’” evidence is necessary to have a default set aside. (Elston
v. City of Turlock, supra, 38 Cal.3d at p. 233; see Aldrich v. San Fernando Valley Lumber
Co. (1985) 170 Cal.App.3d 725, 740 [only a “weak showing” is necessary].) CFI has
cleared that low bar. Any doubts must be resolved in favor of granting CFI relief.
(Maynard v. Brandon, supra, 36 Cal.4th at pp. 371-372.)
At the hearing on the motion to set aside the default and default judgment,
the trial court made comments suggesting it had considered the two notices of intent to
terminate the Lease served by CFI and believed they showed that CFI was “playing pretty
fast and loose with whether they pay rent or not, or whether they want to be there or not.”
The court also stated that CFI appeared to be “just dragging its feet, hoping that this
would go away.”
The parties use an inordinate amount of space in their appellate briefs to
argue back and forth over whether the trial court’s comments constitute findings. The
short answer is the court’s comments are not findings but “may be valuable in illustrating
21
the trial judge’s theory . . . .” (Yarrow v. State of California (1960) 53 Cal.2d 427, 438.)
What the comments illustrate for us is that the trial court’s concern over CFI playing “fast
and loose” was entirely misdirected. While questioning CFI’s integrity, the court
completely ignored the ethical and statutory violation committed by Shapell’s counsel.
Moreover, if trial court’s comments reflected the court’s theory, then that
theory was unsound. The court’s “foot dragging’ comment is not supported by the
record, which establishes that CFI acted promptly to contact Shapell upon learning, and
confirming, a default judgment had been entered. The two notices of intent to terminate
the Lease have nothing to do with the issues of whether CFI received actual notice of the
unlawful detainer lawsuit and whether its failure to respond was the result of mistake,
inadvertence, surprise, or excusable neglect. CFI claims it served the notices only to
preserve its rights. It might be the case that CFI did wish to relinquish possession of the
leased premises but preferred to do so voluntarily by exercising its “kick-out” rights
rather than involuntarily by means of an unlawful detainer lawsuit.
Shapell has gained nothing from its counsel’s breach of ethics and lack of
courtesy. If counsel had complied with its obligation to advise CFI of the intent to
request a default judgment, or had extended common courtesies, the unlawful detainer
action in all probability would have by now been decided on the merits. And if Shapell
would have prevailed, as it believes it should, then Shapell would be in rightful
possession of the leased premises. Instead, after much time and expenditure of attorney
fees, the default judgment is being reversed, the parties are back to square one, and
Shapell faces the prospect of CFI regaining possession and/or recovering monetary
restitution.
22
DISPOSITION
The order denying CFI’s motion to set aside default and default judgment is
reversed. The matter is remanded for further proceedings. In the interest of justice, on
remand the Presiding Judge of the Orange County Superior Court shall assign the case to
a different judge. (§ 170.1, subd. (c).) CFI to recover costs on appeal.
SANCHEZ, J.
WE CONCUR:
GOETHALS, ACTING P. J.
MOTOIKE, J.
23 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484063/ | Case: 20-30254 Document: 00516545966 Page: 1 Date Filed: 11/15/2022
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
No. 20-30254
FILED
November 15, 2022
Summary Calendar
Lyle W. Cayce
Clerk
Richard A. Seaton, Jr.,
Petitioner—Appellant,
versus
Jerry Goodwin, Warden, David Wade Correctional Center,
Respondent—Appellee.
Appeal from the United States District Court
for the Western District of Louisiana
USDC No. 5:17-CV-1556
Before King, Higginson, and Willett, Circuit Judges.
Per Curiam:*
Richard A. Seaton, Jr., Louisiana prisoner #595392, appeals the denial
of 28 U.S.C. § 2254 application challenging his convictions and sentences for
forcible rape and abusing his office as the Assistant Chief Administrator for
the City of Shreveport. He argues that (1) his trial counsel rendered
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 20-30254 Document: 00516545966 Page: 2 Date Filed: 11/15/2022
No. 20-30254
ineffective assistance by failing to cross-examine the victim, K.W., and her
mother, Kimberly Barnes, on several subjects and purported discrepancies,
and (2) the State violated Brady v. Maryland, 373 U.S. 83 (1963), and Giglio
v. United States, 405 U.S. 150 (1972), by withholding (a) the report of Officer
Matthew Holloway of the Shreveport Police Department, (b) the recording
of the 911 call made by Barnes, and (c) the “Background Event Chronology”
(Chronology). To the extent that Seaton argues that his trial counsel
rendered ineffective assistance by failing to introduce video evidence
showing that he did not have time to dispose of certain items, his argument
exceeds the scope of the certificate of appealability such that we lack
jurisdiction to consider it. See 28 U.S.C. § 2253(c); Carty v. Thaler, 583 F.3d
244, 266 (5th Cir. 2009).
Under the Antiterrorism and Effective Death Penalty Act of 1996
(AEDPA), we may not grant Seaton habeas corpus relief unless the state
court judgment rejecting his constitutional claims “was contrary to, or
involved an unreasonable application of, clearly established federal law, as
determined by the Supreme Court of the United States” or “was based on
an unreasonable determination of the facts in light of the evidence presented
in the State court proceeding.” § 2254(d). A state court’s application of
clearly established law is not unreasonable unless it is “so lacking in
justification that there was an error well understood and comprehended in
existing law beyond any possibility for fairminded disagreement.”
Harrington v. Richter, 562 U.S. 86, 103 (2011). This standard is intentionally
“difficult to meet,” and “even a strong case for relief does not mean the state
court’s contrary conclusion was unreasonable.” Id. at 102.
To prevail on a claim of ineffective assistance of counsel, Seaton must
show that (1) his counsel’s performance was deficient in that it fell below an
objective standard of reasonableness and (2) the deficient performance
prejudiced his defense. See Strickland v. Washington, 466 U.S. 668, 689-94
2
Case: 20-30254 Document: 00516545966 Page: 3 Date Filed: 11/15/2022
No. 20-30254
(1984). In reviewing an attorney’s performance, we “must indulge a strong
presumption that counsel’s conduct falls within the wide range of reasonable
professional assistance.” Id. at 689. Under the prejudice prong, Seaton must
show that there is a reasonable probability that, but for his counsel’s deficient
performance, the result of the proceeding would have been different. See id.
at 694. “A reasonable probability is a probability sufficient to undermine
confidence in the outcome.” Id. The standards created by Strickland and
§ 2254(d) are both highly deferential, and when the two apply in tandem,
review is doubly so.” Richter, 562 U.S. at 105 (internal quotation marks and
citations omitted).
Seaton’s ineffective assistance claims are all fundamentally based on
the premise that his trial counsel should have attempted to show that K.W.
consensually had sex with him and then lied about being raped in hopes of
gaining leverage over the City of Shreveport to get her boyfriend released
from jail, a theory which Seaton, himself, twice admitted on cross-
examination made no sense. Seaton does not explain why counsel should
have mounted such a defense when he identifies no evidence, including his
own testimony, indicating that K.W. ever requested that he get her boyfriend
out of jail or threatened him for refusing to do so. He fails to show that the
State court’s determination that counsel did not perform deficiently was
contrary to, or an unreasonable application of, clearly established federal law
or was based upon an unreasonable determination of the facts. See Strickland,
466 U.S. at 689; § 2254(d). Further, although he asserts that the trial court
was entitled to have had the information that would have been gained from
cross-examining K.W. and Barnes on the identified subjects prior to making
its dispositive credibility determination, he offers no substantive argument
showing that such information would have altered the outcome of his trial
given the other, substantial record evidence supporting his conviction. See
Strickland, 466 U.S. at 694. Seaton fails to show that he is entitled to § 2254
3
Case: 20-30254 Document: 00516545966 Page: 4 Date Filed: 11/15/2022
No. 20-30254
relief on his ineffective assistance of counsel claims. See Strickland, 466 U.S.
at 689-94; § 2254(d).
To establish a Brady violation, Seaton must demonstrate that (1) the
prosecution suppressed evidence that was (2) favorable to him and
(3) material to the issue of his guilt or punishment. See Smith v. Cain, 565
U.S. 73, 75 (2012). The prosecution’s duty to disclose extends to
information affecting the credibility of witnesses whose testimony “may well
be determinative of guilt or innocence.” Giglio, 405 U.S. at 154 (internal
quotation marks and citation omitted). “[E]vidence is material only if there
is a reasonable probability that, had the evidence been disclosed to the
defense, the result of the proceeding would have been different.” United
States v. Bagley, 473 U.S. 667, 682 (1985). “A reasonable probability is one
sufficient to undermine confidence in the outcome.” Pennsylvania v. Ritchie,
480 U.S. 39, 57 (1987) (internal quotation marks and citation omitted).
Seaton did not claim that the State withheld Officer Holloway’s report
in violation of Brady until he filed his reply in the district court; because the
state courts did not adjudicate the merits of this claim, AEDPA deference
does not apply, and this court reviews the district court’s factual findings for
clear error and its rulings on questions of law de novo. See Miller v. Dretke,
431 F.3d 241, 244 (5th Cir. 2005).
The district court held that the Holloway report was not material
because the information contained therein was not sufficient to undermine
confidence in the outcome of the trial in light of the record as a whole. See
Ritchie, 480 U.S. at 57. Although Seaton speculates as to how the report
could have been favorable to his defense, his speculation is insufficient to
undermine confidence in the verdict given the other evidence of his guilt
adduced at trial. See Ritchie, 480 U.S. at 57. He fails to show that the district
court erred by denying this claim. See Miller, 431 F.3d at 244.
4
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No. 20-30254
Likewise, while he speculates that the 911 recording and Chronology
might have aided his defense, Seaton offers no substantive argument
explaining how they would have been sufficient to undermine confidence in
the verdict given the other evidence of his guilt adduced at trial. See Ritchie,
480 U.S. at 57. Given the deference owed the state court, he fails to show
that he is entitled to habeas relief on these remaining Brady/Giglio claims.
See § 2254(d).
AFFIRMED.
5 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484082/ | AFFIRMED in part, REVERSED and RENDERED in part, and
REMANDED; and Opinion Filed November 8, 2022
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-19-01551-CV
WARREN CHEN AND DYNACOLOR, INC., Appellants
V.
RAZBERI TECHNOLOGIES, INC., THOMAS J. GALVIN,
LIVEOAK VENTURE PARTNERS I, L.P., LIVEOAK VENTURE
PARTNERS 1A, L.P., KENNETH L. AND VIRGINIA T. BOYDA, AS
TRUSTEES OF THE BOYDA FAMILY REVOCABLE TRUST DATED
10/12/1990, AND JIRI AND ROSEMARY MODRY, AS TRUSTEES OF THE
JRAM TRUST UDT 8/21/1996, Appellees
On Appeal from the 193rd Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-18-16568
MEMORANDUM OPINION ON REMAND
Before Justices Schenck, Smith, and Garcia
Opinion by Justice Smith
This case returns to us on remand from the Supreme Court of Texas.
Appellants Warren Chen and DynaColor, Inc. appeal the trial court’s denial of their
special appearances. Because we conclude that the trial court has personal
jurisdiction over all of appellees’ claims against appellants, except their claim
asserted in Count II, we affirm the trial court’s order denying appellants’ special
appearances as to appellees’ causes of action in Counts I, III, IV, V, VI, and VII;
reverse and render an order granting appellants’ special appearances as to Count II;
and remand this case to the trial court to conform the judgment according to and
consistent with this opinion.
Factual and Procedural History
The underlying facts and procedural history are well-known to the parties and
have been set out in our prior opinions as well as the supreme court’s opinion; thus,
we will limit our discussion of the facts and procedural history to those relevant to
determine whether the trial court had personal jurisdiction over appellants.
On April 28, 2021, this Court reinstated its prior opinion concluding that the
special appearance order merged into the final judgment and that, because appellants
failed to file a timely notice of appeal from the final judgment, the interlocutory
appeal1 became moot. Chen v. Razberi Techs., Inc., 639 S.W.3d 105, 107 (Tex.
App.—Dallas 2020), rev’d, 645 S.W.3d 773, 775 (Tex. 2022). We, therefore,
dismissed the interlocutory appeal. Id. The supreme court disagreed that the
jurisdictional issue presented in the interlocutory appeal became moot and explained
that, under Rule 27.3 of the Texas Rules of Appellate Procedure, this Court should
have treated the interlocutory appeal as a premature notice of appeal when the
interlocutory order merged into the final judgment. Chen v. Razberi Techs., Inc.,
1
See TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(a)(7) (permitting an appeal from an interlocutory
order that grants or denies a special appearance under TEX. R. CIV. P. 120a, which allows a defendant to
specially appear and object to the court’s personal jurisdiction over the defendant).
–2–
645 S.W.3d 773, 783 (Tex. 2022). The supreme court further explained that this
Court should have addressed the personal-jurisdiction issue and, thus, reversed and
remanded the case to this Court “to consider only the merits of the personal-
jurisdiction issue.” Id.
Issues Raised
In their opening brief, appellants listed eight issues2 for our review and
generally argued that the trial court erred by denying their special appearances. In
their supplemental brief filed in conjunction with their response to appellees’
motions for rehearing and en banc reconsideration, appellants more concisely
framed their issue as whether the trial court incorrectly denied their special
appearances when: (a) the forum selection clause relied on by appellees is in a
contract appellants did not sign, and appellees have presented no cognizable legal
theory or sufficient evidence supporting enforcement of the clause against appellants
as nonparties; (b) there is no evidence appellants’ contacts with Texas are continuous
and systematic as to establish general jurisdiction; (c) there is no evidence that a
substantial connection exists between appellants’ contacts with Texas and the facts
2
The eight issues appellants listed in their “Issues Presented” section are as follows: (1) Did the Court
err in finding that appellees sufficiently pleaded and proved jurisdictional facts?; (2) Did the Court err in
finding that appellants failed to disprove all jurisdictional facts alleged by appellees?; (3) Did the Court err
in considering appellees’ alter ego argument?; (4) Did the Court err in finding that jurisdiction over
appellants in Texas is consistent with fair play or substantial justice?; (5) Did the Court err, as the evidence
was legally insufficient to support any presumed findings that would support specific or general jurisdiction
over DynaColor?; (6) Did the Court err, as the evidence was factually insufficient to support any presumed
findings that would support specific or general jurisdiction over DynaColor?; (7) Did the Court err, as the
evidence was legally insufficient to support any presumed findings that would support specific or general
jurisdiction over Chen?; and (8) Did the Court err, as the evidence was factually insufficient to support any
presumed findings that would support specific or general jurisdiction over Chen?
–3–
underlying appellees’ claims; and (d) exercising jurisdiction over appellants would
offend the notions of fair play and substantial justice.
We treat appellants’ appeal as one global issue of whether the trial court erred
by denying their special appearances and include the four sub-issues listed above in
our analysis. Because this Court invited further briefing on the merits in conjunction
with the motions for rehearing and en banc reconsideration, we decline to conclude,
as appellees suggest, that appellants waived certain issues in their opening brief by
failing to adhere to the briefing rules or that it was inappropriate for appellants to
submit a new, substantive brief. See TEX. R. APP. P. 38.1(i) (“The brief must contain
a clear and concise argument for the contentions made, with appropriate citations to
authorities and to the record.”); TEX. R. APP. P. 38.7 (“A brief may be amended or
supplemented whenever justice requires, on whatever reasonable terms the court
may prescribe.”).
Personal Jurisdiction
Whether a trial court has personal jurisdiction over a nonresident defendant is
a question of law that appellate courts review de novo. Old Republic Nat’l Title Ins.
Co. v. Bell, 549 S.W.3d 550, 558 (Tex. 2018). Often, however, a trial court must
resolve questions of fact before deciding the question of jurisdiction. BMC Software
Belg., N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002). When a trial court does
not issue findings of fact and conclusions of law in conjunction with its special
–4–
appearance ruling such as in the case here,3 all facts necessary to support the
judgment that are supported by the evidence are implied. Id. at 795. These implied
findings may be challenged for legal and factual sufficiency when the appellate
record includes the reporter’s and clerk’s records. Id. If the relevant facts are
undisputed, the appellate court need not consider any implied findings of fact and
considers only the legal question of whether the undisputed facts establish personal
jurisdiction. Old Republic, 549 S.W.3d at 558.
Texas courts may assert personal jurisdiction over a nonresident defendant if
(1) the Texas long-arm statute authorizes the exercise of jurisdiction and (2) the
exercise of jurisdiction is consistent with federal and state constitutional due process
guarantees. Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex.
2007). The Texas long-arm statute is satisfied when a nonresident defendant does
business in Texas, which includes “commit[ing] a tort in whole or in part” in Texas.
TEX. CIV. PRAC. & REM. CODE ANN. § 17.042(2); Luciano v.
SprayFoamPolymers.com, LLC, 625 S.W.3d 1, 8 (Tex. 2021); Moki Mac, 221
S.W.3d at 574. The exercise of personal jurisdiction over such nonresident
defendant is constitutional when (1) the nonresident defendant has established
minimum contacts with the forum state and (2) the exercise of jurisdiction comports
3
Although appellants filed a request for findings of fact and conclusions of law, the record does not
contain a notice of past due findings or reflect that the trial court made findings of fact and conclusions of
law.
–5–
with traditional notions of fair play and substantial justice. BMC Software, 83
S.W.3d at 795.
A nonresident defendant’s contacts with the forum state can give rise to
general or specific jurisdiction. Luciano, 625 S.W.3d at 8. General jurisdiction is
established when the defendant has continuous and systematic contacts with the
forum, rendering it essentially at home in the forum state, regardless of whether the
defendant’s alleged liability arises from those contacts. TV Azteca v. Ruiz, 490
S.W.3d 29, 37 (Tex. 2016). Specific jurisdiction is established when the nonresident
defendant’s alleged liability arises from or is related to the defendant’s activity
conducted within the forum state. BMC Software, 83 S.W.3d at 796.
A party may also expressly consent to personal jurisdiction or waive the right
to challenge personal jurisdiction in a specific forum by agreeing to submit to that
forum through a forum selection clause. Burger King Corp. v. Rudzewicz, 471 U.S.
462, 472 n.14 (1985). When parties freely negotiate in an arms-length transaction
to include a forum selection clause in a written agreement, the clause is valid and
enforceable unless the opponent establishes a compelling reason not to enforce it,
such that enforcement would be unreasonable or unjust or that the clause was
procured by fraud. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10–15 (1972).
Thus, when a party contractually consents to jurisdiction in the forum state, it is not
necessary to analyze whether the party established minimum contacts with the forum
–6–
state thereby conferring personal jurisdiction. In re Fisher, 433 S.W.3d 523, 532
(Tex. 2014) (orig. proceeding).
The plaintiff bears the initial burden to plead sufficient allegations to bring a
nonresident defendant within the provisions of the Texas long-arm statute. Kelly v.
Gen. Interior Constr., Inc., 301 S.W.3d 653, 658 (Tex. 2010). Once the plaintiff has
met the initial burden of pleading sufficient jurisdictional allegations, the defendant
bears the burden to negate all bases of personal jurisdiction alleged by the plaintiff.
Id. “Because the plaintiff defines the scope and nature of the lawsuit, the defendant’s
corresponding burden to negate jurisdiction is tied to the allegations in the plaintiff’s
pleading.” Id. If the defendant presents evidence in its special appearance
disproving the plaintiff’s jurisdictional allegations, the burden shifts back to the
plaintiff to establish the court has personal jurisdiction. Id. at 659. The plaintiff
should amend the petition if it lacks sufficient allegations to bring the defendant
under the long-arm statute or if the plaintiff presents evidence that supports a
different basis for jurisdiction in the special appearance response. Id. at 659, 659
n.6. Raising jurisdictional allegations for the first time in a response to the special
appearance is not sufficient. Steward Health Care Sys. LLC v. Saidara, 633 S.W.3d
120, 128–29 (Tex. App.—Dallas 2021, no pet.) (en banc); see also Kelly, 301
S.W.3d at 658 n.4 (“additional evidence merely supports or undermines the
allegations in the pleadings”).
–7–
Jurisdictional Allegations in Original Petition
Appellees Razberi Technologies, Inc., Thomas J. Galvin, LiveOak Venture
Partners I, L.P., LiveOak Ventures Partners 1A, L.P., Kenneth L. and Virginia T.
Boyda, as Trustees of the Boyda Family Revocable Trust Dated 10/12/1990, and Jiri
and Rosemary Modry, as Trustees of the JRAM Trust UDT 8/21/1996 brought suit
against Chen and DynaColor alleging fraud, fraudulent inducement, and breach of
fiduciary duty in relation to a stock purchase agreement between Razberi, of which
Galvin was president, and the remaining appellees.4 Appellees further alleged that
DynaColor was a non-resident corporation that had conducted business in Texas,
that Chen was a Taiwanese national who resided in Taiwan and had conducted
business in Texas, and that this lawsuit arose out of, and is related to, DynaColor
and Chen’s activities in Texas. “Each of the Defendants purposefully availed
themselves of the privileges and protections of Texas law in the matters related to
the claims stated in this lawsuit, and it would not be fundamentally unfair to hale
them into Court into Texas.”
The appellees also alleged that Razberi’s principal place of business was in
Dallas County; Razberi was “formed as the joint-venture vehicle between Galvin
and DynaColor”; DynaColor was its majority shareholder; Chen was the CEO of
DynaColor and one of two of Razberi’s directors; DynaColor sold components of
4
Appellees also brought suit against Avigilon Corporation and Avigilon USA Corporation, which are
not parties to this appeal.
–8–
network video recorder (NVR) systems to Razberi to use in manufacturing and
selling the Razberi systems; Razberi sold systems to Avigilon; and DynaColor
guaranteed certain aspects of Razberi’s contract with Avigilon. When Chen
informed Galvin that DynaColor would no longer be investing in Razberi, Razberi
sought investors elsewhere. The business relationship between Razberi and
Avigilon was critical to the investors’ decision to invest in Razberi through a Stock
Purchase Agreement. Ultimately, the investors (the LiveOak entities, the Boydas,
and the Modrys) contributed approximately $3,500,000 to Razberi.
DynaColor and Chen were not parties to the Stock Purchase Agreement.
However, in connection with the Stock Purchase Agreement, Razberi and
DynaColor entered into a Purchase Agreement under which Razberi would continue
to order parts from DynaColor and DynaColor would provide product repair services
to Razberi. Razberi also agreed to immediately pay certain amounts due to
DynaColor from the invested funds.
Avigilon subsequently reduced its order forecast and then completely stopped
ordering from Razberi and instead began ordering from DynaColor directly.
Generally, appellees allege that appellants secretly decided to cut Razberi out by
moving forward with a plan for DynaColor to usurp Razberi’s corporate
opportunities to wrongfully compete against Razberi despite Chen’s fiduciary duties
to Razberi and its shareholders and that appellants failed to disclose such information
during the stock purchase negotiations.
–9–
Appellees met their initial pleading burden to bring appellants within the
provisions of the Texas long-arm statute by alleging that appellants conducted
business in Texas and that the claims asserted in the lawsuit arose out of and were
related to their activities in Texas. See Far East Machinery Co. v. Aranzamendi, No.
05-21-00267-CV, 2022 WL 4180472, at *4 (Tex. App.—Dallas Sept. 13, 2022, no
pet. h.) (mem. op.) (plaintiff met initial burden of pleading sufficient allegations to
permit court’s exercise of personal jurisdiction by pleading defendant “is engaged
in business in the State of Texas”); Saidara, 633 S.W.3d at 129 (“A plaintiff’s
petition satisfies the long-arm statute when it alleges the defendant did business,
which includes committing a tort in whole or in part in Texas.”).
However, appellees did not allege in their original petition that the trial court
had general jurisdiction over appellants5 or that appellants consented to jurisdiction
through a forum-selection clause in an agreement entered into by the parties. Nor
did appellees allege generally that appellants entered into agreements with appellees6
or incorporate or attach such agreements to their original petition. See Tri-State
Bldg. Specialties, Inc. v. NCI Bldg. Sys., L.P., 184 S.W.3d 242, 247 (Tex. App.—
5
Furthermore, appellees did not argue that the trial court had general jurisdiction over appellants in
their response to appellants’ special appearances or at the hearing on appellants’ special appearances, and
appellees acknowledge in their supplemental brief in this Court that they never argued the trial court had
general jurisdiction over appellants.
6
The original petition does reference “related agreements” to the Stock Purchase Agreement,
specifically the Purchase Agreement between Razberi and DynaColor, which provided that Razberi would
continue to order parts from DynaColor and DynaColor would provide product repair services to Razberi.
However, besides the Purchase Agreement, the petition does not name the other “related agreements,” set
out who the agreements were between, or explain their content.
–10–
Houston [1st Dist.] 2005, no pet.) (concluding it was appropriate for trial court to
consider agreement containing forum selection clause when ruling on special
appearance because agreement was incorporated into and attached to original
petition); see also Leary v. Coinmint, LLC, No. 14-20-00375-CV, 2022 WL
1498197, at *1, 3 (Tex. App.—Houston [14th Dist.] May 12, 2022, no pet.) (mem.
op.) (plaintiffs satisfied initial burden by asserting in their amended petition that their
claims fell under a valid forum selection clause). Appellees also failed to amend
their original petition to include such allegations. See Kelly, 301 S.W.3d at 659, 659
n.6.
Because general jurisdiction and consent to jurisdiction by forum selection
clauses were not alleged in appellees’ petition as a basis for personal jurisdiction,
the trial court could not rely on either theory to support a finding of personal
jurisdiction over appellants. We now turn to whether appellees carried their burden
in response to appellants’ special appearances, other pleadings, affidavits, and
evidence presented at the hearing to establish that the trial court did have specific
jurisdiction over appellants as pleaded. See TEX. R. CIV. P. 120a(3) (“The court shall
determine the special appearance on the basis of the pleadings, any stipulations made
by and between the parties, such affidavits and attachments as may be filed by the
parties, the results of discovery processes, and any oral testimony.”).
–11–
Minimum Contacts with Texas
To exercise specific jurisdiction over a nonresident defendant, the defendant’s
contacts with the forum state must be purposeful and the cause of action must arise
from or relate to those contacts. Moki Mac, 221 S.W.3d at 575–76. We therefore
focus on the relationship among the forum, the defendant, and the litigation. Id. To
determine whether a defendant’s contacts are purposeful, the court should consider
only the defendant’s contacts with the forum state, not the unilateral activity of a
third party. Id. at 575. The contacts cannot be random, fortuitous, or attenuated, and
the defendant must seek some benefit, advantage, or profit by availing himself of the
jurisdiction. Id. “A defendant establishes minimum contacts with a state when it
‘purposefully avails itself of the privilege of conducting activities within the forum
state, thus invoking the benefits and protections of its laws.’” Retamco Operating,
Inc. v. Republic Drilling Co., 278 S.W.3d 333, 338 (Tex. 2009) (quoting Hanson v.
Denckla, 357 U.S. 235, 253 (1958)). “The defendant’s activities, whether they
consist of direct acts within Texas or conduct outside Texas, must justify a
conclusion that the defendant could reasonably anticipate being called into a Texas
court.” Id. (quoting Am. Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801,
806 (Tex. 2002)).
For a cause of action to arise from or relate to the nonresident defendant’s
contacts, there must be a substantial connection between those contacts and the
operative facts of the litigation. Moki Mac, 221 S.W.3d at 585. Plaintiff’s claim
–12–
does not have to arise “but for” the defendant’s contacts, and the defendant’s
contacts are not required to be the “proximate cause” of liability. TV Azteca, 490
S.W.3d 53. “Instead, we consider what the claim is ‘principally concerned with,’
Moncrief Oil [Int’l Inc. v. OAO Gazprom], 414 S.W.3d [142,] 157 [Tex. 2013],
whether the contacts will be the ‘focus of the trial’ and ‘consume most if not all of
the litigation’s attention,’ and whether the contacts are ‘related to the operative facts’
of the claim, Moki Mac, 221 S.W.3d at 585.” Id. “[I]f the actionable conduct occurs
in Texas, we have never required that the lawsuit also arise directly from the
nonresident defendant’s additional conduct.” Luciano, 625 S.W.3d at 18. “The
relevance of the additional conduct . . . is not to establish that those contacts
constitute [defendant’s] minimum contacts with Texas, but to establish that the
actionable conduct in Texas itself constitutes minimum contacts” by showing that
the defendant purposefully availed itself of Texas. TV Azteca, 490 S.W.3d at 54.
We must analyze jurisdictional contacts on a claim-by-claim basis, unless all
claims arise from the same forum contacts. Moncrief Oil, 414 S.W.3d at 150. Here,
appellees brought seven causes of action against appellants; not all claims involve
the same appellees and same appellants:
(1) Count I (Fraud and Fraudulent Inducement): the investors alleged that
appellants committed fraud by making material misrepresentations and
omissions that they knew were false, or that they recklessly made as
positive assertions without any knowledge of their truth, and fraudulently
–13–
induced the investors to enter into the Stock Purchase Agreement and
related agreements by making such misrepresentations and omissions.
(2) Count II (Fraud by Nondisclosure): the investors alleged that appellants
concealed from, or failed to disclose to, the investors that DynaColor
planned to, and did, usurp the opportunity to sell the NVR systems to
Avigilon in competition with Razberi.
(3) Count III (Statutory Fraud under TEX. BUS. & COM. CODE ANN. § 27.01):
the investors alleged that appellants made a false representation to them
for the purpose of inducing them to enter into the Stock Purchase
Agreement and that they relied upon the false representation in entering
into the agreement.
(4) Count IV (Violation of Texas Securities Act): the investors alleged that
Razberi offered or sold securities to the investors by means of an untrue
statement of a material fact or omission; that Chen, as Razberi’s director,
knew the untruth or omission; that his knowledge may be imputed to
Razberi; that appellants directly or indirectly controlled Razberi and
knew of the untruth or omission; and that appellants, with intent to
deceive the investors, materially aided Razberi in its actions.
(5) Count V (Negligent Misrepresentation): in the alternative, the investors
and Galvin alleged that appellants negligently made material
misrepresentations and omissions and intended for the investors and
–14–
Galvin to rely upon their misrepresentations and omissions by investing
in Razberi.
(6) Count VI (Breach of Fiduciary Duty): Galvin alleged that Chen owed
him a fiduciary duty as a shareholder of Razberi because Chen was a
director of Razberi and that Chen breached his fiduciary duties of candor,
loyalty, and honesty. Galvin also alleged that DynaColor owed him a
fiduciary duty because it was the majority shareholder of Razberi and
DynaColor also breached its fiduciary duties of candor, loyalty, and
honesty to Galvin. Razberi alleged that, as director, Chen breached his
fiduciary duties of candor, loyalty, and honesty to Razberi.
(7) Count VII (Breach of Fiduciary Duty): the investors alleged that Chen
owed a fiduciary duty to them because he was a director and they were
shareholders of Razberi and that he breached his fiduciary duties of
candor, loyalty, and care by usurping and diverting to DynaColor
corporate opportunities that belonged to Razberi. Chen further breached
his duties through dishonesty and deception regarding his and
DynaColor’s acts and plans with respect to Avigilon.
The operative facts of Counts I, III, IV, and V, are that appellants made
misrepresentations or omissions to the investors, which the investors relied upon in
deciding to enter into the Stock Purchase Agreement with Razberi. Some of the
–15–
alleged misrepresentations, according to the affidavits of Galvin and the investors,
are contained in the Stock Purchase Agreement:
3.6 Changes. Since the date of the most recent unaudited
balance sheet included in the Financial Statements, there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of
business, that has had a Material Adverse Effect; [or]
....
(m) to its knowledge, any other event or condition of
any character that has had a Material Adverse Effect.”
....
5.1 Representations and Warranties. Except as set forth in
or modified by the Schedule of Exceptions, the representations and
warranties made by the Company in Section 3 shall be true and correct
in all respects as of the date of such Closing.
The investors allege that other misrepresentations occurred during Galvin’s
presentations to them regarding Razberi’s business, specifically its business
relationship with Avigilon. But, there is no evidence in the record that appellants
were parties to these presentations, assisted Galvin in preparing the documents for
the presentations, or approved the presentations.
The record also shows that DynaColor and Chen were not signatories to the
Stock Purchase Agreement. However, according to the investors’ affidavits, they
“required the Razberi Board of Directors and the existing Razberi shareholders to
approve the transaction and the specific agreements” “[a]s a condition for entering
–16–
into the Stock Purchase Agreement and the other contracts.” The record supports
this contention. The term sheet, which is signed by Chen on behalf of DynaColor,
provides in relevant part: “The business, assets, financial condition, operations,
results of operations and prospects of the Company are substantially as have been
represented to LiveOak and no change will have occurred which, in LiveOak’s sole
judgment, is or may be materially adverse to the Company.” Furthermore, although
appellants deny that they negotiated the term sheet in Texas, August 2014 emails
between Galvin and Chen show that Chen sent James Chan7 to Razberi’s office, on
behalf of DynaColor, to negotiate the terms of the Stock Purchase Agreement and
its related agreements. Specifically, Chen wrote:
After the first glance at the term sheet of Live Oak, and to save time, I
think DynaColor also needs someone to help communicate and reflect
our concerns effectively and efficiently to Live Oak. So I would assign
my legal counsel James Chan to get in touch with you and to work with
[Razberi’s] attorney to consolidate the case negotiation, he stays in
Dallas area and can reach [Razberi] conveniently.
After the meeting, Galvin wrote to Chen memorializing that he met with Chan at the
Razberi office and that he believed he understood DynaColor’s concerns. He said
he would address those concerns in a revised term sheet and then listed the changes
including that DynaColor would be placed on equal footing with the new investor
so that dividends were shared equally and liquidation priorities were identical,
7
According to his affidavit, James Chan is an attorney licensed to practice in Arizona and Florida, who
has handled some legal matters for Chen.
–17–
DynaColor would receive $500,000 immediately upon closing toward the past due
amount Razberi owed DynaColor, and the remaining balance would then be paid on
a schedule. Thus, Chen and DynaColor, through their agent, negotiated the terms of
the Stock Purchase Agreement and its related agreements in Texas, on at least one
occasion. See Searcy v. Parex Res., Inc., 496 S.W.3d 58, 77–78 (Tex. 2016) (owner
company’s executive had actual and apparent authority to sell owned company
shares and actively negotiated their sale in Texas).
Chen executed the Action by Unanimous Written Consent of the Board of
Directors on behalf of himself as a director of Razberi and the Action by Written
Consent of the Stockholders on behalf of DynaColor as its CEO. The Consent of
the Board of Directors authorized Galvin to execute the Stock Purchase Agreement
as well as the other related agreements.8 The Actions of the Board and the
Stockholders acknowledge that Razberi is a Delaware Corporation and that the
actions are being taken in accordance with Delaware Law and the by-laws of
Razberi. Neither expressly references any action to be taken in Texas. However,
the Memorandum of Closing provides that the closing took place on November 5,
2014, in Austin, Texas and that “[a]ll of the transactions at the Closing were deemed
to take place simultaneously and no delivery or payment was considered made until
8
The agreements executed along with the Stock Purchase Agreement, and approved with written
consent by Chen, consisted of the following: Amended and Restated Certificate of Incorporation, Exchange
Agreement, Investors Rights Agreement, Rights of First Refusal and Co-Sale Agreement, Voting
Agreement, Purchase Agreement with DynaColor, and Promissory Note Payable to DynaColor.
–18–
all deliveries and payments were completed.” Thus, here, unlike in Rapaglia v.
Lugo, 372 S.W.3d 286, 291 (Tex. App.—Dallas 2012, no pet.), in which this Court
concluded that there was no evidence the nonresident shareholder “had any
knowledge of, consented to, or ratified the actions allegedly taken in Texas by her
husband” and upon which plaintiff’s causes of action were based, Chen and
DynaColor knew the agreement was being negotiated and executed in Texas and the
alleged misrepresentations in the approved agreement are the very
misrepresentations upon which the investors’ claims against appellants are based.9
Brumback v. Steele, No. 03-09-00439-CV, 2010 WL 1633155 (Tex. App.—
Austin Apr. 21, 2010, no pet.) (mem. op.), is also instructive. In Brumback, the
Austin Court of Appeals concluded that three nonresident directors purposefully
availed themselves of jurisdiction in Texas when they approved of a deferred
compensation plan offered to an independent contractor who they knew worked at
the company located in Texas, was offered the plan in Texas, and agreed to the plan
in Texas. 2010 WL 1633155, at *1, 4. Similarly, here, Chen, as a director of
Razberi, specifically approved the Stock Purchase Agreement. He knew the
agreement was being negotiated in Texas and executed in Texas with mostly Texas
investors. Likewise, DynaColor, as a shareholder, approved Razberi’s issuance of
9
In Rapaglia, the focus of plaintiff’s suit was a 2003 meeting in Dallas in which plaintiff alleged that
the defendants attended and conspired against him for the purpose of defrauding him and other
shareholders. 372 S.W.3d at 289. The nonresident wife denied participating in the 2003 meeting and
asserted that her sole act as a shareholder was signing, in Florida, a Notice of Action by the Shareholders.
Id.
–19–
Series A Preferred Stock pursuant to the agreement, knew it was being negotiated
and executed in Texas, and enjoyed the benefits of the parties entering into the Stock
Purchase Agreement.
We recognize that “[t]here is a subtle yet crucial difference between directing
a tort at an individual who happens to live in a particular state and directing a tort at
that state.” TV Azteca, 490 S.W.3d at 43. The mere fact that a nonresident defendant
directed a tort at a plaintiff who lives in Texas and allegedly suffered injuries in
Texas, without more, does not establish jurisdiction over the nonresident defendant.
Id. The “‘effects’ of the alleged tort must connect the defendant to the forum state
itself, not just to a plaintiff who lives there.” Old Republic, 549 S.W.3d at 564 (citing
Walden v. Fiore, 571 U.S. 277, 287–88 (2014)).
In Old Republic, the supreme court distinguished the transfer of Texas-based
assets to a nonresident defendant from the transfer of money, a fungible asset, and
explained that the transfer of Texas-based business operations and real property
derived profit from Texas and created a continuing connection with Texas. 549
S.W.3d at 563–64. Here, in conjunction with the execution of the Stock Purchase
Agreement, which the investors allege they were induced into by appellants’
misrepresentations and omissions, DynaColor received Preferred Stock in exchange
for its common stock, it acquired a new purchase contract with Razberi in which it
would continue to sell parts to Razberi in Texas, and it was immediately paid
$500,000 out of the sale of the stock. It also received a promissory note, for the
–20–
remaining $595,706 that Razberi owed DynaColor under previous purchase
agreements, which was enforceable in Texas.
Appellants’ control over Razberi and its sale of stock to outside investors was
not random, fortuitous, or attenuated. DynaColor willingly invested over two-
million dollars into Razberi as a start-up company and became an eighty-five percent
shareholder; Razberi was a controlled subsidiary of DynaColor. Chen willingly
became a director of Razberi and was involved in regular oversight of Razberi
through email communications, including approving Razberi’s business plans, being
involved in sales strategy and generating leads, obtaining and reviewing financial
statements and budgets, and transferring funds for Razberi’s operations. Thus,
appellants purposefully availed themselves of jurisdiction in Texas.
Although neither party addresses the fact that the Modrys, two of the
investors, are California residents, we note that there is not a separate requirement,
when exercising personal jurisdiction over a defendant, for the plaintiff to reside in
the forum State. TV Azteca, 490 S.W.3d at 40–41 (relying on Keeton v. Hustler
Mag., Inc., 465 U.S. 770 (1984)). While it is often relevant to the inquiry, the focus
is on the relationship between the defendant, the forum, and the litigation, not the
plaintiff, the forum, and the litigation. Id. The connection between the Modrys’
causes of action and Texas is not weak because, like the other investors, they claim
to have suffered harm in Texas when they entered into the Stock Purchase
Agreement in Texas with a Texas-based company as a result of its director’s and
–21–
majority shareholder’s misrepresentations and omissions. Cf. Bristol-Myers Squibb
Co. v. Superior Ct. of Cal., S.F. Cty., --- U.S. ---, 137 S. Ct. 1773, 1782 (2017)
(holding that the connection between the nonresidents’ claims and the forum was
weak because the relevant plaintiffs were not California residents, did not claim to
have suffered harm in California, and the conduct giving rise to their claims occurred
elsewhere).
We conclude that the investors’ claims as alleged in Counts I, III, IV, and V
arise from or relate to appellants’ contacts with Texas and that appellants
purposefully availed themselves of Texas. Therefore, the trial court did not err in
denying appellants’ special appearances as to these four causes of action.
The operative facts of Count II are that appellants failed to disclose to the
investors that DynaColor planned to usurp Razberi’s contract with Avigilon and, as
such, induced the investors into purchasing stock in Razberi. Although we
concluded that appellants’ approval of the alleged misrepresentations and omissions
in the Stock Purchase Agreement arises from or relates to its contacts with Texas,
we cannot conclude the same as to the allegation that they failed to disclosure
information to the investors before the execution of the Stock Purchase Agreement.
There is no evidence that appellants ever met with the investors in Texas. Even
when Chan negotiated terms, it was with Galvin, not the investors. The evidence
concerning Chen’s direct discussions with the investors shows that Chen was in
Taiwan and that the investors either reached out to him in Taiwan or visited him in
–22–
Taiwan as part of their due diligence in deciding to invest in Razberi. The record
otherwise indicates that the investors negotiated directly with Razberi, not
appellants. Thus, without more, such as a specific duty to disclose, we cannot
conclude that appellants’ conduct of sitting mute in Taiwan constitutes directing a
tort at Texas or arises from or relates to their contacts with Texas. Therefore, we
conclude the trial court did not have personal jurisdiction over appellants as to Count
II and erred in denying their special appearances as to that count.
However, we do not reach the same conclusion as to appellees’ claims for
breach of fiduciary in Counts VI and VII. Although the causes of action concern
similar operative facts in that they involve appellants failure to disclose DynaColor’s
business with Avigilon, they also involve allegations of an ongoing duty and
relationship between appellants and various appellees as shareholders and the
company itself, not just potential investors to the company as alleged in Count II.
There are four fiduciary relationships alleged in Counts VI and VII: (1) between
Galvin, as a shareholder of Razberi, and Chen, as a director of Razberi; (2) between
Galvin, as shareholder, and DynaColor, as majority shareholder; (3) between
Razberi and Chen, as its director; and (4) between the investors, as shareholders, and
Chen, as director. In their opening brief, appellants argue that shareholders do not
owe fiduciary duties to each other. Appellees argue that, under Delaware law,
shareholders do owe fiduciary duties to one another. Whether DynaColor owes a
fiduciary duty to Galvin and the other investors is a question regarding the merits of
–23–
the allegations and, thus, not one that we decide when faced solely with the question
of whether the trial court has personal jurisdiction over the parties. See, e.g.,
Cornerstone Healthcare Grp. Holdings, Inc. v. Nautic Mgmt. VI, L.P., 493 S.W.3d
65, 73 (Tex. 2016) (“whether the respondents’ conduct was ultimately tortious is not
before us and is not relevant to the minimum-contacts analysis”).
“[W]hen the claim arises from a breach of fiduciary duty based on a failure to
disclose material information, the fact that the [defendant] continually
communicated with the forum while steadfastly failing to disclose material
information shows the purposeful direction of material omissions to the forum state.”
Wien Air Alaska, Inc. v. Brandt, 195 F.3d 208, 213 (5th Cir. 1999). Appellees allege
that Chen, as director, failed to disclose DynaColor’s intentions of contracting with
Avigilon, Chen’s knowledge that Avigilon would eventually cease doing business
with Razberi, and Chen’s knowledge that DynaColor entered into a non-disclosure
agreement with Avigilon regarding their future business relationship. According to
the record, these ongoing negotiations occurred before, during, and after the
timeframe of when Razberi was seeking investors and the investors executed the
Stock Purchase Agreement. After the potential investors became shareholders in
Razberi, the record shows that Avigilon began decreasing its orders with Razberi
and ultimately ceased ordering from Razberi.
Galvin reached out to DynaColor on several occasions to see if it knew why
and specifically asked whether DynaColor was involved. In March 2015, Blake
–24–
Yeh, DynaColor’s Sales Manager for North America, represented to Galvin via
email that DynaColor was not doing business with Avigilon and suggested it might
be a different company: “We have not received any call or email from Avigilon
regarding to sales or quality issues since you finalized the contract with them.” On
May 1, 2015, Yeh again represented via email to Galvin that DynaColor was not
doing business with Avigilon directly.
To be sure, and because Razberi’s board of directors10 wanted further
assurance, Galvin asked Chen directly. On May 28, 2015, Galvin emailed Chen to
confirm that DynaColor was not providing NVR technology to Avigilon directly or
through another DynaColor partner. Chen responded on May 29, 2015: “We didn’t
provide NVR technology to Avigilon nor through other third parties.” Chen then
asked if there was a way Galvin could renegotiate and restore business with
Avigilon.
Chen’s alleged failure to disclose material information he knew about
DynaColor (of which he was CEO) to Razberi (of which he was director) and to its
shareholders (Galvin and the investors) while continually communicating to Razberi
in Texas about Razberi’s business shows that Chen purposefully directed material
omissions to Texas. Likewise, DynaColor’s failure to disclose its business with
Avigilon to Razberi, of which it was a shareholder, when asked and when continuing
10
The investors, or their representatives—Ben Scott, Krishna Srinivasan, Kenneth Boyda, and Jiri
Modry—became members of the board of directors when the Stock Purchase Agreement was executed.
Galvin and Chen were the original two directors.
–25–
to do business in Texas with Razberi shows it purposefully directed material
omissions to Texas.
Furthermore, our earlier analysis of whether appellants’ additional conduct
showed that they purposefully availed themselves of jurisdiction in Texas as to
Counts I, III, IV, and V is equally applicable to Counts VI and VII. Appellants chose
to form Razberi with Galvin and, although it was formed as a Delaware corporation,
they chose for it to be headquartered in Texas. Razberi did business in Texas and
many of the contracts between Razberi and DynaColor were governed by Texas law.
Additionally, Chen chose to sit on Razberi’s board of directors subjecting himself to
fiduciary duties, and DynaColor chose to invest in and help manage Razberi as its
controlled subsidiary. Therefore, appellants’ contacts with Texas were not the result
of the unilateral activity of another person. They were purposeful and direct, and
appellees’ allegations in Counts VI and VII arise from or relate to those contacts.
Fair Play and Substantial Justice
To be consistent with federal and state constitutional due process guarantees,
the exercise of personal jurisdiction over a nonresident defendant must also comply
with traditional notions of fair play and substantial justice. Moncrief Oil, 414
S.W.3d at 154. Rarely will the exercise of personal jurisdiction over a nonresident
defendant not comport with due process guarantees when the nonresident defendant
has purposefully availed itself of the forum state and, thus, established minimum
contacts with the forum. Id. at 154–55. This is because “[r]equiring nonresidents to
–26–
comply with the laws of the jurisdictions in which they choose to do business is not
unreasonable, burdensome, or unique.” TV Azteca, 490 S.W.3d at 56.
To determine whether exercising personal jurisdiction over a nonresident
defendant comports with traditional notions of fair play and substantial justice we
examine the following factors, if applicable: (1) the burden on the defendant; (2) the
interests of the forum state in adjudicating the dispute; (3) the plaintiff’s interest in
obtaining convenient and effective relief; (4) the international judicial system’s
interest in obtaining the most efficient resolution of controversies; and (5) the shared
interest of the several nations in furthering fundamental substantive social policies.
Moncrief Oil, 414 S.W.3d at 155. For a resident of another country, not just another
state, we also consider the burdens placed on the defendant in defending itself in a
foreign legal system, the state’s regulatory interests, the procedural and substantive
policies of other nations whose interests are affected, and the federal government’s
interest in its foreign relations policy. TV Azteca, 490 S.W.3d at 55.
Although subjecting Chen and DynaColor to suit in Texas may be
burdensome to them because the distance between Taiwan and Texas is great,
distance alone cannot defeat personal jurisdiction. Moncrief Oil, 414 S.W.3d at 155.
Chen also asserts that traveling to Texas for litigation would be expensive and an
undue hardship for him because he would be away from DynaColor and, as CEO,
he needs to be present in Taiwan to run his company. However, DynaColor has
already participated in arbitration and litigation with Razberi in Texas due to
–27–
Razberi’s failure to pay DynaColor amounts owed under the November 2014
contract and promissory note associated with the Stock Purchase Agreement. See
DynaColor, Inc. v. Razberi Techs., Inc., 795 F. App’x 261 (5th Cir. Jan. 9, 2020)
(unpublished per curiam opinion). Therefore, “[a]ny added burden on [appellants to
litigate this case in Texas] is relatively minimal and does not outweigh Texas’s
interest in adjudicating a dispute involving the alleged usurpation of a corporate
opportunity in Texas involving Texas assets.” Cornerstone, 493 S.W.3d at 74.
Moreover, DynaColor consented to suit in Texas in various agreements it entered
into with Razberi and the investors, and as CEO of DynaColor, Chen should have
anticipated traveling to Texas to participate in DynaColor’s litigation should such
arise. See Cap. Tech. Info. Servs., Inc. v. Arias & Arias Consultores, 270 S.W.3d
741, 752 (Tex. App.—Dallas 2008, pet. denied).
Additionally, the interests of Texas in adjudicating the tort claims that
appellants allegedly committed against appellees in Texas is high. See Moncrief Oil,
414 S.W.3d at 155. Appellees’ interest in obtaining relief in Texas is also high as
the Stock Purchase Agreement and related documents were executed in Texas,
Razberi is located in Texas, and all but one appellee is a Texas resident.
Furthermore, although Taiwan may also have an interest in resolving controversies
regarding whether its residents committed tortious acts, Taiwan’s interest is not as
high as Texas’s interest because Texas is where the alleged torts were committed or,
at the very least, directed. And, appellees’ suit against Avigilon, which did not
–28–
challenge the trial court’s jurisdiction, would proceed in Texas regardless of
appellants’ presence. The most efficient way to resolve disputes is in one proceeding
instead of splitting litigation into multiple proceedings across multiple jurisdictions.
TV Azteca, 490 S.W.3d at 55. We conclude that this is not one of those rare
occasions where exercising jurisdiction over a nonresident defendant, who has
minimum contacts with Texas, offends traditional notions of fair play and substantial
justice. See Moncrief Oil, 414 S.W.3d at 156.
Conclusion
We conclude that the trial court had personal jurisdiction over appellants as to
Counts I, III, IV, V, VI, and VII and did not err in denying their special appearances
as to those counts. We further conclude that the trial court did not have personal
jurisdiction over appellants as to Count II. Therefore, we affirm the order of the trial
court as to Counts I, III, IV, V, VI, and VII and reverse and render an order granting
appellants’ special appearances as to Count II. We remand this case to the trial court
to conform its judgment with the opinion of this Court.
/Craig Smith/
CRAIG SMITH
JUSTICE
Schenck, J., concurring and dissenting.
191551F.P05
–29–
S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
WARREN CHEN AND On Appeal from the 193rd Judicial
DYNACOLOR, INC., Appellants District Court, Dallas County, Texas
Trial Court Cause No. DC-18-16568.
No. 05-19-01551-CV V. Opinion delivered by Justice Smith.
Justices Schenck and Garcia
RAZBERI TECHNOLOGIES, INC., participating.
THOMAS J. GALVIN, LIVEOAK
VENTURE PARTNERS I, L.P.,
LIVEOAK VENTURE PARTNERS
1A, L.P., KENNETH L. AND
VIRGINIA T. BOYDA, AS
TRUSTEES OF THE BOYDA
FAMILY REVOCABLE TRUST
DATED 10/12/1990, AND JIRI
AND ROSEMARY MODRY, AS
TRUSTEES OF THE JRAM TRUST
UDT 8/21/1996, Appellees
In accordance with this Court’s opinion of this date, the order of the trial court
denying appellants WARREN CHEN AND DYNACOLOR, INC.’s special
appearances is AFFIRMED as to appellees’ causes of action in Counts I, III, IV, V,
VI, and VII, and REVERSED as to appellees’ causes of action in Count II. We
RENDER an order granting appellants’ special appearances as to Count II. We
REMAND this cause to the trial court to conform its judgment with this Court’s
opinion.
It is ORDERED that appellees RAZBERI TECHNOLOGIES, INC.,
THOMAS J. GALVIN, LIVEOAK VENTURE PARTNERS I, L.P., LIVEOAK
–30–
VENTURE PARTNERS 1A, L.P., KENNETH L. AND VIRGINIA T. BOYDA, AS
TRUSTEES OF THE BOYDA FAMILY REVOCABLE TRUST DATED
10/12/1990, AND JIRI AND ROSEMARY MODRY, AS TRUSTEES OF THE
JRAM TRUST UDT 8/21/1996 recover their costs of this appeal from appellants
WARREN CHEN AND DYNACOLOR, INC.
Judgment entered this 8th day of November 2022.
–31– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484121/ | In the United States Court of Federal Claims
No. 22-292C (consolidated with 22-317C)
Filed: October 28, 2022
Reissued: November 15, 2022 †
CONNECTED GLOBAL SOLUTIONS,
LLC,
Plaintiff,
and
AMERICAN ROLL-ON ROLL-OFF
CARRIER GROUP INC.,
Plaintiff,
v.
THE UNITED STATES,
Defendant,
and
HOMESAFE ALLIANCE, LLC,
Intervenor-Defendant.
James Y. Boland, Venable LLP, Tysons, Virginia, with Michael T. Francel, Christopher G.
Griesedieck, Taylor A. Hillman, Lindsay M. Reed, and Allison M. Siegel, of counsel, for
Connected Global Solutions, LLC.
Kara M. Sacilotto, Wiley Rein, LLC, Washington D.C., with Trayce Winfrey Howard, Gary S.
Ward, Cara L. Lasley, Jennifer Eve Retener, Teresita A. Regelbrugge, of counsel, for American
Roll-On Roll-Off Carrier Group Inc.
†
This Opinion was originally issued under seal, (ECF No. 107), and the parties were directed to
file a notice of redactions consistent with the Court’s instructions. That Notice was filed on
November 14, 2022. (ECF No. 109). There is disagreement among the parties as to redactions,
but there is no related motion. The Court accepts all proposed redactions and notes that most are
identical to those proposed in prior Orders with no objection. The sealed and public versions of
this Opinion differ only to the extent of those redactions, the publication date, and this footnote.
Elizabeth Anne Speck, Trial Attorney, Commercial Litigation Branch, Civil Division, Douglas K.
Mickle, Assistant Director, Patricia McCarthy, Director, Brian M. Boynton, Principal Deputy
Assistant Attorney General, with Miles K. Karson, U.S. Department of Justice, Washington,
D.C.; Robert J. Depke, Todd P. Federici, Adam J. Koudelka, Peter B. Ries, Attorney-Advisers,
Office of the Staff Judge Advocate, United States Transportation Command; Erika Whelan
Retta, Chief Bid Protests, Aaron Weaver, Trial Attorney, Commercial Litigation Field Support
Center, Judge Advocate General’s Corps, United States Air Force, Joint Base Andrews,
Maryland, for United States.
Craig A. Holman, Arnold & Porter Kaye Scholer LLP, Washington D.C., with Stuart W. Turner,
Sonia Tabriz, Amanda J. Sherwood, Thomas A. Pettit, Trevor Schmitt, and Nicole Williamson, of
counsel, for HomeSafe Alliance, LLC.
MEMORANDUM OPINION AND ORDER
TAPP, Judge.
“Perfection is the enemy of progress,” 1 an adage aptly describing many aspects of the
government procurement process. The search for a perfect procurement, proposal, or even
performance would be in vain. Arbiters are tasked with deciding whether protested procurements
pass muster; accepting less violates the law and disregards notions of transparency and fairness.
Requiring more is likewise infeasible; it impairs government agencies, awardees, and ultimately
taxpayers. It is within these parameters that the Court decides whether the United States has
acted arbitrarily, capriciously, or in violation of the law in conducting the subject procurement.
In this post-award bid protest, Connected Global Solutions, LLC (“CGSL”) and
American Roll-On Roll-Off Carrier Group Inc. (“ARC”) contest the Department of Defense’s
(“DoD”) award of a household goods transportation contract for certain members of the United
States military and their families. The DoD planned to transition all military members’
permanent change-of-station moves to a single managed service provider rather than contracting
with companies on a move-by-move basis as it does today. In November of 2021, the awarding
agency, United States Transportation Command (“the Agency” or “TRANSCOM”), finally
awarded the contract to HomeSafe Alliance, LLC (“HomeSafe”). In addition to this litigation,
the peregrination of this award has encompassed more than two years and two stops at the
Government Accountability Office (“GAO”), as well as intensive corrective action by the
Agency.
After considering its litigious history, as well as the litany of arguments put forth by the
parties, the Court finds that the parties have not met their burden to justify disturbing the award.
CGSL’s and ARC’s Motions for Judgment on the Administrative Record, (CGSL MJAR, ECF
No. 62; ARC MJAR, ECF No. 61), are denied. The United States and HomeSafe’s Motions for
1
This quote is attributed to Winston Churchill. It is thought to have been delivered during an
October 11, 1952 speech to the Conservative Party Conference, though no transcript of the
speech exists.
2
Judgment on the Administrative Record, (USA MJAR, ECF No. 74; HomeSafe MJAR, ECF No.
75), are granted.
I. Background
TRANSCOM is one of eleven unified combatant commands of the DoD. About
USTRANSCOM, USTRANSCOM, https://www.ustranscom.mil/cmd/aboutustc.cfm (last visited
Oct. 1, 2022). On September 13, 2019, TRANSCOM issued a Request for Proposals (“RFP”)
seeking a qualified contractor to perform the Global Household Good Relocation Contract
(“GHC”); this contract provides comprehensive household goods relocation services for DoD
service members, DoD civilians, and U.S. Coast Guard members. (See Administrative Record, 2
Tab 7 at AR121; Tab 7b1 at AR461–462; Tab 134b1 at AR21077). The procurement is
lucrative—worth up to $17.9 billion should the DoD exercise all contract options over the next
nine years. The GHC is the first time that the DoD has consolidated management of the entire
relocation process for DoD families into a single contract. (See Tab 118 at AR19454).
The RFP subject to this litigation sought a single indefinite delivery, indefinite quantity
contract after the Agency conducted discussions with offerors whose proposals were within the
competitive range. (Tab 7 at AR135). This limited competition to three offerors—CGSL, ARC,
and HomeSafe. TRANSCOM advised each offeror that they must represent the best value to the
Agency, price and other factors considered. (Id.). TRANSCOM informed offerors that this may
“result in an award to a higher rated, higher priced Offeror” where the decision was “consistent
with the evaluation factors and the Source Selection Authority (SSA) reasonably determined that
the superior technical capability” outweighed the cost difference. (Id.).
The RFP required offerors to submit proposals in four volumes corresponding to four
evaluation factors: (1) Business Proposal; (2) Technical Capability (rated); (3) Past Performance;
and (4) Price (assessed for fairness, reasonableness, completeness, and balance). (Tab 7 at
AR135, AR197; Tab 134 at AR21030–31). In the “[r]elative order of importance[,]” the RFP
stated that an offeror’s Technical Capability would be evaluated on a basis approximately equal
to price. (Tab 7 at AR135). Technical Capability had four equally weighted subfactors (“SF”):
(1) operational approach (SF 1); (2) capacity and subcontractor management (SF 2); (3)
transition/volume phase-in (SF 3); and (4) information technology (“IT”) services (SF 4). (Tab 7
at AR199–201). Each SF was “of equal importance.” (Id.).
TRANSCOM provided a technical rating for each Technical Capability SF. (AR136).
The technical ratings were based on the offeror’s approach and understanding of the
requirements and assessment of strengths, weaknesses, significant weaknesses, and deficiencies
of the proposal. (Id.). The Agency rated Technical Capabilities as either Outstanding, Good,
Acceptable, Marginal, or Unacceptable and explained how strengths, weaknesses, significant
weaknesses, and deficiencies would be evaluated. (Id.). TRANSCOM further advised that after
2
The Administrative Record could not be uploaded to the CM/ECF System; it was filed with the
Clerk’s Office in physical media format. (See ECF No. 59). Thus, there is no ECF Number
assigned to the record. Further, The Administrative Record is consecutively tabbed and
paginated, thus the Court will cite to the record using (“Tab __ at AR__”).
3
assigning technical ratings, it would assign a technical risk rating for each SF. (Id. at AR136–
137).
Concerning Factor 4, the Agency advised offerors that price would be evaluated for
completeness, but not rated. (AR138). TRANSCOM informed offerors that to be considered for
award, the offeror’s total evaluated price must be determined to be fair and reasonable. (Id.).
In Spring of 2020, TRANSCOM awarded the contract to ARC; in response, CGSL and
HomeSafe filed protests with the GAO. (See Tab 80). After TRANSCOM took corrective action
to address ARC’s responsibility, it re-awarded the contract to ARC and, in July 2020, both
CGSL and HomeSafe re-filed their protests. (See Tab 118 at AR19453; Tab 133 at AR20987).
On October 21, 2020, the GAO sustained both protests, finding, inter alia, that TRANSCOM
conducted an insufficient responsibility determination regarding ARC, failed to adequately
document oral presentations, did not “provide CGSL an opportunity to address the [A]gency’s
perception” of a deficiency in the presentation in the subsequent discussions, and conducted an
unreasonable and unequal technical evaluation and flawed best value tradeoff. (See Tab 118).
In response to the GAO’s decisions recommending that TRANSCOM conduct a new
technical evaluation and best value tradeoff analysis, the Agency took corrective action. (See id.;
Tab 133). Notably, “the evaluation team was restaffed with new members and specifically
advised not to consider the previous technical evaluation, to the point that the technical team did
not have access to any previous source selection documentation.” (Tab 269.236 at AR58106; see
also Tab 258 at AR37642).
During renewed evaluations, the Source Selection Evaluation Board (“SSEB”) 3
documented whether each proposal demonstrated an adequate, thorough, or exceptional
“approach and understanding,” detailing for each Performance Work Statement (“PWS”)
requirement the responsive portions of the proposal and the team’s reasoning for the assigned
approach rating. (Tabs 198c–f, 198j–m, and 198p–s). The SSEB examined strengths,
weaknesses, significant weaknesses, deficiencies, and discussion items assigned to each offeror
under each subfactor. (Id.).
The Source Selection Advisory Council (“SSAC”) examined the SSEB’s 1000-page
report and conducted an independent comparative analysis of each offeror. (Tab 200 at
AR34285–91 (comparing ARC and CGSL), AR34465–72 (comparing ARC and HomeSafe),
AR34644–52 (comparing HomeSafe and CGSL)). Based on this analysis, the SSAC concluded
that HomeSafe’s proposal offered the best value to the Agency. (Id. at AR34652–53). The SSA,
in turn, reviewed both reports and issued its independent best value determination in the Source
3
Under DoD Source Selection Procedures (“SSP”) the SSEB “evaluate[s] proposals ‘related to
technical and risk matters.’” (Tab 263 at AR38072; see also Tab 2c at AR105). The SSAC
“provide[s] a written comparative analysis of proposals and an award recommendation in an
SSAC report for the SSA’s consideration.” (Tab 2c at AR104). The SSA performs an
“independent assessment” to determine the best value in which it “compar[es] the strengths,
weaknesses, and the cost/price of the competing proposals to determine which proposal
represents the best value to the Government.” (Id.).
4
Selection Decision Document (“SSDD”). (Tab 201 at AR34654.) The SSA agreed with the
following ratings assigned to the three remaining offerors:
(Id.).
CGSL had the lowest price at $17,684,158,550.47, HomeSafe the next lowest price at
$17,908,768,040.96, and ARC the highest price at $19,533,278,941.16; all prices were found to
be fair and reasonable. (Id.). As to the equally weighted technical subfactors, the SSA agreed
with the following ratings assigned to the three remaining offerors:
(Tab 200 at AR34112).
After the SSAC conducted a comparative analysis, the SSA issued the SSDD in which he
concluded that CGSL and HomeSafe’s proposals were the most competitive. (Tab 201 at
AR34656). The SSA concluded that, while CGSL had the lower-priced proposal, HomeSafe had
the higher-rated technical proposal. (Id.). Based on a best value tradeoff analysis, the SSA
determined that HomeSafe’s proposal represented the best value to the Government. (Id. at
AR34673). In November 2021, TANSCOM awarded HomeSafe the GHC. (Tab 205 at
5
AR35238). Following the award, CGSL and ARC filed protests at the GAO, which the GAO
denied. (Tabs 251, 267). This litigation ensued.
II. Analysis
A. Standard of Review
According to 28 U.S.C. § 1491(b)(4), the Court reviews agency procurement decisions
under the Administrative Procedure Act (“APA”), 5 U.S.C. § 706. Under the APA standard, “[i]n
a bid protest case, the inquiry is whether the agency’s action was arbitrary, capricious, an abuse
of discretion, or otherwise not in accordance with law and, if so, whether the error is prejudicial.”
Glenn Def. Marine (ASIA), PTE Ltd. v. United States, 720 F.3d 901, 907 (Fed. Cir. 2013). Thus,
judicial review of agency action under the APA proceeds on two tracks: the Court could find (1)
the agency’s decision lacked either a rational basis or support from the administrative record or
was arbitrary and capricious; and/or (2) the agency’s procurement procedure involved a violation
of regulation or statute. Weeks Marine, Inc. v. United States, 575 F.3d 1352, 1358 (Fed. Cir.
2009). To obtain relief, after showing that the procuring agency violated the law or acted
arbitrary and capriciously, the protestor must also show that the agency’s violation was
prejudicial to the protestor. Glenn Def. Marine, 720 F.3d at 907.
“Under the ‘arbitrary and capricious’ standard[,] the scope of review is a narrow one. A
reviewing court must consider whether the decision was based on a consideration of the relevant
factors and whether there has been a clear error of judgment.” Bowman Transp., Inc. v.
Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974) (internal quotations omitted). The
Court may not substitute its own judgment for that of the agency. Id. But the agency must
articulate a “rational connection between the facts found and the choice made.” Burlington Truck
Lines, Inc. v. United States, 371 U.S. 156, 168 (1962).
Unlike the standard applied in summary judgment motions, “the existence of genuine
issues of material fact does not preclude judgment on the administrative record” under RCFC
52.1. Tech. Sys., Inc. v. United States, 98 Fed. Cl. 228, 242 (2011); see also RCFC 56. Rather,
the Court’s inquiry is whether, “given all the disputed and undisputed facts, a party has met its
burden of proof based on the evidence in the record.” A&D Fire Prot., Inc. v. United States, 72
Fed. Cl. 126, 131 (2006) (citing Bannum Inc. v. United States, 404 F.3d 1346, 1356 (Fed. Cir.
2005)). Taken together, the standards for success by a plaintiff are substantial.
B. Discussion
Each Plaintiff serves a litany of arguments purporting TRANSCOM’s award to
HomeSafe was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with
law. (See generally CGSL MJAR; ARC MJAR). In sum, Plaintiffs argue that: (1) TRANSCOM
should not have replaced certain portions of its prior evaluation; (2) TRANSCOM’s discussions
with offerors were misleading and unequal; (3) TRANSCOM unfairly and irrationally evaluated
the parties’ proposals; (4) TRANSCOM’s best value tradeoff analysis was irrational; (5)
HomeSafe’s proposal contained material misrepresentations necessitating disqualification of its
bid; (6) TRANSCOM’s price analysis was based on disqualified bids and therefore irrational;
and (7) TRANSCOM irrationally evaluated HomeSafe’s responsibility. Based on these
6
arguments, CGSL and ARC argue that these purported errors amount to violations of the Federal
Acquisition Regulations (“FAR”) and Competition in Contracting Act, 41 U.S.C. § 253; that
those violations prejudiced them; that TRANSCOM’s errors breached the duty to consider the
proposals honestly and fairly; and that, as a result, they are entitled to a permanent injunction.
The Court addresses each argument in turn.
Ultimately, neither ARC nor CGSL successfully identify any basis to overturn
TRANSCOM’s technical evaluation or award to HomeSafe. The protestors’ claims before this
Court fail to satisfy their “heavy burden” of proving the decision lacked a rational basis or was
contrary to law. See KSC Boss All., LLC v. United States, 142 Fed. Cl. 368, 380 (2019) (quoting
Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 1338 (Fed. Cir.
2001)). Thus, based on the analysis below, the Court will not disturb the United States’ award
decision.
i. TRANSCOM did not err when it did not explain departure from prior
strengths assigned to CGSL.
CGSL argues that TRANSCOM failed to explain why it replaced portions of its prior
evaluations assigned during the ARC award, something not recommended by the corrective
action prescribed by the GAO. 4 (CGSL 12–17; see also Tr. Or. Arg. at 12:21–23; Tab 267). In
2020, TRANSCOM assigned CGSL’s proposal 26 strengths across the Technical Capability
subfactors. (Tab 58a1 (2020 strengths)). In 2021, after the GAO recommended some level of
reconsideration, TRANSCOM conducted a new evaluation that departed from its earlier
assessment, resulting in the assignment of only 17 strengths. (Compare 2020 strengths, with Tab
193a1 (2021 strengths)). CGSL argues that deviation would only be justified if the Record
showed: (1) the RFP’s definition of “strength” changed during the reevaluation; (2) the Agency
changed its methodology for determining what proposal elements warranted a strength; or (3) the
Agency’s original assessment of strengths in CGSL’s proposal was unreasonable or unsupported.
(CGSL MJAR at 15). CGSL maintains that the Record exhibits nothing of the sort, and neither
explains nor supports TRANSCOM’s departure from its previous factual determinations. (Id.).
The GAO recommended that TRANSCOM reevaluate proposals after identifying errors
committed in the prior award to ARC but was silent as to what reevaluation would look like. (See
Tab 267). In response, TRANSCOM took corrective action by revising the RFP, soliciting
revised proposals, empaneling and training a new technical evaluation team, comprising some
new members and prior members of the original evaluation team, conducting an entirely new
evaluation, performing new discussions with offerors, and making a new source selection
decision. (See Tab 269.236 at 58106). TRANSCOM informed the SSEB, a panel comprised of
70% of the same individuals from the 2020 Evaluations, that it was “specifically advised not to
consider the previous technical evaluation[;]” the new team had no access to any prior
documentation relating to its earlier recommendation. (Id.; see also TAB 258a at AR37644). In
4
The Court acknowledges that CGSL does not assert that the United States was bound by its
previous determinations in that it was not permitted to stray from them. (See Tr. Or. Arg. 12:6–
10). This analysis is based upon whether the United States can be required to explain deviation
from those prior determinations.
7
its latest iteration, the SSEB assigned fewer strengths to each offeror than were assigned in the
first evaluation. (Compare Tab 68 at AR15670 with Tab 198p at AR32074–76; Tab 198q at
AR32220–21; Tab 198r at AR32268–69; Tab 198s at AR32328–30; Tab 194).
The United States argues that, given the GAO’s decisions recommending a new technical
evaluation as well as the Agency’s conclusions from its internal review, it was reasonable for the
Agency to conduct a comprehensive reevaluation, including the assignment of strengths. (Id.).
The Court agrees that TRANSCOM acted within its discretion assigning reevaluation of all
proposals and did not err when it failed to further elaborate on departure from prior strengths
assigned to CGSL. Further, CGSL was not prejudiced because each offeror received fewer
strengths than they did in the earlier 2020 evaluation.
“[A]n agency has the discretion to re-evaluate proposals during a corrective action and to
correct prior evaluation errors.” Sotera Def. Sols., Inc. v. United States, 118 Fed. Cl. 237, 262
(2014). Agency evaluators must be “allowed the discretion to review their own conclusions if
they conclude a mistake has been made, or if further inquiry appears appropriate, provided the
re-evaluation conforms with the solicitation,” and “the evaluation process is conducted in a
manner fair to all offerors.” Glenn Def. Marine (Asia), PTE Ltd. v. United States, 105 Fed. Cl.
541, 569 (2012), aff’d, 720 F.3d 901 (Fed. Cir. 2013). That said, agency discretion “does not
relieve the agency of its obligation to develop an evidentiary basis for its findings.” FCN, Inc. v.
United States, 115 Fed. Cl. 335, 368 (2014).
To support its claims, CGSL cites F.C.C. v. Fox Television Stations, Inc. for the
proposition that “the requirement that an agency provides reasoned explanation for its action
would ordinarily demand that it display awareness that it is changing position.” 556 U.S. 502,
515 (2009). CGSL inappropriately applies precedent involving agency rulemaking to the bid
protest context. Relying on the Supreme Court’s decision in F.C.C. v. Fox, CGSL declares the
Agency was bound to its previous “factual findings” and lacking a “reasoned explanation for”
reaching a different conclusion. Id. at 515–37. The Court of Federal Claims rejected a similar
argument in Ultra Electronics Ocean System Inc. v. United States, holding that “decisions of
contracting officers are fundamentally different from the decisions reached in agency rulemaking
proceedings and adjudications that are the subject of APA review” and that “contracting officers
have no obligation to explain or distinguish past procurement decisions when making
determinations under new procurements.” 139 Fed. Cl. 517, 531 (2018). Here, TRANSCOM
conducted a new evaluation and advised the evaluators “not to consider the previous technical
evaluation.” (Tab 269.236 at AR58106). No evidence exists to suggest that the evaluators
disregarded this instruction or that it was not conducted in a manner fair to all offerors.
In support of its position, the United States cites DHS v. Regents of the University of
California. 40 S. Ct. 1891, 1907 (2020). Although Regents is not a bid protest, its logic is more
applicable here. As explained in Regents, when a court remands a matter, the agency can either
elect to provide further explanation and clarification for the reasoning contained in prior
evaluations, or it can examine the issue “afresh” and take new action. Id. (see also Tr. Oral Arg.
at 12–17 (DOJ Counsel: “Why would [the Agency] want to consider a prior flawed evaluation if
it’s doing an entirely new technical[] analysis; it’s empaneling a new team; it’s conducting a new
SSA; the SSAC is creating a new report; and the SSA is conducting a new best value tradeoff
decision?”)). While it is true the reevaluation was based on the GAO’s recommendation and not
8
a court’s remand, similar reasoning prevails despite the distinction between an agency decision
and a court’s remand. TRANSCOM’s reevaluation of the proposals entirely is tantamount to
examining the issue afresh.
When an agency takes new action, as TRANSCOM did here, the United States argues
persuasively that it “is not limited to its prior reasons.” (USA MJAR at 6). The Agency can
correctly assume that if it committed error in evaluating the proposal of one offeror, that error
was likely repeated in evaluating the offers of its cohort. And if an agency is not bound by a
decision, failure to address each departure from prior findings is not error when the record
clearly shows that it was warranted. The Contracting Officer’s (“CO”) statement of facts shows
that the Agency wanted to ensure the SSEB was equipped with proper tools because of the
concern that Agency incorrectly evaluated technical factors. (Tab 258A at AR37642–44). It is
evident from the Record why TRANSCOM did not want to reimplement prior findings, and the
United States has not shied from admitting that the prior evaluation was fundamentally flawed.
(See Tr. Or. Arg. at 58:13–15 (The Court: “That sounds like the United States is throwing the
first SSEB under the bus.” DOJ Counsel: “Yes, I am.”)).
Although a reviewing court “may not supply a reasoned basis for the agency’s action that
the agency itself has not given,” a decision that is not fully explained may, nevertheless, be
upheld “if the agency’s path may reasonably be discerned.” Bowman Transp., Inc., 419 U.S. at
285–86 (citation omitted). Rather than risk growing additional tainted fruit, TRANSCOM chose
to plant a new tree (albeit on the same property). This is not something that the Court can
reasonably fault TRANSCOM for. As a matter of public policy, the Court would rather
commend agencies for thorough corrective action. Stated differently, based on the Record before
the Court, it was enough for the Agency to say that corrective action was necessary and then
explain that it would be conducting an entirely new evaluation. It is inapposite to require an
agency to explain how its new findings relate to its previous findings when the Record
establishes that errors occurred. The Agency’s admission, coupled with restaffing and retraining
the SSEB, demonstrates that TRANSCOM believed that the evaluations were done incorrectly
on a larger scale.
CGSL fails to establish that it was prejudiced by these ratings. First, it does not
effectively argue that the ascribed ratings were “so plainly unjustified as to lack a rational basis.”
Savantage Fin. Servs., Inc. v. United States, 595 F.3d 1282, 1286 (Fed. Cir. 2010). Second, even
if TRANSCOM’s rating discrepancy required more explanation—or if it amounts to a “change in
position”—CGSL was not prejudiced by the change in ratings because all offerors were assigned
fewer strengths than were assigned in the first evaluation: HomeSafe, for example, initially
received 22 strengths but only 14 after the Agency’s corrective action evaluation. (Compare Tab
68 at AR15670 (initial round) with Tab 198p at AR32074–76; Tab 198q at AR32220–21; Tab
198r at AR32268–69; Tab 198s at AR32328–30). Although CGSL lost more strengths than other
offerors, (see Tr. Or. Arg. 11:25–12:1), CGSL has not shown that this evaluation process was
applied unfairly or that, but for this error, it would have had a substantial chance of winning the
award. See CliniComp Int’l, Inc. v. United States, 904 F.3d 1353, 1358 (Fed. Cir. 2018).
If CGSL was the only offeror to lose strengths, or if the 2021 evaluation of its strengths
was meaningfully imbalanced, there is a world where CGSL could perhaps show that it was
uniquely positioned to win the award but for that error. However, because each offeror lost
9
similar numbers of strengths, this solidifies the conclusion that the SSEB applied its revised
approach for the most recent evaluations equally. This approach, better or worse, affected each
offeror. This lack of showing in conjunction with the fact that there are no meritorious criticisms
of CGSL’s 2021 evaluation, illustrates that the Agency did not commit error.
ii. TRANSCOM’s discussions with offerors were not misleading or unequal.
“Uneven treatment goes against the standard of equality and fair-play that is a necessary
underpinning of the federal government’s procurement process and amounts to an abuse of the
agency’s discretion.” Serco Inc. v. United States, 81 Fed. Cl. 463, 482 (2008). “All contractors
and prospective contractors shall be treated fairly and impartially.” FAR 1.102-2(c)(3). “At a
minimum, the contracting officer must . . . indicate to, or discuss with, each offeror still being
considered for award,” “deficiencies” and “significant weaknesses.” FAR 15.306(d)(3). Both
plaintiffs argue that TRANSCOM’s discussions were misleading and unequal, thereby violating
the FAR. (CGSL MJAR at 17; ARC MJAR at 29–30). The Record, however, does not support
this characterization.
CGSL claims the Agency left the impression it had resolved significant weaknesses in its
proposal, resulting in no further changes to CGSL’s proposal, but that the Agency held these
“weaknesses” against CGSL anyway. (CGSL MJAR at 17). Those perceived “weaknesses”
were: (1) CGSL’s proposal to automatically assign moves to subcontractors based on their
performance scores and availability for work risked “turnbacks” (subcontractors rebooking
moves); and (2) CGSL’s unbundling of move services among subcontractors, an approach that
the Agency believed risked producing unnecessary layers of subcontracting. (Id.). Similarly,
ARC purports that TRANSCOM failed to inform it of two concerns identified during its
evaluation that had a significant, adverse competitive impact on the evaluation and award
decision—that ARC’s approach to awarding shipments to subcontractors (1) “has a higher
potential for creating turnbacks” and (2) “is contingent upon the subcontractors [sic] reliable and
consistent use of its .” (ARC MJAR at 29–30 (citing Tab 200 at AR34395)). ARC
further argues that discussions about the thoroughness of its proposal were unequal in
comparison to TRANSCOM’s discussions with other offerors. (Id.).
An agency’s evaluation is unequal where it holds one offeror to “different, and more
exacting, technical standards” than another. CliniComp Int’l, Inc. v. United States, 117 Fed. Cl.
722, 741 (2014). Contracting officers must indicate deficiencies, significant weaknesses, and
adverse past performance information to which the offeror has not yet had an opportunity to
respond. FAR 15.306(d)(3). “As such, when discussions occur, the contracting officer must
accurately identify weaknesses. An error in communicating a weakness that causes an offeror to
revise its proposal is quintessentially a misleading discussion.” Caddell Constr. Co. v. United
States, 125 Fed. Cl. 30, 45 (2016), overruled on other grounds, Sys. Stud. & Simulation, Inc. v.
United States, 22 F.4th 994, 998 (Fed. Cir. 2021). Agencies may not mislead an offeror into
believing that a flaw has been resolved if the flaw continues to exist. See Q Integrated Cos., LLC
v. United States, 126 Fed. Cl. 124, 146 (2016) (noting agency “affirmatively misstated that there
were no weaknesses”). Misleading discussions constitute “arbitrary and capricious conduct.”
Caddell Constr. Co., 125 Fed. Cl. 30, at 34.
10
It is uncontroverted that TRANSCOM conducted extensive discussions in its second
round of corrective action, commensurate with the size of the procurement. (CGSL MJAR at 18
(citing e.g., Tab 154a2 (raising 102 issues with CGSL in single round of discussions); Tab 144a
at AR21236, AR21265–66 (plan to communicate weaknesses and discussion items); Tab 144b at
AR21287, AR21289 (same)); see also Tr. Or. Arg. at 22:18–25 (CGSL Counsel, in relevant part:
“[]I’ve never seen discussions as extensive as what happened in the second round; hundreds of
deficiencies, weaknesses, across all offerors.”)). In 2021, TRANSCOM conducted discussions
by issuing evaluation notices. (Tab 198 at AR31392; Tab 267 at AR38315). TRANSCOM issued
two types of technical capability evaluation notices: (1) “Technical Capability Deficiencies,”
which identified proposal deficiencies (e.g., Tab 269.72); and (2) “Technical Capability Other
than Deficiency,” which identified strengths, weaknesses, significant weaknesses, and discussion
items (e.g., Tab 269.91). When an offeror sufficiently addressed the request or concern,
TRANSCOM treated the issue as resolved. (Tab 269.215 at AR56618–56716; Tab 269.220 at
AR56943–57063).
The RFP states that “[s]ubjective tradeoff procedures will be utilized in accordance with
FAR 15.101-1 and DoD Source Selection Procedures [(DoD SSP)].” (Tab 136 at AR21147.2). It
is not inconsistent or unreasonable for the SSEB to evaluate proposals against the solicitation and
find an approach to be technically acceptable and yet disadvantageous in the final evaluation.
(See Tab 263 at AR38072). That the SSEB determined that CGSL’s approach no longer met the
solicitation’s definition of a significant weakness does not necessarily render CGSL’s approach
equivalent to, or more advantageous than, HomeSafe’s approach. (Tab 267 at AR38317; Tab 263
at AR38072; Tab 200 at AR34558–34564; Tab 201 at AR34662–34664). TRANSCOM targeted
the elimination of all weaknesses, not just deficiencies and significant weaknesses, thus
exceeding FAR requirements. See FAR 15.306(d)(3). The Record does not show that the SSEB
identified CGSL’s or ARC’s approaches as weaknesses, significant or otherwise, nor that they
were treated as such in reaching the technical capability ratings. (See Tab 269.216; Tab 263 at
AR38070–38071). For example, the SSEB flagged CGSL’s payment structure to subtractors as a
discussion item that was resolved after clarification. (Id. at AR38070–38071). It was not assessed
as a weakness, despite how CGSL portrays it. (See Tr. Or. Arg. 23:15–16 (CGSL Counsel:
“[T]hey didn’t call it a weakness, but they treated it as one.”)).
As to ARC’s claims of unequal treatment, there is also no evidence that TRANSCOM
treated its concerns as weaknesses in the final evaluation. With respect to the first alleged
concern, the higher potential for turnbacks compared to HomeSafe’s approach, the technical
evaluation demonstrates that ARC’s rating under SF2 was not negatively impacted because of its
award management system. (AR Tab 198d). Second, ARC misconstrues the SSEB’s assessment
that the “effectiveness of [its award management system] approach is contingent upon the
willingness of subcontractors to frequently update their respective .” (Tab 198d at
AR31506). ARC fails to acknowledge the SSEB’s assessment that found “required daily updates
to the capacity [were] a suitable approach that would likely prevent capacity and
scheduling issues DoD experiences under the current [Household Goods] program with respect
to agents providing accurate and timely updates to capacity, especially during the high and
volatile requirements of peak season.” (Id.(emphasis added)). This assessment does not indicate
that the SSEB considered ARC’s award management system, or specifically its use of the
capacity , to necessarily constitute a deficiency or a significant weakness. (Tab 7 at
AR136).
11
TRANSCOM was not required to reopen discussions once it determined that HomeSafe’s
approach was more advantageous. Lyon Shipyard, Inc. v. United States, 113 Fed. Cl. 347, 357
(2013). The FAR does not require agencies to inform an offeror that its acceptable approach is
less advantageous than an approach proposed by another offeror. FAR 15.306(d)(3); see also
DMS All-Star Joint Ventures v. United States, 90 Fed. Cl. 653, 669 (2010) (explaining that in
discussions “‘agencies need not . . . identify relative weaknesses in a proposal that is technically
acceptable but presents a less desirable approach than others.’”) (quoting WorldTravelService v.
United States, 49 Fed. Cl. 431, 439 (2001)). Plaintiffs fail to acknowledge that advising other
offerors of the preferred aspects of HomeSafe’s award management system would run afoul of
FAR 15.306(e)(1). FAR part 15 prohibits the agency from revealing another “offeror’s technical
solution.” FAR 15.306(e)(2). Thus, if HomeSafe provides a different method in its technical
proposal that TRANSCOM found more advantageous, it would contravene FAR requirements to
share that with other offerors to urge them to implement the same methodology. Any argument
otherwise is circular and leads to spoon-feeding offerors—something well beyond FAR
requirements. See Standard Comms., Inc. v. United States, 101 Fed. Cl. 723, 740 (2011)
(meaningfulness requirement “does not mean that an agency must spoon-feed an offeror as to
each and every item that must be revised, added or otherwise addressed to improve a proposal.”)
(internal citations omitted). So long as the agency “leads” the offeror to the general area of
concern, the agency fulfills its obligations. D&S Consultants, Inc. v. United States, 101 Fed. Cl.
23, 40–41 (2011).
Any dismissive discussion of those approaches was done in a comparative manner,
designed to explain the additional benefits HomeSafe’s differing approach offered the Agency.
Once the weaknesses of each offer were addressed, the SSEB’s determinations warranted no
additional discussion. This is a rational decision clearly reflected in the Administrative Record; it
was neither arbitrary nor capricious. Further, the Court cannot find that either party was
prejudiced by factors that SSA does not explicitly treat as a weakness.
iii. TRANSCOM’s evaluation of the parties’ proposals was rational.
CGSL argues that TRANSCOM irrationally evaluated HomeSafe’s proposal, essentially
giving credit where none was due, specifically regarding SF2. (CGSL MJAR at 29). First, it
claims that TRANSCOM ignored HomeSafe’s approach of awarding moves to subcontractors—
one of the central features upon which TRANSCOM distinguished between HomeSafe’s and
CGSL’s proposals—was internally inconsistent and contradicted HomeSafe’s statements during
discussions. (Id.). The United States and HomeSafe maintain that HomeSafe’s proposal did not
contain inconsistencies, and even if it did that the written proposal surmounts its oral statements.
Agencies may exercise a great deal of discretion in procurement, but the agency has even
greater discretion in a best value procurement than if the contract were awarded based on cost
alone. Galen Med. Assoc., Inc. v. United States, 369 F.3d 1324, 1330 (Fed. Cir. 2004). Thus,
assigning the relative merit of competing proposals is primarily a matter of administrative
discretion. E.W. Bliss Co. v. United States, 77 F.3d 445, 449 (Fed. Cir. 1996) (quotation
omitted). In Office Design Grp. v. United States, the Federal Circuit held that to prevail on a
disparate treatment claim, “a protestor must show that the agency unreasonably downgraded its
proposal for deficiencies that were ‘substantively indistinguishable’ or nearly identical from
those contained in other proposals.” 951 F.3d 1366, 1372–73 (Fed. Cir. 2020) (“A protestor may
12
also prevail by showing that the agency inconsistently applied objective solicitation requirements
between it and other offerors, such as proposal page limits, formatting requirements, or
submission deadlines.”). CGSL has not shown that the agency unreasonably downgraded its
proposal. Thus, the Court finds that CGSL’s gripe as to discrepancies in HomeSafe’s proposal
amounts to subjective disagreement with the manner in which the Agency ascribed value.
HomeSafe alleges that CGSL misunderstands the subcontractor approach explained in its
proposal. (HomeSafe MJAR at 33). In discussions, the Agency clarified “with respect to
HomeSafe’s use of the word ‘ ’ versus ‘ ,’ . . . for consistency purposes, the process
remain[ed] the exact same regardless of what verb is used.” (Id. (citing AR38129–30; compare
Tab 147b at AR22241 with Tab 178b at AR28123 (showing HomeSafe proposed the same
process for subcontractor assignments in the initial and final proposal))). The SSAC touted that
HomeSafe’s approach was “more advantageous” because HomeSafe had “an absolute
understanding of its efficient selection process” and “phenomenally lays out its selection
procedures and even intertwines it with its approach to in order to optimize the
network.” (Id. (citing AR34572–73)).
So long as an agency documents its final award decision and includes the rationale for
any business judgments and tradeoffs, the Court will not disturb the agency’s decision.
Blackwater Lodge & Training Ctr., Inc. v. United States 86 Fed. Cl. 488, 514 (2009). Even if
HomeSafe’s proposed subcontractor approach amounted to an inconsistency between the oral
presentation and the written proposal, the SSEB Report indicates that HomeSafe’s written
proposal “takes precedence” over its oral presentations. (Tab 269.221 at AR57100–01,
AR57103–04). Neither the SSAC’s nor the SSA’s reports reference HomeSafe’s oral
presentation. (Tab 200 at AR34570–74; Tab 201 at AR34659–64). The SSAC identified
HomeSafe’s “ based” selection process, (Tab 269.159 at AR54890–93), as an
innovative and meaningful approach. (USA MJAR at 10 (citing AR34573)). CGSL’s failure to
receive a similar endorsement is not a basis to disturb the award.
Second, CGSL contends that TRANSCOM inaccurately concluded that HomeSafe
proposed to exceed the RFP’s 40% small business participation commitment by more than
CGSL. (CGSL MJAR at 31 (citing Tab 136 at AR21143 (requiring submission of “a completed
Small Business Commitment Document (Attachment 9)” that “identif[ies] the Offeror’s
commitment to the 40% utilization of small business concerns in the performance of this contract
in accordance with PWS paragraph 1.2.1.2.2”); Tab 134b1 at AR21078 (describing “forty
percent” requirement))). According to CGSL, this percentage is miscalculated and HomeSafe
failed to fill out the Small Business Participation Form correctly. (Id.).
HomeSafe’s proposal committed to subcontracting “50% of total [continental United
States] – based contract value” to small businesses. (Tab 269.159 at AR54890). Here, the
Agency assigned a strength to any offeror that proposed to exceed the 40% threshold, regardless
of the amount that would exceed the threshold. (Tab 200 at 34568). TRANSCOM assigned both
CGSL and HomeSafe a strength for exceeding the 40% subcontracting commitment. (Id.). The
SSAC determined that HomeSafe’s commitment of 50% and CGSL’s commitment of 46.71% (a
difference of 3.29%) were roughly equivalent. (Tab 200 at AR34568). By CGSL’s calculations,
HomeSafe’s relevant commitment should have been 43.41%, not 50%. (CGSL MJAR at 32).
Even if that is correct, it is reasonable that the SSAC would come to the same conclusion based
13
on CGSL’s alleged difference of 3.3%. Because both offerors proposed to exceed the 40%
threshold, whether it was by 10% as HomeSafe proposed or 3.41% as CGSL believes HomeSafe
should have proposed, the SSAC reasonably concluded that there was not a discernible
difference between the proposals. CGSL has not shown that even if this constitutes a
miscalculation that it was prejudicial.
Although CGSL asserts that HomeSafe failed to fill out the Small Business Participation
Commitment document correctly, which CGSL claims required the Agency to reduce
HomeSafe’s commitment to small businesses, that document represents only proposed and
estimated amounts and vendors. (Tab 264 at AR38132). Further, it was not incorporated into the
contract upon award. (Id.). Thus, the Agency had no way of ensuring either that the proposed
subcontractors receive work under the contract or that the proposed subcontractors receive those
estimated amounts. (Id.) If it were the case that the awardee failed to live up to this expectation,
it amounts to issues of contract administration. Thus, HomeSafe’s oversight could not have
prejudiced CGSL.
ARC shares the opinion that TRANSCOM unreasonably evaluated offerors’ proposals
under the technical factors. (ARC MJAR at 21–29). This is based on the Agency’s evaluation of
SF1, SF2, and SF4. First, ARC maintains that HomeSafe failed to comply with the material
terms of the PWS. PWS § 1.2.6.3.1 requires the contractor to “provide packing materials that are
new or in sound condition, except in the case when the customer has provided original or
specially designed packaging that the contractor has inspected and accepted as being as good or
in sound condition.” (Id. at 22 (citing Tab 134b1 at AR21083)). ARC suggests that the contractor
must complete two steps to fulfill this requirement: (1) accommodate customers’ requests to use
their own “original or specially designed packaging” and (2) “inspect[] and accept[]” the
customer-provided packaging “as being as good or in sound condition.” (Id. citing PWS).
Further, PWS § 1.2.6.15 requires the contractor to “provide unpacking and reassembly services
unless waived by the customer.” (ARC MJAR at 22 (citing Tab 134b1 at AR21087)). ARC states
that HomeSafe’s proposal did not commit to performing either of these steps, (AR28101), and
should have been found unacceptable.
ARC has pointed to no authority mandating that a proposal must, in painstaking detail,
discuss every single PWS requirement to be found acceptable. In support of its argument, ARC
cites Mortgage Contracting Services v. United States, 153 Fed. Cl. 89, 142 (2021), but that case
is inapplicable. Mortgage Contracting Services applies only where the deviation from a
solicitation term is “material,” when that deviation has “more than a negligible impact on the
price, quantity, quality, or delivery” of the services. Id. And the United States correctly notes that
ARC ignores HomeSafe’s proposal which logically encompasses the requirement to use original
or specially designed packaging that the contractor has inspected and accepted as being as good
or in sound condition. HomeSafe’s proposal states that it will “comply with all DoD packing
material requirements.” (USA MJAR at 22–23, 44–45).
Further, ARC misstates the scope of PWS § 1.2.6.3.1. A plain reading of the requirement
demonstrates that, while the contractor is required to inspect customer-provided packaging, it is
not required to accommodate those requests. Instead, the contractor must find the packaging to
be in good or sound condition. (Tab 134b1 at AR21083). The SSEB did not determine that
HomeSafe needed to acknowledge an exception to the requirement to meet it, nor did it find the
14
wording of HomeSafe’s proposal to prohibit the waiver of unpacking and reassembly by the
customer. (Id. (citing Tab 198p at AR32069)). This is not an irrational decision.
Second, ARC states that TRANSCOM deviated from the RFP standard when evaluating
SF3, specifically because ARC proposed to accelerate evaluated transition requirements that
contained deadlines. (ARC MJAR at 24 (citing Tab 198e at AR31553–60)). In conducting its
evaluation, the SSEB determined that it “did not assess early completion of transition
requirements as being advantageous to the Government[,]” and that the “tasks and respective
timelines associated with transition . . . coincide with the Government’s estimated timelines for
the Government to be prepared to handle said transition related tasks.” (Tab 198e at AR31554–
31560). Similarly, the SSAC determined that “early completion of tasks during the transition
period was . . . not . . . advantageous to the Government as the transition period will remain at
nine (9) months and therefore accelerated integration was not evaluated to have a positive (or
negative) impact on either transition or ultimately contract performance.” (Tab 200 at AR34396).
To prevail in a protest alleging an agency departed from the stated evaluation criteria, “a
protestor must show that (i) the procuring agency used a significantly different basis in
evaluating proposals than stated; and (ii) the protester was prejudiced as a result – that it had a
substantial chance to receive the contract award but for that error.” Banknote Corp. of Am. v.
United States, 56 Fed. Cl. 377, 386–87 (2003) (emphasis added). Simply because TRANSCOM
did not find accelerated transition timelines to be advantageous does not equate to an evaluation
in which no consideration was given to the offerors requisite approach and understanding of said
requirements. And it certainly cannot be said that it is evidence of a significant deviation.
Lastly, ARC maintains that TRANSCOM’s evaluation of SF 4 was arbitrary and
capricious because it forced ARC to proceed through several steps to thoroughly explain its
Multifactor Authentication (“MFA”) when other offerors did not face the same requirement.
(ARC MJAR at 26). Per ARC’s argument, no offeror explained what solution they would use to
provide MFA for government users. (Id.). However, the United States argues that ARC’s
contention is undermined by the Administrative Record, which demonstrates that TRANSCOM
equally evaluated the parties’ proposals on each front. (USA MJAR at 49). Relevant here,
HomeSafe’s proposal states, “[a]s in all HomeSafe applications it
is impossible to circumvent or bypass the [MFA] component of this solution.” (Tab 178b at
AR28161). Thus, in all HomeSafe applications enforces MFA for all
users which logically includes all government users. Because ARC’s complaint is simply a
disagreement with the Agency’s subjective technical evaluation judgments, again, it is no basis
to disturb the award.
Federal procurement entities have broad discretion in making contract award decisions.
Banknote Corp. of Am. v. United States, 365 F.3d 1345, 1354 (Fed. Cir. 2004). “When technical
evaluation errors are alleged, those technical ratings fall within a category of ‘discretionary
determinations of procurement officials that a court will not second guess.’” iAccess Techs., Inc.
v. United States, 143 Fed. Cl. 521, 527 (2019) (quoting E.W. Bliss Co., 77 F.3d at 449). The
Court’s task is to determine whether an agency’s evaluation and award decision have a rational
basis and do not violate statutory or regulatory requirements, prohibitions, or standards.
Savantage Fin. Servs., 595 F.3d at 1285–86. Should Plaintiffs believe that the SSA failed to
explain its rationale in evaluating these portions of the PWS, the Court must still uphold that
decision when an agency’s path may reasonably be discerned. See Bowman Transp., Inc., 419
15
U.S. at 285–86. The Court finds that the Record reflects a reasonable discernable, rational
evaluation of the offerors’ proposals and adequate support of the award to HomeSafe.
iv. TRANSCOM followed the RFP’s evaluation scheme, and its best value
tradeoff was rational.
Plaintiffs contend that the best value tradeoff was conducted arbitrarily, capriciously, and
irrationally. CGSL attacks both the SSAC’s comparative analysis concluding that HomeSafe
presented a more advantageous technical approach and the SSA’s ultimate finding that
HomeSafe’s “superior technical solution warrants the minimal 1.26% difference between the
Offerors’ proposals.” (CGSL MJAR at 6–12, 33–34; see also Tab 201 at AR34671). Similarly,
ARC argues that TRANSCOM’s best value tradeoff analysis is flawed because of how it
conducted its comparative analysis of the offerors’ technical SFs. (ARC MJAR at 33–34). The
Court finds that, contrary to Plaintiffs’ assertions, the Agency conducted a proper comparative
analysis that was, among other things, in accordance with the RFP. Ultimately, Plaintiffs object
to the manner in which the Agency performed its tradeoff analysis. However, their subjective
disagreement with the analysis does not establish that the Agency’s decision lacked a rational
basis, as required. See KSC Boss, 142 Fed. Cl. at 380–81.
1. TRANSCOM correctly followed the RFP’s evaluation scheme.
CGSL surmises that TRANSCOM’s decision to award the subject contract to HomeSafe
was arbitrary and capricious because its evaluation contravened the scheme delineated by the
RFP. (CGSL MJAR at 6–12). Specifically, it alleges that TRANSCOM downplayed CGSL’s
“superiority” for technical SFs 1 and 3. (Id. at 7, 9–10). According to CGSL, it was unlawful and
contrary to the RFP for the SSA “to single out preferred factors, such as ease of use and
customer experience as being ‘extremely impactful,’ as determinative in the tradeoff while
diminishing the importance of such factors as transition and phase-in volume.” (Id. at 12). While
this argument is understandable, it is not compelling.
An agency is given broad discretion to conduct a reasonable determination that is
consistent with the solicitation. That said, agencies must evaluate proposals and make source
selection decisions following the terms of the solicitation. See 10 U.S.C. § 3301(a); FAR
15.304(a); FAR 15.305(a). This includes adhering to the weighting assigned to each evaluation
factor. See BayFirst Solutions, LLC v. United States, 102 Fed. Cl. 677, 694 (2012) (“This is not
the weighting scheme set forth in the solicitation, and therefore constitutes an arbitrary and
improper evaluation scheme.”); 360Training.com, Inc. v. United States, 106 Fed. Cl. 177, 190
(2012). It is unlawful for an agency to solicit proposals on one basis but evaluate them on
another. See FirstLine Transp. Sec., Inc. v. United States, 100 Fed. Cl. 359, 382 (2011) (“Having
announced the relative weight of the non-price factors in the RFP, the government was not free
to evaluate the proposals and award the MCI contract in accordance with another scheme,
regardless of the reasonableness of that scheme.”).
Even so, it is well established that adjectival ratings are merely a guide. Hyperion Inc. v.
United States, 92 Fed. Cl. 114, 119 (2010). As with matters of contract interpretation, the Court
must give the text of the solicitation its plain and ordinary meaning. Id. It “must interpret [the
solicitation] as a whole” and in a manner that gives reasonable effect “to all its parts and avoids
16
conflict or surplusage of its provisions.” Gardiner, Kamya & Assocs., P.C. v. Jackson, 467 F.3d
1348, 1353 (Fed. Cir. 2006) (internal quotation marks and citation omitted).
In this case, the SSA was required to weigh all subfactors equally giving each no more,
and no less, than 25% of the overall Technical Capability assessment. (Tab 7 at AR135). This
requirement is undisputed. It is also true that each subfactor encompassed varying numbers of
requirements, but the RFP was silent as to their relative weight. CGSL maintains that the
discrepancy of requirements caused the SSA to disregard the equal weighting of subfactors to
justify the determination that HomeSafe’s Factor 2 proposal had greater merit, thereby
warranting a 1.26% ($225 million) price premium. (CGSL MJAR at 7). To illustrate its point,
CGSL points out that the SSA acknowledged that CGSL’s proposal was superior to HomeSafe’s
proposal in SFs 1 and 3, notwithstanding their equivalent Acceptable ratings, but then
“downplayed” CGSL’s advantages as having less value than other features in HomeSafe’s
proposal. (CGSL MJAR at 8; Tab 201 at AR34659, AR34666).
CGSL states that the SSA inflated the importance of HomeSafe’s approach to individual
PWS requirements. (CGSL MJAR at 8). For example, the SSA found that HomeSafe’s approach
to the ease of use PWS requirement under SF4 was “extremely impactful to improving the
customer experience, as the IT system will be utilized by the customer for virtually all aspects of
each of the roughly 400,000 annual moves that will be serviced under GHC.” (AR34667).
Further, the SSAC determined that the “impact” of HomeSafe’s strength under SF4 for allowing
customers to arrival was “slightly larger than the combined impact of
CGSL’s [SF] 1 approaches to Claims Settlement/Adjudication as well as Customer Payout
Options and Minimizing Transfer of Claims . . . and Inconvenience Claims combined” because
“the impact of HomeSafe’s [SF] 4 approach can be felt by the customer, during
both pick-up and delivery, on every move whereas the impact of CGSL’s [SF] 1 approaches . . .
will only be felt by customers on moves in which claims must be filed.” (AR34647). With
respect to claims settlement and inconvenience claims, the SSA found CGSL’s advantages less
impactful because “the difference only extends to one part of the move process, specifically
claims, which will not occur in every move, or likely even the majority of moves.” (AR34658).
As to CGSL’s argument that some of its strengths were downplayed, HomeSafe points
out that CGSL omits introduction and conclusion sentences to that excerpted paragraph,
acknowledging “that there are areas in which CGSL’s proposal provided benefits that
HomeSafe’s proposal did not also provide.” (HomeSafe MJAR at 29, (citing AR34671); see also
Tr. Or. Arg. 18:16–18 (“The decision cannot be rational if [the SSA] does not even acknowledge
attributes of CGSL’s proposal that were better.”)). To the contrary, the SSA specifically
discussed CGSL’s advantages and the ways CGSL’s proposal was more impactful to customer
experience, as well as its advantages in point of contact, delivery, and claim settlement and
adjudication. (Tab 201 at AR34657–59). Contextually, TRANSCOM did not “downplay” or
ignore CGSL’s advantages, but merely summarized its conclusions and provided select examples
given the voluminous Record. Contrary to CGSL’s argument, highlighting different requirements
in the various subfactors is not evidence of unequal weighting.
Further, the RFP allows the CO to consider customer experience, such as ease of use, in
the tradeoff analysis. (Tab 136 at AR21142; see also Tr. Or. Arg. at 46:24–47:2). The SSA
addressed some requirements, like ease of use, not because the SSA prioritized them but because
17
they were areas in which there was a discernible difference between HomeSafe’s and CGSL’s
proposals for that SF. (See AR34667–71). The United States effectively argues the SSA was
merely discussing the differences in competing proposals and documenting the supporting
rationale for business judgments and tradeoffs rather than pointing out these differences because
weight was unevenly distributed. (USA MJAR at 29–30). The RFP requires TRANSCOM to
equally weigh the four subfactors, but it permits a finding that the “impact” of HomeSafe’s SF4
strengths is greater than CGSL’s strengths under other SFs. (AR34667–68). The Court of Federal
Claims has upheld an agency’s determination that the awardee’s superiority in one equally
weighted subfactor outweighed a disappointed bidder’s superiority in another subfactor in a best
value procurement. See Plasan N. Am., Inc. v. United States, 109 Fed. Cl. 561, 577 (2013)
(finding that award turning on one subfactor did not indicate greater weight, but that awardee
outperformed disappointed bidder by greater magnitude than the disappointed bidder
outperformed in other subfactors). Just because all SFs are of equal importance for evaluation
purposes does not mean that, in conducting best value determination, an offeror’s approach to
one SF cannot be more valuable than another offeror’s approach to a different SF. In plainer
terms, equally important requirements do not translate to equally valuable approaches.
TRANSCOM’s conclusion regarding the relative impact of the offerors’ strengths did not
create a new weighting scheme centered on the percentage of moves impacted by a particular
proposal feature but instead constituted an observation about the degree of benefits to the United
States. Statements and comparisons in this regard are inherent in a best value tradeoff. See Am.
Relocation Connections, LLC v. United States, 147 Fed. Cl. 608, 617–19 (2020) (acknowledging
agency “discretion—and duty—to analyze one offeror’s superiority over another, especially their
technical capabilities to perform the contract”). The Court finds that the SSA’s relative weighting
as it appears in the Record is perfectly reasonable and consistent with the solicitation. It does not
evidence an improper predilection for HomeSafe as ARC and CGSL contend.
2. Best Value Tradeoff Analysis
CGSL and ARC assert that TRANSCOM’s best value tradeoff analysis was irrational.
Again, these arguments amount to subjective disagreement with the Agency’s analysis. Mere
disagreement from a protestor does not establish that an agency’s decision lacked a rational
basis. KSC Boss, 142 Fed. Cl. at 380–81.
“Procurement officials have substantial discretion to determine which proposal represents
the best value for the government.” E.W. Bliss, 77 F.3d at 449. Adjectival ratings “are not subject
to a mathematical calculation.” Glenn Def. Marine, 720 F.3d at 909 n.6. Additionally, “[t]he
process of making a ‘best value’ decision is not merely an exercise in adding up strengths and
weaknesses, but a comprehensive comparative analysis that necessarily is influenced by the
procurement official’s expertise.” Coastal Int’l Sec., Inc. v. United States, 93 Fed. Cl. 502, 550–
51 (2010) (citing Galen Med. Assocs., 369 F.3d at 1330).
The FAR requires an agency’s final award decision to “be based on a comparative
assessment of proposals against all source selection criteria in the solicitation.” FAR 15.308. “To
determine whether and to what extent meaningful differences exist between proposals, agencies
should consider both adjectival ratings and information on advantages and disadvantages of the
proposals.” Femme Comp Inc. v. United States, 83 Fed. Cl. 704, 758 (2008) (internal quotations
18
omitted). “Looking beyond the adjectival ratings is necessary because proposals with the same
adjectival rating are not necessarily of equal quality.” Id. (internal quotations and citations
omitted).
CGSL argues that even if the Court determines that the evaluation ratings and assignment
of strengths were reasonable, the tradeoff was arbitrary and contrary to law because the SSA
failed to (1) exercise reasonable “independent judgment,” (2) accurately assess the relative merit
of CGSL’s and HomeSafe’s proposals, and (3) give due weight to CGSL’s $225 million cost
savings. (CGSL MJAR at 32–33). Specifically, CGSL takes issue with the SSA’s single-
paragraph iteration to explain why HomeSafe was the superior offeror. (Id at 33 (citing Tab 201
at AR34671)). CGSL maintains that this finding ignores multiple aspects of CGSL’s proposal
containing more detail than HomeSafe’s proposal due to the SSAC’s determination that no
discernible difference in detail existed. (Id.). CGSL insists that the ignored excerpts of its
proposal show that CGSL had a greater understanding of multiple requirements, such as CGSL’s
proposal to accept original packaging from the customer under PWS § 1.2.6.3.1, Packing
Materials, (see Tab 196a at AR31301); how CGSL would resolve claims for PWS § 1.2.7.2.4,
Hardship Expenses, (see id. at AR31307); and the specific subject matter of its government
personnel training under Appendix A.2.2.5, (see id. at AR31351). (CGSL MJAR at 33).
ARC opines that TRANSCOM’s best value tradeoff was unreasonable because it did not
perform any analysis of whether ARC’s SF 1 approach was more beneficial than HomeSafe’s SF
2 approach. (ARC MJAR at 34). ARC asserts that the SSA instead concluded that because each
offeror was superior under one of these subfactor tradeoffs, the approaches overall were “roughly
equivalent.” (ARC MJAR at 34 (citing AR34472). Had it compared those subfactors, ARC
believes that the SSA would have concluded that its SF 1 approach, which would “significantly
affect both customers and the customer’s property,” was more beneficial than HomeSafe’s SF 2
approach, which merely “contributes to an overall improved move experience.” (Id. (citing
AR34470, AR34472)).
That there were no “discernible differences” between various strengths among proposals
is not an indication they were not considered when TRANSCOM made its final award. It merely
shows that strengths existed for both offerors that did not warrant further distinction. This does
nothing more than illustrate that the SSA acknowledged the benefits of both offerors; to consider
it further is an invitation for the Court to replace its judgment for the agency’s, an improper
intrusion into the discretion afforded the agency. See KSC Boss, 142 Fed. Cl. at 380–81. The
Record shows that HomeSafe had higher adjectival ratings under SFs 2 and 4, but TRANSCOM
did not rely on adjectival ratings or a rote counting of strengths and weaknesses; the United
States notes that “there are nearly 200 pages of documentation demonstrating that TRANSCOM
appropriately went behind the adjectival ratings in conducting a qualitative analysis between
CGSL and HomeSafe that . . . supports its best value determination.” (USA MJAR at 26 (citing
Tab 258a at AR37780)). This is affirmative evidence that the SSA considered the offerors’
proposals fully and comprehensively.
As to ARC’s additional arguments, the Agency rated both HomeSafe and ARC
“Acceptable” under SF 3 but concluded that ARC was more advantageous in “one (1) out of
eleven (11) requirements.” (Tab 200 at AR34423). That is, ARC already received an advantage
19
under SF 3 and cannot reasonably show that a single additional strength would have merited a
higher rating (much less a $1.6 billion premium).
Finally, CGSL cites the SSA’s statement that servicemembers are “absolutely deserving
of the quality of service and support HomeSafe will provide” and that HomeSafe’s proposal
therefore “handedly warrants” a $225 million price premium. (CGSL MJAR at 33 (citing
AR34673)). CGSL believes that this supports the contention that “the SSA readily admitted that
he viewed non-price factors as more important than price.” (Id. (emphasis removed)). Not so, but
it is nevertheless obviated by the explicit language of the RFP. The RFP stated that each
“Offeror’s Technical Capability will be evaluated on a basis approximately equal to price.” (Tab
136 at AR21148 (emphasis added)). This has no bearing on the best value tradeoff analysis
because there is no requirement that non-price factors be weighted exactly equal to price as
CGSL contends. (Tr. Or. Arg. at 17:12–18 (CGSL Counsel: “It’s saying that because the
contracted services are critical, therefore . . . this is more important. And that’s an example of . . .
treating technical as more important than price.”)). Thus, the RFP clearly contemplates different
weights given to non-price factors.
TRANSCOM was clearly within its discretion to evaluate this procurement under a best
value tradeoff analysis instead of a price-based analysis. And there is no designated method for
conducting a best value determination; it is an analysis specific to agencies that may vary from
one solicitation to another. In a best value tradeoff analysis, the agency provides guidance as to
the relative weight of price and technical factors, but it is not bound to blindly adhere to a crude
metric as suggested by Plaintiffs. This is not simply a “cost versus technical” analysis. (See Tr.
Or. Arg. 42:9–10). The Court has held that in a best-value procurement, agencies may decide to
select a lower-technically-rated proposal, even if the solicitation emphasizes the importance of
technical merit, if it decides that the higher price of a higher-technically-rated proposal is not
justified. Mil-Mar Century Corp. v. United States, 111 Fed. Cl. 508, 552–553 (2013) (citing 48
C.F.R. § 15.101-1(a)). Under that rationale, the inverse must also be true—that under a best
value tradeoff analysis it is reasonable for an agency to decide that the higher price of a higher-
technically-rated proposal is justified. CGSL’s argument is a misplaced attempt to convert this
procurement into a lowest-price procurement. As iterated in the preceding section, a procurement
official is granted more discretion in a best value tradeoff analysis because the two are inherently
different based on the procurement. See Galen Med. Assoc., 369 F.3d at 1330.
v. HomeSafe’s representation regarding FedRAMP compliance was not material
to the solicitation and therefore cannot prejudice ARC.
ARC next claims that TRANSCOM should have disqualified HomeSafe because its
proposal included a material misrepresentation. 5 ARC’s argument is comprised of three
components: (1) HomeSafe’s representation that “ has achieved FedRAMP High
compliance” was false because had obtained authorization only at the lower, Moderate,
level; (2) HomeSafe’s misrepresentation was material because TRANSCOM relied on it to
award HomeSafe a strength that contributed to its award decision; and (3) ARC was prejudiced
5
This argument has been the subject of various other Court orders, (ECF Nos. 42, 67), regarding
discovery. Facts and findings in those orders are adopted in this Opinion.
20
because, in any reevaluation, HomeSafe would be disqualified based on its misrepresentation.
(ARC MJAR 8–16).
Bid protests are typically judged in a finite universe, one limited by the administrative
record. When proposals use falsified information or offerors wish to use evidence outside of the
administrative record, the sky opens allowing the Court to consider extraneous evidence. To
establish a material misrepresentation, a protester must demonstrate that “(1) [the awardee] made
a false statement; and (2) the [agency] relied upon that false statement in selecting [the
awardee’s] proposal for the contract award.” Blue & Gold Fleet, LP v. United States, 70 Fed. Cl.
487, 495 (2006) (citation omitted), aff’d, 492 F.3d 1308 (Fed. Cir. 2007); see also Sealift, Inc. v.
United States, 82 Fed. Cl. 527, 538 (2008). It would be naïve to believe “that the evidence
necessary to support a claim of a knowing misrepresentation in a proposal would ever be located
in an agency’s administrative record filed with the Court.” Golden IT, LLC v. United States, 157
Fed. Cl. 680, 702 (2022) (citations omitted). For the Court to evaluate ARC’s material
misrepresentation allegations, it logically follows that the Court must consider extrinsic
information supporting those allegations. Connected Glob. Sols., LLC v. United States, 160 Fed.
Cl. 420, 424 (2022). The Court has considered the extrinsic information put forth by ARC and
finds that ARC has not carried its burden. Though the Court is concerned with the veracity of
HomeSafe’s statement, ARC was not prejudiced because the relevant factor was not material to
the procurement.
“FedRAMP” refers to the Federal Risk and Authorization Management Program, which
provides a standardized approach to security assessment, authorization, and continuous
monitoring for cloud products and services as a prerequisite for use by the Federal Government.
(Tab 231 at AR37116; Tab268.427 at AR50453). FedRAMP provides “a uniform way to
determine . . . security capabilities.” Oracle Am. v. United States, 144 Fed. Cl. 88, 118 (2019).
The security categories are based on the potential impact that certain events would have on an
organization’s ability to accomplish its assigned mission, protect its assets, fulfill its legal
responsibilities, maintain its day-to-day functions, and protect individuals. (ECF No. 42 at 2
(citation omitted)). Security ratings are categorized into one of three impact levels—Low,
Moderate, and High–across three security objectives—Confidentiality, Integrity, and
Availability. (Tab 268.427 at AR50453.).
Under the IT Services SF of the GHC RFP, TRANSCOM asked offerors to describe their
technical approaches to meeting 16 separate requirements, one of which was “Secure Access.”
(Tab 7 at AR201; Tab 201 at AR34667). For this requirement, contractors had to “provide and
maintain an easy to use, secure, web-based, mobile device compatible IT system able to manage
complete household goods relocation services globally during peak (surge) and non-peak
seasons.” (Id.). To meet the secure access requirement, HomeSafe proposed the use of “ ”
products and services. (Tab 178b at AR28160). HomeSafe’s proposal
indicated that “[ has achieved FedRAMP High compliance, HomeSafe is able to take
advantage of Authority to Operate (ATO) to ensure its own FedRAMP compliance,”—
the problematic statement at issue. (Id.).
The FedRAMP program management office, under the auspices of the GAO, maintains a
public website that lists all FedRAMP authorizations, including the impact level of each
authorization. FedRAMP Marketplace, FedRAMP, https://marketplace.fedramp.gov (last visited
21
Oct. 16, 2022). ARC points to this publicly available information showing that has
achieved authorization only at the Moderate impact level. (ARC MJAR at 9). ARC thus argues
that the representation that had achieved a High compliance score is a material
misrepresentation and takes issue with HomeSafe receiving a strength because of that
compliance score. (Id.). ARC cites the SSEB’s praise of HomeSafe’s IT plan, which stated:
As stated, has achieved FedRAMP High compliance which involves the
highest level of security controls. As such, a highly secure
solution provides the most stringent security
controls resulting in a heightened level of security for
. As such, this aspect of the proposal was considered to be
advantageous to the Government.
(Tab 178b at AR28160).
ARC previously noted this perceived misrepresentation in its protest before the GAO; the
GAO subsequently invited the parties to provide additional briefing on the appropriate remedy
when an offeror’s proposal contains a material misrepresentation. (Tab 239a.). In response,
HomeSafe submitted an apparently self-serving declaration from the President of one of its
subcontractors as evidence that HomeSafe did not intend to “mislead the Agency regarding
FedRAMP status,” and indicated that HomeSafe relied on publicly available information
from website. (Id. at AR37422–23, ¶ 10). The declaration seems to indicate that the
program could be configured to meet specific needs in instances where a High rating was
necessary. It states that website includes documentation advising users on how to
configure for FedRAMP compliance. (Id.).
The referenced documentation provides, in relevant part, that
(Id. at AR50454). Further,
the declaration states that website informs users that
(Tab 239a at AR37422–23). The GAO determined that, based on these representations,
HomeSafe had not made material misrepresentations in its proposal. (Tab 251 at AR37535). The
Court is not bound by the GAO’s determination, nor is it particularly swayed by it, but it accepts
its explanation as instructive.
The Court begins its analysis by addressing Defendants’ misconceptions regarding the
viability of a material misrepresentation claim. As the Court has held and reiterated, HomeSafe’s
intent is immaterial. Connected Glob. Sols., LLC v. United States, 159 Fed. Cl. 801, 808 (2022)
(“Assuming this would go to HomeSafe’s intent, rather than the fact that HomeSafe made a
misrepresentation, that is not at issue.”); Connected Glob. Sols., 160 Fed. Cl. at 424 (“the Court
notes again that the relevant inquiry here is whether HomeSafe’s representation on its face was
false, not HomeSafe’s intent.”). A material misstatement made with the intent to deceive is
particularly egregious, but that “does not mean that an agency lacks the discretion to disqualify a
proposal that contains a material misrepresentation that an offeror included inadvertently (as
opposed to intentionally) in its proposal.” NetCentrics Corp. v. United States, 145 Fed. Cl. 158,
22
169 (2019). Simply put, it is nonsensical to explore the subjective factors of “intent” in a case
normally confined to an administrative record.
The United States equates this misrepresentation issue to an issue of contract
administration. (USA MJAR at 32). The Court rejects this argument. The United States bases
this, in part, on a case decided by the undersigned. In Huffman Bldg. P, LLC v. United States, the
Court found that the awarding agency was entitled to rely on the awardee’s representation of
technical compliance based on the totality of the circumstances. 152 Fed. Cl. 476, 486–87
(2021). Here, the United States ignores that ARC’s allegation could have been proved or
disproved by documents within TRANSCOM’s access. FedRAMP is a publicly available
website, completely dissimilar to the outside records at issue in Huffman. It is unreasonable to
find that the United States is entitled to rely on representations it has the resources to debunk
merely by looking to easily accessible records.
HomeSafe also argues that the Federal Circuit does not recognize offeror
misrepresentation (absent agency involvement or indicia on the face of a proposal) as an APA
bid protest cause of action. (HomeSafe MJAR at 9–11). This is false. Allegations of material
misrepresentation can be the basis for a bid protest. See e.g., LightBox Parent, L.P. v. United
States, ___ Fed. Cl. ___, 2022 WL 4241847, at *6 (Fed. Cl. Aug. 26. 2022) (acknowledging that
the Court of Federal Claims has employed this in the context of bid protests); Plan. Rsch. Corp.
v. United States, 971 F.2d 736, 740–41 (Fed. Cir. 1992) (“[T]he misrepresentations of [the
contractor], together with the ‘massive’ personnel substitutions made by [the contractor] after
award with the acquiescence and assistance of [the agency], tainted the bidding and evaluation
process.”); Optimization Consulting, Inc. v. United States, 115 Fed. Cl. 78, 99 (2013) (“[T]he
submission of a misstatement, as made in the instant procurement, which materially influences
consideration of a proposal should disqualify the proposal.”) (internal quotations omitted); Blue
& Gold Fleet, 70 Fed. Cl. at 495 (“To preserve the integrity of the solicitation process when such
a material misrepresentation influences the award of the proposal, the proposal is disqualified
from consideration.”). Thus, any argument that a material misrepresentation claim is improper
before this Court is not well founded.
Turning to the merits of ARC’s claim, the FedRAMP website shows that had not
achieved High Compliance at the time of award. In an attempt to salve this, the United States
points out that, to achieve DoD IL4 PA status, typically a company must hold FedRAMP
Moderate status at a minimum, and then implement the heightened DoD-specific controls.
(AR50454). DoD IL4 PA status exceeds FedRAMP Moderate security requirements and
fundamentally met the FedRAMP High requirements, which are less stringent than DoD-specific
security requirements. (Id.). It is outside of this Court’s purview to equate the standards of DoD-
specific controls and FedRAMP compliance.
Based on the documents supplied at the GAO’s request, (Tab 239a AR37422–23),
Defendants have shown allows users to configure the settings to meet High compliance.
The statement at issue, that HomeSafe may take advantage of High compliance score, is
not entirely false. Even so, it is suspect. Offerors should take care to utilize transparent language
in their bids. Likewise, agencies are not relieved from reviewing records in their own control (or
subject to an internet search) to debunk terms of a proposal.
23
Despite the truthfulness of the statement, ARC must show the Agency’s material reliance
in making its final award. ARC cannot. Misstatements must materially influence the
consideration of a proposal. See Optimization Consulting, Inc., 115 Fed. Cl. at 99. TRANSCOM
found that HomeSafe was more advantageous under SF 4 based on an evaluation of 16
requirements, one of which was secure access. (Tab 201 at AR34667; see also Tr. Or. Arg.
69:20–23 (DOJ Counsel: “TRANSCOM found HomeSafe more advantageous based on -- it was
the 16 requirements were evaluated; it was more advantageous in nine out of 16
requirements.”)). Thus, this was a mere, single requirement among several under IT Services.
There is no evidence that the SSA materially relied on this particular requirement; it is not
explicitly stated in the SSDD.
The only other apparent way to justify that this representation was a material part of the
award decision is to show that it was relevant to a material term of the solicitation. By ARC’s
own admission, a solicitation term is material where it has more than a negligible impact on the
price, quantity, quality, or delivery of the subject of the proposal. (ARC MJAR at 12 (citing
Mortg. Contracting Servs., 153 Fed. Cl. at 142). ARC has not shown that the secure access
requirement had an integral impact on pricing, quality, quantity, or delivery. Thus, because it
was not material to the solicitation, it is not likely to have been materially relied upon.
ARC counters that the content need not relate to a material term of the contract in order
to constitute a material misrepresentation. (See Tr. Or. Arg. 32:17–19 (ARC Counsel: “What
we’re looking at in the material, is it material to the [A]gency’s evaluation of the proposals.”)).
But that does not acknowledge ARC’s burden to prove that TRANSCOM materially relied on
that false statement in selecting HomeSafe’s proposal for the award. Unless the SSA’s decision
clearly denotes that secure access requirements materially influenced this decision or the secure
access requirement relates to a material contract term, the Court cannot find that it can rise to the
level of a material misrepresentation. Therefore, whether achieved FedRAMP High
compliance was not a determining factor in the Agency’s award decision and cannot be a
material misrepresentation warranting disruption of the award.
vi. TRANSCOM’s price analysis was not arbitrary and capricious.
ARC next argues that the pricing analysis used by TRANSCOM was based on
disqualified bids and therefore arbitrary. When the Agency obtained new proposals in December
2020 from ARC, HomeSafe, and CGSL, the Record states it used FAR 15.404-1(b)(2)’s first
price analysis technique—comparing proposed prices. (Tab 199 at AR32395–96). But, as ARC
maintains, the Agency could not have compared the December 2020 proposed prices from ARC,
HomeSafe, and CGSL to each other because TRANSCOM found all December 2020 proposals
unacceptable. (Tab 198 at AR31391–96 (identifying deficiencies in each proposal in each
round)); see also FAR 15.001 (defining a “deficiency” as “a material failure . . . that increases
the risk . . . to an unacceptable level”). Instead, the Agency looked back in time to its “Pre-
Competitive Range Determination data” and compared ARC’s, HomeSafe’s, and CGSL’s
current prices to the prices proposed by the seven original competitors in their initial proposals
from November 2019. (Id.). ARC claims that this method is inapplicable because those prices
were found to be unacceptable. The Agency repeated this evaluation—using these static
benchmarks—in each evaluation round and used the results to inform discussions. (See generally
Tab 199).
24
ARC ignores that FAR part 15 does not require the United States to recalculate fair and
reasonable pricing thresholds after the competitive range is set, if an offeror removes itself from
the competition, or if the agency takes corrective action. See generally FAR 15.4. As HomeSafe
notes, “normally” does not mean “mandatory,” it only provides an example of when
recalculation might occur. (HomeSafe MJAR at 50).
ARC fails to identify any statutory or regulatory provision that would require
TRANSCOM to update its reasonable price estimates in the period between the initial RFP and
final award. To evaluate a price for balance and reasonableness, the FAR prescribes a menu of
“price analysis techniques and procedures.” FAR 15.404-1(b)(2), 15.404-1(g)(2). These
techniques and procedures include comparing a particular price to “proposed prices received in
response to the solicitation.” FAR 15.404-1(b)(2). Therefore, TRANSCOM adequately
established a fair and reasonable price pursuant to FAR part 15. See FAR 15.404-1(b)(2)(i)
(“Comparison of proposed prices received in response to the solicitation. Normally, adequate
price competition establishes a fair and reasonable price (see 15.403-1(c)(1)).”).
ARC argues that had TRANSCOM employed what it believes to be the correct price
analysis, it would have identified ARC’s price as unreasonable, thereby obligating it to hold
discussions and give ARC the opportunity to make its proposal competitive. (Tr. Or. Arg. at
37:17–21). The fatal flaws to ARC’s argument are that (1) ARC admits it could not have reduced
its price and cannot prove prejudice, (Tab 214 at AR35367 (
)), and (2) this
would only be compelling had ARC’s price been found to be unreasonable—it was not.
Therefore, any error that may have occurred in determining the reasonableness of price was not
prejudicial to offerors.
vii. The CO’s responsibility determination was rational.
ARC argues that the CO’s responsibility determination brushed aside, without any
rational basis, serious national security concerns raised by an outside review. ARC believes that
had TRANSCOM conducted a rational responsibility determination, HomeSafe would have been
eliminated from the competition or required to significantly revise its technical approach to
mitigate its responsibility risks. (ARC MJAR at 35). The United States counters that
TRANSCOM appropriately considered all relevant information and rationally found HomeSafe
responsible. (USA MJAR (citing Tab 251 at AR37526–529.)). The Court agrees with the United
States.
COs “are ‘generally given wide discretion’ in making responsibility determinations and
in determining the amount of information that is required to make a responsibility
determination.” Supreme Foodservice GmbH v. United States, 112 Fed. Cl. 402, 415 (2013).
Responsibility determinations are a matter of “business judgment” and COs are “generally given
wide discretion” in making them. Bender Shipbuilding & Repair Co. v. United States, 297 F.3d
1358, 1362 (Fed. Cir. 2002). An agency’s responsibility determination is entitled to a
“presumption of regularity,” and a plaintiff “necessarily bears a heavy burden” in seeking to
rebut that presumption. Impresa Construzioni, 238 F.3d at 1338. Although the FAR requires a
CO to have, or to obtain, enough information to make a responsibility determination, the
contracting officer is the arbiter of the type of information he needs and the breadth of that
25
information. John C. Grimberg Co., Inc. v. United States, 185 F.3d 1297, 1303 (Fed. Cir. 1999)
(citing FAR 9.105–1(a)).
Here, TRANSCOM engaged Exiger, a contractor supporting the Office of the Secretary
of Defense, to provide a report so TRANSCOM could “fully assess an apparent awardee’s
responsibility.” (Tab 268.428 at AR50465). Exiger was contracted to evaluate topics “including,
but not limited to, [risk associated with] foreign ownership and control,” (id. at AR50465,
AR50457–58), in order for TRANSCOM to “do a solid assessment of the apparent awardee’s
responsibility,” regardless of the unclassified nature of the contract, (id. at AR50463). Exiger
produced an extensive report including risk profiles for several issues, such as foreign
ownership, control, and influence, as applied to HomeSafe and its beneficiaries. (Tab 204c at
AR35153–212; see also Tab 204d). Specifically, it identified Sun Capital Partners, a US-based
private equity firm, into which numerous other funds invest capital from a range of both
domestic and foreign investors. (Id. at AR35137). Sun Capital Partners’ fund, in turn, invests
money in Tier One Relocation LLC, which is one of the 50/50 joint venture partners of
HomeSafe. (Id.). Exiger also documented that Tier One’s higher-level parents presented
concerns due to their “investments in high-risk jurisdictions like China or Russia,” which could
“create exposure and potential vulnerability to foreign intelligence targeting operations,” and
allow “[a] determined foreign intelligence activity” to “elicit valuable operational information
from tracing the movements of U.S. military and special forces personnel around the U.S. or the
world.” (Tab 204c at AR35154). Based on these findings, Exiger determined that HomeSafe
merited a “Medium” risk rating. (Tab 204c at AR35159). TRANSCOM found that these factors
did not impact the responsibility level attributed to HomeSafe. (Tab 204 at AR34713–15).
Contrary to ARC’s contentions, a Medium risk rating does not lend itself to an
irresponsible rating. Exiger found that the foreign investors of Sun Capital Limited Partners are
passive owners. (Tab 204c at AR35155). TRANSCOM conducted a step-by-step evaluation
under FAR 9.104 to explain its responsibility determination. (See generally Tab 204).
TRANSCOM found no nexus between Sun Capital Partners’ fund, and any possible foreign-
based influence, because of the wide distribution of both investors and the entities receiving
investments from this fund. (Id. at AR34713). TRANSCOM concluded that the combination of
these factors effectively eliminates any realistic possibility of foreign control or influence over
Sun Capital Partners, let alone Tier One Relocation LLC, as the recipient of capital from the
fund. (Id.). Further, the Agency concluded that “[HomeSafe] itself is even more insulated from
this risk as Tier One Relocation LLC is but one of its 50/50 joint venture partners.” (Id.). Due to
the attenuation between these companies, the Agency’s finding is reasonable.
ARC references vague concerns about national security risks relating to HomeSafe
winning this procurement, (ARC MJAR at 37–38), but this is not a classified contract. (Tr. Or.
Arg. at 45:9–10). The RFP relates to relocation services for household goods and there are no
explicit aspects of this contract that implicate national security concerns. (See Tab 134b1 at
AR21077; AR21084). If TRANSCOM believes that its interests, as well as the interests of its
service members and their families, are sufficiently protected, it alone bears the risk of that
decision. The Court cannot substitute its judgment for that of the Agency. Even so, there is no
indication that these non-U.S. beneficial owners have any interest in, let alone a realistic
opportunity to obtain, GHC data, sensitive or otherwise.
26
viii. Miscellaneous
There are a host of other arguments offered by Plaintiffs, notably that TRANSCOM’s
evaluation breached its duty to consider other proposals honestly and fairly and that any
violations of procurement law prejudiced the other offerors. Success on either of these arguments
would necessitate a finding that a violation occurred. The Court finds no error.
Plaintiffs also request this Court to permanently enjoin the award to HomeSafe. A party
seeking permanent injunctive relief must show that: (1) it “has succeeded on the merits of the
case;” (2) it “will suffer irreparable harm if the court withholds injunctive relief;” (3) “the
balance of hardships to the respective parties favors the grant of injunctive relief;” and (4) “it is
in the public interest to grant injunctive relief.” PGBA, LLC v. United States, 389 F.3d 1219,
1228–29 (Fed. Cir. 2004). Because Plaintiffs have not succeeded on the merits of this protest, no
injunctive relief is warranted.
Pursuant to RCFC 7 and 52.1, the United States moves to strike paragraphs 3–17 of a
declaration, (ECF No. 78-1), that ARC submitted with its Response to the United States’ Cross-
Motion for Judgment on the Administrative Record. (ECF No. 85). Because the Court did not
consider the Declaration in this ruling, the United States’ Motion to strike is DENIED AS
MOOT.
III. Conclusion
Plaintiffs have not met their burden to show that the GHC was awarded arbitrarily,
capriciously, or contrary to law. Thus, the Court declines to disturb the award to HomeSafe.
CGSL’s and ARC’s Motions for Judgment on the Administrative Record, (CGSL MJAR, ECF
No. 62; ARC MJAR, ECF No. 61), are DENIED. The United States and HomeSafe’s Motions
for Judgment on the Administrative Record, (USA MJAR, ECF No. 74; HomeSafe MJAR, ECF
No. 75), are GRANTED.
The Clerk is DIRECTED to enter judgment accordingly. The parties shall meet and
confer and file a Joint Status Report proposing redactions to the memorandum opinion by
November 14, 2022 to allow the Court to file a public version of the opinion.
IT IS SO ORDERED.
s/ David A. Tapp
DAVID A. TAPP, Judge
27 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484143/ | IN THE COMMONWEALTH COURT OF PENNSYLVANIA
In Re: Appeal of Curtis Building :
Co., Inc. :
PO Box 415 :
Jenkintown, PA 19046 :
:
From the Decision of the :
Lower Providence Township :
Zoning Hearing Board :
100 Parklane Drive :
Eagleville, PA 19403 : No. 645 C.D. 2021
: Argued: March 7, 2022
Regarding Property at 5th Street :
Between the House 3002 5th :
Street and the Lot of Suburban :
Building Co. Block 21, Units 96 :
and 97 Lower Providence Township, :
Norristown, PA 19403 :
Parcel No. 43-00-04681-00-1 :
:
Appeal of: Lower Providence :
Township :
BEFORE: HONORABLE RENÉE COHN JUBELIRER, President Judge
HONORABLE ELLEN CEISLER, Judge
HONORABLE LORI A. DUMAS, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
PRESIDENT JUDGE COHN JUBELIRER FILED: November 16, 2022
Lower Providence Township (Township) appeals from the May 3, 2021 Order
of the Court of Common Pleas of Montgomery County (common pleas), reversing
the November 12, 2020 Decision of Lower Providence Township Zoning Hearing
Board (Board). The Board denied the application for dimensional variances
(Application) filed by Curtis Building Company, Inc. (Applicant) from Section 143-
37(A)(2) of the Township’s Zoning Ordinance (Ordinance), LOWER PROVIDENCE
TOWNSHIP, PA., ZONING ORDINANCE (ORDINANCE) § 143-37(A)(2) (2020), in order
to construct a single-family home on an undersized lot (the Property). The Board
found that Applicant did not meet the requirements for obtaining a variance because
Applicant failed to address Section 143-145.B.(3) of the Ordinance (Ordinance 662),
which established requirements for the merging of adjacent lots and expanded the
definition of “same owner.” Upon appeal, without taking additional evidence,
common pleas reversed the Board’s denial of the variance. Common pleas found
there was not substantial evidence to support that Charles Breinig (Breinig),
Applicant’s Vice President, was the same owner of the Property and adjacent
properties under Ordinance 662, and, essentially, that Ordinance 662 could not
legally require the merger of the Property with adjacent properties. On appeal, the
Township requests that this Court either reverse common pleas, or vacate and
remand the matter so that the Board can conduct a hearing on the applicability of
Ordinance 662 to the Application. For the following reasons, we are constrained to
affirm.
I. BACKGROUND
A. The Application and Ordinance 662
Applicant owns the Property, which is located at Fifth Street in the Township,
and is known as Block 22, Units 96 and 97, and identified as Montgomery County
Tax Parcel Number 43-00-04681-00-1. (Board’s Decision at 1.)1 The Property is a
vacant, rectangular lot measuring 60 feet wide by 100 feet deep, for a total area of
The Board’s November 12, 2020 Decision is found at pages 111a through 125a of the
1
Reproduced Record.
2
6,000 square feet; is located in Township’s R-2 Residential Zoning District; and is
situated between a vacant lot owned by Suburban Building Company (Suburban)
(Suburban Lot) and a residential property owned by Michael Adams (Adams) at
3002 Fifth Street. (Board’s Decision, Findings of Fact (FOF) ¶¶ 2-3, 5, 7-8, 26.)
Applicant filed the Application with the Board on October 31, 2019,2 seeking
to build either a manufactured home or a stick-built home on the Property. (FOF
¶ 10; Reproduced Record (R.R.) at 071a.) Applicant sought the following variances
from Section 143-37(A)(2) of the Ordinance to allow: (1) a lot area of 6,000 square
feet where 25,000 is required; (2) a lot width of 60 feet where 100 feet is required;
(3) a front yard setback of 20 feet to right-of-way and 30 feet to cartway where a
minimum of 50 feet is required; and (4) a rear yard setback of 14 feet where a
minimum of 60 feet is required. (FOF ¶ 26; R.R. at 075a.)3 Applicant maintained
that the Property “suffers from a physical hardship” and “is a pre[]existing non-
conforming lot, held in single and separate ownership, that cannot conform to current
zoning regulations.” (R.R. at 069a.)
On January 16, 2020, after having been advertised four times between October
1, 2019, and January 8, 2020, the Township adopted Ordinance 662, which added
Section 143-145.B.(3) to the Ordinance and states:
2
The Application is found at pages 66a through 80a of the Reproduced Record. The
Application originally was filed by Applicant and Moser Construction Co., Inc., which was the
equitable owner of the Property by Agreement of Sale at the time the Application was filed. (FOF
¶ 1.) The Agreement has since expired, and Applicant is the sole entity with an ownership interest
in the property. (Id.)
3
Differences exist in the requirements from which the variances were requested in the
Application and those stated in the Board’s Finding of Fact. For example, the Application stated
that a lot area of 25,000 square feet was required, while the Finding of Fact stated 30,000 was
required. (Compare R.R. at 075a, with FOF ¶ 26.) The differences are based on whether the
Property would have access to both public water and sewer or access to one or the other.
3
[W]here two or more adjacent lots, one or more of which is
nonconforming based on lot size, are concurrently owned by the same
owner, these adjacent lots shall be merged to minimize the
nonconformity. The term “same owner” as used in this subsection
includes, in addition to a single person or entity, multiple persons with
familial relationships and multiple parties with common ownership,
business, and/or financial interests. Corporations, partnerships, or other
for-profit or nonprofit entities organized or used for the purpose of
avoiding of having adjacent lots being owned by the “same owner” are
not recognized as separate owners for the purposes of this subsection.
ORDINANCE § 143-145.B.(3).4
B. Board Proceedings
At a hearing before the Board on the Application on October 22, 2020
(October 2020 hearing),5 Applicant was represented by counsel and presented
Breinig as a witness. Numerous individuals appeared via Zoom to represent their
interests as owners of nearby properties. Breinig testified that he served as the Vice
President of Applicant, and the Board recognized him as an expert in real estate
development, as he had appeared many times before the Board in zoning matters.
(R.R. at 150a-52a.) Counsel for Applicant questioned Breinig, who testified that
Applicant had previously entered into an agreement with Suburban to purchase the
Suburban Lot with the intention of constructing a house of similar size to those
nearby on this proposed, consolidated lot, which was conditioned upon zoning
approval. (Id. at 154a-55a.) However, Breinig explained that the Board denied that
zoning application and that the agreement with Suburban expired. (Id. at 155a.)
Breinig described that the Board had denied other variance requests with which he
4
Ordinance 662 is found at pages 324a through 426a of the Reproduced Record, and
Section 143-145.B.(3) is found at page 422a.
5
The transcript of the October 2020 hearing is located at pages 133a through 260a of the
Reproduced Record.
4
had been involved, including one for Adams’ property, which is the same size as the
Property, and common pleas had reversed the denials. (Id. at 155a-56a, 161a-62a.)
Breinig described how the Property, which had been laid out prior to the Township’s
first ordinance in 1955, was undersized and, as such, was a pre-existing,
nonconforming lot. He further explained how the requested variances were for the
construction of the smallest home possible, and that this sized home on the Property
was consistent with the surrounding neighborhood, which also consisted of similarly
sized homes on similarly undersized lots. (Id. at 158a-59a, 163a-65a.)
After the conclusion of the direct examination, Adams and another neighbor,
Pat McKernan (McKernan), had the opportunity to question Breinig. The following
exchange occurred:
[Adams]: . . . . I just want to clarify when it was described early on that
there was a plan for a consolidated property there. You mentioned they
were going to build a nicer home there. And[,] so[,] my question was,
Mr. Breinig, do you have any affiliation with [] Suburban . . . ?
[Breinig]: I do, yes.
[Adams]: All right. Is it your intention that if the zoning variance is
approved that you will plan to build on lot 97, which is next to my
home, is it your intention to build yet another property next to 97 on lot
98?
[Breinig]: We don’t know at this point.
....
[McKernan]: . . . are there any modular homes in that particular area
that you know of like off of Hillside, Fifth Street . . . ?
[Breinig]: Not yet.
[McKernan]: Not at all?
5
[Breinig]: Not yet. We have four that we are planning on putting on
the four lots that we have zoning approval from.
....
[McKernan]: . . . during your last meeting here for Sixth Street, I asked
you a question. I’m going to ask you the same question again. Do you
own property on a paper street as Eighth Street?
[Breinig]: Yes, we do.
(Id. at 176a-78a (emphasis added).) There appears to have been no further questions
or testimony concerning Breinig’s or Applicant’s relationship with Suburban. The
Township did not participate at the October 2020 hearing, and there was no
discussion at the hearing regarding the application or impact of Ordinance 662 on
the Application.
Following the October 2020 hearing, the Board issued its Decision on
November 12, 2020, denying the Application. The Board made the following
findings of fact concerning Breinig’s association with Applicant and Suburban:
(1) Breinig “testified that [Applicant] has owned the property since [] 1998”; and
(2) “Breinig also testified that he owns the adjacent parcels (as Suburban Building
Materials Co., Inc. and other entities) which could be utilize[d] to make the . . .
[P]roperty larger.” (FOF ¶¶ 13-14.) Concerning the request for variances, the Board
determined that “the Property was rendered undersized and too narrow by [a]
subsequently enacted Ordinance”; “the undersized nature and narrowness of the
[P]roperty are unique physical circumstances peculiar to that [P]roperty giving rise
to an unnecessary hardship”; the Property cannot be developed in strict adherence to
the Ordinance without variances; and “the construction of the [proposed] home will
not have detrimental impacts on the character of the neighborhood and the use and
enjoyment of adjacent properties.” (Board’s Decision at 9-12.)
6
The Board held that because “Breinig testified that he owns adjacent tracts of
ground under different entities,” Ordinance 662 would require the merger of the
adjacent lots with the Property, which would allow for more conformity with the
Ordinance’s zoning requirements. (Id. at 10.) “As evidence regarding these other
tracts was not presented, the Board finds that the Application has failed in the first
prong of the variance test as the Property could be brought into compliance on many
of the dimensional criteria if the additional lots were merged with the [ ] Property.”
(Id.) Essentially, the Board found that “[i]f the merger requirements of [] Ordinance
[662 we]re met by [] Applicant, the Property would be potentially brought into
compliance with the strict requirements of the Ordinance” and many of the variances
requested would not be needed. (Id.) Because “Applicant failed to address the
merger requirements” of Ordinance 662, the Board found Applicant did not satisfy
the second prong (that the property could not be developed in conformity with the
ordinance), the third prong (that the hardship was not self-inflicted), the fourth prong
(that granting the variance would not alter the essential character of the
neighborhood, impair the use or development of adjacent property, nor be
detrimental to the public welfare), or the fifth prong (that it requested the minimum
variances to afford relief) of the variance test. (Id. at 9-12.) In doing so, the Board
held that “Applicant . . . failed to present any evidence related to the number and
location of adjacent tracts with common ownership” and that “[i]t is believed that
[t]here are such tracts located adjacent to the [P]roperty on both Fifth Street and
Fourth Street.” (Id. at 12.) Accordingly, the Board denied the request for variances,
concluding that Applicant failed to satisfy the test for a variance and to “present any
evidence related to adjacent tracts and the merger of the same as required by
[Ordinance 662].” (Board’s Decision, Conclusions of Law ¶¶ 3-5.)
7
C. Appeal to Common Pleas
Applicant appealed to common pleas, and the Township filed a Notice of
Intervention. Without taking additional evidence, and after hearing argument and
accepting briefs on the matter, common pleas granted Applicant’s appeal and
reversed the Board’s Decision. (Common Pleas’ May 3, 2021 Order, R.R. at 430a.)
On May 14, 2021, the Township moved for reconsideration of common pleas’ May
3, 2021 Order, asserting that Applicant’s failure to address Ordinance 662 resulted
in Applicant failing to meet the requirements for obtaining the requested variances
and that Breinig testified to owning Applicant and Suburban. (R.R. at 441a-43a.)
The Township further asserted that common pleas lacked subject matter jurisdiction
to consider the substantive validity of Ordinance 662 because Applicant had not
challenged the same. (Id. at 443a-44a.) In the alternative, the Township requested
that common pleas remand the matter to the Board to allow the Board to consider
whether Ordinance 662 applied to the Application. (Id. at 444a.) Common pleas
denied reconsideration on May 28, 2021. (Id. at 449a.)
The Township appealed and, at common pleas’ direction, filed a Concise
Statement of the Errors Complained of on Appeal pursuant to Pennsylvania Rule of
Appellate Procedure 1925(b), Pa.R.A.P. 1925(b). In its responsive opinion filed
pursuant to Rule 1925(a), common pleas explained that while the Township
“acknowledge[d] that the [] Ordinance renders the [] Property non[]conforming with
respect to lot size and width requirements” and “concede[d] that the undersized
nature and narrowness of the [] Property are unique physical characteristics peculiar
to the [] Property giving rise to an unnecessary hardship,” the Township asserted
“that the evidence presented at the October 2020 [h]earing demonstrated that
Applicant owned lots adjacent to the [] Property under different entities and,
8
therefore, merger of these properties would be required under” Ordinance 662.
(Common Pleas’ 1925(a) Opinion at 5.) Common pleas determined, however, that
“[t]his assertion [wa]s belied by the record,” as “Breinig never testified that he was
the owner of [any] immediately adjacent properties[,] and there is no evidence
anywhere in the record to indicate he owns [any adjacent] properties.” (Id. at 14.)
Common pleas noted that the only discussion concerning a connection between
Breinig and an adjacent property occurred during the October 2020 hearing when
Adams asked if Breinig had any affiliation with Suburban, to which Breinig
responded in the affirmative. (Id.) Determining that “[t]here [wa]s not one scintilla
of evidence in the record that [Applicant] is the same company as Suburban . . . or
that the two entities are inextricably linked,” common pleas held the Board’s
findings of fact were not supported by substantial evidence, the Property was not
required to be merged with the Suburban Lot under Ordinance 662, and, in the
absence of such merger, the Property was entitled to the requested variances and the
Board abused its discretion in concluding otherwise. (Id. at 14-15.)
Common pleas also addressed the substantive issue of whether Ordinance
662’s definition of “same owner” was inconsistent with Pennsylvania law
concerning corporate organization, the definition of separate entities, and the
requirements for the traditional analysis of merger of lots, determining that a mere
affiliation cannot override the law defining corporations as distinct and separate
entities from its shareholders, officers, and employees and that the provision
effectively “pierced the corporate veil” as to Breinig and Suburban. (Id. at 16.)
Further, common pleas questioned the application of Ordinance 662, citing Section
917 of the Pennsylvania Municipalities Planning Code (MPC),6 53 P.S. § 10917, for
6
Act of July 31, 1968, P.L. 805, No. 247, as amended, added by Section 22 of the Act of
June 23, 2000, P.L. 495, 53 P.S. § 10917.
9
the proposition that Section 917’s protection for applicants relying on provisions in
place when their application is filed applied to the matter at hand. (Id. at 16-17.)
Finally, common pleas opined that it appeared that the Township’s enactment of
Ordinance 662 was in response to the Application. (Id. at 17.) Accordingly,
common pleas explained that it reversed the Board’s Decision because the Board’s
necessary findings were not supported by substantial evidence and, therefore, the
Board abused its discretion in denying the Application.
II. DISCUSSION
A. Parties’ Arguments
On appeal, the Township argues that common pleas erred in reversing the
Board’s Decision. The Township maintains that “[t]he record contains sufficient
evidence to establish that there was common ownership between [Applicant] and
Suburban,” asserting that Breinig “owns and controls parcels adjacent to the
Property as a principal of Suburban.” (Township’s Brief (Br.) 5-6, 18.) The
Township next asserts that common pleas erred in determining that Ordinance 662
was not applicable, lacked jurisdiction to determine the validity of that provision,
and erroneously applied Pennsylvania law concerning the doctrine of piercing the
corporate veil. (Id. at 5-6, 15). Further, the Township contends that common pleas
erred in applying Section 917 of the MPC as that provision applies only to special
exceptions or conditional uses, not requests for variances. (Id. at 20-24.) Finally,
the Township argues that common pleas erred in denying its request for
reconsideration and remand to the Board to consider the applicability of Ordinance
662 because, the Township contends, common pleas failed to judicially notice
Ordinance 662 “and the circumstance[s] surrounding the passing of Ordinance 662,”
and relied on “factual inaccuracies . . .” in making its determination. (Id. at 24-26.)
10
The Board filed a brief adopting the arguments in the Township’s Brief. (Board’s
Br. at 1.) However, the Board concedes that “[i]f Ordinance 662 is not applicable,
the Decision of the [] Board should be overturned.” (Id.)
Applicant responds that the Township bore the burden to prove that there was
common ownership between Applicant and Suburban and did not meet that burden,
as the record lacks evidence showing such common ownership. Because Applicant
otherwise satisfied the test for variances if Ordinance 662 is not implicated,
Applicant maintains that the Board erred in denying the Application. (Applicant’s
Br. at 19-20.) Applicant further asserts that because the Board’s finding of common
ownership is not supported by substantial evidence and because there is settled law
rebutting the presumptive merging of lots of common ownership, common pleas
properly reversed the Board’s use of Ordinance 662 to require the merger of the
Property and the Suburban Lot. (Id. at 14-16 (citing Loughran v. Valley View Devs.,
Inc., 145 A.3d 815 (Pa. Cmwlth. 2016); and Tinicum Twp. v. Jones, 723 A.2d 1068
(Pa. Cmwlth. 1998)).)
B. Analysis
When a trial court reviewing the decision of a zoning hearing board takes no
additional evidence, this Court reviews the zoning hearing board’s decision only for
an abuse of discretion or errors of law. In re Petition of Dolington Land Grp., 839
A.2d 1021, 1026 (Pa. 2003). A zoning hearing “board abuses its discretion when its
findings are not supported by substantial evidence.” Hawk v. City of Pittsburgh
Zoning Bd. of Adjustment, 38 A.3d 1061, 1064 n.5 (Pa. Cmwlth. 2012) (citation
omitted). Substantial evidence “is relevant evidence that a reasonable mind might
accept as adequate to support a conclusion.” Id. (citations omitted).
11
Under Section 143-168 of the Ordinance, the Board may grant a variance
where the following findings are made where relevant:
(1) That there are unique physical circumstances or conditions,
including irregularity, narrowness, or shallowness of lot size or shape,
or exceptional topographical or other physical conditions and not the
circumstances or conditions generally created by the provisions of the
. . . Ordinance in the neighborhood or district in which the property is
located.
(2) That because of such physical circumstances or conditions, there is
no possibility that the property can be developed in strict conformity
with the provisions of the . . . Ordinance and that the authorization of a
variance is therefore necessary to enable the reasonable use of the
property.
(3) That the unnecessary hardship has not been created by the
applicant.
(4) That the variance, if authorized, will not alter the essential character
of the neighborhood or district in which the property is located, nor
substantially or permanently impair the appropriate use or development
of adjacent property, nor be detrimental to the public welfare.
(5) That the variance, if authorized, will represent the minimum
variance that will afford relief and will represent the least modification
possible of the regulation in issue.
ORDINANCE § 143-168.7 See also Section 910.2(a) of the MPC, 53 P.S. § 10910.2(a)8
(containing substantially the same requirements). Thus, a variance is properly
granted where the applicant shows the following:
(1) an unnecessary hardship will result if the variance is denied, due to
the unique physical circumstances or conditions of the property;
(2) because of such physical circumstances or conditions the property
cannot be developed in strict conformity with the provisions of the
7
Section 143-168 of the Ordinance can be found in the Original Record at Item 32.
8
Section 910.2 was added by Section 89 of the Act of December 21, 1988, P.L. 1329.
12
zoning ordinance and a variance is necessary to enable the reasonable
use of the property; (3) the hardship is not self-inflicted; (4) granting
the variance will not alter the essential character of the neighborhood
nor be detrimental to the public welfare; and (5) the variance sought is
the minimum variance that will afford relief.
Taliaferro v. Darby Twp. Zoning Hearing Bd., 873 A.2d 807, 811-12 (Pa. Cmwlth.
2005) (quoting Ruddy v. Lower Southampton Twp. Zoning Hearing Bd., 669 A.2d
1051, 1053 (Pa. Cmwlth. 1995)). A showing of unnecessary hardship for an
undersized property requires that “(1) the physical features of the property are such
that it cannot be used for a permitted purpose; or (2) the property can be conformed
for a permitted use only at a prohibitive expense; or (3) the property is valueless for
any purpose permitted by the zoning ordinance.” Taliaferro, 873 A.2d at 812
(citation omitted). Further, the hardship must be “unique or peculiar to the property
as distinguished from a hardship arising from the impact of zoning regulations on
the entire district.” Id. (citation omitted).
In the present matter, the Board determined that Applicant had not carried its
burden in showing its entitlement to the requested variances essentially because
Applicant failed to address the merger requirements of Ordinance 662 and the Board
believed that it needed to do so. There does not appear to be any question that, in
the absence of the merger requirements of Ordinance 662, Applicant would have
met the requirements of the variance test, as the Board conceded as much in its brief
to this Court. (Board’s Br. at 1.)
Ordinance 662 provides that “where two or more adjacent lots, one or more
of which is nonconforming based on lot size, are concurrently owned by the same
owner, these adjacent lots shall be merged to minimize the nonconformity.”
ORDINANCE § 143-145.B.(3). Ordinance 662 defines “same owner” broadly to
include,
13
in addition to a single person or entity, multiple persons with familial
relationships and multiple parties with common ownership, business,
and/or financial interests. Corporations, partnerships, or other for-
profit or nonprofit entities organized or used for the purpose of avoiding
of having adjacent lots being owned by the “same owner” are not
recognized as separate owners for the purposes of this subsection.
Id.
Although the Township asserts numerous arguments as to why common
pleas’ Order should be reversed and the Board’s Decision reinstated, we begin with
the issue of whether the Board’s findings of fact that the “same owner,” Breinig,
owned the Property and the Suburban Lot are supported by substantial evidence. If
they are not, then Ordinance 662 is not implicated.
The Board will be found to have abused its discretion if its findings of fact are
not supported by substantial evidence. Hawk, 38 A.3d at 1064 n.5. The Board found
that Breinig “testified that [Applicant] has owned the Property since [] 1998” and
that “Breinig also testified that he owns the adjacent parcels (as Suburban . . . and
other entities)[,] which could be utilize[d] to make the subject [P]roperty larger.”
(FOF ¶¶ 13-14.) On appeal, both the Township and the Board cite to the transcript
of the October 2020 hearing before the Board to assert that “Breinig, principal of
[Applicant], owns and controls parcels adjacent to the Property as a principal of
Suburban.” (Township’s Br. at 5-6 (citing R.R. at 176a); Board’s Br. at 2 (citing
R.R. at 176a).)
In our review of the October 2020 hearing, the only specific testimony by
Breinig was that he was “affiliated” with Suburban, (R.R. at 176a), and
he or “we,” as Breinig sometimes stated, owned or had owned other properties in
the area. There was no questioning or testimony at the hearing regarding the nature
of that affiliation or the relationship between Applicant, Suburban, and Breinig. This
testimony alone does not constitute substantial evidence that supports the finding
14
that Breinig “testified that he owns the adjacent parcels (as Suburban . . . and other
entities),” (FOF ¶ 14), such that Ordinance 662 would be implicated.
It appears from the record before the Board, which accepted Breinig as an
expert in real estate development due to his prior appearances before it, that Breinig
owns and is actively involved in developing properties in this area, but the record
also reflects that Breinig was a real estate broker, the director of a mortgage reporting
service, an appraiser, and a title searcher.9 (R.R. at 20a, 151a-52a.) Indeed, the
Application indicates that Breinig participated as an expert in three of the variance
cases cited by Applicant in which common pleas reversed the Board. (Id. at 71a.)
And, the decisions in the other zoning cases cited by Applicant, in which the Board
denied similar variance requests and was reversed by common pleas, do not
reference Breinig. (Id. at 24a-31a, 45a-61a.) Further, those decisions do not help
to establish a link between the landowners here, Applicant and Suburban, or any
details regarding Breinig’s relationship with Suburban. (Id.) Accordingly, there was
nothing else in the Board’s record that supports the Board’s finding that Breinig
owned any of the adjacent properties, including the Suburban Lot.
Further, to be a “same owner” under Ordinance 662 so as to require the merger
of adjacent properties, the “multiple parties” must have “common ownership,
business, and/or financial interests,” and, if involving a corporation or for-profit
entity, the corporation or entity must have been “organized or used for the purpose
of avoiding of having adjacent lots being owned by the ‘same owner.’” ORDINANCE
9
From the transcripts of the oral argument before common pleas it appears that Breinig
and his family own and have owned and developed properties in the Township for decades through
various corporate entities, a fact that may have been well known to those in the area. However,
that this fact may have been generally known to the community does not make it a part of the
record that this Court reviews on appeal to determine whether the Board’s factual finding
regarding Breinig’s ownership of the Suburban Lot and the application of Ordinance 662 is
supported by substantial evidence.
15
§ 143-145.B.(3). Thus, the record would have to contain evidence that Applicant
and Suburban have common ownership, business, and financial interests, and were
organized or used to avoid having the Property and the Suburban Lot be considered
as being owned by the same owner. However, as discussed, the record in this case
contains only Breinig’s testimony that he was “affiliated” with Suburban. Without
more, we cannot say that Applicant and Suburban have common ownership, or have
common business and/or financial interests and that those entities were being used,
essentially, to avoid application of Ordinance 662. While the Township asks the
Court to remand to allow for additional evidence to establish Ordinance 662’s
applicability, the Township did not appear at the Board’s hearing and cannot, now,
seek to add evidence to remedy the weak proofs offered before the Board.
Accordingly, because the Board’s necessary findings of fact are not supported by
substantial evidence, it abused its discretion in denying the variance and common
pleas did not err in reversing.
The Township also argues that common pleas erred in reversing because the
Board’s determination is supported where Applicant “effectively admitted to
common ownership under Ordinance 662 when [its] counsel . . . stated at oral
argument: ‘I think that if the new section were valid, and if it were in effect when
we filed our zoning application, that, yes, it would apply . . . .’” (Township’s Br. at
17 (quoting R.R. 15a).) Such concession, according to the Township, is “ripe for
consideration” by the Court. (Id. (citing Erie Indem. Co. v. Coal Operators Cas.
Co., 272 A.2d 465, 467 n.6 (Pa. 1971)).)
In Erie Indemnity Company, which involved the grant of summary relief
based on consideration of facts asserted in the parties’ briefs, the Supreme Court
vacated the order, finding that the trial court erred in relying on facts outside the
16
record, but noted that “if in oral argument before this Court counsel concedes certain
facts these concessions may be considered by this Court.” 272 A.2d at 467 n.6.
While Applicant’s counsel made the statement cited by the Township, counsel also
stated that, when the lots in this area became nonconforming, “[t]hey were all under
single and separate ownership owned by various individual parties,” and that “[a]t
no point have any of these lots been in common ownership.” (R.R. at 007a.) Given
the various statements, it is not clear that Applicant’s counsel, in saying that
Ordinance 662 would apply if it was valid and in effect, conceded that Applicant and
Suburban had the “same owner,” the fact that would be necessary for the application
of Ordinance 662 to require a merger.10
10
The Township argues common pleas erred in addressing Ordinance 662’s validity
because Applicant did not challenge Ordinance 662’s validity before the Board. Reviewing the
record before the Board, neither the applicability nor the validity of Ordinance 662 were raised
before the Board and, as such, there was no evidence to meet the Township’s burden of showing
that Ordinance 662 was applicable. See Appeal of Gregor, 627 A.2d 308, 311 (Pa. Cmwlth. 1993)
(holding that “[t]he burden is placed upon the party who asserts a physical merger to establish”
that merger is required). Instead, it was in the Board’s Decision that the application of Ordinance
662 arose, and Applicant’s appeal to common pleas was the first opportunity it had to address the
application of Ordinance 662 to the variance requests. Additionally, we are not persuaded that
Applicant’s arguments would be classified as a substantive validity challenge because Applicant’s
challenge to Ordinance 662 arose from that provision’s application to the Property, rather than a
challenge to the validity of the entire ordinance. See Shuttle Dev. Corp. v. Upper Dublin Twp.,
338 A.2d 777, 779 (Pa. Cmwlth. 1975) (distinguishing between a substantive challenge to the
validity of an ordinance under a former, but equivalent provision of the MPC, from a variance
which relates to a zoning provision’s application to a particular property); Robin Corp. v. Bd. of
Supervisors of Lower Paxton Twp., 332 A.2d 841, 847 (Pa. Cmwlth. 1975) (same).
The Township further asserts that common pleas erred in applying Section 917 of the
MPC to conclude that Ordinance 662 did not apply to the Application because that provision
became effective in January 2021, which was after the Application was filed in October of 2020.
In pertinent part, Section 917 of the MPC states:
When an application for either a special exception or a conditional use has been
filed with either the zoning hearing board or governing body, as relevant, and the
subject matter of such application would ultimately constitute either a land
(Footnote continued on next page…)
17
III. CONCLUSION
For the foregoing reasons, we conclude that the Board abused its discretion in
concluding that Applicant failed to meet its burden of proof on its respective
variances because the Board’s necessary finding of fact that Breinig testified to
owning the adjacent Suburban Lot was not supported by substantial evidence.
Accordingly, we affirm common pleas’ Order.
__________________________________________
RENÉE COHN JUBELIRER, President Judge
development as defined in section 107 or a subdivision as defined in section 107,
no change or amendment of the zoning, subdivision or other governing ordinance
or plans shall affect the decision on such application adversely to the applicant, and
the applicant shall be entitled to a decision in accordance with the provisions of the
governing ordinances or plans as they stood at the time the application was duly
filed.
53 P.S. § 10917. Initially, we note that we are reviewing the Board’s decision in this matter
because common pleas did not take additional evidence. However, even if we were reviewing
common pleas’ reasoning, we would conclude that any error in common pleas applying Section
917 or concluding that Ordinance 662 was inapplicable because the Application was filed before
Ordinance 662’s effective date would constitute harmless error because it would not affect the
outcome where common pleas gave other reasons for reversing the Board’s Order, with which we
agree.
18
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
In Re: Appeal of Curtis Building :
Co., Inc. :
PO Box 415 :
Jenkintown, PA 19046 :
:
From the Decision of the : No. 645 C.D. 2021
Lower Providence Township :
Zoning Hearing Board :
100 Parklane Drive :
Eagleville, PA 19403 :
:
Regarding Property at 5th Street :
Between the House 3002 5th :
Street and the Lot of Suburban :
Building Co. Block 21, Units 96 :
and 97 Lower Providence Township, :
Norristown, PA 19403 :
Parcel No. 43-00-04681-00-1 :
:
Appeal of: Lower Providence :
Township :
ORDER
NOW, November 16, 2022, the May 3, 2021 Order of the Court of Common
Pleas of Montgomery County reversing the November 12, 2020 Decision of Lower
Providence Township Zoning Hearing Board is AFFIRMED.
__________________________________________
RENÉE COHN JUBELIRER, President Judge | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484142/ | IN THE COMMONWEALTH COURT OF PENNSYLVANIA
John Scott, :
Appellant :
v. : No. 1795 C.D. 2019
: Submitted: August 12, 2022
City of Philadelphia, Department :
of Licenses and Inspections :
BEFORE: HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE CHRISTINE FIZZANO CANNON, Judge
HONORABLE STACY WALLACE, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE WALLACE FILED: November 16, 2022
John Scott (Scott) appeals pro se from the November 13, 2019 order of the
Court of Common Pleas of Philadelphia County (Common Pleas), which denied his
appeal and affirmed the decision of the Zoning Board of Adjustment (Board). The
decision denied Scott’s appeal after the City of Philadelphia’s (City) Department of
Licenses and Inspections issued a final warning indicating that a property he owned
(Property) violated The Philadelphia Code (Code). After careful review, we affirm.
I. Background and Procedural History
Scott is the owner of two adjacent properties in the City. Reproduced Record
(R.R.) at 66a. The first is Scott’s personal residence. Id. The second is the Property,
which was formerly the site of numerous houses but now is a vacant lot. Id. at 66a-
71a. According to Scott, he uses the Property as a backyard and has been engaging
in a long-term “landscaping” project to maintain it as an open, grassy space. Id. at
66a-67a, 76a.
This appeal arises from Scott’s landscaping project on the Property, or, more
specifically, from the equipment he uses for that project. Scott indicates he built an
addition onto his residence and purchased a 12,000-pound excavator (Excavator) to
assist with the construction.1 Id. at 67a, 73a. After Scott completed the addition, he
stored the Excavator on the Property and continued to use it for landscaping. Id. at
67a. The City later sent notices to Scott, including an initial violation dated July 21,
2017, and final warning dated August 31, 2017, that the Property was in violation of
the Code. Relevantly, the notices directed Scott to stop storing, or to obtain a permit
for storing, all vehicles, construction equipment, and materials on the Property. The
notices cited to the administrative provisions of the Code,2 which indicate that “[a]
use registration permit is required for every new use commenced on any land or in
any structure except for use as a single-family dwelling.” Code § A-301.1.5.
Scott filed a pro se appeal to the Board. The Board held a public hearing on
June 19, 2018, at which Scott appeared with counsel. Scott testified that he primarily
used the Excavator to remove bricks and debris from the Property, and that “I have
not used the [E]xcavator for anything commercial whatsoever.” R.R. at 67a, 75a-
77a. Scott explained the Property “basically consists of fill from torn down houses
over the last 50 or 60 years. So almost the entire area of the [P]roperty is brick, and
it’s very hard to maintain. . . . because the bricks keep coming up . . . .” Id. at 66a.
He testified that his landscaping work was “just about done,” and that he ultimately
1
Pictures of the Excavator appear in the record. See R.R. at 17a-18a. The Excavator is a tracked
vehicle with a hydraulic arm and a cabin for the operator.
2
Phila., Pa., Admin. Code (approved Mar. 26, 1997).
2
planned to sell or “scrap[]” the Excavator. Id. at 67a. Specifically, Scott testified
he performs this landscaping “on the weekend” and could complete it within “I don’t
know. A year.” Id. at 74a.
Following Scott’s testimony, the Board voted unanimously to deny his appeal
with a 120-day stay of enforcement. Id. at 80a. The Board issued a written decision
to that effect on June 19, 2018, the same day as the public hearing.3 In its subsequent
findings of fact and conclusions of law, the Board explained that the Excavator was
“clearly commercial in nature, regardless of how it is used.” Id. at 83a. In addition,
the Board concluded that the City reasonably determined the storage of construction
equipment on residential property requires a permit. Id.
Scott appealed to Common Pleas pro se. Although the parties filed briefs and
participated in oral argument, Common Pleas did not take any additional evidence.
In its brief, the City argued for the first time that Scott’s storage of the Excavator fell
under the “Wholesale, Distribution, and Storage” use category found in the Code’s
zoning provisions4 at Code § 14-601(9), which was not permissible in the Property’s
residential zoning district. The City argued, therefore, that storage of the Excavator
was a change of use requiring a permit under Code § A-301.1.5. By order dated and
entered November 13, 2019, Common Pleas denied Scott’s appeal and affirmed the
Board.
Scott appealed to this Court. Common Pleas entered an order directing Scott
to file a concise statement of errors complained of on appeal, and Scott complied.
3
The decision denied Scott’s appeal with provisos. In addition to the 120-day stay of enforcement,
the decision directed that Scott obtain a permit from the City within one year, that all construction
must be in accordance with plans that the Board approves, and that a new application and a new
public hearing would be required for failure to comply with the foregoing conditions.
4
Phila., Pa., Zoning Code (approved Dec. 22, 2011).
3
Common Pleas then issued an opinion, in which it accepted the City’s argument that
storage of the Excavator fell within the “Wholesale, Distribution, and Storage” use
category at Code § 14-601(9) and was impermissible in the Property’s residential
zoning district absent a permit. R.R. at 14a.
Scott now raises several issues for this Court’s review. Scott (1) disputes the
Board’s finding that his Excavator was “commercial in nature” even though he was
not using it commercially, (2) argues the Board improperly denied his appeal without
citing to or interpreting the zoning provisions of the Code, and (3) levels a series of
challenges relating to Common Pleas’ reliance on the “Wholesale, Distribution, and
Storage” use category at Code § 14-601(9).
II. Discussion
Common Pleas did not take any additional evidence before ruling on Scott’s
appeal. Under these circumstances, this Court reviews whether the Board abused its
discretion or committed an error of law when rendering its decision. In re Garcia,
276 A.3d 340, 347 n.4 (Pa. Cmwlth. 2022) (citing Marshall v. City of Phila., 97 A.3d
323, 331 (Pa. 2014)). We interpret the Code according to the rules of statutory
construction. THW Grp., LLC v. Zoning Bd. of Adjustment, 86 A.3d 330, 336 (Pa.
Cmwlth. 2014) (citing Bailey v. Zoning Bd. of Adjustment of the City of Phila., 801
A.2d 492, 502 n.19 (Pa. 2002)). Our primary objective is to determine the intent of
the Code’s drafters. Bailey, 801 A.2d at 502 (citing 1 Pa.C.S. § 1921). To fulfill
this objective, we must focus on the Code’s plain language. See THW Grp., 86 A.3d
at 336. The Code “must be construed expansively so as to afford the landowner the
broadest possible use and enjoyment of his land.” Id. (citing Rabenold v. Zoning
Hearing Bd. of the Borough of Palmerton, 777 A.2d 1257 (Pa. Cmwlth. 2001)).
Nonetheless, where the Code is unclear, the Board’s interpretation “is entitled to
4
great weight and deference.” Wexford Sci. & Tech., LLC v. City of Pittsburgh Zoning
Bd. of Adjustment, 280 A.3d 1097, 1102 (Pa. Cmwlth. 2022) (citation omitted); see
also In re Chestnut Hill Cmty. Ass’n, 155 A.3d 658, 667 (Pa. Cmwlth. 2017) (citing
Hafner v. Zoning Hearing Bd. of Allen Twp., 974 A.2d 1204, 1210 (Pa. Cmwlth.
2009)).
Initially, Scott assails the Board’s finding that his Excavator was “commercial
in nature,” even though he did not use it for commercial purposes. Scott’s Br. at 8-
13. Scott contends that he was using his Excavator for “exclusively non-commercial
purposes,” and that no contrary evidence exists. Id. at 11. According to Scott, the
phrase “commercial in nature” does not appear in the Code, and the Board “made
this standard up.” Id. at 12-13. Scott also contends the Board improperly denied his
appeal without citing to or interpreting the zoning provisions of the Code. Id. at 13.
Scott insists the Board simply deferred to the zoning inspector, who did not appear
at the hearing. Id.
We find instructive this Court’s prior decision in DiMattia v. Zoning Hearing
Board of East Whiteland Township, 168 A.3d 393 (Pa. Cmwlth. 2017). There, two
property owners used a garage and driveway for “preparation, repair and transport
of race cars.” Id. at 395. The owners argued this was a permissible accessory use
of their property because, in relevant part, “evidence . . . showed that these activities
were a hobby, rather than a commercial use . . . .” Id. at 399. This Court rejected
the owners’ argument, explaining that, if their activity did not meet the definition of
“accessory use” in the zoning ordinance and case law, it was not permissible, “even
if it is a hobby or recreational activity of the property owner and no commercial
purpose or economic gain is involved.” Id. (citation omitted). Similarly, we focus
our attention in this matter on whether Scott’s storage of the Excavator is permissible
5
under the Code and pertinent case law, rather than Scott’s insistence that he never
used the Excavator for commercial purposes.
The Code divides the City into a series of zoning districts. Here, Scott does
not dispute that the Property is in the Residential Single-Family Attached-5, or RSA-
5, district. RSA districts “are primarily intended to accommodate attached and semi-
detached houses on individual lots, but may be applied in areas characterized by a
mix of housing types, including detached houses. The districts are also intended to
provide a density transition between [Residential Single-Family Detached] districts
and [Residential Multi-Family] districts.” Code § 14-401(1)(c)(.2). The Code lists
principal uses allowable in residential districts in Table 14-602-1. Critically, while
Table 14-602-1 expressly states certain uses are prohibited, “[w]here use categories
and subcategories are not listed in a use table, they are also prohibited.” Code §
14-602(2)(d) (emphasis added).
Applying Table 14-602-1, the Code permits certain uses as of right and others
only with a special exception. There is no allegation in this case that Scott requested
or received a special exception, so we focus on uses that the Code expressly permits.
Permissible uses include single-family housing, passive recreation, family childcare,
religious assembly, safety services, transit stations, community gardens, and market
or community-supported farms. None of these uses reasonably encompasses Scott’s
storage of the Excavator on the Property.
It is also important to add that the Code does not permit Scott’s storage of the
Excavator as an accessory use. The Code provides that accessory uses in residential
districts “are permitted in conjunction with allowed principal uses, provided they
comply with all applicable regulations . . . .” Code § 14-401(2). The Code defines
an “accessory use” as, in relevant part, “[a] use . . . that is subordinate to and on the
6
same lot as the principal use on a lot and customarily incidental to the principal use.”
Code § 14-203(2); see also Code § 14-604(1)(c)(.3) (“Accessory uses and structures
must: . . . be customarily found in association with the principal use or principal
structure.”). Scott’s storage of the Excavator, a 12,000-pound piece of construction
equipment, does not satisfy this definition, as it is not “customarily incidental” or
“customarily found in association with” any residential principal use allowed in the
RSA-5 district. Code §§ 14-203(2), 14-604(1)(c)(.3); see also DiMattia, 168 A.3d
at 398-400.
Given these provisions, we conclude the Board did not abuse its discretion or
commit an error of law by denying Scott’s appeal and concluding his storage of the
Excavator requires a permit under Code § A-301.1.5. Although Scott argues the
Board denied his appeal without adequately analyzing the Code’s zoning provisions,
our review of the Code supports the Board’s decision. Therefore, any inadequacy
in the Board’s analysis was harmless. See Grove v. Port Auth. of Allegheny Cnty.,
218 A.3d 877, 890 (Pa. 2019) (quoting Commonwealth v. Hairston, 84 A.3d 657,
671 (Pa. 2014)) (“Harmless error exists if the record demonstrates either . . . the error
did not prejudice the defendant or the prejudice was de minimis[.]”).
Scott next levels a series of challenges regarding Code § 14-601(9), on which
Common Pleas relied when denying his appeal from the Board. Scott acknowledges
he did not raise his issues regarding Code § 14-601(9) in his appeal to the Board, but
he explains he could not raise those issues then because the City did not cite to Code
§ 14-601(9) until his appeal to Common Pleas.5 Scott’s Reply Br. at 1-3. He argues
the City waived Code § 14-601(9) by not raising it sooner. Scott’s Br. at 14-15. In
5
See Soc’y Created to Reduce Urb. Blight v. Zoning Bd. of Adjustment, 804 A.2d 116, 119 (Pa.
Cmwlth. 2002) (“If parties do not request that the trial court hear additional evidence, they waive
arguments which were not raised before the board.”) (citations omitted).
7
addition, Scott advocates for a broad construction of the Code in his favor. Id. at 20-
23. Scott asserts that Code § 14-601(9) applies to bulk storage rather than storage
of a single piece of equipment, and that reading it otherwise would lead to absurd
results. Id. at 18-20. Generally, he characterizes Common Pleas’ reliance on Code
§ 14-601(9) as an unconstitutional infringement on his use of the Property due to
aesthetic concerns. Id. at 18-24. Scott further suggests that his use of the Property
predated Code § 14-601(9) and was a legal nonconforming use. Id. at 14-17.
Scott’s arguments are misplaced. Our standard of review requires us to assess
whether the Board committed an abuse of discretion or error of law when it denied
Scott’s appeal, and the Board did not rely on Code § 14-601(9). Regardless, Code
§ 14-601(9) merely illustrates the point we already made above—that Scott’s storage
of the Excavator is not permissible as a principal or accessory use under the Code.
Rather, storage of the Excavator more closely resembles commercial and industrial
uses that are prohibited in the RSA-5 district, such as “Wholesale, Distribution, and
Storage.” Some other examples might include “Commercial Vehicle Repair and
Maintenance” under Code § 14-601(8)(a), which involves the maintenance of “large
construction or agricultural equipment” or “Trucking and Transportation Terminals”
under Code § 14-601(10)(i), which involves the “long-term or short-term storage of
large vehicles.”
Our review does not reveal any use category in the Code that perfectly fits
Scott’s storage of the Excavator on the Property. The Code’s drafters cannot have
been expected to envision every inappropriate use of property that might arise. That
is why, when a use does not fit squarely within those listed, the Code provides the
City with authority to “determine the most similar, and thus most appropriate, use
category, subcategory, or specific use type . . . .” Code § 14-601(e)(.2). Indeed, our
8
Supreme Court has explained a zoning ordinance need not “state every conceivable
impermissible use,” as this would “negate the deference to which a zoning hearing
board is entitled in the interpretation of its municipality’s zoning ordinances. If . . .
unlisted uses are necessarily permitted in a given zoning district, there would be
nothing for the zoning hearing board to interpret.” Slice of Life, LLC v. Hamilton
Twp. Zoning Hearing Bd., 207 A.3d 886, 902 (Pa. 2019) (citation omitted).6
6
Even accepting for the sake of argument that we may consider Scott’s remaining constitutionality
and nonconforming use claims, they do not entitle him to relief. Establishing residential districts
“has long been recognized as a valid exercise of a municipality’s police power.” Slice of Life, 207
A.3d at 889. Our Courts presume zoning ordinances are constitutional, and it is the burden of the
party challenging an ordinance to establish its provisions are “arbitrary and unreasonable and bear
no substantial relationship to promoting public health, safety and welfare.” Keinath v. Twp. of
Edgmont, 964 A.2d 458, 462 (Pa. Cmwlth. 2009) (citing McGonigle v. Lower Heidelberg Twp.
Zoning Hearing Bd., 858 A.2d 663 (Pa. Cmwlth. 2004)). A significant factor when considering
the reasonableness of land use restrictions “is whether they are consistent with stated purposes of
the particular zoning district.” Id. (citing Hock v. Bd. of Supervisors of Mount Pleasant Twp., 622
A.2d 431 (Pa. Cmwlth. 1993)). Here, we detect no constitutional infirmity in the use restrictions
applicable to the RSA-5 district. This is particularly true given, as we noted above, that the primary
purpose of the district is to “accommodate attached and semi-detached houses . . . .” Code § 14-
401(1)(c)(.2).
Moreover, Scott is correct that the Code permits nonconforming uses, which are uses that
do not comply with the zoning provisions of the Code “because (a) they were established before
the adoption of zoning, or (b) they were legal when established but have become nonconforming
due to later zoning amendments.” Code § 14-305(1). “The burden of establishing the prior
existence of a nonconformity is on the applicant.” Code § 14-305(4)(d); see also Hafner v. Zoning
Hearing Bd. of Allen Twp., 974 A.2d 1204, 1211 (Pa. Cmwlth. 2009). Though Scott argues his
storage of the Excavator predated the Code’s current zoning provisions, which became effective
in 2012, he makes no effort to argue this storage was “established before the adoption of zoning”
or was “legal when established” and became nonconforming later. Code § 14-305(4)(d). That is,
Scott alleges the Excavator has remained on the Property since 2003, see Scott’s Br. at 16 n.4, but
he does not explain how the version of the Code existing at that time would have permitted him to
store the Excavator. Scott instead relies on case law pertaining to abandonment of nonconforming
uses and mistakenly attempts to shift the burden to the City to establish that no nonconformity
existed. Id. at 16-17 (citing Faith Presbyterian Church v. Bensalem Twp. Zoning Hearing Bd.,
538 A.2d 135 (Pa. Cmwlth. 1988)).
9
III. Conclusion
Thus, because Scott’s arguments do not demonstrate the Board committed an
abuse of its discretion or an error of law, we affirm Common Pleas’ November 13,
2019 order, which denied Scott’s appeal of the Board’s decision.
______________________________
STACY WALLACE, Judge
10
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
John Scott, :
Appellant :
v. : No. 1795 C.D. 2019
:
City of Philadelphia, Department :
of Licenses and Inspections :
ORDER
AND NOW, this 16th day of November 2022, the November 13, 2019
order of the Court of Common Pleas of Philadelphia County, affirming the decision
of the Zoning Board of Adjustment, is AFFIRMED.
______________________________
STACY WALLACE, Judge | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491912/ | MEMORANDUM
JOHN C. COOK, Bankruptcy Judge.
This adversary proceeding is before the court on the complaint of Thomas E. DuVoi-sin, Liquidating Trustee, alleging that defendants, Anne B. Wilde and her two children, Ashley A. Wilde and Byron B. Wilde, received preferential transfers from the debtor, Southern Industrial Banking Corporation (“SIBC”), which are avoidable as preferences under 11 U.S.C. § 547(b). Having considered the evidence and the arguments of the parties, the court now makes its findings of fact and conclusions of law pursuant to Fed. R.Bankr.P. 7052.
I.
As trustee for her two children, defendant Anne Wilde received the distributions of several trusts established by her father, Ed Browder, for the benefit of his grandchildren, defendants Ashley and Byron Wilde. Mr. Browder was a well-to-do businessman who owned and operated several businesses in the vicinity of Knoxville, Tennessee. His financial success allowed him to own stock in United American Bank, controlled by Jacob F. Butcher, and City & County Bank, controlled by C.H. Butcher Jr., as well as to sit on the boards of directors of both of those banks. At all times material hereto, Mr. Browder also sat on SIBC’s board of directors. Knowing that Mrs. Wilde had substantial trust distributions to invest on behalf of her children, her father suggested that she buy investment certificates from SIBC, which was then paying interest at rates higher than any comparable institution paid. Mr. Browder asked Brenda Burleson (formerly Pilson), the senior investment counselor who handled his investments at SIBC’s West Town branch, to assist Mrs. Wilde with her investments when she came in.
Between June 16, 1982, and November 15, 1982, Mrs. Wilde purchased five investment certificates that ranged in amount from $20,-*903000 to $230,000, each of which was scheduled to mature on January 5,1983. Because each investment certificate was purchased on a different date, each certificate was given a maturity date in days, rather than months or years, so as to synchronize them for concordant maturity on January 5,1983. Thus, for example, one certificate matured in 203 days, another in 196 days, and still another in 51 days. Although the five certificates were purchased on diverse dates over a five-month period during which SIBC’s published rates varied widely, each of the investment certificates issued to Mrs. Wilde bore the interest rate of 16% per annum. With a few exceptions, this rate was substantially higher than the rate paid to other customers who bought investment certificates at the same times and in similar amounts. One of these few exceptions was Mrs. Wilde’s father, Ed Browder, who received the rate of 17% per annum on a comparatively small investment of short duration bought on June 15, 1982.
On January 5 or 6, 1983, after all five of her investment certificates had matured together on January 5, 1983, Mrs. Wilde went to the office of SIBC and met with Brenda Burleson for the purpose of redeeming her investment certificates and perhaps reinvesting the proceeds. Mrs. Wilde and her husband had decided to invest the childrens’ trust funds in one of her husband’s real estate ventures, Hearthstone Apartments, but due to the vagaries of the construction schedule Mrs. Wilde did not know exactly when the funds might be needed. Accordingly, she sought assurances from Brenda Burleson that, if she reinvested the funds, she would be allowed to withdraw them prematurely without any interest penalty. In her testimony she stated:
I told her that we had this project at Hearthstone that we were about to begin and I wasn’t sure when I would be needing the money; and she reassured me that there would be no problem. Whenever I needed the money I would be able to get it out without any penalty.
Thus reassured, Mrs. Wilde reinvested the proceeds of the five investment certificates by buying two new ones, the first in the sum of $100,000 payable at maturity in one month at the rate of 14% per annum, the second in the sum of $278,000 payable in ninety-nine days at the rate of 14% per annum.
Each of the investment certificates Mrs. Wilde bought on January 5 or 6,1983, and all the certificates she had previously bought at SIBC, bore the following standard penalty provision:
Withdrawal of the deposit represented by this Investment Certificate by the holder prior to maturity is subject to approval by the Corporation. In the event of such approved withdrawal, the Corporation will pay interest hereon at its prevailing Investment Account rate, less a penalty of ninety (90) days interest computed on such Investment Account rate.
Mrs. Wilde was familiar with this penalty provision and negotiated the terms of her reinvestment so as to avoid it specifically. As she stated in her trial testimony,
I knew that there were penalties involved, but I did discuss that with her [Brenda Burleson], and she said that if I needed to reinvest the money for a short period of time that there would be no penalty if I reinvested it.
(Emphasis added.) Thus, she reached an agreement with SIBC on January 5 or 6, 1983, that allowed her to invest a total of $378,000 without risking the usual penalty for early withdrawal.
According to the trial testimony of Brenda Burleson, the senior investment counselor who attended Mrs. Wilde, SIBC would waive the interest penalty for those who asked. This was apparently done on a purely discretionary basis.
Q. Now, SIBC had no policies or guidelines for the waiver of penalties, did they? It was just whatever the executive officer decided to do — nothing in writing, no formal policies.
A. It was just up to the judgment of the corporation’s management.
Q. But as far as you knew, there were no corporate policies that guided him in the exercise of that judgment, were there?
A. No, sir.
*904Although Mrs. Burleson testified that she was never refused the authority to waive an interest penalty, she did not testify about the frequency with which SIBC waived these penalties, and there is no evidence in the record from which the court can determine the prevalence of this practice. Indeed, on cross-examination, Mrs. Burleson admitted its relative abnormality.
Q. In fact, didn’t you also testify at your deposition that a waiver of a penalty was very unusual and didn’t occur often?
A. Under normal rates and terms that people had, that’s correct.
Q. In the normal case?
A. In normal cases.
Q. In the normal case, if a person cashed in an investment certificate prior to maturity, they paid the interest penalty?
A. That’s correct.
Q. And, in fact, although there may have been some rare departures for that, you can’t recall any others anywhere this large, can you?
A. Not this large.
On January 20, 1983, following a conversation with her husband in which he told her that the funds invested at SIBC would be needed soon for construction financing on the Hearthstone Apartments, Mrs. Wilde went to SIBC and redeemed both investment certificates prematurely. She paid no interest penalty and instead received the full amount of the interest her investments had earned during the 15-day period, approximately $2200. In her testimony she made it clear that the waiver of the penalty was not an a posteriori matter on January 20, 1983, but an a priori contract term negotiated on January 5 or 6, 1983, when she bought the investment certificates.
Q. And when you went in there on January 20th, did you request that they waive the early withdrawal penalty?
A. I’m not sure whether it was discussed or not, but we had had that agreement to begin with, and there was no penalty.
At all times material hereto, SIBC also offered its customers the convenience of passbook accounts, which SIBC publicly advertised as carrying “no penalty upon early withdrawal.” These passbook accounts paid interest at a rate much lower than that offered on any investment certificate, the typical spread being several percentage points. On January 6, 1983, SIBC’s passbook accounts paid an interest rate in the vicinity of seven percent.
On March 10, 1983, SIBC filed its petition for relief under Chapter 11 of the Bankruptcy Code. In due course the liquidating trustee for SIBC brought this preference action against the defendants.
II.
It has been previously determined in this proceeding that the transfers made by SIBC to Mrs. Wilde on January 20,1983, are avoidable unless they were made in the ordinary course of business. Thus, the only issue now before the court is whether or not Mrs. Wilde has a valid defense under 11 U.S.C. § 547(c)(2), which at the time provided:
(c) The trustee may not avoid under this section a transfer—
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(2) to the extent that such transfer was—
(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made not later than 45 days after such debt was incurred;
(C) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(D) made according to ordinary business terms.
Because the provisions of 11 U.S.C. § 547(c)(2) are defensive in nature, the Bankruptcy Code assigns to the preference defendants the burden of proving every element of the defense. 11 U.S.C. § 547(g).
Mrs. Wilde argues that the debt in question, SIBC’s obligation to pay principal plus interest upon maturation of the two invest*905ment certificates bought on January 5 or 6, 1983, was incurred in the ordinary course of SIBC’s business as well as her own, all in accordance with § 547(c)(2)(A), in that SIBC’s waiver of early withdrawal penalties was not uncommon. Far from proving this proposition, however, Mrs. Wilde’s testimony establishes that SIBC entered into an extraordinary agreement with her on January 5 or 6, 1983, insofar as that testimony shows that, before buying the two investment certificates at issue, she sought and obtained SIBC’s assurances that she could withdraw her funds at any time without penalty. There is some inconsistency between the testimonies of Mrs. Wilde and Mrs. Burleson concerning their negotiations over the early withdrawal penalty, for, although Mrs. Burle-son remembered assuring Mrs. Wilde that early withdrawals were permitted, she thought she told Mrs. Wilde only that she would try to obtain a waiver of the penalty if, at some later time, Mrs. Wilde wished to redeem her certificates prematurely. The distinction is between the assurance that the penalty was or would be waived and the hope that it might be. Because of her significant financial interest in this substantial transaction, and because, unlike Mrs. Burleson’s, her recollection of the event is not diluted by hundreds or thousands of similar transactions, the court accepts the testimony of Mrs. Wilde as the more accurate rendition of the negotiations concerning the waiver of penalty for any early withdrawal.
In order to fall within the ordinary-course-of-business exception, the transfers in question must have been in payment of a debt incurred in the ordinary course of business of the debtor and the creditor. Where the debt in question arose by contract, the contract itself must be ordinary because it creates and defines the debt. For example, in In re Allegheny International, Inc., 136 B.R. 396 (Bankr.W.D.Pa.1991), affd, 145 B.R. 823 (W.D.Pa.1992), the debtor-lessee had agreed, by contract made in November, 1987, to pay rent to the creditor-lessor retroactive to September 30, 1987. The court held that the payments made pursuant to this agreement were outside the ordinary course of business.
These payments were the very first payments made in accordance with the contract. The parties agreed, in November 1987 that rent payments would be due retroactively to September 30, 1987. This was a unique arrangement and cannot be characterized as being in the ordinary course of business. Payments made pursuant to special and unique agreements are outside the ordinary course of business.
Id. at 401.
Other courts have held that debts incurred by the settlement óf a dispute between parties, whether pursuant to legal action or not, are incurred outside the ordinary course of business of the debtor because settlement agreements are themselves unusual. See Energy Cooperative, Inc. v. SO-CAP International, Ltd. (In re Energy Cooperative, Inc.), 832 F.2d 997, 1004 (7th Cir. 1987) (debt incurred by debtor upon settlement of breach of contract claim against debtor not incurred in ordinary course of its business); Carrier Corporation v. MID Corporation (In re Daikin Miami Overseas, Inc.), 65 B.R. 396, 398 (S.D.Fla.1986) (payments made pursuant to settlement of previous debt not in ordinary course of business); Gull Air, Inc. v. Beech Acceptance Corp. (In re Gull Air, Inc.), 82 B.R. 1, 4 (Bankr. D.Mass.1988) (payments on settlement were outside the ordinary course of business where settlement entered into after suit filed to recover on notes evidencing debtor’s obligation to pay for goods sold to it). Although there are few cases openly decided under § 547(c)(2)(A) itself, the courts that have considered situations involving special or unique agreements have usually held that payments made pursuant to those agreements were outside the ordinary course of the debtor’s business, and they have done so without getting down to the bedrock and first holding that the debts arising from such agreements were incurred outside the ordinary course of business. However, where, as in the contract and settlement cases mentioned above, there is nothing extraordinary about the form of the payments themselves, and the extraordinary features present in the ease are born of the agreements, the cases can be *906construed as authority for the principle that a special or unique agreement between the debtor and a creditor may be outside the ordinary course of business. If so, a debt incurred as the result of that agreement will likely be outside the ordinary course of business.
The agreement entered into between Mrs. Wilde and SIBC on January 5 or 6, 1983, is unusual because it commits SIBC in advance to waive the interest penalty it would ordinarily exact. There is some evidence that may be gleaned from the testimony of Mrs. Burleson to the effect that, on an unknown number of occasions and for unknown reasons, SIBC, as a matter of benevolence, waived the interest penalty for some other customers; but this occurred only at the point where a customer wished to effect an early withdrawal and, as a supplicant, petitioned for a waiver of the penalty provision then fully in effect. Mrs. Wilde was in a different category, armed in advance with a contract that completely nullified the penalty.
SIBC’s agreement to waive the penalty in exchange for Mrs. Wilde’s substantial investment appears to be unique and thus quite out of its ordinary course of business. As might be expected, the effect of the agreement was also unique, for, when analyzed, it is apparent that the agreement transmuted Mrs. Wilde from one kind of investor into a strange hybrid. In the normal sale and redemption of investment certificates, SIBC exchanged the interest it paid for the temporary possession of an investor’s fund of money. SIBC defended its term of possession with the early withdrawal penalty. In surrendering that penalty to Mrs. Wilde, SIBC gave up its primary defense of the stipulated investment term and essentially allowed her to become a kind of passbook account holder, although one with a difference: her account paid an enormous rate of interest (14%) compared to the others (about 7%). Thus, not only was the agreement that created the debt apparently unusual, but the practical effect of that agreement was a special depositary relationship extraordinarily favorable to Mrs. Wilde and involving the creation of special kind of account not available to others.
The plaintiff argues, and there is some evidence in the record from which the inference could be drawn, that Mrs. Wilde, as the sister-in-law of Jake Butcher and the daughter of Ed Browder, received special treatment throughout the course of her dealings with SIBC. The plaintiff insists that Mrs. Burleson, who admitted she knew Mrs. Wilde’s close connections to SIBC’s highest management, was hand-picked by Ed Brow-der to favor his daughter and that, accordingly, Mrs. Wilde received extraordinarily high interest rates on the five investment certificates she bought between June 16, 1982, and November 15, 1982, as well as the two investment certificates she bought on January 5 or 6, 1983. Whether Mrs. Wilde’s connections to insiders afforded her exceptional treatment is a question the court need not decide. In the final analysis, the burden of proving that the debt in question was incurred in the ordinary course of business is on the defendants, and they have offered no evidence that SIBC ever made a similar agreement having a similar effect. See Campbell v. Cannington (In re Economy Milling Co.), 37 B.R. 914, 922 (D.S.C.1983) (sustaining preference action because farmer failed to show debtor milling company ever bought corn from him or any other farmer on a similar option contract).
III.
From the foregoing evidence, the court concludes that the defendants, who bear the burden of establishing the defense permitted by § 547(c)(2), have failed to prove the first element of that defense, that is, that the debt for which the transfers were made was incurred in the ordinary course of the business or financial affairs of the debtor and the creditor. There is no evidence whatever that SIBC ordinarily entered into this kind of agreement with its customers. Because the record in this proceeding establishes that the payments in question were otherwise preferential, the court will enter judgment in favor of the plaintiff.
Within fifteen days of the entry of this order, the plaintiff shall submit a proposed judgment approved as to form by counsel for all parties hereto. If the parties are unable *907to agree to the form of the judgment, each party shall submit a proposed judgment for the consideration of the court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491914/ | *1008
OPINION
DONALD R. SHARP, Bankruptcy Judge.
COMES NOW before the Court for consideration Certain Defendants’ Motion to Dismiss and Abstain from Hearing Plaintiffs’ Adversary Proceeding, Certain Defendants’ Motion for Determination that Adversary Proceeding is Non-Core, Certain Defendants’ Motion to Dismiss Plaintiffs’ Adversary Proceeding Pending the Resolution of Earlier-Filed Related Litigation in U.S. District Court, and Certain Defendants’ Motion to Stay Plaintiffs’ Adversary Proceeding Pending the Resolution of Earlier-Filed Related Litigation in U.S. District Court. These various motions were consolidated for the purposes of hearing and this opinion because they involved the same fact situation. This opinion constitutes findings of fact and conclusions of law in accordance with Fed.R.Bankr.P. 7052 and disposes of all issues before the Court.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiffs have been exposed to tremendous liability as a result of their participation in the manufacture and installation of polybu-tylene plumbing. Defendants are Plaintiffs’ liability insurance carriers. There has been substantial dispute over the extent of coverage available to Plaintiffs under various insurance policies.
Consequently, Plaintiffs filed six separate suits in state court in Illinois (“State Suits”) against Defendants seeking a declaratory judgment as to Defendants’ duty to indemnify and defend Plaintiffs. Upon U.S. Brass filing their Chapter 11 petition in this Court, Plaintiffs removed the State Suits to the Bankruptcy Court for the Northern District of Illinois. The removed actions are currently pending in that court, where the court is considering motions to remand and motions to transfer to the Eastern District of Texas.
Plaintiffs later filed this adversary proceeding (the “Adversary”) against Defendants seeking a declaratory judgment as to Defendants’ duty to indemnify and Defend. The parties do not dispute that this Adversary Proceeding involves the same issues and the same parties as the removed actions now pending in the Bankruptcy Court for the Northern District of Illinois.
DISCUSSION
The Court was presented with an abundance of evidence and discussion at the hearing and in briefs subsequent to the hearing on whether this action should be heard in Illinois state court. However, that issue is not properly before this Court. The removed actions are currently pending in the Bankruptcy Court for the Northern District of Illinois, not in this Court. Regardless of what this Court might determine as to the propriety of hearing the removed actions in Bankruptcy Court or remanding them to state court, it has no means of implementing a decision either way.
The only options available to this Court are to proceed with this Adversary in a proceeding that parallels the earlier filed State Suits now pending in Bankruptcy Court in the Northern District of Illinois or to Dismiss this Adversary. It is well settled in the Fifth Circuit that where a substantial overlap exists between an earlier-filed lawsuit and a later one, the court with prior jurisdiction over the common subject matter should resolve all issues presented in related actions. West Gulf Maritime Ass’n v. ILA Deep Sea Local 24, 751 F.2d 721, 730-31 (5th Cir.1985).
In the event the actions pending in the Northern District of Illinois are ever transferred to this district, then this Cotut will have no choice but to consider and rule on the issues of jurisdiction, remand, and abstention so ably argued by the parties. However, the removed State Suits are now pending in the Northern District of Illinois and this Court must refuse to proceed with a parallel action.
Having reached this decision, it is not necessary for the Court to Determine the other issues presented. It is therefore
ORDERED that the Adversary is hereby DISMISSED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491916/ | MEMORANDUM OPINION AND DECISION
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon Debtor’s Motion to Void Sheriffs Sale of Real Property of the Estate; Motion of Gale Astles for Relief From Stay and Memorandum in Opposition to Debtor’s Motion to Void Sheriffs Sale; and Motion for Relief from Stay by MIF Realty. A hearing was held on October 5, 1994. At the hearing, the parties were afforded the opportunity to present evidence and make arguments they wished the Court to consider. This Court has reviewed the arguments of counsel, exhibits as well as the entire record in the case. Based upon that review, and for the following reasons, the Court finds that an effective reorganization is not possible, and accordingly the requested Reliefs from Stay should be granted, and Debtor’s Motion to Void Sheriffs Sale is moot.
FACTS
KEJ Corporation (hereafter “KEJ”) filed for Chapter 11 bankruptcy protection on August 25, 1994 at around 10:00 a.m. Almost simultaneously, a sheriffs sale was being conducted wherein real property (hereafter “subject property”) owned by KEJ was being sold pursuant to a foreclosure decree obtained against the property by MIF Realty, L.P. (hereafter “MIF”). MIF and Astles seek relief from stay so that the foreclosure sale may be concluded. KEJ seeks to have the sheriffs sale voided.
Three liens exist on the subject property. MIF is the first mortgagee and holder of a promissory note as to the subject property, *249and claims an interest of Four Hundred Seventy-three Thousand One Hundred Sixty-eight and 23/100 Dollars ($473,168.23). The subject property was sold at the sheriffs sale for approximately Five Hundred and Five Thousand Dollars ($505,000.00) to Gale As-tles (hereafter “Astles”), holder of a second lien on the subject property. Astles claims an interest in the property of One Hundred Eighty Thousand Four Hundred Eighty-one and 52/100 Dollars ($180,481.52). A third lien, held by Citizens Savings Bank, also exists on the property in the amount of approximately One Million Three Hundred and Fifty Thousand Dollars ($1,350,000.00). Though these amounts are disputed, KEJ stipulated at the hearing that the total indebtedness was at least One Million Six Hundred Thousand Dollars ($1,600,000.00).
A restaurant called Croy’s Supper Club is a tenant operating on the premises of the subject property, and KEJ contends that the rent earned from the restaurant is necessary for an effective Chapter 11 organization. Rents from the restauranteur/tenant are approximately Five Thousand Seven Hundred Dollars ($5,700.00) per month, though the lease does provide for greater rents if a percentage of the income of the supper club exceeds the flat rate.
KEJ also owns two other properties that could generate income to effect its reorganization. The first is a parcel of land located in Hancock County, Ohio, and is comprised of an approximately 5 acre parcel of land with a residence and a storage building located on it which are used in connection with the operation of a cemetery located adjacent to the parcel. The cemetery is operated by a separate entity, and is presently under receivership in a state court case. There is currently no rental income being paid to Debtor for the receivor’s ongoing use of the property, but KEJ feels it could negotiate additional rental income. At the hearing, KEJ speculated that such income could be as much as Two Thousand Dollars ($2,000.00) per month.
The second additional property KEJ contends could generate income to effect its reorganization is a Florida residential property. KEJ has apparently entered into a rental agreement with Larry W. Johnson, the sole owner and officer of KEJ. KEJ contends the rental agreement should increase rental income to at least Twelve Thousand Dollars ($12,000.00) a year, though income near this amount has not yet been generated in any the five to seven years that KEJ has owned the property.
KEJ estimates that the value of the Hancock County property is Two Hundred Fifty Thousand Dollars ($250,000.00), and the value of the Florida residence is Three Hundred Thirty Thousand Dollars ($330,000.00). The parties stipulated at the hearing for purposes of the Court’s decisions herein that the value of the subject property is the Five Hundred and Five Thousand Dollars ($505,000.00), the price of Astles’ purchase of the property at the sheriffs sale.
LAW
Section 362 of the Bankruptcy Code provides in pertinent part:
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as terminating, annulling, modifying, or conditioning such stay—
(1) for cause, including lack of adequate protection of an interest in property of such party in interest; or
(2) with respect to a stay of an action against property under subsection (a) of this section, if—
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
DISCUSSION
MIF and Astles seek relief from stay under § 362(d)(2). The parties are in agreement that KEJ has no equity in the subject property. Thus, the determinative issue presented in this ease is whether KEJ is capable of an effective reorganization pursuant to § 362(d)(2)(B). This case is a core proceeding per 28 U.S.C. Section 157(b)(2)(G).
*250Relief from stay under § 362(d)(2) has been explained by the United States Supreme Court as follows:
Once the movant under § 362(d)(2) establishes that he is an undersecured creditor, it is the burden of the debtor to establish that the collateral at issue is “necessary to an effective reorganization.” See § 362(g). What this requires is not merely a showing that if there is conceivably to be an effective reorganization, this property will be needed for it; but that the property is essential for an effective reorganization that is in prospect. This means, as many lower courts, including the en banc court in this case, have properly said, that there must be ‘a reasonable probability of a successful reorganization within a reasonable time.’ 808 F.2d, at 370-71, and nn. 12-13, and cases cited therein. The eases are numerous in which § 362(d)(2) relief has been provided within less than a year from the filing of the bankruptcy petition. And while the bankruptcy courts demand less detailed showings during the four months in which the debtor is given the exclusive right to put together a plan ... even within that period lack of a realistic prospect of effective reorganization will require § 362 (D)(2) relief. United States Assoc. of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 376, 108 S.Ct. 626, 633, 98 L.Ed.2d 740 (1988).
The Court in United States Assoc. of Texas affirmed the court of appeals decision, which also explained the standard involved when determining if a property is “necessary to an effective reorganization” as provided for in § 362(d)(2):
We recognize that relief from stay hearings are usually held early in the case and that they are expedited, limited in scope, and held on limited notice. Therefore, the bankruptcy court applies the “reasonable possibility of successful reorganization” standard with somewhat more indulgence than would be appropriate if the motion were made at a later stage in the proceedings or if a similar issue were raised in the context of a full-blown hearing that attends a motion to dismiss or convert the case brought under § 1112. Nonetheless, the “effective reorganization” standard must be given meaning by the bankruptcy court. To prevail against the secured creditor who has moved to lift the stay under § 362(d)(2), the debtor must be able to show a reasonable prospect for successful reorganization within a reasonable time. In re Timbers of Inwood Forest Associates, Ltd., 808 F.2d 363 (5th Cir.1987), aff'd. United States Assoc. of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 376, 108 S.Ct. 626, 633, 98 L.Ed.2d 740 (1988).
This Court holds that KEJ has not met its burden of showing a reasonable prospect for successful reorganization within a reasonable time. KEJ has proposed that the income could be generated from three properties. The subject property generates Five Thousand Seven Hundred Dollars ($5,700.00) per month. Though the lease does provide for greater rents if the supper club business excels, this Court finds that improbable in the reasonably foreseeable future. Thus, the subject property produces a Sixty Eight Thousand Four Hundred Dollars ($68,400.00) income per year. KEJ speculates that the Hancock County property could produce as much as Two Thousand Dollars ($2,000.00) a month, or Twenty-four Thousand Dollars ($24,000.00) per year. KEJ also speculates that the Florida property could produce as much as Twelve Thousand Dollars ($12,-000.00) per year. Though the Court does not find that these figures are necessarily probable, the Court will accept them for the income calculation. Thus, the total income KEJ proposes as reasonably possible would be One Hundred and Four Thousand and Four Hundred Dollars ($104,400.00).
The parties at the hearing have stipulated that the debt KEJ must service in order to maintain a successful reorganization would be One Million Six Hundred Thousand Dollars ($1,600,000.00). The Court finds that an income approximately One Hundred and Four Thousand and Four Hundred Dollars ($104,400.00) is insufficient to service One Million Six Hundred Thousand Dollars ($1,600,000.00) in debt, and that a successful reorganization is therefore not possible. Even considering an eight percent interest *251rate, the annual interest on this much debt would be One Hundred Twenty-eight Thousand Dollars ($128,000.00), far exceeding KEJ’s proposed annual income.
Other factors also lead the Court to the conclusion that an effective reorganization is not possible. The assets of KEJ, per Larry Johnson the sole owner, if his estimates of value are used, total approximately One Million Eighty-five Thousand Dollars ($1,085,-000.00). This is only Sixty-seven percent ($67%) of stipulated liabilities. Also, Larry Johnson stated at the hearing that he will not put any of his own funds into the reorganization. Further, the plan also alleged attempts to get the bank to deal with property outside the Chapter 11. This Court very mindful of the problems with plans which seek to deal with property beyond the control of the Bankruptcy Court. The Court also notes that the value of the Hancock and Florida properties have not been appraised, and are questionable. Finally, even the incomes proposed are very speculative.
A similar ruling was upheld by the court in In re Sun Valley Ranches, Inc., 823 F.2d 1373 (9th Cir.1987). In Sun Valley the debtors appealed from the lower court’s decisions that the automatic stay should be lifted because an effective reorganization was not possible. This ruling was based on the fact that the debtor’s disclosure statement showed that it planned to pay out more than Ninety-seven Thousand Dollars ($97,000.00) per year, while the statement also showed that only Eighty-six Thousand Dollars ($86,-000.00) would be available for distribution. Id. at 1376. This is similar to the case herein were the probable minimum debt requirements of KEJ exceed the proposed income by an even greater amount. The district court concluded, and the court of appeals affirmed, from this “deficit spending” that no effective reorganization was possible. Id.
Another case similar to the case herein is In re Snapwoods Apartments of Dekalb County, Ltd., 153 B.R. 524 (Bankr.S.D.Ohio 1993). In Snapwoods, the Bankruptcy Court lifted the automatic stay regarding property alleged by the debtor to be necessary to an effective reorganization. The debtor had projected proposed income over expenses which was considerably greater than the present net income. Id. at 526. This is similar to the case at bar, where the income proposed is also quite speculative. The court concluded that:
It would be pure speculation to assume that [debtor] can realistically meet its projected net operating income in the years to come. Net operating income is critically important because it derives the success or failure of [debtor’s] plan of reorganization. [Debtor], however, has not demonstrated that its projected net income is reasonable or reliable given its recent past experience. It follows that [debtor] has not established that its proposed plan of reorganization has a likelihood of success. Therefore [debtor] has not met its burden under 11 U.S.C. § 362(d)(2)(B) to establish that a “successful reorganization” is possible. Id. at 526-27.
Net income is similarly critical in the ease at bar. However, unlike Snapwoods, the debtor has not even alleged a positive net income that could possibly cover even the interest payments necessary on the debt it owes. Thus, its chance of an effective reorganization is even less probable than that of the debtor in Snapwoods.
The Court also notes that there are no public policy concerns that would support a different result in this case. KEJ Corp. is owned solely by one person, Larry Johnson, who is also the sole employee of the corporation. The relief sought would thus harm no one except Larry Johnson. Further, even Larry Johnson himself is not sympathetic to the plight of KEJ, as he has stated that he would not consider putting any of his personal funds into the reorganization attempt that would serve only to benefit himself.
For all the foregoing reasons, the Court finds that the relief from stay sought by MIF and Astles should be granted, and that the motion to avoid the sheriffs sale is therefore moot. In reaching the conclusion found herein, the Court has considered all of the evidence, exhibits and arguments of counsel, regardless of whether or not they are specifically referred to in this opinion.
Accordingly, it is
*252ORDERED that the Motion of MIF Realty for Relief From Stay be, and is hereby, GRANTED.
It is FURTHER ORDERED that the Motion of Gale Astles for Relief From Stay be, and is hereby, GRANTED.
It is FURTHER ORDERED that the Debtor’s Motion to Void the Sheriffs Sale of Real Property of the Estate be, and is hereby, DENIED as MOOT. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491917/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court on the Motion for Order Terminating Automatic Stay filed by Monroe Bank & Trust and Debtor’s Objection. At the Hearing, the parties were afforded the opportunity to present evidence and arguments they wished the Court to consider in making its decision. The Court has reviewed the entire record in the case. Based upon that review, and for the following reasons, this Court finds that Monroe’s Motion for Relief should be Denied, subject to Debtor’s curing of all arrearages by the close of business on October 17, 1994.
FACTS
Debtor filed a Plan for Chapter 13 relief on March 17, 1993, and an order confirming the Debtor’s Plan was issued by this Court on May 28, 1993. In that Plan, Debtor claimed a one-half (Jé) interest in her home located at 5823 West Temperance Road, Ottawa Lake, Michigan. Monroe Bank & Trust (hereafter “Monroe”) has a secured interest in this property.
On May 23, 1994 Monroe filed the present Motion for Relief from Stay on the basis that Debtor has failed to make current mortgage payments and likewise failed to make payments on pre-petition arrearages as mandated by the Plan. According to Monroe, Debt- or’s monthly mortgage payments are Three Hundred Thirty and 10/100 Dollars ($330.10) per month, and the Debtor was obligated by the plan to pay Ninety-three Dollars ($93.00) per month to cure pre-petition mortgage payments still owing. Monroe claims that Debt- or owes two (2) mortgage payments, and four (4) payments on the arrearage, all totaling One Thousand Thirty-two and 20/100 Dollars ($1,032.20). Debtor has a total indebtedness of Twenty-one Thousand Eight Hundred Eighty-two and 41/100 Dollars ($21,882.41) *253and arrearages of Two Thousand Two Hundred Sixty-five and 00/100 Dollars ($2,265.00). Monroe submits that the appraised value of the real estate is Sixty-one Thousand Five Hundred and 00/100 Dollars ($61,500.00). Debtor objects to Monroe’s Motion on the basis that the real property is her primary residence and that payments have been made which are not reflected in Monroe’s Motion.
LAW
11 U.S.C. § 362 reads in relevant part:
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief under the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—
(1) for cause, including the lack of adequate protection of an interest in property of such property in interest.
(2) with respect to a stay of an act against property under sub-section (1) of this section, if—
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective organization.
(g) In any hearing under subsection (d) or (e) of this section concerning relief from the stay of any act under subsection (1) of this section—
(1) the party requesting such relief has the burden of proof on the issue of the debtor’s equity in the property;
(2) the party opposing such relief has the burden of proof on all other issues.
DISCUSSION
Motions to terminate, annul, or modify the automatic stay are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(G). The Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C. § 1334.
Under 11 U.S.C. § 362(d) supra, this Court can terminate, modify, annul or condition the stay for “cause.” Under 11 U.S.C. § 362(g), the Debtor has the burden of proof on all issues except lack of equity .in real property, which is not an issue in this case as the secured creditor is not seeking relief from stay on the basis that Debtor has no equity in the property under 11 U.S.C. § 362(d)(2).
The law in this area was summarized by the court in In re Brown, 70 B.R. 10 (Bankr. S.D.Ohio 1986). In Brown, as in the case herein, creditors with secured claims sought relief from stay with respect to a Chapter 13 case for which a plan had been confirmed and payments had not been maintained in accordance with the plan. The court held:
Based upon the factual findings stated above, the Court concludes that although material default in the terms of a confirmed Chapter 13 plan can be cause for relief from the automatic stay and can be cause for dismissal of a Chapter 13 case, the determination of materiality is a factual question within discretion of the court based upon its consideration of a particular Chapter 13 plan and upon the totality of circumstances affecting the debtors which caused the default. Id. at 12.
In the case at bar, it appears that Debtor made mortgage and arrearage payments pursuant to the Chapter 13 Plan as confirmed by this Court through January 1994. Monroe claims that Debtor has failed to make arrearage payments pursuant to the Plan since January of 1994. Monroe further claims that Debtor failed to make payments upon her Note for the months of April and May 1994. Debtor’s only explanation is that the collateral securing the note is the Debt- or’s principal residence and that some payments have not been reflected as paid. Debtor has failed to prove that the payments which have not been reflected as paid were actually made.
Viewing the totality of circumstances in this case, this Court will deny Monroe’s Motion for Relief from Stay, subject to Debtor’s curing all late payments by October 17,1994. If said payments are not made by this time, Monroe’s Motion will be reinstated and granted without further notice to Debtor or opportunity for a hearing.
In reaching the conclusion found herein, the Court has considered all of the evidence, exhibits and arguments of Counsel, regard*254less of whether or not they are specifically referred to in this Opinion.
Accordingly, it is
ORDERED that Monroe’s Motion for Order Terminating the Automatic Stay be, and is hereby, DENIED, pending Debtor’s payment of all late payments by the close of business on October 17, 1994.
It is FURTHER ORDERED that if Debt- or does not cure all late payments regarding the current mortgage payments and payments for unpaid pre-petition mortgage payments pursuant to the Chapter 13 Plan confirmed by this Court, the Court will reinstate and grant Monroe’s Motion for Relief from Stay. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491918/ | OPINION AND ORDER DENYING MOTION TO MODIFY CHAPTER 12 PLAN, TO DEEM PLAN COMPLETED AND FOR DISCHARGE AND GRANTING MOTION TO DISMISS CHAPTER 12 CASE
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the Court upon James and Margie Fennig’s (the “Debtors”) motion to modify their chapter 12 plan (the “Plan”), to deem Plan completed and for discharge to which Citizens Commercial Bank (the “Bank”) has filed an objection. The Bank has filed a motion to dismiss the Debtors’ chapter 12 bankruptcy case. The Court finds that the Debtors’ motion is not well taken and should be denied. The Court further finds that the Bank’s motion is well taken and should be granted.
FACTS
The parties have stipulated to the facts presented to the Court on their respective motions. See Joint Stipulation of Facts and Issues on Motion to Dismiss and Motion to Modify Plan filed August 8,1994 (the “Stipulation”). The parties have also requested that the Court consider the transcripts and exhibits from the examinations of the Debtors pursuant to Fed.R.Bankr.P. 2004. See Stipulation at p. 4, para. 19. Additionally, the parties have requested that the Court consider “the other documents of record” in this bankruptcy case. See Stipulation at p. 4, para. 19.
The Debtors filed their chapter 12 case on March 7, 1988 (the “Case”). See Stipulation at p 1, para. 1.
On October 20, 1988, the Court conducted a hearing on confirmation of the Plan, as modified by agreement of the parties. See Stipulation at p. 1, para. 2. The order jour-nalizing confirmation of the Plan was entered on August 15, 1989. See Stipulation at p. 1, para. 2 and Stipulation, Exhibit A.
The order confirming the Plan provided the following treatment of the Bank’s claim:
[t]he parties agree that [the Bank] has a secured claim in real property of the [DJebtors at $280,000.00. Such claim shall *477bear interest at the rate of 10% per annum from October 20, 1988 until paid in full. Interest shall be paid from October 20, 1988 to December 15, 1988 in the amount of $4,295.89 on December 15, 1988. In addition, on December 15,1988 the [Debtors shall pay $14,000.00 to be applied to principle. Thereafter the balance of $266,-000.00 shall be paid in equal annual installments of $31,244.34 of interest and principle on December 15 of each year until paid in full with the first such payment being December 15,1989. No proof of claim will be required to be filed for this claim and the mortgages securing the same shall remain on the real property until paid in full.
All other claims of [the Bank] shall be deemed unsecured and treated in accordance with Class 7. Such claims shall be required to be filed and duly proved and allowed.
See Stipulation, at p. 1-2, para. 3.
The confirmed Plan provided the following treatment of unsecured claims under Class 7:
[a]ll unsecured claims arising before the filing of the petition, or b[y] virtue of treatment accorded herein or by operation of 11 USC 506 shall upon the claim being duly proved and allowed, share on a pro rata basis all the disposable income of the debtors as set forth in Exhibit 1 to the Plan and as may be determined by the Court in any year subsequent to 1988 from the report of the Debtors. Such payment shall be made on December 31, 1988 and each year thereafter for a period of five years.
The Debtors shall pay a minimum of $5,000.00 per year and shall cause to be filed monthly itemization after confirmation during said period.
See Stipulation, at p. 2, para. 4.
The agreement to limit the Bank’s secured claim under the Plan was conditioned upon and was in consideration of the Debtors’ performing all of their obligations under the Plan.
Based on the confirmed Plan, the allowed unsecured claims in the Case were as follows:
FmHA $145,056.00 31%
Bank $285,045.05 61%
Karl Wellman $ 38,974.11 8%
See Stipulation, pp. 2-3, para. 5.
In December, 1988, the Debtors made the first year’s Plan payments. The Debtors reduced the principle balance of the Bank’s secured claim to $266,000.00 as of January 1, 1989. The Debtors also paid $5,000.00 to the Trustee under the Plan. See Stipulation, p. 3, para. 6.
In December of 1989, the Debtors defaulted upon the Plan by failing to make the required payments. The Debtors made no attempt to modify the Plan prior to such default nor prior to the filing of the instant motion. See Stipulation, p. 3, para. 7.
The Bank moved for relief from stay and abandonment of certain of the Debtors’ real property on February 2, 1990, as more fully set forth in Exhibit A to said motion.
On March 28, 1990, the Court granted the Bank’s motion. The Court entered the following stipulated order on the Motion for Relief from Stay and Abandonment of the Bank:
parties agree that [the Bank] will be granted relief from stay. Further [the Bank] agrees to stay any further proceedings in foreclosure subject to Debtors contract for auction sale to be held no later than April 28, 1990. Said auction to sell sufficient property in satisfaction of [the Bank’s] claim. [Bank] granted abandonment.
See Stipulation, p. 3, para. 8.
The Debtors proceeded to private sale of the real property and obtained a contract for a private sale prior to April 28, 1990. See Stipulation, p. 3, para. 9.
The Debtors sold the real property on June 29, 1990 (the “Real Property Sale”). See Stipulation, p. 3, para. 10.
The net proceeds from the Real Property Sale after taxes and expenses were $371,-499.62. See Stipulation, p. 3, para. 11.
The Bank’s total claim against the Debtors was $595,742.39 on the date of the Real Property Sale. See Stipulation, pp. 3-4, para. 12.
*478Thereafter on September 12, 1990, the Debtors filed a report of sale with the Court. See Stipulation at p. 4, para. 13.
The Debtors effectively ceased all farming operations in December, 1989. See Stipulation, p. 3, para. 10. The Debtors have not resumed farming operations or engaged in farming since 1989. See Stipulation, p. 4, para. 14. In 1991, the Debtors ceased filing operating reports. See Stipulation, p. 4, para. 15.
On April 8, 1994, the Debtors filed the instant motion to Modify, to Deem Plan Completed and for Discharge. See Stipulation, p. 4, para. 16.
DISCUSSION
Whether the Debtors are Entitled to a Discharge Under 11 U.S.C. § 1228
The Bank argues that the Debtors are not entitled to a discharge under § 1228(a) because they have not completed the payments to the Bank and other creditors as required by the Plan. The Court agrees. “[I]n a Chapter 12 case, discharge only occurs after eomplet[ion] [of] all plan payments.” In re Grimm, 145 B.R. 994, 997 (Bankr.D.S.D.1992). Here, as in In re Grimm, the Debtors are not entitled to a discharge because they have not made the payments required by the Plan. In re Grimm, 145 B.R. at 998 (citing 11 U.S.C. § 1228(a)).
Further, the facts presented to the Court do not support a finding that the Debtors are entitled to a “hardship discharge” under § 1228(b) based on “catastrophic circumstances”. C.f. In re White, 126 B.R. 542 (Bankr.N.D.Ill.1991) (finding that the debtors’ reduced income as a result of the cessation of one of the debtors’ temporary disability payments did not represent “catastrophic circumstances” warranting a “hardship discharge” under § 1328(b)); In re Schleppi, 103 B.R. 901 (Bankr.S.D.Ohio 1989) (noting that “hardship discharge” requires “catastrophic circumstances” under § 1328(b)); In re Dark, 87 B.R. 497, 498 (Bankr.N.D.Ohio 1988) (stating that “[t]o warrant a grant of a hardship discharge [under § 1328(b) ], unsubstantiated and eonclusory statements regarding an inability to fund a plan are insufficient”). Moreover, this Court, as the court in In re Nelson, “will not find [that] modification is impracticable [in circumstances] where the Debtors waited until it was too late to modify their Plan to request a hardship discharge, even though the alleged circumstances giving rise to the hardship discharge occurred at an earlier time”. In re Nelson, 135 B.R. 304, 308 (Bankr.N.D.Ill.1991).
Whether the Debtors May “Modify” the Terms of the Confirmed Plan
As noted by the Bank, the Debtors’ attempt to modify the Plan is untimely. The Debtors have not proposed additional Plan payments. Section 1229 provides that modification of a chapter 12 plan must be made “before the completion of payments under such plan”. 11 U.S.C. § 1229(a). Therefore, the Debtors’ motion to modify the Plan without making additional Plan payments is untimely.
Indeed, even if the Debtors desired to modify the Plan to make additional payments at this late stage in the ease, such modification would be circumscribed by § 1229(c). C.f. In re Neill, 158 B.R. 93, 97 (Bankr.N.D.Ohio 1993) (finding that debtor could not modify plan payments beyond parameters set for plan modification under chapter 13).
Furthermore, the Court shall not interpret § 1229 in a manner which would grant the Debtors a discharge absent compliance with § 1228. Although phrased as a motion to “modify” the terms of the Plan, the Debtors’ motion, in substance, represents an attempt to circumvent the express statutory mandate of § 1228. Section § 1229 which permits “modification” of a plan should not be interpreted in a manner which would supersede the specific statutory language of § 1228. See HCSC-Laundry v. United States, 450 U.S. 1, 6, 101 S.Ct. 836, 838-39, 67 L.Ed.2d 1 (1981) (stating that “it is a basic principle of statutory construction that a specific statute ... controls over a general provision ... particularly when the two are interrelated and closely positioned”); Bulova Watch Co. v. United States, 365 U.S. 753, *479758, 81 S.Ct. 864, 868, 6 L.Ed.2d 72 (1961) (noting that specific statute controls over more general statute) (citations omitted). Additionally, the fact that Congress provided debtors under chapter 12 with two well-defined means by which they can obtain a discharge belies an intent to provide debtors with a third means of obtaining a discharge under chapter 12. See In re Genlime Group, L.P., 167 B.R. 453, 455 (Bankr.N.D.Ohio 1994) (applying the principle of expressio uni-us est exelusio alterius in construing 11 U.S.C. § 331) (citation omitted).
Lastly, even if “modification” of the Plan at this late stage in the Case was permissible under the Bankruptcy Code, the Debtors have not demonstrated an unanticipated change of circumstances warranting such modification. See In re Cooper, 94 B.R. 550 (Bankr.S.D.Ill.1989) (debtors’ mistake in valuing assets did not represent unanticipated change in circumstances warranting plan modification under § 1229); see also In re Pearson, 96 B.R. 990, 993 (Bankr.D.S.D.1989) (denying motion to modify confirmed plan brought by trustee based on the fact that certain “real estate should have been valued higher at the time of confirmation”); c.f. In re Wickersheim, 107 B.R. 177, 181 (Bankr.E.D.Wis.1989) (stating that “[a] plan modification is only warranted where there is an unanticipated change in circumstances affecting implementation of the confirmed plan”) (citation omitted); In re Grogg Farms, Inc., 91 B.R. 482, 485 (Bankr.N.D.Ind.1988) (debtor’s default under terms of plan did not represent unforeseen circumstances warranting plan modification).
Whether the Debtors have Materially Defaulted Under a Term of the Plan
The Court concludes that “cause” exists for dismissal of the Case pursuant to § 1208(c)(6) based on the Debtors’ “material .default” with respect to a term of the confirmed Plan. Most significantly, the Debtors have failed to make Plan payments since 1989. See Stipulation, p. 3, para. 7; see also Brief of Debtors in Support of Motion to Modify, to Deem Plan Completed and for Order of Discharge and in Opposition to Motion to Dismiss, p. 4, para. 3 (stating that “[t]he debtors did not make the $5,000 minimum distribution [required by the Plan] in 1989 or thereafter”). Further, the Debtors ceased all farming operations in 1989. Indeed, James Fennig indicated in an examination under Fed.R.Bankr.P. 2004 that the Debtors are presently incapable of completing Plan payments. See Transcript of Rule 2004 Examination of James Fennig, p. 103. The Debtors also ceased filing operating reports in 1991. Therefore, the Court finds that the Bank has born its burden of demonstrating “cause” for dismissal of the Case under § 1208(c)(6). C.f. In re H.R.P. Auto Centers, Inc., 130 B.R. 247 (Bankr.N.D.Ohio 1991) (finding that debtor’s failure to make payments under confirmed plan warranted dismissal of chapter 11 case under the more rigorous “cause” standard set forth in § 1112(b)(8)); In re Micro-Acoustics Corp., 49 B.R. 630 (Bankr.S.D.N.Y.1985) (debtor’s default under terms of plan in discontinuing payments to creditors and discontinuing business operations constituted “cause” for conversion under § 1112(b)(8)).
In light of the foregoing, it is therefore
ORDERED that the Debtors’ motion to modify chapter 12 plan, to deem plan completed and for discharge be, and it hereby is, denied. It is further
ORDERED that the Bank’s motion to dismiss the Debtors’ chapter 12 case be, and it hereby is, granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491919/ | MEMORANDUM OF DECISION ON SUMMARY JUDGMENT MOTIONS
JAMES A. PUSATERI, Chief Judge.
This matter arises from the debtor’s objection to a proof of claim filed by the United States on behalf of the Internal Revenue Service. It is now before the Court on opposing motions for summary judgment. The IRS is represented by James J. Long, Trial Attorney in the Tax Division of the Department of Justice and Lee Thompson, United States Attorney for the District of Kansas. The debtor is represented by Kimberly A. Shell of Hillix, Brewer, Hoffhaus, Whittaker & Wright of Kansas City, Missouri.
The ultimate question presented is whether the debtor owes $276,622.50 assessed against it for highway use taxes related to a number of trucks it owned. To resolve this question, the Court must decide the following issues: (1) whether it was reasonable for the debtor to apply for a suspension of the tax on the trucks since it had stopped operating and intended to sell them; (2) whether the debtor properly completed the form required to request a suspension of the tax, or at least substantially complied with the requirements for requesting the suspension; and (3) whether the debtor’s failure to include certain information on a form it was required to give the transferee when it sold a truck makes the debtor liable for the tax on such trucks.
FACTS
The parties agreed the following facts are uncontroverted.
1. Debtor is a trucking company located in Sioux Falls, South Dakota, with its principal offices in Overland Park, Kansas.
2. On August 16, 1988, debtor filed for protection under Chapter 11 of the Bankruptcy Code.
3. On August 19, 1988, debtor represented to the Court in a cash collateral order that it intended “to dispose as soon as practicable of a substantial portion of [its] assets, including tractors and trailers....”
4. On or about August 30, 1988, debtor filed IRS Form 2290, a “Heavy Vehicle Use Tax Return.” This return covered the tax period July 1, 1988 through June 30, 1989.
*6125. On or about September 30, 1988, debt- or filed an amended Form 2290. This return covered the same tax period referred to in paragraph 4.1
6. On the returns, debtor listed 425 vehicles trader category “W” as “tax-suspended vehicles” on which debtor sought to suspend the heavy vehicle highway use tax pursuant to 26 U.S.C.A. § 4483(d)(1)(A).
7. The heavy vehicle highway use tax will be suspended for the taxable period if the owner of the vehicle reasonably expects that during the current tax period, the vehicle will be used less than 5,000 miles on public highways and the owner furnishes such information as IRS forms or regulations require with respect to the expected use of the vehicle.
8. To claim the suspension from tax, the owner of the vehicle must furnish on the first Form 2290 such information as is required by the IRS in order to support the suspension of the tax. Specifically, this form requires the taxpayer to complete and sign the “Statement(s) in Support of Suspension of Tax” section2 at the top of page two of the form, and list by vehicle identification number the vehicles the owner expects will be used on the public highways for 5,000 miles or less.
9. Debtor attached to the returns referred to in paragraphs 4 and 5 a separate list which reflected the vehicles on which it claimed the suspension of highway use tax, including the vehicle number, serial number, category, and the state of registration.
10. On both returns, debtor failed to execute the “Statements) in Support of Suspension of Tax.”
11. If the heavy vehicle highway use tax is suspended for the tax period in issue and that vehicle is transferred, the transferor will not be liable for any tax on the vehicle if the transferor furnishes a statement to the transferee which contains the transferor’s name, address, taxpayer identification number, the vehicle identification number, the date of the transfer of the vehicle, the number of miles the vehicle had been used on public highways during the tax period, the odometer reading, and the name, address, and taxpayer identification number of the transferee.
12. Of the 425 vehicles referred to in paragraph 6, all were sold or returned to lessors during the tax period in issue. Specifically, 126 vehicles were sold in November 1988, 144 vehicles were sold in December 1988, 69 vehicles were sold in January 1989, 40 vehicles were sold in February 1989, and the remaining 43 vehicles were returned to the lessors.3
13. All but one of these vehicles had been used on the highways during the current tax period when debtor filed the tax returns in issue.
14. Only 66 of the transferees of these vehicles furnished all the information that was required as noted in paragraph 11. The remaining transferees were furnished with all the information except for their own taxpayer identification numbers.
DISCUSSION AND CONCLUSIONS
The Court’s understanding of the applicable statutes and regulations as they pertain to this case is as follows. See 26 U.S.C.A §§ U81 to U884; 26 C.F.R. §§ 41.0-1 to 4L7805-1 (1992). Owners of certain heavy vehicles are required to pay an annual federal tax on each vehicle, called the “Highway Use Tax.” The tax year runs *613from July 1 to June 30, and for vehicles owned and used in July, the tax is due on August 31. However, the owner may seek a suspension of the tax for each vehicle it reasonably believes will be driven 5,000 miles or less during the tax year. Owners report the tax owed or request a suspension by filing a “Heavy Vehicle Use Tax Return,” IRS Form 2290. The tax year in dispute here is the one beginning on July 1, 1988. The parties have supplied the Court with only the 1988-89 version of Form 2290, and this discussion assumes the details of the form remained the same for the 1989-90 tax year.
On Form 2290, owners report the number of vehicles owned in various categories determined by weight or in category “W” for “tax-suspended vehicles.” Tax-suspended vehicles are to be listed on page two of the form in item 1 under a section labelled “Statement(s) in Support of Suspension of Tax,” and in part II of schedule 1 to the form. If a tax-suspended vehicle turns out to be driven more than 5,000 miles dining the tax year, the owner must amend its return and pay the tax in the month immediately following the month in which the mileage exceeded 5,000. If a tax-suspended vehicle remains under the 5,000 mile limit for the full year, the owner is to list it in item 2 of the “Statement(s)” section on the next year’s return; the prior year’s suspension then becomes an exemption. Of the three items in the “Statement(s)” section, only this one directs the taxpayer to sign in the signature space provided under the items.
If during the year the owner transfers a tax-suspended vehicle to another entity, it may exempt itself from the tax by doing two things. First, when transferring the vehicle, the owner must give the transferee a document setting forth the owner’s name, address, and taxpayer identification number, the vehicle’s identification number, the date of the transfer, the number of miles the vehicle has been used on the public highways during that tax year, the odometer reading at the time of the transfer, and the name, address, and taxpayer identification number of the transferee. The transferee is required to file a copy of this document with a Form 2290 return in the month following the transfer, but the owner is not required to submit the document to the IRS. Second, the owner is to report the transfer in item 3 of the “Statement(s) in Support of Suspension of Tax” section of the next year’s return, stating the name of the transferee, the date of the transfer, and that the vehicle’s identification number was listed on a prior return as eligible for the suspension. The owner is also to declare that the vehicle was still eligible for tax-suspension at the time of the transfer. Performance of these two tasks makes the owner exempt from the prior year’s tax for that vehicle.
In 1988, the debtor filed one Form 2290 in August and another in September, listing in attachments the vehicles which it believed would not be driven in excess of 5,000 miles. It reported owing the tax on over 1,100 vehicles and claimed the suspension for less than 500. By the time the returns were filed, the debtor had filed a chapter 11 bankruptcy proceeding and had determined that it was going to sell all its vehicles. It was no longer in business and thus had a reasonable belief that it would not cause the tax-suspended vehicles to be driven in excess of 5,000 miles. Since the debtor could not know to whom a vehicle would be sold or how the buyer would actually use it, the debtor could only speculate whether the vehicle would be used enough to make the owner liable for the highway use tax.
For tax-suspended vehicles, the statute and regulations give the owner three options: (1) file a new Form 2290 and pay the tax once the vehicle has been driven more than 5,000 miles for the year; (2) report on its Form 2290 for the following year that the vehicle was in fact driven less than 5,000 miles for the year, and so complete the exemption from the tax for the previous year; or (3) transfer the vehicle with a document containing certain information and report the transfer on the owner’s next Form 2290 return, and thus become exempt from the tax without regard to the transferee’s use of it. 26 U.S.C.A §§ U8S(d); 26 C.F.R. § kl.Uk8S-S. It appears that the statute was intended to allow an owner to claim a suspension of the tax so long as it legitimately *614believed it would not cause a vehicle to travel over 5,000 miles, even though the owner intended to transfer the vehicle and the transferee was likely to use it on the highways for more than 5,000 miles. In this situation, the tax burden is simply shifted to the transferee. The Court concludes that the debtor’s declaration was reasonable under the circumstances.
The IRS claims that even if the request for suspension was reasonable, the debtor did not properly fill out Form 2290 and therefore did not obtain a suspension. The deficiency the IRS relies on is the debt- or’s failure to sign the return in the signature space provided under the “Statement(s) in Support of Suspension of Tax” section. However, the debtor’s agent did sign the first page of the return in the appropriate place under the following language: “Under penalties of perjury, I declare that I have examined this return, and the accompanying schedules and statements, and, to the best of my knowledge and belief, they are true, correct, and complete.” The Court concludes that this signature adequately verifies the contents of the return and supporting documents. In addition, as indicated above, only one of the three items in the “Statement(s)” section of the form directs the taxpayer to sign in the space provided, and it is not the item for reporting tax-suspended vehicles for the current year. Since the item that asks for a signature did not apply to the debtor and the first page of the return required the debtor to verify all the information reported with the return, the Court believes the debt- or could reasonably have concluded no signature was required under the “Statement(s)” section and certainly should not be punished for reaching this conclusion by losing the tax-suspension benefit.
Even if the second signature was somehow required by the form, the debtor’s intent to suspend the tax on many of its vehicles is made clear by its insertion of a number in the box for “Number of vehicles” in the tax-suspended vehicle category, category W, and submission of a list of trucks identified by vehicle number, serial number, category (all “W”), and state of registration. The Court believes this clear communication of the debtor’s intent constitutes substantial compliance with the requirements of Form 2290. See Woodbury v. Commissioner, 900 F.2d 1457, 1460-61 (10th Cir.1990) (notice to IRS is essence of election of differing tax treatments and substantial compliance is sufficient if IRS has notice); American Air Filter Co., Inc., v. Commissioner, 81 T.C. 709, 719-20 (1988) (stating factors for determining whether substantial compliance with IRS regulations entitles taxpayer to claimed tax treatment).
The IRS’s last argument is that the debtor failed to satisfy the requirement to supply a document with specified information to many of the transferees of its vehicles, and therefore owes the tax on those vehicles. The IRS does not claim that the debtor’s Form 2290 for the year after the suspension year was not filed or was insufficient, just that an inadequate transfer document was supplied to many transferees. The only problem the IRS identifies with these documents is the debtor’s failure to include the transferee’s employer identification number on them.
The exemption statute, 26 U.S.C.A § 14.88(d)(1), and the IRS regulations require the owner of a tax-suspended vehicle who is transferring it to supply the transferee with a document containing certain information. The transferring owner must also supply certain information on its next annual Form 2290, but not the transferee’s employer identification number. The transferee is required to file a Form 2290 for its newly-acquired vehicle not later than the month following the month in which the transfer took place, and is to attach a copy of the document provided by the former owner. If the vehicle will be used for more than 5,000 miles in the year, the transferee will owe the tax.
Under the circumstances, the Court concludes that the failure to include the transferee’s employer identification number on the transfer document supplied to the transferee for ultimate filing with its Form 2290 is not an omission that should make the transferring owner liable for the tax. The transferee could easily add its own identification number to the document and, at any rate, would *615include the number on the Form 2290 which accompanies the document to the IRS. The statute and regulations make clear that the tax should fall on the owner who uses the vehicle enough on the highways to incur the tax. The Court cannot agree that the debt- or’s failure to provide its transferees with their own identification numbers should alter this result. The Court believes the debtor substantially complied with the requirements, and so should be exempt from the tax on the transferred vehicles. See Woodbury and American Air Filter, supra. If any tax is owed but not paid on any of the transferred vehicles, the transferee is the party responsible for its payment.
For these reasons, the Court concludes the debtor’s motion for summary judgment should be granted. The IRS’s claim for the highway use tax will be disallowed.
The foregoing constitutes Findings of Fact and Conclusions of Law under Rule 7052 of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules of Civil Procedure. A judgment based on this ruling will be entered on a separate document as required by FRBP 9021 and FRCP 58.
. The first return reported tax owed on 1,110 vehicles and sought suspension for 440; the second reported tax owed on 54 and sought suspension for 39. The parties have not made clear how the second "amends” the first, or how the two together suspend the tax on the number of vehicles stated in paragraph 6. However, these questions need not be answered since the parties have agreed on the total number of tax-suspended vehicles.
. Although the parties agreed this section is to be signed, as explained below, a reasonable reading of the form may not require a signature in this section to claim the suspension.
. These numbers total 422, but the Court's ruling moots this discrepancy.
. These statutes have been amended twice since the time period at issue, but only to extend their effective dates. Act of Nov. 5, 1990, Pub.L. No. 101-508, 1990 U.S.C.C.A.N. (104 Stat.) 1388-426 to 427; Act of Dec. 18, 1991, Pub.L. No. 102-240, 1991 U.S.C.C.A.N. (105 Stat.) 2203. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484066/ | 11/15/2022
IN THE SUPREME COURT OF THE STATE OF MONTANA
Case Number: DA 22-0213
DA 22-0213
TODD MARTIN RUDE, NOV 1 5 2022
Bowen Grartwood
of E Court
Ci-
Petitioner and Appellant, S' tate. of ivinntana
v. ORDER
STATE OF MONTANA,
Respondent and Appellee.
Appellant Todd Martin Rude was granted an extension of time to file and serve his
opening brief on or before Septernber 20, 2022. Nothing further was filed, and on
October 3, 2022, this Court ordered that Appellant prepare, file, and serve the opening brief
no later than Novernber 2, 2022. Nothing further has been filed.
IT IS THEREFORE ORDERED that this case is DISMISSED WITH PREJUDICE.
The Clerk is directed to provide copies of this Order to Todd Martin Rude and to all
counsel of record.
DATED this C day of November, 2022.
Chief Justice
A! yr Justices | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484061/ | Case: 21-10984 Document: 00516546006 Page: 1 Date Filed: 11/15/2022
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
No. 21-10984
Summary Calendar
FILED
November 15, 2022
Lyle W. Cayce
United States of America, Clerk
Plaintiff—Appellee,
versus
Javier Mendoza-Flores,
Defendant—Appellant.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:19-CR-8-1
Before King, Higginson, and Willett, Circuit Judges.
Per Curiam:*
After pleading guilty to prohibited possession of a firearm and
possession of methamphetamine with intent to distribute, Javier Mendoza-
Flores was sentenced within the Guidelines range to concurrent prison terms
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 21-10984 Document: 00516546006 Page: 2 Date Filed: 11/15/2022
No. 21-10984
of 170 months and 120 months with three years of supervised release. On
appeal, he argues that his guilty plea was involuntary.
Our review is for plain error. See United States v. Vonn, 535 U.S. 55,
58–59 (2002); United States v. Sanders, 843 F.3d 1050, 1053–54 (5th Cir.
2016). To prevail under the plain-error standard, Mendoza-Flores must show
(1) an error that, (2) is clear or obvious, and that (3) affected his substantial
rights. Puckett v. United States, 556 U.S. 129, 135 (2009). We should correct
a plain error if it “seriously affects the fairness, integrity or public reputation
of judicial proceedings.” Id. (cleaned up).
Mendoza-Flores concedes that the requirements of Federal Rule of
Criminal Procedure 11 were observed at his rearraignment, where he affirmed
under oath that (1) no one was forcing him to plead guilty, (2) he had received
no promises or assurances beyond those in his plea agreement, and (3) he
wanted to plead guilty. Such statements “carry a strong presumption of
verity.” Blackledge v. Allison, 431 U.S. 63, 74 (1977). Mendoza-Flores has
failed to overcome that presumption.
Accordingly, we AFFIRM.
2 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484069/ | DISMISS and Opinion Filed November 14, 2022
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00864-CV
THB CONSTRUCTION, LLC, Appellant
V.
CLARK RIDGE CANYON, LTD. AND HENRY BUILDING, INC., Appellees
On Appeal from the 68th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-19-09922
MEMORANDUM OPINION
Before Chief Justice Burns, Justice Reichek, and Justice Goldstein
Opinion by Justice Reichek
Before the Court is appellant’s November 1, 2022 motion requesting dismissal
of the appeal. We grant the motion and dismiss the appeal. See TEX. R. APP. P.
42.1(a)(1).
/Amanda L. Reichek/
AMANDA L. REICHEK
JUSTICE
220864F.P05
S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
THB CONSTRUCTION, LLC, On Appeal from the 68th Judicial
Appellant District Court, Dallas County, Texas
Trial Court Cause No. DC-19-09922.
No. 05-22-00864-CV V. Opinion delivered by Justice
Reichek. Chief Justice Burns and
CLARK RIDGE CANYON, LTD. Justice Goldstein participating.
AND HENRY BUILDING, INC.,
Appellees
In accordance with this Court’s opinion of this date, the appeal is
DISMISSED.
It is ORDERED that appellees CLARK RIDGE CANYON, LTD. AND
HENRY BUILDING, INC. recover their costs of this appeal from appellant THB
CONSTRUCTION, LLC.
Judgment entered November 14, 2022
–2– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484067/ | MODIFIED;REVERSE and REMAND and Opinion Filed November 14, 2022
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-21-00744-CV
IN THE INTEREST OF S.M.A. AND N.N.F., CHILDREN
On Appeal from the 303rd Judicial District Court
Dallas County, Texas
Trial Court Cause No. DF-16-07076
MEMORANDUM OPINION
Before Justices Schenck, Reichek, and Goldstein
Opinion by Justice Reichek
In this appeal, Mother challenges the trial court’s final order in a suit to modify
the parent-child relationship.1 Because we conclude the trial court’s findings of fact
do not support its order, we modify the court’s order to conform to its findings of
fact on the issue of child support, and reverse and remand the court’s order regarding
conservatorship, possession, and the parents’ rights and duties for further
proceedings.
1
The Office of the Attorney General of Texas contends in its brief on appeal that Mother is improperly
challenging a temporary order rendered by an associate judge prior to trial. It is clear from the issues
brought by Mother that she is challenging the final order rendered by the trial court. Accordingly we
conclude the Attorney General’s argument that Mother’s appeal is moot, and we lack jurisdiction to address
it, is without merit.
Background
Mother and Father are the parents of two minor children, S.M.A and N.N.F.
An agreed order establishing the parent-child relationship was entered on June 22,
2017. In the agreed order, Mother and Father were named joint managing
conservators and Father was ordered to pay $620 per month in child support.
On January 17, 2020, Father filed a petition to modify the parent-child
relationship in which he contended circumstances had materially and substantially
changed. Father requested modification of the conservatorship and termination of
the court-ordered support. Mother filed a counter-petition requesting that Father’s
child support obligation be recalculated, a confirmation of Father’s child support
arrearages, and modifications including the appointment of Mother as sole managing
conservator with the exclusive right to make invasive medical decisions, educational
decisions, and consent to the children’s psychiatric and psychological treatment.
A trial before the court was conducted on April 30, 2021. Father failed to
appear. At the conclusion of the hearing, the court orally announced it was denying
both Mother’s and Father’s requested modifications to conservatorship, possession,
and their rights and duties. The court further confirmed child support arrearages in
the amount of $24,082.48 and increased the monthly amount of child support to be
paid by Father to $1,700. The judge signed an order reflecting those rulings one
month later.
–2–
Mother timely requested the trial court to make findings of fact and
conclusions of law. Among the findings and conclusions made by the trial court
were the following:
(1) There was a material and substantial change in
circumstance of the parties;
(2) Mother presented permissible, uncontroverted
testimony regarding Father’s income and resources;
(3) 25% of Father’s net monthly resources is $2,300;
(4) Child support calculated using the Texas Family
Code’s guidelines is presumed to be in the best interest of the
children;
(5) The trial court may deviate from the guidelines only
if evidence rebuts the presumption that application of the
guidelines is in the best interest of the children;
(6) No evidence was presented to overcome or rebut
this presumption;
(7) If the amount of child support ordered varies from
the amount computed by applying the guidelines, the court is
required to make findings, including the specific reasons for the
variance;
(8) No findings were made as to the specific reasons the
amount of support per month ordered by the court varied from
the amount computed by applying the percentage guidelines;
(9) After July 16, 2020, Father disappeared from both
the litigation and the children’s lives;
(10) Father was properly cited to appear at trial but failed
to do so;
(11) At the time of trial, Father had not seen or spoken
to the children in nine months;
–3–
(12) Father refused to participate in the custody
evaluation;
(13) Father presented no evidence at trial that joint
managing conservatorship was in the best interest of the children;
(14) Father presented no evidence that standard
possession was in the best interest of the children;
(15) Father presented no evidence that a residency
restriction to Dallas County was in the best interest of the
children.
Father did not object to the trial court’s findings.
Analysis
I. Child Support
In her first issue, Mother contends the trial court’s order awarding her only
$1,700 per month in child support is not supported by either the trial court’s findings
of fact or the evidence submitted at trial. No party in this case has challenged the
trial court’s findings of fact. Therefore, they are binding on this Court on appeal.
See Hotel Partners v. KPMG Peat Marwick, 847 S.W.2d 630, 632 (Tex. App.—
Dallas 1993, writ denied).
Findings of fact are the ultimate determinations of all specific inquiries
necessary to establish conduct or the existence or nonexistence of a relevant matter.
Pac. Emp’rs Ins. Co. v. Brown, 86 S.W.3d 353, 356–57 (Tex. App.—Texarkana
2002, no pet.). The judgment rendered by the trial court must conform to the nature
of the case proved. TEX. R. CIV. P. 301. “When the findings of fact do not support
the judgment, the judgment should either be reformed to conform to the findings, or
–4–
if appropriate, it should be reversed.” Brown, 86 S.W.3d at 357; 6 McDonald &
Carlson Tex. Civ. Prac. App. Prac. § 18:14 (2nd ed. 1998 & Supp. 2021).
The guidelines established by the Texas Family Code state that, for two
children, 25% of the obligor’s net monthly resources is presumptively the amount of
child support that is in the best interest of the children. TEX. FAM. CODE ANN.
§ 154.122. The court here found that 25% of Father’s net monthly resources was
$2,300. The court further found that no evidence was presented to rebut the
presumption that application of the 25% guideline was in the children’s best interest.
The court acknowledged that, to vary from the guidelines, it was required to provide
specific reasons to justify the variance. The court did not provide any findings to
support the award of $1,700, but instead stated no findings in support of a variance
were made.
There is no way to reconcile the multiple findings made by the trial court on
the child support issue and the amount of monthly support it ordered. The only
amount of child support supported by the findings is $2,300 per month. Because
the trial court’s unchallenged findings show that $2,300 per month was 25% of
Father’s net monthly resources, and this amount of child support was in the
children’s best interest, we resolve Mother’s first issue in her favor, and modify the
trial court’s order to award Mother $2,300 per month in child support. See In re
E.A.C., 162 S.W.3d 438, 444 (Tex. App.—Dallas 2005, no pet.) (modifying trial
court’s order on child support to conform to findings of fact).
–5–
II. Conservatorship, Possession, and Rights and Duties
In her second issue, Mother contends the trial court abused its discretion in
failing to grant her requested modifications to the children’s conservatorship and
possession and to her and Father’s rights and duties as parents. A trial court abuses
its discretion when it acts arbitrarily, unreasonably, or without reference to any
guiding rules or principles. In re K.A.M.S., 583 S.W.3d 335, 341 (Tex. App.—
Houston [14th Dist.] 2019, no pet.). There is no abuse of discretion if there is some
evidence of a substantive and probative character to support the court’s decision. Id.
Mother contends the trial court abused its discretion in denying her requested
modifications because her unrebutted evidence showed that Father had disappeared
from the children’s lives. The trial court’s finding that Father had not seen or spoken
to the children in the nine months prior to trial indicates it found Mother’s evidence
credible. While none of the findings made by the trial court support its decision to
deny Mother’s requested modifications, they also cannot be read as unequivocally
supporting the specific modifications she sought. It is impossible for us to discern
the basis of the trial court’s ruling from the findings it made. Because the trial court’s
findings are disconsonant with its order, and we cannot determine the court’s
reasoning from its findings, we conclude that, in the interest of justice, we must
reverse and remand the court’s order on conservatorship, possession, and the
parents’ rights and duties for further proceedings. See Brown, 86 S.W.3d at 359
–6–
(where judgment conflicted with fact findings, appropriate to reverse and remand
for new trial in interest of justice).
Based on the foregoing, we modify the trial court’s order to award Mother
$2,300 per month in child support to be paid by Father. We reverse the portions of
the order addressing conservatorship and possession of the children, and Mother’s
and Father’s rights and duties as parents, and remand those issues to the trial court
for further proceedings.
/Amanda L. Reichek/
AMANDA L. REICHEK
JUSTICE
210744F.P05
–7–
S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
IN THE INTEREST OF S.M.A. On Appeal from the 303rd Judicial
AND N.N.F., CHILDREN District Court, Dallas County, Texas
Trial Court Cause No. DF-16-07076.
No. 05-21-00744-CV Opinion delivered by Justice
Reichek. Justices Schenck and
Goldstein participating.
In accordance with this Court’s opinion of this date, the Modified Order in
Suit Affecting the Parent-Child Relationship signed by the trial court on May 26,
2021 is MODIFIED as follows:
It is ORDERED that YERVY AGUILA is obligated to pay and shall
pay to TAMICA LATOYA FITZGERALD child support of two
thousand three hundred dollars and zero cents ($2,300) per month.
It is further ORDERED that, the portions of the trial court’s order pertaining to
conservatorship, possession, and the parent’s rights and duties are REVERSED
AND REMANDED for further proceedings.
It is ORDERED that appellant TAMICA LATOYA FITZGERALD recover
her costs of this appeal from appellee YERVY AGUILA.
.
Judgment entered November 14, 2022.
–8– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484075/ | AFFIRMED and Opinion Filed November 10, 2022
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-21-00392-CR
COURTNEY DUANE BARLOW, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 380th Judicial District Court
Collin County, Texas
Trial Court Cause No. 380-82257-2020
MEMORANDUM OPINION
Before Justices Nowell and Smith1
Opinion by Justice Smith
Appellant Courtney Duane Barlow appeals from his conviction of possessing
one to four grams of tetrahydrocannabinol (THC), a Penalty Group 2 controlled
substance. See TEX. HEALTH & SAFETY CODE ANN. § 481.116(c). In six issues,
appellant contends (1) a discovery violation by the State prevented him from
confronting undisclosed witnesses, raising a scientific reliability objection, and
presenting a complete defense; (2) his conviction rests on false evidence; and (3) the
1
Justice Leslie Osborne was a member of the original panel but has since resigned. Because they agree
on the judgment, the two remaining justices decided the case. See TEX. R. APP. P. 41.1(b).
evidence is insufficient to support the trial court’s conclusion that appellant
possessed delta-9 THC at the time of his arrest. We affirm the trial court’s judgment.
Background
Appellant was charged with possessing two vape cartridges containing THC.
He entered a plea of not guilty and waived his right to a jury.
The trial court held a virtual bench trial on Zoom. McKinney Police Officers
Daniel Rogers and Travis Ray testified that they encountered appellant when
responding to a criminal trespass call from an L.A. Fitness in August 2019. Ray
conducted a consent search of appellant’s personal property and discovered a small
box containing two THC vape cartridges in a fanny pack. The box’s labeling
indicated that its contents were created with medical cannabis. Rogers took the
evidence to the police station, inventoried it, and completed a drug lab submission
form. The McKinney Police Department sent the evidence to Armstrong Forensic
Laboratory (Armstrong) for analysis.
Dr. Kelly Wouters, Armstrong’s director and a licensed forensic analyst,
testified that Armstrong received a manila envelope containing a small cardboard
box and two vape cartridges containing fluid. Armstrong was asked to test the fluid
for the identification and concentration of controlled substances, including delta-9
THC, which is one of the isomers of THC. Citing Texas House Bill 1325,2 Wouters
2
Act of May 22, 2019, 86th Leg., R.S., ch. 764, §§ 2, 8, 2019 Tex. Gen. Laws 2084, 2085, 2099-100
(codified at TEX. AGRIC. CODE ANN. § 121.001, HEALTH & SAFETY §§ 481.002(5), (26)(F)).
–2–
explained that a delta-9 THC concentration threshold of 0.3 distinguishes whether a
substance is hemp, which is legal, or not. The 0.3 percent threshold is used in many
jurisdictions for items like the vape cartridges in this case.
According to Wouters, Armstrong is accredited to perform identification and
quantification analyses of controlled substances by gas chromatography (GC), liquid
chromatography (HPLC), or mass spectrometry (MS). HPLC, a well-established
technique used and published in peer-reviewed scientific literature, was used to
quantify the THC in this case. Wouters testified that the fluid in each vape cartridge
(tested separately under lab numbers 001B and 001C) tested positive for delta-9
THC; 001B had a 22.2 percent plus or minus 2.6 percent total delta-9 THC
concentration; and 001C had a 40.6 percent plus or minus 4.7 percent total delta-9
THC concentration. After testing, the combined reserve weight of 001B and 001C
was 1.29 grams.
The State introduced into evidence a lab report prepared by Wouters and a
case file, which contained bench notes, raw analytical data for the analyses
performed, calibrations on quality control measures, and backstops to ensure the
testing was performed correctly and within scientific standards. Wouters explained
that Armstrong typically reports only the total delta-9 THC concentration. In cases
like this one, performed under a Collin County grant, Armstrong also is required to
report additional analytes, including delta-9 Tetrahydrocannabinolic acid (THCA).
THCA, the acid form of THC, “decarboxylates and turns into THC under high
–3–
temperature over a longer period of time.” The total THCA molecule does not
become an equivalent concentration of THC; it is a corrected factor of 88 percent.
The total delta-9 THC concentration is a combination of the concentrations of delta-
9 THC and the decarboxylated portion of delta-9 THCA.
Defense counsel questioned Wouters on cross-examination about, among
other things, the chain of custody for the evidence at Armstrong. Wouters testified
that the case file did not include chain of custody detail, but the names of the four or
five people at the lab who could have touched the evidence and information
regarding who received, analyzed, and released the samples could be made available.
On re-direct, Wouters identified those people as Elijah Hampton, Karen Deiss, Joe
Delgado, and Jacklyn Merson – lab technicians who “could have had a step in the
process of this analysis,” “whose raw data [Wouters] analyzed,” and whose initials
are throughout the case file. The State had provided their names to defense counsel
and advised that they were on standby to testify at trial if needed. Defense counsel
did not question Wouters further about the work performed by the lab technicians or
call any of them to testify.
The trial court found appellant guilty of THC possession as charged in the
indictment. Following a punishment hearing, the trial court sentenced appellant to
six years’ confinement.
Appellant filed a motion for new trial, asserting (1) the verdict was contrary
to the law and evidence and (2) the State did not produce material evidence
–4–
discoverable under Texas Code of Criminal Procedure Article 39.14. Appellant also
filed posttrial article 39.14 requests, seeking nineteen different categories of
information from Armstrong, and the State produced 206 pages of responsive
documents, 39 pages of which were the previously-produced case file.
At a subsequent hearing, defense counsel advised that appellant’s motion for
new trial pertained to article 39.14 and discrepancies between the pretrial and
posttrial productions. Defense counsel argued that reviewing the posttrial
production made apparent that more individuals were involved in Armstrong’s
testing and analysis than disclosed before trial and in the testimony at trial.
Appellant was thus deprived of information needed to lodge a Sixth Amendment
objection to the pretrial production and to Wouters’s testimony as a surrogate for
those individuals and their work. Appellant also discovered “serious concerns about
the testing, validity and reliability through [the lab’s] methodology.”
Defense counsel called Wouters to testify at the new-trial hearing and
specifically asked about the role he and other Armstrong employees performed in
this case. Counsel pointed to examples in which Wouters responded to questions at
trial using “we” to describe procedures related to the analysis:
[State:] What method of analysis was used in this particular case
to determine any–if any delta-9 THC existed and if it existed at greater
than .3 percent?
[Wouters:] . . . there are three techniques that are used to confirm the
identification, and on the identification side we use GC/MS in this case.
We also use infrared spectroscopy . . . .
–5–
***
[State:] . . . what backstop measures do you have in your lab?
[Wouters:] All of the analyses we do are backed up by quality control
procedures to verify their performance and validity and verification of
the methods used. In these cases for the quantitation, we run series of
blanks, we run positive controls that are carried through the same
extraction process, we run calibration verification standards at the
beginning and at the end of each run to make sure the system response
is stable and reliable, we evaluate the calibration of the instrument in
terms of it linearity and range to make sure that it is -- the response is
reproducible and accurate over the measurement concentrations that are
important for this analysis, and we run in every batch replicate samples
of at least one sample in every batch to make sure that the analysis is
reproducible and reliable.
Defense counsel also identified several questions posed to Wouters using the
term “you” to which his responses did not clarify that he was not the individual who
performed a particular procedure:
[State:] So when you started testing it, it was .80 grams, give or
take .02, and when you were finished testing it, it was .71 grams, give
or take.
[Wouters:] That’s correct.
***
[State:] So, is an amount of the liquid that you’re analyzing used
up in your testing?
[Wouters:] Yes, it is.
***
[State:] So, after you’ve tested, what were you left with in
cartridge 1B? Looks like you were left with .71 grams, and then plus
the reserve weight in 1C is .58 and those added together are what?
[Wouters:] 1.29 grams.
–6–
***
[Defense counsel:] You said you received, or you in part did this testing
in a certain way because Collin County put out a requested proposal
and as part of that, you had to test these things a certain way; is that
correct?
[Wouters:] That’s correct.
Wouters testified that his use of “we” referred to Armstrong. He disagreed that his
trial testimony imputed the work of somebody else to himself or that he gave a false
impression.
Wouters described the role of each of the lab technicians,3 who were licensed
and essential to lab functions. Wouters’s role was to perform the analysis and
interpret the data. He did not personally weigh the samples, prepare solutions to use
in the instruments, operate the instruments, or generate data:
We have technicians that perform basic analytical functions and then
we have the analyst who takes the data and actually draws conclusions
and that’s my role here as the analyst, so yes, I analyze the data which
I think is part of the testing process, but I did not weigh the evidence
physically myself.
Wouters further testified that he previously produced his complete case file,
which contained the initials and handwriting of the individuals involved in the
process, in good faith. It contained everything they used for forming their
3
Elijah Hampton described the samples, recorded the weights, and separated the aliquots for analysis.
Karen Deiss interpreted the infrared data; Wouters also interpreted it. Joe Delgado operated the CG/MS,
running the samples through the instrument and generating data. Jacquelyn Merson operated the HPLC
instrument. Andrew Armstrong, Armstrong’s owner, also reviewed quantitative data and made some
calculations on the work order for final processing of the lab report.
–7–
conclusions and opinions and what he thought was enough information for another
chemist to review the data and see what was done.
Dr. Kevin Schug, a professor of analytical chemistry at the University of
Texas at Arlington, testified on behalf of appellant. Schug had never worked in a
forensic lab, but had worked in a quality assurance lab that implements methodology
like a forensics lab. He found the documentation in the case file on the validation of
methods to be “particularly lacking” and believed, based on the calibration curves
for the HPLC quantitative analysis, that the calibration was improperly carried out
and the results were generally unreliable.
Appellant’s trial counsel also testified at the hearing. Either the day before or
the day of trial, the State informed him of Armstrong employees on standby if he
needed them to testify. He also acknowledged that the case file contained the
employees’ initials, and the fact that the State provided him with those employees’
names and made them available on standby indicated they were part of the lab
processes in this case. He recalled agreeing to Wouters testifying first and then
calling the other Armstrong employees if issues arose or clarification was needed,
but said, without providing further explanation, that the description of the agreement
was “incomplete.” Counsel also testified that, prior to trial, he was “well aware of
[Armstrong] and had opinions as to its methodology.”
The motion for new trial was denied by operation of the law. See TEX. R. APP.
P. 21.8.
–8–
Texas Code of Criminal Procedure Article 39.14
In his first four issues, appellant contends the State violated article 39.14 by
withholding evidence from Armstrong having a logical connection to a
consequential fact. Article 39.14(a) requires the State, upon timely request, to
produce and permit the inspection and electronic duplication of “material” evidence
by the defense.4 CODE CRIM. PROC. art. 39.14(a). “Material” is defined as “having
a logical connection to a consequential fact” and “synonymous with
‘relevant.’” Watkins v. State, 619 S.W.3d 265, 290 (Tex. Crim. App. 2021).
Appellant raised his article 39.14 complaints in a motion for new trial, which
the trial court denied by operation of law. We review a trial court’s denial of a
motion for new trial for an abuse of discretion. State v. Herndon, 215 S.W.3d 901,
906–07 (Tex. Crim. App. 2007). The trial court, as factfinder at a new-trial hearing,
is the sole judge of witness credibility. Okonkwo v. State, 398 S.W.3d 689, 694
(Tex. Crim. App. 2013). We view the evidence in the light most favorable to the
trial court’s ruling, defer to the court’s credibility findings, and assume the court
made reasonable fact findings in support of the ruling. State v. Simpson, 488 S.W.3d
4
More specifically, article 39.14 provides that “as soon as practicable after receiving a timely request
from the defendant the state shall produce and permit the inspection and the electronic duplication, copying,
and photographing, by or on behalf of the defendant, of any offense reports, any designated documents,
papers, written or recorded statements of the defendant or a witness, including witness statements of law
enforcement officers but not including the work product of counsel for the state in the case and their
investigators and their notes or report, or any designated books, accounts, letters, photographs, or objects
or other tangible things not otherwise privileged that constitute or contain evidence material to any matter
involved in the action and that are in the possession, custody, or control of the state or any person under
contract with the state.” CODE CRIM. PROC. art. 39.14.
–9–
318, 322 (Tex. Crim. App. 2016). We reverse the denial of a motion for new trial
only if the trial court acted without reference to any guiding rules or principles; that
is, the ruling was “so clearly wrong as to lie outside that zone within which
reasonable persons might disagree.” Id. “[T]rial courts do not have the discretion
to grant a new trial unless the defendant demonstrates that his first trial was seriously
flawed and the flaws adversely affected his substantial rights to a fair trial.”
Herndon, 215 S.W.3d at 909 (citing TEX. R. APP. P. 44.2); Watkins v. State, No. 10-
16-00377-CR, 2022 WL 118371, at *1–2 (Tex. App.—Waco Jan. 12, 2022, pet.
ref’d) (mem. op., not designated for publication) (applying rule 44.2(b) harm
analysis for non-constitutional error to article 39.14 violation).
In his first issue, appellant contends the Armstrong technicians performed
analytical functions related to the samples and, therefore, also should have been
sponsoring witnesses for the scientific evidence at trial. Because the technicians and
their roles were not disclosed, he was deprived of his right to confront them and
prevented from objecting to Wouters’s testimony as a surrogate. In his second and
third issues, appellant asserts that the State’s failure to disclose also, respectively,
deprived him of knowledge sufficient to object to the admissibility of the State’s
scientific evidence and prevented him from calling the technicians as witnesses in
his case-in-chief.
To be sure, Wouters’s testimony at the new-trial hearing, unlike at trial,
provided specific information on the role that each technician performed with
–10–
respect to the analysis of the samples in this case. But, before trial, the State provided
appellant with the case file, which included the technician’s initials on QC reports,
worksheets, lab reporting forms, and other documents. At least by the day of trial,
the State provided the full names of four technicians on standby to testify at trial.
There appears to have been some sort of agreement between the State and appellant
that Wouters would testify first and the others would be called if needed. During
trial, Wouters identified the technicians as individuals who had a step in the process
and whose raw data he analyzed in this case. He testified that additional information
about who received, analyzed, and released the samples could be made available.
And appellant’s brief in support of new trial acknowledged that, “[d]uring trial, and
through the testimony of Dr. Wouters . . ., it became apparent to trial counsel that
certain material evidence was not produced in advance of trial despite his pre-trial
discovery request.”
Despite all this, defense counsel rested appellant’s case without asking
Wouters to clarify what the technicians did, calling any of them to testify, requesting
a continuance to pursue additional information about who, specifically, received,
analyzed, and released the samples, or raising a possible article 39.14 violation. We
also note that, when appellant had another opportunity to call the technicians to
testify at the new-trial hearing, he did not.
The trial court, having presided over both the trial and the new-trial hearing,
reasonably could have concluded that appellant had sufficient information at trial to
–11–
raise an article 39.14 objection and seek a continuance. See Rodriguez v. State, 630
S.W.3d 522, 524–25 (Tex. App.—Waco 2021, no pet.) (defendant waived article
39.14(a) complaint by not requesting continuance when State disclosed document
on first day of trial); Siebert v. State, No. 05-18-01386-CR, 2020 WL 5542544, at
*6 (Tex. App.—Dallas Sept. 16, 2020, pet. ref’d) (mem. op., not designated for
publication) (defendant was required to seek continuance after late-tendered
evidence by State). The trial court further could have reasonably found that, having
not objected or sought a continuance, appellant made a tactical decision to proceed
to verdict and, therefore, forfeited the opportunity to raise the issue in a motion for
new trial. See Colone v. State, 573 S.W.3d 249, 260 (Tex. Crim. App. 2019) (“A
defendant may not raise a matter for the first time in a motion for new trial if he had
the opportunity to raise it at trial.”); Yazdchi v. State, 428 S.W.3d 831, 844–45 (Tex.
Crim. App. 2014).
The trial court also reasonably could have concluded, based on the evidence
adduced at the new-trial hearing, that appellant did not demonstrate the State’s
failure to fully disclose the role of each Armstrong technician prior to trial affected
his substantial rights to a fair trial.
Appellant asserts that his inability to confront the technicians at trial harmed
him because they “were in a position to ‘do something fraudulent that would send
someone to jail erroneously’ or simply commit an error ‘that would affect the
outcome of a criminal case.’” Appellant developed evidence in support of his
–12–
argument through Schug’s testimony at the new-trial hearing. Schug was generally
critical of the validation of Armstrong’s methods5 and specifically critical of a
calibration curve, against which controlled substances are judged, for the HPLC
quantitative analysis. Schug believed the calibration, which was performed by Joe
Delgado, was incorrect and any measurement made using the established curve
significantly overestimated the amount of chemical present in the mixture.6
The evidence also established that, although Wouters developed the testing
protocols, he did not directly observe the technicians’ work in this case. He
acknowledged that, “if somebody was determined to do something illegal, immoral,
or irresponsible, there are ways they could probably do that.” But Wouters also
described Armstrong’s quality control measures, which included running series of
blanks, running positive controls that are carried through the same extraction
process, running calibration verification standards at the beginning and end of each
run to check the stability and reliability of the system response, evaluating
instrument calibration to ensure the response is reproducible and accurate, and
running replicate samples in each batch to ensure the analysis is reproducible and
reliable. Different analysts, or technicians in some cases, perform different types of
testing, like GC/MS versus HPLC, so more than one person is generating data to
5
On cross-examination, Schug testified that he had not received or reviewed eight peer-reviewed
articles on Armstrong’s methodology that the State provided to defense counsel.
6
Appellant now asserts that he “would have been more than happy to let Joe Delgado go toe-to-toe
with” Schug at trial, but he did not call Delgado to testify at the new-trial hearing.
–13–
verify the presence of delta-9 THC. According to Wouters, the case file’s quality
control data validates and verifies that the instruments are working properly and are
reliable and defensible.
“The purpose of the hearing [on a motion for new trial] is to give the defendant
an opportunity to fully develop the matters raised in his motion.” Wallace v. State,
106 S.W.3d 103, 108 (Tex. Crim. App. 2003). Here, appellant argued that the State
failed to disclose in discovery and at trial the specific role each technician performed
and the harm he allegedly suffered as a result. The trial court, however, was the sole
judge of witness credibility. Having heard the evidence presented, the court
reasonably could have found that appellant did not demonstrate that the trial was
seriously flawed or that the flaw alleged adversely affected his substantial rights to
a fair trial. See TEX. R. APP. P. 44.2(b); Herndon, 215 S.W.3d at 909.
In his fourth issue, appellant asserts the State’s pretrial production deprived
him of “sufficient evidence from which an expert could have derived anything
meaningful.” He claims that the case file “worked only enough to raise the suspicion
of a professor in analytical chemistry, and only by virtue of what was missing,” but
the professor found “significant flaws” in Armstrong’s methodology after reviewing
the posttrial production.
Although appellant asserts Schug found flaws in Armstrong’s methodology
once he read the posttrial production, the record shows otherwise. At the new-trial
hearing, appellant’s counsel questioned Schug primarily about the case file produced
–14–
to appellant before trial. Schug found the case file documentation on the “validation
of the methods used” to be “particularly lacking.” Counsel also asked Schug
specifically about the calibration, or drug curve, shown on a “Short Quant. Report
(ESTD)” contained in the case file. Schug testified that he was used to reviewing
reports like the case file and knew what to look for, like the calibration model. From
his review, it did “not look like they were reliably performed.” Schug testified that
these matters probably would not be evident to a non-scientist looking at the case
file; he imagined that is why an attorney would have an expert look at it. Schug
further testified that the posttrial production “did not fill those gaps, did not add
appreciably more information that would make [him] believe that this was validated
appropriately.”
Based on Schug’s testimony, the trial court was free to believe that appellant
possessed sufficient information at trial to defend his case. Consequently, the trial
court reasonably could have concluded that the State’s failure to turn over the full
posttrial production before trial did not affect appellant’s substantial rights to a fair
trial. See TEX. R. APP. P. 44.2(b); Herndon, 215 S.W.3d at 909.
In sum, we conclude that the trial court’s denial of appellant’s motion for new
trial was not so clearly wrong as to lie outside that zone within which reasonable
persons might disagree and, therefore, the trial court did not abuse its discretion.
Accordingly, we overrule appellant’s first four issues.
–15–
False Evidence
In his fifth issue, appellant contends his conviction rests on false evidence in
violation of his due process rights. Appellant complains Wouters’s trial testimony
falsely indicated that Wouters undertook testing and quality control measures that
Armstrong technicians actually performed. The State argues that appellant failed
to preserve his due process claim because he did not raise it at the hearing on his
motion for new trial.
The use of material false testimony to procure a conviction violates a
defendant’s due process rights under the Fifth and Fourteenth Amendments to the
United States Constitution. Ex parte De La Cruz, 466 S.W.3d 855, 866 (Tex. Crim.
App. 2015). However, false evidence claims are subject to the traditional rules of
error preservation. See Estrada v. State, 313 S.W.3d 274, 288 (Tex. Crim. App.
2010); Valdez v. State, No. AP-77,042, 2018 WL 3046403, at *5 (Tex. Crim. App.
June 20, 2018) (not designated for publication).
To preserve error for appellate review, an appellant ordinarily must make a
timely request, objection, or motion to the trial court stating the grounds for the
ruling sought “with sufficient specificity to alert the trial court to the complaint.”
See TEX. R. APP. P. 33.1(a). “A complaint is timely if it is made ‘as soon as the
ground of objection becomes apparent.’ Regarding its specificity, the objection must
simply be clear enough to provide the judge and the opposing party an opportunity
to address and, if necessary, correct the purported error.” Pena v. State, 353 S.W.3d
–16–
797, 807–09 (Tex. Crim. App. 2011) (internal citations omitted)). Failure to object
in a timely and specific manner forfeits appellate complaints on the admissibility of
evidence, even if its admission violates a constitutional right. Valdez, 2018 WL
3046403, at *5–6 (distinguishing Estrada, 313 S.W.3d at 286–88, in which the
defendant had “no duty” to object at trial when he “could not reasonably be expected
to have known that [the witness’s] testimony was false at the time that it was
made.”).
In his brief in support of new trial, appellant alleged that Wouters’s testimony
“in the first-person or first-person plural viewpoint (‘I’ or ‘we’)” “left the impression
that he personally tested or analyzed the evidence in this case or was personally
involved in the testing or analysis.” At the new-trial hearing, defense counsel
questioned Wouters extensively about his trial testimony and now relies on that
testimony to support his false evidence complaint. Appellant, however, did not
lodge an explicit false evidence objection at the new-trial hearing sufficient to alert
the State and the trial court of the need to address it. Instead, he pursued his article
39.14 objection and an objection to the validity and reliability of the lab’s testing
and methodology. Accordingly, we conclude that he has not preserved the complaint
for appellate review. See TEX. R. APP. P. 33.1(a)(1); Medina v. State, No. 10-19-
00007-CR, 2020 WL 4690150, at *1–2 (Tex. App.—Waco Aug. 12, 2020, no pet.)
(mem. op., not designated for publication) (defendant’s false evidence complaint on
–17–
appeal was not preserved when it did not comport with article 39.14 complaint in
motion for new trial).
Even assuming appellant’s complaint about Wouters’s testimony was
sufficient to raise a false evidence objection at the new-trial hearing, we cannot
conclude that the trial court abused its discretion in denying appellant’s motion on
that basis. There was substantial evidence regarding Wouters’s trial testimony at the
new-trial hearing. The trial court had the benefit of presiding over both the trial and
the new-trial hearing and was in the best position to evaluate whether Wouters’s trial
testimony actually left a false impression regarding who performed the testing and
analysis and, if so, whether that false impression adversely affected appellant’s
substantial rights to a fair trial. Deferring to the court’s credibility findings and
viewing the evidence in the light most favorable to the trial court’s ruling,7 we cannot
conclude that the trial court’s denial of the motion for new trial with respect to
appellant’s false evidence complaint was so clearly wrong as to lie outside that zone
within which reasonable persons might disagree.
For these reasons, we overrule appellant’s fifth issue.
Sufficiency of the Evidence
In his sixth issue, appellant contends the evidence is insufficient to support
the trial court’s conclusion that appellant possessed delta-9 THC at a concentration
7
Among other evidence at the new-trial hearing, the trial court heard Wouters’s testimony that he used
“we” to refer to Armstrong, considered himself to be part of the processes, and did not believe he gave a
false impression that he personally performed the technicians’ work.
–18–
of greater than 0.3 percent at the time of his arrest. Directing the Court to Wouters’s
testimony that THCA decarboxylates and turns into THC under high temperatures
or even exposure to room temperature over a longer period of time, appellant asserts
it is unknown how much delta-9 THC appellant possessed.
When reviewing the legal sufficiency of the evidence, we consider all the
evidence in the light most favorable to the verdict and determine whether any
rational factfinder could have found the essential elements of the charged offense
beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. 307, 319 (1979).
Circumstantial evidence and direct evidence are “equally probative.” Carter v.
State, 620 S.W.3d 147, 149 (Tex. Crim. App. 2021). We defer to “the responsibility
of the trier of fact fairly to resolve conflicts in the testimony, to weigh the evidence,
and to draw reasonable inferences from basic facts to ultimate facts.” Id. (quoting
Jackson, 443 U.S. at 319). The factfinder may draw reasonable inferences from the
evidence “as long as each inference is supported by the evidence presented at trial.”
Id. at 150 (quoting Hooper v. State, 214 S.W.3d 9, 15 (Tex. Crim. App. 2007)).
Appellant was charged with possessing THC, other than marijuana, a
controlled substance in Penalty Group 2, in an amount of one gram or more but less
than four grams, including adulterants and dilutants. See HEALTH & SAFETY §§
481.103(a)(1), 481.116(c). The definition of “controlled substance” expressly
excludes “hemp, as defined by Section 121.001, Agriculture Code, or
the tetrahydrocannabinols in hemp.” Id. § 481.002(5). Section 121.001 of the
–19–
Agriculture Code defines “hemp” as “the plant Cannabis sativa L. and any part of
that plant, including the seeds of the plant and all derivatives, extracts, cannabinoids,
isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9
tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight
basis.” TEX. AGRIC. CODE ANN. § 121.001; see also HEALTH & SAFETY § 443.202
(applying 0.3 percent rule to cannabinoid and cannabidiol oils). Therefore, to prove
that the fluid appellant possessed was a controlled substance, the State had to
demonstrate the fluid had a delta-9 THC concentration level above 0.3 percent.
Wouters testified that the fluid in each vape cartridge tested positive for delta-
9 THC. Specifically, the liquid in 001B had approximate concentrations of 22.1
percent delta-9 THC, 0.065 percent delta-9 THCA, and 22.2 percent total delta-9
THC, and the liquid in 001C had approximate concentrations of 40.5 percent delta-
9 THC, 0.120 percent delta-9 THCA, and 40.6 percent total delta-9 THC. Although
the lab tested separately for delta-9 THCA pursuant to the terms of a Collin County
grant, Wouters explained that the total delta-9 THC is a combination of the delta-9
THC and the decarboxylated portion of delta-9 THCA. Wouters further explained
that THCA becomes THC if it is heated or ingested, so it is considered THC for legal
purposes. Accordingly, whether THCA converts to THC prior to an analysis is
immaterial; the total delta-9 THC is the relevant concentration.
Appellant’s implication that the delta-9 THC concentration in the vape
cartridge fluids increased due to any conversion of THCA into THC after he
–20–
possessed them is unsupported by the record. Instead, delta-9 THCA is part of the
total delta-9 THC calculation. Cf. AGRIC. § 121.001 (definition of “hemp” includes
“acids” among parts of plant that should be included in calculating concentration of
delta-9 THC). Moreover, the concentration of both delta-9 THC and total delta-9
THC in each sample was significantly higher than 0.3 percent.
We must defer to the trial court’s evaluation of the credibility and weight of
the evidence. Carter, 620 S.W.3d at 149. Here, viewing the evidence in the light
most favorable to the verdict, the trial court could have reasonably concluded based
on Wouters’s testimony that appellant possessed 1.29 grams of THC with a total
delta-9 THC concentration of more than 0.3 percent. Accordingly, we conclude the
evidence was sufficient for the trial court to find appellant guilty of the charged
offense and overrule appellant’s sixth issue.
We affirm the trial court’s judgment.
/Craig Smith/
CRAIG SMITH
JUSTICE
210392f.u05
Do Not Publish
TEX. R. APP. P. 47.2(b)
–21–
S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
COURTNEY DUANE BARLOW, On Appeal from the 380th Judicial District
Appellant Court, Collin County, Texas
Trial Court Cause No. 380-82257-2020.
No. 05-21-00392-CR V. Opinion delivered by Justice Smith. Justice
Nowell participating.
THE STATE OF TEXAS, Appellee
Based on the Court’s opinion of this date, the judgment of the trial court is AFFIRMED.
Judgment entered this 10th day of November, 2022.
–22– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484068/ | Affirm and Opinion Filed November 14, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-21-00732-CR
TAVARIS LASHAWN WATSON, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 416th Judicial District Court
Collin County, Texas
Trial Court Cause No. 416-81725-2021
MEMORANDUM OPINION
Before Justices Partida-Kipness,1 Nowell, and Smith
Opinion by Justice Nowell
A jury convicted Tavaris Lashawn Watson of burglary of a habitation and
sentenced him to thirty-three years’ incarceration. In two issues, appellant argues the
evidence is insufficient to support the conviction and the trial court erred by
admitting evidence that he spent time in a halfway house. In a single cross-issue, the
State requests we modify the judgment. We modify the judgment and affirm as
modified.
1
The Honorable Leslie Osborne participated in the submission of this case; however, she did not
participate in issuance of this memorandum opinion due to her resignation on October 24, 2022. The
Honorable Robbie Partida-Kipness has substituted for Justice Osborne in this cause. Justice Partida-
Kipness has reviewed the briefs and the record before the Court.
A. Sufficiency of the Evidence
In his first issue, appellant asserts the evidence is insufficient to show he had
the intent to commit theft, which is an element of the offense as charged. Appellant
was charged with burglary pursuant to Texas Penal Code section 30.02(a)(1), which
states a person commits an offense if, without the effective consent of the owner, the
person enters a habitation with the intent to commit a theft. See TEX. PENAL CODE
ANN. § 30.02(a).
When reviewing the sufficiency of the evidence to support a conviction, we
consider the evidence in the light most favorable to the verdict. Edward v. State, 635
S.W.3d 649, 655 (Tex. Crim. App. 2021). The verdict will be upheld if any rational
trier of fact could have found all the essential elements of the offense proven beyond
a reasonable doubt. Id. “This familiar standard gives full play to the responsibility
of the trier of fact fairly to resolve conflicts in the testimony, to weigh the evidence,
and to draw reasonable inferences from basic facts to ultimate facts.” Jackson v.
Virginia, 443 U.S. 307, 319 (1979). The jury is the sole judge of the weight and
credibility of the evidence. Edward, 635 S.W.3d at 655. When considering a claim
of evidentiary insufficiency, we must keep in mind that a juror may choose to believe
or disbelieve all, some, or none of the evidence presented. Id. Further, while jurors
may not base their decision on mere speculation or unsupported inferences, they may
draw reasonable inferences from the evidence. Id. The evidence is sufficient to
support a conviction, and thus the jury’s verdict is not irrational, if “the inferences
–2–
necessary to establish guilt are reasonable based upon the cumulative force of all the
evidence when considered in the light most favorable to the verdict.” Id. at 655-56
(quoting Wise v. State, 364 S.W.3d 900, 903 (Tex. Crim. App. 2012)). When faced
with conflicts in the evidence, a reviewing court shall presume that the fact finder
resolved those conflicts in favor of the verdict and defer to that determination. Id.
The evidence presented at trial shows that at approximately midnight on
Saturday, June 14, 2020, Chandra Marcell2 arrived home and parked in front of her
townhouse. As she was parking, she saw appellant walking and made eye contact
with him. She got out of her car and went into her townhouse before returning to her
car to retrieve another item. As she walked back to her townhouse, she was wearing
a cross-body purse, carrying a larger purse in one hand, and carrying a grocery bag
in her other hand.
Once inside, Chandra locked her front door. As she turned away from the
door, she heard a “boom” and felt a “hard impact.” She fell face down on the floor.
When she turned over, she saw appellant, who had pulled his black tank top over his
head, reaching over her, and she surmised he was trying to grab her cross-body purse.
Chandra’s husband, Farrell Marcell, heard Chandra’s car park in front of their
townhouse, Chandra enter the home, and the door lock. Then he “heard a boom like
the door [had] been kicked at, so I jumped up.” In the living room, he saw appellant
2
Chandra Marcell and her husband, Farrell Marcell, both testified at trial. Because they share a
surname, we will refer to them by their first names.
–3–
trying to grab Chandra’s purse. Farrell tackled appellant and the two began tussling.
Once their physical fight moved outside, Chandra brought a meat cleaver to Farrell,
and Farrell repeatedly hit appellant with the knife. Appellant sustained multiple
lacerations and started bleeding heavily. DNA testing matched the blood on the meat
cleaver to appellant.
Chandra called 911 and told the dispatcher that a man had broken into her
house to rob her; the 911 call was played for the jury. When officers arrived,
appellant appeared disoriented and “seemed out of it.” One officer testified that
appellant was “very lethargic almost. I mean, any time you have someone who’s lost
a considerable amount of blood - - his reactions are very delayed.” Appellant
struggled to follow instructions. Appellant was taken by ambulance to a hospital.
Chandra told the officers that appellant “had just tried to rob her.” An officer
testified that the implication of Chandra’s report was that a theft occurred. He further
testified that robbery involves taking or attempting to steal something from someone
else; the person does not always obtain the property.
Later that morning, another officer arrived at the Marcell’s home to gather
additional information. While talking to the Marcells, a man approached the officer
and said he located a black Nissan in front of his garage. The car was running and
was not occupied, but there was a puddle of condensation beneath it. The man had
already moved the car to a nearby parking space because it was blocking his garage.
The officer located the Nissan and found appellant’s identification card in the center
–4–
console. No keys were in the car. The police contacted a wrecker and impounded the
car. Farrell later found a Nissan key fob on the ground, which, he testified, fell out
of appellant’s pocket while they were tussling.
Appellant regained consciousness and was released from the hospital later that
day. Two days later, he contacted Detective Timothy Dowd to inquire about his
impounded car. He told Dowd that his car had been stolen along with his wallet and
everything else in his car.3 When asked about the incident at the Marcell’s
townhouse, appellant denied any knowledge of the incident. Dowd told appellant he
was looking for a man with cuts and lacerations who had been hit with a meat
cleaver. Appellant told Dowd that he had “the wrong guy” and maintained he had
no cuts or lacerations nor had he been to the hospital recently.
When interviewed by Dowd after his arrest, appellant claimed he had been
drugged on June 14. Specifically, appellant explained a friend gave him a cigarette
that must have been laced with something and, as a result, he had no recollection
about the events of June 14. Appellant’s hospital records showed he had PCP, TCH,
and alcohol in his body and he was suffering from abnormal mental status. Appellant
had not mentioned being drugged during his first conversation with Dowd, and
Dowd considered appellant’s new story “self-serving, farfetched. It’s plausible that
he was drugged, but that story changed.”
3
The record does not reflect why appellant called Dowd as opposed to another person working at the
Allen Police Department.
–5–
Having reviewed the record, we conclude there is sufficient evidence for a
jury to reasonably conclude appellant entered the Marcell’s habitation without their
consent and attempted to commit theft. The evidence shows Chandra made eye
contact with appellant before walking into her house carrying two purses. Appellant
promptly broke the door to the townhome, knocked Chandra down, and was standing
over her attempting to grab her cross-body purse when Farrell began fighting
appellant. While appellant argues he was drugged at the time and there is no evidence
to show he had the intent to commit theft when he entered the home, the jury could
have drawn reasonable inferences from the evidence presented and concluded
appellant intended to take Chandra’s purse. We conclude the evidence is sufficient
to support the jury’s verdict. We overrule appellant’s first issue.
B. Admission of Evidence
In his second issue, appellant argues the trial court erred by admitting
evidence of his prior incarceration in a halfway house. During Officer Dowd’s
testimony, the State asked him about his second conversation with appellant. Dowd
testified that appellant’s recitation of events during their second conversation was
different from their first conversation. The following exchange occurred:
Q. Detective Dowd, does this Defendant then change his
story?
A. Yes, he does.
Q. What does he say happens now?
A. That - - he brought up the story about meeting a friend - -
excuse me - - that he met that he knew from a halfway house and the
friend gave him a cigarette.
–6–
Appellant’s counsel immediately asked to approach the bench where a conference
was held off of the record. The judge excused the jury and held a hearing outside the
presence of the jury.
During that hearing, appellant’s counsel moved for a mistrial on the ground
that Dowd’s testimony violated a limine order that the parties not refer or allude to
appellant’s criminal history. The State responded that the testimony did not elicit
any prior criminal history; Dowd did not state that appellant had prior convictions
or that appellant was at the halfway house. Further, the State asserted, appellant’s
counsel opened the door to the testimony by asking questions about where appellant
obtained his drugs. Finally, the State asserted, the testimony was not about appellant,
but was about the person who gave the drugs to appellant. The trial court denied the
motion.
Although appellant argues the trial court erred by admitting Dowd’s
testimony, he did not object to Dowd’s testimony on admissibility grounds and any
objection to admissibility has not been preserved for our review. See TEX. R. APP. P.
33.1(a) (preservation of error); see also Montelongo v. State, 623 S.W.3d 819, 822
(Tex. Crim. App. 2021). Further, because appellant did not object that the evidence
was inadmissible but instead moved for a mistrial, appellant’s complaint on appeal
does not comport with his objection at trial and, accordingly, is not preserved for
this reason as well. See Clark v. State, 365 S.W.3d 333, 339 (Tex. Crim. App. 2012)
(“The point of error on appeal must comport with the objection made at trial.”).
–7–
However, out of an abundance of caution, we will consider appellant’s second
issue as a challenge to the trial court’s ruling on his motion for mistrial. A mistrial
is an appropriate remedy in “extreme circumstances” for a narrow class of highly
prejudicial and incurable errors. Ocon v. State, 284 S.W.3d 880, 884 (Tex. Crim.
App. 2009); see also Cruz-Banegas v. State, No. 05-21-00256-CR, 2022 WL
2255724, at *4 (Tex. App.—Dallas June 23, 2022, pet. ref’d) (mem. op., not
designated for publication). Whether an error requires a mistrial must be determined
by the particular facts of the case. Ocon, 284 S.W.3d at 884; see also Cruz-Banegas,
2022 WL 2255724, at *4.
We review a trial court’s denial of a mistrial for an abuse of discretion. Ocon,
284 S.W.3d at 884; see also Cruz-Banegas, 2022 WL 2255724, at *4. We view the
evidence in the light most favorable to the trial court’s ruling, considering only those
arguments before the court at the time of the ruling. Ocon, 284 S.W.3d at 884; see
also Cruz-Banegas, 2022 WL 2255724, at *4. The ruling must be upheld if it was
within the zone of reasonable disagreement. Ocon, 284 S.W.3d at 884; see also
Cruz-Banegas, 2022 WL 2255724, at *4.
Because it is an “extreme remedy,” a mistrial should be granted only when
residual prejudice remains after less drastic alternatives have been explored. Jenkins
v. State, 493 S.W.3d 583, 612 (Tex. Crim. App. 2016); see Ocon, 284 S.W.3d at
884–85 (“A mistrial is an appropriate remedy only in ‘extreme circumstances’ for a
narrow class of highly prejudicial and incurable errors.”). “Though requesting lesser
–8–
remedies is not a prerequisite to a motion for mistrial, when the movant does not
first request a lesser remedy, we will not reverse the court’s judgment if the problem
could have been cured by the less drastic alternative.” Ocon, 284 S.W.3d at 885.
In this case, appellant did not request a lesser remedy before seeking a
mistrial. Dowd testified appellant met with a friend he knew from a halfway house.
Assuming for purposes of this argument that Dowd’s testimony violated a limine
order,4 any error could have been cured by an instruction to disregard. See Gordy v.
State, No. 05-19-00444-CR, 2022 WL 632169, at *8 (Tex. App.—Dallas Mar. 4,
2022, pet. ref’d) (mem. op., not designated for publication); Anderson v. State, No.
05-16-01157-CR, 2017 WL 5897903, at *6 (Tex. App.—Dallas Nov. 29, 2017, pet.
ref’d) (mem. op., not designated for publication). However, appellant did not request
a lesser remedy. Accordingly, we will not reverse the trial court’s judgment because
any problem could have been cured by a less drastic alternative. We overrule
appellant’s second issue.
C. Modification of the Judgment
The State requests we modify the judgment to accurately reflect appellant’s
pleas to two enhancement paragraphs and the jury’s findings on them. In the
4
Appellant moved for mistrial on the ground that Dowd’s testimony violated a limine order “not to
refer to or allude to [appellant’s] criminal history.” No such limine order appears in our record. The clerk’s
record does include an order granting appellant’s “Motion to Prevent State from Reading or Alluding to
Nonjurisdictional Enhancement Count at or Before Guilt/Innocence Phase.” That motion requested the
State be precluded from reading or referring to the non-jurisdictional enhancement counts before the
punishment phase of trial.
–9–
indictment, the State alleged two prior convictions to enhance appellant’s
punishment. Appellant pleaded not true to the enhancements, and the jury found
them to be true. However, the trial court’s judgment only reflects appellant’s plea
and the jury’s finding as to one enhancement paragraph.
We are authorized to reform a judgment to make the record speak the truth
when we have the necessary information to do so. Bigley v. State, 865 S.W.2d 26,
27 (Tex. Crim. App. 1993); Estrada v. State, 334 S.W.3d 57, 63 (Tex. App.—Dallas
2009, no pet.) (“This Court has the power to modify an incorrect judgment to make
the record speak the truth when we have the necessary information to do so.”); TEX.
R. APP. P. 43.2(b).
The record supports the State’s requested modification. Accordingly, we
sustain the State’s cross-point and modify the judgment as requested.
D. Conclusion
We modify the trial court’s judgment to show appellant pleaded not true to a
second enhancement paragraph and the jury found the second enhancement
paragraph to be true. As modified, we affirm the trial court’s judgment.
/Erin A. Nowell//
ERIN A. NOWELL
JUSTICE
210732f.u05
Do Not Publish
TEX. R. APP. P. 47.2(b)
–10–
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
TAVARIS LASHAWN WATSON, On Appeal from the 416th Judicial
Appellant District Court, Collin County, Texas
Trial Court Cause No. 416-81725-
No. 05-21-00732-CR V. 2021.
Opinion delivered by Justice Nowell.
THE STATE OF TEXAS, Appellee Justices Partida-Kipness and Smith
participating.
Based on the Court’s opinion of this date, the judgment of the trial court is
MODIFIED as follows:
Under the heading “2nd Enhancement Paragraph,” we DELETE the letters
“N/A” and ADD the words “Pleaded Not True.”
Under the heading “Finding on 2nd Enhancement Paragraph,” we DELETE
the letters “N/A” and ADD the words “Found True.”
As REFORMED, the judgment is AFFIRMED.
Judgment entered this 14th day of November, 2022.
–11– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484070/ | REVERSE and REMAND in part and RENDER; Opinion Filed November
14, 2022
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-21-00702-CV
KAMILAH TODD, Appellant
V.
SOUTHERN METHODIST UNIVERSITY AND GRETA A. DAVIS, AN
INDIVIDUAL, Appellees
On Appeal from the 160th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-20-11705
MEMORANDUM OPINION
Before Justices Schenck, Reichek, and Goldstein
Opinion by Justice Schenck
Kamilah Todd appeals the trial court’s order granting appellees Southern
Methodist University (“SMU”) and Greta A. Davis’s plea to the jurisdiction. In two
issues, Todd argues the trial court erred by granting the plea and by denying her
motion for new trial. We reverse the trial court’s order to dismiss and remand this
case to the trial court for proceedings consistent with this opinion. Because the
dispositive issues in this case are settled in law, we issue this memorandum opinion.
See TEX. R. APP. P. 47.4.
BACKGROUND
After receiving an undergraduate degree at SMU in 2015, Todd applied and
was accepted into SMU’s Dispute Resolution and Counseling Program (“Program”).
Todd successfully completed several courses in the Program, but in the spring term
of 2019, Todd was notified that she had failed the course titled Advanced Clinical
Methods (“ACM”).1 Todd successfully pursued an appeal of the ACM course grade
through multiple internal levels of review.
At or about the same time she pursued an appeal of her course grade, Todd
pursued a separate appeal of a remediation plan; the course syllabus required a
remediation plan whenever a student’s performance in the Clinical Progress
Assessment (“CPA”) component of the ACM course was assessed as deficient, as
Todd’s performance was in the opinion of her instructor. Todd pursued her
remediation appeal to a hearing before an appeal committee, who, on January 15,
2020, communicated their ruling that “the plan should not stand.” On its face, the
ruling did not specify what, if any, actions would be necessary or appropriate by way
of further instruction or remediation in order for Todd to advance academically.
While her remediation plan appeal was pending, Todd was not permitted to enroll in
the program’s Practicum course, which involved “meeting with real clients in the
1
The course description in the syllabus attached to Todd’s petition describes the ACM course as having
“an emphasis on practicing counseling skills” and that “[e]valuation will be based on several factors,
including strengths and deficits in intrapersonal and interpersonal counseling skills as demonstrated in role-
play and/or written assignments.”
–2–
training clinic,” as opposed to the ACM course, which utilized students as the clients
in classroom exercises and projects.
On August 21, 2020, Todd filed suit against SMU and Davis, who was the
Chair of SMU’s Department of Dispute and Counseling at all times relevant to
Todd’s suit. In her petition, Todd asserted claims for, inter alia, declaratory relief
and breach of contract. In addition to compensatory and punitive damages for the
financial loss and physical and emotional distress appellees’ actions allegedly caused
her, Todd requested the trial court make several declarations, including that Todd be
permitted to enroll in the remaining courses to complete her degree in the Program.
After filing a joint answer, in November of 2020, SMU and Davis jointly filed
a plea to the jurisdiction, in which they argued Todd’s claims were not ripe for
judicial review because she still has the opportunity to complete the Program upon
successful completion of a remediation plan. The plea also argued the trial court
should dismiss Todd’s claims because:
[A]djudicating Todd’s claims would require this Court to evaluate and
override the Counseling Department’s decision that Todd lacks the
clinical competency to proceed to Practicum and counsel real clients.
Like an individual professor’s decision as to the proper grade for a
student, whether Todd possesses the skills necessary for Practicum
requires the expert evaluation of her professors—not the courts.
Todd filed a response to the plea and objections to Davis’s declaration that was
attached to the plea.
In February of 2021, the trial court conducted a hearing on the plea and Todd’s
objections to Davis’s declaration. The trial court later signed an order granting the
–3–
plea to the jurisdiction and dismissing with prejudice Todd’s claims. Todd filed a
motion seeking a new trial on the basis of newly discovered evidence or alternatively
modification of the order to dismissal without prejudice.
SMU and Davis responded to Todd’s motion and objected to the affidavit
supporting the motion. In May of 2021, the trial court conducted a hearing on Todd’s
motion and later signed an order modifying the order granting the plea to the
jurisdiction such that Todd’s claims were “dismissed without prejudice for lack of
subject matter jurisdiction.” Todd filed a motion for rehearing of her motion for new
trial. SMU and Davis responded, and the trial court conducted a hearing and later
signed an order denying Todd’s motion for rehearing. Todd filed a notice of appeal
from the trial court’s order granting the plea to the jurisdiction as modified in May.
DISCUSSION
Generally, a plea to the jurisdiction may challenge the sufficiency of the
claimant’s pleadings or the existence of necessary jurisdictional facts. State ex rel
City of Dallas v. Dallas Pets Alive, 566 S.W.3d 914, 917 (Tex. App.—Dallas 2018,
pet. denied). When the plea challenges the claimant’s pleadings, we determine
whether the claimant has pleaded facts that affirmatively demonstrate the trial
court’s jurisdiction, construing the pleadings liberally and in favor of the claimant.
Id. When the plea appropriately challenges jurisdictional facts, we consider
evidence submitted by the parties. Id. In performing our review, we do not look to
the merits of the claimant’s case, but consider only the pleadings and the evidence
–4–
pertinent to the jurisdictional inquiry. Id. If the jurisdictional evidence creates a fact
question, then the trial court cannot grant the plea to the jurisdiction, and the issue
must be resolved by the fact finder. Id. This standard mirrors our review of
summary judgments. Id.
As previously noted, here, the plea to the jurisdiction relied on two different
grounds in order to seek dismissal: (1) ripeness, or Todd’s failure to exhaust all of
the remedies available under SMU’s internal procedures; and (2) deference to the
appellees’ exercise of professional judgment in evaluating Todd’s academic
performance.2 Likewise, Todd’s arguments before us raise both process contentions
and a challenge to the substantive result urged by SMU and Davis in their answer
and plea to the jurisdiction. We will address the former first.
2
The trial court signed an order granting the plea without specifying which grounds it relied on.
The trial court later signed an amended order granting the plea but dismissing the case without prejudice,
instead of with prejudice. Todd urges that the trial court’s decision to modify the order “shows that the trial
court rejected [the academic deference ground] and is ruling on the ripeness [ground].” SMU and Davis
respond that the trial court “would have been correct in granting either of the grounds supporting the
dismissal,” but they do not allege what implied holding, if any, we may infer from the trial court’s decision
to modify the order from “with prejudice” to “without prejudice.”
Both grounds asserted for dismissal of Todd’s claims implicate the trial court’s subject matter
jurisdiction. See Williams v. Smith, No. 05-19-01251-CV, 2020 WL 7332674, at *2 (Tex. App.—Dallas
Dec. 14, 2020, pet. denied) (mem. op.) (“judicial non-intervention doctrine provides that—with limited
exceptions—a trial court lacks subject matter jurisdiction over claims regarding the internal management
of a voluntary association”); Holmes v. S. Methodist Univ., No. 05-15-01001-CV, 2016 WL 3085718, at *3
(Tex. App.—Dallas May 31, 2016, no pet.) (mem. op.) (“Ripeness ‘is a threshold issue that implicates
subject matter jurisdiction’”). And, we must review our own jurisdiction regardless of whether the parties
raise the issue. See Bank of New York Mellon v. Guzman, 390 S.W.3d 593, 596 (Tex. App.—Dallas 2012,
no pet.) (“We are required to review sua sponte issues affecting jurisdiction.”). Accordingly, irrespective
of whether the trial court granted the plea on either or both grounds, we may review both.
–5–
I. Ripeness and the Right to Process
Ripeness is a threshold issue that implicates subject matter jurisdiction. See
Robinson v. Parker, 353 S.W.3d 753, 755 (Tex. 2011). In evaluating ripeness, we
consider whether the facts are sufficiently developed so that an injury has occurred
or is likely to occur, rather than being contingent or remote. See id. Thus, the
ripeness analysis focuses on whether the case involves uncertain or contingent future
events that may or may not occur as anticipated or may not occur at all. See
Patterson v. Planned Parenthood of Houston & Se. Tex., 971 S.W.2d 439, 442 (Tex.
1998). In a previous opinion involving SMU and a graduate student who sued the
university after she had twice failed a required master’s program comprehensive
exam, this Court affirmed an order of dismissal on ripeness, concluding that, because
SMU presented evidence, and the plaintiff conceded, that she had refused an offer
to retake the exam and that SMU had not dismissed her from the program or made
any final decision on the award of a degree, “she cannot show her claim is ripe.” See
Holmes v. S. Methodist Univ., No. 05-15-01001-CV, 2016 WL 3085718, at *3 (Tex.
App.—Dallas May 31, 2016, no pet.) (mem. op.).
Under the ripeness doctrine, we consider whether, at the time a lawsuit
is filed, the facts are sufficiently developed so that an injury has occurred or is likely
to occur, rather than being contingent or remote. See Waco Indep. Sch. Dist. v.
Gibson, 22 S.W.3d 849, 851–52 (Tex. 2000) (emphasis in original). Prior to Todd’s
filing suit, the emailed deliberation result of the appeal committee was that the
–6–
remediation plan appealed by Todd “should not stand” and that the committee felt
its only two choices were “to approve or reject the plan.” Todd’s suit alleged that
she had “successfully demonstrated [to appeal committee] that remediation was
wholly unwarranted” and that SMU and Davis had acted in bad faith and in breach
of the contract with Todd to prevent her from completing the Program. In their
answer to Todd’s claims, SMU and Davis urged her claims were not ripe for
adjudication and that she could not recover for breach of contract because she had
not performed all of her obligations under her contract with SMU. Their plea to the
jurisdiction further elaborated that Todd’s claims are not yet ripe and that she had
failed to exhaust her available remedies because she “can still enroll in Practicum
once she completes the required remediation.” Their plea attached Davis’s
declaration and several exhibits thereto, including a letter from the Provost, “the
ultimate arbiter of Todd’s grade appeal,” in which he emphasized that her failing
grade on the CPA component of her course required a remediation plan. This ground
thus challenged the jurisdictional facts. See Dallas Pets Alive, 566 S.W.3d at 917.
Todd argues the record contains, at a minimum, some ambiguity as to whether
the appeal committee determined she should not complete the specific remediation
plan she appealed or that she need not complete any remediation plan. She included
as an exhibit SMU’s academic policies that set forth the process by which Todd
appealed the remediation plan requirement. The procedures provide that when a
student’s performance is identified as requiring remediation, a student may choose
–7–
to follow a remediation action, exit from the program, or “appeal in writing to the
Program Director” who then mediates a decision between the instructor and student
regarding the evaluation and “remedial report specifications.” “If no resolution
results, a committee . . . will either waive the remediation stipulations or enforce the
remediation stipulations.” In her second issue, Todd urges that the trial court erred
in denying her motion for new trial, to which Todd attached evidence she alleged to
be newly discovered after the trial court signed its order granting the plea to the
jurisdiction. That evidence was an affidavit from an individual named Dr. Collen R.
Logan, who stated she was a former member of SMU’s faculty and had been one of
the members of the remediation appeal committee. According to that affidavit,
Logan understood the appeal committee’s “unanimous decision” to “overturn[] the
decision to “force [Todd] to remediate” and that “Todd should be allowed to proceed
in the program without the proposed remediation.”
Process rights are important and, whether they are assured potentially by
contract or otherwise, should be respected and enforced. See, e.g., Interstate
Contracting Corp. v. City of Dallas, Tex., 407 F.3d 708, 728 (5th Cir. 2005)
(applying Texas law). Although SMU and Davis point us to our previous opinion
in Holmes, in that case, there was no dispute about Holmes’s rights under SMU’s
process. See Holmes, 2016 WL 3085718, at *3. We conclude the record in this case
–8–
as it stood at the time suit was filed3 presents a fact question over whether the
appellees have failed to comply with SMU’s own internal procedures and thus the
trial court erred if it found it lacked jurisdiction over Todd’s claims due to ripeness.
However, our analysis does not end there and instead we next address the
plea’s second ground of academic deference as it relates to the further relief Todd
requests.
II. Academic Deference and the Jurisdiction of Courts to Review
Substantive Academic Judgments
As noted, the parties’ respective positions go beyond Todd’s claims of the
right to be heard in accordance with SMU’s written process. As part of her first
issue challenging the trial court’s order granting the plea to the jurisdiction, Todd
argues the trial court had no obligation to defer to SMU and Davis. She urges that
SMU and Davis ignored the ruling of the appeal committee and thus failed to
exercise sound professional judgment. Todd’s reasoning is that SMU and Davis
have both failed to follow SMU’s internal rules and procedures and, as a result, their
professional judgment warrants no deference. Meanwhile, in their answer and plea
to the jurisdiction, SMU and Davis contend that SMU has finally determined that
Todd required further remediation. And, before us, SMU and Davis urge that Todd
has misinterpreted the appeal committee’s decision, that instead of concluding she
3
As noted, SMU and Davis urged in their answer that the University may make a final determination
of Todd’s need for further remediation. That assertion may be correct, but it does not find conclusive
support in the record of its review process prior to suit.
–9–
need not be required to complete any remediation plan, the committee instead
concluded only that the particular remediation plan Todd appealed from “should not
stand,” and therefore, deference to their final professional judgment is required,
separate and apart from her asserted right to the promised internal review. Because
the plea’s ground asserting academic deference challenges the pleadings, we must
determine whether Todd has pleaded facts that affirmatively demonstrate the trial
court’s jurisdiction, construing the pleadings liberally and in favor of her. See Dallas
Pets Alive, 566 S.W.3d at 917.
Judges and juries are not generally equipped to second-guess academic
judgment. Accordingly, when courts are asked to review the substance of a
genuinely academic decision, they should show great respect for the faculty’s
professional judgment. See Regents of Univ. of Mich. v. Ewing, 474 U.S. 214, 225
(1985). They generally may not override that judgment unless it is such a substantial
departure from accepted academic norms as to demonstrate that the person or
committee responsible did not actually exercise professional judgment. See id. This
doctrine of deference to academic decisions reflects the courts’ responsibility to
safeguard the academic freedom of state and local educational institutions, “a special
concern of the First Amendment,” and assure those who teach may do so free of the
chilling effect of an ever-present risk of being sued. See id. (quoting Keyishian v.
Bd. of Regents, 385 U.S. 589, 603 (1967)). “Academic freedom thrives not only on
the independent and uninhibited exchange of ideas among teachers and students, but
–10–
also, and somewhat inconsistently, on autonomous decisionmaking by the academy
itself.” See id. at 603 n.12 (citations omitted).
Indeed, the related judicial nonintervention doctrine has been applied in other
instances where courts have been asked to adjudicate what amount to disagreements
regarding the internal management decisions of private associations. See, e.g.,
Williams, 2020 WL 7332674, at *1 (non-profit corporation with voluntary
membership permitting member right to graze cattle on land on which corporation
owns cattle-grazing lease); Collins v. Kappa Sigma Fraternity, No. 02-14-00294-
CV, 2017 WL 218286, at *1 (Tex. App.—Fort Worth Jan. 19, 2017, pet. denied)
(mem. op.) (fraternity); Haedge v. Cent. Tex. Cattlemen’s Assoc., No. 07-15-00368-
CV, 2016 WL 5929596, at *4 (Tex. App.—Amarillo Oct. 11, 2016, pet. denied)
(mem. op.) (non-profit corporation with voluntary membership permitting member
right to graze cattle on land on which corporation owns cattle-grazing lease); Dallas
Cty. Med. Soc. v. Brache, 68 S.W.3d 31, 42 (Tex. App.—Dallas 2001, pet. denied)
(private, nonprofit organization of physicians); Tex. Adjutant Gen.’s Dept. v. Amos,
54 S.W.3d 74, 77 (Tex. App.—Austin 2001, pet. denied) (“rely[ing] on the well-
established principle that claims brought by military personnel for injuries arising
from or in the course of activity incident to military service are nonjusticiable” to
dismiss plaintiff’s action regarding proceedings resulting in plaintiff’s discharge
from Texas Air National Guard).
–11–
When previously applying the judicial nonintervention doctrine, we have
noted general exceptions to this doctrine: “fraud, illegality, or a threat to the
plaintiff’s valuable property rights or civil rights.” See Williams, 2020 WL 7332674,
at *2. But, as noted previously, in the context of a substantive decision of academic
achievement or preparedness, Texas courts have never overridden such a
determination. Neither, in view of First Amendment concerns, might they, unless
the academic action amounts to such a substantial departure from accepted academic
norms as to demonstrate that the person or committee responsible did not actually
exercise professional judgment. See Ewing, 474 U.S. at 225.
After reviewing the pleadings, we conclude the relief she seeks goes beyond
process concerns and into academic decisions that Todd asks the trial court and this
Court on appeal to engage in. In her petition, Todd sought to obtain several
declarations from the trial court.4 We take particular note of the declarations (2)
4
The complete list of requested declarations is quoted from Todd’s petition below:
1. The required procedures for requiring remediation were not followed under the 2015/2016
guidelines;
2. Under the procedures in effect in 2015/2016 the department chair Defendant Davis did not
have the authority to require remediation where the student has been successful on the
remediation plan appeal;
3. As of April 2019, Plaintiff’s successful remediation plan appeal resulted in the remediation
stipulations being “waived” and no compulsory remediation was thereafter or is now
necessary, nor can one be required at this time;
4. The procedure Defendants have followed by changing the remediation rules retroactively
and after the fact violates Plaintiff’s contractual rights and is therefore, impermissible;
–12–
defining what authority Davis has within SMU’s structure, (3) defining what effect
SMU’s appeal committee decision has on whether SMU may require Davis to
complete a remediation plan, (5) that Todd “has by definition demonstrated her
competency” to proceed to the next academic course, and (7 and 8) that SMU permit
Todd to take additional courses to complete her degree. This requested relief makes
clear what Todd seeks from the trial court—and by her appeal to this Court—is a
determination that she has achieved competence in her area of study sufficient to
proceed with the completion of her degree. And, as the supreme court has recently
advised, “courts are ill equipped to evaluate the academic judgment of professors
and universities.” See Villarreal, 620 S.W.3d at 907.
To be sure, claims that agents of a university have acted in contravention of a
student’s rights protected by the constitution or statute would obviously be subject
5. By passing Advanced Clinical Methods, Plaintiff has by definition demonstrated her
competency to proceed to Pre-Practicum;
6. The enrollment hold preventing Plaintiff from enrolling in Pre-Practicum and Practicum is
to be immediately lifted;
7. Plaintiff is to be allowed to immediately enroll in Pre-Practicum;
8. Plaintiff be allowed to finish her degree requirements;
9. Depending on how long it takes to resolve this matter, Plaintiff be allowed additional time
to complete her degree, with no penalties, administratively, academically or otherwise in
any form or fashion;
10. Defendants will be immediately and permanently enjoined from taking any punitive actions
against Plaintiff, whether administratively, academically or otherwise in any form or
fashion because of, in relation to or in any way arising from, whether directly or indirectly,
the filing of this petition or pursuing her right to appeal.
–13–
to the trial court’s and this Court’s jurisdiction. See, e.g., Tex. S. Univ. v. Villarreal,
620 S.W.3d 899, 910 (Tex. 2021) (declining to recognize substantive protections for
educational rights under Texas Constitution’s due course of law clause); Ho v. Univ.
of Tex. at Arlington, 984 S.W.2d 672, 685 (Tex. App.—Amarillo 1998, pet. denied)
(considering student’s claims of equal protection violations); cf. Senu-Oke v.
Jackson State Univ., 521 F.Supp.2d 551, 559 (S.D. Miss. 2007) (citing Bd. of
Curators of Univ. of Mo. v. Horowitz, 435 U.S. 78, 85–86 (1978); Shaboon v.
Duncan, 252 F.3d 722, 731 (5th Cir. 2001)) (“In this regard, the Supreme Court and
Fifth Circuit have made it clear that the process which must attend student
dismissals, whether for academic or disciplinary reasons, is minimal.”). But, Todd’s
petition does not assert any claims that Davis or any other agent of SMU has done
so. We will not create mischief by inserting our judicial review into what is an
academic decision and thus impose the sword of Damocles over every professor’s
head.
We conclude the trial court lacked subject matter jurisdiction over Todd’s
substantive claims. Further, we conclude the record evidence conclusively negated
the existence of jurisdiction such that dismissal of her substantive claims with
prejudice is appropriate. See Rines v. City of Carrollton, No. 05-15-01321-CV, 2018
WL 833367, at *11 (Tex. App.—Dallas Feb. 13, 2018, pet. denied) (mem. op.)
(holding City conclusively negated jurisdiction as to all of appellant’s claims such
–14–
that trial court did not err by granting City’s plea to the jurisdiction and dismissing
his claims with prejudice).
Accordingly, we sustain in part Todd’s first issue to the extent the trial court
dismissed her claims as not ripe and overrule her first issue to the extent the trial
court dismissed her claims seeking review of appellee’s academic decisions. In light
of our conclusions and reversal of the trial court’s order, we need not further address
Todd’s second issue as to whether the trial court erred by denying her motion for
new trial. See TEX. R. APP. P. 47.1.
CONCLUSION
We reverse the trial court’s order to dismiss without prejudice, render
judgment denying the plea to the jurisdiction with respect to Todd’s claims that the
appellees have failed to comply with SMU’s own internal procedures, render
judgment modifying the order to deny with prejudice Todd’s claims seeking review
of appellees’ academic decisions, and remand this case to the trial court for
proceedings consistent with this opinion.
/David J. Schenck/
DAVID J. SCHENCK
JUSTICE
210702F.P05
–15–
S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
KAMILAH TODD, Appellant On Appeal from the 160th Judicial
District Court, Dallas County, Texas
No. 05-21-00702-CV V. Trial Court Cause No. DC-20-11705.
Opinion delivered by Justice
SOUTHERN METHODIST Schenck. Justices Reichek and
UNIVERSITY AND GRETA A. Goldstein participating.
DAVIS, AN INDIVIDUAL,
Appellee
In accordance with this Court’s opinion of this date, we REVERSE the trial
court’s order to dismiss without prejudice, RENDER judgment denying the plea to
the jurisdiction with respect to Todd’s claims that the appellees have failed to
comply with SMU’s own internal procedures, RENDER judgment modifying the
order to deny with prejudice Todd’s claims seeking review of appellees’ academic
decisions, and REMAND this case to the trial court for proceedings consistent
with this opinion.
It is ORDERED that appellant KAMILAH TODD recover her costs of this
appeal from appellee SOUTHERN METHODIST UNIVERSITY AND GRETA
A. DAVIS, AN INDIVIDUAL.
Judgment entered this 14th day of November 2022.
–16– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484071/ | Abated and Opinion Filed November 14, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-21-00467-CR
JULIO CESAR SOTO-GALVAN, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 354th District Court
Hunt County, Texas
Trial Court Cause No. 32930CR
MEMORANDUM OPINION
Before Justices Nowell, Smith, and Rosenberg1
Opinion by Justice Rosenberg
Julio Cesar Soto-Galvan appeals his conviction for sexual assault of a child
younger than 17 years of age. The jury found Soto-Galvan guilty and assessed his
punishment at nine years of imprisonment.
The trial court appointed an attorney to represent Soto-Galvan on appeal. The
appointed attorney filed a brief concluding that Soto-Galvan’s appeal from the
1
The Hon. Barbara Rosenberg, Justice, Assigned. This case was submitted without oral argument. At
the time this case was submitted, Justice Leslie Osborne was a member of the panel. After her resignation,
Justice Rosenberg was designated to sit on the panel and participated in the decision of this case. TEX. R.
APP. P. 41.1.
judgment of conviction is wholly frivolous, without merit, and without arguable
grounds to advance. See Anders v. California, 386 U.S. 738 (1967).
An Anders brief must “discuss the evidence adduced at the trial, point out
where pertinent testimony may be found in the record, refer to pages in the record
where objections were made, the nature of the objection, the trial court’s ruling, and
discuss either why the trial court’s ruling was correct or why the appellant was not
harmed by the ruling of the court.” High v. State, 573 S.W.2d 807, 813 (Tex. Crim.
App. 1978). In addition to setting out an attorney’s due diligence investigation on
behalf of the client, the Anders brief has an additional use for an appellate court,
providing it “with a roadmap for their review of the record because the court itself
must be assured that the attorney has made a legally correct determination that the
appeal is frivolous.” In re Schulman, 252 S.W.3d 403, 407 (Tex. Crim. App. 2008).
When appellate counsel fails to identify any objections in the record and to
discuss why the trial court’s ruling was correct or why the appellant was not harmed
by the ruling, we are left with little or no confidence in counsel’s conclusion that the
appeal is frivolous. See Jimenez v. State, No. 05-18-00848-CR, 2020 WL 3166740,
at *1 (Tex. App.—Dallas June 15, 2020, order) (mem. op., not designated for
publication), disp. on merits, 2020 WL 5104964 (Tex. App.—Dallas Aug. 31, 2020,
no pet.) (mem. op., not designated for publication).
In this case, appellate counsel has completely failed to identify and discuss
any objection posed during the trial of this case. We view such a failure as evidence
–2–
that counsel failed to make a thorough and professional evaluation of the record. See
Crowe v. State, 595 S.W.3d 317, 320 (Tex. App.—Dallas 2020, no pet.).
We grant appellate counsel’s motion to withdraw.
We strike the Anders brief filed by Soto-Galvan’s appointed appellate
attorney.
We remand this case to the trial court and order the trial judge to appoint new
appellate counsel to represent Soto-Galvan. New appellate counsel should
investigate the record and either (1) file a brief that addresses any and all grounds
that might arguably support the appeal or (2) if a thorough and professional review
of the record identifies no such arguable issues, file an Anders brief that complies
with the requirements of Anders and its progeny.
We abate the appeal for the trial court to comply with the dictates of this
opinion.
/Barbara Rosenberg//
BARBARA ROSENBERG
210467f.u05 JUSTICE, ASSIGNED
Do Not Publish
TEX. R. APP. P. 47
–3– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491921/ | MEMORANDUM OF DECISION ON MOTION AND CROSS MOTION FOR SUMMARY JUDGMENT
FRANCIS G. CONRAD, Bankruptcy Judge.
This adversary proceeding1 involves a Chapter 11 debtor who borrowed funds from a lender who was not licensed under statute to lend by the State of Vermont. Hearn seeks to avoid the loan. Wentworth, an as-signee of the original promissory note, opposes. Both parties filed Rule 56 motions. At hearing, we denied summary judgment and reserved decision on the licensed lender statute.
The issue to be decided is whether new legislation changing the penalties for violating the Vermont licensed lender statute should be applied retroactively to the loan. We hold that the statute should be applied retroactively because it is a reduction in a penalty that, under Vermont law, applies retroactively.
BACKGROUND
In 1983, the Home for Aged Women (“HFAW’), a New Hamphsire nursing home facility, entered into a loan agreement for $500,000 with Capital City Press, Inc. (“CPC”), a Vermont corporation with a principal place of business in Montpelier. HFAW did not register as a licensed lender under 8 V.S.A. § 2201 et seq. Under the old 8 V.S.A § 2233, a loan made in violation of § 2201 was “... void and the lender shall have no right to any principal, interest, or charges whatsoever.”2 At the time of the CPC loan, Hearn had no ownership interest in CPC; however, he was involved in arranging the loan. The loan was closed and debt service was paid from 1983 to 1987. This loan is a commercial loan.
In 1987, Hearn formed J.H. Acquisition Corporation and purchased CPC in a leveraged buyout. When the buyout occurred, HFAW called in the CPC loan, which resulted in financial difficulties for Hearn. Later, HFAW agreed to lend approximately $142,-000 to Hearn as part of the buyout. The loan required the personal signatures of both Hearn and his wife, a second mortgage on *682Hearn’s residence, and an interest rate which began at 12% and increased after 60 months to 15% per annum.
On December 2,1987, the loan for $142,800 closed. Mr. and Mrs. Hearn executed a mortgage deed and mortgage note in favor of HFAW in Burlington, Vermont. HFAW wired $140,000 to the account in Burlington, Vermont. Of the $140,000, $48,375 was used to discharge the Hearns’ equity mortgage loan to Vermont Federal Bank on their home in Shelborne, Vermont. Both the discharge and the second mortgage from Mr. & Mrs. Hearn in favor of HFAW were recorded. The balance of the $140,000 was used to invest in JH Acquisition Corporation, which later purchased CPC. At closing, CPC paid off the HFAW loan of $500,000.
HFAW ceased its operations sometime between 1989-1991. As a result, Wentworth agreed to care for some of HFAWs patients. On February 13, 1991, as part of the arrangement, HFAW assigned its interest in the loan to Wentworth. On October 7, 1993, Wentworth instituted a foreclosure action against Hearn in Chittenden Superior Court. On May 20, 1994, Hearn filed a voluntary petition under Chapter 11. Later, the Chit-tenden Superior Court rendered an entry order, stating that: 1) the 1990 Amendments to Vermont’s licensed Lender law cannot save what may have been a “void” loan; 2) if the loan was void, it was not saved by Went-worth’s possible entitlement to holder-in-due course status; 3) the court could not determine if the loan was one made in Vermont; and, 4) the court could not determine if HFAW was “in the business of making loans” or whether this was just a casual transaction. The parties also dispute these issues.
On August 19, 1994, Wentworth filed a motion under 11 U.S.C. § 362 seeking to be able to pursue the pending litigation in Chit-tenden Superior Court. On September 12, 1994, Hearn filed opposition papers to the motion. Hearn filed his motion for summary judgment on September 13, 1994, and Went-worth filed its cross-motion for summary judgment on October 14, 1994. We denied both motions from the bench.
DISCUSSION
F.R.Civ.P. 56(c), applicable here under F.R.Bank.P. 7056, provides that summary judgment shall be rendered if, when the record is viewed in a light most favorable to the non-moving party,
the pleadings, depositions, answers to interrogatories, and admissions to file, together with the affidavits, if any, show that there is no genuine issues as to any material fact and that the moving party is entitled to judgment as a matter of law.
The primary purpose in granting summary judgment is to avoid unnecessary trials where no genuine issue of material fact is in dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Eastman Machine Company, Inc. v. United States, 841 F.2d 469 (2d Cir.1988). “The very mission of summary judgment procedure is to pierce the pleading and to assess the proof in order to see whether there is a genuine need for a trial.” (1963 Advisory Committee Note to Rule 56(e)).
The party moving for summary judgment has the burden of clearly establishing that no relevant facts are in dispute. Celotex, supra. Only after the moving party has met its initial burden must the opposing party set forth specific facts showing that there’s a genuine issue for trial and that the disputed fact is material. Pereira v. Centel Corp. (In re Argo Communications), 134 B.R. 776, 800 (Bankr.S.D.N.Y.1991), citing, Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir.1983), cert. denied, 464 U.S. 960, 104 S.Ct. 392, 78 L.Ed.2d 336 (1983).
Upon our review of the motion papers and other supporting materials, we concluded that summary judgment for either party is inappropriate. Neither party met its initial burden under Rule 56(c) of showing that no material facts are in dispute.
The arguments of the parties follow. Hearn asserts that the entire loan is unenforceable because HFAW failed to obtain a lender’s license pursuant to 8 V.S.A § 2201. Hearn argues that HFAW was required to obtain a license because the loan was negoti*683ated and made in Vermont, HFAW engaged in the business of making loans, and that the loan was not a commercial loan. Hearn also argues that, even if the loan was commercial in nature, the principal of the loan cannot be collected because the Amendment to 8 V.S.A. § 2238 cannot be applied retroactively.
Wentworth argues that compliance with Vermont law was not required because the loan was negotiated out of the state. It maintains that even if a license had been required, lack of such a license is not a defense that can be raised against Went-worth due to the amendment. This act previously provided that any loan made in violation of the Licensed Lender Act “shall be void, and the lender shall have no right to collect or receive any principal, interest or charges whatsoever.” The 1987 amendment provides “... {H}owever, in the case of commercial loan, the making or collection of which shall involve any violation of the provisions of this chapter, the lender shall have no right to collect or receive any interest or charges whatsoever, but shall have the right to collect and receive principal.” Wentworth relies on the provision in Vermont’s savings statute, 1 V.S.A. § 214(c) to support its argument that this amendment should be applied retroactively. Wentworth claims that the loan falls within the purview of the statute because it is commercial in nature.
We begin our analysis with the relevant provision of the amendment to 8 V.S.A. § 2233 and the Vermont Savings Statute. As a result of the amendment, a commercial loan entered into in violation of this act is no longer void, and principal, but not interest and charges, may be collected. The legislature clearly intended to mitigate the harsh penalties formerly imposed on commercial lenders. See Burke Mountain Recreation, Inc. v. Vermont Development Credit Corp. (In re Burke Mountain Recreation, Inc.), 64 B.R. 799 (Bankr.D.Vt.1986), for an example of the harsh penalties. “The amendment of the statute shows [a] legislative intent to change the effect of existing law.” Montgomery v. Brinver Corp., 142 Vt. 461, 467 A.2d 644 (1983).
Wentworth argues that the legislature intended that the amended, lesser penalty, be imposed retroactively. We agree. Under Vermont’s savings statute, the amendment or repeal of an act shall not, except as provided in subsection (c), “[a]ffect any violation of the act ... amended or repealed, ... prior to the effective date of the amendment or repeal.” 1 V.S.A § 214(b)(3). Where, however, an amendment reduces the punishment for an offense, Vermont law provides the following ameliorative amendment:
If the penalty or punishment for any offense is reduced by the amendment of an act or statutory provision, the same shall be imposed in accordance with the act or provision as amended unless imposed prior to the date of the amendment.
1 V.S.A. § 214(c).
In State of Vermont v. Mark Flagg, 624 A2d 864, 160 Vt. 141, 4 Vt.L.W. 122, at 123 (1993), the Vermont Supreme Court held that “... the purpose of Sec. 214(b) and Sec. 214(c) is to ensure ... that outdated, harsh penalties are not imposed after the legislature has deemed them no longer necessary or appropriate.” “Because the penalty for defendant’s conduct has been reduced, the plain language of Sec. 214(c) requires retroactive application of the reduced penalty.” Id.
The new law should be applied retroactively under § 214(c) because 8 V.S.A. § 2233 of 1987 reduced the penalty that could be imposed. Section 214(e) applies where “the penalty or punishment is reduced.” 1 V.S.A. § 214(c). Under the prior law, any act which constituted an offense under section 2201, et seq. was void and the lender could not collect or receive any principal, interest or charges, whatsoever. 8 V.S.A § 2233 (prior to the 1987 amendment). Under the new law, this same conduct carries a reduced penalty for commercial lenders, namely, no collecting of interest and charges. Section 214(c) applies.
Hearn argues that subsection (c) is operative only before the penalty is “imposed” because a lender’s inability to enforce a void loan under 8 V.S.A. § 2233 is not a penalty or punishment which can be “imposed” (as can a penalty of punishment for a criminal offense). To support his argument, Hearn claims that the language of subsection *684(e) was intended to be applied in cases where the legislature reduced a criminal penalty or punishment. See, e.g., State of Vermont v. Mark Flagg, 4 Vt. 122, 123 (1992). This section, however, did not apply exclusively to penalties sued for, or to penal statutes, but to all pending proceedings in court which depended upon statute law. Pratt v. Jones, 25 Vt. 303 (1853). The language of 8 V.S.A. § 2233, on its face, reflects that the penalty is not “imposed” at the inception of the loan, but rather at the time a court determines whether or not the lender should have obtained a lender’s license.
This is a classical case of statutory construction. The starting point in every case involving statutory construction is the language itself. Medor v. Lamb (In re Lamb), 47 B.R. 79, 12 C.B.C.2d 475 (Bankr.D.Vt.1985).
As a general rule, a statute should be read according to its literal terms, United States v. Locke, 471 U.S. 84, 93, 105 S.Ct. 1785, 1792, 85 L.Ed.2d 64, 75 (1985), unless this renders the statute ineffective or leads to irrational consequences, In re A.C., 144 Vt. 37, 470 A.2d 1191 (1984), leads to an absurd consequence, State v. Goyet, 120 Vt. 12, 132 A.2d 623 (1957), or is otherwise demonstrably at odds with the intentions of the statute’s drafters. Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 73 L.Ed.2d 973 (1982).
When interpreting statutes, the court is to give effect to the intent of the legislature, State v. Lund, 144 Vt. 171, 175, 475 A.2d 1055 (1984). It is this intent that constitutes the law, Hill v. Commissioner, 143 Vt. 91, 93, 463 A.2d 232 (1983). If the language is plain, the intent must be ascertained from the language itself, Lomberg v. Crowley, 138 Vt. 420, 415 A.2d 1324 (1980); State v. Estate of William Taranovich, 116 Vt. 1, 5, 68 A.2d 796 (1949). The primary vehicle for interpreting the meaning of a Vermont statute is the “plain meaning rule.” This rule was described recently in Cavanaugh v. Abbott Laboratories, 145 Vt. 516, 529, 496 A.2d 154 (1985). The Supreme Court of Vermont, citing Heisse v. State, 143 Vt. 87, 89, 460 A.2d 444, 445 (1983), said:
The most elementary rule of construction is that the plain meaning of the statute controls. If confusion or ambiguity does not appear, then the statute is not construed, but rather is enforced in accordance with its express terms. (Citation omitted).
We find no ambiguity in 8 V.S.A. § 2233. Its express provisions are clear and unequivocal. We arrive at this conclusion reading the statute in its entirety. See Philbrook v. Glodgett, 421 U.S. 707, 95 S.Ct. 1893, 44 L.Ed.2d 525 (1975) (the Court, in expounding a statute, must not be guided by a single sentence or a member of a sentence, but must look to the provisions of the whole law and to its object and policy). See also Clarence Reed, Adm. v. Rosenfield, 115 Vt. 76, 78 51 A.2d 189 (1947).
A plain reading of § 2233 reveals, in pertinent part, that the purpose is to regulate lenders of money. The amendment also reveals the legislature’s intent to reduce the harsh penalties in commercial situations where a great deal of money is at stake. The failure to obtain a lender’s license does not automatically make the loan void, rather, the penalty is imposed when the lender seeks to enforce his or her interest and the court determines whether or not the lender was required to obtain a license. If a license was required, the court will then impose the penalty in accordance with rule § 2233. This situation is akin to an offside call in football. The penalty is not self-imposed, it is only imposed if the player gets caught and the referee decides to impose a penalty.
Therefore, Hearn’s argument that the loan is void ab initio is without merit. The loan is not void at its inception. The legislature’s decision to allow certain commercial lenders to collect the principal of loans made without a license is a reduction of a penalty or punishment within the meaning of 1 V.S.A. § 214(c). Therefore, the amendment to 8 V.S.A. § 2233 can be applied retroactively to enforce the loan if it is found that the lender was required to obtain a license. This finding is also consistent with Hearn’s behavior when HFAW decided to call in the initial loan. If the loan was void at its inception, as Hearn argues, than Hearn should not have *685been required to pay off the HFAW loan at all.
Although we conclude that the amendment may be applied retroactively to enforce, at least, the principal of the loan, we held at hearing there still exists some material facts and issues that are in dispute. First, it is unclear whether the Home For Aged Women was a “person, partnership, association, or corporation ... engage[d] in the business of making loans of money,” 8 V.S.A § 2201, at the time of the transition. If this was merely a casual transaction, than the licensed lender law may not apply. Second, it is unclear whether this transaction was one made in Vermont. Finally, we are not persuaded that the loan was commercial in nature. These disputed issues are best left to disposition at trial.
CONCLUSION
For the foregoing reasons, both motions for summary judgment are denied. A trial on the merits will be held to resolve the disputed material facts and issues.
Wentworth’s counsel shall settle order on five days notice consistent with this Memorandum of Decision.
. Our subject matter jurisdiction over this controversy arises under 28 U.S.C. § 1334(b) and the General Reference to the Court under Part V of the Local District Court Rules for the District of Vermont. This is a core matter under 28 U.S.C. § 157(b)(2)(A). This Memorandum of Decision constitutes findings of fact and conclusions of law under F.R.Civ.P. 52, as made applicable by Fed.R.Bankr.P. 7052.
. 8 V.S.A. § 2201 provides: "{n}o person, partnership, association, or corporation other than a bank, savings and loan association, credit union, pawnbroker, insurance company or seller of the merchandise or service financed shall engage in the business of making loans of money, credit, goods or things in action and charge, contract for or receive on any such loan a rate of interest, finance charge discount or consideration therefor greater than twelve percent per annum without first obtaining a license under this section, section 7002 of this title, or sections 2352 and 2402 of Title 9 from the commissioner.”
The pre 1987 version of 8 V.S.A. § 2233 provided: "Any person, partnership, association of corporation and the several members, officers, directors, agents and employees thereof who shall violate or participate in the violation of any provisions of this chapter shall be imprisoned not more than two years, or fined not more than $500.00 or both. Any contract of loan not invalid for any other reason, in the making or collection of which any act shall have been done which constitutes an offense under this section, shall be void and the lender shall have no right to collect or receive any principal, interest or charges whatsoever.”
This provision was amended in 1987 to provide "... {Hjowever, in the case of commercial loans, the making or collections of which shall involve any violation of the provisions of this chapter, the lender shall have no right to collect or receive any interest or charges whatsoever, but shall have a right to collect and receive principal.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491922/ | MEMORANDUM OF DECISION ON MOTION FOR RELIEF FROM STAY
ROBERT L. KRECHEVSKY, Chief Judge.
I.
ISSUE
The principal issue presented in this relief from stay proceeding is what interest the debtor’s estate has in a joint bank account established by the debtor’s brother which, without the knowledge of the debtor, listed the debtor as a joint owner with the brother.
II.
BACKGROUND
Anthony Sciarra (Anthony), the brother of Gerald N. Sciarra, a Chapter 11 debtor (debtor),1 on April 1,1992 went to an office of the First Bank of West Hartford (First Bank) carrying a check made out to himself in the amount of $20,359, representing his savings on deposit at his federal credit union. Anthony advised a bank officer that he wished, in effect, to acquire for himself a certificate account (account) paying a higher interest rate, with the account proceeds to go to the debtor in the event of his death. The bank officer accepted Anthony’s check, issued to him a document entitled “Certificate Account,” which certified that First Bank acknowledged a deposit of $20,359 for the term of 182 days, yielding 4.34 percent interest per annum and payable to “Anthony Sciarra or Gerald N. Sciarra” upon presentation and surrender of the “Certificate.” The bank officer also furnished Anthony with a card entitled “Signature Card — Personal” which included Anthony’s social security number, his address, and Anthony’s and the debtor’s names. Anthony alone signed this card and returned it to the bank officer.
Anthony testified that he never told the debtor he had opened the account, and that he did not intend that the debtor have any right to make a withdrawal from the account prior to Anthony’s death. Anthony renewed the account as it matured, with a subsequent renewal made on March 31, 1993 to mature on September 29, 1993.
The debtor filed a Chapter 11 petition on June 8, 1993. He had become indebted to First Bank on May 21,1991, when he executed a promissory note for $100,000. The present proceeding arose on or about April 13, 1994, when First Bank filed its motion requesting that the automatic stay imposed by Code § 362(a) be modified so that First Bank could offset the defaulted promissory note against the debt due the debtor based on the account.
First Bank, at the hearing, introduced a document into evidence entitled “Deposit Account Contract” (Contract), which a bank employee testified is normally given to all depositors. The Contract provides, inter alia, that “[i]f the account is a joint account it will be joint with the right of survivorship,” that “[e]aeh of you agrees that all amounts deposited by any of you ... can be paid to any one or more of you while you are alive,” and that “[i]f this is a joint account [First Bank has a right of setoff which] applies to deposits of any of you to pay the debts owed by one, any or all of you.” Anthony testified he never received the Contract.
First Bank contends that the debtor’s interest in the account is property of the debt- or’s estate based on application of Conn.Gen. *4Stat. § 36-32 and that First Bank has a right of setoff under the terms of the Contract. Anthony asserts that the debtor’s estate has no interest in the account because § 36-3 is inapplicable to the present dispute and First Bank has not established a valid inter vivos gift to the debtor.
III.
DISCUSSION
First Bank’s attempt to invoke Conn. Gen.Stat. § 36-3 to establish the debtor’s ownership interest in the account is unavailing. As explained in Grodzicki v. Grodzicki, 154 Conn. 456, 226 A.2d 656 (1967):
The language of the statute does not determine the respective rights of the parties inter vivos. The presumption created by the second sentence of subsection (1) of the statute has no application to an action between the parties when all of them are alive. In such a ease, we must look to our common law for a determination of the question presented.
Id. at 463; 226 A.2d at 659. See also Devitt v. Manulik, 176 Conn. 657, 662, 410 A.2d 465, 468 (1979) (“Although the survivorship question is settled [by Conn.Gen.Stat. § 36-3] ... the question of the donee’s inter vivos interests is not answered, and the courts must once again look to their common law.”) (internal quotations omitted). Section 36-3 does not determine the question of whether the account is property of the debtor’s estate.
Anthony argues that “the only way Gerald Seiarra would have an interest in the account is if Anthony Seiarra made a gift of the sums in the account to Gerald Seiarra.” Memorandum of Law in Opposition to Motion for Relief From Stay, at 8. Anthony’s argument is founded on Grodzicki’s rejection of § 36-3 as the basis for determining property rights in a joint account, and the recommendation therein to look instead to the common law.
Under Connecticut common law, the burden of proving a valid inter vivos gift is on the party claiming the gift. Bergen v. Bergen, 177 Conn. 53, 56, 411 A.2d 22, 24 (1979). The burden requires “not only a delivery of possession of the property but also an intent on the part of the donor that title shall pass immediately to constitute a valid gift inter vivos of personal property.” Id. at 56-57, 411 A.2d at 24. Absent proof of donative intent, a putative inter vivos gift will not be sustained. Devitt, 176 Conn, at 663, 410 A.2d at 468. “[T]he issue of intent is a question of fact_” Bergen, 177 Conn, at 57, 411 A.2d at 24.
The proofs here establish that Anthony did not intend that the debtor have any interest in the account during Anthony’s lifetime. Anthony’s testimony, which the court credits, is that he intended to retain exclusive control over the account until his death, he never notified the debtor of the existence of the account, and that he alone paid taxes on the interest.earned. The bank officer determined on his own to place Anthony’s funds in a joint account to carry out Anthony’s intention. These factors support a finding that no present gift was intended. “Although the mere creation of the joint account provided some evidence of an intent to make a gift, it is by no means conclusive.” Devitt, 176 Conn, at 663, 410 A.2d at 468. There are also Connecticut rulings to the effect that where no inter vivos gift is established in a joint account, garnisheeing credi*5tors of the noncontributing joint-account holder take nothing. See, e.g., Somers v. Snihur, 1991 WL 25663, at *3 (Conn.Super. Feb. 5, 1991) (garnishment of joint bank account may reach only interest equitably owned by the debtor).
IV.
CONCLUSION
The future interest that Anthony intended to create for the debtor in the account may be described as a contingent equitable interest in remainder. See In re Crandall, 173 B.R. 836 (Bankr.D.Conn.1994). No party has addressed this aspect, and for the purposes of this ruling, it is unnecessary to undertake further analysis. First Bank’s brief requests the court to find that the account is an asset of the debtor’s estate, in the sense that the debtor had at the time of the filing of his petition a present right to the account proceeds. The court concludes that the debtor’s estate has no present right such that First Bank may exercise a right of setoff. Accordingly, pursuant to the basis on which this matter has been submitted to the court, First Bank’s motion for relief from stay must be, and hereby is, denied. It is
SO ORDERED.
. The court has confirmed the debtor’s plan of reorganization.
. Conn.Gen.Stat. § 36-3 provides, in relevant part, that a bank deposit or account
in the names of two or more persons and in the form to be paid to any one or the survivor, or survivors, of them, such deposit or account and any additions thereto made by any of such persons after the making or issuance thereof ... shall be held for the exclusive use of such persons and may be paid to any of them during the lifetime of all of them or to the survivor or survivors after the death of one or more of them, and such payment and the receipt or acquittance of the person or persons to whom such payment is made shall be a valid and sufficient release and discharge for all payments so made. The making of a deposit or issuance of an account in such form shall, in the absence of fraud or undue influence, or other clear and convincing evidence to the contrary, be prima facie evidence, in any action or proceeding respecting the ownership of, or the enforcement of the obligation created or represented by, such deposit or account, of the intention of all of the named owners thereof to vest title to such deposit or account, including all additions and increments thereto, in such survivor or survivors. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491923/ | ORDER GRANTING MOTION TO REOPEN
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon the Motion to Reopen, filed on July 14, 1994, to which the debtor responded on August 11, 1994. Hearing on the matter was held on November 22, 1994, after which the Court made a ruling on the record. This Order is issued pursuant to the statements made by the Court at the hearing.
The United States seeks to reopen the case, pursuant to 11 U.S.C. § 350, in order to file a complaint to revoke discharge and/or for determination of dischargeability of federal tax liabilities. The United States seeks revocation of the debtor’s discharge on the grounds that it did not receive sufficient notice1 of the bankruptcy case and particular documents filed in the case. Alternatively, the United States seeks to file a complaint to determine dischargeability of the tax debts for which a proof of claim was filed, but not paid through the chapter 13 plan.
*29The debtor resists the motion on the grounds that (1) the United States cites an incorrect provision under which a discharge may be revoked;2 (2) the United States failed to object to confirmation of the plan such that it is bound by the terms of the confirmed plan; (3) the bankruptcy court has no authority to extend the Chapter 13 case beyond sixty months;3 and (4) all notices were properly served.
The Bankruptcy Code provides that a case may be reopened “to administer assets, to accord relief to the debtor, or for other cause.” 11 U.S.C. § 350(b); Fed. R.Bankr.Proc. 5010. Section 350(b) is not mandatory, but is within the discretion of the Bankruptcy Court. In re Cummings, 172 B.R. 268 (Bankr.W.D.Ark.1994); In re Rhodes, 88 B.R. 199, 200 (Bankr.E.D.Ark. 1988). Of course, while Rule 9024(1), Federal Rules of Bankruptcy Procedure, excepts a motion to reopen a case from the one year limitation prescribed in Rule 60(b), the motion must be brought within a reasonable time. See In re Nelson, 100 B.R. 905, 906 (Bankr.N.D.Ohio 1989).
The Court finds that there exists cause to reopen the case in order for the creditor to file its complaint inasmuch as the parties dispute whether a debt has been discharged. Resolution of this issue benefits both the debtor and creditor because, until such time as the issue is resolved, the United States could attempt to collect the debt whereas the debtor, obviously, would resist such attempts. Indeed, upon collection efforts, the debtor would likely seek to reopen his own case in order to file a motion for contempt, effectively raising the same issues as those in the proposed complaint. In either event, the issue would be placed before the bankruptcy court for determination.
It is of no import that the United States failed to object to confirmation of the plan. Revocation of discharge is independent of any creditor’s objection to treatment in a plan, and based upon fraudulent conduct of the debtor rather than any plan provision. Moreover, determination of the discharge-ability of the debt is not precluded by the failure to object to confirmation. Indeed, it would appear that determination of dis-chargeability is necessary in light of fact that the United States filed a secured claim. The federal tax liens would survive the bankruptcy discharge, whether or not payment was provided in the plan for the secured claim. See 11 U.S.C. § 522(c); Kuebler v. United States, 172 B.R. 595 (E.D.Ark.1994) (Woods, J.) (IRS secured claim passed through Chapter 13 bankruptcy even after discharge). While this is a separate issue from the debt- or’s personal liability for the debt, the debtor appears to believe that the lien would no longer exist such that reopening the case to determine such issues is to his benefit.
Whether notices were properly served by either the debtor or any other appropriate entity is not an issue before the Court upon the Motion to Reopen. Rather, it appears to be the grounds for which the United States seeks revocation of discharge, one of the causes to be stated in a properly filed adversary proceeding. Clearly, there are grounds to reopen the case to determine the dischargeability of the debt. The Court will permit the United States to also allege a claim under section 1328.4 Accordingly, it is
ORDERED that the Motion to Reopen, filed on July 11, 1994, is GRANTED. The United States shall file its complaint to re*30voke discharge and/or to determine dis-chargeability within twenty (20) days of entry of this Order.
IT IS SO ORDERED.
. Despite this asserted lack of notice, the United States timely filed a proof of claim in the case.
. While the United States incorrectly cites section 727(a), rather than section 1328, there is no prejudice to the debtor. Neither the debtor’s arguments, nor the grounds to reopen are substantively altered despite the fact that a different Bankruptcy Code section was invoked at the hearing. Obviously, the complaint need make the correct legal allegations together with sufficient factual allegations pursuant to Rule 9(b), Federal Rules of Civil Procedure.
. The fact that plan payments, 11 U.S.C. 1322(c), may not be extended beyond sixty months is irrelevant. The creditor does not seek modification of the plan nor does it require further payments within the case. Rather it seeks revocation of the discharge or determination of the dischargeability of the debt, neither of which would extend payments under the plan beyond the jurisdictional limit.
.Of course, whether such a count will withstand a motion to dismiss or succeed at trial remains to be seen. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491924/ | JOURNAL ENTRY
JOHN C. MINAHAN, Jr., Bankruptcy Judge.
Before the court is the Motion for Summary Judgment by the Internal Revenue Service (“IRS”) (Fil. # 9), and the debtor’s Resistance thereto (Fil. # 19). I conclude that the Motion for Summary Judgment should be sustained.
FACTS
The parties have agreed that there is no genuine dispute of fact in this case. On April 26, 1991, approximately a week and a half beyond the tax deadline, the debtor, Duayne Muhle, filed his 1990 income tax return. The debtor’s 1990 income tax liability was assessed in June of 1991, and notice and demand for payment was sent to the debtor. The debtor filed Chapter 7 bankruptcy on May 4, 1993, and was granted a discharge under § 727 of the Bankruptcy Code on August 17,1993. Subsequently, the debtor filed Chapter 13 bankruptcy. The debtor commenced this adversary proceeding asserting that the IRS had attempted to levy against the debtor on the income tax deficiency after the Chapter 7 discharge, and seeking a determination of whether this obligation was discharged as part of the Chapter 7 bankruptcy. The debtor argues that the tax deficiency is dischargeable in that it fails to meet the exception to discharge in § 523(a)(l)(B)(ii) since it was filed late and due more than two years before the Chapter 7 bankruptcy was filed. In response, the IRS argues that the tax deficiency is excepted from discharge under § 523(a)(1)(A) and § 507(a)(7) because the tax debt became due within three years of the Chapter 7 bankruptcy.
LAW
Summary judgment is properly granted when the court determines that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. See Bankruptcy Rule 7056(c). In making these determinations, the court must view the facts in the light most favorable to the nonmoving party and must give that party the benefit of all reasonable inferences from the facts. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1356-57, 89 L.Ed.2d 538 (1986); Kegel v. Runnels, 793 F.2d 924, 926 (8th Cir.1986).
*35Section 523(a)(1)(A) provides that a debt is nondisehargeable if it is “of the kind and for the periods specified in section 507(a)(2) or 507(a)(7)....” 11 U.S.C. § 523(a)(1)(A) (1994).
Section 507(a)(7) states in pertinent part that allowed unsecured claims of the government will be granted seventh priority only to the extent that they are for:
(A) a tax on or measured by income or gross receipts
(i) for a taxable year ending on or before the date of filing, of the petition for which a return ... is last due ... after three years before the date of the filing of the petition;
... or
(iii) other than tax of a kind specified in section 523(a)(1)(B) or 523(a)(1)(C) of this title, not assessed before, but assessable, ... after, the commencement of the case....
11 U.S.C. § 507(a)(7)(A) (1994).
Section 523(a)(l)(B)(ii) provides that a debt is excepted from discharge if it is with respect to a return that was filed late and within two years of the bankruptcy filing. 11 U.S.C. § 523(a)(l)(B)(ii) (1994).
DISCUSSION
I conclude that the income tax deficiency owed by the debtor to the IRS on his 1990 income tax return is excepted from discharge pursuant to § 523(a)(1)(A), and therefore the debtor was not discharged of this debt in the Chapter 7 bankruptcy case. The 1990 income tax debt of the debtor first became due in April of 1991, which is within three years of when the Chapter 7 bankruptcy was commenced. Therefore the tax debt is excepted from discharge under § 523(a)(1)(A). Indeed, the tax debt of the debtor would be excepted from discharge regardless of whether a tax return was filed, not filed, or filed late. See 11 U.S.C. § 523(a)(1)(A) (1994); In re Etheridge, 91 B.R. 842, 845 (Bankr.C.D.Ill.1988).
The debtor argues, essentially, that § 523(a)(l)(B)(ii) would render taxes which became due between two and three years of bankruptcy dischargeable if a tax return is filed late. I conclude that this position is without merit. There is no basis for allowing a tax debt which is due within two and three years of bankruptcy to be excepted from discharge if a tax return is filed or not filed at all, but allow such debt to be discharged where the tax return is filed late. Such an interpretation has been criticized by the courts. See, e.g., Smith v. United States, 114 B.R. 473, 474-75 (W.D.Ky.1989); In re Etheridge, 91 B.R. at 844-45; In re Easton, 59 B.R. 714, 716-17 (Bankr.C.D.Ill.1986). I therefore conclude that an income tax obligation of a debtor which became due within three years of bankruptcy is excepted from discharge under § 523(a)(1)(A) regardless of whether a tax return was filed in a timely manner or not filed at all.
IT IS THEREFORE ORDERED, that the Motion for Summary Judgment by the IRS (Fil. # 9) is sustained. A separate order will be entered granting summary judgment for the IRS. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491925/ | ORDER
JACK CADDELL, Bankruptcy Judge.
This matter coming before the Court upon the motions of Herman E. Thomason and Michael C. Matsos, individually and on behalf of Executive Park Hotel, Ltd. (“movants”), seeking relief from the automatic stay concerning the Ramada Inn in Huntsville, Alabama under 11 U.S.C. section 362(d), and seeking conversion or dismissal of this case under 11 U.S.C. section 1112; and after notice and a hearing at Huntsville, Alabama on Tuesday, November 15,1994, and at Decatur, Alabama, Thursday, November 17, 1994, the parties being represented by counsel, the Court makes the following findings of facts.
FINDINGS OF FACT
The parties have stipulated or established through exhibits offered by movants as evidence that Madison Hotel Corporation (“debtor”) entered into a contract with mov-ants to purchase the Ramada Inn on South Memorial Parkway, Huntsville, Alabama, on . February 12,1992. The purchase agreement called for the deed to the hotel property to be held in escrow until the purchase price was paid, and the debtor gave movants a deed to an unrelated parcel of 54 acres in Huntsville, which was also to be held in escrow as partial security for the payment of the purchase price on the hotel. Movants were later persuaded to release the deed to the hotel property, which was recorded, but their deed to the 54 acres was not recorded and is now of questionable value in light of the debtor’s bankruptcy and an intervening mortgage. Movants were also assigned an existing first mortgage, security agreement and UCC-1 filing statement on the hotel’s real, intangible and chattel property by SouthTrust Bank; the promissory note signed by the debtor corporation and its principals states that this mortgage and security agreement secure the debt to the mov-ants. A second mortgage in the approximate amount of $147,000.00 also encumbers the hotel property and is a first lien against the 54 acres.
The Court finds that when the debtor corporation filed a petition for reorganization under Chapter 11 of the Bankruptcy Code, movants held a secured claim in the approximate amount of $744,557.09 as evidenced by the amended proof of claim on file with the Clerk of this Court and the mortgage and assignment and other exhibits admitted as evidence at the hearing on movants’ motions. The Court further finds that under their security agreement and UCC-1 filing statement, movants asserted at the filing and currently possesses a valid, perfected and binding security interest in all of the debtor’s property, including all goods, inventory, contract rights, general intangibles, accounts, accounts receivable, documents, instruments, and chattel paper, together with all business and financial records of the debtor.
At the conclusion of the hearing on November 17, 1994, the Court stated various findings of fact for the record. Certain of those findings of fact which are particularly relevant to the movants’ pending motions are as follows:
1. The subject hotel property, the Ramada Inn in Huntsville, is in danger of losing its franchise and its related reservation system. The debtor is currently in default both on payments and paper work, and there is no evidence that it has made any effort to cure the defaults since movants’ motions were *96filed. There is ample evidence that permanent loss of the franchise and the related reservation system would substantially reduce the hotel income and devalue the hotel property.
2. There is undisputed evidence that the debtor has made a structural change to a load-bearing wall in the hotel building without permission of movants as is required by the first mortgage. The Court finds disturbing that this structural change is in violation of two provisions of the Building Code of the City of Huntsville and could result in damage to the foundation of the building.
3. Based upon the testimony of the debt- or’s president, the Court finds that there have been numerous short term loans between the debtor corporation and various individuals and businesses since the debtor filed its petition for relief. None of these loans were authorized by this Court, and they were not disclosed by the debtor in its schedules or its two Disclosure Statements. The testimony of movants’ expert witness, Dick Walker, and that of the debtor’s president, William Thompson, also indicate the possibility of preferential payments and/or fraudulent conveyances to various individuals, including the debtor’s principals, David Lanier and William Thompson. These principals are conducting activities for the debtor which are not in the ordinary course of business and have withdrawn approximately $285,000.00, including between $60,000.00 and $90,000.00 since the bankruptcy filing.
4. At the date of the hearing, the debtor corporation had failed for three consecutive months to file monthly operating reports as required by a Standing Order of this Court. Again, the debtor made no effort to correct this deficiency after movants’ motions were filed, and only belatedly at the hearing on these motions did the debtor’s president express an intention to do so. Also, payroll, lodging and liquor taxes have not been paid, and some returns have not been filed.
5. Both the movants’ expert witness and the debtor’s president testified that the debt- or has operated at a net loss during the Chapter 11 case; their estimates of this loss range from $30,000.00 to $85,000.00, and the business has yet to experience the winter months, which in its first Disclosure Statement, the debtor stated are usually its worst months of the year financially. The testimony of one of the movants, Herman E. Thoma-son, is undisputed that the hotel room market in Huntsville is “soft” and that the competition has driven down occupancy rates. It is also undisputed that the revenue stream of the debtor’s business is not sufficient to service the debt, and the mortgage has not been serviced since the bankruptcy filing. Even the debtor’s amended plan is not feasible under these circumstances. The principals are either in bankruptcy or under judgments and tax liens themselves and are unlikely to obtain any infusion of new cash. The funding letter produced by the debtor’s president at the hearing is vague and does not constitute a commitment.
6.Considerations by a Bankruptcy Court of a motion for stay relief against secured property necessarily involves valuation of the property to determine where there exists an equity cushion which provide adequate protection to the secured creditor. In this case, one of the former owners, Mr. Thomason, testified that in his opinion the facility is worth approximately $800,000.00. Mr. Tho-mason established his background and experience of owning and operating hotels. By contrast, the debtor’s president estimated the value of the hotel at around $1,100,000.00. William Thompson admitted in his testimony that he had no previous experience in the hotel business, and he had little explanation for his opinion of value. Therefore, the Court hereby finds that the value of the hotel property, including the chattels and intangibles located thereon, is $800,000.00. The Court further notes that the unpaid 1994 ad valorem taxes in the approximate amount of $25,000.00 represent a potential priority lien on the property under state law, further reducing the meager post-petition equity in the property for the first mortgage holders, and leaving the second mortgage partly, if not entirely unsecured.
CONCLUSIONS OF LAW
Based on the foregoing findings of fact, the Court hereby makes the following conclusions of law:
*971. Although Congress singled out lack of adequate protection as sufficient cause for modification of the automatic stay, it also made clear that cause under Section 362(d)(1) was not limited to lack of adequate protection. H.Rept. No. 95-595, U.S.Code Cong. & Admin.News 1978, p. 5787 to accompany H.R. 8200, 95th Cong., 1st Sess. 343 (1977), U.S.Code Cong. & Admin.News 1978, 6299-6300. Debtor misconduct can constitute cause under § 362(d)(1). In re Quinlan, 12 B.R. 516 (Bankr.W.D.Wisc.1981); In re Family Investments, Inc., 8 B.R. 572 (Bankr. W.D.Ky.1981); In re White, 8 B.R. 247 (Bankr.C.D.Cal.1981).
2. The concept of the debtor-in-possession as a fiduciary of the estate, the creditors and the Court, stems from its assumption of the rights and powers of a trustee and extends to a corporation’s officer, director, shareholder or managing employee. See Wolf v. Weinstein, 372 U.S. 633, 649-53, 83 S.Ct. 969, 979-81, 10 L.Ed.2d 33 (1963); Mosser v. Darrow, 341 U.S. 267, 270, 71 S.Ct. 680, 681-82, 95 L.Ed. 927 (1951); Pepper v. Litton, 308 U.S. 295, 306-07, 60 S.Ct. 238, 245-46, 84 L.Ed. 281 (1939); In re Martin Custom Made Tires Corp., 108 F.2d 172, 173 (2d Cir.1939). Accord In re Grinstead, 75 B.R. 2, 3 (Bankr.D.Minn.1985) (plan confirmation terminates debtor-in-possession status, the estate and the former’s obligation to act as a fiduciary of the latter). As a fiduciary, the debtor is obligated to protect and conserve property in its possession, as well as to provide voluntary and honest disclosure of financial information—a reasonable “quid pro quo ” for its temporary relief from substantial financial obligations. See In re Photo Promotion Ass., Inc., 72 B.R. 606, 611 (Bankr.S.D.N.Y.1987), citing to Devers v. Bank of Sheridian, Montana (In re Devers), 759 F.2d 751, 754 (9th Cir.1985) and Northwestern National Bank of St. Paul v. Halux, Inc. (In re Halux, Inc.), 665 F.2d 213, 216 (8th Cir.1981); Travelers Insurance Co. v. Plaza Family Partnership (In re Plaza Family Partnership), 95 B.R. 166, 172 (E.D.Cal.1989); In re Valley Park Group, Inc., 96 B.R. 16, 23 (Bankr.N.D.N.Y.1989); Paccar Financial Corp. v. Papas (In re Pappas), 17 B.R. 662, 667 (Bankr.D.Mass.1982).
3. The insider status of the principals of a debtor corporation subjects all of their transactions with the debtor to a greater scrutiny than “arms length” transactions. See In re Athos Steel and Aluminum, Inc., 69 B.R. 515, 521 (Bankr.E.D.Pa.1987) cited in In re Crouse Group, Inc., 75 B.R. 553, 557-58 (Bankr.E.D.Pa.1987) (quoting Wolf v. Weinstein, supra, 372 U.S. at 649, 83 S.Ct. at 979). See, e.g., Code § 547(b)(4)(B); Levy v. Runnells (In re Landbank Equit Corp.), 83 B.R. 362 (E.D.VA.1987); Chittenden Trust Co. v. Sebert Lumber Co., Inc. (In re Vermont Toy Works, Inc.), 82 B.R. 258 (Bankr. D.Vt.(1987).
4. The appointment of an independent Chapter 11 trustee is appropriate when serious questions arise about the propriety of a debtor’s post-petition financial transactions. Moreover, “a Chapter 11 trustee will be in a good position to determine whether or not the debtor can be reorganized and along which lines such reorganization or liquidation should proceed.” In re Cohoes Indus. Terminal, Inc., 65 B.R. 918, 923 (Bankr.S.D.N.Y. 1986); In re E. Paul Kovacs and Company, Inc., 16 B.R. 203 (Bankr.D.Conn.1981). See also In re Philadelphia Athletic Club, Inc., 15 B.R. 60 (Bankr.E.D.Pa.1981).
5. In connection with a motion for relief from the automatic stay under Section 362(d)(2), the creditor has the burden of proving that the debtor lacks equity in the property while the debtor has the burden of proving that the property is necessary for an effective reorganization. 11 U.S.C. § 362(g); see United Sav. Ass’n v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 376, 108 S.Ct. 626, 633, 98 L.Ed.2d 740 (1988). In order to satisfy this requirement, the debtor must show that there is “a reasonable possibility of a successful reorganization within a reasonable time.” Timbers, 484 U.S. at 376, 108 S.Ct. at 633 (citation omitted). Thus, a creditor is entitled to “relief from the automatic stay if there is no reasonable likelihood of reorganization due to creditor dissent or feasibility considerations.” 2 Collier on Bankruptcy § 362.07 at 362-62.
ORDERS FOR RELIEF
In conformity with the foregoing findings of fact and conclusions of law, and upon *98due consideration of all matters set out in the court file and in the evidence submitted by the parties, by the Court it is
ORDERED, ADJUDGED and DECREED that the automatic stay is hereby modified to allow movants to enforce their security agreement and foreclose their mortgage against the chattel, intangible and real property of the Huntsville Ramada Inn for the purpose of paying their claim from the liquidation of such collateral without further notice or hearing on this matter unless so ordered by the Court; and it is further
ORDERED, ADJUDGED and DECREED that movants may file an amended proof of claim for the unsecured deficiency, if any, after liquidation of their collateral; and it is further
ORDERED, ADJUDGED and DECREED that a separate Order will be entered appointing a Chapter 11 trustee to take possession and safeguard the property of the Huntsville Ramada Inn pending liquidation by movants and to perform such other duties in the case as may be authorized by this Court or by the Bankruptcy Code.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491927/ | MEMORANDUM OPINION
JAMES G. MIXON, Chief Judge.
On July 23, 1993, Billy G. Billingsley and Ruth Ann Billingsley (debtors) filed a voluntary petition for relief under the provisions of Chapter 7 of the United States Bankruptcy Code. On August 19, 1993, the debtors filed a complaint against Helena National Bank (the Bank), Charles D. Roscopf (Roscopf), Trustee, Gene Ridge, and Wanda Ridge to set aside an alleged preferential transfer of a mortgage hen in the debtors’ homestead.
The proceeding before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) and (F) (1988), and the Court has jurisdiction to enter a final judgment in the case. The following shall constitute the Court’s findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
The facts are not in dispute. On July 31, 1990, the debtors executed a deed of trust in favor of Roscopf as trustee for the benefit of the Bank to secure the repayment of an indebtedness owed to the Bank in the principal sum of $104,172.60. The deed of trust encumbered the debtors! homestead located in Phillips County, Arkansas. The indebtedness arose out of the sale of a business from Gene and Wanda Ridge (the Ridges) to the debtors. As part of the transaction, the Ridges were required by the Bank to guarantee payment of the debtors’ indebtedness to the Bank by co-signing the promissory note.
By the Summer of 1992 the debtors were behind on their payments to the Bank and the Bank made a demand on the Ridges to pay the note pursuant to their guaranty. On August 11, 1992, the Ridges paid the Bank the balance of the note and received from the Bank an assignment of the note and deed of trust. On August 14,1992, the Bank mistakenly released the deed of trust by a marginal notation on the face of the recorded instrument. The assignment was recorded on August 17, 1992. On August 21, 1992, the debtors and the Ridges entered into a modification agreement, which decreased the debtors’ payments and decreased the interest rate. The debtors’ made payments on the note to the Ridges for a period of time, and then the note became in default.
Subsequently, the Bank became aware of the mistaken release and, on May 3, 1993, canceled the earlier release by making another marginal notation on the face of the deed of trust that the release was made in error. The bankruptcy petition was filed on July 23, 1993, which is within ninety days from the date the mistaken marginal release was canceled.
The debtors argue that the cancellation of the release has the effect of establishing a lien on the debtors’ property and, therefore, is a transfer that may be set aside as a preference. The Bank argues that correcting the erroneous release was not a transfer *288of property of the debtor within the meaning of 11 U.S.C. § 547. The Bank’s argument is more persuasive.
11 U.S.C. § 547 provides in relevant part as follows:
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chap- . ter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
11 U.S.C. § 547(b) (1988).
The Bankruptcy Code defines a “transfer” as:
every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor’s equity of redemption.
11 U.S.C. § 101(54) (Supp. IV 1992). A transfer is preferential “only if the property or the interest in property transferred belongs to the debtor.” 4 Collier on Bankruptcy ¶ 547.03[2] (Lawrence P. King ed., 15th ed. 1994). The primary inquiry is “whether the transfer diminished ... the debtor’s estate.” 4 Collier on Bankruptcy ¶ 547.03[2] (Lawrence P. King ed., 15th ed. 1994). State law is used to determine whether property is an asset of the debtor. See Griffel v. Murphy (In re Wegner), 839 F.2d 533, 538-39 (9th Cir.1988).
Under Arkansas law a mortgagee has an equitable remedy to have a mortgage lien reinstated if it has been released or satisfied through mistake or accident, unless the rights of innocent third persons are affected. Swor v. Looney, 205 Ark. 1117, 1120, 172 S.W.2d 674, 675 (1943); Security Trust Co. v. Martin, 178 Ark. 518, 520, 12 S.W.2d 870, 871 (1928).
Here, the Bank was without authority to release the lien on August 14, 1992, because it had already assigned the deed of trust to the Ridges on August 11,1992. Under Arkansas law an equitable mortgage continued to exist that would have been enforceable in equity even if the Bank had not canceled the mistaken release. See Shapard v. Mixon, 122 Ark. 530, 544, 184 S.W. 399, 403 (1916). The reimposition of the mortgage hen did not cause an interest of the debtor in property of the estate to be transferred, nor was the estate diminished when the mistaken release was corrected. Therefore, the plaintiffs’ complaint is dismissed.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491928/ | MEMORANDUM OPINION
MARK W. VAUGHN, Bankruptcy Judge.
This matter came before the Court for hearing on November 30, 1994, on the debtors’ motion to convert to Chapter 13 or, in the alternative, dismiss so that the debtors could re-file under Chapter 13. The question raised by the debtors’ motion was whether the debtors, whose case was pending prior to enactment of the Bankruptcy Reform Act of 1994 and whose debts exceeded the allowable limits for Chapter 13 debtors at the time of filing, could avail themselves of the protections of Chapter 13 by taking advantage of *437the increased debt limits now in effect as a result of the Reform Act.
At the end of the hearing oh November 30 this Court denied the debtors’ motion and in its Order denying the motion reserved to itself the right to issue a separate written opinion incorporating its findings and conclusions. The Court now exercises that option and uses this opportunity to set forth and clarify its findings and conclusions for the benefit of the parties in this case and other debtors appearing before the Court.
This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the “Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire,” dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).
FACTS
On July 5, 1994, the debtors filed their petition for relief under Chapter 11 of the Bankruptcy Code. At the time of filing, the debtors’ secured and unsecured debts exceeded the amounts set forth in section 109(e) of the Bankruptcy Code thereby making them ineligible for Chapter 13 relief.
On October 22, 1994, the Bankruptcy Reform Act of 1994 was signed into law. Section 108(a) of the Reform Act substantially increased the debt ceding for Chapter 13 debtors. The effective date of the Act is controlled by section 702 of the Act. It provides that, except for certain enumerated exceptions, “the amendments made by this Act shall not apply with respect to cases commenced under title 11 of the United States Code before the date of enactment of this Act.”
On November 3, 1994, secured creditors James and Jean Coyle filed their own plan of reorganization and disclosure statement and the debtors filed their motion to convert or, in the alternative, dismiss. The debtors filed their plan of reorganization and disclosure statement on November 4,1994. The Coyles subsequently objected to the debtors’ motion to convert or, in the alternative, dismiss. DISCUSSION
Under the Bankruptcy Code, a Chapter 11 case may be converted to a case under Chapter 13 on the motion of a debtor provided that the debtor may be a debtor under Chapter 13 and the court approves such conversion. 11 U.S.C. § 1112(b) & (f). The Court concludes that the debtors may not be debtors under Chapter 13 for the reasons set out below.
First, section 702(b) of the Reform Act specifically provides that, except for certain enumerated exceptions, “the amendments made by this Act shall not apply with respect to cases commenced under title 11 of the United States Code before the date of enactment of this Act.” Section 108 of the Reform Act is not one of the enumerated exceptions. That being the case, the debtors cannot now convert their case to Chapter 13 as they do not qualify for such relief under the pre-Reform Act debt limits and nothing before the Court indicates that the plain language of section 702(b) does not control.
Second, the Court believes that the additions made by section 108(e) of the Reform Act evidence Congress’ intent to limit the availability of the new debt limits to cases commenced after enactment of the Reform Act. Section 108(e) of the Reform Act amends section 104 of the Code by adding provisions which will automatically adjust the debt ceilings every three years to reflect changes in the Consumer Price Index. These automatic adjustments, section 108(e)(2) provides, “shall not apply with respect to cases commenced before the date of such adjustments.”1
On the issue of dismissal, that is a discretionary order of this Court. As the Court has previously indicated, it does believe that this Chapter 11 case is a “two-party dispute” between the debtors and secured creditors James and Joan Coyle. While the Court believes that the motion to convert or, in the alternative, dismiss, was a part of the strategy in the dispute between the debtors and the Coyles, it does not fault anybody for trying to use that strategy. However, up to now, the parties have been going forward under the rules of Chapter 11. *438To change it to allow dismissal and re-filing would surely change the level playing field since the debtors would probably have a better position to effectuate what they want to do with respect to the Coyles’ claims under Chapter 13 than they would under Chapter 11.
The Court also brings to the debtors' attention the Seventh Circuit Court of Appeal’s decision in In re Sinclair, 870 F.2d 1340 (7th Cir.1989). Sinclair was a Chapter 11 case in which the debtors, after passage of the Family Farmer Bankruptcy Act of 1986, tried to convert their Chapter 11 case to the newly created Chapter 12. The Sinclairs also moved to dismiss their case so that they could re-file under Chapter 12. The court in Sinclair found that “[proposals for conversion by another name are proposals for conversion.” Id. at 1345. This Court finds the same way, that to allow a dismissal and a refiling would just abrogate or end-run the prohibition that Congress intended that pending cases would not benefit by other than a few provisions of the Bankruptcy Reform Act of 1994.
For those reasons, the Court denied the debtors’ motion to convert or, in the alternative, dismiss.
. The Court notes that although it might have misinterpreted a portion of section 108(e) in its oral ruling, it has no effect on the ruling which is based on the plain language of section 702(b). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491929/ | MEMORANDUM OPINION
STEPHEN A. STRIPP, Bankruptcy Judge.
This opinion sets forth the court’s decision on a motion by plaintiff E & C Holding Company, the debtor-in-possession (hereinafter “the debtor”), to vacate the court’s order of April 26, 1994 granting partial summary judgment in favor of defendant Township of Piscataway (hereinafter “Piscataway”). The court determined on that motion that Piscat-away held a claim against defendant National Westminster Bank, NJ (hereinafter “Nat-west”) under section 506(c) of title 11, United States Code (hereinafter “the Code”) for all postpetition taxes, sewer charges, interest and penalties. The order directed the debtor to turn over $400,746.93 with accrued interest to Piscataway on account of that claim. *541The debtor complied with the order. Then, on July 20, 1994 an opinion in the case of In re C.S. Associates, 29 F.3d 903 (3d Cir.1994), held that indirect benefits of the type in question in this case are not compensable under Code § 506(c). The debtor then filed this motion, arguing that the order of April 26, 1994 was interlocutory, and that it should therefore be vacated and the funds in question disgorged in fight of C.S. Associates. Natwest joins in the debtor’s motion. Piscataway opposes the motion, arguing that the order was final and cannot be vacated. This court has jurisdiction under 28 U.S.C. §§ 1334, 157(a) and 151. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B) and (0). The motion is denied for the reasons set forth below,
FACTS AND PROCEDURAL HISTORY
The court will not reiterate here the facts relevant to the order of April 26, 1994 because they are set forth in detail in the court’s opinion in In re Eastern Steel Barrel Corp., 164 B.R. 477 (Bankr.D.N.J.1994). That opinion resulted in the order of April 26, 1994, with which the debtor promptly complied. The order also provided that “all issues contained in the Third Count and not raised by motion are reserved for trial.” The third count of the complaint sought a reduction from Piseataway of the debtor’s sewer charges. However, the debtor then decided to abandon the third count, which effectively concluded the adversary proceeding. Before the adversary proceeding could be closed, the Third Circuit Court of Appeals issued its opinion in C.S. Associates, supra, which held that indirect benefits of the type in question in this case are not compensable under Code § 506(e), which provides that a secured creditor’s collateral can be charged with the reasonable, necessary costs and expenses of preserving or disposing of the collateral to the extent of any benefit to the holder of such secured claim. The debtor then filed this motion, arguing that the order of April 26 is interlocutory and that it must be vacated because it is not consistent with C.S. Associates. Piseataway argues that the order of April 26 is final, and any subsequent change in the law does not warrant vacation of a final order.
CONCLUSIONS OF LAW
I.
This court acknowledges that its opinion in Eastern Steel Barrel, supra, as to the standards for determining the benefit to a mortgagee under Code § 506(c) of services rendered by a municipality was effectively overruled by C.S. Associates.1 It is axiomatic, however, that a change in the governing law after a final order has been entered and the time to appeal has expired is not a basis for vacating such an order. See, e.g., Federated Department Stores, Inc., v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 2427-28, 69 L.Ed.2d 103 (1981) (“[T]he res judicata consequences of a final, unappealed judgment [or order] on the merits [are not] altered by the fact that the judgment may have been wrong or rested on a legal principle subsequently overruled in another case.”) (citations omitted); Barzin v. Selective Service Local Board No. 14, 446 F.2d 1382, 1383 (3d Cir.1971) (“[A] prior decision may serve as res judicata even if a contrary judicial decision on the legal issues involved intervenes between the first and second suits.”) (citing Ripperger v. A.C. Allyn & Co., 113 F.2d 332 (2d Cir.1940), cert. denied, 311 U.S. 695, 61 S.Ct. 136, 85 L.Ed. 450 (1940)) (other citations omitted); see also In re Fine Paper Antitrust Litigation, 840 F.2d 188, 194-96 (3d Cir.1987). A “judgment” for purposes of *542this principle includes any order from which an appeal will lie. Fed.R.Civ.P. 54(a). See Fed.R.Bankr.P. 9001(7) (“‘Judgment’ means any appealable order.”).
The question then is whether the order of April 26 is final or interlocutory. If the order is final, then it cannot be vacated on the authority of C.S. Associates. If the order is interlocutory, then it can and should be vacated on that authority.
II.
The debtor argues that because this is an adversary proceeding, the outcome is governed by Rule 54(b) of the Federal Rules of Civil Procedure, incorporated by reference in Fed.R.Bankr.P. 7054. Rule 54(b) states:
(b) Judgment Upon Multiple Claims or Involving Multiple Parties. When more than one claim for relief is presented in an action, whether as a claim, counterclaim, cross-claim, or third-party claim, or when multiple parties are involved, the court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment. In the absence of such determination and direction, any order or other form of decision, however designated, which adjudicates fewer than all the claims or the rights and liabilities of fewer than all the claims or the rights and liabilities of fewer than all the parties shall not terminate the action as to any of the claims or parties, and the order or other form of decision is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties.
Fed.R.Civ.P. 54(b). In appeals from orders of the district court under 28 U.S.C. § 1291, an order for partial summary judgment is not final unless the district court certifies it as such under Rule 54(b). UGI Corp. v. Clark, 747 F.2d 893, 894 (3d Cir.1984).
In appeals from orders of the district court under 28 U.S.C. § 158(d), however, in which the district court has determined an appeal from an order of the bankruptcy court, the standards for determining finality are different. The Third Circuit “takes a pragmatic view of the finality of bankruptcy appeals.” Century Glove, Inc. v. First American Bank of New York, 860 F.2d 94, 97 (3d Cir.1988) (citation omitted); In re Brown, 803 F.2d 120, 122 (3d Cir.1986). That court has “consistently considered finality in a more pragmatic and less technical way in bankruptcy cases than in other situations.” In re Amatex Corp., 755 F.2d 1034, 1039 (3d Cir.1985) (citations omitted). In determining the finality of orders in bankruptcy eases, the factors which the Third Circuit evaluates are
the impact upon the assets of the bankrupt estate, the necessity for further fact-finding upon remand, the preclusive effect of our decision on the merits on further litigation, and whether the interest of judicial economy would be furthered.
In re Meyertech Corp., 831 F.2d 410, 414 (3d Cir.1987) (citation omitted). See also Century Glove, 860 F.2d at 97. These flexible standards of finality in reviewing orders in bankruptcy cases also govern appeals of bankruptcy court orders to the district court. Walsh Trucking v. Insurance Co. of North America, 838 F.2d 698, 701 (3d Cir.1988).
Of the applicable factors, the impact upon the assets of the estate is paramount:
Where the issue is likely to affect the distribution of the debtor’s assets, or the relationship among the creditors, the most pragmatic response will usually be to hear the appeal immediately.
In re Brown, 803 F.2d at 122. See also Century Glove, 860 F.2d at 98; F/S Airlease II, Inc. v. Simon, 844 F.2d 99, 104 (3d Cir.), cert. denied, 488 U.S, 852, 109 S.Ct. 137, 102 L.Ed.2d 110 (1988); Meyertech, 831 F.2d at 414; Walsh Trucking, 838 F.2d at 701.
Applying those factors to this case, the most important consideration is that the order of April 26 directed immediate payment of $400,746.93 plus interest to Piseataway. Those funds would otherwise have been paid to Natwest and other parties in interest. It is therefore obvious that the order is final under the criteria stated above.
*543III.
The debtor argues that because the order was entered in an adversary proceeding, the ordinary criteria for determining finality in bankruptcy cases are not applicable. However, the debtor cites no authority for this proposition, and the court is unaware of any. To the contrary, several Third Circuit opinions have considered finality in the context of adversary proceedings without indicating that the standards are any different there than in the main bankruptcy case. See In re Brown, 803 F.2d at 122; see also In re Marin Motor Oil, Inc., 689 F.2d 445 (3d Cir.1982), (an order granting leave to intervene in an adversary proceeding is final for appeal purposes), cert. denied, 459 U.S. 1207, 103 S.Ct. 1196, 75 L.Ed.2d 440 (1983).
Moreover, Rule 7054 is also applicable to motions in the main bankruptcy case pursuant to Fed.R.Bankr.P. 9014 unless the bankruptcy court orders otherwise. Notwithstanding that fact, the Third Circuit has not applied the standard of finality urged by the debtor in any bankruptcy cases. The debt- or’s argument that the cases cited above are distinguishable because this is an adversary proceeding is therefore without merit.
IV.
Lastly, Natwest argues that because the cover letter transmitting the check to Piscataway stated that the debtor was reserving its rights, the order was not final. However, parties cannot modify the finality of a court order by merely stating that they are reserving their rights when they obey the order. The finality of an order for purposes of appellate jurisdiction in bankruptcy cases is determined by its impact on the assets of the estate and the other factors listed above, not by statements in a lawyer’s letter complying with the order.
CONCLUSION
For the foregoing reasons, the court concludes that the order of April 26, 1994 is final. The subsequent decision of the Third Circuit in C.S. Associates does not provide a basis for vacating that order in light of Federated Department Stores, Inc., 452 U.S. at 398, 101 S.Ct. at 2427. The clerk will therefore prepare and enter standard order 17 denying the motion, and the adversary proceeding shall be closed.
. However, C.S. Associates did not address that part of Eastern Steel Barrel which held that interest accrues on postpetition taxes at the statutory rate authorized by N.J.S.A. 54:4-67. Eastern Steel Barrel, 164 B.R. at 481. The debtor does not seek to vacate that part of the court's decision, and it remains good law to that extent. It should also be noted that § 401 of the Bankruptcy Reform Act of 1994 added a new subsection (18) to Code § 362(b), by virtue of which the creation or perfection of statutory liens for post-petition property taxes are not subject to the automatic stay. Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, § 401, 108 Stat. 4106, 4141 (1994). Thus, for cases filed after the Reform Act’s effective date of October 22, 1994, municipalities will not have to resort to any authority other than Code § 362(b)(18) to seek the creation or perfection (as opposed to collection) of postpe-tition property taxes. The problem addressed in this case and C.S. Associates will therefore no longer exist. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484072/ | DISMISSED and Opinion Filed November 14, 2022
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00774-CV
COMPLAINANT FOREST WEST HOMEOWNERS, LAMBERT BUANGA,
PRATTHANA CHAIWONGSAI, JULIA COOPER, KELVIN DAVIS, OLGA
GALLARDO, JAVIER GARCIA, PETRA GARCIA, JOSE GUEVARA,
WILLIAM HEPWORTH, LE MAI DUONG, HAI DUONG, VINCENT
NAJERA, LUISA NAJERA, MICHAEL RODRIGUEZ, BRANDO PEREZ,
AND IDALIA LOPEZ,
APPELLANTS
V.
JUNCTION REALTY, INC. AND JOHN TARLTON, INDIVIDUALLY,
Appellees
On Appeal from the 192nd Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-22-06667
MEMORANDUM OPINION
Before Chief Justice Burns, Justice Pedersen, III, and Justice Goldstein
Opinion by Chief Justice Burns
Appellants appealed the trial court’s July 26, 2022 order denying their
application for a temporary injunction. In a letter filed on October 21, 2022,
appellants inform the Court that the trial court subsequently granted their application
for a temporary injunction and they, therefore, request dismissal of the appeal. We
construe appellant’s letter as a motion to dismiss. We GRANT the motion and
dismiss the appeal. See TEX. R. APP. P. 42.1(a)(1).
/Robert D. Burns, III/
ROBERT D. BURNS, III
CHIEF JUSTICE
220774F.P05
–2–
S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
COMPLAINANT FOREST WEST On Appeal from the 192nd District
HOMEOWNERS, LAMBERT Court, Dallas County, Texas
BUANGA, PRATTHANA Trial Court Cause No. DC-22-06667.
CHAIWONGSAI, JULIA COOPER, Opinion delivered by Chief Justice
KELVIN DAVIS, OLGA Burns. Justices Pedersen,III, and
GALLARDO, JAVIER GARCIA, Goldstein participating.
PETRA GARCIA, JOSE
GUEVARA, WILLIAM
HEPWORTH, LE MAI DUONG,
HAI DUONG, VINCENT NAJERA,
LUISA NAJERA, MICHAEL
RODRIGUEZ, BRANDO PEREZ,
AND IDALIA LOPEZ, Appellants
No. 05-22-00774-CV V.
JUNCTION REALTY, INC. AND
JOHN TARLTON,
INDIVIDUALLY, Appellees
In accordance with this Court’s opinion of this date, the appeal is
DISMISSED.
It is ORDERED that appellees JUNCTION REALTY, INC. AND JOHN
TARLTON, INDIVIDUALLY recover their costs of this appeal from appellants
COMPLAINANT FOREST WEST HOMEOWNERS AND LAMBERT
BUANGA, PRATTHANA CHAIWONGSAI, JULIA COOPER, KELVIN DAVIS,
–3–
OLGA GALLARDO, JAVIER GARCIA, PETRA GARCIA, JOSE GUEVARA,
WILLIAM HEPWORTH, LE MAI DUONG, HAI DUONG, VINCENT NAJERA,
LUISA NAJERA, MICHAEL RODRIGUEZ, BRANDO PEREZ, AND IDALIA
LOPEZ.
Judgment entered November 14, 2022.
–4– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484073/ | DISMISS and Opinion Filed November 10, 2022
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00955-CV
IN RE SUNOCO RETAIL LLC AND DERRICK RAY LEWIS, Relators
Original Proceeding from the 68th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-20-18306
MEMORANDUM OPINION
Before Justices Molberg, Pedersen, III, and Garcia
Opinion by Justice Garcia
Relators’ September 23, 2022 petition for writ of mandamus challenges the
trial court’s order denying their motion to strike real party in interest’s intervention
in the underlying suit. Before the Court is relators’ November 8, 2022 unopposed
motion to dismiss this original proceeding. In their motion, relators advise us that
the original proceeding is moot because the parties have entered into a binding
settlement agreement.
We grant the motion, and we dismiss this original proceeding.
/Dennise Garcia/
DENNISE GARCIA
JUSTICE
220955F.P05 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484078/ | DISMISS and Opinion Filed November 9, 2022
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00516-CV
HARTMAN SPE, LLC AND
HARTMAN INCOME REIT MANAGEMENT, INC., Appellants
V.
OLUWANFISAYO T. OFEIMU, Appellee
On Appeal from the 471st Judicial District Court
Collin County, Texas
Trial Court Cause No. 471-02083-2020
MEMORANDUM OPINION
Before Justices Myers, Pedersen, III, and Garcia
Opinion by Justice Pedersen, III
Before the Court is appellants’ motion to dismiss the appeal because the
parties have settled their dispute. We grant the motion and dismiss the appeal. See
TEX. R. APP. P. 42.1(a)(1).
/Bill Pedersen, III/
BILL PEDERSEN, III
JUSTICE
220516F.P05
S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
HARTMAN SPE, LLC AND On Appeal from the 471st Judicial
HARTMAN INCOME REIT District Court, Collin County, Texas
MANAGEMENT, INC., Appellants Trial Court Cause No. 471-02083-
2020.
No. 05-22-00516-CV V. Opinion delivered by Justice
Pedersen, III. Justices Myers and
OLUWANFISAYO T. OFEIMU, Garcia participating.
Appellee
In accordance with this Court’s opinion of this date, the appeal is
DISMISSED.
Subject to any agreement between the parties, it is ORDERED that appellee
OLUWANFISAYO T. OFEIMU recover her costs of this appeal from appellants
HARTMAN SPE, LLC AND HARTMAN INCOME REIT MANAGEMENT, INC.
Judgment entered November 9, 2022
–2– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484122/ | NOTICE: This opinion is subject to motions for rehearing under Rule 22 as
well as formal revision before publication in the New Hampshire Reports.
Readers are requested to notify the Reporter, Supreme Court of New
Hampshire, One Charles Doe Drive, Concord, New Hampshire 03301, of any
editorial errors in order that corrections may be made before the opinion goes
to press. Errors may be reported by email at the following address:
reporter@courts.state.nh.us. Opinions are available on the Internet by 9:00
a.m. on the morning of their release. The direct address of the court’s home
page is: https://www.courts.nh.gov/our-courts/supreme-court
THE SUPREME COURT OF NEW HAMPSHIRE
___________________________
Merrimack
No. 2021-0361
JEREMY FISKE
v.
WARDEN, NEW HAMPSHIRE STATE PRISON
Argued: June 23, 2022
Opinion Issued: November 16, 2022
Thomas Barnard, senior assistant appellate defender, of Concord, on the
brief and orally, for the petitioner.
John M. Formella, attorney general, and Anthony J. Galdieri, solicitor
general (Zachary L. Higham, assistant attorney general, on the brief, and Sam
M. Gonyea, attorney, orally), for the State.
HANTZ MARCONI, J. The petitioner, Jeremy Fiske, appeals a decision of
the Superior Court (Delker, J.), denying his petition for a writ of habeas corpus.
The petitioner asserts that the sentencing court exceeded its statutory
authority by denying his request during sentencing to grant the option to
receive earned-time credit. See RSA 651-A:22-a, II (2016). We affirm.
The following facts were recited in the trial court’s order or are otherwise
contained in the record. The petitioner was convicted on eight counts of
aggravated felonious sexual assault and one count of possession of child sexual
abuse images. In February 2016, the sentencing court imposed three
consecutive ten-to-thirty year, stand committed, state prison sentences with
the opportunity to have five years of the third sentence suspended, upon
successful completion of sex offender treatment. The remaining sentences
were “consecutive suspended sentences.” The petitioner “specifically requested
that the [sentencing c]ourt allow him to earn good time credit to reduce his
stand-committed sentences if he completed approved programming at the
prison.” After hearing argument, the sentencing court denied the request “in
light of the egregious nature of [the petitioner’s] crimes.”
Approximately five years later, the petitioner filed a petition for writ of
habeas corpus, asserting that the sentencing court “exceeded its statutory
authority” and “violated his right to due process” by denying the option of
earned-time credit. The trial court hearing the petition concluded that whether
to grant the opportunity to obtain earned-time credit is within the discretion of
the sentencing court and that the court’s decision on that matter was “not
arbitrary or capricious.” This appeal followed.
The petitioner’s primary argument on appeal is that “the sentencing
court lacked the statutory authority to refuse to authorize earned-time credit.”
(Capitalization omitted.). Put plainly, the petitioner asserts that, when read as
a whole, RSA 651-A:22-a (Supp. 2020) does not give the sentencing court the
discretion to deny earned-time credit. Resolving this question requires us to
engage in statutory interpretation. The interpretation of a statute is a question
of law, which we review de novo. Avery v. Comm’r, N. H. Dep’t of Corr., 173
N.H. 726, 733 (2020). In matters of statutory interpretation, we first look to
the language of the statute itself, and, if possible, construe that language
according to its plain and ordinary meaning. Id. We interpret the statute as
written and will not consider what the legislature might have said or add
language that the legislature did not see fit to include. Id. We construe all
parts of a statute together to effectuate its overall purpose and to avoid an
absurd or unjust result. Id. We do not consider words and phrases in
isolation, but rather within the context of the statute as a whole, which enables
us to better discern the legislature’s intent in light of the policy or purpose
sought to be advanced by the statutory scheme. Id. Absent an ambiguity, we
will not look beyond the language of the statute. Id.
The statute at issue in this case is RSA 651-A:22-a, which provides in
pertinent part:
II. The earned time reductions authorized in paragraph I of this
section shall be available to prisoners who were incarcerated on or
after the effective date of this section and who have been granted
this option by the presiding justice at the time of sentencing. The
earned time reductions authorized in paragraph I of this section
2
shall be available to prisoners who were incarcerated prior to the
effective date of this section upon recommendation of the
commissioner and upon approval of the sentencing court in
response to a petition which is timely brought by the prisoner.
RSA 651-A:22-a, II. The petitioner was sentenced after the statute’s effective
date of September 9, 2014. See Laws 2014, 166:3. The petitioner concedes
that, “read in isolation,” RSA 651-A:22-a, II “may be interpreted to suggest that
sentencing courts have the power to pick and choose, in advance, which
prisoners can receive earned-time in the future, and which cannot” but argues
that “this interpretation is untenable” when the statute is read as a whole. We
disagree.
RSA 651-A:22-a, II contemplates two groups of prisoners: (1) those who
were incarcerated prior to September 9, 2014, when the earned-time statute
became effective; and (2) those who were incarcerated on or after the effective
date. RSA 651-A:22-a, II. Under paragraph II, a prisoner who was
incarcerated prior to September 9, 2014 is eligible to receive earned-time credit
provided the prisoner: (1) timely files a petition for such a request; (2) the
commissioner recommends him or her for earned-time credit; and (3) the
request is “approv[ed by] the sentencing court.” RSA 651-A:22-a, II. A prisoner
who was incarcerated on or after September 9, 2014 is eligible to receive
earned-time credit only if the prisoner was “granted this option by the presiding
justice at the time of sentencing.” Id. We conclude that the language, “who
have been granted this option by the presiding justice at the time of
sentencing,” in RSA 651-A:22-a, II plainly provides the court with the
discretion to either grant or decline to grant eligibility to obtain earned-time
credit to a prisoner, like the petitioner in this case, who was sentenced on or
after September 9, 2014.
In the alternative, the petitioner argues that, having found that RSA 651-
A:22-a, II provides the sentencing court with the discretion to decline to grant
eligibility for earned-time credit, we should “clarify that [prisoners] initially
denied the option to receive earned-time credit may petition the court to grant
that option upon the recommendation of the commissioner.” At this stage, we
decline to “clarify” whether the petitioner could later receive earned-time credit
upon the recommendation of the commissioner because the issue is not ripe
for our review. Ripeness relates to the degree to which the defined issues in a
case are based on actual facts and are capable of being adjudicated on an
adequately developed record. Univ. Sys. of N.H. Bd. of Trs. v. Dorfsman, 168
N.H. 450, 455 (2015). Although we have not adopted a formal test for ripeness,
we have found persuasive the two-pronged analysis used by other jurisdictions
that evaluates the fitness of the issue for judicial determination and the
hardship to the parties if the court declines to consider the issue. Id. With
respect to the first prong of the analysis, fitness for judicial review, a claim is fit
for decision when: (1) the issues raised are primarily legal; (2) they do not
3
require further factual development; and (3) the challenged action is final. Id.
The second prong of the ripeness test requires that the contested action impose
an impact on the parties sufficiently direct and immediate as to render the
issue appropriate for judicial review at this stage. Id.
We need not determine whether the issue meets the first prong of the
ripeness doctrine, because we conclude that the issue is not “sufficiently direct
and immediate” to be appropriate for judicial review. Id. Here, the petitioner
has not asserted that he has completed any of the qualified programs under
RSA 651-A:22-a, I, or that he has received a recommendation for earned-time
credit from the commissioner. At this juncture, it is speculative at best
whether the petitioner will complete any of the qualified programs while
incarcerated and, if he does, whether the commissioner would recommend him
for earned-time credit. Thus, we conclude that a decision on this issue at this
time would not impose a sufficiently direct and immediate impact on the
parties such that it is appropriate for judicial review, and we decline to address
it. Id.
In sum, we conclude that RSA 651-A:22-a, II unambiguously gives the
sentencing court the discretion, at the time of sentencing, to grant or decline to
grant eligibility to obtain earned-time credit. RSA 651-A:22-a, II; see also
Avery, 173 N.H. at 733. All other issues raised in the notice of appeal, but not
briefed, are deemed waived. State v. Bazinet, 170 N.H. 680, 688 (2018).
Affirmed.
HICKS, BASSETT, and DONOVAN, JJ., concurred.
4 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484084/ | DISMISSED and Opinion Filed November 8, 2022
In the
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00772-CV
ROSALIO LOPEZ AND IRMA VILLERAL, Appellants
V.
CASSANDRA DENISE MORE, Appellee
On Appeal from the 44th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-20-00607
MEMORANDUM OPINION
Before Justice Molberg, Justice Partida-Kipness, and Justice Carlyle.
Opinion by Justice Carlyle
Before the Court is appellants’ November 2, 2022 motion to dismiss the
appeal. We grant the motion and dismiss the appeal. See TEX. R. APP. P. 42.1(a)(1).
220722f.p05 /Cory L. Carlyle//
CORY CARLYLE
JUSTICE
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
ROSALIO LOPEZ AND IRMA On Appeal from the 44th Judicial
VILLARREAL, Appellants District Court, Dallas County, Texas
Trial Court Cause No. DC-20-00607.
No. 05-22-00772-CV V. Opinion delivered by Justice Carlyle.
Justices Molberg and Partida-Kipness
CASSANDRA DENISE MOORE, participating.
Appellee
In accordance with this Court’s opinion of this date, the appeal is
DISMISSED.
It is ORDERED that appellee CASSANDRA DENISE MOORE recover her
costs of this appeal from appellants ROSALIO LOPEZ AND IRMA
VILLARREAL.
Judgment entered this 8th day of November, 2022.
–2– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484086/ | In The
Court of Appeals
Sixth Appellate District of Texas at Texarkana
No. 06-22-00004-CR
ROBERTO CANAS GARDEA, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 276th District Court
Camp County, Texas
Trial Court No. CF-20-02048
Before Morriss, C.J., Stevens and van Cleef, JJ.
ORDER
Our review of the clerk’s record and the reporter’s record in this matter indicates that
they contain un-redacted “sensitive data” as that phrase is defined in Rule 9.10 of the Texas
Rules of Appellate Procedure. See TEX. R. APP. P. 9.10(a). Sensitive data includes “a birth date,
a home address, and the name of any person who was a minor at the time the offense was
committed.” TEX. R. APP. P. 9.10(a)(3). The clerk’s record includes the name of a person who
was a minor at the time the offense was committed. Likewise, volumes two through five of the
reporter’s record and State’s exhibits 5 and S5 include the name of a person who was a minor at
the time the offense was committed. Rule 9.10(b) states, “Unless a court orders otherwise, an
electronic or paper filing with the court, including the contents of any appendices, must not
contain sensitive data.” TEX. R. APP. P. 9.10(b).
Rule 9.10(g) provides, “A court may also order that a document be filed under seal in
paper form or electronic form, without redaction.” TEX. R. APP. P. 9.10(g). Therefore, because
the clerk’s record, volumes two through five of the reporter’s record, and State’s exhibits 5 and
S5 contain un-redacted sensitive data, we order the clerk of this Court, or her appointee, in
accordance with Rule 9.10(g), to seal the electronically filed clerk’s record, volumes two through
five of the reporter’s record, and State’s exhibits 5 and S5.
IT IS SO ORDERED.
BY THE COURT
Date: November 15, 2022
2 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484085/ | Affirm and Opinion Filed November 8, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-21-00567-CR
HECTOR ISMAEL MACHUCA, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the Criminal District Court No. 7
Dallas County, Texas
Trial Court Cause No. F-2075032-Y
MEMORANDUM OPINION
Before Justices Pedersen, III,1 Nowell, and Smith
Opinion by Justice Nowell
A jury convicted Hector Ismael Machuca of aggravated sexual assault of a
child and sentenced him to fifteen years’ confinement. In a single issue, appellant
argues the trial court erred by overruling his request for an instruction on the lesser-
included offense of indecency with a child. We affirm the trial court’s judgment.
1
The Honorable Leslie Osborne participated in the submission of this case; however, she did not
participate in issuance of this memorandum opinion due to her resignation on October 24, 2022. The
Honorable Bill Pedersen, III has substituted for Justice Osborne in this cause. Justice Pedersen has reviewed
the briefs and the record before the Court
BACKGROUND
The State charged appellant with aggravated sexual assault of a child in
violation of section 22.021(a)(1)(B)(i) of the penal code. The indictment alleges that
on or about March 1, 2017, appellant “did unlawfully then and there intentionally
and knowingly cause the penetration of the anus of M.M., a child, by an unknown
object, and at the time of the offense, the child was younger than fourteen years of
age.”
The evidence shows M.M.’s mother dated and lived with appellant for nearly
seven years, and M.M. considered appellant to be her step-father. M.M. testified
appellant sexually assaulted her once or twice per week beginning when she was
nine or ten years old. M.M. recounted that when her mother would leave the house
to walk the dog, appellant would tell M.M. come into his bedroom, “put me on the
bed,” and tell her to turn around. “And he pulled my pants down, and then he put his
penis in my butt.” The State asked M.M.: “You were certain it was his penis?” And
she replied: “Yes, I was very certain.” She also was “very certain” that appellant’s
penis penetrated her anus and not her vagina. M.M. did not offer contradictory
testimony.
M. M. also testified that she was approximately eleven years old when she
was awakened because appellant was “touching my boob. He was rubbing it in the
middle of the night.” He told her to “shush” and returned to his room.
–2–
During the charge conference, the State objected to the inclusion of a lesser-
included offense instruction on indecency with a child by contact, and, after hearing
arguments, the trial court did not include the lesser-included offense instruction in
the charge. The jury convicted appellant as charged.
LAW & ANALYSIS
In a single issue, appellant argues the trial court erred by failing to include an
instruction on the lesser-included offense of indecency with a child in the jury
charge. Appellant asserts that, if the jury had believed beyond a reasonable doubt
that he touched M.M.’s breast, then it could have convicted him of indecency with
a child. However, at trial, appellant argued that the lesser-included-offense
instruction should be included because M.M.’s testimony was unclear about whether
appellant’s penis penetrated her anus; appellant’s counsel argued at trial that M.M.
“testified both ways.” Counsel concluded that if there was no penetration, then the
offense would be indecency. Appellant did not argue at trial that he was entitled to
the lesser-included-offense instruction based on M.M.’s testimony that he rubbed
her breast. We will consider appellant’s argument as it was presented to the trial
court.
We use a two-prong test to determine whether a defendant is entitled to an
instruction on a lesser-included offense. Hall v. State, 158 S.W.3d 470, 473 (Tex.
Crim. App. 2005); Cortez v. State, No. 05-19-00561-CR, 2020 WL 3248477, at *1
(Tex. App.—Dallas June 16, 2020, pet. ref’d) (mem. op., not designated for
–3–
publication). The first prong requires us to determine whether the offense for which
the instruction was requested is a lesser-included offense of the charged offense.
Hall, 158 S.W.3d at 473; Cortez, 2020 WL 3248477, at *1. The second prong
requires us to determine whether the record contains some evidence that would
permit a rational jury to find the defendant guilty only of the lesser-included offense.
Hall, 158 S.W.3d at 473; Cortez, 2020 WL 3248477, at *1. “It is not enough that the
jury may disbelieve crucial evidence pertaining to the greater offense. Rather, there
must be some evidence directly germane to a lesser-included offense for the
factfinder to consider before an instruction on a lesser-included offense is
warranted.” Cortez, 2020 WL 3248477, at *1 (quoting Skinner v. State, 956 S.W.2d
532, 543 (Tex. Crim. App. 1997)).
The penal code states that a person commits an offense if the person
intentionally or knowingly causes the penetration of the anus or sexual organ of a
child by any means. See TEX. PENAL CODE ANN. § 22.021(a)(1)(B)(i). In contrast, a
person commits indecency with a child if the person engages in sexual contact with
the child or causes the child to engage in sexual contact. See id. § 21.11(a)(1).
“Sexual contact” is defined as “(1) any touching by a person, including touching
through clothing, of the anus, breast, or any part of the genitals of a child; or (2) any
touching of any part of the body of a child, including touching through clothing, with
the anus, breast, or any part of the genitals of a person” when committed with the
intent to arouse or gratify the sexual desire of any person. See id. § 21.11(c).
–4–
As to the first prong of our analysis, indecency with a child is a lesser-included
offense of aggravated sexual assault of a child where both charges are based on the
same incident. Cortez, 2020 WL 3248477, at *1 (citing Evans v. State, 299 S.W.3d
138, 143 n.6 (Tex. Crim. App. 2009)). The State concedes indecency with a child by
contact can be a lesser-included offense of aggravated sexual assault of a child.
However, the State argues, the trial court properly denied appellant’s request for a
lesser-included-offense instruction because no evidence supported giving the
instruction under the second prong. We agree.
M.M. testified she was certain appellant penetrated her anus with his penis.
No evidence was “directly germane” to the lesser-included offense, and the evidence
did not establish the lesser-included offense as a valid, rational alternative to the
charged offense. See Simms v. State, 629 S.W.3d 218, 222 (Tex. Crim. App. 2021).
Because no evidence supported giving the instruction under the second prong, the
trial court did not err by not giving the instruction. We overrule appellant’s second
issue.
CONCLUSION
We affirm the trial court’s judgment.
/Erin A. Nowell//
ERIN A. NOWELL
JUSTICE
210567f.u05
Do Not Publish
TEX. R. APP. P. 47.2(b)
–5–
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
HECTOR ISMAEL MACHUCA, On Appeal from the Criminal District
Appellant Court No. 7, Dallas County, Texas
Trial Court Cause No. F-2075032-Y.
No. 05-21-00567-CR V. Opinion delivered by Justice Nowell.
Justices Pedersen, III and Smith
THE STATE OF TEXAS, Appellee participating.
Based on the Court’s opinion of this date, the judgment of the trial court is
AFFIRMED.
Judgment entered this 8th day of November, 2022.
–6– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484076/ | AFFIRMED and Opinion Filed November 9, 2022
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-21-01054-CV
IN THE MATTER OF E.M.H., A JUVENILE
On Appeal from the County Court at Law No. 1
Hunt County, Texas
Trial Court Cause No. J-02589
MEMORANDUM OPINION
Before Justices Nowell, Carlyle, 1 and Smith
Opinion by Justice Smith
Appellant E.M.H. appeals the juvenile court’s disposition order committing
him to the care, custody, and control of the Texas Juvenile Justice Department
(TJJD). In one issue, E.M.H. contends that the trial court acted arbitrarily and
unreasonably by committing him to TJJD instead of continuing his probation and
requiring him to wear an electronic monitor. Because we conclude that the juvenile
court had sufficient information before it to commit E.M.H. to TJJD and, therefore,
did not abuse its discretion, we affirm.
1
The Honorable Leslie Osborne participated in the submission of this case; however, she did not
participate in issuance of this memorandum opinion due to her resignation on October 24, 2022. The
Honorable Cory Carlyle has substituted for Justice Osborne in this cause. See TEX. R. APP. P. 41.1(b)(1).
Justice Carlyle has reviewed the briefs and the record before the Court.
Background
The State alleged, in its original adjudication petition, that E.M.H. engaged in
delinquent conduct by committing aggravated assault with a deadly weapon on
January 17, 2020. See TEX. FAM. CODE ANN. § 51.03(a)(1) (delinquent conduct
includes conduct that violates a penal law and is punishable by imprisonment or by
confinement in jail); TEX. PENAL CODE ANN. § 22.02(a)(2) (aggravated assault with
a deadly weapon). Specifically, the State alleged that E.M.H. intentionally or
knowingly threatened his grandmother with imminent bodily injury and used or
exhibited a Daisy Model 426 CO2 Pistol during the commission of the assault.
E.M.H. was twelve years old at the time of the offense.
E.M.H. pleaded true to the allegations and was adjudicated delinquent on May
21, 2020. Pursuant to the parties’ agreement, the trial court placed E.M.H. on
probation for one year and further placed him in the custody of Lake Granbury Youth
Services to successfully complete its post-adjudication program. Less than two
months later, E.M.H. was unsuccessfully discharged from the program at Lake
Granbury Youth Services for being defiant and confrontational. E.M.H. was
subsequently placed in Boot Camp with the Grayson County Department of Juvenile
Services, which he also failed to complete.
On May 19, 2021, the State moved to modify E.M.H.’s disposition. The State
alleged that E.M.H. had violated his conditions of probation on numerous occasions,
including committing new offenses, using marijuana, breaking curfew, and failing
–2–
to complete the ordered programs. The State sought for E.M.H.’s probation to be
revoked and for him to be committed to TJJD. However, instead of moving forward
with TJJD commitment, the parties agreed to a modification of E.M.H.’s disposition.
On September 3, 2021, E.M.H. pleaded true to three of the State’s allegations in its
motion to modify: (1) he failed to successfully complete the Lake Granbury Youth
Services Program; (2) he failed to successfully complete the Grayson County
Department of Juvenile Services Program; and (3) he committed robbery on April
29, 2021, in Dallas County. The juvenile court placed E.M.H. in the custody of the
John R. Roach Juvenile Detention Center Summit Post Adjudication Program,
ordered E.M.H. to successfully complete the program, and extended E.M.H.’s
probation until March 23, 2023. E.M.H. was unsuccessfully discharged from the
program on October 21, 2021, due to his continued disruptive and combative
behavior.
The State again moved to modify E.M.H.’s disposition, revoke probation, and
commit E.M.H. to TJJD. On November 12, 2021, E.M.H. pleaded true to failing to
successfully complete the John R. Roach Juvenile Detention Center Summit Post
Adjudication Program. The juvenile court found that E.M.H. violated his conditions
of probation by failing to complete the program and ordered him committed to TJJD
for an indeterminate period of time not to exceed his nineteenth birthday. This
appeal followed.
–3–
Committing a Juvenile to TJJD
A juvenile court has broad discretion to determine whether to modify the
disposition of a child who has been adjudicated delinquent. In re T.P., 251 S.W.3d
212, 214 (Tex. App.—Dallas 2008, no pet.). A trial court abuses its discretion when
it acts unreasonably or arbitrarily or without reference to guiding rules and
principles. In re D.R., 193 S.W.3d 924, 924 (Tex. App.—Dallas 2006, no pet.).
Legal and factual insufficiency are relevant factors in assessing whether the trial
court abused its discretion in making the necessary findings for commitment. In re
C.G., 162 S.W.3d 448, 452 (Tex. App.—Dallas 2005, no pet.). To modify a juvenile
delinquent’s disposition to commitment to TJJD, the trial court must find that: (1)
the original disposition was for conduct constituting a felony; (2) the child violated
a reasonable and lawful order of the court since original disposition; (3) it is in the
child’s best interest to be placed outside his home; (4) reasonable efforts were made
to prevent or eliminate the need for the child’s removal from his home and to make
it possible for the child to return home; and (5) the child, in his home, cannot be
provided the quality of care and level of support and supervision that the child needs
to meet the conditions of probation. FAM. §§ 54.05(f), (m)(1).
The evidence at the disposition hearing showed E.M.H. had been on probation
for about two years, some of which was for a prior adjudication. He had been
involved with the Hunt County Juvenile Probation Department since he was ten
years old; he was fourteen at the time of the final disposition hearing. E.M.H. failed
–4–
to complete any of his three placement programs while on probation. When he was
not in a placement program, he mostly lived with his mother. He stole from the
family and took his mother’s and sister’s cars without permission. Although his
mother tried to supervise E.M.H., he was very disrespectful toward her, violated
curfew, and sometimes ran away. His mother also tried to get him help at Elevate
Healthcare, an outreach program for juveniles in Mesquite, but E.M.H. quit going
after one week.
E.M.H.’s attorney questioned E.M.H.’s probation officer extensively about
whether E.M.H. received sufficient counseling and whether his medications were
proper and helping him. E.M.H.’s attorney also pointed out through testimony that
E.M.H. had been on probation through Covid-19 and, thus, his services had been
limited to some extent because he had been required to communicate with his family,
counselor, and probation officer through phone calls or Zoom instead of in person.
E.M.H. testified and denied assaulting his grandmother and committing
robbery, although he had previously pleaded true to both allegations. He called his
grandmother a liar. The State asked him whether he pulled a knife on his brother,
and he responded, “Yes,” and explained, “I do that every time when we about to
fight, because, like, he’s taller.”
E.M.H. explained that he got in trouble at his placements because older boys
picked on him, so he stood up for himself and would get in fights. He claimed that
staff did not treat him well and shoved and pushed him at boot camp. The incident
–5–
reports admitted into evidence paint a much different picture. They show that
E.M.H. was disrespectful to staff, threatened staff, physically assaulted staff, used
derogatory language, yelled at others, refused to comply with directives, was hostile
and aggressive, threatened suicide, and at his last placement, flooded his cell.
E.M.H. also reasoned that he did not do what he was supposed to while on
probation because he thought it was a game. Once he realized he might be sent to
TJJD, he realized it was not a game and “not time to play.” He testified that he was
placed on an electronic monitor after being discharged from his most recent
placement and that “[i]t was the best time of [his] life” because he really got to talk
to his mother and spend time with her. He was temporarily placed on the monitor
and on house arrest for about a week while the probation department sought a bed
for his detention and awaited the final disposition hearing. His mother testified that
the electronic monitor worked well and requested he be returned to her care.
At the close of the disposition hearing, the juvenile court made the necessary
findings to support commitment. See FAM. §§ 54.05(f), (m)(1). The juvenile court
also commented that E.M.H. had failed three placements, been adjudicated of
another offense in another county, and failed numerous conditions of probation. The
court explained, “We’re just out of options. We don’t have any more resources for
you.”
E.M.H. argues there was no evidence that TJJD would provide the services
that he needed or that there were no other available resources in the community to
–6–
assist him. He asserts that the trial court should have placed him on probation in his
home, with an electronic monitor, as that would have been the least restrictive option
while providing a reasonably appropriate amount of community supervision.
We disagree. E.M.H.’s probation officer testified that the department was out
of options and that they had tried everything. The department offered him multiple
post-adjudication programs and services, which he failed to complete. E.M.H.’s
own testimony revealed that he thought it was a game and did not take it seriously
despite the fact that the juvenile court warned him at his September 2021
modification hearing that, if he failed to complete the third placement program, the
court would have no choice but to send him to TJJD. We reject E.M.H.’s argument
that “[t]here was no meaningful exploration in to any community based
alternatives.”
We also reject E.M.H.’s argument that a home placement, with an electronic
monitor, was warranted under this record. Based on E.M.H.’s previous behavior at
home and at the various placements, we cannot conclude that the juvenile court
abused its discretion by denying appellant’s request to be released to his mother
under electronic monitoring and, instead, committing him to TJJD as the probation
department recommended. A juvenile court is not required to give “third and fourth
chances to a juvenile who has abused a second one.” In re J.P., 136 S.W.3d 629,
633 (Tex. 2004). We overrule E.M.H.’s sole issue.
–7–
Conclusion
We affirm the juvenile court’s order modifying E.M.H.’s disposition and
committing him to the care, custody, and control of TJJD.
/Craig Smith/
CRAIG SMITH
JUSTICE
211054F.P05
–8–
S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
IN THE MATTER OF E.M.H., A On Appeal from the County Court at
JUVENILE Law No. 1, Hunt County, Texas
Trial Court Cause No. J-02589.
No. 05-21-01054-CV Opinion delivered by Justice Smith.
Justices Nowell and Carlyle
participating.
In accordance with this Court’s opinion of this date, the November 12, 2021
order of the juvenile court modifying E.M.H.’s disposition and committing him to
the care, custody, and control of the Texas Juvenile Justice Department is
AFFIRMED.
Judgment entered this 9th day of November 2022.
–9– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484089/ | Order entered November 14, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00621-CR
No. 05-22-00622-CR
No. 05-22-00623-CR
WILSON ALEJANDRO MONTOYA, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the Criminal District Court No. 2
Dallas County, Texas
Trial Court Cause Nos. F19-00780-I, F19-00781-I & F19-00779-I
ORDER
The clerk’s records were filed in these cases on October 4, 2022. The clerk’s
record filed in cause no. 05-22-00621-CR (trial court cause no. F19-00780-I) does
not contain a copy of the indictment or the written judgment. The clerk’s record
filed in cause no. 05-22-00622-CR (trial court cause no. F19-00781-I) does not
contain a copy of the indictment. A sealed volume of the clerk’s record filed in
cause no. 05-22-00622-CR does not contain a sealing order. See TEX. R. APP. P.
9.10(g) (providing sealed documents must be filed in separate record and sealing
order must be first document in sealed record if sealed record is filed
electronically).
Accordingly, we ORDER the Dallas County District Clerk to file, within
FOURTEEN DAYS of the date of this order, a supplemental clerk’s record in
cause no. 05-22-00621-CR (trial court cause no. F19-00780-I) containing the
indictment and judgment in that case.
We ORDER the Dallas County District Clerk to file, within FOURTEEN
DAYS of the date of this order, a supplemental clerk’s record in cause no. 05-22-
00622-CR (trial court cause no. F19-00781-I) containing the indictment in that
case.
We STRIKE the October 4, 2022 sealed volume of the clerk’s record in
cause no. 05-22-00622-CR (trial court cause no. F19-00781-I). We ORDER the
Dallas County District Clerk to file, within FOURTEEN DAYS of the date of this
order, a sealed volume of the clerk’s record in cause no. 05-22-00622-CR with the
trial court’s sealing order and the sealed documents.
/s/ LANA MYERS
JUSTICE
–2– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491930/ | DECISION AND ORDER ON MOTION FOR FEES UNDER § 506(c)
BURTON PERLMAN, Bankruptcy Judge.
In this Chapter 11 ease a plan was confirmed May 11, 1994. The debtor and counsel for the debtor, Keating, Meuthing and Klekamp (“KMK”), now move for an order pursuant to 11 U.S.C. § 506(c) to allow them to collect from the proceeds of sale of the real estate which was the subject of the bankruptcy case, $9,324.62, the unpaid balance of its attorney’s fee. The motion is opposed by the Life Insurance Company of Virginia (“LICOVA”).
This court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this District. This is a core proceeding arising under 28 U.S.C. § 157(b)(2)(A).
• Debtor was the owner of commercial real estate located in Florence, Kentucky, known as Florence Discount Center. LICOVA held a mortgage on that real estate as well as an assignment of rents derived therefrom. When debtor defaulted on its loan payments, and when LICOVA undertook to enforce its rights under the assignment of rents, debtor filed the present Chapter 11 bankruptcy case on January 25, 1994. LICOVA then filed a motion for relief from stay and also a motion for an order sequestering rents, prohibiting the use of cash collateral, providing adequate protection, and requiring an accounting. Debtor then filed a motion for permission to use cash collateral, and in addition commenced an adversary proceeding against LI-COVA seeking a turnover of rents that LI-COVA had collected. The parties settled the several disputes and signed an Agreed Entry which was entered by the court September 14, 1993. Generally, the Agreed Entry provided that debtor was to have a limited period of time in which to attempt to effect a private sale of the property, with the proviso that if, at the end of the period, sale had not been accomplished, the property would be sold at auction. Debtor was unsuccessful in arranging a private sale, and the property was sold at auction in the bankruptcy court, where LICOVA bid in the property at $2,700,000.00.
*941KMK has been paid $25,000.00 in fees and expenses through June 30, 1994. Of the $25,000.00, $10,000.00 was from the retainer paid by the debtor to KMK, while the other $15,000.00, as authorized in the September 14, 1993 Agreed Entry, was derived from cash collateral consisting of rents collected from the real estate. The final application of KMK for fees and expenses in the case has now been filed. The total amount sought is $34,324.62. The difference between that amount and the $25,000.00 already collected by KMK is the subject of the present motion.
Section 506(e) of the Bankruptcy Code, upon which movants here rely, provides:
(c) The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.
It is the position of movants that they are entitled to recover the $9,324.62 from the sale of the property because LICOVA, the holder of the secured claim in question, was benefitted by the work of counsel. In its motion, KMK stated that its efforts benefit-ted LICOVA as follows:
... KMK’s final application indicates that $5,495.50 of KMK’s fees and expenses were related to the drafting and confirmation of the consensual plan of liquidation that provided for and resulted in the sale of the Property to pay LICOVA’s secured claim. In addition, a review of KMK’s time records indicate [sic] that $782.00 in fees were incurred in negotiating the Agreed Order that provided for the Debt- or’s filing of a liquidating plan; $2,910.00 in fees were incurred in connection with the negotiation of a sale of the Property; $2,284.50 in fees were incurred in negotiating new leases and lease extensions for the Property; and $2,732.50 in fees were incurred in preparation of financial reports that were shared with LICOVA....
In opposition to the position of movants, LICOVA says that a cap was set in the Agreed Entry of September 14,1993, of $15,-000.00 which it would contribute to attorneys’ fees. Additionally, LICOVA argues that it received no benefit within the meaning of § 506(c) which movants can justifiably charge against the sale proceeds.
A fair statement of the applicable law to the question here presented appears in In re Croton River Club, Inc., 162 B.R. 656, 659 (Bankr.S.D.N.Y.1993):
Generally, the normal administrative expenses of the bankruptcy estate may not be recovered from secured claim holders because the trustee acts not for their benefit but for the benefit of the estate and its unsecured claimants. General Elec. Credit Corp. v. Levin & Weintraub (In re Flagstaff Foodservice Corp.), 739 F.2d 73, 76 (2d Cir.1984) (hereinafter Flagstaff I); In re Trim-X, Inc., 695 F.2d 296, 301 (7th Cir.1982); In re Codesco, Inc., 18 B.R. 225, 228 (Bankr.S.D.N.Y.1982). Section 506(c), however, is the exception to the general rule, applicable when expenses of preservation are incurred primarily for the benefit of the secured interest or where the secured claim holder caused or consented to the accrual of such expenses. Flagstaff I, 739 F.2d at 76; In re Trim-X, Inc., 695 F.2d at 301; In re Codesco, Inc., 18 B.R. at 228.
Section 506(c) provides that the “trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.” 11 U.S.C. § 506(c). Attorneys’ fees may properly be recovered under § 506(c) to the extent of the benefit provided so long as: (i) the services were necessary in order to preserve or dispose of the secured creditor’s property; (ii) the amounts charged for such services were reasonable; and (iii) the expenses were incurred for the primary benefit of the secured creditor. (Citations omitted.)
The burden to prove entitlement to fees under § 506(c) rests with the movant, [General Elec. Credit Corp. v. Peltz( ] Flagstaff //[)], 762 F.2d [10] at 12 [(2nd Cir.1985) ], and the burden is a heavy one, In re Emons Indus., 50 B.R. 692, 695 (Bankr.S.D.N.Y.1985).
*942162 B.R. at 659.
In order to succeed on the present motion, movants, then, have the heavy burden of proving either that the services rendered by KMK were not for the benefit of the estate, but were for the primary benefit of LICOVA, or else that LICOVA consented to the accrual of the attorney’s fees and expenses here in question.
The court is not persuaded that the services rendered by KMK were not for the benefit of the estate, but were for the primary benefit of LICOVA. KMK relies on this point on the Croton River Club case, supra. We are agreeable to applying that case, but find it entirely distinguishable on its facts from that before us. In Croton River Club, the attorney provided an identifiable separate quantifiable service which directly resulted in an enhanced sale price of the property there under consideration. KMK has made no comparable showing. The services of KMK in the present case were merely typical of those rendered a debtor in a Chapter 11 case such as the present.
Nor does KMK fare any better on the alternate possible basis for award of fees, that there was consent by LICOVA to the payment to KMK of the fees accrued. Indeed, we find that on this dimension of KMK’s claim, the facts work against them. Both parties have paid attention to the language of the Agreed Entry entered September 14, 1993. LICOVA relies upon it as establishing a cap for its contribution to attorneys’ fees. Movants contend that the Entry must be construed not as a total cap to attorneys’ fees, but rather only as a cap on attorney’s fees to be derived from the cash collateral originating in rental funds. Here movants seek to recover not from rental funds, but from the sale price of the real estate.
It is the conclusion of the court that the determination of the present motion should lie in the fair inferences as to the intention of the parties to be derived from the Agreed Entry. Here, LICOVA, the secured claim holder, consented to the accrual of attorneys’ fees in the running of this Chapter 11 case, but it conditioned what it was willing to contribute for that purpose to the amount of $15,000.00. What it consented to is to be found in the Agreed Entry:
1. Debtor shall propose a liquidating plan intended to be confirmed without delay.
2. The liquidating plan will allow the Debtor until March 1, 1994 to sell its sole asset, the real estate commonly known as Florence Discount Center (“Real Estate”) at the best price possible in the market, such price to be for an amount at least equal to LICOVA’s total claim (including interest, costs, and fees) unless LICOVA gives its prior written consent.
3. If the sale is not closed or if there is not a binding non-contingent sales contract in effect by the close of business on March 1, 1994, then the Real Estate will be sold to the highest bidder through an auction sale at a hearing in Bankruptcy Court. Such auction would be noticed to all parties in interest and advertised, and would take place not later than May 2,1994 or at such time as the Court may schedule. LI-COVA shall be allowed to bid. Regardless of whether the Real Estate is sold on the open market or at the Bankruptcy Court auction, it will be sold free and clear of all liens and interests.
❖ sfs # >¡í s*s
7. Debtor shall also be entitled to use the rental funds received from the Real Estate to pay administrative expenses approved by the Court. LICOVA specifically agrees that Debtor shall be permitted to use such funds to pay reasonable real estate brokerage fees for leasing or sale (subject to approval by LICOVA) and reasonable advertising costs and also Debtor’s court approved attorney fees [and] expenses incurred in connection with this bankruptcy case in an amount not to exceed $15,000.00. Rental funds shall be used to pay attorney fees and expenses in excess of $15,000.00 only upon consent of LICOVA or further order of this Court.
8. LICOVA shall have the right to approve the terms of any lease terminations, renegotiated leases and new leases for the Real Estate during the period in question.
*943If LICOVA does not give its approval or disapproval within 10 business days of its receipt of copies of the terms or leases to be approved, then it shall be deemed to have given its approval.
. >K s¡s
The shape of the Agreed Entry was that LICOVA agreed to a six-month period in which debtor could attempt to effect an advantageous private sale, with there to be an auction if this did not occur. These were to be the subject of a plan submitted to the court.
That is, the entire course of this bankruptcy case as it in fact unfolded was the subject of the Agreed Entry. LICOVA intended to limit its attorney’s fee contribution for everything which was embraced within the Agreed Entry to $15,000.00. The benefits for which movants here seek to charge the sale price of the real estate were the subject of the Agreed Entry. That is, leasing and ultimate sale were expressly contemplated. That is what LICOVA consented to, and it is only fair to enforce the limitation on the amount of the fee which they were willing to pay for these purposes, as stated in the Agreed Entry. “Saddling uneonsenting secured creditors with professional fees, such as are sought by appellees, would discourage those creditors from supporting debtors’ reorganization efforts.” In re Flagstaff Foodservice Corp., 739 F.2d 73 (2d Cir.1984). We find this comment to be applicable to the present situation, and a re-enforcement of our conclusion.
The motion is denied.
So Ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491931/ | *971MEMORANDUM OPINION ON TRUSTEE’S MOTION FOR SUMMARY JUDGMENT AS TO COUNTS II AND III OF THE COMPLAINT
JOHN D. SCHWARTZ, Chief Judge.
This matter is before the court on the Trustee’s Motion for Summary Judgment (“Summary Judgment Motion”) in his favor on two counts of his second amended complaint (“Complaint”). Counts II and III of the Complaint seek to avoid certain ownership transfers made by Larry Miller (“Larry”) and Barbara Miller (“Barbara”) as being fraudulent. Larry and Barbara are two individual Debtors under two related Chapter 11 bankruptcy cases who are collectively referred to in the complaint as the “Millers.”
Counts II & III involve the following alleged transfers:
(1) Larry’s transfers on or about March 27, 1990 of:
(a) His entire beneficial interest in the “Vacant Lot Land Trust” and the “Home Land Trust” to Barbara.
(b) 49.9% of his 50% partnership interest in both the “700 Ogden Building Partnership” and the “Fox River Farms Partnership” to Barbara.
(c) .1% of his 50% partnership interest in both the “700 Ogden Building Partnership” and the “Fox River Farms Partnership” to his son, Eric Miller (“Eric”).
Collectively', these transfers are referred to in the Complaint as “Transfer # 1.”
(2) Barbara’s transfers on or. about August 2, 1990, of:
(a) Her entire beneficial interest in the Vacant Lot Land Trust and the Home Land Trust to the “Miller Children Trust.”
(b) Her 99.9% interest in the 700 Ogden Building Partnership and Fox River Farms Partnership to the Miller Children Trust.
Collectively, these transfers are referred to in the Complaint as “Transfer #2.”
The Trustee first seeks summary judgment in his favor on Count II of the Complaint. Count II seeks to avoid Transfers # 1 & # 2 pursuant to Bankruptcy Code section 544(b) and to recover from the Miller Children Trust all property or the value thereof transferred (collectively referred to as the “Property”) to the trust by virtue of the fraudulent conveyances along with the interest thereon from August 2, 1990. '
As a basis for avoidance and recovery, the Trustee alleges that:
(1) Transfers # 1 & # 2 were made with the actual intent to hinder, delay, or defraud any creditor of the Millers within the meaning of UFTA;1
(2) The Millers made Transfers # 1 & # 2 without receiving in exchange reasonably equivalent value within the meaning of UFTA; and
(3) The Millers were insolvent or they became insolvent as a result of the transfers within the meaning of UFTA.
The Trustee also seeks summary judgment in his favor on Count III of his Complaint. Count III also relies on Bankruptcy Code Section 544(b), but it seeks to avoid Larry’s transfer to Eric of Larry’s .1% partnership interest in both the 700 Ogden Building Partnership and the Fox River Farm Partnership (“Partnership Transfers”). The Partnership Transfers are part of the transfers referred to in the Complaint as Transfer # 1.
As a basis for this claim, the Trustee alleges that:
(1) The Partnership Transfers were made with the actual intent to hinder, delay, or defraud any creditor of Larry within the meaning of UFTA;
(2) The Partnership Transfers were made without Larry receiving reasonably equivalent value with the meaning of UFTA in exchange for the value of the property transferred; and
(3) Larry was insolvent or became insolvent within the meaning of UFTA as a result of the Partnership Transfers.
*972As part of the relief sought by Count III, the Trustee also seeks the recovery of Larry’s .1% partnership interest or the value thereof, together with interest thereon from March 27, 1990.
In his Summary Judgment Motion, the Trustee further seeks a Declaratory Judgment that:
(1) The Bankruptcy Estate of Larry owns and is now the holder of (1) 9/21 of the beneficial interest in the Vacant Lot Land Trust, (2) 50% of the beneficial interest in the Home Land Trust, and (3) 50% of the partnership interest in both the 700 Ogden Building Partnership and the Fox River Farms Partnership.
(2) The Bankruptcy Estate of Barbara owns and is now the holder of (1) 9/21 of the beneficial interest in the Vacant Lot Land Trust, (2) 50% of the beneficial interest in the Home Land Trust, and (3) 50% of the partnership interest in both the 700 Ogden Building Partnership and the Fox River Farms Partnership.
The Trustee argues that summary judgment is proper as “the pleadings, depositions, answers to interrogatories, and admissions on file, show that there is no genuine issue as to any material fact and that the moving-party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). (Fed.R.Bankr.P. 7056 applies Fed.R.Civ.P. 56 to adversary proceedings.) The Trustee’s basis for the Summary Judgement Motion is the assertion that the judgment of the State Court (“State Court Order”) involved identical issues of fact and law. The Trustee argues that the State Court Order was a final order and that it results in the application of collateral es-toppel, which prevents the Defendants from raising any defense to the Summary Judgment Motion.
In accordance with general rule 12(m) of the General Rules and Civil Rules of the United Stated Bankruptcy Court for the Northern District of Illinois,2 the Trustee has filed a “Supporting Memorandum of Law” and a “Statement of Undisputed Material Facts.”
Julia Miller McDonnell (“Julia”), Guardian Ad Litem for Eric Miller and Andrew Miller filed a response to the Summary Judgment Motion, Supporting Memorandum of Law, and Statement of Undisputed Material Facts.3 In that response, she asserts that the Trustee’s filings:
accurately set[ ] forth the facts surrounding the transfers of the assets of Larry Miller and Barbara Miller and the findings that the state court made with regard to the lawsuit filed and prosecuted by Galvin Kennedy, with the exception that, at no time does the Trustee reference or in any way address a 3/21 interest that Julia Miller McDonnell asserts individually in and to 8200 West Ogden Avenue in Lyons, Illinois [ (“Vacant Lot Land Trust”) ] ... Accordingly, McDonnell has no defenses with which the Trustee’s [Summary] Judgment Motion can be attacked and/or defeated, with the limited exception that Julia Miller McDonnell hereby makes no admission or concessions with regard to her 3/21 interest in and to 8200 West Ogden Avenue, Lyons, Illinois [ (Vacant Lot Land Trust) ].
In reply to Julia’s response, the Trustee states that the Summary Judgment Motion only seeks to avoid as fraudulent the Millers’ transfer of their combined 18/21 (9/21 each) interest in the Vacant Lot Land Trust and that Counts II & III do not seek to avoid or otherwise attack Julia’s 3/21 interest in the Vacant Lot Land Trust.
JURISDICTION
This court has jurisdiction to entertain the Summary Judgment Motion pursuant to 28 U.S.C. § 1334 and general rule 2.33(A) of the General and Civil Rules of the United States District Court for the Northern District of Illinois. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(H) and (K).
*973UNDISPUTED FACTS.
In making these findings of undisputed facts the court notes that Local Rule 12(n) provides that “all material facts set forth in the statement required of the moving party [ (“12(m) Statement”) ] will be deemed to be admitted unless controverted by the [reply] statement of the opposing party.” Any material fact set forth in the 12(m) Statement that was not specifically controverted is deemed admitted. See Bell, Boyd & Lloyd v. Tapy, 896 F.2d 1101, 1103 (7th Cir.1990).
Some of the undisputed facts include legal conclusions. The court deems those admitted facts to be a waiver of objection to these legal conclusions.
The undisputed facts are as follows:
1. In 1973, Galvin Kennedy (“Kennedy”) and the Millers entered into a joint venture (“Joint Venture”) to develop property in the Village of Glen Ellen, Illinois.
2. In 1977, Kennedy sued the Millers in the Circuit Court for the 18th Judicial Circuit, DuPage County, Case No. 77 CH 100 (the “Kennedy Lawsuit”). The Kennedy Lawsuit related to the Joint Venture.
3. Prior to March, 1990, Barbara and Larry each owned a 9/21 share (18/21 total) share of the beneficial interest in the “Vacant Lot Land Trust.” The Vacant Lot Land Trustee holds legal title to real property located in Lyons, Illinois.
4. Prior to March, 1990, Barbara and Larry each owned a 50% share of the beneficial interest in a land trust known as the “Home Land Trust.” The Home Land Trust holds title to real property located at 500 50th Place.
5. In sum, Barbara and Larry each held an interest in the Home Land Trust, the Vacant Lot Land Trust, the 700 Ogden Partnership and the Fox River Farms Partnership (collectively referred to as the “Property”).
6. Between March and May of 1990, Larry transferred all of his interest in the Home Land Trust and the 700 Ogden Partnership to Barbara for no consideration. He also transferred 99.99% of his interest in the 700 Ogden Partnership and the Fox River Farms Partnership to Barbara for no consideration.
7. During the same period, Larry transferred the remaining .1% of his interest in the 700 Ogden Partnership and the Fox River Farms Partnership to Erie for no consideration (“Partnership Transfers”). (Collectively, the transfers by Larry are referred to in the Complaint as “Transfer # 1”.)
8. In August, 1990, Barbara established the “Miller Children Trust,” with the Millers as trustees having a right to the income from the Trust and with the trust property being distributed to the Eric Miller, Julia Miller, and Andrew Miller (collectively the “Miller Children”) upon the deaths of the Barbara and Larry.
9. Also in August, 1990, Barbara transferred all of her interest in the properties to the Miller Children Trust for no consideration (“Transfer #2”). Transfer #2 was recorded on September 28, 1990 by the various land trustees of the trusts holding title to the Properties.
10. At the time of the transfers, the Properties had a net worth in excess of $5,000,000.
11. After Transfer #2, the Millers only had assets consisting of two automobiles and an IRA account.
12. In 1990, the following lawsuits were pending against Larry or Barbara (conjunctive):
(a) In March 1990, a lawsuit against Larry and Barbara, filed in 1977 by Galvin Kennedy (“Kennedy Lawsuit”), was pending in the Circuit Court for the 18th Judicial Circuit, Dupage County, II., Case No. 77 CH 100.
(b) In March, 1990, there was a lawsuit against Larry pending in federal court which was filed by Patricia James (“James Lawsuit”).
(c) In September, 1990, a lawsuit was filed by the FDIC in federal court seeking a judgment in excess of $20,000 against Larry and Barbara.
(d) In October, 1990, a lawsuit was filed by McKenna, Storer, Rowe, White & Farrug against Larry for legal fees of approximately *974$137,000 which arose prior to February 21, 1990.
13. On April 23, 1992, Kennedy obtained a judgment (“Judgment”) against the Millers on the Kennedy Lawsuit in the amount of $538,978.44 in the State Court.
14. On August 10, 1992, the State Court, in response to Kennedy’s Motion in Aid of Enforcement of his Judgment (“Kennedy Fraudulent Transfer Action”) conducted an evidentiary hearing and entered a final order (“State Court Order”) avoiding as fraudulent certain property transfers made by Larry (Transfer # 1) and Barbara (Transfer # 2) during 1990 pursuant to the Uniform Fraudulent Transfer Act (“UFTA”) (codified in 740 ILCS 160/1 et seq.).
15. The Millers and the Miller Children appeared at this evidentiary hearing, were represented by counsel, and opposed the Kennedy Fraudulent Transfer Action.
16. On August 24, 1992, and August 31, 1992, Larry and Barbara individually filed their respective bankruptcy cases in this Court. (Collectively referred to as the “Cases.”) On September 2, 1992, David Gro-ehocinski was appointed as Trustee for both bankruptcy Cases. On or about September 21, 1992, the Court entered an order directing that the Cases be jointly administered, which was entered on both dockets on September 23, 1992.
17. Pursuant to the Court’s order entered on November 23, 1992, the Kennedy Judgment was partially satisfied by a payment made by the Trustee pursuant to a settlement and Kennedy now has an allowed unsecured claim in the Cases in the amount of $182,000 which is comprised of principal and interest due and owing under the Judgment (“Kennedy Unsecured Claim”). The Kennedy Unsecured Claim arose prior to March, 1990.
18. On January 7, 1993, the Trustee filed an amended complaint in this adversary proceeding against the Millers, as trustees of the Trust, and the Miller Children (collectively the “Defendants”). Pursuant to Counts II and III of the Complaint, the Trustee requests the entry of an order avoiding Transfer # 1 and Transfer # 2 as fraudulent transfers pursuant to 11 U.S.C. § 544(b) and a recovery for the benefit of Larry’s and Barbara’s estates, the property transferred or value of such property pursuant to 11 U.S.C. § 550.
19. On January 7,1993, the court entered an order authorizing and directing that the defendant Julia Miller McDonnell (“Julia”) act as a guardian ad litem for the minor defendants, Eric Miller (“Eric”) and Andrew Miller (“Andrew”). (Collectively referred to as the “Miller Children”).
20. On September 9, 1993, the Miller Children filed their answer to the Complaint.
DISCUSSION
Summary judgment can only be entered “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). (Fed.R.Bankr.P. 7056 applies Fed. R.Civ.P. 56 to adversary proceedings.) A material fact is one that must be decided in order to resolve the substantive issue that is the subject of the motion. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). To determine whether there is a dispute as to any material fact, the court must draw inferences from the underlying facts in a light most favorable to the non-moving party. Rodeo v. Gillman, 787 F.2d 1175, 1177 (7th Cir.1986). However, summary judgment is appropriate where the undisputed facts make the outcome clear. Alexander v. Erie Ins. Exchange, 982 F.2d 1153,1160 (7th Cir.1993). If, through the summary judgment motion and supporting filings, the movant presents sufficient competent evidence to entitle it to judgment as a matter of law, the non-movant cannot rest on mere allegations in the pleadings or speculation; the non-movant must, through competent evidence, demonstrate specific facts that create a genuine issue for trial. See In re Ralar Distributors, Inc., 4 F.3d 62, 67 (1st Cir.1993); Herman v. City of Chicago, 870 F.2d 400, 404 (7th Cir.1989); In re AM Int’l, Inc., 142 B.R. 252, 254 (Bankr. N.D.Ill.1992).
*975In moving for summary judgment, the Trustee argues that there is no genuine issue of material fact because the Defendant’s are collaterally estopped from denying any of the elements necessary for the Trustee to avoid a transfer under 11 U.S.C. § 544(b) and to recover the property or value thereof under 11 U.S.C. § 550.
Bankruptcy Code section 544(b) allows the trustee to avoid any transfer of an interest of the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under Bankruptcy Code section 502. This subsection is read to incorporate the forum state’s law of fraudulent conveyance. See In re Josefik, 72 B.R. 393, 397 n. 4 (Bankr.N.D.Ill.1987). In this court, the proper forum is the state of Illinois. Hence, Counts II & III of the Trustee’s Complaint and the Kennedy Fraudulent Transfer Action are both governed by Illinois law. Illinois has enacted the Uniform Fraudulent Transfer Act, which is codified in 740 ILCS 160/1 et seq.
The Trustee asserts:
(1) the Kennedy Fraudulent Transfer Action was based on Illinois law and its adoption Uniform Fraudulent Transfer Act (UFTA);
(2) the defendants in this suit were also defendants to the Kennedy Fraudulent Transfer Action;
(3) the transfer sought to be avoided by this suit are the same as the transfers avoided in the Kennedy Fraudulent Transfer Action.
The preclusive effect of a state court judgment in a subsequent federal lawsuit is generally determined by the full faith and credit statute. Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380,105 S.Ct. 1327,1331, 84 L.Ed.2d 274 (1985). The statute directs federal courts to refer to the preclusion law of the state in which the judgment was entered. See 28 U.S.C. § 1738. Because judgment was entered by an Illinois court, Illinois Law must be used to determine the preclusive effect of that judgment.
Under Illinois Law, collateral es-toppel may apply if: (1) the issue decided in the prior adjudication is identical with the one presented in the suit in question; (2) there was a final judgment on the merits in the prior adjudication; and (3) the party against whom estoppel is asserted was a party or in privity with a party to the prior adjudication. In re Owens, 125 Ill.2d 390, 532 N.E.2d 248, 252, 126 Ill.Dec. 563, 567 (1988). Generally, there is no mutuality of party requirement, so that the fact that the Trustee was not a party to the Kennedy Fraudulent Transfer Action does not act to prevent the application of collateral estoppel. See In re Owens, 532 N.E.2d at 251, 126 Ill.Dec. at 566.
Thus, particular facts and issues that are in common and material to the disposition of both the prior state court action and the suit for this court, may be barred from be relitigated. See Cirro Wrecking Company v. Roppolo, 153 Ill.2d 6, 605 N.E.2d 544, 552, 178 Ill.Dec. 750, 758 (1992). The State Court Order, entered August 10, 1992, made numerous factual and legal determinations including:
(1) That the transfers by Larry to Barbara of all his interest in the vacant lot (Vacant Lot Land Trust), the house (Home Land Trust), the 700 E. Ogden building (700 Ogden Building Partnership) and the farm (Fox River Farms Partnership) between March and May of 1990 were fraudulent and voidable under Sections 5 & 6 of UFTA (codified in 740 ILCS 160/5, 6). State Court Order at 6-7.
(2) That the transfers by Barbara to the Miller Children Trust (being her entire interest in the Vacant Lot Land Trust, the Home Land Trust, the 700 Ogden Building Partnership, and the Fox River Farms Partnership) between August and September of 1990 were fraudulent and voidable under Sections 5 & 6 of UFTA (codified in 740 ILCS 160/5, 6). State Court Order at 7-9.
Because the court gives full faith and credit to the State Court Order and determinations made therein, these matters are deemed to have already been decided and the Defendants are collaterally estopped *976from denying any of the allegations contained in the complaint as to Transfer # 1, except for the alleged Partnership Transfers of .1% of Larry’s interest in such to Eric. This transfer was not part of the Kennedy Lawsuit, Kennedy Fraudulent Transfer Action and not addressed in the State Court Order.4 Hence, collateral estoppel cannot be applied as to the Partnership Transfers as this issue is not identical to one decided by the state court action. See In re Owens, 532 N.E.2d at 252, 126 Ill.Dec. at 567.
However, the court concludes, as a matter of law, that the Partnership Transfers were fraudulent under sections 5 and 6 of UFTA (codified in 740 ILCS 160/5, 6). As none of the Defendants have contested the assertions made in the 12(m) Statement, the court has taken those assertions to be true. The Partnership Transfers made by Larry to his minor son Erie occurred between March and May of 1990, was for no consideration, and made at a time when: (1) Larry transferred almost all of his other assets to Barbara for no consideration and which transfers were deemed by a state court to be fraudulent under sections 5 and 6 of UFTA; (2) Larry and Barbara were defendants to the pending Kennedy Lawsuit; and (3) Larry was a defendant to the pending James Lawsuit See e.g., Crawford County State Bank v. Marine American Nat. Bank, 199 Ill. App.3d 236, 556 N.E.2d 842, 145 Ill.Dec. 224 (4th Dist.1990); Anderson v. Ferris, 128 Ill. App.3d 149, 470 N.E.2d 518, 83 Ill.Dec. 392 (2d Dist.1984).
Finally, the Partnership Transfers to Eric along with the remaining transfers to Barbara that made up transfers defined in the Complaint as Transfer # 1 left Larry without any tangible assets except for an automobile. Thus, summary judgment is also proper as to the Partnership Transfers. See e.g. Reagan v. Ivanelli, 246 Ill.App.3d 798, 617 N.E.2d 808, 187 Ill.Dec. 351 (2d Dist.1993).
The failure of the Defendants to controvert the assertions made in the 12(m) Statement results in them being deemed admitted. These assertions provide an alternative basis for finding that Transfers # 1 & # 2 were fraudulent and are voidable under UFTA.
For these reasons, judgment will be entered on Counts II & III in favor of the Plaintiff and the requested relief will be given.
. Illinois has adopted the Uniform Fraudulent Transfer Act ("UFTA”) which is codified in 740 ILCS 160/1 et seq. and which had an effective date of January 1, 1990.
. Hereafter, any reference to a general rule of the local bankruptcy rules is denoted as "Local Rule.”
. The Trustee asserts that the Millers, defendants to this suit as Trustees of the Miller Children Trust, have not answered the complaint. An examination of the docket reveals such.
. The Trustee admits that the Partnership Transfers are the only factual allegations in the Complaint which are different from the allegations addressed and findings made in the State Court Order. The Trustee asserts that this allegation differs only because the Trustee did not discover the .1% Partnership Transfers until the Millers testified as to their § 341 meeting. It was originally thought that all Larry’s interest in the 700 Ogden Partnership and Fox River Farms Partnership was transferred to Barbara. This transfer was found by the state court to be fraudulent within the meaning of UFTA. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491932/ | MEMORANDUM OF DECISION
JIM D. PAPPAS, Visiting Judge.
This is an action to deny a discharge to Defendant Maurice Gregory Bourget, a Chapter 7 debtor, brought by the Plaintiffs under Section 727(a) of the Bankruptcy Code. Regrettably, because the Court finds after trial of the action that Defendant falsified his business books and records, and made fraudulent transfers of his property within a year prior to filing for bankruptcy relief, his discharge will be denied. This Memorandum is intended as the Court’s findings of fact and conclusions of law. F.R.B.P. 7052.
Background.
Defendant was a building contractor. In February, 1991, he entered into a contract with the Plaintiffs to remodel their home. The contract was for a fixed price in excess of $100,000. In other words, the parties agreed in advance on the total amount to be paid by Plaintiffs to Defendant for the project. This amount was payable in two man*27ners. First, the contract called for periodic installment payments to Defendant as the project progressed. The agreement also required Plaintiffs to reimburse Defendant for any materials and labor charges he incurred on this job upon his presentation to Plaintiffs of copies of the invoices he received from suppliers or subcontractors.
On December 4, 1991, after completing a significant portion of the project, Defendant quit Plaintiffs’ job because a dispute had developed between the parties over whether certain items of work on the job requested by Plaintiffs constituted “extras” under the agreement. Plaintiffs had another party finish the remodel. In March of 1992, Plaintiffs made a claim for damages against Defendant through arbitration proceedings as provided in their contract. Hearings were held in February and March of 1993. On May 11, 1993, the arbitrator entered an award in favor of Plaintiffs and against Defendant for over $54,000 in damages, attorneys fees and costs. A state court judgment confirming the award was entered in August, 1993.
Defendant filed for Chapter 7 bankruptcy relief on January 26, 1994.
Arguments of the Parties.
Plaintiffs object to Defendant’s discharge under Sections 727(a)(2) and 727(a)(3). These statutes provide that a debtor in bankruptcy will not be entitled to a discharge of indebtedness if:
(2) the debtor, -with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed—
(A) property of the debtor, within one year before the date of the filing of the petition; or
(B) property of the estate, after the date of the filing of the petition; [or]
(3) the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor’s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case....
11 U.S.C. § 727(a)(2), (3). Plaintiffs bear the burden of proof of their allegations by a preponderance of the evidence. F.R.B.P. 4005; In re Lawler, 141 B.R. 425, 429 (9th Cir. BAP 1992).
Plaintiffs allege, generally, that Defendant kept inadequate and false books and records and that he made a variety of fraudulent transfers of his property shortly before bankruptcy. Defendant disputes Plaintiffs’ allegations of wrong doing.
Plaintiffs cite to the Court a number of transactions and instances they contend are examples of fraudulent conveyances of property or inadequate or false record-keeping by Defendant. The Court will not attempt to discuss the specifics of each of Plaintiffs’ individual claims. Rather, the Court will focus on only two of Plaintiffs’ contentions with which it agrees because they provide sufficient cause under the statutes to deny Defendant a discharge.1
Disposition of the Issues.
Falsified Records.
Defendant testified at trial that during the course of Plaintiffs’ construction project, he became dissatisfied with Plaintiffs’ delay in making the installment payments. While it appears Plaintiffs were not habitually late on these installments, and that in some cases the delay was only a matter of a few days, Defendant concocted a scheme to compensate himself for this inconvenience. He did so by altering the copies of the invoices he presented to Plaintiffs in several instances to show a significantly, higher amount than the true charges to him. Defendant frequently, but not exclusively, accomplished his mischief by placing additional digits on the amounts of the invoices, and then photocopying the altered original for submission to Plaintiffs. For example, De*28fendant changed an invoice for $588.50 to read $1588.50 on the copy and he changed an invoice for $790 to read $1790.
In this fashion, Defendant concedes he received several thousand dollars more than he was entitled from the Plaintiffs for reimbursement of these charges. Defendant asserts, however, that since the total contract amount was a fixed amount, Plaintiffs would in the final analysis pay no more than the contract required.2 While not receiving more overall for the project, Defendant admits that by his methods he accelerated the timing of payments to him by Plaintiffs.
Defendant’s ruse only became apparent during the arbitration proceedings when Plaintiffs either came across the actual invoices or cancelled checks to suppliers in Defendant’s records, or sought out other copies of invoices directly from the suppliers. While Defendant claims his conduct was an innocent attempt to deal with Plaintiffs’ tardy payments on other parts of the contract, the Court finds that Defendant knowingly and intentionally set out to dupe Plaintiffs into making early payment in violation of the terms of the parties’ contract.
Should Defendant’s artifice cost him his right to a discharge in bankruptcy in this case? It appears Congress and the courts would agree that Defendant’s strategy should be condemned.
Recall, a discharge must be denied to one who “falsifie[s] ... books, documents, records, and papers from which the debtor’s ... business transactions might be ascertained, unless such act ... was justified under all the circumstances of the case.... ” 11 U.S.C. § 727(a)(3). “The purpose of this statute is ‘to make the privilege of discharge dependent on a true presentation of the debt- or’s financial affairs.’ ” In re Cox, 904 F.2d 1399, 1401 (9th Cir.1990) quoting In re Underhill, 82 F.2d 258, 260 (2nd Cir.1936). Defendant, as a bankruptcy debtor, must “ ‘present sufficient written evidence which will enable his creditors reasonably to ascertain his present financial condition and to follow his business transactions for a reasonable period in the past.’ ” Id. quoting Rhoades v. Wikle, 453 F.2d 51, 53 (9th Cir.1971). Although present here, intent to defraud is not an element of this objection to discharge. In re Bailey, 145 B.R. 919, 924 (Bankr.N.D.Ill.1992); In re Kinney, 33 B.R. 594, 596 (Bankr.N.D.Ohio 1983).
Defendant concedes he falsified his business records as to his dealings with Plaintiffs. Plaintiffs, who were directly involved in a business transaction with Defendant, received the altered documents from him for the purpose of soliciting their payments. The integrity of Defendant’s documents was crucial to Plaintiffs’ ability to receive the benefit of their contract with Defendant. Because Plaintiffs were required by their agreement to rely upon Defendant’s trustworthiness in this regard, Plaintiffs were subject to precisely the kind of abuse that Section 727(a)(3) is designed to deter.
Once Plaintiffs established a prima facie showing that Defendant violated Section 727(a)(3), Defendant bears the burden of demonstrating that his conduct was justified under the circumstances. In re Lawler, 141 B.R. at 429, citing In re Martin, 698 F.2d 883, 887 (7th Cir.1983). He has failed to do so here.
That Defendant’s deceit involved merely accelerating Plaintiffs’ payments rather than increasing the total to be paid does not render Defendant’s conduct any more tolerable. Defendant’s motive for his activities is unconvincing. If Plaintiffs were truly delinquent in their progress payments, Defendant’s rights and remedies were provided by his contract with them. He could have demanded timely payments under threat of declaring a breach of the agreement and termination of his services. His “end-run” designed to trick Plaintiffs into what he felt was compliance with the contract was not justified under these facts.
The Bankruptcy Code requires debtors to keep books and records which will fairly and accurately reflect important financial transactions. It should not be interpreted to require creditors, such as the Plaintiffs here, to *29review Defendant’s books with the tenacity of a professional auditor to separate truth from fiction. In summary, Plaintiffs have adequately proven a case for denial of discharge under Section 727(a)(3).
Transfer of the Porsche.
To support their claims that Defendant should be denied a discharge under Section 727(a)(2), Plaintiffs had the Court examine a number of transfers of property by Defendant prior to bankruptcy claiming each was fraudulent. Most of these transfers were unremarkable. To a different degree, these transactions deserved scrutiny,3 but in review many seemed to be supported by good consideration and motivated by business judgment. One transfer, however, appeal’s to be transparently fraudulent.
Recall, it was in May of 1993 that Plaintiffs received the arbitration award against Defendant. At that time Defendant must have been aware that Plaintiffs would shortly acquire an enforceable judgment against him for their damages. Defendant’s schedules reflect that he also had significant additional debt. Why, then, in this context would Defendant, in effect, give his girlfriend a $10,-000 Porsche in June, 1993, a mere six months before he filed for bankruptcy? This is exactly what Defendant did when he traded in his Porsche sports car as part of the purchase of a new utility vehicle which was then titled in the name of Defendant’s female companion.
In order to prove a claim under Section 727(a)(2), Plaintiffs must show that Defendant, in making the transfer, harbored an actual intent to hinder, delay, or defraud a creditor or officer of the estate. In re Woodfield, 978 F.2d 516, 518 (9th Cir.1992). This intent may be inferred, however, from the circumstances surrounding the transaction. Id. Several factors should be examined, not all of which need be present, including:
“1) a close relationship between the trans-feror and the transferee;
2) that the transfer was in anticipation of a pending suit;
3) that the transferor Debtor was insolvent or in poor financial condition at the time;
4) that all or substantially all of the Debt- or’s property was transferred;
5) that the transfer so completely depleted the Debtor’s assets that the creditor has been hindered or delayed in recovering any part of the judgment; and
6) that the Debtor received inadequate consideration for the transfer.”
Id.
Here, several of these factors are conspicuous. Defendant was nearing financial extre-mis at the time he disposed of the car, and his creditors, including Plaintiffs, were threatening. The Porsche appeared to be one of Defendant’s few unencumbered assets. Defendant would understandably prefer that his girlfriend4 have the benefit of his equity in the car than to see it lost to his creditors.
Under these circumstances, the Court finds Defendant culpable. Knowing the extent of his debt, and knowing that Plaintiffs would soon be in a position to seize his assets, the Court finds that the only reasonable explanation for the transfer of the Porsche by Defendant was to place its value beyond the reach of his creditors. Defendant protests, but his explanations are implausible.
Conclusion.
Through the bankruptcy discharge, Congress intended the honest but unfortunate debtor to obtain a fresh start. Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 659, 112 L.Ed.2d 755 (1991). Lamentably, Defendant is not such a debtor.
*30Plaintiffs’ objection to Defendant’s right to a discharge in bankruptcy will be sustained and his discharge shall be denied under Sections 727(a)(2) and (a)(3) of the Bankruptcy Code. Counsel for Plaintiffs may submit an appropriate form of judgment to the Court for entry, which form has been approved by counsel for Defendant.
. The Court makes no findings or conclusions concerning the remainder of Plaintiffs’ allegations.
. As an aside, it also now appears that Plaintiffs made one more installment on the progress payments than necessary, a matter of which Defendant also contends he was unaware.
. For example, in June, 1992, Defendant sold a vehicle for $11,000 cash. He could not tell the Court to whom he sold the vehicle; he could produce no documents generated in the sale; he could show little concerning disposition of the proceeds. Because this transfer takes place more than a year before bankruptcy, it is not a potential basis for denial of discharge under Section 727(a)(2)(A). However, Defendant’s account of this transaction did little to enhance his credibility with the Court concerning the transaction discussed below which does support a denial of discharge.
. While not formally wed, the Court understands the woman is the mother of Defendant’s small child. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491933/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This case came before the Court upon the Objection to Exemptions filed by the chapter 7 Trustee, Gregory K. Crews (Trustee). The Court held a hearing on November 9, 1994, and upon the evidence presented, enters these Findings of Fact and Conclusions of Law:
Findings of Fact
Debtor filed his chapter 7 petition August 17, 1994. In schedule C debtor claimed as exempt $1,600.00 of equity in an automobile pursuant Florida Statute § 222.25. Debtor reported $24,480.00 of unsecured debt in schedule F, some of which was incurred before October 1, 1993.
The trustee timely objected to debtor’s claim of exemption for the automobile because the amount exceeds the maximum al*59lowed by Fla.Stat. § 222.25(1) and because the debt on the automobile was incurred prior to October 1, 1993.
Debtor concedes that the maximum allowable exemption under § 222.25(1) is $1,000.00, thus, the sole issue to be decided by the Court is whether debtor is entitled to exempt the first $1,000.00 of equity in the motor vehicle, pursuant to Florida Statute Section 222.25(1).
Conclusions of Law
In 1993, the Florida Legislature enacted Session Law 93-256, which amends Florida’s exemption statutes. The act created Fla. Stat. § 222.25 which provides in part:
The following property is exempt from attachment, garnishment or other legal process:
(1) A debtor’s interest, not to exceed $1,000.00 in value, in a single motor vehicle as defined in § 320.01;
Pursuant to section 7 of 93-256 the act took effect on October 1, 1993.
When statutory language is clear, the plain and obvious provisions of the statute must control, and there is no reason to resort to rules of statutory interpretation. Van Pelt v. Hilliard, 75 Fla. 792, 78 So. 693 (1918). Courts are without power to construe an unambiguous statute in a way that would extend, modify or limit its express terms. Holly v. Auld, 450 So.2d 217 (Fla.1984). Thus it is only when a statute is ambiguous that a Court must resort to rules of construction.
In construing an ambiguous statute, the Court must give effect to the legislative intent which led to enactment of the statute. Tyson v. Lanier, 156 So.2d 833 (Fla.1963); State v. Webb, 398 So.2d 820 (Fla.1981). The Court must avoid a construction which leads to unreasonable or absurd results or nullifies the purpose of the statute. Id. To determine the legislative intent, the Court must consider the act as a whole and “the evil to be corrected, the language of the act, including its title, the history of the enactment and the state of the law already in existence bearing on the subject.” Id. at 824.
The language of Fla.Stat. § 222.25(1) is plain and unambiguous, creating an exemption on motor vehicle equity up to one thousand dollars ($1,000.00). Because the language of Fla.Stat. § 222.25(1) is clear and unambiguous the inquiry would end here if it were not for the footnote to Fla.Stat. § 222.25. The footnote states:
This act applies only to an attachment, a garnishment, or other legal process that arises as a result of a contract, a loan, a transaction, a purchase, a sale, a transfer, or a conversion occurring on or after October 1, 1993.
Thus the Court must determine how to interpret this additional provision and the affect this language has on the clear meaning of § 222.25(1).
The trustee argues that the language of Section 6 of Session Law 93-256, expresses the legislature’s intent that the amendment apply only to debts incurred after October 1, 1993. The trustee’s position is that the phrase “occurring on or after October 1, 1993,” should be read to modify the words “a contract, a loan ...with the result that debtor may exempt up to one thousand dollars ($1,000.00) in motor vehicle equity only from debts incurred after October 1, 1993. Debtor argues that the phrase “occurring on or after October 1, 1993,” should be read to modify “attachments, garnishments or other legal process,” with the result that debtor may exempt up to one thousand dollars ($1,000.00) of equity in a motor vehicle only fi’om those attachments, garnishments, or other legal process which occur after October 1, 1993, but not from those which occur prior to October 1, 1993.
The best evidence of the legislative intent behind 93-256 is contained in the exemptions as they existed prior to the 1993 enactment and particularly the exemption for wages. This is so because the legislature’s statement as to the effect of section 6 contained in the 1993 Summary of General Legislation and the House Committee on Judiciary Final Bill Analysis and Economic Impact. Statement conflict. Additionally, the title of the act does not refer to section 6. Whereas, the wage exemption for the “head of family” has been a continuous part of Florida law since *601875, serving the judicially recognized purposes of protecting citizens against financial reverses and preventing families from becoming public charges. Wolf v. Commander, 137 Fla. 313, 188 So. 83 (1939). The 1993 act placed certain limitations on the Fla.Stat. § 222.11 wage exemption by limiting the previously unlimited exemption to the first $500.00 of a debtor’s disposable earnings. Like section 222.25, section 222.11 is subject to the language contained in Section 6.
Utilizing the trustee’s interpretation of section 6 to interpret the amended wage exemption, the Florida legislature must have intended to limit the availability of the exemption for wages of a head of family in Florida to only those garnishments related to debts incurred after October 1, 1993. Thus, the legislature must have intended to deny a wage exemption to debts incurred prior to October 1, 1993. Given the longstanding statutory history of the wage garnishment exemption and the legislature’s placing a specific dollar limit on the exemption, the Court cannot find that the legislature intended to eliminate the wage exemption as it relates to debts incurred prior to October 1,1993. It is more reasonable to believe that the legislature intended that the amended wage garnishment exemption apply only to garnishments which occur after October 1, 1993.
Similarly, if the Court adopts the trustee’s interpretation of section 6 uncertainty and unreasonable results occur because two sets of exemption laws would be in effect for an indeterminate amount of time. This occurs because the exemption for an automobile would only apply in those cases where the debtor has incurred an obligation on or after October 1, 1993, and in all other cases the debtor would not be eligible an exemption for equity in an automobile.
In addition, the construction urged by the trustee violates the rule of statutory construction that the Court must analyze the act as a whole and give effect to each and every word. The trustee’s interpretation effectively nullifies section 7 which makes the act effect on October 1, 1993, because the automobile exemption would not apply in many cases as the debt was incurred prior to October 1993. After. considering the history of the wage exemption and the results which would occur if the trustee’s position were adopted, the Court finds that the legislature intended that the motor vehicle exemption apply only to attachments, garnishments, or other legal process which occur after October 1, 1993. In addition, the Court notes that exemption statutes must be liberally construed in favor of the debtor, In re Dixson, 153 B.R. 594 at 599 (Bankr.M.D.Fla.1993), citing Killian v. Lawson, 387 So.2d 960, 962 (Fla.1980), thus adding additional support to the Court’s construction of § 222.25(1). Accordingly, the Court finds that the debtor is not barred from claiming the benefit of Fla. Stat. § 222.25(1) merely because he incurred a portion of his unsecured debts before the effective date of the statute.
The Court will enter a separate order consistent with these findings of fact and conclusions of law.
ORDER OVERRULING TRUSTEE’S OBJECTION TO EXEMPTIONS
Upon findings of fact and conclusions of law separately entered, it is
ORDERED
The trustee’s objection to exemptions is overruled and debtor is entitled to exempt one thousand dollars ($1,000.00) equity in an automobile. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484090/ | Order entered November 14, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00163-CV
SALLY TYE F/K/A SALLY S. SHUFFIELD, INDIVIDUALLY AND AS CO-
TRUSTEE OF THE SHUFFIELD LIVING TRUST, Appellant
V.
RODNEY M. SHUFFIELD, INDIVIDUALLY AND AS CO-TRUSTEE OF
THE SHUFFIELD LIVING TRUST, Appellee
On Appeal from the 380th Judicial District Court
Collin County, Texas
Trial Court Cause No. 380-02071-2020
ORDER
Before Chief Justice Burns, Justice Molberg, and Justice Pedersen, III
Before the Court are appellee’s October 17, 2022 motion to dismiss the
appeal and appellant’s November 4, 2022 motion to extend time to file her reply
brief. We GRANT the extension motion and ORDER the brief be filed no later
than December 6, 2022. We DEFER to submission the motion to dismiss.
/s/ KEN MOLBERG
JUSTICE | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484092/ | Order entered November 14, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00548-CV
JORDAN COGBURN, Appellant
V.
MELANIE CREEKMORE, Appellee
On Appeal from the 15th Judicial District Court
Grayson County, Texas
Trial Court Cause No. CV-18-1125
ORDER
Before the Court is appellee’s November 10, 2022 third motion for an
extension of time to file her brief. We GRANT the motion. We ORDER the
amended brief tendered to this Court by appellee on November 14, 2022 filed as of
the date of this order.
/s/ ROBERT D. BURNS, III
CHIEF JUSTICE | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484093/ | Order entered November 14, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00603-CV
JASVINDER JASSY TOOR, Appellant
V.
ALAUNA KAYE HOLLINGSWORTH, Appellee
On Appeal from the 134th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-20-06969
ORDER
Before the Court is appellant’s November 10, 2022 first unopposed motion
for extension of time to file her brief. Appellant seeks a forty-five day extension
explaining, in part, that she is seeking legal representation.
We GRANT the motion and ORDER the brief be filed no later than
December 28, 2022.
/s/ KEN MOLBERG
JUSTICE | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484126/ | Cite as 2022 Ark. App. 465
ARKANSAS COURT OF APPEALS
DIVISION II
No. CV-21-14
MIZAN RAHMAN Opinion Delivered November 16, 2022
APPELLANT
APPEAL FROM THE PULASKI
COUNTY CIRCUIT COURT,
V. SEVENTEENTH DIVISION
[NO. 60CV-10-1700]
BF ACQUISITIONS, LLC, ASSIGNEE
OF REGIONS BANK; WOODLAND
FARM ESTATES, LLC; AND DAVID HONORABLE MACKIE M. PIERCE,
CARL JUDGE
APPELLEES
AFFIRMED
RAYMOND R. ABRAMSON, Judge
This case involves a 2006 real estate development that resulted in a foreclosure in
2010 and a deficiency judgment in 2011 against Mizan Rahman. That judgment was
ultimately purchased by, and assigned to, BF Acquisitions, LLC (BF). The Pulaski County
Circuit Court clerk, at BF’s request, issued a writ of execution against Rahman in February
2020. Rahman moved to quash the writ of execution, which the Pulaski County Circuit
Court denied on October 5, 2020. Rahman now appeals that order and argues that the
circuit court erred in ruling that the writ of execution on the judgment complied with
Arkansas Code Annotated section 16-66-106 (Repl. 2005) because it was not issued jointly
to all defendants; that the circuit court erred in finding that the writ of execution did not
violate Rahman’s due-process rights; and that the circuit court erred in ruling that BF was
not required to be a licensed debt-collection agency pursuant to Arkansas Code Annotated
sections 17-24-101 et seq. (Repl. 2018 & Supp. 2021). We affirm.
Rahman, a licensed Arkansas professional engineer, was hired by David Carl, a real
estate developer, to perform civil-engineering services for a residential real estate project in
2006. Carl formed Woodland Farms Estates, LLC (Woodland Farms), for the project, and
Regions Bank was the lender. Carl, Woodland Farms, and Rahman signed a promissory note
in the principal amount of $351,000 on September 28, 2006. The note was secured by a
mortgage on the project real estate and filed of record on September 29, 2006.
When the loan went into default, Regions filed a foreclosure complaint on March
26, 2010, naming Rahman, Carl, and Woodland Farms as defendants.
On February 25, 2011, the circuit court entered a final judgment and decree of
foreclosure against Woodland Farms, Carl, and Rahman jointly and severally, in the amount
of $382,468.83 together with costs, attorney’s fees, and interest. A foreclosure sale occurred
on March 31, 2011; Regions was the successful bidder and purchased the property for
$174,818. The report of the foreclosure sale and the order confirming the sale were filed on
April 12, 2011. Rahman and Carl have not had contact since 2011.
In 2019, Regions assigned its deficiency judgment to Edgefield Holdings, LLC
(Edgefield). Edgefield then assigned its interest to BF, a limited liability company formed by
debt collector and lawyer Brian Ferguson. At the time of the sale, neither BF nor Edgefield
was a licensed debt-collection agency with the Arkansas Board of Debt Collection Agencies
nor had the Board determined that they needed to be licensed. After purchasing the
2
judgment, BF filed a notice of assignment, a motion to substitute the real party in interest,
and an application for charging order on October 21, 2019. The next day, the circuit court
clerk issued a writ of execution. Rahman was served with all of these documents; none of
Rahman’s property was ever sold or seized. Rahman subsequently filed in the circuit court a
motion to quash the writ of execution and stay collection actions.
An evidentiary hearing on various motions, including Rahman’s motion to quash the
writ of execution and to stay collection actions, was held on February 10, 2020.1 The circuit
court took the matter under consideration and ultimately issued a letter opinion on
September 2, 2020, denying Rahman’s motion; the letter ruling was confirmed by written
order on October 5, 2020.
In its order, the circuit court found that Arkansas Code Annotated section 16-66-106
did not apply to the facts of this case because to proceed with a writ of execution against Carl
would “be an exercise in futility.” The circuit court also found that the writ of execution was
constitutional and that Rahman received all notice to which he was entitled. The circuit
court found that BF, as a judgment purchaser, was not required to be a licensed debt-
collection agency. Ultimately, the circuit court denied Rahman’s motion to quash the writ
of execution. The circuit court also granted BF’s request for a charging order. The judgment
1
The circuit court found that the October 2019 writ contained an accounting error
in that it did not give Rahman credit for a previously made $10,000 payment but agreed with
BF that the proper remedy was to reform the writ. BF subsequently caused a second writ of
execution to be issued on February 5, 2020. The court found this second writ contained a
proper and accurate accounting of the balance due under the judgment and was the subject
of the February 10, 2020 hearing. Rahman does not dispute this on appeal.
3
was revived and renewed against all judgment debtors for an additional ten-year period from
the date of the order. The court found that the balance of the judgment as of October 2,
2020, was $333,417.85. The circuit court granted Rahman’s motion to stay collection
proceedings on the judgment pending appeal and dismissed all other pending motions and
outstanding writs. This timely appeal followed.
“In civil bench trials, the standard of review on appeal is not whether there is
substantial evidence to support the findings of the court but whether the court’s findings
were clearly erroneous or clearly against the preponderance of the evidence.” Barnes v.
Wagoner, 2019 Ark. App. 174, at 3, 573 S.W.3d 594, 595 (internal citations omitted).
Further, “[a] finding is clearly erroneous when, although there is evidence to support it, the
reviewing court on the entire evidence is left with a firm conviction that a mistake has been
made. Where the issue is one of law, our review is de novo.” Id., 573 S.W.3d at 595–96.
Rahman’s first argument on appeal is that the circuit court erred by not following the
plain language of Arkansas Code Annotated section 16-66-106 that states in pertinent part:
“On a judgment or decree against several, the execution must be joint.” 2 Questions of
statutory interpretation are reviewed de novo. Buckley v. State, 349 Ark. 53, 76 S.W.3d 825
(2002).
In the case before us, the circuit court specifically found that “[t]he evidence is that
David Carl moved to Texas years ago and is likely dead. Whether he’s living in Texas or
2
We note that this section has been repealed by the General Assembly, effective July
28, 2021.
4
deceased, he’s beyond the execution power of this court.” Further, “[r]equiring Plaintiff to
execute on Carl undermines the entire concept of joint and several liability, and Plaintiff is
not obligated to do so.” This factual finding is not clearly erroneous because it was supported
by the testimony of Rahman himself, who testified that he did not know where Carl was and
that he believed he was likely dead. We cannot say that the circuit court committed an error
of law since it would have been impossible and futile for the execution to be joint when one
of the debtors is outside the execution power of the circuit court. It is well settled that “this
court does not engage in [statutory] interpretations that defy common sense and produce
absurd results.” Green v. Mills, 339 Ark. 200, 205, 4 S.W.3d 493, 496 (1999). Clearly,
requiring joint execution under the facts of this case would produce an absurd result.
Accordingly, we affirm the circuit court’s finding that Arkansas Code Annotated section 16-
66-106 does not apply to the facts of this case.
Rahman next argues that the circuit court erred in upholding the constitutionality of
the writ of execution. In support of his argument that notice is required to the judgment
debtor of the purchase and assignment of the judgment, he cites the due process clauses of
the Arkansas and United States Constitutions. Before the circuit court, Rahman challenged
the constitutionality of the writ of execution, arguing that it violated his due-process rights
because he did not receive notice of the assignment of the judgment. The circuit court found
that creditors are not required to notify a judgment debtor when a judgment is assigned and
that, consequently, Rahman received all notice to which he was entitled.
5
On appeal, Rahman reasserts his contention that his due-process rights were violated
and argues the lack of notice left him “confronted with an assignee of an assignee of the
judgment demanding full payment of the judgment, which it acquired for pennies on the
dollar, through writs of execution.” He contends that because BF was not the original
judgment holder, he was deprived “of a meaningful opportunity to protect his property
interests” and “should have been afforded the same opportunity to resolve” the judgment
interests with the original judgment holder.
In essence, Rahman acknowledges that he had the opportunity in the circuit court to
protect his property interests by virtue of his motion to quash the writ of execution, but he
argues that this opportunity was not meaningful and thus violated his due-process rights
because BF—not the original judgment holder—was seeking collection on the judgment.
However, Rahman does not present a compelling argument or applicable legal authority to
support his position. We have long held that we do not consider assertions of error that are
unsupported by convincing legal authority or argument unless it is apparent without further
research that the argument is well taken. See Pitchford v. City of Earl, 2019 Ark. App. 251, 576
S.W.3d 103; Hanks v. Sneed, 366 Ark. 371, 235 S.W.3d 883 (2006). Such is the case here.
Accordingly, we affirm the circuit court’s finding that Rahman received all the notice to
which he was entitled and that the writ of execution was not unconstitutional.
Rahman’s final appellate argument is that the circuit court erred in ruling that BF
was not required to be licensed pursuant to Arkansas Code Annotated sections 17-24-101 et
6
seq. Rahman argues that in order for BP to collect on an assigned judgment, BF had to be a
licensed debt-collection agency.
Arkansas Code Annotated section 17-24-101 provides:
As used in this chapter, unless the context otherwise requires, “collection agency”
means any person, partnership, corporation, association, limited liability corporation,
or firm which engages in the collection of delinquent accounts, bills, or other forms
of indebtedness owed or due or asserted to be owed or due to another or any person,
partnership, corporation, association, limited liability corporation, or firm using a
fictitious name or any name other than its own in the collection of their own accounts
receivable, or any person, partnership, corporation, association, limited liability
corporation, or firm which solicits claims for collection or any person, partnership,
corporation, association, limited liability corporation, or firm that purchases and
attempts to collect delinquent accounts or bills.
Our court reviews a circuit court’s statutory interpretation de novo and is not bound
by the circuit court’s determination. Brock v. Townsell, 2009 Ark. 224, 309 S.W.3d 179.
However, we will accept a circuit court’s interpretation of the law unless it is shown that the
court’s interpretation was in error. Cockrell v. Union Planters Bank, 359 Ark. 8, 194 S.W.3d
178 (2004). The basic rule of statutory construction is to give effect to the intent of the
legislature. Calaway v. Prac. Mgmt. Servs., Inc., 2010 Ark. 432. When the language of a statute
is plain and unambiguous, this court determines legislative intent from the ordinary meaning
of the language used. Id. In considering the meaning of a statute, we construe it just as it
reads, giving the words their ordinary and usually accepted meaning in common language.
Id. We construe the statute so that no word is left void, superfluous, or insignificant, and we
give meaning and effect to every word in the statute, if possible. Id.
7
If the language of a statute is clear and unambiguous and conveys a clear and definite
meaning, there is no need to look further and apply the rules of statutory construction. Brown
v. State, 375 Ark. 499, 292 S.W.3d 288 (2009). We will not read into a statute language that
was not included by the legislature. Ark. Dep’t of Corr. v. Shults, 2018 Ark. 94, 541 S.W.3d
410.
Rahman argues that the judgment upon which BF was attempting to collect was
“another form of indebtedness” because it was an assigned judgment, and BF was not the
original judgment holder. The statute contains four separate and distinct definitions of what
constitutes a collection agency under the statute. Rahman attempts to conflate two of the
definitions; namely, he argues that BF “engages in the collection of accounts, bills, or other
forms of indebtedness . . .” and “purchases and attempts to collect delinquent accounts or
bills.”
The statute, however, provides that in order for a limited liability corporation that
engages in the collection of an “other form of indebtedness” to be a collection agency and
be required to be licensed, it must be collecting that indebtedness “owed or due or asserted
to be owed or due to another.” That is, the statute requires a limited liability corporation
such as BF to be licensed only if it is collecting “an other form of indebtedness” on behalf of
someone else.
BF argues it was not attempting to collect “an other form of indebtedness” on behalf
of someone else. We agree. It purchased the judgment, and it therefore was attempting to
collect the indebtedness on behalf of itself. Because it was collecting on the judgment in its
8
own name, for itself, and not on behalf of another, we hold that the circuit court’s finding
that BF was not required to be a licensed debt collector was not in error. As such, we affirm.
Affirmed.
GLADWIN and MURPHY, JJ., agree.
Watts, Donovan, Tilley & Carson, P.A., by: David M. Donovan, for appellant.
Baxter Law Firm, PLLC, by: James R. Baxter, for separate appellee BF Acquisitions,
LLC.
9 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484124/ | UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
NICHOLAS GAMBO,
Plaintiff,
v. Civil Action No. 22-1726 (RDM)
LYFT, INC., et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
Plaintiff Nicholas Gambo alleges that he rented a Lyft scooter using the Lyft application
on his cellphone and, while riding the scooter, the stem detached from the deck, causing Gambo
to fall and seriously injury himself. Dkt. 1-1 at 12–13. Gambo filed this action in the Superior
Court for the District of Columbia in May 2022 against Lyft, Inc., Lyft Bikes and Scooters, LLC,
Segway Inc., Segway Robotics Inc., Ninebot Inc., and Xiaomi USA LLC. Dkt. 1-1 at 7–8.
Shortly thereafter, Lyft, Inc. and Lyft Bikes and Scooters, LLC (collectively, “Lyft”) removed
the action to this Court, Dkt. 1 at 3, and Lyft then moved to compel arbitration and to dismiss
Plaintiff’s claims against it or to stay proceedings pending arbitration. Dkt. 17 at 1–2. Plaintiff
opposes that motion. Dkt. 25 at 1.
For the following reasons, the Court will GRANT Lyft’s motion, will COMPEL
arbitration, and will STAY Plaintiff’s claims against Lyft pending further order of the Court.
I. BACKGROUND
Lyft, Inc. “operates a mobile device-based software platform that allows users,” among
other things, “to rent electric scooters.” Dkt. 17-2 at 3 (McGowan Decl. ¶ 5). According to the
Declaration of Ryan McGowan, a staff engineer at Lyft, Nicholas Gambo first created a Lyft
account on January 15, 2018. Id. at 4–5 (McGowan Decl. ¶ 15). “Users who created a Lyft
account on or about January 15, 2018, like Plaintiff Nicholas Gambo, were presented with a
screen with a checkbox seeking assent to the statement ‘I understand and agree to Lyft’s Terms
of Service and Privacy Policy.” Id. at 5 (McGowan Decl. ¶ 16). The McGowan Declaration
include the following image, which “depicts what a user would likely have seen on her/his screen
when creating an account on or about January 15, 2018.” Id.
As the photograph shows, the words “Terms of Service and Privacy Policy” were written
in bright pink and included a hyperlink “to the September 30, 2016 Lyft Terms of Service
Agreement that was in effect at the time; users had the opportunity to scroll through and review
2
those Terms of Service.” Id. at 6 (McGowan Decl. ¶ 17). And, “[i]n order to click ‘Next’ and
proceed to use the Lyft App and the Lyft Platform, users were required to check the checkbox.”
Id. at 6 (McGowan Decl. ¶ 18). This type of electronic agreement is known as a “clickwrap”
agreement, Dkt. 17-1 at 7—that is, an agreement “in which an internet user accepts a website’s
terms of use by clicking an ‘I agree’ or ‘I accept’ button, with a link to the agreement readily
available,” Seldon v. Airbnb, Inc., 2016 WL 6476934, at *4 (D.D.C. Nov. 1, 2016), aff’d, 4 F.4th
148 (D.C. Cir. 2021). Here, the user was required to click on a box representing that he
understood and agreed to the Terms of Service, and those Terms of Service were accessible by
merely clicking on the highlighted link appearing in that same sentence. “Because all scooter
rentals must be made through the Lyft App, this registration process means that users could not
rent a Lyft scooter without first downloading the Lyft App and accepting the Terms of Service
Agreement.” Dkt. 17-2 at 6. (McGowan Decl. ¶ 19).
The very first page of the September 30, 2016 Lyft Terms of Service, in turn, stated that
“[t]hese terms of service constitute a legally binding agreement . . . between you and Lyft,
Inc. . . . governing your use of the Lyft application, website, and technology platform.” Dkt. 17-
3 at 2. Immediately below that clause, the Terms of Service advised users as follows:
THIS AGREEMENT CONTAINS PROVISIONS THAT GOVERN HOW
CLAIMS YOU AND LYFT HAVE AGAINST EACH OTHER CAN BE
BROUGHT (SEE SECTION 17 BELOW). THERE PROVISIONS WILL,
WITH LMITED EXCEPTION, REQUIRE YOU TO SUBMIT CLAIMS YOU
HAVE AGAINST LYFT TO BINDING AND FINAL ARBITRATION ON AN
INDIVIDUAL BASIS, NOT AS A PLAINTIFF OR CLASS MEMBER IN
ANY CLASS, GROUP OR REPRESENATIVE ACTION OR
PROCEEEDING, AS A DRIVER, OU HAVE AN OPPORTUNITY TO OPT
OUT OF ARBITRATION WITH RESPECT TO CERTAIN CLAIMS AS
PROVIDED IN SECTIN 17.
3
Id. The phrase “SEE SECTION 17 BELOW” appears in bright pink and is hyperlinked to the
section of the Terms of Service containing the arbitration provisions. Dkt. 17-1 at 9; Dkt. 17-3 at
2, 13–14.
Section 17, which is captioned “Dispute Resolution and Arbitration Agreement,” explains
that the user “AND LYFT MUTUALLY AGREE TO WAIVE [THEIR] RESPECTIVE
RIGHTS TO RESOLUTION OF DISPUTES IN A COURT OF LAW BY A JUDGE OR JURY
AND AGREE TO RESOLVE ANY DISPUTE BY ARBITRATION” and that “[e]xcept as
expressly provided . . . ALL DISPUTES AND CLAIMS BETWEEN” the parties “SHALL BE
EXCLUSIVELY RESOLVED BY BINDING ARBITRATION.” Id. at 13-14. Among an array
of other types of claims, this includes claims relating to “the Lyft Platform, the Services, any
other goods or services made available through the Lyft Platform” and all “federal and state
statutory and common law claims.” Id. at 14. The arbitration clause delegates authority to “the
arbitrator” to resolve “[a]ll disputes concerning the arbitrability of a Claim (including disputes
about the scope, applicability, enforceability, revocability or validity of the Arbitration
Agreement).” Id. at 14. Although the arbitration clause contains certain exceptions, id. at 17–
18, none applies here. Finally, the arbitration clause provides that “[t]his agreement to arbitrate
. . . is governed by the Federal Arbitration Act and survives after the Agreement terminates or
your relationship with Lyft ends.” Id. at 14.
According to the McGowan Declaration, “[a]fter accepting the September 30, 2016
version of the Terms of Service, Plaintiff Gambo used the Lyft Platform to rent scooters on 54
separate occasions.” Dkt. 17-2 at 6 (McGowan Decl. ¶ 20). Plaintiff alleges that on one of these
occasions, at approximately 4:14 a.m. on May 22, 2019, he “rented a Lyft Scooter [using] his
phone application and . . . was riding [it] on K Street, SW, at or near its intersection with 3rd
4
Street, SW, in Washington, D.C.” Dkt. 1-1 at 12 (Compl. ¶ 14). He maintains that “[s]uddenly
and without warning, and while [he was] exercising due care and caution for his safety, . . . the
stem of the [s]cooter instantaneously separated from the deck, causing [him] to fall forward,
resulting in his face and head striking the ground and causing significant injury to his person.”
Id. at 12–13 (Compl. ¶ 18).
On May 17, 2022, before filing this lawsuit, Plaintiff agreed to a revised version of Lyft’s
Terms of Service, dated April 1, 2021. Dkt. 17-2 at 8 (McGowan Decl. ¶ 26). Like the 2016
Terms of Service, the 2021 version notifies users that the “Terms of Service constitute a legally
binding agreement” between the user and Lyft. Id. at 7 (McGowan Decl. ¶ 23). And, like the
2016 Terms of Service, the 2021 Terms of Service includes language on the first page of the
agreement highlighting the arbitration clause, id.; see also Dkt. 17-4 at 2 (April 1, 2021 Terms of
Service), and, then, later in the agreement, includes a detailed arbitration clause, Dkt. 17-4 at 17-
24. Unlike the 2016 Terms of Service, however, the 2021 Terms of Service is offered as a
“scrollwrap” agreement, see Dkt. 17-1 at 10—that is, an agreement that “is like a ‘clickwrap,’
but [where] the user is presented with the entire agreement,” which the user can scroll through,
and an “I Agree” button to click on to indicate the user’s assent, Selden, 2106 WL 6476934, at
*4. The following image depicts the screen as it would initially appear, including the reference
and hyperlink to the arbitration clause, as it appears on the first page:
5
Dkt. 17-2 at 7 (McGowan Decl. ¶ 23).
In May 2022, Plaintiff initiated this action in the Superior Court of the District of
Columbia against Lyft, Inc. and Lyft Bikes and Scooters, LLC, as well as Segway, Inc., Segway
Robotics, Inc., Ninebot, Inc. and Xiaomi USA, LLC.1 Dkt. 1 at 3; Dkt. 1-1 at 7-8. Plaintiff
asserts the following claims for negligence, id. at 13–39 (Compl. ¶¶ 22–105); product liability,
defects in design and manufacture, id. at 39–54 (Compl. ¶¶ 107–204); strict liability negligent
design and manufacture, id. at 54–71 (Compl. ¶¶ 205–295); and breach of implied warranty, id.
at 71–84 (Compl. ¶¶ 296–365). According to the Complaint, at all relevant time, Defendants
1
The parties have stipulated to the dismissal of Defendant Xiaomi USA, LLC from this case
without prejudice. See Dkt. 15; Min. Order (07/07/2022).
6
“owed a continuing duty of care to Plaintiff Gambo, to inspect, maintain, repair, monitor,
service, design, and/or manufacture its scooters, including” by ensuing that such scooters “were
in a reasonably safe condition for use by members of the public, with due care and regard for
dangerous conditions that pose a risk of harm to persons lawfully riding” them. Id. at 12
(Compl. ¶ 15). Invoking the Court’s diversity jurisdiction, the Lyft Defendants removed the case
to this Court pursuant to 28 U.S.C. §§ 1332, 1441, and 1446. Dkt. 1 at 3–6.
Lyft now moves to compel arbitration and to dismiss all claims against it or, in the
alternative, to stay the action as against it pending the conclusion of arbitration. Dkt. 17 at 1–5.
Lyft argues that before riding the scooter, Plaintiff created a user profile and electronically
consented to the 2016 Terms of Service, and before filing this lawsuit, consented to the 2021
Terms of Service, both of which require the parties to resolve their disputes through binding
arbitration. Dkt. 17-1 at 6. In response, Plaintiff argues that “it cannot be said that [his]
acceptance of the September 30, 2016, Lyft Terms of Service put him on reasonable notice that
he was agreeing to forego his judicial rights in exchange for forced arbitration,” Dkt. 25 at 4, and
that the 2021 Terms of Service do not apply retroactively, id. at 6.2
II. LEGAL STANDARD
The Court must evaluate Lyft’s motion to compel arbitration “as if it were a request for
summary disposition of the issue of whether or not there had been a meeting of the minds on the
agreement to arbitrate.” Aliron Int’l, Inc. v. Cherokee Nation Indus., Inc., 531 F.3d 863, 865
(D.C. Cir. 2008) (cleaned up). “Although a motion to compel arbitration is similar to a motion
for summary judgment in framing the burden of proof, the two motions are of course not
2
After Lyft Defendants filed its motion, all parties requested that the Court stay the Rule 26(f)
deadlines pending its decision, and the Court granted that request. Dkt. 18 at 1; Min. Order
(07/18/2022). An order addressing next steps will issue separately.
7
identical.” Jin v. Parsons Corp., 966 F.3d 821, 827 (D.C. Cir. 2020). Most notably, the Court
“cannot postpone deciding the question of arbitrability vel non and allow the case to proceed on
the merits,” but rather must consider arbitrability at the outset of litigation. Id.
“Because the party seeking to enforce an arbitration agreement bears the burden of
proving that the other party agreed to arbitrate, the party seeking to compel arbitration must first
present evidence sufficient to demonstrate an enforceable agreement to arbitrate.” Osvatics v.
Lyft, Inc., 535 F. Supp. 3d 1, 9 (D.D.C. 2021) (internal citations and quotation marks omitted).
“The burden then shifts to the non-moving party to raise a genuine issue of material fact as to the
making of the agreement, using evidence comparable to that identified in Rule 56.” Id. (internal
citations and quotation marks omitted). “The court must grant summary judgment with respect
to the formation of an arbitration agreement if the pleadings and evidence show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as a matter
of law.” Id. (internal citations and quotation marks omitted). But if the Court concludes that a
“genuine dispute of material fact exists as to the making of the arbitration agreement, including
whether the parties assented to the agreement,” the case must “proceed summarily to trial solely
on the issue of arbitrability.” Jin, 966 F.3d at 827 (internal quotations omitted).
III. ANALYSIS
The present dispute between the parties is narrow one. Plaintiff does not dispute that he
clicked on the button stating “I understand and agree to Lyft’s Terms of Service and Privacy
Policy”; that the 2016 Terms of Service include an arbitration clause and that his claims fall
within the scope of that clause; and that the 2016 Terms of Service were in effect at the time he
suffered his injuries and that the agreement, if any, survived the termination of his relationship
with Lyft. Plaintiff, instead, seeks to avoid arbitration on two grounds. First, although he
8
concedes that the 2016 Terms of Service are otherwise “enforceable,” he maintains that this
agreement did “not form an enforceable agreement to arbitrate.” Dkt. 25 at 3 (upper case
changed to lower case). Second, he maintains that the 2021 Terms of Service do not apply
retroactively to his claims, which accrued almost a year before the updated Terms of Service
took effect. Id. at 6. The Court need resolve only the first issue, which is dispositive of the
parties’ obligation to arbitrate: Plaintiff “agreed to arbitrate his claims against [Lyft] because he
had reasonable notice of the [2016] Terms of Service and the arbitration clause therein” and
accepted that condition, Selden, 4 F.4th at 155, and nothing occurring after Plaintiff and Lyft
agreed to arbitrate claims rescinded that agreement.
A. The Federal Arbitration Act
“Section 2 of the Federal Arbitration Act (FAA) makes agreements to arbitrate ‘valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract.’” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 336 (2011)
(quoting 9 U.S.C. § 2). The FAA “reflec[s] both a liberal federal policy favoring arbitration, and
the fundamental principle that arbitration is a matter of contract,” and so “courts must place
arbitration agreements on equal footing with other contracts, and enforce them according to their
terms.” Id. at 339 (internal citations and quotation marks omitted).
Plaintiff does not dispute that the FAA governs the arbitration agreement contained in
Lyft’s Terms of Service. See Dkt. 28 at 5 n.2; see also Dkt. 17-4 at 17 (“This Agreement to
arbitrate . . . is governed by the Federal Arbitration Act”). The FAA applies to “written
provision[s] in any . . . contract evidencing a transaction involving commerce,” 9 U.S.C. § 2,
which includes “commerce . . . in the District of Columbia . . . or between the District of
Columbia and any State or Territory or foreign nation,” id. § 1. Plaintiff alleges that he rented
9
the Lyft scooter in the District of Columbia, Dkt. 1-1 at 11–12 (Compl. ¶¶ 10–11, 14), which is
sufficient to establish a transaction involving commerce under the FAA, see Ruiz v. Millennium
Square Residential Ass’n, 156 F. Supp. 3d 176, 180 (D.D.C. 2016). The Court must,
accordingly, “‘rigorously’ . . . ‘enforce [the] arbitration agreement[,]” if one exists, “according to
[its] terms.’” Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1621 (2018) (quoting Am. Exp. Co. v.
Italian Colors Rest., 570 U.S. 228, 233 (2013)).
B. Whether There Is an Enforceable Agreement to Arbitrate.
“Because arbitration is a contractual matter,” the Court must “first determine whether the
parties have agreed to arbitrate by looking to state contract law.” Selden, 4 F.4th at 156; see also
Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 530 (2019) (“[B]efore referring
a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists.”);
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (“When deciding whether the
parties agreed to arbitrate a certain matter . . . courts generally . . . should apply ordinary state-
law principles that govern the formation of contracts.”); Osvcatics, 535 F. Supp. 3d at 10
(similar); Schwab v. MissionSide, LLC, No. CV 20-2376, 2021 WL 5138445, at *4 (D.D.C. Nov.
4, 2021) (similar). Plaintiff maintains that the Court should look to the law of “the District of
Columbia” to determine “whether the parties entered into a valid and binding arbitration
agreement,” Dkt. 25 at 3, while the 2016 Terms of Service provide that the agreement “shall be
governed by the laws of the State of California[,] without regard to choice of law principles,”
Dkt. 17-3 at 20. The D.C. and California law requirements for formation of a binding contract,
however, do not differ in material respects.
In Selden v. Airbnb, the D.C. Circuit considered a case much like this one. There,
“[w]hen Gregory Selden signed up for Airbnb, he was presented with a sign-in wrap—a
10
webpage that informs the user he is agreeing to certain terms by signing up.” 4 F.4th at 152.
Unlike in this case, the “sign-up screen” did not require the user to click on a box indicating
agreement, but rather stated: “By signing up, I agree to Airbnb’s Terms of Service, Privacy
Policy, Guest Refund Policy, and Host Guarantee Terms.” Id. at 152–53. The references to each
of those documents appeared in red and included a hyperlink to the relevant document. Id. at
153. Airbnb’s Terms of Service, in turn, “included a clause requiring that all disputes be
resolved by arbitration.” Id. at 152.
“On appeal, Selden argue[d] that he did not agree to arbitrate because Airbnb’s sign-up
screen failed to put him on notice of the arbitration clause in its Terms of Service.” Id. at 152.
The D.C. Circuit rejected that argument. Id. at 155. Applying California contract law, the court
considered whether, even if Selden “lacked actual notice of the terms,” he could “be bound if he
manifested his consent and ‘a reasonably prudent user would have been on inquiry notice of the
terms.’” Id. at 156 (cleaned up) (quoting Meyer v. Uber Techs., Inc., 868 F.3d 66, 74-75 (2d Cir.
2017). The court explained that “[t]o determine whether a sign-up wrap provides reasonable
notice of the terms to which the user is agreeing,” courts should to “look to the layout and
language of the site’ to decide whether it would provide a ‘reasonably prudent smartphone user’
with ‘reasonable notice that a click’—i.e., signing up—‘will manifest assent to an agreement,’”
id. at 156 (quoting Meyer, 868 F.3d at 75, 77). In that case, the Court concluded that the sign-in
screen’s “simple design” with the “terms and policies appear[ing] in red text against a white
background” with hyperlinks “placed Seldon on reasonable notice that by signing up he agreed
to the Terms of Service.” Id. at 156. The court further explained, “[w]hether Selden read those
Terms [wa]s irrelevant because he was on inquiry notice.” Id. at 157.
11
In all respects, this case is on all fours with Selden. Here, as in Selden, the user was
presented with a sign-up page that provided “reasonable notice that a click [would] manifest
assent to an agreement.” Id. at 156. Here, as in Selden, that notice included a bold colored
hyperlink—in bright pink in this case—to the relevant terms and conditions. Id. Here, as in
Selden, “the sign-in appeared on a single screen for a [smartphone] user . . . and required no
scrolling to see the notice of the Terms of Service.” Id. at 156–57. And, here, as in Selden, “the
notice was ‘clearly legible, appropriately sized, and unobscured by other visual elements.” Id. at
157. Indeed, if anything, this case presents clearer evidence of the user’s assent than occurred in
Selden. Here, unlike in Selden, the user was required to click on a box next to the phrase “I
understand and agree to Lyft’s Terms of Service and Privacy Policy,” expressly and directly
manifest his agreement. Under these circumstances, “[a]ny reasonable smartphone user would
understand that” by clicking on that box and then clicking on “Next,” he was agreeing to those
terms. Id.
Nor does California law, which the D.C. Circuit applied in Selden, and D.C. law, which
Plaintiff argues applies here, differ in any material respect. As the D.C. Circuit explained in
Selden, the question “[w]hether mutual consent exists ‘is determined by objective rather than
subjective criteria, the test being what outward manifestations of consent would leave a
reasonable person to believe.’” Id. at 156 (quoting Monster Energy Co. v. Schechter, 249 Cal.
Rptr.3d 295, 301 (2019)). “Even if an offeree lacked actual notice of the terms,” moreover, “he
may be bound if he manifested his consent and ‘a reasonably prudent user would [have] be[en]
on inquiry notice of the terms.’” Id. at 156 (quoting Meyer v. Uber Techs., Inc., 868 F.3d 66, 74-
75 (2d Cir. 2017)). The same is true under D.C. law, which also requires mutual consent to
create an enforceable contract, Eastbanc, Inc. v. Georgetown Park Assocs. II, L.P., 940 A.2d
12
996, 1003–04 (D.C. 2008), and mandates that, “absent fraud or mistake, one who signs a contract
is bound by a contract which he has an opportunity to read whether he does so or not,” Forrest v.
Verizon Commc’ns, Inc., 805 A.2d 1007, 1010 (D.C. 2002) (internal citation and quotation marks
omitted); see also Proulx v. 1400 Pennsylvania Ave., SE, LLC, 199 A.3d 667, 672 (D.C. 2019).
In Forrest, the D.C. Court of Appeals considered the enforceability of a forum selection
clause in Verizon’s Internet Services Access Agreement. 805 A.2d at 1009-10. The court first
had to address “whether the existence of the clause was reasonably communicated to the
plaintiff.” Id. at 1010 (internal citation and quotation marks omitted). The Agreement was
presented “in a scroll box on [users’] computer monitors, where only a small portion of the
document [wa]s visible at any one time,” and where “[t]he contract [wa]s entered into by the
subscriber clicking an ‘Accept’ button.” Id. Users had to agree to the terms to subscribe. Id.
The court held that the “appellant was provided adequate notice of the forum selection clause,”
relying on the “general rule” that “one who signs a contract is bound by” it, regardless whether
he reads it. Id. (internal citation and quotation marks omitted). Like the plaintiffs in Seldon and
Forrest, Plaintiff is bound by an electronic agreement reasonably communicated to him,
regardless of whether he actually read it.
Numerous other judicial decisions have concluded that clickwrap and similar electronic
agreements are enforceable.3 Most notably, in another case involving Lyft, then-Judge Jackson
explained that “Lyft’s method of obtaining drivers’ assent to its Terms of Service—presenting
3
See, e.g., DeJohn v. The .TV Corp. Int’l, 245 F. Supp. 2d 913, 919 (N.D. Ill. 2003) (explaining
that “failure to read a contract is not a get out of jail free card,” and that the “same rule applies to
electronic contracts”); Koresko v. RealNetworks, Inc., 291 F. Supp. 2d 1157, 1162–63 (E.D. Cal.
2003) (“When Plaintiff clicked the click-box on the screen marked, ‘I agree’ on Defendant’s
website, he expressly agreed to litigate any claims . . . exclusively in the State of Washington.”);
i.Lan Sys., Inc. v. Netscout Serv. Level Corp., 183 F. Supp. 2d 328, 338 (D. Mass. 2002)
(enforcing a “clickwap license agreement”).
13
the terms of the agreement and requiring users to click ‘I agree’ before they can access the
service—constitutes a valid means of offer and acceptance.” Osvatics, 535 F. Supp. 3d at 11
(citations omitted). The Court accordingly rejects Gambo’s argument that the arbitration
provision is unenforceable because he was not on reasonable notice of it.
Because Plaintiff does not otherwise dispute that his claims are subject to arbitration, that
resolves the matter, and the Court need not reach Lyft’s arguments regarding its 2021 Terms of
Service.
C. Remedy
Finally, the Court must decide whether to dismiss Plaintiff’s claims against Lyft or
whether, instead, to stay proceedings with respect to those claims. “There is presently a circuit
split on the question whether, when a motion to compel arbitration is granted, the case should be
stayed pending the resolution of arbitration or rather dismissed in favor of arbitration.” Sakyi v.
Estée Lauder Companies, Inc., 308 F. Supp. 3d 366, 387 & n.9 (D.D.C. 2018); L. Firm of
LarJack, PLLC v. Citibank, N.A., No. CV 21-1592, 2021 WL 4192030, at *6 (D.D.C. Sept. 15,
2021). Section 3 of the FAA provides that courts “shall on application of one of the parties stay
the trial of the action until such arbitration has been had.” 9 U.S.C. § 3 (emphasis added). “The
circuits are split, however, on whether § 3 mandates a stay or if it permits a court to dismiss a
lawsuit when all of the claims before it are subject to an arbitration agreement.” L. Firm of
LarJack, PLLC, 2021 WL 4192030, at *6 (emphasis omitted).
Here, the Court concludes that there is no reason to dismiss Plaintiff’s claims at this time.
As the First Circuit has observed, the principal difference between staying a case pending
arbitration and dismissing the case is that “[a]n order compelling arbitration and staying the
action isn’t immediately appealable,” while “an order compelling arbitration and dismissing the
14
action is.” Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072, 1074 (1st Cir. 2014)
(internal citations omitted). In this case, however, that distinction does not make a difference.
Even if the Court were to dismiss Plaintiff’s claims against Lyft, that decision would not be
subject to immediate appeal because other claims remain pending against Segway, Inc., Segway
Robotics, Inc., and Ninebot, Inc. See Fed. R. Civ. P. 54(b) (“any order or other decision . . . that
adjudicates fewer than all the claims or rights and liabilities of fewer than all the parties does not
end the action as to any of the claims or parties”). Although courts may, at times, enter partial
final judgment pursuant to Rule 54(b), no one asked the Court to do so in this case, nor can the
Court discern a basis for doing so.
The Court will, accordingly, stay all claims against Lyft pending further order of the
Court.
CONCLUSION
For the foregoing reasons, Lyft, Inc. and Lyft Bikes and Scooters, LLC’s Motion to
Compel Arbitration and to Dismiss or Stay is GRANTED; the parties are hereby
COMPELLED to submit Plaintiff’s claims against Lyft, Inc. and Lyft Bikes and Scooters, LLC
to binding arbitration consistent with the FAA; and all of Plaintiff’s claims against Lyft, Inc. and
Lyft Bikes and Scooters LLC are hereby STAYED pending further order of the Court.
SO ORDERED.
/s/ Randolph D. Moss
RANDOLPH D. MOSS
United States District Judge
Date: November 15, 2022
15 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484125/ | Cite as 2022 Ark. App. 475
ARKANSAS COURT OF APPEALS
DIVISION III
No. CV-21-589
SHAFAWNDA SAENZ Opinion Delivered November 16, 2022
APPEAL FROM THE BENTON
COUNTY CIRCUIT COURT
APPELLANT [NO. 04DR-18-1821]
V. HONORABLE JOHN R. SCOTT,
JUDGE
KEIFER WAYNE GRAY
APPELLEE
DISMISSED IN PART; AFFIRMED IN
PART
WAYMOND M. BROWN, Judge
Appellant Shafawnda Saenz appeals from the order entered by the Benton County
Circuit Court dismissing without prejudice her motion to modify child support and
visitation for failure to perfect service upon appellee Keifer Gray within the statutory 120-
day period. She also appeals the circuit court’s award of attorney’s fees. We dismiss in part
and affirm in part.
Appellant filed a motion to modify child support and visitation on March 31, 2021.
Appellant attempted service on appellee by certified mail, and a green card dated April 22
reflects the initials “LG.” Appellant’s attorney filed an affidavit of service on April 28, stating
that appellee had received the motion and summons. Appellee filed a response to appellant’s
motion on May 20, denying the material allegations and raising several affirmative defenses
including insufficiency of process and insufficiency of service of process. Appellee asked that
the petition be dismissed and that he be granted attorney’s fees. A hearing on the motion
was set for August 25 in a notice filed on May 25. Appellee filed a notice of interrogatories
and requests for production of documents on May 26.
At the onset of the August 25 hearing, appellee’s attorney asked that the action be
dismissed for lack of service. He further alleged that the mail was delivered when appellee
was not present at the home. Appellant’s attorney responded by saying that all the rules of
service were complied with as appellee is married to Lindsey Gray and that the green card “is
clearly marked as being delivered to his agent.” The attorney asked the circuit court to grant
appellant additional time to serve appellee instead of dismissing the case. The circuit court
found that there was no evidence that appellee had appointed anyone as his agent and
dismissed appellant’s actions since the statutory time for service had passed.
Appellant filed a motion for reconsideration on August 26. Appellee filed a motion
and brief for attorney’s fees on August 26, contending that he was entitled to fees in the
amount of $2,151.75 because he “was the prevailing party herein and incurred reasonable
attorney fees” in the amount sought. Appellee attached an itemized bill to the motion for
fees. Appellant filed a response on August 27, arguing that appellee was not entitled to any
fees as no final order had yet been entered and that appellee had failed to cite statutory
authority entitling him to an award of fees. Appellant also maintained that the amount
sought was unreasonable. The circuit court entered two separate orders on August 31: one
dismissing appellant’s motion for failure to perfect service on appellee and one denying
2
appellant’s motion for reconsideration and granting appellee’s motion for attorney’s fees.
Appellant filed a notice of appeal on September 24.
As her first point, appellant argues that the circuit court erred in dismissing her
motion for modification of child support for lack of service. She contends that she
substantially complied with the rules regarding service and therefore, the circuit court erred
in dismissing her motion. Arkansas law is long settled that service of valid process is
necessary to give a court jurisdiction over a defendant.1 It is also mandatory under Arkansas
law that service of process be made within 120 days after the filing of the complaint unless
there is a motion to extend, and if service is not obtained within the 120-day period and no
such motion is made, dismissal is required on motion or on the court’s own initiative.2 A
plaintiff who has had her case dismissed without prejudice for the first time under Arkansas
Rule of Civil Procedure 4(i) may refile those claims, and, therefore, the order appealed from
is not a final, appealable order.3 Here, the record establishes that this is the first time
appellant’s motion was dismissed for failure to perfect service, and the order from which she
has appealed is not final. Without a final order on the merits, this court does not have
1
Hill v. Dennis, 2019 Ark. 338.
2
Id.
3
Id.
3
appellate jurisdiction.4 Because appellant has appealed from an order that is not final, the
appeal of this issue is dismissed.
Appellant also challenges the circuit court’s order granting appellee the full amount
he sought in attorney’s fees as excessive. She argues,
In this matter, Appellee asserted an insufficiency of process defense in a boilerplate
recital of affirmative defenses and essentially sat on his hands on that defense until
the hearing. [5]
The one hundred and twenty days prescribed by Ark. R. Civ. P. 4(i) for service in this
matter ran on July 29, 2021. Had Appellee filed a motion requesting dismissal
pursuant to Ark. R. Civ. P. 4(i) on July 30, 2021 or at any other time after July 29,
2021, the legal ramifications and arguments would have been the same. Notably,
rather than pursuing such a remedy upon its becoming ripe, Apellee [sic] continued
to participate in the case as though a hearing would be had. In fact, $1,470.00 of
Appellee’s attorney fees were accrued after July 29, 2021.
She contends that the circuit court gave no consideration of the appropriateness of the fees
sought and simply signed off on appellee’s proposed order. The courts recognize the
inherent power of a circuit court to award attorney’s fees in domestic-relations proceedings.6
Attorney’s fees in domestic-relations proceedings are not awarded as a matter of right but
rest with the circuit court’s discretion, which will not be disturbed unless that discretion is
abused.7 This court has stated that there is no fixed formula for determining what constitutes
4
Id.
5
Internal footnote omitted.
6
See Jablonski v. Jablonski, 71 Ark. App. 33, 25 S.W.3d 433 (2000).
7
Williford v. Williford, 280 Ark. 71, 655 S.W.2d 398 (1983).
4
a reasonable amount for attorneys’ fees.8 Factors to consider in a motion for attorney’s fees
include (1) the experience and ability of the attorney, (2) the time and labor required to
perform the legal service properly, (3) the amount involved in the case and the results
obtained, (4) the novelty and difficulty of the issues involved, (5) the fee customarily charged
in the locality for similar legal services, (6) whether the fee is fixed or contingent, (7) the time
limitations imposed upon the client or by the circumstances, and (8) the likelihood, if
apparent to the client, that the acceptance of the particular employment will preclude other
employment of the lawyer.9
Because of the circuit court’s intimate acquaintance with the record and the quality
of service rendered, we recognize the superior perspective of the circuit court in assessing the
applicable factors.10 Accordingly, the amount of the award will be reversed only if the
appellant can demonstrate that the circuit court abused its discretion. 11 Here, appellee
submitted an itemized statement to the circuit court when seeking the award of attorney’s
fees. Appellant contends that the amount granted was excessive, but she does little more to
develop her argument. Given the evidence before us, we cannot say that the circuit court
abused its discretion by awarding appellee $2,151.75 in attorney’s fees. Accordingly, we
affirm the circuit court on this issue.
8
See City of Little Rock v. Nelson ex rel. Nelson, 2020 Ark. 19, 592 S.W.3d 666.
9
Chrisco v. Sun Indus., Inc., 304 Ark. 227, 800 S.W.2d 717 (1990).
10
Phi Kappa Tau Housing Corp. v. Wengert, 350 Ark. 335, 86 S.W.3d 856 (2002).
11
Id.
5
Dismissed in part; affirmed in part.
KLAPPENBACH and GRUBER, JJ., agree.
Horton Law Firm, by: T.J. Fosko, for appellant.
Matthews, Campbell, Rhoads, McClure & Thompson, P.A., by: Sarah L. Waddoups, for
appellee.
6 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491934/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This case came before the Court upon the Objection to Exemptions filed by the chapter 7 trustee, Gregory K. Crews (“trustee”). The Court held a hearing on November 23, 1994, and upon the stipulation of facts submitted, enters these Findings of Fact and Conclusions of Law:
Findings of Fact
The parties have agreed upon the relevant facts 1:
1. The debtor, John George Juergens, filed a voluntary chapter 7 petition on May 20, 1994.
2. On the date of the filing of the petition, Debtor was the owner of a 1989 Mazda MX6 automobile, which was free and clear of any liens against the title.
3. The debtor claimed the first $1,000.00 of his equity in that motor vehicle as exempt on Schedule C, pursuant to Florida Statute Section 222.25(1).
4. The debtor had purchased the motor vehicle prior to October 1, 1993.
5. The debtor had incurred at least part of the unsecured debt that he listed on Schedule F prior to October 1, 1993.
6. As of the date of the filing of his petition, no lawsuits had been filed against the debtor, nor were there any outstanding judgments against the debtor.
7. As of the date of the filing of his petition, there were no outstanding writs of garnishment, attachment, levy or repossession against either the debtor or any of his assets.
8. The Trustee timely objected to the debtor’s claim of exemptions.
9.The sole issue to be decided by the court on the Trustee’s Objection is debtor’s entitlement to exempt the first $1,000.00 of equity in the motor vehicle, pursuant to Florida Statute Section 222.25(1).
Conclusions of Law
In 1993, the Florida Legislature enacted Session Law 93-256, which amends Florida’s exemption statutes. The act created Fla. Stat. 222.25 which provides in part:
The following property is exempt from attachment, garnishment or other legal process:
(1) A debtor’s interest, not to exceed $1,000.00 in value, in a single motor vehicle as defined in § 320.01;
Pursuant to section 7 of 93-256 the act took effect on October 1, 1993.
When statutory language is clear, the plain and obvious provisions of the statute must control, and there is no reason to resort to rales of statutory interpretation. Van Pelt v. Hilliard, 75 Fla. 792, 78 So. 693 (1918). Courts are without power to construe an unambiguous statute in a way that would extend, modify or limit its express terms. Holly v. Auld, 450 So.2d 217 (Fla.1984). Thus it is only when a statute is ambiguous that a Court must resort to rules of construction.
In construing an ambiguous statute, the Court must give effect to the legislative intent which led to enactment of the statute. Tyson v. Lanier, 156 So.2d 833 (Fla.1963); State v. Webb, 398 So.2d 820 (Fla.1981). The Court must avoid a construction which leads to unreasonable or absurd results or nullifies the purpose of the statute. Id. To determine the legislative intent, the Court must consider the act as a whole and “the evil to be corrected, the language of the act, including its title, the history of the enactment and the state of the law already in existence bearing on the subject.” Id. at 824.
The language of Fla.Stat. 222.25(1) is plain and unambiguous, creating an exemption on motor vehicle equity up to one thousand dollars ($1,000.00). Because the language of *277Fla.Stat. 222.25(1) is clear and unambiguous the inquiry would end here if it were not for the footnote to Fla.Stat. 222.25. The footnote states:
This act applies only to an attachment, a garnishment, or other legal process that arises as a result of a contract, a loan, a transaction, a purchase, a sale, a transfer, or a conversion occurring on or after October 1, 1993.
Thus the Court must determine how to interpret this additional provision and the affect this language has on the clear meaning of 222.25(1).
The trustee argues that the language of Section 6 of Session Law 93-256, expresses the legislature’s intent that the amendment apply only to debts incurred after October 1, 1993. The trustee’s position is that the phrase “occurring on or after October 1, 1993,” should be read to modify the words “a contract, a loan ...,” with the result that debtor may exempt up to one thousand dollars ($1,000.00) in motor vehicle equity only from debts incurred after October 1, 1993. Debtor argues that the phrase “occurring on or after October 1, 1993,” should be read to modify “attachments, garnishments or other legal process,” with the result that debtor may exempt up to one thousand dollars ($1,000.00) of equity in a motor vehicle only from those attachments, garnishments, or other legal process which occur after October 1,1993, but not from those which occur prior to October 1, 1993.
The best evidence of the legislative intent behind 93-256 is contained in the exemptions as they existed prior to the 1993 enactment and particularly the exemption for wages. This is so because the legislature’s statement as to the effect of section 6 contained in the 1993 Summary of General Legislation and the House Committee on Judiciary Final Bill Analysis and Economic Impact Statement conflict. Additionally, the title of the act does not refer to section 6. Whereas, the wage exemption for the “head of family” has been a continuous part of Florida law since 1875, serving the judicially recognized purposes of protecting citizens against financial reverses and preventing families from becoming public charges. Wolf v. Commander, 137 Fla. 313, 188 So. 83 (1939). The 1993 act placed certain limitations on the Fla.Stat. 222.11 wage exemption by limiting the previously unlimited exemption to the first $500.00 of a debtor’s disposable earnings. Like section 222.25, section 222.11 is subject to the language contained in Section 6.
Utilizing the trustee’s interpretation of section 6 to interpret the amended wage exemption, the Florida legislature must have intended to limit the availability of the exemption for wages of a head of family in Florida to only those garnishments related to debts incurred after October 1, 1993. Thus, the legislature must have intended to deny a wage exemption to debts incurred prior to October 1, 1993. Given the longstanding statutory history of the wage garnishment exemption and the legislature’s placing a specific dollar limit on the exemption, the Court cannot find that the legislature intended to eliminate the wage exemption as it relates to debts incurred prior to October 1,1993. It is more reasonable to believe that the legislature intended that the amended wage garnishment exemption apply only to garnishments which occur after October 1, 1993.
Similarly, if the Court adopts the trustee’s interpretation of section 6 uncertainty and unreasonable results occur because two sets of exemption laws would be in effect for an indeterminate amount of time. This occurs because the exemption for an automobile would only apply in those cases where the debtor has incurred an obligation on or after October 1, 1993, and in all other cases the debtor would not be eligible an exemption for equity in an automobile.
In addition, the construction urged by the trustee violates the rule of statutory construction that the Court must analyze the act as a whole and give effect to each and every word. The trustee’s interpretation effectively nullifies section 7 which makes the act effect on October 1, 1993, because the automobile exemption would not apply in many cases as the debt was incurred prior to October 1993. After considering the history of the wage exemption and the results which would occur if the trustee’s position were adopted, the Court finds that the legislature intended that the motor vehicle exemption apply only to attachments, garnishments, or other legal process which occur after October 1, 1993. In addition, the Court notes that exemption statutes must be liberally con*278strued in favor of the debtor, In re Dixson, 153 B.R. 594, 599 (Bankr.M.D.Fla.1993), citing Killian v. Lawson, 387 So.2d 960, 962 (Fla.1980), thus adding additional support to the Court’s construction of 222.25(1). Accordingly, the Court finds that the debtor is not barred from claiming the benefit of Fla. Stat. 222.25(1) merely because he incurred a portion of his unsecured debts before the effective date of the statute.
In debtor’s post-hearing papers, debtor’s attorney argues that the trustee will raise a constitutional objection to the debtor’s interpretation of section 222.25(1). The trustee failed to address this point in his brief. Accordingly, the Court does not address debt- or’s argument. The Court will enter a separate order consistent with these findings of fact and conclusions of law.
ORDER OVERRULING TRUSTEE’S OBJECTION TO EXEMPTIONS
Upon findings of fact and conclusions of law separately entered, it is
ORDERED
The trustee’s objection to exemptions is overruled and debtor is entitled to exempt one thousand dollars ($1,000.00) equity in an automobile.
. The stipulation of the parties is reproduced verbatim. Errors in sentence structure or style are as submitted by the parties and are not corrected by the Court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491936/ | MEMORANDUM
JOHN C. MINAHAN, Jr., Bankruptcy Judge.
Before the court is the Motion for Summary Judgment by Defendants Raymond Bantz, Clinton Bantz, John Blount, and Dennis Bantz (Fil. # 82), the Resistance by the Trustee (Fil. # 95), the Motion to Disqualify by the Trustee (Fil. # 107), the Objections to the Motion to Disqualify (Fils. # 109, # 111, and # 113), and the Exception by Defendant Roger McMann to Plaintiffs Brief (Fil. # 104). I conclude that Mr. Richard Koeh-ler, counsel for defendants, Raymond Bantz, Clinton Bantz, John Blount, and Dennis Bantz, should be disqualified from further participation in this case. I also conclude that the Motion for Summary Judgment should be denied.
FINDINGS OF FACT
On June 27, 1988, the assets of Howe Grain, Inc. were seized by the Nebraska Public Service Commission. Howe Grain, Inc. filed Chapter 11 Bankruptcy on October 19, 1988. Defendants were officers and/or directors of Howe Grain, Inc., debtor-in-possession. Mr. Richard Koehler represented the debtor corporation. On April 16, 1990, Howe Grain, Inc. was dissolved by the Secretary of State for the State of Nebraska for failure to pay its Corporate Occupation Tax. The bankruptcy case was converted to Chapter 7 and a trustee was appointed on October 15, 1991. The Chapter 7 trustee commenced this adversary proceeding on April 22, 1993, asserting that the defendants breached their fiduciary duties to the corporation, and seeking a judgment against the defendants jointly and severally in the amount of $1,250,000.00, plus interest. The trustee is represented by Mr. David Hahn for the limited purposes of this adversary proceeding. Mr. Hahn has also represented, and continues to represent creditors of the debtor corporation in actions pending in state court against the officers and directors of Howe Grain, Inc.
*518Defendants Raymond Bantz, Clinton Bantz, John Blount, and Dennis Bantz, represented by Mr. Richard Koehler, have filed a Motion for Summary Judgment, asserting that the action of the trustee is barred by the statute of limitations under either the Nebraska four year statute of limitations for negligence actions, § 25-207, or the Nebraska two year survival statute for actions in regard to dissolved corporations, § 21-20,-104.
On September 1, 1994, a Certificate of Revival was issued, indicating that Howe Grain, Inc. had been revived and was a corporation in good standing.
Subsequent to the Motion for Summary Judgment, the trustee filed a Motion to Disqualify seeking to disqualify Mr. Koehler from further representation in this case as a result of a conflict of interest. In response, the defendants assert that Mr. Hahn should also be disqualified.
LEGAL STANDARD FOR SUMMARY JUDGMENT
Summary judgment is properly granted when the court determines that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Federal Rule of Bankruptcy Procedure 7056(c). In making these determinations, the court must view the facts in the light most favorable to the nonmoving party and must give that party the benefit of all reasonable inferences from the facts. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-90, 106 S.Ct. 1348, 1356-57, 89 L.Ed.2d 538 (1986); Kegel v. Runnels, 793 F.2d 924, 926 (8th Cir.1986).
DISCUSSION
I conclude that Mr. Koehler has an impermissible conflict of interest and should be disqualified in this case. I also conclude that the Motion for Summary Judgment should be denied as a result of Mr. Koehler’s conflict of interest through previous representation of the debtor-in-possession.
Motion to Disqualify
Mr. Koehler previously represented the debtor-in-possession, Howe Grain, Inc., at the time the Chapter 11 bankruptcy was filed in October of 1988. As a result, Mr. Koehler became aware of potential claims of the corporation against the officers and directors but did not prosecute these claims. Mr. Koehler is now representing the officers and directors in defense of this action, in which the trustee is alleging that the officers and directors breached fiduciary duties owed to the corporation. I conclude that this situation creates an impermissible conflict of interest, and, consequently, Mr. Koehler should be disqualified. See Matter of Joy, 175 B.R. 303 (Bankr.D.Neb.1994).1 I conclude this is an obvious conflict of interest that cannot be waived, and that Mr. Koehler should never have undertaken to represent the defendants herein. Not only does this conflict impair the judicial process, it is a disservice to Mr. Koehler’s client in this case, who must now obtain new counsel. Because of this conflict, I conclude that Mr. Koehler should not be paid any compensation for legal services rendered and expenses incurred in connection with this adversary proceeding. Mr. Koehler shall be ordered to repay any compensation in regard to this adversary proceeding that has been previously received.
I conclude that Mr. Hahn should not be disqualified from representing the trustee for purposes of this adversary proceeding. Mr. Hahn is representing the trustee only in regard to this adversary proceeding. Although Mr. Hahn has previously represented, and continues to represent, unsecured creditors of the debtor, this dual representation does not present a conflict of interest. The trustee and the unsecured creditors have a community of interest in recovering funds for the benefit of creditors of the debtor. Furthermore, the fact that Mr. Hahn has been involved in litigation against the directors and officers involving the same operative facts and theories is cost-effective for the trustee and the bankruptcy estate.
*519Therefore, I conclude that Mr. Koehler should be disqualified from further representation in this adversary proceeding and the underlying bankruptcy case, but Mr. Hahn may continue to represent the trustee for purposes of this adversary proceeding.
Motion for Summary Judgment
The defendants assert two separate bases under Nebraska law for barring this action, § 21-20,104 and § 25-207. I conclude that § 21-20,104 is not applicable since the corporation has been revived. I also conclude that summary judgment should be denied under § 25-207 at this time, pending the opportunity for further discovery by the trustee.
Section 21-20,104.
The first argument of the defendants is that the action of the trustee is barred by Nebraska Revised Statutes § 21-20,104 since it was not commenced within two years of when the corporation was dissolved, which was in April of 1990. I conclude that this is not the case. Section 21-20,104 is a survival statute, not a statute of limitations, and it allows a dissolved corporation to sue or be sued within two years of dissolution. McCormack v. Citibank, 241 Neb. 436, 489 N.W.2d 293, 297 (1992) (citations omitted); Neb.Rev.Stat. § 21-20,104 (Reissue 1991). However, when a corporation is revived and its good corporate standing is reinstated, § 21-20,137 of the Nebraska Revised Statutes provides that all matters based on actions that took place during or before dissolution are vested in the corporation upon revival as if no dissolution had occurred. Id. 489 N.W.2d at 296-98; Neb.Rev.Stat. § 21-20, 137 (Reissue 1991).
In McCormack, a corporation was dissolved in April of 1987, and the complaint against the corporation was not filed until September of 1989, more than two years after dissolution. McCormack, 489 N.W.2d at 297. The corporation in McCormack was revived in October of 1989. Id. The Supreme Court of Nebraska held, based on § 21-20,104 and § 21-20,137, that the complaint against the corporation was not time barred since the corporation was revivedjand revested with its previous liabilities and rights. Id. 489 N.W.2d at 297-98. The same reasoning is applicable to the facts of this case, and the claim by the trustee should not be barred by § 21-20,104. Upon revival, Howe Grain, Inc. was revested with its rights against the former directors and officers of the corporation. Claims of the corporation against officers and directors constitute property of the bankruptcy estate and are vested in the Chapter 7 trustee.
Section 25-207
The second argument of defendants is that, even if § 21-20,104 does not apply to the facts of this case, the action of the trustee is barred by § 25-207, which is the Nebraska four year statute of limitations for general tort actions. Neb.Rev.Stat. § 25-207 (Reissue 1989). The parties agree that the actions of the directors and officers which form the basis of this litigation occurred prior to June of 1988, the time at which Howe Grain, Inc. ceased doing business. Furthermore, the defendants’ actions were discovered by Mr. Hahn in 1988 by depositions taken of the directors and officers, and such information was conveyed immediately by Mr. Hahn to Mr. Koehler as counsel for the debtor-in-possession. Thus, the acts complained of occurred and were discovered by Mr. Hahn and Mr. Koehler more than four years before this ease was commenced by the trustee in April of 1993. The trustee does not dispute the applicability of § 25-207. However, the trustee asserts that he was not appointed until October 15, 1991, and did not discover the actions of the directors or have authority to bring an action until that time. The trustee argues that, pursuant to § 108(a)(2) of the Bankruptcy Code, he should be allowed two years from his appointment, which would be October of 1993, in which to bring an action.
Section 108(a) of the Bankruptcy Code provides that where the applicable statute of limitations has not expired prior to the bankruptcy filing, the trustee can commence an action within the latter of “(1) the end of such period, including any suspension ... or ... (2) two years after the order for relief....” 11 U.S.C. § 108(a) (1994). If a statute of limitations expires before bankruptcy is filed, the trustee is not entitled to an extension of time under § 108(a). However, on the facts of this case, there is no contention that the statute of limitations ex*520pired prior to the commencement of the bankruptcy case, and the court has not been presented evidence to this effect.
The trastee argues that § 108(a)(2) should be given a broad interpretation in this case to allow the trustee two full years after appointment to bring this action. There is some decisional law in support of this position. See In re Bingham Systems, Inc., 139 B.R. 809 (Bankr.N.D.Miss.1991). The Bing-ham case held that where a case is converted to Chapter 7, so that a trustee is appointed some time after commencement, § 108(a)(2) should be given a liberal interpretation, and the trustee should be given two years from his or her appointment, rather than from the date the original case was commenced, in which to file suit. Id. at 811-14. On the facts of this case, this would give the trustee until October of 1993 to commence an action, well beyond the actual commencement date of April 1993. However, I respectfully disagree with the Bingham decision.
The reasoning of Bingham runs counter to the express language of § 108(a)(2). Section 108(a)(2) is not tied to the time a trustee is appointed; this section explicitly provides that the two year time period runs from the time of the order for relief. 11 U.S.C. § 108(a)(2) (1994). In a voluntary bankruptcy case, the filing of the bankruptcy petition constitutes the order for relief, and conversion does not alter this result. See 11 U.S.C. § 348(a) (1994). Congress understood how to draft a limitations period to commence upon appointment of a trustee, as is evident in § 546(a). 11 U.S.C. § 546(a) (1994) (both pre and post October 1994 amendments). Therefore, the fact that Congress did not draft § 108(a)(2) to commence upon the appointment of the trustee should be taken to be a deliberate action, and a contrary meaning should not be read into the language of § 108(a)(2).
Furthermore, the Bingham decision unjustifiably extends statutes of limitation, thereby defeating the purpose and policy behind such statutes. Statutes of limitation serve the important purpose of permitting prospective defendants to proceed in life without fear of indefinite litigation from past transactions. The time period set forth in statutes of limitation should not be automatically extended by judicial decree solely because a trustee is appointed. In bankruptcy cases, an automatic two year extension of time upon appointment of a trustee is unnecessary. Creditors of a Chapter 11 debtor-in-possession have adequate remedies available if the debtor-in-possession does not act to diligently pursue claims held by the estate— creditors may conduct Bankruptcy Rule 2004 exams, seek appointment of an examiner, and file motions to compel the debtor-in-possession to prosecute claims.
I also conclude that § 108(a)(2) should not be interpreted as provided in Bingham because § 108(a)(1) provides an extension of time in circumstances under which state law would suspend or toll the running of a statute of limitations. In light of § 108(a)(1) and Section 546(a), there is no reason to expand the two year limit imposed by Section 108(a)(2).
I conclude that the two year extension period provided in § 108(a)(2) commenced to run upon the filing of the original Chapter 11 bankruptcy petition in 1988. This extension expired in October of 1990, well before the action by the trustee was commenced. Consequently, the action by the trustee is not allowed under § 108(a)(2). However, the action of the trustee may be allowed under Section 108(a)(1) if suspension or tolling is warranted.
The limitations period of § 25-207 is four years. Generally, actions under § 25-207 accrue at the time the aggrieved party has a right to bring suit, regardless of lack of knowledge. Grand Island School District # 2 v. Celotex Corp., 203 Neb. 559, 279 N.W.2d 603, 606 (1979) (citations omitted); Omaha Paper Stock Co. v. Martin K. Eby Construction Co., 193 Neb. 848, 230 N.W.2d 87, 89 (1975). However, in limited circumstances, the statute of limitations does not begin to accrue until the aggrieved party has inquiry notice of the claim. Examples of these types of actions include claims for fraud or malpractice. Omaha Paper Stock Co., 230 N.W.2d at 850. Furthermore, in some situations, courts may apply equitable principles to toll the running of a statute of limitations. See 54 C.J.S. Limitation of Actions § 86 et seq. (1987). In Nebraska case law it has been stated in dicta that tolling *521principles will not be applied to suspend a state statute of limitations period unless such principles are expressly provided in the statute itself. Farr v. Designer Phosphate and Premix International, 804 F.Supp. 1190, 1199 (D.Neb.1992). However, I conclude that Nebraska courts may allow equitable tolling in the situation where a corporate debtor-in-possession is under the exclusive control of the parties accused of wrongdoing. Further discovery is needed in this case to determine, among other things, if such a situation existed in this case, or if there is a viable claim giving rise to an applicable suspension. Given Mr. Koehler’s conflict of interest, I conclude time for additional discovery shall be permitted.
This court has also considered whether the running of the statute of limitations in this case is tolled by the filing of an action to pierce the corporate veil in the District Court of Nemaha County, Nebraska by a creditor of the debtor, Ms. Joyce Oetjen, against the officers and directors of Howe Grain, Inc. I conclude that the state court action did not toll the running of the statute of limitations for purposes of this case. Although both claims involve the same operative facts, the claims involve different plaintiffs and different theories of relief. The action by Joyce Oetjen is an action to pierce the corporate veil on behalf of a creditor against the officers and directors of Howe Grain, Inc. In contrast, the present case involves a claim by the corporation against the officers and directors for breach of fiduciary duty. Different duties are involved, and liability is sought on behalf of different parties. Therefore, I conclude that the filing of the state court action by a creditor of the corporation did not stay the running of the statute of limitations in this case. See Sluka v. Herman, 229 Neb. 200, 425 N.W.2d 891 (1988).
In oral arguments it was suggested that this action may be an action on behalf of creditors as the result of an alleged assignment of creditors to the trustee. This assertion requires separating the analysis in regard to two separate claims by the trustee, one on behalf of the corporation against the officers and directors for breach of fiduciary duties, and another on behalf of creditors to pierce the corporate veil. It has been held by the Eighth Circuit Court of Appeals, that the Bankruptcy Code does not provide authority to the trustee to maintain an action on behalf of creditors to pierce the corporate veil. In re Ozark Restaurant Equipment Co., 816 F.2d 1222, 1230-31 (8th Cir.1987). Thus, to the extent such relief is sought by the trustee, I conclude that the complaint fails to state a claim for which relief can be granted. In regard to the alleged actual assignment of claims by creditors against the corporate officers and directors, I conclude that although the assignment may give the trustee authority to prosecute such claims, prosecution in federal court is not appropriate, and I hereby abstain from such proceedings, as the claims are not asserted by or against the bankruptcy debtor. The claims of creditors do not involve interests of the debtor or the bankruptcy estate in general.
Finally, this court has received and reviewed the Exception to the trustee’s brief filed on behalf of Roger McMann, one of the other defendants in this adversary proceeding. It appears that Mr. McMann may have a meritorious claim for dismissal or summary judgment. However, Mr. McMann has not filed appropriate motions with the court, and such matters are not before the court at this time. Therefore to the extent that the Exception requests relief, it is denied. Notwithstanding this ruling, Mr. McMann is free to file an appropriate motion with the court upon the expiration of 90 days, as further set forth below.
In summary, I conclude that Mr. Koehler should be disqualified, as a result of Mr. Koehler’s previous representation of the debtor-in-possession. I further conclude that it would be inappropriate to grant summary judgment at this time. Mr. Koehler’s representation of the debtor-in-possession may have impaired prosecution of this case by the Chapter 7 trustee, may have provided defendants with an unfair advantage, and may have hindered discovery of facts by the trustee upon which suspension or tolling of the statute of limitations could be warranted. This is admittedly conjectural, but further discovery should be permitted by the trustee to safeguard the integrity of the legal process.
IT IS THEREFORE ORDERED, that the Motion to Disqualify (Fil. # 107) is grant*522ed. Mr. Richard Koehler is hereby disqualified from further representation in this adversary proceeding or the underlying bankruptcy case.
IT IS FURTHER ORDERED, that Mr. Koehler shall not receive any compensation for his services in regard to this adversary proceeding, and shall repay any compensation previously received in regard to this adversary proceeding. Within thirty (30) days hereof, Mr. Koehler shall file an affidavit showing that he has complied with this order.
IT IS FURTHER ORDERED, that the Motion for Summary Judgment (Fil. # 82) is denied.
IT IS FURTHER ORDERED, that the trustee’s claim against defendants pursuant to an actual written assignment of claims is dismissed without prejudice.
IT IS FURTHER ORDERED, that the trustee shall be given (90) ninety days from today to complete further discovery and file an amended complaint or pretrial statement. Upon the expiration of (90) ninety days, defendants are free to renew their motions for summary judgment with new counsel.
ATTACHMENT
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEBRASKA
IN THE MATTER OF: KIRBY AND RUTH JOY, Debtors. JOSEPH H. BADAMI, TRUSTEE, Plaintiff, vs. K.E. JOY, P.C., Defendant.
CASE NO. BK92-41752
CHAPTER 11
ADV. PROCEEDING NO. A93-4041
MEMORANDUM
In this fraudulent conveyance action brought by the Chapter 11 trustee, I hold that former counsel to the debtor-in-possession is ethically disqualified from representing the defendant.
Counsel for the defendant, Mr. John Guth-ery, has filed a motion seeking a determination of his ability to continue as counsel in this adversary proceeding. This is an action by the trustee to recover alleged fraudulent transfers from the debtors to K.E. Joy, P.C. (the “corporation”). The trustee objects to Mr. Guthery’s representation of the defendant on the theory that a conflict of interest exists between the interests of the defendant K.E. Joy, P.C. and the interests and duties of the debtors-in-possession, whom Mr. Guthery formerly represented in the underlying bankruptcy. The Model Code of Professional Responsibility governs the conduct of attorneys beforfe, the United States District Court for the District of Nebraska, and therefore also applies to members of the bar appearing before this bankruptcy court. See Neb. R.Bankr.P. 1001(C)(1); NELR 83.4, 83.5. I conclude that the continued representation of the defendant in this adversary by Mr. John Guthery is prohibited by Canons 4 and 9 of the Model Code of Professional Responsibility-
FACTS
Kirby and Ruth Joy filed a voluntary petition for relief under Chapter 12 of the Bankruptcy Code. The case was subsequently converted to Chapter 11 and thereafter a trustee was appointed for cause. Mr. John Guthery represented the debtors in their individual capacity at the time the case was commenced. Mr. Guthery also represented the debtors-in-possession before a trustee was appointed. Upon appointment of the trustee, the debtor was no longer entitled to possession of property of the estate, the “debtors-in-possession” became an nullity, and Mr. Guthery’s representation of the “debtors-in-possession” ceased. Currently, Mr. Guthery continues to represent the debtors, Kirby and Ruth Joy, in their individual capacity, and he represents the defendant K.E. Joy, P.C. in this adversary proceeding.
*523K.E. Joy, P.C. is a corporation primarily owned and operated by Kirby Joy, one of the debtors in the underlying bankruptcy. As a result of the investigation of the debtors conducted by the trustee, it was discovered that funds were transferred by the debtors to the corporation. The trustee is seeking to recover these transfers as fraudulent conveyances under § 548 of the Bankruptcy Code. The trustee asserts that there is an inherent conflict between Mr. Guthery’s representation of the defendant corporation in this fraudulent conveyance action and Mr. Guth-ery’s former representation of the debtors-in-possession.
DISCUSSION
When Mr. Guthery filed the underlying bankruptcy action on behalf of the debtors, the bankruptcy estate was created. Property of the bankruptcy estate includes all claims of the debtors against the corporation, K.E. Joy, P.C. Furthermore, a debtor-in-possession is under a fiduciary obligation to assert such claims on behalf of the estate. See In re Lee, 94 B.R. 172, 178-79 (Bankr.C.D.Cal.1988). Thus, when Mr. Guthery was acting as counsel for the debtors-in-possession his clients were under a fiduciary duty to investigate the claim against the corporation regarding the transfer of funds, and to prosecute such claim on behalf of the estate if it was discovered to be of merit. This interest and duty to prosecute claims against K.E. Joy P.C. on behalf of the estate is adverse to the interest of K.E. Joy P.C. in retaining funds transferred to it by the debtors. As a result of this conflict of interest, Mr. Guthery would certainly have been disqualified from concurrently representing the debtors-in-possession and the corporation. C.f. In re Lee, 94 B.R. at 180 (stating that the same counsel may not represent two bankruptcy estates where there exists pre-petition transfers of assets from one debtor to the other in a transaction that is not at arms length); Model Code Of Professional Responsibility DR 5-105 (1993). I conclude that Mr. Guthery is also prohibited from representing the debtors-in-possession and the defendant K.E. Joy P.C. successively. Model Code Of Professional Responsibility Canons 4 and 9 (1993).
Canon 4 of the Model Code provides that “A lawyer should preserve the confidences and secrets of a client.” Model Code Of Professional Responsibility Canon 4 (1993). Cannon 9 provides that “A lawyer should avoid even the appearance of professional impropriety.” Model Code Of Professional Responsibility Canon 9 (1993). Once an attorney-client relationship is found, an irrefutable presumption that confidences were disclosed arises. In re Olson, 21 B.R. 123 (Bankr.D.Neb.1982). Furthermore, confidential disclosures, whether actual or presumed, require that an attorney be disqualified from representing an interest that is adverse in a related matter. See State v. Dean Foods Products Co., Inc., 605 F.2d 380, 385 (reversed on other grounds) citing American Can Company v. Citrus Feed Co., 436 F.2d 1125, 1128 (5th Cir.1971); In re Davenport Communications, 109 B.R. 362, 366 (Bankr.S.D.Ia.1990).
I conclude that the continued representation of the defendant corporation by Mr. Guthery raises a problem of client confidentiality and an appearance of impropriety on the facts of this case. It is not disputed that Mr. Guthery had an attorney-client relationship with the debtors as debtors-in-possession. It is also not disputed that Mr. Guth-ery has a present attorney-client relationship with the debtors as individuals and with K.E. Joy, P.C. It is also apparent that the interests of the debtors-in-possession with attendant duties owed to the estate, and the interests of the corporation are adverse and are sufficiently factually related to warrant disqualification. See In re Blinder, Robinson & Co., 123 B.R. 900 (Bankr.D.Colo.1991). The debtors-in-possession were under a fiduciary duty to pursue actions on behalf of the estate for the benefit of creditors of the estate, while the corporation in this case seeks to prevent certain assets from becoming part of the bankruptcy estate, and therefore seeks to prevent these assets from being paid out to creditors of the estate. Mr. Guthery is in a position to take advantage of information previously revealed to him by the debtors as debtors-in-possession in an effort to frustrate *524and hinder the duties of the trustee and former debtors-in-possession to administer the bankruptcy estate for the benefit of all creditors therein. As a result, I conclude that Mr. Guthery is prohibited from continuing as counsel for the defendant K.E. Joy P.C. in this adversary matter.
IT IS THEREFORE ORDERED, that Mr. John Guthery and his law firm are hereby prohibited from acting as counsel for the defendant K.E. Joy, P.C. in this adversary matter.
DATED this 24th day of May, 1994.
BY THE COURT:
/s/John C. Minahan, Jr.
John C. Minahan, Jr.
United States Bankruptcy Judge
Copy to: John Guthery
Victor E. Covalt
U.S. Trustee
. Attached hereto. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491937/ | MEMORANDUM OF DECISION
ALFRED C. HAGAN, Bankruptcy Judge.
By motion, the United States Trustee seeks an order of disgorgement of attorney’s fees from Attorney Steven A. Adamson in the amount of $4,000.00.
FACTS
This case was filed by the debtors, D. Earl Campbell and J. Mae Campbell under chapter 11, on November 5, 1992. The petition and schedules filed by the debtors included a statement of attorney compensation to the effect Mr. Adamson would be paid the sum of $100.00 per hour “as needed from the debtors’ earnings.” The statement of financial affairs indicated no payments had been made to Mr. Adamson except for the payment of the filing fee.
On November 18, 1992, Mr. Adamson filed an application for appointment as a professional person. Accompanying the application was a verified statement of Mr. Adamson indicating he has a disinterested person and had no connections with the debtors, with their creditors or with any other parties in interest.
However, Mr. Adamson represented the debtors in a previous chapter 13 bankruptcy proceeding which the debtors filed on August 14, 1992. The debtors’ chapter 13 proceeding was dismissed on October 27, 1992. Mr. Adamson also represents the International Mustard Company (“IMC”), a corporation owned by Mr. Campbell in a Chapter 11 bankruptcy filed by IMC on August 17 of 1992. On January 28, 1994, the IMC proceeding was converted to chapter 7. IMC’s bankruptcy proceeding is still pending.
The United States Trustee objected to Mr. Adamson’s application on the grounds the debtors’ schedule listed International Mustard as a co-debtor and Mr. Adamson had been retained to represent that corporation. Due to the Trustee’s objection, no order was ever entered approving Mr. Adamson’s employment as a professional person in the debtors’ chapter 11.
The debtors’ proposed plan of reorganization, filed in the present proceeding, on September 28, 1993, indicated as part of its description of the costs and expenses of administering the estate, that Mr. Adamson had received distributions from Cole Farms, Inc., in the sum of $4,000.00 which had been applied to his claim against the debtors for attorney’s fees incurred in connection with the chapter 11 case. Based on the statement in the chapter 11 plan the Trustee filed the present motion for disgorgement of $4,000.00 in attorney fees.
Mr. Adamson has responded to the disgorgement motion in the form of a declaration which sets forth the factual contentions on which he claims the disgorgement order ought not to be granted.
His assertions arise out of the sale of 1990 Custom Weld 22’ boat and trailer which occurred during the debtor’s previous chapter 13 proceeding. In the chapter 13 proceeding, the debtors listed the boat and trailer with a value of $16,000.00 securing Key Bank’s claim of $21,212.97. In his declaration, Mr. Adamson testified the boat was registered to L’il Bit Land & Livestock, Inc., *560a corporation represented by the debtors to Mr. Adamson to be owned by the Campbells’ adult children. Mr. Adamson testified he listed the boat in the Chapter 13 schedules because the boat was subject to a security interest held by Key Bank of Idaho, securing a purchase money loan to J. Mae Campbell.
Key Bank filed a motion for relief from the section 362 automatic stay to foreclose its interest in the boat. In September of 1992, Mr. Adamson negotiated an arrangement with Key Bank and the debtors whereby the debtors would not contest the motion for relief from stay, and Mr. Adamson would purchase the Bank’s security interest for $17,000.00 after the Key Bank obtained relief from stay.
On August 28, 1992, Mr. Adamson filed a chapter 13 plan on behalf of the debtors which valued the boat at $16,750. The plan proposed that payment to secured creditor Key Bank would be made outside the plan as follows:
$16,750 shall be paid upon confirmation of the Plan. This shall be funded by a sale of the boat which sale shall be deemed approved upon confirmation.
Neither the plan nor the disclosure statement revealed that Mr. Adamson would be the purchaser of the boat and/or the security interest.
Mr. Adamson then contacted Mr. Kenneth Cole of Cole Farms Inc. and agreed to sell him the buy-out deal with Key Bank for $21,500.00. On September 10, 1992, Mr. Adamson paid Key Bank $17,000.00 for the security interest in the boat. Prior to paying the Bank Mr. Adamson received $12,870.00 from Cole Farms, Inc. Cole Farms Inc. paid Mr. Adamson the balance of the $21,500.00 a few months later.
On November 4, 1992, a few days after the Chapter 13 was dismissed, Key Bank assigned all of its right title and interest in the boat to Cole Farms, Inc. in consideration of the sum of $17,000.00. The order approving accounting, discharging Trustee and closing the Chapter 13 estate was entered on November 5, 1992.
Mr. Adamson testified he informed the debtors that he was going to make a profit on the boat transaction. He agreed to credit the $3,500.001 profit he would make on the deal to the legal fees owing to him for representation of IMC in its chapter 11 bankruptcy. Mr. Adamson testified that he credited the $3,500.00 to IMC’s account in his books.
The plan of reorganization filed in the present chapter 11 makes the following statements regarding the payment of Mr. Adam-son’s attorney fees and the boat transaction:
CLASS 1, Costs and expenses of administration. ... To date, the counsel for the debtor, Steven A Adamson, has received distributions from Cole Farms, Inc., in the sum of $4,000.00 which have been applied to the attorney fees incurred in connection with this case. Said counsel has received no post-petition payments for his services in connection with this proceeding. Cost of administration to be incurred are estimated to be in the sum of $10,000.00.
Cole Farms, Inc.’s claim is described as follows:
CLASS 7. Inconsequential or Burdensome Property: This class includes all property of the estate which is burdensome to the estate or of inconsequential value. This class includes the claims of Cole Farms, Inc., holder of a security interest in the Debtors Customweld boat, which was assigned from Key Bank of Idaho. The Debtors surrendered said boat to this claimant in satisfaction of the claim and the surrender is hereby approved and ratified. Should there remain any deficiency which would extend to the Debtor’s estate, the deficiency if uncontested by Debtors or allowed by the Court, sale: 1) be included in Class 8 and receive appropriate treatment thereunder, or 2) after notice and a hearing, be classified as some other class deemed appropriate by the Court.
*561Mr. Adamson prepared and signed the plan of reorganization. However, Mr. Adam-son denies that he received the $4,000.00 listed for attorney fees in connection with this bankruptcy proceeding. Instead, he contends the inclusion of his own claim in the plan in this proceeding is a mistake. Mr. Adamson testified he prepared the plan under extreme time constraints and that he used a draft plan of reorganization he was preparing for the IMC proceeding to create the Campbells’ chapter 11 plan. The reference to payment for fees was part of the IMC plan and should not have been included in the Campbell plan.
Because no plan of reorganization was ever filed in the IMC bankruptcy, it is difficult to determine if the IMC draft plan included a statement that Mr. Adamson had received either $3,500.00 or $4,000.00 from Cole Farms Inc. in payment for IMC’s attorney fees.
Other than his declaration, and his testimony before this Court Mr. Adamson has not provided evidence showing the $4,000.00 was credited to IMC’s account.
The Court takes judicial notice of the fact the IMC file does not contain any order authorizing interim compensation of Mr. Adamson. Nor has Mr. Adamson disclosed the receipt of payment in the IMC bankruptcy-
Discussion
Payments to a debtor’s attorney provide serious potential for evasion of creditor protection provisions of the bankruptcy laws, and serious potential for overreaching by the debtor’s attorney, and should be subject to careful scrutiny.
In re BOH! Ristorante, Inc., 99 B.R. 971, 972 (9th Cir. BAP 1989) (quoting S.Rep. No. 95-989, 95th Cong.2d Sess. 39 (1978), U.S.Code Cong.Admin.News 1978, pp. 5787, 5825).
Sections 327, 328, 329, 330 and 331 of the Bankruptcy Code, reflect Congress’ concern about legal representation of the debtor. Section 327(a)2 requires prior approval of the employment of an attorney representing the trustee or the debtor in possession. Section 327 does not merely limit an attorney’s right to receive fees, “an important purpose of an application for employment pursuant to § 327 is to make certain that the person sought to be employed does not hold an interest adverse to the estate.” In re BOH! Ristorante, Inc., 99 B.R. at 973.3
Accordingly, approval under section 327 is required even if payment of attorney’s fees is not sought as an administrative expense. BOH!, 99 B.R. at 972; In re Land, 116 B.R. 798, 805 (D.Colo.1990), aff'd 943 F.2d 1265 (10th Cir.1991). See Federal Rule of Bankruptcy Procedure 2014(a).
Here, due to his representation of co-debtor IMC, Mr. Adamson’s representation of the debtors has never been approved by this Court. Thus, Mr. Adamson’s representation of the debtors in this proceeding was a violation of section 327 regardless of whether he has applied for or received payment in connection with such representation. Because of this inherent conflict of interest, his representation of the debtors in their chapter 13 and present chapter 11 proceeding may jeopardize his right to receive payment in the IMC bankruptcy.
Sections 330 and 331 require court scrutiny of payments made to the debtor’s attorney during the pendency of the bankruptcy.
Section 3294, the section at issue here, requires court scrutiny of prepetition pay*562ments made to attorney in connection with the bankruptcy proceeding. Section 329(b) allows a court to examine prepetition payments for attorneys’ fees and authorizes the court to require disgorgement of excessive fees to whatever entity paid them.5 Section 329(a) aides the implementation of section 329(b) by requiring attorneys who have represented the debtor in connection with the bankruptcy proceeding to disclose to the Court any compensation they have received for such services.
Federal Rule of Bankruptcy Procedure 2016(b) requires the 329(b) disclosure to be made within 15 days of the order for relief. Rule 2016(b) requires a supplemental disclosure be made within 15 days of any payment not previously disclosed.
Failure to comply with the disclosure requirements of section 329(a) is sufficient grounds for requiring the disgorgement of attorney’s fees. In re Fricker, 131 B.R. 932, 939-42 (Bankr.E.D.Pa.1991); In re Crimson Investments, N.V., 109 B.R. 397, 402 (D.Ariz.1989); In re WPMK, Inc., 42 B.R. 157 (Bankr.D.Hawaii 1984).
The Trustee contends Mr. Adamson violated section 329(a) by failing to disclose that he had received $4,000.00 compensation in connection with the present case. The factual scenario presently before the Court illustrates the need for such review as Mr. Adamson’s explanation is even more disquieting than the Trustee’s contention.
Mr. Adamson contends he did not receive any compensation from the debtors in connection with the Campbells’ present bankruptcy proceeding but that he did apply $3,500.00 to IMC’s account for representation of IMC in connection with the IMC bankruptcy proceeding. If Mr. Adamson is telling the truth, he has received a postpetition payment in the IMC bankruptcy without pri- or court authorization under section 331.
It also appears that by taking a personal profit from the sale of an asset of the debt- or’s previous chapter 13 without informing the Court, the chapter 13 trustee or the creditors, Mr. Adamson may have taken property of the chapter 13 estate. Mr. Adamson’s agreement to credit the profit to IMC’s account did not result in the return of the profit for two reasons. First, the profit belonged to the debtor’s chapter 13 estate not to IMC’s chapter 11 estate. Giving the profit to IMC in no way excused taking the profit from the chapter 13 estate. Second, because IMC is in bankruptcy, Mr. Adamson would not necessarily receive full payment for his services rendered in connection with that case. Thus, even if Mr. Adamson had obtained the profit from IMC rather than from the Campbells, off setting the profit against his bill for attorney fees would not necessarily have the same result as if Mr. Adamson had returned the profit to IMC.6
*563If Mr. Adamson had included the statement which he now claims was a mistake in IMC’s plan of reorganization, he would have mislead the Court and the creditors as to the nature of the payment. The statement in the debtors’ chapter 11 plan says that Cole Farm’s Inc. paid the debtor’s attorney fees. However, according to Mr. Adamson’s declaration, although the funds used to pay the fees are traceable to Cole Farm’s Inc., Cole Farm’s Inc. did not pay IMC’s attorney fees. Rather, the fees were paid with profit Mr. Adamson obtained from his dealings with debtors’ chapter 13 estate. Thus, the fees were paid by the Chapter 13 estate not Cole Farms, Inc.
If the $4,000 was credited to IMC as stated by Mr. Adamson in his declaration, then Mr. Adamson violated section 329(a) by failing to disclose the $4,000 to the court in the IMC proceeding. Failure to disclose payment under section 329(a) is grounds for return of the fees pursuant to section 329(b)(2). Accordingly, if Mr. Adamson’s declaration is factual, he should return the $4,000.00 to the Campbells. The Campbells’ right to the funds is of course property of the estate.
On the other hand if the statement made in the debtors’ proposed plan is accurate, and Mr. Adamson received the fees in connection with the present proceeding, Mr. Adamson should be required to return the fees for failure to comply with the 329(a) disclosure requirements in the present proceeding. Because the money would have been part of the debtors’ estate if Mr. Adamson had not taken the funds, the fees must be returned to the estate pursuant to section 329(b)(2).
Therefore, as the fees must be returned to the estate under either scenario, the Trustee’s motion will be granted and Mr. Adamson will be required to disgorge attorney’s fees in the amount of $4,000.00 to the debtors’ estate.
A separate order will be entered.
. In a letter to the Trustee dated September 2, 1994 and admitted as Exhibit 3, Mr. Adamson told the Trustee that he had credited $4,000.00 to IMC's account. However, according to the figures given by Mr. Adamson in his declaration, the amount of the profit he received from the transaction was $4,500.00. ($21,500 minus $17,000 equals $4,500).
. 11 U.S.C. § 327(a) provides:
(a) Except as otherwise provided in this section, the trustee, with the court's approval, may employ one or more attorneys ... that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee's duties under this title.
11 U.S.C. § 327(a).
. Section 327 requires that attorneys employed to represent the estate must be disinterested is emphasized in section 328(c):
(c) [T]he court may deny allowance of compensation for services and reimbursement of expenses of a professional person employed under section 327 ... of this title if, at any time during such professional person’s employment under section 327 ... such professional person is not a disinterested person ...
. Code section 329 provides:
*562(a) Any attorney representing a debtor in a case under this title, or in connection with such a case, whether or not such attorney applies for compensation under this title, shall file with the court a statement of the compensation paid or agreed to be paid, if such payment or agreement was made after one year before the date of the filing of the petition, for services rendered or to be rendered in contemplation of or in connection with the case by such attorney, and the source of such compensation.
(b) If such compensation exceeds the reasonable value of any such services, the court may cancel any such agreement, or order the return of any such payment, to the extent excessive, to—
(1) the estate, if the property transferred— (A) would have been property of the estate; or
(B) was to be paid or on behalf of the debtor under a plan under chapter 11, 12, or 13 of this title; or
(2) the entity that made such payment.
11 U.S.C. § 329.
. "[F]ees paid to the debtor’s counsel may be reviewed [under section 329] regardless of their source.” In re BOH! Ristorante, Inc., 99 B.R. at 972; see also In re Furniture Corporation of America, 34 B.R. 46, 47 (Bankr.S.D.Fla.1983) (payments made by a third party are subject to review under section 329).
. This difference is illustrated in Mr. Adamson’s September 2, 1994 letter to the Trustee:
My agreement with Mr. Cole was that if International Mustard Company paid its attorney bill that it would be incurring in full, I would refund Mr. Cole a ’ portion of the purchase price and he would get a better deal on his purchase. If the bill was not paid, I would retain the entire profit and Cole Farms would be comfortable with the purchase price paid. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491938/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court for trial on the merits of the complaint brought by the Trustee for Angel Fire Ski Corporation (Angel Fire Ski), Angel Fire Corporation (Angel Fire) and Sangre de Cristo Limited Partnership IV (Sangre IV) and the First National Bank of Santa Fe (FNBSF) against Parker Town Square (Parker) and Alfred Staehely to determine the validity, priority and extent of liens on property owned by Angel Fire Ski and known for purposes of this litigation as the “ski mountain.” Having considered the evidence, the argument of counsel, the briefs, the proposed findings of fact and conclusions of law, and being otherwise fully informed and advised, the Court finds that the Plaintiffs should prevail on Count IX of their complaint, for specific performance.
FACTS
The controversy in this matter arises out of a series of loan transactions, beginning in March of 1987, between the Sangre de Cristo Limited Partnership I (Sangre I), Sangre IV, Angel Fire and Angel Fire Ski, on the one hand, and, on the other, First Federal Savings and Loan Association of Austin (First Federal), to which defendant Parker is the *573successor-in-interest.1 At the time the First Federal loan was first made, Barclays American/Business Credit, Inc. held a mortgage on the ski mountain (the “Barclays mortgage”) (Exhibit 31), which had been given by Angel Fire in 1985 as security for a promissory note in the amount of $16,500,000 (the “Bar-clays note”) (Exhibit 29). The Barclays mortgage was assigned to First Federal as part of the 1987 loan transaction with the Angel Fire entities and remains of record in Colfax County, New Mexico. The question before the Court is whether it was the intent of the parties to the March, 1987 loan transaction that First Federal release the Bar-clays mortgage on the ski mountain as part of that transaction, or whether the Barclays mortgage remains a valid lien securing a $9,675,000 note owed by Angel Fire and Sangre I to First Federal. If the Barclays mortgage is still valid, the lien position of Parker, First Federal’s successor, is superior to that of the FNBSF, which holds a mortgage given by Angel Fire later in 1987 to secure a note for $2,167,000.
Plaintiffs state claims for relief based on (I) reformation, (II) equitable subordination, (III) estoppel, (IV) the dragnet clause, (V) merger, (VI) satisfaction, (VII) equitable lien, (VIII) caneellation/reseission, (IX) specific performance and (X) marshalling. In its answer, Parker asserts a second lien position on the ski mountain, behind a 1981 mortgage guaranteed by the Farmer’s Home Administration but prior to FNBSF’s mortgage, and raises affirmative defenses based primarily on the D’Oench2 doctrine and the statute of limitations. Parker also has counterclaimed for attorneys fees.3 Parker filed a Motion for Summary Judgment on all counts. This Court granted Parker’s motion with respect to (IV) the dragnet clause and (VII) equitable lien, and denied summary judgment as to (VIII) cancellation/rescission and (IX) specific performance, finding that those claims are not barred by D’Oench. The Court did not rule on the remaining counts, due to the short amount of time between argument on the motion and trial.4
The First Federal loan.
Sangre I was formed in the early spring of 1987 by Ron Evans, Gary Plante, and Walter Fagan for the purpose of acquiring all of the stock of Angel Fire, which operates a ski area in northern New Mexico. Angel Fire in turn owns all of the stock of Angel Fire Ski. At or about the same time, a limited partnership, Sangre IV, was formed for the purpose of acquiring a hotel now known as the Legends Hotel (the “hotel”), which adjoins the ski mountain property owned by Angel Fire Ski and which was then being foreclosed upon by First Federal. The parties to the new loan transactions expected the transaction to close in March, 1987, when the foreclosure on the hotel would be complete except for the redemption period, that would run by mid-April.
The First Federal loan transaction was a complex matter involving four notes and a number of related documents. As provided *574in the hotel loan agreement (Exhibit 3),5 First Federal loaned $20,000,000 to Sangre IV (Exhibit SSS)6 to finance acquisition of the hotel, on which First Federal was foreclosing as a result of a previous loan transaction. Under the terms of a separate loan agreement (Exhibit 4),7 First Federal also loaned $6,000,000 to Sangre I (Exhibit WWW)8 to finance its acquisition of the stock of Angel Fire Corporation; $2,500,000 to Sangre 19 in the form of a letter of credit (Exhibit YYY)10 to the seller of the Angel Fire stock; and $9,675,000 to Angel Fire (Exhibit 14)11 in a transaction whereby First Federal paid the balance of the Barclays note, ($8,417,182 as of March 13, 1987), the balance of a note for some $1,000,000 to First Federal Savings and Loan of East Alton, Illinois, and certain closing costs. Under a Modification Agreement (Exhibit 8),12 the Barclays note (also referred to in the loan documents as the “Angel Fire Note”) was merged into the $9,675,000 note with First Federal. As part of the loan transaction, Barclays assigned the note and mortgage to First Federal (Exhibits 6,13 914, GGG15, KKK16).
Security documents executed as part of the loan closing were a Deed of Trust, recorded April 24,1987 (Exhibits 17 and P17), given by Angel Fire Ski for Sangre IV to secure the $20,000,000 hotel note. Additionally, to secure the three other notes, the loan agreement between First Federal, Sangre I and Angel Fire (Exhibit 4) provided for a pledge of Angel Fire stock by Sangre I (Exhibit UUU),18 deeds of trust on real property consisting primarily of lots securing the $6,000,-000 note (Exhibit XXX19) and the $2,500,000 note (Exhibit ZZZ20), the personal guarantees of Evans (Exhibit AAA)21 and Plante (Exhibit VW),22 and an amended security agreement (Ex. 10).23 Other relevant documents dated March 12, 1987 include Borrower’s Closing Statement between Sangre I and First Federal (Exhibit 7); Estoppel Certificate, signed by Angel Fire (Exhibit 5); Fi-*575naneing Statement, on ski area fixtures, contract rights and other items (undated but appears to have been prepared and signed in conjunction with the closing) (Exhibit 16); and Certificate, by Angel Fire and Starfire Resorts, Inc to First Federal, as to the accounts receivable held by those parties (Exhibit HHH).
There was testimony at trial that many of the documents were not ready or fully completed at the closing and that only the signature pages of some documents were signed at that time.
After the loan documents were executed on March 12, 1987, additional documents were prepared and executed. These include the Partial Release (releasing some collateral which had been included in the Barclays mortgage), dated March 16, 1987 (Exhibit 18); the Deed of Trust, from AFC for Sangre I to First Federal securing the $9,675,000 note, dated April 22, 1987 and recorded May 19, 1987 (Exhibit 15); the First Amendment to Amended and Restated Loan and Security Agreement, between First Federal and Angel Fire and Starfire, dated May 6, 1987 (Exhibit 11); the Second Amendment to that agreement, dated June 22, 1987 (Exhibit 12); the Third Collateral Substitution, including the Third Amendment to Amended and Restated Loan and Security Agreement, dated November 18, 1987 (Exhibit 13); and a Subordination Agreement, between First Federal and FNBSF, dated November 30, 1987 (Exhibit 20).
During this time First Federal also prepared and filed in its records the loan applications with committee approval, which approval was given finally on May 27, 1987 (Exhibits 51 and 52).
The FNBSF loan.
In November of 1987, after being turned down for additional financing by First Federal, Gary Plante approached Plaintiff FNBSF for financing. FNBSF had originated a loan made to Angel Fire in 1981, secured by a lien on the ski mountain and guaranteed by the Farmers Home Administration (FmHA). When the First Federal loan was made in March, 1987, the note secured by the FmHA mortgage (Exhibit 2) had a balance of about $900,000. It is undisputed that the “Farmer’s Home mortgage” (Exhibit 1) is a first lien on the ski mountain. FNBSF agreed to lend Angel Fire additional funds to be secured by what the bank understood to be a second mortgage on the ski mountain (Loan Agreement, Exhibit 65). When a title search done for FNBSF on October 27,1987 (Exhibit 60) disclosed the unreleased Barclays mortgage on the ski mountain, Bob Bidal, an employee of FNBSF, called Clark Enright at First Federal and was told that the Barclays note had been paid off. He then wrote a memorandum dated November 3, 1987 to Allen Hamilton, a senior loan officer at FNBSF, indicating that First Federal had “confirmed” that the debt of Angel Fire to Barclays had been paid (Exhibit 19). FNBSF requested that First Federal subordinate its lien24 on the ski mountain to the new loan that FNBSF was proposing to make, and on November 10, 1987 a Subordination Agreement (Exhibit 20) was executed by First Federal. There is correspondence in the files of First Federal with respect to such agreement (Exhibits 21, 67 and 68).
On November 30, 1987, Angel Fire executed a promissory note payable to FNBSF in the principal amount of $2,167,500 (Exhibit 23). Angel Fire Ski executed a Continuing Guaranty and Agreement (Exhibit 25) and a mortgage on the ski mountain in favor of FNBSF (Exhibit 24). This note was restructured in July of 1990 (Exhibits 27 and 28).
Sometime in 1993, in the course of preparing a foreclosure suit against the borrowers, counsel for Parker discovered that the Bar-clays mortgage, assigned by Barclays to Parker’s predecessor, First Federal, was still of record. Since that time Parker has asserted that it holds a second mortgage position on the ski mountain behind the 1981 Farmer’s Home mortgage held by FNBSF but prior to FNBSF’s mortgage of November, 1987.
*576DISCUSSION
Both the testimony and the exhibits cause the controversy before this Court. In numerous conversations with representatives of the borrowers and FNBSF, representatives of First Federal and its successors took the position that they held a third mortgage on the ski mountain subordinate to the Farmer’s Home mortgage (Exhibit 1) to FNBSF for the April 1981 note (Exhibit 2) and, additionally, subordinate to the November 1987 mortgage held by FNBSF (Exhibit 24). Gary Plante, Ron Evans and Clark Enright, who was a former officer of First Federal and the person primarily responsible for the origination of the loans from First Federal, all testified that it was the agreement of the parties that the Barclays mortgage on the ski mountain was to be released as part of the March, 1987 loan transaction. On the other hand, William Horabin, who was the Chairman of the Board of First Federal at the time that these loans were made, testified that First Federal never intended to release the Barclays mortgage on the ski mountain.
The documents too, reflect this confusion. Clearly, the assignment of the Barclays lien transferred Barclays’ position on the ski mountain to First Federal. Just as clearly, the Partial Release released a portion of the Barclays collateral but did not release the lien on the ski mountain. The Amended and Restated Loan Agreement states that First Federal is the successor-in-interest to Bar-clays under the Barclays mortgage (Exhibit 10, p. 1), and the Estoppel Certificate contains similar language (Exhibit 5, p. 1). On the other hand, the documents executed in connection with the hotel purchase clearly state that First Federal was to have a third mortgage on the ski mountain (behind the then existing mortgage held by International State Bank25 and the 1981 Farmer’s Home mortgage held by FNBSF) (Exhibit 3, p. 4 ¶ 4), that the third mortgage position was limited to $1,000,000, and that First Federal was agreeing to subordinate that third mortgage position to up to $3.5 million of prior debt (Exhibit 3, p. 12 par. 18). The Sangre TV Deed of Trust (Exhibit 17) is consistent with Exhibit 3. The Subordination Agreement (Exhibit 20) entered into with FNBSF subordinates First Federal’s $1,000,000 lien arising from the deed of trust securing the $20,000,000 hotel loan to FNBSF’s November, 1987 mortgage without any reference to continued existence of the Barclays mortgage. The correspondence from counsel with respect to the 1987 subordination agreement speaks only of the “lien” of First Federal being subordinated to the two liens of FNBSF (Exhibit 21). Notably, under the Sangre I Deed of Trust securing the $9,675,-000 loan used to pay off the Barclays note, the only security provided is certain unimproved lots, again with no mention of a lien on the ski mountain. An auditor’s verification letter signed on September 1, 1987 by Clark Enright of First Federal confirms that the security for the $9,675,000 note was “installment real estate contracts and notes receivable.” The loan applications, as approved in final form by First Federal on May, 1987 state that its lien was a third lien on the ski mountain (Exhibit 51) and that the Barclays lien was to be released (Exhibit 52). Reports written by First Federal and its successor, Guaranty, in connection with efforts to collect the Angel Fire loans state that the bank held a lien on accounts receivable and on three particular’ lots to secure the '$9,675,000 loan and make no mention whatsoever of a lien position on the “ski mountain” except with reference to the “third lien” taken to secure $1 million of the $20,000,000 hotel note (Exhibits 32, 33, 36, 39 and 41). The exhaustive memorandum dated September 8, 1992, prepared by Guaranty in contemplation of litigation refers only to a third lien position on the ski mountain, behind the Farmer’s Home mortgage and the FNBSF mortgage, in connection with the $20,000,000 note (Ex. 37, pp. 8-12).
Witnesses on both sides testified that it was the intent of the parties to the loan transaction to link the ski mountain and the hotel properties. There was one closing for all the loans. The notes and deeds of *577trust, including those in connection with the $20,000,000 hotel loan and $9,675,000 loan used to pay off the Barclays note, contain cross-collateral and cross-default provisions. There are numerous cross-references within the various loan documents. Accordingly, the Court finds that the parties intended these documents to be construed together. In order to ascertain the entire agreement between contracting parties, separate documents executed at the same time, for the same purpose, and in the course of the same transaction are to be construed together. Jim Walter Homes v. Schuenemann, 668 S.W.2d 324 (Tex.1984). When so construed in this case, ambiguities arise which the court may look to the documents, taken together, to resolve.
After careful consideration of the wording of the exhibits and the testimony offered in this trial, I find that the most logical explanation for the wording of the documents and the actions of the parties after the execution of the documents is that there was an agreement that First Federal would release the Barclays mortgage on the ski mountain in conjunction with the closing of the loans and that it failed to follow through on its agreement. The parties contemplated that there would be an advance on the original Barclays loan to pay the indebtedness to the First Federal Savings and Loan of Alton, Illinois, and that the “Bar-clays” lien on all collateral was to be assigned to First Federal. The only document which is inconsistent with this finding is the Partial Release (Exhibit 18), which was executed only by Mr. Horabin and not by any representative of the borrowers. There was no indication at trial that the Partial Release was ever forwarded to any of the borrowers.
It would appear that a lien on the ski mountain, behind indebtedness of less than $1 million, securing a $9,675,000 note would have been an important piece of collateral to First Federal if it intended to keep the lien as collateral. Yet the Barclays mortgage is not mentioned at all in any of the loan com-■mittee approvals. Indeed, Ken Clark, a loan ^officer who testified at trial that First Feder- ' al intended to keep the Barclays mortgage as collateral for the $9,675,000 note nevertheless had written to the Federal Home Loan Bank in July of 1988 as follows:
“The collateral for this loan is predominantly third party notes receivable from lot sales and some time share sales.” (Exhibit 52, letter 7/12/88).
That language is consistent with the language of the original loan application under “remarks” (Exhibit 52, loan application for $9,675,000 loan) approved by First Federal’s loan committees that:
Barclay’s had a blanket lien on all real estate and other assets of Angel Fire Corporation. This credit was to facilitate col-lateralization of the other FFS loans by release of Barclay’s lien and to allow Angel Fire Corporation to secure other loans for factoring notes that will pay this loan,
and which also describes the collateral as contracts and notes receivable and three lots, and the language of Exhibit 51, the approval of the hotel loan on the same date, showing as collateral for the hotel loan an “inferior lien on Mountain $1,000,000 subject to no more than $3,500,000 superior liens.”
If First Federal did intend to keep the Barclays mortgage as a lien on the ski mountain, it is difficult to fathom the absence in notes and deeds of any reference to the Barclays mortgage. In light of all the evidence, the fact that First .Federal took an assignment of the Barclays mortgage does not necessarily mean it thereby intended to retain the mortgage as security. Clark En-right testified at trial that the intent of the parties was to pay off Barclays and release its blanket lien so that collateral could be spread among the new loans, and that First Federal only intended to take a lien on the ski mountain in connection with the hotel loan. Indeed, if First Federal intended to retain the Barclays mortgage as security for its $9,675,000 note, it is not clear why it took an inferior lien of $1,000,000 on the ski mountain to secure the $20,000,000 hotel loan.
The D’Oench doctrine.
I have already ruled on summary judgment that there were sufficient documents in First .Federal’s files such that the D’Oench doctrine would not preclude the Trustee from prevailing in this action on an *578otherwise valid claim. The Court finds that the documents referred to above fairly can be said to show that First Federal was entitled only to an inferior lien on the “ski mountain” to secure no more than $1 million of the hotel loan, and that an agreement to subordinate that lien to up to $3.5 million dollars in additional debt26 was part of the original loan arrangement. It seems clear that not only did the borrowers operate on this basis, but that First Federal and its successors did likewise. Under these circumstances, the D’Oench doctrine is inapplicable. See RTC v. Ocotillo West Joint Venture, 840 F.Supp. 1463 (D.N.M.1993) (D’Oench doctrine did not estop lien claimant in declaratory judgment action from using loan documents to which it was not a party as evidence of claimed priority right).
The D’Oench doctrine is a form of estoppel developed under the federal common law. Its original purpose was to preclude parties who were in collusion with bank officers from attempting to hide from bank regulators their secret side agreements only to raise them later as a defense to collection when the government had taken over those institutions because of their insolvency. See D’Oench, Duhme, 315 U.S. at 457-60, 62 S.Ct. at 679-81.27 The focus of the doctrine has evolved away from the fraudulent or secret conduct by the borrower to the effect of those acts on the ability of regulators to accurately assess the assets of a failed financial institution. Langley v. FDIC, 484 U.S. 86, 91-92, 108 S.Ct. 396, 401-02, 98 L.Ed.2d 340 (1987). It is designed to prevent the face value of an institution’s assets from being devalued by secret agreements between the institution and the borrowers. Jobin v. RTC, 160 B.R. 161, 166 (Bankr.D.Colo.1993). The doctrine applies to any claim or defense which would tend to deceive banking authorities as to the value of assets acquired. Id. Typically, D’Oench applies when the regulator of a failed financial institution sues a borrower to collect on a promissory note found in the institution’s files and the borrower claims the obligation is unenforceable as written because of an additional agreement with the lender. See, e.g., Mainland Savings Association v. Riverfront Associates, Ltd., 872 F.2d 955 (10th Cir.1989) (defendants in action on promissory note precluded from asserting claim for set-off based on oral agreement with bank to fund additional loan); FDIC v. Rusconi, 808 F.Supp. 30 (D.Me.1992) (D’Oench estopped borrowers and guarantors on four promissory notes from claiming guaranty applied only to one note where documents unambiguous). The doctrine applies to the FSLIC. Mainland Savings, 872 F.2d at 956.
To raise an estoppel claim under D’Oench, the proponent bears the burden of showing that there was (1) a secret scheme or arrangement to which the borrowers lent themselves (2) that had the effect of deceiving banking regulators. Oklahoma Radio Assoc. v. FDIC, 987 F.2d 685, 690, 693 (10th Cir.1993).
After reviewing authorities cited by the parties, I have concluded that the elements of D’Oench are not met in this case. First, there is no evidence of a secret, side agreement between the Angel Fire entities and First Federal. See First City Financial Corp. v. FDIC, 61 B.R. 95 (Bkrtcy.D.N.M.1986). Although the Trustee does claim the existence of an agreement by First Federal to release the Barclays mortgage as part of the loan transaction, he relies on the documents themselves to substantiate his claim. See Ocotillo West, 840 F.Supp. at 1477. Furthermore, the Trustee is asking for a finding that First Federal failed to follow through on a part of the original loan transaction, which the trustee argues can be found in the bank’s documents. This is categorically different from asking for enforcement of a secret or unwritten side agreement that would modify an unqualified obligation clearly shown in the bank’s records. See Jobin 160 B.R. at 168 (trustee’s preferential transfer claims not based on secret arrangement or unwritten *579agreement); In re Nasr, 120 B.R. 855 (Bkrtcy.S.D.Tex.1990) (D’Oench not a bar to debtor’s defense of fraudulent inducement in bank’s suit on note where bank’s claim based on facts surrounding entire loan transaction).
Second, it is difficult to see how banking authorities would be misled under these facts because the documents in the bank file are dearly contradictory. This is not a ease in which the documents are susceptible. only to one plausible construction. Cf. FDIC v. Singh, 977 F.2d 18, 23 (1st Cir.1992) (nonrecourse provision of promissory note did not limit liability of partners under previously-executed unconditional guaranty, where guaranty was clear and amendment to note referred to guaranty). For the reasons stated previously, the hypothetical bank examiner reviewing the books and records of First Federal documenting the Angel Fire loan would have reason to question whether the Barclays mortgage was an asset of First Federal at all. The fact that the Barclays mortgage was assigned to First Federal does not create the kind of unambiguous obligation, such as appears on the face of a promissory note, which D’Oench seeks to protect by ensuring reliance on bank records. “[0]ne who signs a facially unqualified note subject to an unwritten and unrecorded condition upon its repayment has lent himself to a scheme or arrangement that is likely to mislead the banking authorities. ...” Langley, 484 U.S. at 93, 108 S.Ct. at 402, emphasis added.' The evil prevented under D’Oench is allowing a private party to rely upon unrecorded promises that purport to impose obligations other than those appearing in the bank’s records. FDIC v. McCullough, 911 F.2d 593, 600 (11th Cir., 1990). Here, such an obligation — namely, to give First Federal a lien on the ski mountain pursuant to the Barclays mortgage — is not clear from the bank records and, therefore, it is appropriate to look to the parties’ intent with respect to the mortgage without applying D’Oench. That it is not misleading to do so is borne out by the subsequent conduct and statements of representatives of First Federal itself and its successors to the effect that the only lien First Federal had on the ski mountain was the third mortgage for $1,000,000 securing the hotel note, which is precisely the conclusion the Trustee asks this Court to reach.
Third, given the expectation of the Angel Fire entities that the Barclays mortgage would be released as part of the loan transaction, they did not have reason to believe that by entering into the transaction they were lending themselves to a deceptive scheme. See Oklahoma Radio Associates, 987 F.2d at 694 (borrower not estopped from asserting claim that bank agreed to renew one-year loan for five years where no evidence borrower acted in bad faith). The testimony shows that many of the loan documents were not complete when the First Federal loan transaction was closed on March 12, 1987; in at least some instances only signature pages were available. Under these circumstances, it was reasonable for Evans and Plante to rely on their understanding of the transaction based on the loan applications, which do not show that First Federal was retaining the Barclays mortgage (Ex. 51, Ex. 52). See FDIC v. Meo, 505 F.2d 790 (9th Cir.1974) (borrower not estopped from avoiding liability on promissory note when bank had improperly executed stock purchase for which loan proceeds were intended). The Court finds that under these circumstances Evans and Plante were not negligent in signing incomplete closing documents. Cf. FDIC v. McClanahan, 795 F.2d 512 (5th Cir.1986) (maker of promissory note recklessly signed blank promissory note and delivered it to bank officer he knew had previously been convicted of bank fraud). But cf. McCullough, 911 F.2d at 601 (borrower who had executed mortgage and note without insisting on formal closing and had opportunity to examine documents at closing voluntarily associated himself with misleading scheme); FDIC v. Caporale, 931 F.2d 1 (1st Cir.1991) (borrowers who had signed notes in blank and bank filled in amounts without authorization estopped from denying liability on notes). Even assuming, arguen-do, however, that Evans and Plante were negligent, for the reasons stated above any such negligence did not have misleading consequences.
*580Therefore, the Court finds that, even under the expanded form of the doctrine, D’Oench does not preclude the Court from examining the facts and circumstances surrounding the execution of the documents to resolve the question of what was intended.28 For the same reasons, I find that 12 U.S.C. 1823(e), the statutory counterpart of D’Oench,29 is inapplicable to these facts. In any event, that provision did not apply to the FSLIC until 1989 and the Tenth Circuit recently held that its strict requirements are not to be applied retroactively. Oklahoma Radio Associates, 987 F.2d at 695-96.
Statute of limitations.
The next defense raised by Parker is that the statute of limitations bars any action by the Plaintiffs. Parker argues that the statute of limitations to be applied by the Court to this ease is the four-year statute with respect to oral contracts30 or, if the court finds that all of the terms of any agreement are in writing, then the six-year statute with respect to written contracts.31 It is difficult to determine in this case when the limitations period commenced to run. On the one hand, Parker argues that the limitations period commenced to run on March 16, 1987, when the loan closed, or at some time shortly thereafter. On the other hand, the trustee seems to be arguing that the statute began to run only in 1993, when Parker asserted that it held a second mortgage on the ski area to secure the $9,675,000 note.
The further argument seems to be that, even if the statute commenced to run at the time of the original closing of the loans in 1987, Parker should be estopped to raise the statute of limitations as a defense based on the conduct of Parker and its predecessors in letting everyone operate under the presumption that the lien had been released. It is uncontroverted that on more than one occasion after 1988, Parker or its predecessors represented that they held a third lien on the ski mountain behind the two mortgages held by FNBSF, both to officers of FNBSF and to principals of the debtors. It is also the position of FNBSF that it acted in reliance on these representations in making the loan in November 1987 and in restructuring that loan in July of 1990.
The statute of limitations for actions based on fraud or mistake begins to run at the time the aggrieved party discovers the fraud or mistake. N.M.S.A. § 37-1-7 (Repl. Pamp.1990). While the courts of New Mexico have read into this statute the requirement that the aggrieved party must exercise reasonable care and diligence in their own actions, Roscoe v. U.S. Life Title Ins. Co., 105 N.M. 589, 734 P.2d 1272 (1987) (statute of limitations barred action against title insurer for alleged negligence in failing to inform *581purchasers under real estate contract that mortgage assumed by purchasers contained a balloon payment), they also recognize that the actions of the other-party to an agreement can toll the running of the limitation period. See Bassett v. Bassett, 110 N.M. 559, 798 P.2d 160 (1990) (defrauded partner could not have discovered fraud committed by other partner until defrauding partner dissolved partnership and forced defrauded partner from subject property).
Considering all of the circumstances of this matter, I must conclude that the statute of limitations is not a bar to the causes of action asserted by the trustee. The relevant documents were executed over some span of time. The evidence suggests that there was an ongoing pattern of collateral being substituted and released32 and there seems to be no time certain by which the Barclays mortgage on the ski mountain was to be released. Roscoe is distinguishable in that there the existence of the allegedly undisclosed balloon payment was apparent from reading the mortgage that was assumed under a purchase agreement written by the purchaser himself. In the present case, the relevant documents were not prepared by Angel Fire, were not completely available at closing, fixed no date certain for the release of the Barclays mortgage, and are at best ambiguous.
Furthermore, Parker and its predecessors-in-interest continued to represent that they held only a “third lien” on the ski mountain until the summer of 1993. Indeed, on May 27, 1992, Guaranty explicitly described its notes and deeds of trust in correspondence to the Angel Fire entities and principals, making no assertion of a lien on the ski mountain held as security for the $9,675,000 promissory note (Exhibit 48). This adversary proceeding was filed shortly after Parker first attempted to maintain that it held a lien on the ski mountain to secure that note. Based on these facts it is inequitable for Parker to prevail on this defense.
Having found that Parker cannot prevail on its defenses, I conclude that the Trustee should prevail on his complaint, and that the Barclays lien should be released in accordance with what I have found is the agreement of the parties to the original loan transaction. To the extent that FNBSF has raised other claims at the trial which I have not dealt with in the summary judgment ruling, such claims are moot considering the disposition of plaintiffs’ claims on Count IX of the complaint. FNBSF’s note and mortgage do not provide for attorney fees under these facts. Parker’s counterclaim for attorT ney fees is denied.
This opinion shall constitute the Court’s findings of fact and conclusions of law under Bankruptcy Rule 7052. Counsel for the trustee shall prepare an appropriate form of judgment and have same approved as to form by all other counsel participating in this matter, such judgment to be submitted to the Court within ten days.
.In 1988, as has happened with so many of our financial institutions, First Federal Savings and Loan Association of Austin was placed in receivership by the Federal Savings and Loan Insurance Corporation. Its loans and mortgages with respect to the Angel Fire loans were acquired by Guaranty Federal Savings and Loan Association, which later changed its name to Guaranty Federal Bank, F.S.B. Defendant Parker Town Square is a wholly owned subsidiary of Guaranty, formed for the purpose of holding the notes, executed by the Angel Fire entities, foreclosing on the security interests and mortgages, and insulating Guaranty from any liabilities which might result from the operation of the Angel Fire assets, which include the Legends Hotel and the ski mountain, in the event that they were successfully foreclosed upon or that a receiver was appointed on behalf of the creditor to operate the assets during the pendency of the foreclosure suit.
. D’Oench, Duhme & Co. v. Federal Deposit Insurance Corporation, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), reh’g denied, 315 U.S. 830, 62 S.Ct. 910, 86 L.Ed. 1224 (1942).
. At trial, the parties stipulated to dismissal of Count II of the Complaint and Count II of Parker’s counterclaim, which were based on the Federal Bank Anti-Tying Act, 12 U.S.C. 1971 et seq. Parker's third counterclaim, for determination of all lien priorities, is fully addressed in this opinion.
. Counts I, III V, VI, VIII, IX, and X remain under consideration.
. Contract for Sale, Escrow and Loan Agreement, between Sangre IV as buyer and First Federal as Seller and the Angel Fire and Angel Fire Ski.
. $20,000,000 Promissory Note, from Sangre IV to First Federal.
. Loan Agreement, between Sangre I, Angel Fire, Plante, Evans, all of the subsidiary corporations of Angel Fire and First Federal.
. $6,000,000 Promissory Note, from Sangre I to First Federal (acquisition note).
. Sangre de Cristo II, another limited partnership, was also a maker on this note.
. $2,500,000 Promissory Note, from Sangre I and Sangre II to First Federal (Letter of Credit Note).
. $9,675,000 Promissory Note, from Angel Fire and Sangre I to First Federal.
. Modification Agreement, between First Federal and Sangre I, Sangre II, Sangre IV, Angel Fire, Angel Fire Ski, Starfire Resorts, Inc., Agency Del Sol, Inc., and Portfolio Services, Inc.
. Assignment Agreement, between First Federal and Barclays.
.Assignment of Note and Mortgage, Assignment of Rents and Security Agreement, by Bar-clays to First Federal.
. Assignment of Note and Leasehold Mortgage, Assignment of Rents and Security Agreement, by Barclays to First Federal.
. Assignment of Note and Assignment of Installment Land Contracts, by Barclays to First Federal.
. Deed of Trust, from Angel Fire Ski for Sangre IV to First Federal.
. Pledge and Security Agreement, of Angel Fire Stock by Sangre I.
. Deed of Trust, from Sangre I to First Federal securing $6 million loan (and cross-collateraliz-ing $2.5 million and $9.675 million notes) on lots in Angel Fire Chalets, Unit 5 and lots in Angel Fire West Village.
. Deed of Trust, from Sangre I and Sangre II to First Federal securing $2.5 million loan (and cross-collateralizing $6 million and $9.675 million notes) on lots in Angel Fire Chalets Unit 5 and Unit 5a as amended.
. Evans Guaranty, personal guaranty for indebtedness of Sangre I and Angel Fire.
. Plante Guaranty, personal guaranty for indebtedness of Sangre I and Angel Fire.
. Amended and Restated Loan And Security Agreement, between First Federal and Angel Fire and Starfire Resorts, Inc.
. FNBSF operated on the assumption that the only lien held by First Federal on the ski mountain was the third mortgage for $1,000,000 taken by the bank as part of its security for the $20,-000,000 hotel note.
. A note and mortgage held by International State Bank of Raton, New Mexico had been paid off between March, 1987, when Angel Fire borrowed from First Federal and November, 1987, when Angel Fire borrowed from FNBSF.
. This amount was later changed to $4 million. Exhibit 20.
. In D’Oench, the maker of a note gave a $5,000 note to prevent bank examiners from discovering the loss suffered by the bank in a previous transaction with the maker, with the understanding that the note would not have to be repaid and interest payments would be refunded.
.One wonders if Parker’s discovery of the unreleased Barclay's mortgage caused the same reaction that Judge Conway thought that RTC officials might have in similar circumstances, that being: "Someone, at this point, probably said something to the effect of 'well, if we switch around a few ledger entries, repudiate all of our previous representations and then scream D’Oench, Duhme and 12 U.S.C. § 1823(e) very loudly, we might be able to come out on top.’ ” Judge Conway then went on to say "At this point, I imagine that what followed was much back slapping and rejoicing, with everyone leaving the conference room arm-in-arm singing the RTC fight song [to the tune of "Onward Christian Soldiers”],
Onward Banking Soldiers Marching as if to war, With D’Oench, Duhme and Congress We'll prevail for sure. We needn’t worry, We will win the fight Since we lack accountability, We are always right."
Resolution Trust Corp. v. Ocotillo West, 840 F.Supp. 1463 at 1467 (D.N.M.1993).
. That section provides in pertinent part:
No agreement which tends to diminish or defeat the right, title or interest of the Corporation in any asset acquired by it under this section, either as security for a loan or by purchase, shall be valid against the Corporation unless such agreement (1) is in writing, (2) was executed by the depository institution and any person claiming an adverse interest thereunder, including the ob-ligor, contemporaneously with the acquisition of the asset by the depository institution, (3) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and (4) has been, continuously, from the time of its execution, an official record of the depository institution.
. N.M.S.A. § 37-1-4 (Repl.Pamp.1990).
. N.M.S.A. § 37-1-3 (Repl.Pamp.1990).
. See Exhibits 11, 12 and 13 wherein the parties continued to substitute and talk of the release of certain collateral, | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491939/ | ORDER ON MOTION FOR F.R.B.P. 9011 SANCTIONS AGAINST TRUSTEE AND TRUSTEE’S COUNSEL
ALEXANDER L. PASKAY, Chief Judge.
THIS IS an aborted Chapter 11 case and the matter under consideration is a Motion filed by Hugh Lee Nathurst, III (Debtor) who seeks an order imposing sanctions against Stephany Carr, Trustee of the Debt- or’s estate (Trustee). The undisputed facts which appear from the record and which are relevant to the Motion under consideration can be summarized as follows:
The Debtor having failed to obtain confirmation of his Plan of Reorganization, on August 10, 1993 this Court entered an Order and converted the Chapter 11 case to a Chapter 7 liquidation case. In due course Stephany Carr was appointed by the Office of the United States Trustee to be in charge of administration of the estate of the Debtor. *600On August 16, 1993, the Trustee filed an Application to employ the law firm of Miller & Hollander, which application was approved by the entry of an Order on August 19,1993.
In due course a meeting of creditors was scheduled pursuant to § 341 of the Bankruptcy Code and held on September 21, 1993, at which time the Debtor appeared and was examined for more than six hours. On October 25, 1993, the Trustee filed an Application and sought an order directing the Debtor to appear to be examined again pursuant to F.R.B.P. 2004. On October 27, 1993, this Court entered an Order and granted the Application. The examination was scheduled for November 16, 1993.
On November 10, 1993, the Debtor’s counsel requested the Trustee to cancel the examination scheduled for November 16, 1993, because the Debtor was in California and would be returning to Florida in the middle of December and would not be financially in a position to pay for the cost of travel twice. Debtor’s counsel also assured the Trustee that the Debtor was anxious to proceed with a deposition but requested the examination to be conducted telephonically. (Exhibit A attached to the Motion). It further appears, although there is no document in the record, that the examination scheduled for November 16 was, in fact, canceled.
Notwithstanding, on December 22, 1993, the Trustee filed a Motion and sought an order for apprehension and removal of the Debtor to compel attendance for examination. In her Motion, the Trustee alleged that the Debtor had evaded service of the Order directing him to appear for examination and that the Debtor willfully disobeyed a subpoena for examination (sic). The Trustee in her Motion for Apprehension attached an Affidavit in which it is stated that she appeared on November 16, 1993, for the scheduled examination of the Debtor notwithstanding the fact that the Trustee was already put on notice on November 10, 1993, that the Debtor was in California and would not be able to appear in Naples for the examination by counsel for the Debtor, and there is no dispute that he requested a rescheduling of the examination. (Exhibit A attached to the Motion) There is nothing in this record to indicate that the court reporter, if there was one, appeared and there is no certificate of nonappearance filed by anyone. The Motion for apprehension was scheduled for hearing on February 11, 1994. At the hearing this Court advised that the Motion would be granted and directed Mr. Hollander to provide the Court with a written order granting the Motion.
However, on February 22, 1994, counsel for the Debtor notified counsel for the Trustee, Mr. Hollander, that the Debtor would be available to be examined on March 8, 1994. (Composite Exhibit B to the Motion) On February 24, 1994, Mr. Hollander, counsel for the Trustee, via facsimile transmission, confirmed their recent telephone conversation which advised him that the Debtor would appear for examination on March 8, 1994 to be examined pursuant to F.R.B.P. 2004. In addition, counsel for the Debtor, by letter dated February 24, 1994, informed the Trustee that the Debtor would appear on March 8,1994 to be examined but because he was travelling from California he might not be available as early as 9:00 a.m.. He also indicated that the Debtor would be available the following date if it was deemed to be necessary.
Notwithstanding this agreement, Mr. Hollander did not notify the Court that an agreement had been reached with counsel of the Debtor concerning the Debtor’s voluntary appearance and willingness to submit to examination on March 8, 1994, at the examination, and on February 25, 1994 this Court entered an Order granting the Motion for Apprehension and directing apprehension of the Debtor. In spite of the agreement just described, the Trustee delivered the Order signed on February 25, 1994, to the U.S. Marshal’s Service and caused the Debtor to be apprehended on March 3, 1994, in California and placed in custody by the U.S. Marshall. On March 4, 1994, the Debtor filed a Motion for Reconsideration of the Order granting the Trustee’s Motion for Apprehension and Removal and on March 7,1994, filed an Emergency Motion to Release the Debtor from the Marshal’s custody. It appears, although it is not clear, that the Debtor posted a bond and based on the same he was released from the custody by the Marshal in *601California. On March 11, 1994, the Trustee filed an emergency Motion to Forfeit the Bond and to Enforce F.R.B.P. 2004 Order (sic). Subsequently the Debtor filed an Emergency Motion to Vacate the Order of Apprehension, which was granted by the Court by order entered March 24, 1994.
The Debtor did appear on March 8, 1994, in Naples and submitted to examination, according to the Affidavit of the court reporter (Exhibit attached to the Supplement to the Emergency Motion for Protective Order). The examination commenced at 1:00 p.m. and concluded at 5:00 p.m., when counsel for the Trustee unilaterally stopped the deposition and threatened counsel of the Debtor to call the Sheriffs Office and have the attorney of the Debtor arrested if he attempted to remove any documents from the office of the attorney for the Trustee.
It appears from the foregoing that the Debtor fully complied with the Order directing the examination and appeared for his 2004 examination on March 8, 1994. At that time he was examined, at the end of which counsel for the Trustee indicated that he would continue the examination for four days. This record leaves no doubt that the Trustee’s Affidavit did violate F.R.B.P. 9011 in that her signature certified that the statements were well grounded in fact, ascertained after reasonable inquiry when the Trustee and her counsel very well knew at the time they obtained, the Order of Apprehension and caused the Debtor to be arrested in California and placed in custody there was already an agreement that the Debtor will appear voluntarily in Fort Myers and would submit to examination on March 8, 1994.
It is equally clear however that anything relevant to the turnover proceeding is not sanetionable inasmuch as there is nothing in this record which warrant the finding that an agreement signed by the Trustee to recover property did violate F.R.B.P. 9011.
Based on the foregoing, this Court is satisfied that the Debtor is entitled to imposition of sanctions.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Debtor’s Motion for F.R.B.P. 9011 Sanctions Against Trustee and Trustee’s Counsel be, and the same is hereby, granted. It is further
ORDERED, ADJUDGED AND DECREED that the Trustee shall pay for violating F.R.B.P. 9011 the sum of $5,000.00 found to be the reasonable amount to compensate counsel for the Debtor for his services rendered to the Debtor in connection with the costs relating to the F.R.B.P. 2004 examination of the Debtor.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491940/ | ORDER ON MOTION TO COMPEL PERFORMANCE OF DEBTOR
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a confirmed Chapter 11 case and the matter under consideration is a Motion to Compel Compliance filed by Walter H. Turpin, Eva Persons and Fred J. Turpin (Lessors). The motion seeks to compel, Golden Triangle Film Labs, Inc. (Debtor), to perform under a commercial retail property lease (Lease) which Lessors claim was assumed by the Debtor pursuant to the Debt- or’s confirmed Amended Plan of Reorganization. The facts which appeal' from the record, as established at the final evidentiary hearing, are basically without dispute and are as follows.
On September 1, 1990, the Debtor entered into a five year Lease with the Lessors of a commercial retail property, located at 201 Twiggs Street, Tampa, Florida. The Debtor operated its film processing business on the premises until it filed its Voluntary Petition for Relief for Chapter 11 on March 5, 1993, and thereafter as a Debtor-in-Possession pursuant to an order entered by this Court which authorized the Debtor to operate its business as a Debtor-in-Possession. The Debtor was current at all times even pre and post-petition on its obligations under the Lease.
*609On July 15, 1993, the Debtor filed its Disclosure Statement together with its first Plan of Reorganization. On September 1, 1993, the Debtor filed its Amended Disclosure Statement and its Amended Plan of Reorganization. On September 21, 1993, this Court entered an Order and approved the Disclosure Statement. The same order fixed October 18, 1993, as the last date to file proof of claims and to cast ballots for or against the Plan and October 25,1993, as the last date to file applications for allowance of administrative expenses including applications for fees by professionals. The Confirmation Hearing was scheduled to be held on November 1, 1993. On the same date this Court entered an Order and confirmed the Amended Plan of Reorganization of the Debtor.
It is without dispute that the Debtor continued to occupy the premises after Confirmation and made all the required rent payments until May 15, 1994, when it vacated the premises approximately after six months following the confirmation of its Plan of Reorganization. It is without dispute that the Debtor-in-Possession did not file a Motion pursuant to F.R.B.P. 6006 to assume this non-residential lease under which the Debt- or-in-Possession occupied the premises. The Plan of Reorganization which was confirmed provided in Article VII, Paragraph 7.2
On the effective date, all executory contracts and unexpired leases of the Debtor shall be assumed by (and, to the extent necessary, assigned to) reorganized Golden Triangle Film Labs, Inc. pursuant to the provisions of [Secs.] 365 and 1123 of the Bankruptcy Code, except any executory contracts and unexpired leases that are subject of separate motions to reject file [sic] pursuant to [Sec.] 365 of the Bankruptcy Code by the Debtor before the entry of the Confirmation Order.
These are basically the underlying facts which control the controversy which at first blush clearly reveals an apparent conflict between several Sections of the Code for the following reasons.
The provision which specifically deals with assumption or rejection of executory contracts and unexpired residential and nonresidential leases is dealt with by § 365 of the Bankruptcy Code. Subclause (a) of this Section provides that the Trustee and in the case of a Chapter 11, the Debtor-in-Possession may assume or reject any executory contract or unexpired lease but only with the approval of the Court. F.R.B.P. 6006 provides that a proceeding to assume or reject an executory contract or unexpired lease other than as part of a Plan is governed by F.R.B.P. 9014.
Section 365(d)(4) provides that if a Trustee or in a Chapter 11 case the Debtor-in-Possession does not assume an unexpired lease of a non-residential real property within 60 days after the date of the Order for relief (unless the time is extended on timely motion) the lease is deemed to be rejected and the Trustee or the Debtor-in-Possession shall immediately surrender the non-residential real property to the lessor.
Even a cursory reading of these Sections coupled with the Rule cited, leaves no doubt that with one possible exception a Debtor-in-Possession may not assume nonresidential lease except by filing a Motion and with the approval of the Court and anything less would operate as an automatic rejection of the lease pursuant to § 365(d)(4) of the Code. In re J. Woodson Hays, Inc., 69 B.R. 303 (Bankr.M.D.Fla.1987).
The Ninth Circuit Bankruptcy Appeal Panel in the case of In re Treat Fitness Center, Inc., 60 B.R. 878 (9th Cir. BAP 1986) held that “to dispense with the requirement to file a motion as a condition precedent for assuming an unexpired lease would be clearly contrary to the clear intent of the 1984 Amendment of § 365 and would not carry out the stated Congressional intent and certainly would not comply with the requirements of Bankruptcy Rule 6006.”
Even without resorting to consideration of the legislative history of this amendment, S.Rep.No. 65, 98th Cong., 1st Sess. 68 (1983) (Senate Report accompanying S 445 — BAF-JA) leaves no doubt that it was the intent of Congress to remove any doubt to protect lessors from the risk caused by the precarious financial condition of lessee debtors and provide a short time frame for a Debtor-in-Possession to elect either to assume an unex*610pired non-residential lease or vacate the premises forthwith.
The difficulty stems from the fact that § 1123 of the Code which sets forth the mandatory and optional contents of a Plan of Reorganization provides in Subclause (b) that a debtor is authorized, subject to the provisions of § 365, to assume or reject an unexpired lease of a debtor which previously has not been rejected. Moreover, F.R.B.P. 6006 which regulates the procedure for assumption or rejection apparently provides that while generally the procedure is governed by F.R.B.P. 9014, it is not governed by that Rule if the assumption or rejection is part of a Plan. The seeming conflict caused by the fact that F.R.B.P. 6006 exempts the procedure to assume or reject a non-residential lease from the provisions of F.R.B.P. 9014 if the assumption or rejection is part of the Plan of the Debtor. In that event the Rule apparently does not require a Motion or even a court order specifically dealing with this subject.
However, it is a well established proposition that the Section of the Statute which expressly deals with the specific subject prevails over a Section which although refers to the subject matter does only in general terms and usually by reference. It is a basic principle of statutory construction that a precisely drawn statute dealing with a specific subject controls over a statute covering a more generalized spectrum. Brown v. General Services Administration, 425 U.S. 820, 834-35, 96 S.Ct. 1961, 1968-69, 48 L.Ed.2d 402 (1976). The Supreme Court has stated that “[wjhere there is no clear intention otherwise, a specific statute will not be controlled or nullified by a general one, regardless of the priority of enactment.” Morton v. Mancari, 417 U.S. 535, 50-51, 94 S.Ct. 2474, 2482-83, 41 L.Ed.2d 290 (1974)
However in this particular instance one does not need to engage in an elaborate exercise to resolve this apparent conflict because a close reading of the controlling Sections leaves no doubt that the Debtor-in-Possession may not assume an unexpired non-residential lease by bypassing the motion practice required by F.R.B.P. 6006, and in turn an approval of the Court, if the nonresidential lease in question was previously rejected pursuant to the applicable provisions of Section 365.
As noted earlier, § 365(d)(4) provides for an automatic rejection of non-residential real property leases unless the debtor filed a timely motion to assume the same and is required to surrender the premises forthwith to the lessor. This being the case, this Court is satisfied that at the time the debtor filed its Plan of Reorganization or on July 20, 1993, or more than 120 days after the date of the Order for Relief, this particular nonresidential lease was already rejected by operation of the law, notwithstanding that the Plan provides in general terms, using boilerplate language, that all executory contracts and unexpired leases of the debtor shall be assumed.
Moreover, § 1123(b) which authorizes an operational provision in a Plan of Reorganization concerning assumption or rejection of executory contracts and unexpired leases, clearly provides that they are all subject to the provisions of § 365 of the Bankruptcy Code. As noted earlier, subsection (a) of that Section leaves no doubt that while a debtor may assume an unexpired lease it must obtain an approval from the Court. This Court is unwilling to accept the proposition that the entry of an Order of Confirmation of a Plan which contains such unspecific reference to unexpired leases and executory contracts would be sufficient to comply with the requirements of § 365(a) of the Code.
In sum, even assuming for the purpose of discussion, without conceding that a debtor may bypass the stringent requirements for assumption of unexpired non-residential leases set forth in § 365(d)(4), clearly the assumption is still subject to court approval of a motion which must be filed by the debtor prior to the entry of the Order of Confirmation.
The fact that the Debtor remained in possession post-confirmation furnishes no solace to the lessors simply because, due to the automatic rejection of this lease, the debtor was merely a hold-over tenant under a month-to-month occupancy which the Debtor had an absolute right to terminate at any *611time which in fact the Debtor did when it vacated the premises covered by this lease.
Accordingly it is
ORDERED, ADJUDGED AND DECREED that the Lessors’ Motion to Compel Performance of Debtor Under The Confirmation Plan be, and the same is hereby, denied.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491941/ | *612FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS is a confirmed Chapter 11 case and the matter before the Court is a complaint filed by St. Petersburg Harbourview Hotel Corporation (Debtor) against 0. Sanford Jasper, Pinellas County Tax Collector, J.T. Herndon and Jim Smith (Plaintiffs). The Complaint was originally filed in the Circuit Court for Pinellas County, and was removed to this Court by Notice of Removal filed March 30,1994. The Complaint contests the 1991, 1992 and 1993 ad valorem tax assessments on the sole asset of this Debtor, real property located in St. Petersburg, FL. In due course, the matter was scheduled for final evidentiary hearing and the facts relevant to resolution of this controversy, as established at the evidentiary hearing are as follows:
The Debtor is the owner of a tract of land located in St. Petersburg, Florida. The land is improved with a high rise building, in which the Debtor operates the St. Peters-burg Hilton Hotel. In 1992, the property was assessed for purposes of ad valorem taxes at $13,829,700.00. The property assessor arrived at this assessment by using the cost approach in determining the value of the property. In 1993, the property was again assessed for purposes of ad valorem taxes. In 1993, the property was assessed at $11,-262,100.00. Again, the assessor utilized the cost approach in determining the value for the property.
Based upon the foregoing, the Debtor contends that the use of the cost approach in determining the value of this property is inappropriate, and does not result in an accurate determination of real value for this property. The Debtor seeks a determination by this Court of an accurate value of the property utilizing the income approach, which according to the Debtor is a more appropriate approach for the determination of value of an income-producing property.
In its case in chief, the Debtor presented experts who testified that the most appropriate manner in which to value income producing property is the income approach. According to the Debtor’s expert, this is so because it is the single most important consideration of a potential buyer of income producing property. In utilizing the income approach, the Debtor’s expert considered the historical data of the hotel’s performance and developed a forecast of expenses and rate of occupancy. From these forecasts, the Debt- or’s expert then prepared a discounted cash flow analysis, arriving at a discount rate of 15%. Based upon these numbers, the Debt- or’s expert arrived at a going concern value for the property, based upon the income approach of $7.7 million. From this number then, the Debtor’s expert deducted the value of the fixtures, furnishings and equipment, because this property is pledged as collateral to creditor other than the mortgage holder on the hotel. After providing for the replacement costs of the fixtures, furnishings and equipment, the Debtor’s expert concluded that the reconciled value for the Hilton property for 1991 is $3,000,000.00 and for 1992 and 1993, $3,050,000.00.
In comparison, the county’s property appraiser testified that he calculated the value of this property using each of the three methods, i.e. cost, market and income, and then chose the most applicable approach for determining the value of the property. Under the cost approach, the County assigned a per square foot value for the land of $11.49 and a per square foot value for replacement of the structure of $47.09. For 1992, the County utilized the identical number for the replacement of the structure, and a slightly larger per square foot value for the land of $11.59. For 1993, the County assigned a structure value of $62.02 and a land value of $16.32 per square foot. The County provided little justification for the small or no increase for 1992 and the large increase in the number for 1993.
Utilizing the income approach, the County did not use actual numbers, although those numbers were available. Rather, the County projected occupancy, average daily rate and vacancy rate in arriving at income figures. For the 1992 appraisal, the County utilized actual expense figures and adjusted them downward. Finally, the County attempted to *613utilize the market approach, however virtually no comparables were available for comparison. For 1991, the County gave most weight to the cost approach. Based upon this approach, the county determined that the value of the property $13,964,000.00.
For the 1992 and 1993 assessments, the county’s appraiser placed the most weight upon the market approach in determining value for the property, notwithstanding the lack of comparables available. The only comparable found by the County in utilizing the market approach is the Deerfield Beach Hilton. This comparable is located 200 miles away from the subject property, on the East Coast of Florida. The Deerfield Hilton was constructed in 1985, compared to the 1971 construction date of the subject property. In addition, the subject property contains 333 guestrooms; the Deerfield Hilton contains 100 less guestrooms. Notwithstanding, the County considered the $8,000,000.00 selling price of the Deerfield Hilton in 1993 as a reliable and accurate determination of value for the St. Pete Hilton. Based upon this approach, the County appraised the subject property at $12,987,000.00 for 1992 and $11,-262,000.00 for 1993.
Based upon the foregoing, the Debtor contends that the appraisal by the County does not accurately reflect the value of the property for the years in question, and in fact, the values exceed the market value for the property. In opposition, the County contends that the values are just values as required by the Florida Statutes and these values must stand as correct.
Florida Statute 193.011 governs the appraisal of real property and requires that the property appraiser consider eight factors in arriving at a just value. These factors are:
(1) present cash value of property
(2) highest and best use of property
(3) location
(4) quantity or size
(5) cost and present replacement value of improvements
(6) condition
(7) income
(8)net proceeds of sale
The appraiser’s assessment is considered presumptively valid, provided that the appraiser considered all the required statutory factors, Robbins v. Summit Apartments, Ltd., 589 So .2d 460 (Fla.3d DCA 1991), and his methods and conclusions are supported by any reasonable hypothesis of a legal assessment, Bystrom v. Hotelerama Associates, Ltd., 511 So.2d 640 (Fla.3d DCA 1987). To rebut the presumption of validity, the taxpayer must show that the subject assessment was made in an arbitrary and discriminatory manner, resulting in a value which exceeds market value, or the taxpayer must show that the assessment is grossly excessive in comparison to fair market value. Powell v. Kelly, 223 So.2d 305 (Fla.1989); Schleman v. Connecticut General Life Insurance Co., 9 So.2d 197 (Fla.1942).
In considering the appraisals by the two experts, the following matters are of great importance, all of which weigh against the value established by the County. First, it is conceded by the County’s expert that the income approach is a preferred method for arriving at a value for income producing properties. Second, there is no justification for the County appraiser to utilize hypothetical expense and occupancy numbers when actual numbers were available. Thirdly, the limited number of comparable sales in the St. Petersburg area clearly reduces the accuracy of establishing value by this method. Based upon these observations, this Court is constrained to conclude that the appropriate method to determine the value of the subject property is by utilizing the income approach. Inasmuch as the Debtor’s appraiser utilized the income approach, using actual and historical numbers for expenses and occupancy, and the County’s methodology under the income approach utilized hypothetical numbers, this Court is constrained to place little weight on the expert for the County. In sum, this Court is satisfied that the appraisals done by the County substantially exceed the market value of the subject property and therefore, the proper value for this property for the relevant years are those values set forth by the Debtor’s expert. A separate *614final judgment shall be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484106/ | Order entered November 10, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00771-CV
LASHONDA SMITH, Appellant
V.
ROY GONZALEZ, III, Appellee
On Appeal from the 192nd Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-16-11456
ORDER
Before the Court is court reporter Tenesa Shaw’s November 8, 2022 request
for an extension of time to file the reporter’s record. We GRANT the request and
ORDER the record be filed no later than December 7, 2022.
/s/ BONNIE LEE GOLDSTEIN
JUSTICE | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350251/ | Hoi Trinh v Nguyen (2022 NY Slip Op 07387)
Hoi Trinh v Nguyen
2022 NY Slip Op 07387
Decided on December 23, 2022
Appellate Division, Fourth Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on December 23, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
PRESENT: WHALEN, P.J., PERADOTTO, NEMOYER, CURRAN, AND BANNISTER, JJ.
909 CA 22-00350
[*1]HOI TRINH, PLAINTIFF-APPELLANT,
FvATHER JOSEPH THIEN NGUYEN, DEFENDANT-RESPONDENT.
HGT LAW, NEW YORK CITY (NATALIA D. WILLIAMS OF COUNSEL), FOR PLAINTIFF-APPELLANT.
HODGSON RUSS LLP, BUFFALO (STEPHEN W. KELKENBERG OF COUNSEL), FOR DEFENDANT-RESPONDENT.
Appeal from an order of the Supreme Court, Erie County (Donna M. Siwek, J.), entered October 20, 2021. The order, insofar as appealed from, granted the motion of defendant to dismiss the complaint with costs and attorney's fees.
It is hereby ORDERED that the order insofar as appealed from is unanimously reversed on the law without costs, the first and second ordering paragraphs are vacated, the complaint is reinstated, and the matter is remitted to Supreme Court, Erie County, for further proceedings in accordance with the following memorandum: Plaintiff commenced this action against defendant alleging causes of action for defamation and defamation per se. According to the complaint, defendant published statements on two internet websites alleging, inter alia, that plaintiff engaged in a fraudulent and criminal operation and illegally and improperly received financial gain when he served as the Executive Director of the Vietnamese Overseas Initiative for Conscience Empowerment (VOICE), an organization that assists Vietnamese refugees to emigrate. Defendant moved to dismiss the complaint pursuant to, inter alia, the then-recent amendments to the anti-strategic lawsuits against public participation (anti-SLAPP) statutes (see Civil Rights Law §§ 70-a, 76-a) and CPLR 3211 (a) (7) and (g) and for, among other things, attorneys' fees and costs. Defendant argued that the anti-SLAPP amendments applied retroactively to the defamation causes of action asserted by plaintiff. Supreme Court, after considering the decisions in Coleman v Grand (523 F Supp 3d 244, 257-259 [ED NY 2021]), Palin v New York Times Co. (510 F Supp 3d 21, 27 [SD NY 2020]), and Sackler v American Broadcasting Cos., Inc. (71 Misc 3d 693, 696-699 [Sup Ct, NY County 2021]), determined that the amendments to the anti-SLAPP law applied retroactively and therefore applied the burdens under that law (see CPLR 3211 [g]). In its order, the court, inter alia, granted those parts of defendant's motion seeking to dismiss the complaint pursuant to CPLR 3211 (a) (7) and (g) and seeking costs and attorneys' fees. After the court's order, the First Department held that the anti-SLAPP amendments do not apply retroactively (see Gottwald v Sebert, 203 AD3d 488, 488-489 [1st Dept 2022]). Plaintiff appeals from the order to the extent that it granted defendant's motion, contending that the court erred in applying the anti-SLAPP amendments retroactively. We reverse the order insofar as appealed from.
Where new legislation, "if applied to past conduct, would impact substantive rights and have retroactive effect, the presumption against retroactivity is triggered" (Matter of Regina Metro. Co., LLC v New York State Div. of Hous. & Community Renewal, 35 NY3d 332, 370 [2020], rearg denied 35 NY3d 1079, 1081 [2020]; see Ruth v Elderwood at Amherst, 209 AD3d 1281, 1285 [4th Dept 2022]). When the presumption is triggered, "a statute is presumed to apply only prospectively" (Regina Metro. Co., LLC, 35 NY3d at 370). Here, there is no real dispute that the presumption applies inasmuch as the application of the anti-SLAPP amendments in plaintiff's case would have retroactive effect. Indeed, application of those amendments would " 'impair rights [plaintiff] possessed when he [filed the action], increase [his] liability for [that] past conduct, [and] impose new duties with respect to transactions already completed' " (id. at [*2]365).
We agree with plaintiff that the presumption against retroactivity is not overcome because "[n]othing in the text 'expressly or by necessary implication' requires retroactive application of the [anti-SLAPP] statute as amended . . . Nor does the legislative history support such an interpretation" (People v Galindo, 38 NY3d 199, 207 [2022]; see Ruth, 209 AD3d at 1284-1285). First, the text of the legislation does not contain an express statement requiring retroactive application (see L 2020, ch 250, § 4). Second, while the anti-SLAPP amendments took effect "immediately" (id.), that term "is equivocal in an analysis of retroactivity" (Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577, 583 [1998] [internal quotation marks omitted]; see Landgraf v USI Film Prods., 511 US 244, 257 [1994]). Third, although the legislation is remedial in nature and such legislation is generally applied retroactively "to better achieve its beneficial purpose" (Matter of OnBank & Trust Co., 90 NY2d 725, 730 [1997]), simply classifying a statute as remedial "does not automatically overcome the strong presumption of prospectivity" (Majewski, 91 NY2d at 584). Finally, the legislative history establishes that the rationale for the amendments was to better advance the purposes of speech protection for which the anti-SLAPP law was initially enacted and to remedy the courts' failure to use their discretionary powers to award costs and fees in such cases. However, the legislative history does not offer any explicit or implicit support for retroactive application (see 2019 New York Senate-Assembly Bill S52A, A5991A). Therefore, we conclude that "the presumption of prospective application of the [anti-SLAPP] amendments has not been defeated" (Gottwald, 203 AD3d at 489).
In light of our determination, we need not address plaintiff's remaining contentions on appeal. Inasmuch as the court did not address the alternative grounds for dismissal raised in the motion pursuant to CPLR 3211 (a) (1) and CPLR 3211 (a) (7) insofar as based upon the pleading requirements in 3016 (a), we remit the matter to Supreme Court to consider those grounds and determine the motion anew (see generally Lundy Dev. & Prop. Mgt., LLC v Cor Real Prop. Co., LLC, 181 AD3d 1180, 1181 [4th Dept 2020]).
Entered: December 23, 2022
Ann Dillon Flynn
Clerk of the Court | 01-04-2023 | 12-23-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350239/ | Lincoln Life & Annuity Co. of N.Y. v Wittmeyer (2022 NY Slip Op 07358)
Lincoln Life & Annuity Co. of N.Y. v Wittmeyer
2022 NY Slip Op 07358
Decided on December 23, 2022
Appellate Division, Fourth Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on December 23, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
PRESENT: WHALEN, P.J., SMITH, LINDLEY, NEMOYER, AND WINSLOW, JJ.
830 CA 22-00095
[*1]LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK, PLAINTIFF-RESPONDENT,
vCAMI WITTMEYER, ET AL., DEFENDANTS, MARIA R. BAUER, LAWRENCE J. ADYMY, JR., DEFENDANTS-APPELLANTS, LINCOLN FINANCIAL ADVISORS CORPORATION AND LEE . STADLER, DEFENDANTS-RESPONDENTS. (APPEAL NO. 2.)
THE TARANTINO LAW FIRM, LLP, BUFFALO (ANN M. CAMPBELL OF COUNSEL), FOR DEFENDANTS-APPELLANTS.
BRADLEY ARANT BOULT CUMMINGS, LLP, CHARLOTTE, NORTH CAROLINA (C. BAILEY KING, JR., OF THE NORTH CAROLINA BAR, ADMITTED PRO HAC VICE, OF COUNSEL), AND GOLDBERG SEGALLA LLP, BUFFALO, FOR PLAINTIFF-RESPONDENT AND DEFENDANTS-RESPONDENTS.
Appeal from an order of the Supreme Court, Erie County (Timothy J. Walker, A.J.), entered January 13, 2022. The order granted the motion of plaintiff and defendants Lincoln Financial Advisors Corporation and Lee V. Stadler insofar as it sought summary judgment dismissing the counterclaims of defendants Marie R. Bauer and Lawrence J. Adymy, Jr., against plaintiff.
It is hereby ORDERED that the order so appealed from is unanimously modified on the law by denying that part of the motion of plaintiff and defendants Lee V. Stadler and Lincoln Financial Advisors Corporation with respect to the negligence counterclaim insofar as asserted by defendant Maria R. Bauer and reinstating that counterclaim to that extent, and as modified the order is affirmed without costs.
Same memorandum as in Lincoln Life & Annuity Co. of N.Y. v Wittmeyer ([appeal No. 1] — AD3d — [Dec. 23, 2022] [4th Dept 2022]).
Entered: December 23, 2022
Ann Dillon Flynn
Clerk of the Court | 01-04-2023 | 12-23-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484095/ | Order entered November 14, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-21-01041-CV
ENGLISH LAW GROUP, PLLC, Appellant
V.
MEDINET INVESTMENTS, LLC AND MICHAEL BINGHAM, Appellees
On Appeal from the 116th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-16-07743
ORDER
Before the Court is appellees’ motion to appear by videoconference at oral
argument. “A party desiring oral argument must note that request on the front
cover of the party’s brief. A party’s failure to request oral argument waives the
party’s right to argue.” TEX. R. APP. P. 39.7. Appellees stated on the cover of their
brief, “Oral Argument not Requested.” Accordingly, appellees waived their right
to present oral argument, and their request to appear by videoconference at oral
argument is DENIED.
This Court observes that appellant’s brief stated on the cover, “Oral
Argument Conditionally Requested,” and appellant stated in its brief, oral
argument is not likely to assist this Court in its decisional process,” and “if this
Court grants oral argument for Appellees, Appellant requests the opportunity to
present oral argument and be heard also.” As noted above, appellees did not
request oral argument. On November 9, 2022, appellant notified the Court that Jay
C. English “will be presenting the argument to the Court at he hearing on oral
argument on November 16, 2022, at 10:00 a.m.” However, appellant requested
oral argument only if we granted permission for appellees to argue; appellees made
no such request; therefore, appellant is not entitled to present oral argument.
This case will be submitted without oral argument.
/s/ ROBERT D. BURNS, III
CHIEF JUSTICE | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484107/ | Order entered November 10, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-19-00896-CR
KYLE HERMAN HIBBARD, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 265th Judicial District Court
Dallas County, Texas
Trial Court Cause No. F-1951973-R
ORDER
Before the Court is attorney Lawrence B. Mitchell’s Motion to Withdraw
this Court’s October 26, 2022 Order denying his request that the Court withdraw
its October 7, 2022 Order ordering him to provide appellant with copies of all
motions filed with the Court on appellant’s behalf, copies of court
communications, responses, orders, and mandates in this case, and two copies of
the Court’s opinion.
We DENY Lawrence B. Mitchell’s November 4, 2022 Motion to Withdraw
Order and DIRECT the Clerk of the Court to send copies of the filings and orders
in this case from September 2, 2022 (the date this Court received appellant’s
August 29, 2022 request for records) through the date of this Order to Kyle
Hibbard at #2408653 NE: Middleton Unit 13055 FM 3522 Abilene, Texas 79601.
/s/ DAVID J. SCHENCK
JUSTICE | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484108/ | Order entered November 10, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00731-CR
No. 05-22-00732-CR
No. 05-22-00733-CR
No. 05-22-00734-CR
No. 05-22-00735-CR
No. 05-22-00736-CR
DAMON TODD WHITE, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 199th Judicial District Court
Collin County, Texas
Trial Court Cause Nos. 199-84961-2019, 199-84963-2019, 199-82871-2020,
199-82872-2020, 199-83121-2020 & 199-80181-2020
ORDER
Before the Court is appellant’s pro se motion for access to the appellate
record for the purpose of filing a pro se response to counsel’s motion to withdraw
and supporting Anders brief.
We GRANT the motion and ORDER appellate counsel Maria Tu to provide
appellant with paper copies of the clerk’s and reporter’s records in the above case.
We further ORDER appellate counsel to provide this Court, within
FIFTEEN DAYS of the date of this order, with written verification that the record
has been sent to appellant and to verify for the Court appellant’s current address.1
Appellant’s pro se response is due by January 16, 2023.
We DIRECT the Clerk to send copies of this order to the Honorable Angela
Tucker, Presiding Judge, 199th Judicial District Court; Maria Tu; and Lisa
Braxton, Chief of the Appellate Division, Collin County District Attorney’s office.
We DIRECT the Clerk to send a copy of this order, by first-class mail, to
Damon Todd White, SO# 371805, Collin County Detention Facility, 4300
Community Avenue, McKinney, Texas 75071.
We further DIRECT the Clerk to send a copy of this order, by first-class
mail, to Damon Todd White, 1700 Clearbrook Drive, Allen, Texas 75002.
/s/ LANA MYERS
JUSTICE
1
Appellant’s motion for access recites a return address to the Collin County Detention Facility and was postmarked on
November 4, 2022. According to Collin County’s online jail records, appellant is no longer being held in the county
detention facility.
2 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484099/ | Order entered November 14, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00943-CV
BRP-ROTAX GMBH & CO. KG, Appellant
V.
SHEEMA SHAIK AND TOUSEEF SIDDIQUI, Appellees
On Appeal from the County Court at Law No. 5
Dallas County, Texas
Trial Court Cause No. CC-19-03101-E
ORDER
This is an appeal from the trial court’s September 6, 2022 order denying
appellant’s special appearance. The reporter’s record has been filed; the clerk’s
record is due November 18, 2022.
Before the Court is the parties’ November 9, 2022 joint advisory in which
they inform the Court that the trial court has withdrawn the appealed order and
scheduled a status conference for November 16, 2022. In light of the
circumstances, we SUSPEND the deadline for the filing of the clerk’s record and
ORDER a motion to dismiss the appeal or a status report be filed no later than
November 21, 2022.
We DIRECT the Clerk of the Court to send a copy of this order to Dallas
County Clerk John F. Warren and the parties.
/s/ ROBERT D. BURNS, III
CHIEF JUSTICE | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484101/ | Order entered November 10, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00896-CV
IN THE MATTER OF J.L.R., A MINOR
On Appeal from the 304th Judicial District Court
Dallas County, Texas
Trial Court Cause No. JD-35928-W
ORDER
Before the Court is appellant’s letter filed November 8, 2022 requesting a
copy of the clerk’s record. We construe the letter as a motion. We GRANT the
motion and DIRECT the Clerk of this Court to send a paper copy of the clerk’s
and supplemental clerk’s records to appellant.
On the Court’s own motion, we extend the deadline for appellant’s brief to
December 16, 2022.
/s/ KEN MOLBERG
JUSTICE | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484102/ | Order entered November 10, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00955-CV
IN RE SUNOCO RETAIL LLC AND DERRICK RAY LEWIS, Relators
Original Proceeding from the 68th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-20-18306
ORDER
Before Justices Molberg, Pedersen, III, and Garcia
Based on the Court’s opinion of this date, we DISMISS relators’ petition for
writ of mandamus.
/s/ DENNISE GARCIA
JUSTICE | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491942/ | ORDER
ARTHUR N. YOTOLATO, Bankruptcy Judge.
Heard on September 28, 29, and October 4, 1994, on: (1) the Trustee’s Motion to adjudge the Debtor in Contempt, and for the Imposition of Sanctions Against the Debtor; (2) the Trustee’s Motion for Judgment on the Pleadings; and (3) the Debtor’s Motion for Leave to File an Amended Answer to the Amended Complaint. We will address the pleadings in the order in which they appear above.
Motion to Adjudge in Contempt
One of the assets of the Chapter 7 estate is a farm on Collins Road in Westerly, Rhode Island. During the time relevant to this proceeding, the farm business was being operated by Kathleen Moriarty, the principal of Hopkinton Riding Stables, Inc. (Hopkin-ton), and a friend of Mr. Negro. The Trustee commenced two adversary proceedings against both Hopkinton and Moriarty; one *672alleging various fraudulent transfers, and the other seeking a permanent injunction against the sale or transfer of estate assets by Hop-kinton and/or Moriarty, without prior Court approval.
On July 8, 1994, the Trustee entered into an agreement with Moriarty and Hopkinton, settling both adversary proceedings. As part of the compromise, Moriarty would keep four horses, a dog, the money in her personal bank account, two saddles, a bridle, and certain other personal possessions. It was agreed that the remainder of the disputed assets were the property of the estate. Moriarty also consented to the entry of a permanent injunction against the transfer of any property without Court approval. Shortly after the settlement Moriarty vacated the premises, and Mr. Negro took over the operation of the farm.
On July 26, 1994, the Trustee went to the farm to show some of the livestock to a prospective purchaser, and discovered that approximately seven horses, a horse trailer, six cows, and a dump truck were missing, or at least were not where they were supposed to be. The Debtor told the Trustee that “the animals must be in the rear portion of the farm,” and were just not visible from where they stood. The horses were not there, nor were they anywhere else on the farm. After further investigation, and being satisfied that Mr. Negro was not being candid, the Trustee filed the instant Motion for contempt and for the imposition of sanctions, alleging that the Debtor had violated the permanent injunction against transferring estate assets.1
At the hearing, the Debtor admitted that he did remove three horses and put them on a neighboring farm, “because they were like his children,” and he “was afraid they would be taken from him.” He also testified that in order to pay for farm operations after Moriarty left, he sold various animals for a total of $1,250, and also expended $4,000 of “his own money” to cover farm expenses between February and August 1994. The Debtor also testified that he had moved the dump truck to his garage in Groton, Connecticut, for transmission repairs. In none of his explanations has Mr. Negro given any acceptable reason why he moved estate property without requesting or receiving authority to do so.
The major items not accounted for in the Moriarty inventory were four quarter horses, over which there was much confusion regarding identity, because the Debtor refers to them by names different than those listed in the inventory. Although Mr. Negro also claims, disingenuously, we think, that he did not remember seeing any quarter horses on the farm when Moriarty departed, the burden on this issue is with the Trustee, and he comes up short, evidence-wise.
While we continue to have problems with the Debtor’s credibility in this case, together with his repeated attempts to appear unsophisticated and therefore not accountable for his ongoing misbehavior (a contention that is flatly rejected), we conclude, based on the record herein, that the Debtor’s actions, although far from acceptable, are not clearly sanctionable. The Debtor sold . livestock which otherwise would have required a significant amount of attention and expense,2 and as for the remaining livestock, he was faced with the task of providing care without running water or electricity. In the circumstances, giving him the benefit of quite a few doubts, and notwithstanding the fact that Mr. Negro is by far his own worst enemy when it comes to creating the appearance of impropriety, the Trustee has not shown that he is in willful contempt, in this instance. Therefore, with the element of willfulness not established, we find that the Debtor was in technical contempt only, and deny the request for sanctions.
Motion for Judgment on the Pleadings, & Motion for Leave to Amend Answer
We treat these Motions together, because the Debtor filed his Motion for Leave *673to Amend Answer only in response to the Trustee’s Motion for Judgment on the Pleadings. The instant adversary proceeding was filed by the Trustee on February 9, 1994, on the following day, February 10, 1994, the Trustee filed an amended complaint objecting to the Debtor’s Discharge under 11 U.S.C. § 727(a)(2)(A), (a)(2)(B), (a)(3), (a)(4)(A), (a)(4)(C), (a)(4)(D), and (a)(7). On March 24, 1994, the Debtor filed his Answer to the Complaint through his then attorney of record, Richard Panciera, Esq. Although Geoffrey Regan, Esq., had previously been providing advice to Mr. Negro, he officially entered his appearance on behalf of the Debtor on April 18,1994. On April 25, 1994, the Trustee filed his Motion for Judgment on the Pleadings. More than three months later, on August 10, 1994, Mr. Regan filed a Motion for Leave to file an Amended Answer to the Complaint, as well as an Objection to the Trustee’s Motion for Judgment on the Pleadings. The Objection restated the Debt- or’s position that he would be seeking to amend his answer to the Complaint.
In reviewing the Motion to Amend, the Court recognizes that leave to amend “shall be freely given when justice so requires,” Fed.R.Civ.P. 15.3 However, a litigant’s ability to amend is not automatic or without limit. See Deasy v. Hill, 833 F.2d 38, 40 (4th Cir.1987), cert. denied, 485 U.S. 977, 108 S.Ct. 1271, 99 L.Ed.2d 483 (1988); In re Suburban Motor Freight, Inc., 114 B.R. 943, 950 (Bankr.S.D.Ohio 1990). The Supreme Court has stated that
[ i]n the absence of any apparent or declared reason — such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. — the leave sought should, as the rules require, be “freely given.”
Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962).
As grounds for his Motion to Amend, the Debtor states that:
2. On or about March 18,1994 the Debtor was summoned to the offices of Richard Panciera, Esquire and directed to sign a document entitled “Debtor’s Answer to the Trustee’s Complaint Objecting to the Discharge of Debtor”;
3. The Debtor was not consulted with respect to the content of that answer nor was the Debtor given an opportunity to review the Complaint filed in this proceeding and to respond to the allegations contained therein.
(Debtor’s Motion for Leave to File an Amended Answer to the Amended Complaint Objecting to the Discharge of the Debtor Pursuant to 11 U.S.C. § 727 of the Bankruptcy Code, August 9, 1994, at 1-2). In further support of his motion, the Debtor states in his Objection to the Trustee’s Motion for Judgment, on the Pleadings that:
Debtor was never consulted during the preparation of the original answer to the Trustee’s Amended Complaint in this proceeding. Attorney Panciera, who prepared the answer, relied heavily on representations made to him by Attorney Comolli in the preparation of the answer which was filed. The Debtor did not see the answer which was filed on his behalf until he was contacted by Attorney Panciera to appear at Attorney Panciera’s office to sign the answer. The Debtor was not instructed to review the contents of the Complaint nor the contents of the Answer and the actual meeting between Debtor and his counsel took less time than would be required to simply read the Complaint itself, let alone discuss its merits.
(Debtor’s Objection to Trustee’s Motion Pursuant to Bankruptcy Rule 7012(c) for Judgment on the Pleadings, August 9, 1994, at 5).
The record fails to support these allegations. Attorney Panciera testified that between March 10, 1994 and March 18,1994, he spent approximately 12 hours with the Debt- or preparing the answer to the complaint. Panciera further testified: that the answers were based on information obtained from the Debtor, and not on .information provided by the Debtor’s former attorney, George Comol-li, Esq.; that on March 18, 1994, the day the *674answer was signed, the Debtor met with him for 1.5 hours and had ample opportunity to review the answer and to make changes; that he signed the answer on March 18, and believes it is accurate and contains no misrepresentations. The Debtor testified, in contradiction of his own written allegations, that he did help Paneiera to prepare the answer, and that they did meet on at least five occasions. Mr. Negro complains, however, that the meetings lasted only 15 to 20 minutes (“a half hour at most”), and that other things were discussed, in addition to the answer to the Complaint'. Mr. Negro also conceded that Paneiera provided the typed answers for him to review before signing the pleading, but that he chose not to read the answers “because he would not understand them, and that he relied on and trusted his attorney to provide proper responses.”
We accept Mr. Panciera’s version that he met with the Debtor on several occasions and that it was the Debtor who provided the answers to the complaint. When it comes to disputed issues of fact, as usual we find the Debtor not to be a credible witness,4 and that while he would like this Court to believe that he functions, intellectually, at about a sixth grade level, Mr. Negro is in fact fully knowledgeable about his business and financial dealings, and the consequences thereof. He misjudges, however, the ethical and legal boundaries of his authority as a debtor, and totally overestimates his ability to sell incredible stories to the Court, the Trustee, and his creditors. •
By filing a motion to amend at this stage of the proceeding, and then only in reaction to the filing of a dispositive motion, and by giving testimony that directly contradicts the allegations in his own motion, Mr. Negro continues his familiar pattern of questionable behavior. Based upon all of the foregoing, we find and conclude that the Motion to Amend was not filed in good faith, and that, if granted, would cause undue delay and prejudice to the Trustee. See CEPA Consulting Ltd. v. King Main Hurdman (In re Wedtech Sec. Litigation), 138 B.R. 5 (S.D.N.Y.1992) (a motion to amend an answer filed in response to summary judgment motion was “particularly disfavored,” and the motion to amend was denied because it would cause undue delay and prejudice); Resolution Trust Corp. v. Gold, 30 F.3d 251, 253 (1st Cir.1994) (a motion to amend filed after a motion for summary judgment requires a showing that the “proposed amendments ... [are] supported by ‘substantial and convincing evidence.’ ”) The Trustee in this case filed an extensive motion based on the original answer, as well as the responses given in discovery in other pending adversary proceedings. This Court is convinced that the Debtor is not seeking to amend his answer because of newly discovered evidence, nor for any other legitimate purpose. He is merely attempting, belatedly, to retract material which, in hindsight, he now views as harmful to his defense.
Additionally, to approximately 60 of the 200, plus, allegations in the complaint, the Debtor has responded by saying:
Debtor denies that any response is required to the allegations contained ... as the document(s) and/or (deposition) testimony referred to therein speak for itself, but to the extent that any answer is required, the debtor denies that he acted in any way contrary to the law.
(See Debtor’s Amended Answer attached to Debtor’s Motion for Leave to File an Amended Answer.) Under Fed.R.Bankr.P. 7008, which makes Fed.R.Civ.P. 8 applicable in bankruptcy, such a response is not a specific denial, and may constitute an admission of the allegation. See Mahanor v. United States, 192 F.2d 873, 876 (1st Cir.1951). This type of gamesmanship is just more evidence of the Debtor’s willingness to engage in bad faith and his unfair use of the pleading process.
Accordingly, for all of the foregoing reasons, the Debtor’s Motion to Amend his Answer is DENIED.
Upon review of the Trustee’s Motion for Judgment on the Pleadings, we have taken into consideration the Complaint and the attached exhibits, the Answer as filed, the sworn testimony, and the Trustee’s Motion *675and Memorandum. For the reasons stated by the Trustee in his Motion for Judgment on the Pleadings, and in his memorandum in support thereof, which we adopt and ineorpo-rate herein by reference, the Trustee’s Motion for Judgment on the Pleadings is GRANTED.
Enter Judgment consistent with this opinion.
. While the injunction ran against Moriarty and Hopkinton, and not Mr. Negro personally, we are satisfied that he was also subject to the terms of the injunction when he began to operate the farm, after Moriarty’s departure.
. Among the animals sold were four yearling steers that required special feed, and a horse with an injured foot that required veterinary attention.
. This rule is made applicable in adversary proceedings by Fed.R.Bankr.P. 7015.
. All disputed issues of credibility herein are resolved against the Debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491943/ | PETER J. WALSH, Bankruptcy Judge.
INTRODUCTION
Before the court are Counts I and II of an adversary proceeding brought by the Plaintiffs-Debtors against Defendants Federal Deposit Insurance Corporation and Recoil Management Corporation in which Plaintiffs seek (a) as Count I, the enforcement of the automatic stay of 11 U.S.C. § 362(a) and damages relating to the violation thereof and (b) as Count II, the turnover of certain property of the Debtors’ estates in accordance with 11 U.S.C. § 542.1
For the reasons set forth below I find for the Plaintiffs on Count I. In light of that finding I need not decide Count II.
FACTS
Nature & Stage of Proceedings
Plaintiffs are Charlestown Holdings, Inc. (“CHI”), Immobiliare New England, L.P. (“INE”), Navy Yard Realty Trust (“Navy Yard”) and Shipyard Marina Trust (“Shipyard”). (The Plaintiffs are hereinafter referred to collectively as “Debtors”.) INE and its general partner, CHI, have a management agreement with the Raymond Group (“Raymond”) to operate a marina complex known as the Shipyard Quarters Marina located on Piers 6 and 8 in the Charlestown Navy Yard on Boston Harbor in Boston, Massachusetts (“the Marina”). Navy Yard and Shipyard are Massachusetts real estate trusts which hold title to Piers 6 and 8, respectively, on behalf of INE. Piers 6 and 8 are encumbered by separate mortgages and assignments of rents granted by Navy Yard and Shipyard to secure an $8 million note by INE to the Bank of New England, N.A. The mortgage obligations have been in default since July 25, 1991, at which time a principal balance of $6 million was due.
Defendants are the Federal Deposit Insurance Corporation and Recoil Management Corporation (“Recoil”). Recoil is a real estate management company and attorney-in-fact for the Federal Deposit Insurance Corporation in the latter’s capacity as receiver of the New Bank of New England, N.A. and Bank of New England, N.A. (The Federal Deposit Insurance Corporation and Recoil are hereinafter referred to collectively as “FDIC”.)
Debtors filed Chapter 11 petitions at approximately 8:30 a.m. on June £7, 1994. The FDIC was at the same time attempting to take possession of the Marina as a mortgagee-in-possession. On June 29, 1994, Debtors filed this adversary proceeding and moved under Bankruptcy Rule 7065 for entry of a temporary restraining order restraining FDIC from further exercise of control over the Marina. After a hearing on June 30, 1994, the court entered a temporary restraining order (“TRO”) directing the turnover of the Marina to the Debtors and enjoining any further efforts by FDIC to exercise control over the Marina. Within an hour of entry of the TRO, FDIC returned control of the Marina to the Debtors. After briefing and a hearing on July 12, 1994, the court granted Debtors’ application for a preliminary injunction, which continued the relief granted by the TRO, and scheduled a trial on the merits.
Prior to trial, Debtors amended their Complaint of right, Defendants not having answered the original Complaint.2 Debtors dropped the original Count III and added a new Count III requesting determination by the court of the value of the property encumbered by the lien of FDIC pursuant to 11 U.S.C. § 506. Count III will be tried at a later date.
Trial was held on August 8-9, 1994.
*726
Background & FDIC Takeover of the Marina
Certain of the Debtors were involved in shareholder disputes in a New York state court in 1993. In June of that year, an involuntary Chapter 11 petition was filed in Massachusetts against CHI by Competrol Real Estate Limited (“Competrol”), an unsecured creditor and shareholder of CHI. Competrol moved to have a trustee appointed, alleging “gridlock in the management and control of the affairs of CHI and its affiliated entities, including INE”. Testimony indicates that the bankruptcy case was ultimately dismissed, with the Massachusetts bankruptcy judge abstaining, apparently due to the shareholder suits in New York. Immediately prior to these June 27,1994 bankruptcy filings the parties settled the shareholder suits.
On April 22,1994, David Brown (“Brown”), a loan officer employed by Recoil, along with other employees of Recoil, entered Pier 6 and Pier 8 to take possession of the Marina as a mortgagee-in-possession in accordance with Massachusetts law and the relevant loan documents. Employees of Raymond objected to Recoil’s taking possession, and after several hours in possession Recoil left the property and initiated a Massachusetts state court action against INE, CHI and others. Recoil requested an injunction requiring the defendants to deliver the premises to Recoil.
The parties to the state court action negotiated a stipulation and order which, among other things, provided for a 45-day standstill period during which the parties would attempt to settle their differences. The standstill period expired on June 25, 1994.
Recoil then attempted to take possession of the Marina once more. Brown first walked onto Pier 6 on June 27, 1994 at approximately 7:30 a.m., but left after approximately five minutes. He returned to Pier 6 at approximately 7:45 a.m.
Brown and others from Recoil, including Timothy Fife and Kirk Roth, gathered on Pier 7, which is between Pier 6 and Pier 8 but which is not owned by the Debtors, and then walked onto Pier 8 at approximately 8:00 a.m. While standing on Pier 8 and in front of the Marina office building, Brown read the text of an entry statement sometime between 8:10 a.m. and 8:20 a.m. He recalls that it took him about 1 minute to do so, although Fife recalls that it took him approximately 5 minutes to do so. Brown testified that in addition to Fife and Roth, those present included Recoil’s attorney; Holly Fitzgerald of Capstan Management, a marina manager retained by Recoil; a constable and notary; and a videotape operator. Roth and Fife then executed a certificate of entry which was notarized by the constable. Recoil personnel began scotch taping notices they had brought with them to the outside of the Marina office and the Pier 8 gate.
Doug Mason (“Mason”), a Raymond employee and co-manager of the Marina, arrived at Pier 8 at approximately 8:25 a.m., just as Brown had completed his entry speech. Just before 8:30 a.m., Mason opened the Marina office door and let members of the Recoil party into the main reception area of the office. It is necessary to pass through, or by, the office to obtain access to the floating docks which are secured by gates controlled by combination locks.
Brown testified that persons from Recoil asked for keys to the Marina offices and safe but that he was not sure whether anyone specifically asked for access cards to the main gates which control vehicular entry to each pier. He also testified that persons from Recoil already had the combination to the locks on the gates controlling access to the floating docks. No one from Recoil changed either the cards or the combination.
Debtors filed voluntary Chapter 11 petitions at approximately 8:30 a.m. or shortly thereafter.3 Brown testified that Recoil’s arrival at the Marina early in the morning was an attempt to “beat” the opening of the bankruptcy courts.
Between 8:30 a.m. and 9:00 a.m. Recoil employees placed notices around Pier 8 and on the boats. Since the boats are located in the slips of the floating docks of Pier 8, most, *727if not all, of the notices were placed on boats well after 8:35 a.m. At Recoil’s request, a locksmith company arrived between 9:00 am. and 10:00 a.m. to 'change the Marina locks.
As other Raymond employees began to arrive at approximately 9:00 a.m., they were advised by Recoil of the takeover and told to return at 1:00 pm. to seek employment by Capstan.
At approximately 9:30 am. Recoil commenced the same takeover procedure with respect to Pier 6. Brown, Roth and Fife drove to Pier 6, where Brown read the text of his entry statement for Pier 6. Roth and Fife then executed a certificate of entry. Between 9:30 a.m. and 10:00 a.m. Recoil personnel placed notices on Pier 6 and on the boats in the slips of the floating docks on Pier 6.
Between 10:00 am. and 11:00 a.m., personnel from Capstan utilized the Marina office copier to print notices indicating that slip rental payments were to be made to Capstan, and they distributed these notices throughout the Marina.
Copies of the bankruptcy petitions were faxed to the Marina on the afternoon of June 27th and were read by Peter Fitzgerald of Capstan. However, Recoil would not relinquish control of the Marina.
Recoil and Capstan continued to use the existing on-site Raymond employees to conduct the day-to-day operations of the Marina while they were in control. Holly Fitzgerald oversaw the management of the facility.
Debtors contend that they have demonstrated the ability to operate the Marina in a professional manner designed to preserve its value as a going concern. They have taken recent actions, including the retention of new Marina management and steps to resolve permitting issues at Pier 8, which will enhance the value of the Marina. They contend that FDIC’s actions while it was in control of the Marina damaged the good will of Debtors’ business and created operational difficulties including confusion among slip holders, vendors and employees.
FDIC, on the other hand, contends that Debtors’ actions, the actions of the manager of the Marina, the condition of the Marina, and certain other factors, create a situation where the continued value of that property is at risk and will continue to be at risk if Debtors remain in possession. FDIC also contends that its possession of the Marina did not interfere with the business of the Marina.
DISCUSSION
Stay Order Violation
In its trial memorandum, FDIC states that the issue as to whether there was a violation of the automatic stay is: “Did the FDIC take possession of the Marina prior to the filing of the instant bankruptcies?” Def.’s Memo at 1. In answering the question, FDIC takes the position that “[possession — as distinct from the concepts of foreclosure and perfection of a security interest in rents — requires nothing more than an open and (arguably) peaceable entry upon the premises in question”. Id. at 2. In support of that proposition, FDIC relies on four Massachusetts cases: In re Milford Common J.V. Trust, 117 B.R. 15 (Bankr.D.Mass.1990); In re Concord Mill Ltd. Partnership, 136 B.R. 896 (Bankr.D.Mass.1992); Araserv, Inc. v. Bay State Harness Horse Racing, 437 F.Supp. 1083 (D.Mass.1977); and Corrigan v. Payne, 312 Mass. 589, 45 N.E.2d 829 (1942). I do not find that these cases support FDIC’s proposition. Indeed, I find their holdings contrary to its proposition.
In Milford, on January 30, 1990 the mortgagee, following default, entered the debtor’s property and posted a notice that it was entering and taking possession and that, henceforth, rents should be paid to its managing agent. A copy of the notice was delivered to each tenant. Thereafter, the debtor instructed its employees to remove the notices and, on January 31, 1990, filed a Chapter 11 petition. The court found that the mortgagee was entitled to the rents. It did not find that simple entry constituted possession. On the contrary:
Looking to Massachusetts law, an assignment of rent gives the mortgagee a valid security interest which becomes effective upon a default and an overt act by the *728mortgagee to take actual or constructive possession.
Id. at 15-16. Thus, to secure a perfected interest in the rents, the mortgagee is required to undertake an overt act to take actual or constructive possession. The mortgagee in Milford accomplished such overt act by completing entry and giving notice to all tenants. Although I need not make a finding at this time on FDIC’s claim to the rents (and a resulting “cash collateral” issue”), since FDIC’s notice to the tenants (boat owners) occurred after the filing of the petitions, Milford suggests that the FDIC does not have a perfected interest in rents.
In Concord Mill the court addressed a mortgagee’s motion to direct the debtor to turnover rent monies. Following default, the mortgagee sent letters on October 3, 1990 to the debtor’s tenants directing them to make payments to the mortgagee instead of the debtor. The mortgagee did not enter the premises at that time. On October 30, 1990 the debtor filed its petition. Subsequently, the mortgagee moved for relief from the automatic stay. The motion was granted on March 29, 1991, and the mortgagee entered upon six of the debtor’s nine condominium units. On April 1, 1991, the mortgagee obtained a state court order enjoining the debt- or from interfering with the mortgagee’s rent collection and directing the tenants to pay the rent to the mortgagee. Later, at the debtor’s request, the court vacated the lift stay order. Thereafter, at the mortgagee’s request, the court again lifted the stay order. The mortgagee then foreclosed on the property and sought to collect on its deficiency claim by seizing the rent collections. The court found that the mortgagee was only entitled- to the rents which accrued after the April 1, 1991 state court order. Since the October 3rd notice to tenants was not accompanied by entry onto the premises, under the Milford rationale the court found that the mortgagee did not have a perfected interest in the rents. It found that entitlement to rents requires that “[t]he assignee must (at least) ... enter onto the property, give notice of its entry to the tenants, and instruct the tenants to begin making their rent payment to the assignee instead of the assignor”. Id. at 900. Thus, like Milford, Concord Mill (a) does not suggest that mere entry constitutes possession and (b) makes clear that without both entry and notice to tenants regarding the payment of rent, a mortgagee does not have a perfected interest in rents.
In Araserv, following default, the mortgagee entered onto a portion of the premises to take possession. The defendants refused to recognize the mortgagee’s asserted right and barred the mortgagee from the premises. The mortgagee claimed that its entry upon the premises entitled it to a possessory interest. The court noted that “[t]he language in [the controlling Massachusetts statute] does not deal with the actual entry or the procedure by which the mortgagee takes possession.” Id. at 1092. Thus, the court makes clear that possession is not a matter of simple entry. Because subsequent to its entry the mortgagee was ousted, the court found that the mortgagee had no possessory interest.
I need not discuss Corrigan. It is factually inapposite, and FDIC relies on a quotation out of context.
FDIC’s notices to tenants regarding the payment of rent did not occur until after the filing of the petitions. Based on the cases cited by FDIC, I conclude that FDIC did not have possession prior to the stay order.
That something beyond mere entry is required to oust the mortgagor and establish possession in the mortgagee is also consistent with general principles of property law. Possession denotes dominion and control and the exercise of such control to the exclusion of others. The Bankruptcy Court for the District of Massachusetts has held that exclusivity is an essential element of possession under Massachusetts law. In In re Ledgemere Land Corp., 116 B.R. 338 (Bankr.D.Mass.1990), the court stated:
Possession is one of the more slippery concepts in the law, made more so here by the public nature of the premises. It nevertheless must approach a degree of exclusivity which is lacking here.
Id. at 341 (emphasis added). See also, State by State Highway Comm’r v. Hankins, 59 *729N.J.Super. 27, 157 A.2d 41, 43 (Law.Div.) (discussing possession of land by use and control to exclusion of others), rev’d in part on other grounds, 63 N.J.Super. 326, 164 A.2d 615 (App.Div.1960); Black’s Law Dictionary 1163 (6th ed.1990) (possession defined as the “detention and control” of anything which may be the subject of property). FDIC failed to show that prior to 8:35 a.m. on June 27, 1994 it exercised a level of dominion and control over Piers 8 and 6 of the Marina such that all other persons were excluded from exercising the same. To the contrary, material acts to secure possession took place well after these bankruptcy cases commenced, including the posting of notices to tenants, the changing of locks and the ejectment of the employees of Debtors’ agents. Moreover, it is undisputed that not a single possessory act with respect to Pier 6 occurred until after Debtors filed their petitions.
FDIC contends that its entry onto Pier 8 also constituted an entry onto Pier 6 and concomitant possession thereof. In support of this proposition, the FDIC quotes the following from Araserv: “It has ... been held in Massachusetts that a mortgagee who enters upon one tract of land under a mortgage which covers two separate and distinct tracts of land is valid as an entry upon the entire mortgage premises.” Def.’s Mem. at 9, quoting 437 F.Supp. at 1093 (citing Bennet v. Conant, 64 Mass. 163, 165 (1852)). Even assuming the value of an 1852 commercial law case as precedent, the quoted statement cannot support the proposition that a valid entry onto one tract of land covered by a mortgage constitutes a valid entry upon another tract covered by a separate and distinct mortgage. Here, Pier 8 and Pier 6 are separate parcels of land, encumbered by separate mortgages and assignments of rent, and titled by separate nominee trusts. Pier 8 and Pier 6 are not contiguous. They are separated by a condominium development on Pier 7, and Pier 6 cannot even be seen from Pier 8, and vice versa. Thus, even if I were to find that FDIC was in possession of Pier 8 prior to 8:35 a.m. on June 27, such possession cannot be attributed to Pier 6.
Since I conclude that FDIC did not have possession of Pier 8 or Pier 6 prior to the filing of the petitions, FDIC’s post petition possessory activities violated the automatic stay of § 362(a) and are void ab initio. Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1206 (3d Cir.1991). In this Circuit, acts in violation of the automatic stay have no force or effect and can accord the party who has violated the automatic stay no additional property rights or interests that it did not enjoy prior to the commencement of the bankruptcy case. In re Ward, 837 F.2d 124, 126 (3d Cir.1988). FDIC’s citation to In re Siciliano, 13 F.3d 748 (3d Cir.1994) as an exception to the void ab initio rule has no application here. As of the petitions filings the Debtors had and continue to have possession of the Marina.
Even assuming FDIC had possession of both Pier 8 and Pier 6 prior to the filing of the petitions, the Massachusetts cases suggest that the stay order terminated that possession. In Araserv, the court noted that a mortgagee’s possession is not valid under Massachusetts law if it is opposed by the mortgagor or any other person claiming the mortgaged property. 437 F.Supp. at 1094. Likewise, in Milford the court noted that “the Bank was unable to complete its possession as a result of the Chapter 11 filing and the automatic stay.” 117 B.R. at 16. While I need not now decide whether the intervening bankruptcies terminated the FDIC’s alleged possession of the Marina, I believe this issue bears on the willful violation issue. That issue, as discussed below, will be decided after additional submissions to the court.
Willful Violation of the Stay Order
Debtors claim that the violation of the stay order was willful and that the court should award damages against FDIC pursuant to § 362(h). In response, FDIC argues that it continued to control the Marina after being notified of the Chapter 11 petition in the afternoon of June 27 and until the TRO of July 30 because it had a good faith belief that the FDIC’s conduct was needed to protect the value of the collateral and because its lawyers viewed the takeover as not violating the stay order.
*730Based on Recoil’s perception of the situation, i.e., the value of its collateral being in jeopardy by reason of alleged in-fighting and accusations of improper conduct of persons controlling Debtors, all as presented in a prior bankruptcy case and a New York state court action, I believe that the FDIC was justified in believing that its retention of the property may have been at a critical juncture and that it needed to carefully weigh whether the stay order did in fact oust it from possession. As well founded as that concern may have been, however, it cannot justify a willful violation of the stay order. It is my understanding that FDIC continued in possession based on the advice of counsel. The basis in law and fact for such advice is not at all clear from the record before me. Consequently, I cannot say at this time that such advice was frivolous. While reserving judgment on this matter, I do observe that at least as to the takeover of Pier 6, in light of the sequence of events placed on the record at the August 8th & 9th hearing, I do not see how such legal advice could be justified, to use the language of Fed.R.Civ.P. 11, “by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law”. As pointed out below, I will be addressing an additional aspect of this proceeding later and I will reserve judgment on the willful violation issue until that time. In that connection, counsel may make further submissions to the court. The Debtors’ submissions may include a specific statement in support of calculated damages.
Turnover
In light of my decision on the violation of the stay order and the voiding of FDIC’s possessory actions, I need not decide the § 542 turnover count nor any adequate protection issue arising therefrom. If the FDIC believes that its interest in the collateral is not being adequately protected it can initiate a motion for relief. While I do not consider a “cash collateral” issue to be before me, in light of the allegations regarding pos- • sible misappropriation of funds I direct that until a further order or a consent agreement 'provides otherwise, all monies from the Marina operations shall be expended or distributed for no purposes other than necessary and reasonable expenses of, and capital improvements to, the Marina facility.
Affidavits
I turn now to a matter of considerable concern and consternation to me. Counsel for both parties filed extensive written submissions in connection with the preliminary injunction hearing of July 12, 1994. At that hearing, I observed on the record that I saw a sharp conflict between the facts set forth in FDIC’s affidavit and those in several of the Debtors’ affidavits and accordingly was concerned about the veracity of one or more of the affidavits. Because of that concern I directed that at the final hearing the parties present as live witnesses those persons who had submitted affidavits.
At the preliminary injunction stage, the FDIC submitted a July 7, 1994 affidavit of Brown, the loan officer employed by Recoil. Brown testified extensively at the hearing and his testimony addressed matters set forth in his July 7, 1994 affidavit. I found Brown’s testimony to be straightforward and candid. However, regarding the events relating to the takeover of the Marina on June 27,1994,1 found his testimony and the stipulated facts to seriously conflict with statements in his July 7, 1994 affidavit. At a minimum, I find that the most important parts of the affidavit contain serious inaccuracies and are misleading. I therefore entertain the notion that the submission of that affidavit by FDIC was with the intent to mislead the court in connection with the preliminary injunction hearing. I will set forth pertinent considerations only briefly.
With the petitions having been filed at approximately 8:30 a.m. on June 27, 1994, the timing of FDIC’s takeover activity is critical. The overlapping of the filings and FDIC’s takeover activities were not purely coincidental. FDIC planned its early morning takeover to beat the opening of the bankruptcy courts.
In relevant part the July 7, 1994 affidavit states:
6. At 7:SO a.m. on Monday June 27, 1994, I, along with several other employees of RECOLL, again entered the property and *731took possession as a mortgagee-in-possession. Immediately upon entering the premises, I read a prepared statement declaring that the FDIC was exercising its rights as a mortgage-in-possession in accordance with Massachusetts law. At approximately 8:15 a.m., I met with employees of the management company, the Raymond Group, and again read the prepared statement indicating that the FDIC was exercising its rights to take possession. No one objected to our exercise of possession or requested that we leave.
7. All of this occurred prior to 8:30 a.m. on Monday, June 27, 1994. The only conduct engaged in after 8:80 a.m. was the securing of the premises and the notification to tenants of where to pay rents.
[emphasis added.] Some of the inaccuracies of the affidavit are revealed by the following stipulated facts and Brown’s testimony:
1. The affidavit does not state, or even hint, that FDIC attempted a takeover of two separate properties, Pier 8 & Pier 6, and that none of its activities in furtherance thereof took place with respect to Pier 6 until after 9:30 a.m. Thus, as to the takeover of Pier 6, the affidavit is patently false.
2. Brown’s entry onto Pier 8 along with other Recall employees did not occur until approximately 8:00 a.m. Furthermore, there was no entry onto the private area of the premises (i.e. the area as to which the public does not have unlimited access) until sometime after 8:25 a.m. At trial Brown testified that it was “at that point- and [sic] time ... when we entered the property.” August 9th Tr. at 19.
3. The first reading of the prepared statement did not occur until at least 8:10 a.m. and possibly as late as 8:20 a.m. Based on the stipulated facts, I conclude that the first reading occurred closer to 8:20 a.m.
4. Brown met the first Raymond employee, Mason, no earlier than 8:25 a.m. and did not meet another Raymond employee until at least a half hour after encountering Mason.
In response to my questions to Brown, he readily acknowledged a number of the inaccurate statements in his affidavit. He explained that he did not write the affidavit or participate in its drafting. It was written by FDIC’s counsel, a member of the law firm representing FDIC in the takeover activity.4 Brown read the affidavit before signing it but did not make any changes. The record does not disclose the identity of the attorney who drafted the affidavit but does disclose that a member of the law firm was on site with Brown during the takeover of Pier 8 and Pier 6. I find this significant because it suggests that the law firm could not have been mislead on the facts by Brown.
Based on the record before me, I believe that Brown’s July 7, 1994 affidavit may have been filed with an intent to mislead the court on important facts bearing on the July 12, 1994 preliminary injunction hearing. Because the record on this matter is incomplete and because the law firm was not present during the August 8th & 9th hearing, I will not draw a conclusion at this time as to whether this conduct constitutes the filing of a false affidavit and, if so, what remedial action should follow. However, through the FDIC’s counsel identified above, I direct the law firm to file a response within 20 days from the date of this memorandum opinion. Debtor may file a reply to that response within 20 days thereafter. If Debtors believe that additional discovery on this matter is needed prior to filing their reply they may conduct discovery on an expedited basis, and any depositions (unless it is the deposition of a third party not subject to the control of FDIC or the law firm) shall be conducted at the offices of Debtors counsel. If this schedule places an undue burden on any party or counsel, particularly in light of the current vacation season, counsel should attempt to make an accommodation and confirm it with my office.
As already noted, I have reserved for later decision the issue of a willful violation of the stay order. Since I understood that the law firm gave the advice to Recoil which caused *732Recoil to remain at the Marina until the TRO was issued and because there may be a link between that advice and the July 7, 1994 affidavit, both the willful violation issue and the affidavit issue should be addressed in the same written submissions.
Debtors’ counsel should submit a form of order on notice.
. References to the Bankruptcy Code, 11 U.S.C. § 101 et seq., are hereinafter cited as "§ _",
. The original Complaint consisted of Count I, alleging a willful violation of the automatic stay; Count IX, requesting a turnover of the Marina to the Plaintiffs; Count III, requesting a turnover of certain bank accounts in the name of "Shipyard Quarters Marina” from Citizens Bank of Massachusetts ("Citizens”); and Count IV, requesting equitable subordination of FDIC’s claim. Count III was dropped in the Amended Complaint, as the TRO had directed Citizens to lift the administrative freeze and granted the Debtors the right to utilize the funds in two of the bank accounts to pay the costs of the ordinary course operation and maintenance of the Marina. Count IV was also dropped, as a result of information obtained during the discovery process.
. The first filing was clocked in by the clerk of the court at 8:29 a.m. Since INE is the operating debtor I consider its filing time the most relevant. Its petition was clocked in at 8:35 a.m.
. The subject law firm is referred to hereinafter as “the law firm” and is not one of the firms identified above. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491944/ | MEMORANDUM OPINION AND ORDER
HELEN S. BALICK, Chief Judge.
This is the court’s Opinion on the contested objection to proofs of claim filed by Socorro Pando and others, 17 in number. Counsel agree that the only legal issue is whether the publication notice of Rexene’s bar date is sufficient to sustain Rexene’s objection.
The parties requested the court to decide the issue on the pleadings found at docket numbers 861, 862, 864 and 866 in the Rexene case, numbers 91-1057 through 91-1059, in lieu of a dispositive motion. This is a core proceeding. 28 U.S.C. § 157(b)(2)(A)' and (B).
The undisputed facts relevant to the disputed issue are as follows. The Debtors filed Chapter 11 petitions on October 18, 1991. The Pando claimants were unknown to Rex-ene and consequently were not listed as creditors. This court on November 20, 1991 issued an order setting January 10, 1992 as the final date (bar date) for filing claims against *733the Debtors. Notice of the final date for filing claims was published in the Odessa American on December 4, 1991. The Pando claimants all reside in or near Odessa, Texas.
Debtors’ plan, confirmed July 7, 1992, consummated September 18, 1992, resulted in the Debtors’ discharge. 11 U.S.C. § 1141(d). The Pando claimants filed suit against Rex-ene in March 1993 in a Texas state court claiming damages as a result of various chemical exposures while working in Rex-ene’s plant in Odessa, Texas.
In May 1993 Socorro Pando filed an individual suit against Rexene in a Texas state court based on wrongful termination of employment. Both suits involved alleged pre-petition events. Rexene initiated two adversary proceedings, first against Socorro individually (A-93-143) and, second, against the Pando claimants (A-94-84) on November 24, 1993 and June 6, 1994 respectively. These adversaries sought permanent injunctions based upon its plan, the confirmation order and the effect of confirmation. The proofs of claim were filed July 8, 1994.
Rexene contends that the Pando claimants received adequate notice of the bar date by virtue of the published notice in the Odessa American on December 4, 1991. The gist of the Pando claimants’ argument is that the bar date notice was insufficient to satisfy the requirements of due process in that it did not “explain the significance of the ‘bar date’”.
In the published notice, the Debtors name “REXENE PRODUCTS COMPANY” appears in capital letters as does the title “NOTICE OF FINAL DATE FOR FILING CLAIMS AGAINST THE DEBTORS”. In the body of the notice appears the statement that this court fixed “January 10, 1992 as the last day for any creditor whose claims are not scheduled ... and who desires to participate in the ease or share in any distribution to file a proof of claim (the “bar date”)”. The notice also indicated that for a claim to be validly and properly filed, it had to be received on or before the bar date by the named claims agent. The notice further stated that any requests for extensions of the bar date had to be filed with the court no later than December 20, 1991.
The bold-faced title of the published notice indicates that this notice relates solely to the final date for filing claims against the Debtor, Rexene Products Company, whose name also appears in bold face. The notice clearly states January 10, 1992 is the last day for filing claims, the required procedure and the significance of not complying with the notice.
The Pando claimants fall into the category of unknown creditoi’s. The cases cited on behalf of the Pando claimants do not support their argument. The United States Supreme Court in Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950) held that publication notice is wholly effective as to all unknown creditors. Implicit in the Court’s ruling is that due process must be satisfied. Here, the notice explicitly apprised interested parties of what was required to participate in Rex-ene’s Chapter 11 case and the consequences of failing to follow the procedure outlined. See In re Trump Taj Mahal Associates, 156 B.R. 928, 939-40 (Bankr.D.N.J.1993). Due process has been satisfied.
Rexene’s objection to the 17 proofs of claim filed on behalf of the Pando claimants must be sustained and permanent injunctions issue in accordance with Stipulation and Order entered in each Adversary Proceeding.
An order is attached.
ORDER DISALLOWING LATE CLAIMS
AND NOW, January 10, 1995, upon the Debtors’ Objection to the Pando Claimants’ proofs of claim filed after the bar date seeking the issuance and entry of an Order disallowing those claims on the ground that they are time-barred, it is
ORDERED, that the Objection is SUSTAINED; and it is further
ORDERED, that the Late Claims, a list of which is attached as Exhibit A, are DISALLOWED; and it is further
ORDERED, that the Late Claimants are forever barred from pursuing the Late Claims through the Texas Lawsuits, as that term is defined in the Objection and in the Adversary Proceedings (A-93-143; A-94-84') or through other means; and it is further
*734ORDERED, that the Late Claimants are barred from sharing in the Debtors’ estates, to the extent of such Late Claims.
EXHIBIT A
LATE CLAIMS
CLAIMANT CLAIM/CLASSIFICATION
Afonso Garcia Pando $100,000/Unsec. Priority
Socorro Urias Pando $100,000/Unsec. Priority
Trinidad Santillan Armendariez $100,000/Unsec. Priority
Ricardo Avarez Galindo $100,000/Unsec. Priority
Pedro A. Levario $100,000/Unsec. Priority
Jesus Lujan $100,000/Unsec. Priority
Jesus Hernandez Sanchez $100,000/Unsec. Priority
Jose Garcia Carrasco $100,000/Unsec. Priority
Jesus Avarez Sanchez $100,000/Unsec. Priority
Frank Trevino $100,000/Unsec. Priority
Frank Javier Flores Tav-arez $100,000/Unsec. Priority
David Carrasco $100,000/Unsec. Priority
Daniel Del Rio $100,000/Unsec. Priority
Cipriano Rodriguez $100,000/Unsec'. Priority
Aturo A’mendariz $100,000/Unsec. Priority
Anunfo R. Payen $100,000/Unsec. Priority
A Pando, Jr. $100,000/Unsec. Priority | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484103/ | Order entered November 10, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00691-CV
VEREIT REAL ESTATE, L.P., COLE LA DALLAS TX, LLC, COLE LA
DENTON TX, LLC, AND COLE LA DUNCANVILLE TX, LLC, Appellants
V.
FITNESS INTERNATIONAL, LLC, Appellee
On Appeal from the 14th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-20-18444
ORDER
By letter filed November 9, 2022, court reporter Diane L. Robert informs the
Court that volume 5, an exhibit volume, of the reporter’s record filed September
16, 2022, included “incorrect exhibits.” She notes corrections to volume 5 have
been made, and a corrected volume has been filed.
In light of the errors and corrections, we STRIKE volume 5 filed September
16. The appeal shall proceed on the corrected volume 5 filed November 9.
/s/ BILL PEDERSEN, III
JUSTICE | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484104/ | Order entered November 10, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-00462-CR
TREVOR RUSSELL, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 283rd Judicial District Court
Dallas County, Texas
Trial Court Cause No. F21-75838-T
ORDER
Before the Court is appellant’s November 8, 2022 motion to extend the time
to file his tendered brief. A review of the tendered brief reveals that on page 31, in
a passage quoting from an indictment in a prior case read into the record by the
prosecution, appellant reveals the full name of a child victim.
This Court does not allow a party to file a brief that discloses the names of
victims or witnesses who were children at the time of the offenses, or the names of
any other children discussed or identified at trial. See TEX. R. APP. P. 9.10(b)
(“Unless a court orders otherwise, an electronic or paper filing with the court,
including the contents of any appendices, must not contain sensitive data.”), id.
9.10(a)(3) (“Sensitive Data Defined. Sensitive data consists of . . . a birth date, a
home address, and the name of any person who was a minor at the time the offense
was committed.”). Accordingly, we STRIKE appellant’s brief.
We ORDER appellant to file, within THIRTY DAYS of the date of this
order, an amended brief that identifies all individuals who were children at the time
of this or any other offense either generically (for example, “victim”) or by initials
only, including when quoting relevant portions of the record or giving a statement
of the case.
We DENY AS MOOT appellant’s motion to extend the time to file his
tendered brief.
/s/ DENNISE GARCIA
JUSTICE
–2– | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484128/ | Cite as 2022 Ark. App. 468
ARKANSAS COURT OF APPEALS
DIVISION III
No. CR-22-287
Opinion Delivered November 16, 2022
JONATHAN MARTIN LAWRENCE
APPELLANT
APPEAL FROM THE DREW COUNTY
V. CIRCUIT COURT
[NO. 22CR-21-34]
STATE OF ARKANSAS
APPELLEE
HONORABLE ROBERT B. GIBSON
III, JUDGE
AFFIRMED
RITA W. GRUBER, Judge
Jonathan Martin Lawrence pleaded guilty in the Drew County Circuit Court to
possession of drug paraphernalia, a Class D felony. He was sentenced by a jury as a habitual
offender to fifteen years’ imprisonment. His sole point on appeal is that the circuit court
erred in overruling his objection to the State’s proffered jury instructions and verdict form.
We affirm.
Lawrence pleaded guilty to a crime he committed on December 8, 2020. After the
plea, the State presented a packet of information to the circuit court for the sentencing
hearing that included evidence of Lawrence’s previous five offenses and proposed jury
instructions. Because Lawrence was a habitual offender, he was subject to an enhanced
sentence pursuant to Arkansas Code Annotated section 5-4-501(b) (Supp. 2021), which
authorizes a term of imprisonment of “not more than fifteen (15) years” for a habitual
offender convicted of a Class D felony. The State informed the court that the habitual-
offender statute had been amended from stating that a defendant “may be sentenced to pay
any fine authorized by law for the felony conviction and to an extended term of
imprisonment”—in this case, not more than fifteen years—to stating that a defendant “may
be sentenced to pay any fine authorized by law for the felony conviction and shall be sentenced
to an extended term of imprisonment.” Ark. Code Ann. § 5-4-501(b)(1) (Repl. 2020) & (Supp.
2021) (emphasis added).1 The State argued that this statutory modification mandated prison
time. Lawrence contended that it did not mandate prison time, arguing that the jury could
still impose no prison time at all. The court agreed with the State and opined that the new
statute required the jury to impose at least one day of prison time.
The jury instructions given by the court that are relevant to this appeal include the
following:
The offense of possession of drug paraphernalia to inhale methamphetamine,
when committed by a habitual offender is punishable by imprisonment for a term of
not more than 15 years and a fine up to $10,000.
....
After hearing arguments of counsel, you will retire to consider and complete
the following verdict form. I have it with me, and it reads, We the jury fix the sentence
of Jonathan Lawrence at a term of – and there is a blank – in the Department of
Correction and a fine of – and there is a blank – and it needs to be signed by the
foreman. Underneath there it says “not more than 15 years,” so that is your range.
And if you choose a fine, it is not to exceed $10,000.
1
The amendment to the statute took effect on July 28, 2021.
2
The State did not mention the jury instructions or Lawrence’s possible sentence of
imprisonment in its closing argument except to recommend that the jury sentence Lawrence
to a minimum of six years’ imprisonment. Lawrence’s counsel stated in closing argument
that Lawrence faced a possible sentence of “up to 15 years” in prison and a fine of “up to
$10,000,” explaining that the jury could impose a term of imprisonment “for as little as one
day.” Counsel then argued,
Now, I’m not here to say that perhaps one day is a sufficient kind of sentence in this
type of case, but you can impose a sentence of one year, two years, three years. And
when you look at the specific charge, I think that is the range that I think would be
justifiable in this type of case given the circumstances of this case.
The jury’s completed verdict form, as signed by the jury foreman and sentencing
Lawrence to fifteen years’ imprisonment and no fine, is set out below.
On appeal, Lawrence contends that the court erred in overruling his objection to the
jury instructions and verdict form because the statute had not been amended at the time his
crime was committed and did not contain the word “shall.” He argues that the court failed
to allow the jury to consider the lawful possible verdict of no imprisonment.
3
A party is entitled to a jury instruction when it is a correct statement of the law and
there is some basis in the evidence to support giving the instruction. Gould v. State, 2014
Ark. App. 543, at 5, 444 S.W.3d 408, 411. This court reviews a circuit court’s decision
regarding the use of jury instructions for abuse of discretion. Id. The jury instructions at issue
in this case involve Lawrence’s possible sentence of imprisonment. Sentencing in Arkansas
is entirely a matter of statute, Donaldson v. State, 370 Ark. 3, 7, 257 S.W.3d 74, 77 (2007),
and shall be in accordance with the statute in effect at the time of the commission of the
crime—here, December 2020. The State concedes that the circuit court erred by relying on
the amended version of Ark. Code Ann. § 5-4-501(b) since it was not effective until July
2021, six months after Lawrence had committed his crime. However, the State contends that
there is no reversible error because the court correctly instructed the jury that the sentencing
range was “not more than 15 years.”
We turn to the relevant statute in effect at the time the crime in this case was
committed.
(b)(1) A defendant meeting the following criteria [includes a defendant convicted
of four or more felonies] may be sentenced to pay any fine authorized by law for the
felony conviction and to an extended term of imprisonment as set forth in
subdivision (b)(2) of this section[.]
...
(2) The extended term of imprisonment for a defendant described in subdivision
(b)(1) of this section is as follows:
...
4
(E) For a conviction of a Class D felony, a term of imprisonment of not more
than fifteen (15) years.
Ark. Code Ann. § 5-4-501 (Repl. 2020).
The statute specifically provides that a habitual offender who commits a Class D
felony may be sentenced to a term of imprisonment “of not more than fifteen (15) years,”
which is precisely what the jury instructions and the verdict form in this case provided. A
party is entitled to a jury instruction when it is a correct statement of the law and there is
some basis in the evidence to support giving the instruction. Gould, 2014 Ark. App. 543, at
5, 444 at S.W.3d at 411. Consequently, we hold that the circuit court’s instruction was
proper, and the court did not abuse its discretion in giving it. Moreover, Arkansas case law
provides that “up to” and “not more than” a particular number of years in the Arkansas
Department of Correction includes zero. See Donaldson, 370 Ark. at 8, 257 S.W.3d at 78;
Slaughter v. State, 69 Ark. App. 65, 12 S.W.3d 240 (2000). Furthermore, Lawrence did not
proffer an alternative instruction or verdict form, leaving us to speculate exactly what he
would have proposed instead. To preserve an objection to an instruction for appeal, an
appellant must proffer the proposed instruction to the circuit court and include it in the
record on appeal to enable this court to consider it. Sipes v. State, 2012 Ark. App. 261, at 9,
404 S.W.3d 164, 170.
Finally, even if we were to find that the court erred in giving the jury instruction,
Lawrence has not demonstrated that he was prejudiced, and absent a showing of prejudice,
we will not reverse. Hayes v. State, 2018 Ark. App. 158, at 3, 544 S.W.3d 587, 589. Lawrence
5
argues that the jury did not understand it could have imposed a sentence of zero years’
imprisonment. Here, the instructions and verdict form authorized the jury to impose “no
more than fifteen years.” The jury imposed the maximum sentence of fifteen years. It strains
credulity to argue that the jury would have recommended zero years’ imprisonment had it
clearly been given this option. See Huggins v. State, 2021 Ark. App. 218, at 5, 624 S.W.3d
342, 345. One who is sentenced to the maximum applicable imprisonment cannot show
prejudice from an instruction that overstated the applicable minimum. See, e.g., Young v.
State, 287 Ark. 361, 363, 699 S.W.2d 398, 399 (1985); see also Ward v. State, 97 Ark. App.
294, 248 S.W.3d 489 (2007).
We hold that the circuit court did not abuse its discretion in instructing the jury.
Affirmed.
KLAPPENBACH and BROWN, JJ., agree.
Potts Law Office, by: Gary W. Potts, for appellant.
Leslie Rutledge, Att’y Gen., by: Christian Harris, Ass’t Att’y Gen., for appellee.
6 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484130/ | Cite as 2022 Ark. App. 469
ARKANSAS COURT OF APPEALS
DIVISION IV
No. CV-21-528
IN THE MATTER OF LINDA Opinion Delivered November 16, 2022
RUSHTON SELMAN, AN
INCAPACITATED PERSON APPEAL FROM THE COLUMBIA
COUNTY CIRCUIT COURT
FRANK D. SELMAN [NO. 14PR-2020-31]
APPELLANT
HONORABLE DAVID W. TALLEY, JR.,
V. JUDGE
ROBERT RUSHTON HURLEY
APPELLEE AFFIRMED
STEPHANIE POTTER BARRETT, Judge
Appellant Frank Selman appeals the Columbia County Circuit Court’s appointment
of Rushton Hurley, Frank’s stepson, as guardian of the person and estate of his wife, Linda
Selman. On appeal, Frank argues (1) that the circuit court’s findings and ultimate
conclusion that it was in Linda’s best interest to appoint her son, Rushton, a resident of
California, as her guardian is clearly erroneous, especially in light of the opinions of the
forensic psychological expert and the attorney ad litem that he should be appointed as
guardian; (2) the circuit court erred as a matter of law when it ruled that a nonresident of
Arkansas may be appointed guardian of an adult; and (3) the circuit court erred as a matter
of law in finding an investigation by the Arkansas Department of Human Services, Adult
Protective Services was not binding on the court nor relevant. We affirm the circuit court’s
decision.
Linda has three children from her first marriage to Robert Hurley—Rushton,
Elizabeth, and Edward. After divorcing Robert, Linda and the children moved back to
Linda’s hometown of Magnolia, and Linda taught English literature at Southern Arkansas
University. Linda met Frank, who was twenty years her junior, when he was her student;
they began dating and married in February 1984. Frank attended optometry school in
Memphis, and he returned to Magnolia and opened his clinic in Linda’s father’s former
optometry clinic. Linda and Frank have a son, Frank David, who is autistic and lives in a
group home in Arkadelphia.
In March 2020, Rushton filed a petition requesting to be appointed guardian of
Linda’s person and estate due to her diagnosis of Alzheimer’s and/or dementia. When he
filed the petition, Linda was in the physical custody of the Arkansas Department of Human
Services, Adult Protective Services pending a hearing scheduled later that month regarding
allegations of adult abuse by Frank. Rushton further alleged in his petition that Linda
needed protection from Frank, asserting that Frank had neglected her physical well-being,
emotionally abused her, and had attempted to transfer her separately owned assets to
himself. Rushton appointed his brother, Edward, a resident of Fayetteville, Arkansas, as his
resident agent for service of process.
In his answer to Rushton’s petition, Frank admitted Linda is an incapacitated person
requiring the appointment of a guardian of both her person and estate, but while stating
2
Rushton “may be appointed guardian even if he lives out of state,” Frank asserted that it was
not in Linda’s best interest for Rushton to be appointed guardian because he would be
unable to render the care, assistance, and attention Linda needed. In a counterpetition,
Frank asked the circuit court to appoint him as Linda’s guardian because he is her husband
and legally qualified to serve.
On August 7, 2020, Rushton filed a petition to be appointed the temporary guardian
of Linda’s person and to remove Frank from the home; in support of this petition, he cited
his concern regarding a mass in Linda’s abdomen for which Frank did not seek medical care,
as well as the fact that Frank had fired the persons employed by Southern Caregivers who
had been providing around-the-clock care for Linda. Affidavits from two caregivers
supporting Rushton’s concerns were attached to the petition. On August 11, the circuit
court entered an order appointing Rushton the temporary guardian of Linda’s person for
ninety days; in a supplemental order entered on August 14, Frank was ordered to vacate his
and Linda’s residence until a hearing on the appointment on August 17. On August 17, the
circuit court continued the appointment of Rushton as the temporary guardian of Linda’s
person for ninety days from entry of that order; gave Rushton the authority to employ
caregivers for Linda; and established visitation and telephone privileges for Frank.
On September 11, 2020, the circuit court entered an order directing Arkansas
Department of Human Services, Adult Protective Services, to release records of its
investigation into the alleged adult maltreatment of Linda pursuant to Rushton’s request for
such information. No objection was made to this request.
3
On September 15, Rushton filed a motion to modify Frank’s telephone privileges and
in-person visitation, asserting that Frank continued to upset Linda with grievances about the
guardianship proceeding. He requested that Frank’s telephone conversations be limited to
one call a day on the days he did not visit in person, with no discussion about the
guardianship or his personal objections with Linda. An agreed order was entered on
November 13, continuing Rushton’s appointment as temporary guardian of Linda’s person
and providing that a caregiver, without interfering with visitation, remain in the room and
report any incidents the caregiver believed caused Linda distress. Frank was directed to
report any conduct by the caregivers he believed interfered with his visitation.
The circuit court appointed an attorney ad litem for Linda, who filed her report with
the circuit court on June 9, 2021, noting that Linda’s children and Frank all love Linda and
that Linda was troubled that her children were trying to keep Frank away from her. It was
the ad litem’s opinion that Linda was an incapacitated person within the definition of
Arkansas law. Although noting that the preference of an incapacitated person shall be taken
into consideration in appointing a guardian and that Linda wanted Frank to be her guardian
and to move home immediately, the ad litem conceded that the circuit court has great
discretion in its choice of guardian. The ad litem recommended that Frank be named as the
guardian of Linda’s person and estate, noting that the Arkansas Department of Human
Services investigation was unsubstantiated for abuse and neglect, and therefore, there was
no credible evidence of abuse or neglect before the court. The ad litem also favored Frank
because he lives in Magnolia, while Rushton lives in California, and she did not believe
4
Rushton’s use of caregivers and extended family to help him was a practical or safe plan for
Linda. The ad litem attached the psychologist’s report to her own report; the psychologist
also recommended Frank as the most appropriate guardian for Linda, noting that he loves
her, wants to take care of her, and wants to live with her in the family home as long as that
is physically possible. The psychologist further recommended that Linda’s three older
children visit Linda once a month for a four-day weekend without Frank present.
After a multiday hearing spread over several months, the circuit court entered an
order on July 28, 2021, finding that Linda is an incapacitated person in need of a guardian
for her person and estate and appointing Rushton as her guardian. The order noted that
Rushton believes he should be Linda’s guardian due to concerns about Frank’s treatment of
Linda and the allegation that Frank had taken advantage of her financially; Frank believes
he should be Linda’s guardian because he knows her better than anyone else, he loves her,
and he lives in Magnolia; the psychologist opined that Frank is the most appropriate person
to be guardian because he loves Linda and wants to take care of her; and the ad litem also
believed Frank should be named guardian because the DHS investigation was
unsubstantiated, there was no credible evidence of abuse or neglect, Frank lives in Magnolia,
Rushton would have to rely on caregivers and extended family, Linda needs a guardian who
is physically close to her and lives with her, and there was no convincing evidence Frank had
attempted to transfer Linda’s assets to himself. The order acknowledged that Linda does
not believe she needs someone with her all the time, but if she had to have a guardian, she
“guessed” she would have to say it should be her husband; she loves Frank and her children
5
and does not want to hurt anyone’s feelings; she wants Frank to move back into the house;
Frank had not verbally or physically abused her; and she trusts Rushton to do what he thinks
is in her best interest.
In its order, the circuit court found Linda was capable of expressing her wishes and
had done so, but she was not capable of determining what was in her best interest—and her
request that Frank be named her guardian was not in her best interest. The court appreciated
the time and input provided by both the psychologist and ad litem, but it disagreed with
both of them as to who should serve as Linda’s guardian. The court specifically found that
Frank was not a credible witness, and while he testified he loves Linda very much, he had
told Linda that she had ruined his life, did not have his back, and had manipulated him; he
intimated to Linda that her alcohol use during pregnancy may have caused Frank David’s
autism, without any medical evidence to support that assertion; he denied verbally abusing
Linda, although he admitted he had called her a manipulative liar and had cursed and yelled
at her; he described life with Linda as very unpleasant; and he had engaged in at least seven
or eight extramarital affairs that he admitted. The circuit court found that Frank’s disdain
for Linda was substantiated by other witnesses, including several caregivers and Rushton.
The court noted that it was especially appalled at Frank’s refusal to repair the toilet closest
to the living room, where Linda spent most of her time, and his requirement that the
caregivers place towels on the floors so Linda would not soil them if she had an accident,
finding that Frank’s refusal to repair the toilet was unfeeling at best and demeaning at worst.
6
The circuit court determined that Frank was not suitable to be the guardian of Linda’s
person.
The circuit court further found Frank was also unsuitable to be the guardian of
Linda’s estate for the same reasons he was unsuitable to be the guardian of her person and
because Frank’s personal interests were in conflict with Linda’s best interest. It found Frank
had used marital funds to purchase property and then titled it solely in his name; he had
used some of Linda’s retirement and Social Security funds to pay for his attorney in the
guardianship proceeding, which was in bad faith; and he had caused a document to be
prepared that grossly divided their marital property unequally, and Linda had executed it,
even though she signed an affidavit the same day stating that she did not understand the
document and had signed it under duress.
The circuit court specifically found that it had no confidence that Frank would
conduct his life any differently if named Linda’s guardian than he did before Rushton filed
the petition for guardianship. Frank continued to work and travel; therefore, he would also
have to utilize caregivers for Linda, but he never stated a plan for obtaining caregivers, even
though the agency currently providing caregivers had said it would no longer do so if Frank
was named guardian. The court noted that it was not overly concerned with outdated food
in the refrigerator, it was concerned that Frank was the only person who insisted that Linda
be fed “old” food.
The court addressed the November 2019 report of suspected maltreatment of Linda
made to the Arkansas Department of Humans Services, Adult Protective Services, and the
7
March 2020 notice of unfounded allegations of caregiver neglect and exploitation, which
was used by both the psychologist and the ad litem to support the appointment of Frank as
Linda’s guardian. The court stated that “the conclusion of the Adult Protective Services is
not binding on this Court, nor is it relevant.” It went on to further explain that there was
no evidence of the alleged facts prompting the initial complaint or the steps and processes
undertaken in the investigation, and it stated that neither the complaint nor the “unfounded
investigative determination” had any effect on its decision.
The court found that Rushton was legally qualified to serve as Linda’s guardian; that
Frank’s argument that a nonresident could not be appointed was not supported by Arkansas
law; and that, while not an ideal situation with Rushton living in California, there was
undisputed testimony that Linda had seen improvements since Rushton had been named
her temporary guardian. The court found that it was in Linda’s best interest for Rushton to
be named the guardian of her person and estate.
The court acknowledged Linda’s desire for Frank to move home as well as the
psychologist’s and ad litem’s opinions that Frank should be able to return home. It stated
that Frank could return to the home under certain conditions, including that Linda was
never left unattended; Frank was to see to Linda’s needs while in the home; an outside
caregiver was to have “eyes on” contact with Linda every forty-eight hours if Frank was in the
home for more than twenty-four hours; Frank could not harass or interfere with the
caregivers; Frank must give one week’s notice when he was not going to be in the home so
that appropriate caregiver arrangements could be made; Frank could not verbally abuse or
8
demean Linda; Frank and Rushton must each notify the other if Linda needs medical
attention while not in one person’s care; and Linda’s caregiver expenses would be paid one-
half by the guardianship account and one-half by Frank.
In In re Guardianship of Gill, 2022 Ark. App. 243, at 6–7, 646 S.W.3d 387, 390–91
(reh’g denied July 13, 2022), this court set out the standard of review for guardianships:
Our appellate courts review guardianship proceedings de novo, but we will not
reverse a finding of fact by the circuit court unless it is clearly erroneous. Martin v.
Decker, 96 Ark. App. 45, 237 S.W.3d 502 (2006). A finding is clearly erroneous when,
although there is evidence to support it, the reviewing court is left with a definite and
firm conviction that a mistake has been made. In re Guardianship of Kennedy, 2020
Ark. App. 311, 603 S.W.3d 551. However, subject to statutory restrictions, the
selection of a guardian is a matter largely committed to the sound discretion of the
appointing court. Martin, supra. This standard of review accords greater deference to
the circuit court than the clearly erroneous standard. The appellate courts will not
reverse a case involving an application of guardianship in the absence of a manifest
abuse of discretion. Id. When reviewing the proceedings, we give due regard to the
opportunity and superior position of the circuit court to determine the credibility of
the witnesses. Spurling v. Est. of Reed, 2018 Ark. App. 185, 544 S.W.3d 119.
In his first point on appeal, Frank argues that the circuit court erred in appointing
Rushton Linda’s guardian instead of him because the psychologist and the ad litem both
concluded that he was the better choice, and Linda expressed her desire for Frank to be her
guardian. He contends that for the circuit court to appoint Rushton as guardian, it had to
disregard expert opinions and even Linda’s own desire. He claims that all other witnesses
were “simply a ‘he said, she said’ situation.” In support of his argument, he cites Arkansas
Code Annotated section 28-65-204(b)(3)-(4) and (c) (Repl. 2012), which provides that when
appointing a guardian for an incapacitated person, a court shall take into consideration
certain factors, including the request of an incapacitated person’s spouse, the relationship
9
by blood or marriage to the person for whom guardianship is sought, and the incapacitated
person’s preference for his or her guardian. He also argues that Rushton lives two thousand
miles away from Linda, which should negatively impact Rushton when considering whether
he is qualified and suitable to serve, as required by Arkansas Code Annotated section 28-65-
210(3) (Repl. 2012). Frank maintains that the opinions of the psychologist and ad litem
should have been given greater weight by the circuit court, not “essentially ignored.”
The statute does not require a rigid order of preference; rather, it is left to the sound
discretion of the court to determine who would act in the best interest of the incapacitated
person. Martin v. Decker, 96 Ark. App. 45, 237 S.W.3d 501 (2006). As stated above, the
circuit court’s selection of a guardian is a matter largely committed to its sound discretion,
and this court will not reverse that decision in the absence of a manifest abuse of that
discretion. In re Guardianship of Gill, supra. The testimony of the other witnesses was not
just “he said, she said” as Frank claims—many of Linda’s caregivers testified as to the manner
in which Frank treated Linda; his statements about how difficult his life is with her; his
refusal to do things to make Linda’s life more comfortable, such as raise or lower the
thermostat or repair the toilet; and his comments to one of the caregivers that he would lose
$2 million if he divorced Linda. Frank admitted that he had taken trips and engaged in
multiple extramarital affairs over the years, even though he knew it hurt Linda when she
learned of them. While the circuit court was required to consider recommendations and
preferences for guardian, it was not required to abide by those recommendations and
preferences. It is the circuit court’s responsibility to determine witness credibility; in this
10
case, the circuit court specifically determined that Frank was not a credible witness and that
appointing Frank as guardian was not in Linda’s best interest. It is not this court’s function
to reweigh the evidence and the credibility of the witnesses, which is essentially what Frank
is asking us to do. We hold that the circuit court did not abuse its discretion in appointing
Rushton as Linda’s guardian.
Frank next argues that the circuit court erred as a matter of law when it ruled that a
nonresident of Arkansas may be appointed a guardian of an adult. Arkansas Code
Annotated section 28-65-203(a)(1) (Supp. 2021) provides that a natural person is qualified
to be appointed guardian of the person and estate of an incapacitated person if he or she is
a resident of Arkansas who is at least eighteen and of sound mind, and who is not a convicted
and unpardoned felon or a convicted and unpardoned felon who is found to be otherwise
qualified after disclosing such information. Subsection (f)(1) of this section provides:
A nonresident natural person possessing the qualifications in this section, except as
to residence, who had appointed a resident agent to accept service of process in any
action or suit with respect to the guardianship and has caused the appointment to be
filed with the court, whether or not he or she has been nominated by the will of the
last surviving parent of a minor resident of this state to be appointed as guardian of
the minor, is qualified for the appointment.
Frank contends that the phrase “whether or not he or she has been nominated by the
will of the last surviving parent of a minor resident of this state to be appointed as guardian
of the minor” restricts such appointments of nonresident natural persons except in the case
of minors. We disagree. In Martin, supra, the incapacitated person, Mary Ann Daley, lived
in El Dorado. Daley’s brother, Robert Decker, lived in Nebraska, and her daughter, Laurie
11
Martin, lived in California, and both sought guardianship of Daley’s person. The circuit
court awarded guardianship to Decker, and Martin appealed. This court affirmed the circuit
court’s decision and cited Arkansas Code Annotated section 28-65-203(e)1 for allowing a
nonresident natural person meeting all other qualifications for appointment of guardian
other than residence to be qualified to be guardian if a resident agent is appointed and the
appointment has been filed with the court. See also Johnson v. Mitchell, 2013 Ark. App. 498
(noting that a nonresident may be considered for appointment as guardian if qualified and
if a resident agent has been appointed to accept service of process). This issue has already
been decided by this court, and the circuit court properly considered, and ultimately
awarded, Rushton guardianship of Linda.
Frank’s last point on appeal is that the circuit court erred as a matter of law in finding
that an investigation by the Arkansas Department of Human Services, Adult Protective
Services, was not binding on the court, nor was it relevant. He argues that it must be
considered by the circuit court pursuant to Arkansas Code Annotated section 28-65-212(e)
(Supp. 2021), which provides that any existing Arkansas Department of Human Services
evaluation of which the court has notice must be considered by the court. We disagree.
What was introduced into evidence was a “Notice of Unfounded Investigative
Determination” citing unfounded allegations of caregiver neglect and exploitation, not an
evaluation. The circuit court explained in its order why it chose to give no weight to the
1
This section was redesignated to 28-65-203(f)(1) in 2011.
12
unfounded finding—because there was no information regarding the circumstances
surrounding the initial report or the steps taken in the investigation. It is the circuit court’s
responsibility to determine relevance and the weight to be accorded the evidence, and this
court will not reweigh the evidence on appeal.
Affirmed.
VIRDEN and HIXSON, JJ., agree.
Crane, Phillips & Rainwater, PLLC, by: Steve R. Crane, for appellant.
Eugene Bramblett, for appellee.
13 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491945/ | MEMORANDUM OPINION
THOMAS M. BRAHNEY, III, Chief Judge.
This matter came before the Court on an Objection to Claim filed by the Trustee, Wilbur Babin. The Trustee objects to a claim filed by the Internal Revenue Service (“IRS”). A hearing was held on the Objection, at which time the Court heard the statements of the Trustee and counsel for the IRS. Upon consideration of these statements, the record in the case and the applicable law, the Court will overrule the Objection and allow the claim, for the reasons hereinafter stated.
The Debtor filed a Petition for Relief under Chapter 7 of the Bankruptcy Code on September 13, 1993. The bar date set for the filing of proofs of claim in the case was February 2, 1994. As of that date, no proof of claim had been filed by the IRS. On April 7, 1994, the Trustee filed his Final Report of Administration of Estate. On April 22, 1994, the Debtor filed a Motion for Authority to File Late Claim on Behalf of the Internal Revenue Service seeking to allow him to file a claim for 1992 income taxes due in the amount of $20,406.00. By a Minute Entry dated June 16, 1994, the Court denied the Debtor’s Motion and approved the Trustee’s Final Account. On June 10, 1994, the IRS filed its proof of claim in the total amount of $24,286.57, of which $20,699.05 is filed as a priority claim.
The Trustee’s Objection to the IRS claim is based upon its untimely filing and the allegedly detrimental effect allowance of the IRS claim will have upon distribution to the unsecured creditors. At the hearing on the Objection, the Trustee stipulated to certain facts that were asserted in Paragraph 10 of the IRS’ Response to the Objection. Those facts are that the IRS was not listed as a creditor on the Debtor’s schedules or on the mailing matrix; that the Debtor had not filed his 1992 income tax return as of the date the Petition was filed; that, due to the failure to file, the IRS records showed no tax obligation owed by the Debtor for 1992, as of the date of the Petition; that the IRS became aware of the Debtor’s bankruptcy case only upon receipt of a copy of the Debtor’s Motion to File Late Claim, on or about May 18, 1994; and that the IRS prepared and filed its proof of claim shortly thereafter. Taking these facts into account, the Court could find that the late filing of the claim by IRS was due to excusable neglect. However, based upon relevant case law, the Court does not even have to make that finding in order to allow the IRS claim.
Several recent cases have addressed the issue of allowing tardy priority claimants to receive priority distribution. In In re Century Boat Co., 986 F.2d 154 (6th Cir.1993), the Sixth Circuit allowed an IRS claim that was filed two years late, because the IRS had not received notice of the bankruptcy, to be given priority distribution, centering its position on an interpretation of 11 U.S.C. § 726. The court noted that “section 726(a)(1), concerning distribution of priority claims, makes no distinction between priority claims which are filed late and those which are filed in a timely manner.” Id. at 157.1 The court *781went on to note that, since the priority of tax claims “ ‘is set in the statute, it is reasonable that the priority is more important than whether they were tardily filed either because they had received no notice of the bankruptcy or for some other reason.’ ” Id., quoting United States v. Cardinal Mine Supply, Inc., 916 F.2d 1087 (6th Cir.1990). More recently, in In re Vecchio, 20 F.3d 555 (2nd Cir.1994), the court extended this interpretation and application of § 726 to allow priority distribution to priority creditors who file late claims even with notice of the bankruptcy. See also In re Rago, 149 B.R. 882 (Bankr.N.D.Ill.1992); In re MacLochlan, 134 B.R. 2 (Bankr.N.D.Ohio 1991).
Relevant case law, therefore, has made it clear that § 726(a)(1) makes no distinctions regarding the timeliness of priority claims. This is apparently true whether or not the priority creditor had notice of the bankruptcy proceeding. In this ease, the Trustee’s objection to the IRS claim is grounded in the alleged untimeliness of the filing of that claim. Accordingly, the Court finds that, whether the IRS was or was not notified of the Debtor’s filing before the claims bar date, the priority claim of the IRS against the Debtor, in the amount of $20,-699.05, is allowable and is entitled to priority distribution. The Court will not, however, allow the unsecured non-priority portion of the IRS’ claim, in the amount of $3,587.52, due to the untimeliness of the filing of the proof of claim.2 An appropriate Order will be entered.
ORDER
For the reasons assigned in the foregoing Memorandum Opinion entered herein by the Court this date,
IT IS ORDERED that the Objection to Claim filed by the Trustee, Wilbur Babin, regarding the claim of the Internal Revenue Service (“IRS”), be, and it is hereby, OVERRULED.
IT IS FURTHER ORDERED that the PRIORITY CLAIM of the IRS in the amount of $20,699.05 be, and it is hereby ALLOWED.
IT IS FURTHER ORDERED that the UNSECURED NON-PRIORITY CLAIM of the IRS in the amount of $3,587.52 be, and it is hereby, DISALLOWED.
. Section 726(a) provides, in pertinent part, as follows:
(a) Except as provided in section 510 of this title, property of the estate shall be distributed—
*781(1) first, in payment of claims of the kind specified in, and in the order specified in, section 507 of this title;
(2) second, in payment of any allowed unsecured claim, other than a claim of a kind •specified in paragraph (1), (3) or (4) of this subsection, proof of which is—
(A) timely filed under section 501(a) of this title;
(B) timely filed under section 501(b) or 501(c) of this title; or
(C) tardily filed under section 501(a) of this title, if—
(i) the creditor that holds such claim did not have notice or actual knowledge of the case in time for timely filing of a proof of such claim under section 501(a) of this title; and
(ii) proof of such claim is filed in time to permit payment of such claim.
. This finding is probably academic in that the Trustee's Final Report proposes to disburse a total of $21,479.50, with $3,828.91 going to pay Chapter 7 administrative expenses and the priority claim of the Louisiana Department of Revenue, leaving less than $20,000.00 to be paid on the IRS claim. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491946/ | OPINION
THOMAS E. CARLSON, Chief Judge.
The principal question in this ease is whether section 546(e) of the Bankruptcy Code bars a trustee from recovering as a fraudulent conveyance transfers made by a stockbroker pursuant to a reverse repurchase agreement used to facilitate a leveraged buy out. I conclude that there are no genuine issues of material fact and that section 546(e) bars trustee’s action, and therefore grant summary judgment for defendant.
FACTS
The material facts are not in dispute. On December 30, 1987, MaxPharma, Inc. paid Connecticut General Corporation (CIGNA) $500,0Q0 for an option entitling it to purchase stock of Debtor Hamilton Taft & Company (Debtor) from CIGNA for $4,100,000. Max-Pharma could exercise the option only through January 29, 1988. The $500,000 option price was applicable to the purchase price, but was otherwise non-refundable. MaxPharma was unable to find a lender willing to arrange financing through a “stock loan,” whereby Debtor’s stock would be used as collateral to secure the loan. Defendant Howard, Weil, Labouisse, Friedrichs Incorporated (Defendant) informed MaxPharma that it did not make “stock loans,” but could lend money with a treasury bill as security by performing a reverse repurchase transaction.
On January 28, 1988, Debtor wired $5.0 million to Defendant. On January 29, 1988, Defendant used approximately $4.9 million of those funds to purchase for Debtor a 90-day T-Bill having a face value of $5.0 million. On the same day, Debtor sold the T-Bill back to Defendant for $4.1 million, subject to a reverse repurchase agreement, under which Debtor agreed to repurchase the T-Bill in 90 days for the sale price plus interest.
What happened to the $4.1 million is contested by the parties. Debtor’s chapter 11 trustee (Trustee) contends that the $4.1 million was transferred directly to MaxPharma immediately upon sale of the T-Bill. Defendant claims that it credited Debtor’s account for $4.1 million, and that those funds were subsequently wired to MaxPharma. For the purpose of the present motion, I accept Trustee’s version of the facts. It is undisputed that Debtor transferred the funds to Max-Pharma at the request of Debtor and that MaxPharma used $3.6 million to purchase Debtor’s stock from CIGNA.
When the 90-day repurchase agreement matured, Debtor rolled over its obligation into new T-Bills and later into T-Notes. In January 1989, Debtor directed Defendant to sell the T-Notes and apply the proceeds to satisfy Debtor’s obligation under the reverse repurchase agreement.
Creditors filed an involuntary chapter 11 petition against Debtor on March 20, 1992. Trustee was appointed on March 26, 1992. An order4 for relief was entered on May 31, 1992. Trustee filed the present action on March 26, 1993. Trustee contends that the transaction involving Debtor, Defendant, and MaxPharma was in substance a leveraged buy out (LBO), in which MaxPharma used Debtor’s funds to purchase CIGNA’s stock in Debtor. Trustee further contends that the transaction rendered Debtor insolvent and that the LBO therefore constituted a fraudulent conveyance. In the present action, Trustee seeks to recover, pursuant to California Civil Code sections 3439.04 and 3439.05 and Bankruptcy Code section 544, the value of the $5.0 million T-Bill transferred from Debtor to Defendant on January 29, 1988, or the $4.1 million proceeds of the sale of that T-Bill that were transferred from Defendant to MaxPharma the same *898day.1 Trustee and Defendant filed cross motions for summary judgment.
DISCUSSION
I
Standard for Summary Judgment
“Summary judgment is properly granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.” Clipper Express v. Rocky Mountain Motor Tariff Bureau, Inc., 690 F.2d 1240, 1250 (9th Cir.1982), cert. denied, 459 U.S. 1227, 103 S.Ct. 1234, 75 L.Ed.2d 468 (1983).
II
Section 546(e) Defense
Defendant contends that Trustee’s action is barred under section 546(e) of the Bankruptcy Code. That section provides:
[ notwithstanding sections 544, 545, 547, 548(a)(2), and 548(b) of this title, the trustee may not avoid a transfer that is a margin payment, as defined in section 101(34), 741(5), or 761(15) of this title, or settlement payment, as defined in section 101(35) or 741(8) of this title, made by or to a commodity broker, forward contract merchant, stockbroker, financial institution, or securities clearing agency, that is made before the commencement of the case, except under section 548(a)(1) of this title.
11 U.S.C. § 546(e). Congress enacted section 546(e) “to protect the nation’s financial markets from the instability caused by the reversal of settled securities transactions.” Kaiser Steel Resources, Inc. v. Jacobs, 110 B.R. 514, 522 (D.Colo.1990), aff'd, 913 F.2d 846 (10th Cir.1990) (citation omitted). Trustee does not contest many of the elements of the section 546(e) defense: that Defendant is a stockbroker, that the T-Bill transferred was a security, and that the present action is brought under section 544. Trustee contends that section 546(e) does not apply, however, because: (i) the transaction was not a true repurchase agreement (Repo), (ii) the transfer of the T-Bill to Defendant was not a “settlement payment,” (iii) the present transaction is governed by section 546(f), and (iv) section 546(e) should not be applied to LB Os.
A. Whether Transaction a True Repo
Defendant characterizes its transaction with Debtor as a reverse repurchase agreement (Reverse Repo). The Ninth Circuit has held that Repos and Reverse Repos are securities transactions covered by section 546(e). In re Comark, 971 F.2d 322, 325 (9th Cir.1992) (Comark J); In re Comark, 145 B.R. 47, 52-53 (Bankr. 9th Cir.1992) (Comark II). The Ninth Circuit has described the characteristics of Repos and Reverse Repos as follows.
In a Repo arrangement, the dealer sells specified securities to a purchaser, but also agrees to repurchase the securities later at the original price, plus an agreed upon additional amount usually representing interest on the original purchase price. A Reverse Repo basically is the reverse: the dealer buys securities and agrees to resell the securities to the seller in the future. Reverse Repos can function as a loan. The seller receives cash for the securities, but must repurchase the securities in the future at the same price. Thus, the securities “sold” to the dealer can be viewed as being collateral for a loan.
Comark I, 971 F.2d at 323 (footnote omitted). Accord 11 U.S.C. § 101(47).
Trustee contends that the transaction between Defendant and Debtor was not a true Reverse Repo, but rather was a sham used to conceal the fact that Debtor’s funds were being used to fund an LBO. Trustee notes that Debtor used $5.0 million cash to buy a T-Bill, then immediately sold the T-Bill subject to the Reverse Repo, leaving itself essentially in the place it started. Because there was no net borrowing of funds, which is the essential characteristic of a Reverse Repo, Trustee argues, the transaction is not entitled to protection under section 546(e). This argument is unpersuasive.
*899First, the transaction constituted a Reverse Repo in the objective sense. Debtor sold a T-Bill to Defendant and agreed to repurchase it again later for the sale price plus interest. Whether a transaction is a Repo or Reverse Repo covered under section 546(e) is to be governed by an objective test. See Comark II, 145 B.R. at 53. Courts have noted that there are several varieties of genuine Repo transactions. See Bevill, Bresler & Schulman Asset Management Corp. v. Spencer Sav. & Loan Ass’n, 878 F.2d 742, 746 (3rd Cir.1989); Comark II, 145 B.R. at 50 n. 6. Several courts have also held that section 546(e) covers unusual as well as routine securities transactions. See Comark I, 971 F.2d at 326; Kaiser Steel Corp. v. Charles Schwab & Co., Inc., 913 F.2d 846, 849 n. 6 (10th Cir.1990) (Kaiser I); In re Kaiser Steel Corp., 952 F.2d 1230, 1238-40 (10th Cir.1990), cert. denied, - U.S. -, 112 S.Ct. 3015, 120 L.Ed.2d 887 (1992) (Kaiser II).
Second, whether or not it was a conventional Reverse Repo, the transaction' between Defendant and Debtor was clearly a securities transaction. Section 546(e) does not cover only Repos and Reverse Repos; it covers all types of securities transactions. “[Section 546(e) ... includes a transfer of securities that completes any securities transaction.” Comark II, 145 B.R. at 52. The transaction between Debtor and Defendant in substance reduces to the following. Debt- or purchased a T-Bill from Defendant then sold it back to Defendant. Whatever else it was, this transaction was a transfer of securities. See Kaiser II, 952 F.2d at 1239-40 (transfer of securities that is part of LB O is a securities transaction covered by section 546(e)).
B. Whether Transfer a “Settlement Payment”
Trustee argues that the transfers involving Defendant are not protected under section 546(e) because they do not constitute settlement payments. “Settlement payment” is defined in section 741(8) of the Bankruptcy Code.
“[Settlement payment” means a preliminary settlement payment, a partial settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment, or any other similar payment commonly used in the securities trade.
11 U.S.C. § 741(8). The Ninth Circuit has construed the term very broadly.
We now join with the Third and Tenth Circuits and broadly define the term settlement payment. A settlement payment clearly includes a transfer of securities that completes a securities transaction.
Comark I, 971 F.2d at 326 (citation omitted). Accord Comark II, 145 B.R. at 52.
Trustee first argues that the initial transfer of the T-Bill to Defendant was not a settlement payment because it did not complete the Reverse Repo. This argument is wholly unpersuasive. The clear thrust of both Comark I and Comark II is that “settlement payment” includes any transfer of cash or securities toward completion of a securities transaction. See Comark I, 971 F.2d at 326; Comark II, 145 B.R. at 52. To hold that section 546(e) does not apply to the initial transfer of securities to a broker handling a Reverse Repo would eviscerate section 546(e) and frustrate Congress’s intent in enacting it, by leaving the broker open to suit for doing nothing more than handling a securities transaction for the debtor.2
Trustee next argues that the transfer to MaxPharma of the $4.1 million proceeds of the sale of the T-Bill was not a settlement payment because the payment was not made to Debtor, the other party to the Reverse Repo. This argument is frivolous. It is *900undisputed that the funds were transferred to MaxPharma at the direction of Debtor. In directing payment of the sale proceeds to MaxPharma, Debtor exerted dominion over the funds and used them for its own purposes. Thus, from the viewpoint of Defendant, payment to MaxPharma constituted payment to Defendant and fulfilled Defendant’s obligation under the first leg of the Reverse Repo.3
C. Must Defendant Satisfy Section 546(f)?
Trustee argues that section 546(f) governs Repo transactions and that Defendant is not entitled to protection under that statute. Section 546(f) provides:
Notwithstanding sections 544, 545, 547, 548(a)(2), and 548(b) of this title, the trustee may not avoid a transfer that is a margin payment, as defined in section 741(5) or 761(15) of this title, or settlement payment, as defined in section 741(8) of this title, made by or to a repo participant, in connection with a repurchase agreement and that is made before the commencement of the case, except under section 548(a)(1) of this title.
11 U.S.C. § 546(f). Section 101(46) defines “repo participant” as follows:
“repo participant” means an entity that, on any day during the period beginning 90 days before the date of the filing of the petition, has an outstanding repurchase agreement with the debtor;
11 U.S.C. § 101(46).
Trustee argues that section 546(f) governs, because it is the more specific statute, expressly addressing Repo transactions. Trustee argues that Defendant is not protected under section 546(f), because any Reverse Repo transaction between Defendant and Debtor closed more than 90 days prepet-ition, and Defendant is therefore not a “repo participant” under section 101(46).
Both the statutory language and legislative history indicate that section 546(f) was intended to address Repo transactions not already covered by section 546(e) rather than to narrow the application of 546(e). Section 546(e) protects only a “commodity broker, forward contract merchant, stockbroker, financial institution, or securities clearing agency.” Section 546(f) protects additional participants in certain Repo transactions. The legislative history to section 546(f) states in relevant part:
the proposed amendments are intended to afford participants in the repo market the same treatment with respect to the stay and avoidance provisions of the Code that Public Law 97-222 explicitly provided stockbrokers, securities clearing agencies, commodity brokers and forward contract merchants in connection with securities contracts, commodity contracts and forward contracts.
S.Rep. No. 65, 98th Cong., 1st Sess. 45, 49 (1983). The same legislative history states clearly that section 546(e) continues to protect stockbrokers engaged in Repo transactions.
These amendments are not intended, however, to affect the status of repos involving securities or involving commodities as securities contracts, commodity contracts, or forward contracts, and their consequent eligibility for similar treatment under other provisions of the Code, such as the provisions giving protection to stockbrokers, securities clearing agencies, commodity brokers, and forward contract merchants for liquidation and setoff in respect of securities contracts, commodity contracts or forward contracts.
Id. See also Comark II, 145 B.R. at 52-53. In summary, section 546(f) was intended to supplement rather than narrow section 546(e), and a defendant that qualifies under 546(e) as a stockbroker need not qualify under section 546(f) as a repo participant.
*901D. Is There an LBO Exception to Section 546(e)?
Trustee argues that 546(e) should not be interpreted to protect a stockbroker involved in a securities transaction that implements an LBO, relying on Lippi v. City Bank, 955 F.2d 599 (9th Cir.1992), Kendall v. Sorani, 151 B.R. 1012 (Bankr.N.D.Cal.1993), and Wieboldt Stores Inc. v. Schottenstein, 131 B.R. 655 (N.D.Ill.1991). Trustee contends that this LBO exception to section 546(e) applies with special force in the present case, because Defendant knew Debtor was rendered insolvent by the transaction. Trustee’s argument is not supported by the authorities cited.
Trustee’s reliance on Wieboldt is misplaced. That case held that section 546(e) did not preclude a fraudulent conveyance action against shareholders whose shares were purchased in an LBO. In the present action, Trustee seeks recovery not from former shareholders, but from a stockbroker that transferred certain securities as a part of the LBO. The Wieboldt court carefully noted that its holding did not leave the stockbroker handling the LBO open to suit. The court acknowledged that the purpose of section 546(e) was to protect brokerage firms, and then stated:
in the instant case, however, requiring the [shareholders] to return to the Trustee payments they received ... poses no significant threat to those in the clearance and settlement chain.
Wieboldt, 131 B.R. at 664 (footnote omitted). The court also quoted with approval the following excerpt from the law review article it had previously cited in holding that section 546(e) does not protect selling shareholders.
“Neither the system of guarantees nor the solvency of participants in the chain is threatened by a legal order in which payments to the shareholders by their brokers are subject to recovery by a trustee in bankruptcy. Thus, while the flows of funds to and between financial intermediaries in the clearance and settlement chain must be protected in order to insure the stability of those systems, funds flowing from the intermediaries to the shareholders do not require protection, and section 546(e) should therefore not apply.”
Id. at 664 n. 11 (quoting Neil M. Garfinkel, Note, No Way Out: Section 54.6(e) Is No Escape for the Public Shareholder of a Failed LBO, 1991 Colum.Bus.L.Rev. 51, 61-63).
The Tenth Circuit has held that there is no LBO exception to section 546(e). That court has applied section 546(e) to bar recovery both from the brokerage handling the transfer of shares in an LBO, see Kaiser I, and from the selling shareholders, see Kaiser II. The court noted that the plain language of section 546(e) covers LBOs as well as more conventional securities transactions and reasoned “it would be an act of judicial legislation to establish such a limitation.” Kaiser I, 913 F.2d at 850.
In short, only Wieboldt supports any LBO exception to section 546(e), but even that case does not permit an action against the stockbroker handling the securities transactions involved in the LBO.
Trustee’s reliance on Lippi and Kendall is equally misplaced. In each of those cases, the plaintiff sought recovery from the bank that financed the LBO. In neither case did section 546(e) even arguably apply, and neither opinion mentions that statute.
Finally, assuming arguendo that Defendant knew the Reverse Repo was part of an LBO and that the LBO rendered Debtor insolvent, such knowledge does not bar application of section 546(e). Section 546(e) contains a limited exception for cases involving actual fraud. The statute does not bar actions brought under section 548(a)(1) of the Bankruptcy Code, which allows a trustee to recover a transfer made within one year before the petition date with actual intent to hinder, delay, or defraud creditors. Section 546(e) does bar actions brought under section 544 (using state fraudulent conveyance statutes) to recover transfers made more than one year prepetition with actual intent to hinder, delay, or defraud creditors. Thus, it is clear Congress intended to prohibit recovery of “settlement payments” received by stockbrokers more than one year prepetition, irrespective of the stockbroker’s mental state. Because the transfers at issue here *902occurred more than one year prepetition and Trustee’s action is brought under section 544, Defendant’s knowledge about the LBO and its effect on Debtor is irrelevant.
Ill
Aiding And Abetting
Trustee asserts that even if his action to avoid the transfers to Defendant are barred by section 546(e), he may recover damages from Defendant under state law on the theory that Defendant aided and abetted the fraudulent LBO. Trustee argues that liability for damages for aiding and abetting a fraudulent transfer is not barred by section 546(e). Defendant argues that Trustee’s aiding and abetting theory fails because: (i) Trustee failed to plead it as a separate claim for relief; (ii) no such cause of action exists under California law; (iii) Trustee lacks standing to assert such a cause of action; and (iv) any such cause of action is barred by section 546(e). I determine that the Trustee lacks standing to assert the aiding and abetting claim.
California courts permit a creditor to recover civil damages from those who conspire to transfer property of a debtor to hinder, delay, or defraud creditors. See Taylor v. S & M Lamp Co., 190 Cal.App.2d 700, 706, 12 Cal.Rptr. 323 (1961); Hickson v. Theilman, 147 Cal.App.2d 11, 15, 304 P.2d 122 (1956). A debtor’s bankruptcy trustee, however, is not authorized to pursue every action that creditors of the debtor might pursue. Cf. In re Ozark Restaurant Equipment Co., Inc., 816 F.2d 1222, 1226-30 (8th Cir.), cert. denied, 484 U.S. 848, 108 S.Ct. 147, 98 L.Ed.2d 102 (1987). A trustee’s only authority to assert creditor’s state-law causes of action related to fraudulent conveyances is found in section 544(b) of the Bankruptcy Code.4 That section only permits the trustee to avoid a fraudulent transfer.
The 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 502 of this title or that is not allowable only under section 502(e) of this title.
11 U.S.C. § 544(b) (emphasis added). The Ninth Circuit has squarely held that a trustee’s power to avoid fraudulent transfers does not enable a trustee to recover damages for aiding and abetting a fraudulent transfer.
The Act carefully speaks of conveyances of property as being “null and void,” and authorizes suit by the trustee to “reclaim and recover such property or collect its value.” The actions legislated against are not “prohibited”; those persons whose actions are rendered “null and void” are not made “liable”; and terms such as “damages” are not used. The legislative theory is cancellation, not the creation of liability for the consequences of a wrongful act.
Elliott v. Glushon, 390 F.2d 514, 516 (9th Cir.1967) (footnote omitted).
In short, Trustee’s only authority to bring state-law claims of creditor’s is section 544(b), and section 544(b) does not authorize Trustee to assert a claim for aiding and abetting a fraudulent transfer.
CONCLUSION
Bankruptcy Code section 546(e) bars Trustee’s fraudulent transfer action against Defendant. Trustee lacks standing to sue Defendant for aiding and abetting a fraudulent conveyance. Accordingly, I grant summary judgment in favor of Defendant.
. Trustee previously filed a similar action against CIGNA. That action was settled by the parties before trial.
. Trustee contends that Defendant's expert witness testified that the initial transfer of the T-Bill to Defendant was not a settlement payment. This argument fails for two reasons. First, the relevant historical facts are undisputed. The application of section 546(e) to those facts is question of law, not a question of fact subject to expert testimony. See Comark I, 971 F.2d at 324-25. Second, Trustee mischaracterizes the testimony of Defendant's expert, Dr. Marcia L. Stigum. Dr. Stigum’s testimony, taken as a whole, supports a finding that the initial transfer of the T-Bill was a settlement payment. Plaintiff failed to submit affidavits controverting that testimony.
. Trustee's separate statement of undisputed facts asserts that Debtor’s instructions to Defendant to transfer the proceeds to MaxPharma were not properly authorized by Debtor's board and were therefore ultra vires. The facts asserted by Trustee clearly establish that the instructions were made with at least apparent authority, and that Debtor implicitly ratified the transaction after the fact. Moreover, Trustee raise no ultra vires argument in the memoranda filed in support of his motion for summary judgment or in opposition to Defendant’s motion for summary judgment.
. Section 548 of the Bankruptcy Code creates a federal cause of action for recovery of a fraudulent conveyance. Trustee cannot use section 548, however, because that statute only permits avoidance of transfers made within one year of the petition date. It is undisputed that all transfers to Defendant occurred more than one year before the bankruptcy petition was filed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491947/ | *938
MEMORANDUM OPINION AND ORDER
JULIE A. ROBINSON, Bankruptcy Judge.
This matter comes before the Court pursuant to the Complaint to Determine Dis-chargeability and Request for Injunction filed by David Merle Durgin (“debtor”). The debtor appears by and through his attorney, Terry S. Stephens. Charlene Durgin (“defendant”) appears pro se. A pretrial conference was held on March 11, 1994; and upon the subsequent filing of briefs by the parties, the Court took the matter under advisement.
JURISDICTION
The Court has jurisdiction over this proceeding. 28 U.S.C. § 1334. This is a core proceeding. 28 U.S.C. § 157(b)(2)(Z).
FINDINGS OF FACT
Debtor and defendant were married on June 5, 1987, and two children were born to the couple during the marriage. On October 26, 1990, defendant filed a petition for legal separation in the Superior Court of the State of California, County of Butte, in Case No. 108209. Accompanying the filing of the petition was an Order to Show Cause for an immediate court order awarding to defendant the custody of the two minor children, for an awai’d of temporary child and spousal support, and for an award of attorney’s fees. Defendant’s application for these temporary orders was heard on November 30,1990, and debtor appeared personally at that hearing. On November 30, 1990, the court made a temporary order awarding defendant temporary custody of the minor children, established a child visitation schedule for debtor, and set a further date for purposes of hearing any objection debtor had to the validity of California jurisdiction over the issue of child custody and spousal and child support.
Debtor, appearing through counsel on January 11, 1991, moved to dismiss and quash the California action based upon a lack of jurisdiction over debtor and for an order declining jurisdiction pursuant to the provisions of the Uniform Child Custody Jurisdiction Act. The court considered affidavits and declarations of the parties, other documents, and arguments of counsel in support of and in opposition to the motion. Pursuant to an Order dated February 1, 1991, the court denied the motion finding in pertinent part as follows:
1. That the Respondent’s appearance at the hearing of November 30, 1990 constituted a general appearance for purposes of imposition of personal jurisdiction over him.
2. That neither California nor Kansas qualifies for “home state status” under the provisions of the Uniform Child Custody Jurisdiction Act, Civil Code Section 5150, et seq.
3. That there are significant connections between the parties and the State of California sufficient for California to exercise its jurisdiction over the issue of child custody and visitation under the provisions of the Uniform Child Custody Jurisdiction Act.
Debtor, subsequent to the February 1, 1991 Order, filed a Motion for Reconsideration of the Order. That motion was heard on March 15, 1991. The Court heard the debt- or’s arguments concerning reconsideration and denied the motion. No appeal has been taken from either the February 1, 1991 Order, nor the denial of the Motion for Reconsideration, and the time for appeal has expired.
Pursuant to a hearing on February 1,1991, the California court ordered child support in the amount of $768.00 payable by debtor to defendant commencing 11/1/90; spousal support in the amount of $514.00 commencing 11/1/90; debtor to continue medical and life insurance coverage for mother and children (not to borrow against, transfer, etc.); custody with defendant, with reasonable visitation by debtor restricted to California; and $1,500.00 attorney’s fees and costs payable by debtor to Mr. Cook.
On November 9, 1990, debtor filed for divorce in the County of Sedgwick, State of Kansas, Case No. 90-D-4120. On January 29, 1991, the Kansas court entered a default divorce judgment which awarded residential custody of the minor children to debtor. Neither debtor nor defendant were ordered *939to pay any child support in the order issued by the Kansas court.
On May 19, 1992, debtor filed in the United States District Court for the Eastern District of California, Case Number CIV-S-92 793 EJG JFM, a Complaint for Declaratory Relief seeking in part an order declaring Kansas the only proper state to adjudicate issues involving the parties’ divorce; that the District Court give full faith and credit to the Kansas divorce decree entered January 29, 1991; that defendant be ordered to comply with each and every term of the Kansas divorce decree; and that the California courts had deprived debtor of his due process constitutional rights under 42 U.S.C. 1983 and the Fourteenth Amendment to the United States Constitution, by failing to contact the Kansas courts regarding this dispute. On July 8, 1992, defendant filed a motion to dismiss the debtor’s complaint, and held a hearing on August 21, 1992. On August 26, 1992, the District Court filed an Order After Hearing, granting defendant’s motion to dismiss with prejudice. Debtor did not appeal this Order.
On December 4, 1992, debtor appeared in the Butte County Superior Court action for purposes of establishing a visitation order. An Order was entered on February 25, 1993.
In the present adversary proceeding, this Court entered an order on April 6, 1994, granting a default judgment to debtor against defendant Bill J. Cook, d/b/a Law Corporation.
CONCLUSIONS OF LAW
Debtor argues that the purported debt to defendant and the parties’ children was not made in accordance with State law and is therefore dischargeable pursuant to 11 U.S.C. § 523(a)(5). Debtor argues that because the California Court did not have jurisdiction to make a custody determination regarding the children, the future support which will accrue in conjunction with the custody determination should be declared dischargeable. Debtor also asserts that the payment of attorney’s fees to Bill J. Cook for his representation of defendant in the California proceeding is not in the nature of support, and thus should be discharged. In addition, debtor seeks an injunction permanently enjoining all defendants from taking any action to collect pursuant to the temporary order of the Superior Court of California or any subsequent order issued by said Court unless Kansas releases jurisdiction of the parties’ children.
Initially, this Court must note that there is a distinction between a determination on the underlying debt, and a determination as to the dischargeability of that debt. First, this Court will address the determination on the underlying debt.
Res judicata enables this Court to give full faith and credit to a prior state court judgment in assessing whether a “claim” or “debt” exists in this case. In re Tague, 137 B.R. 495, 502 (Bankr.D.Colo.1991) (citations omitted). In general, the bankruptcy court must give full faith and credit to a state court judgment. See U.S. Const. Art. IV, § 1; 28 U.S.C. § 1738. The Supreme Court has held that “a federal court must give to a state-court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered.” Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 81, 104 S.Ct. 892, 896, 79 L.Ed.2d 56 (1984). Lack of jurisdiction or fraud are the only grounds which nullify a state court judgment. Browning v. Navarro, 887 F.2d 553, 563 (5th Cir.1989), reh’g denied 894 F.2d 99 (5th Cir.1990).
Debtor has raised the issue of whether the California court had proper subject matter jurisdiction when it rendered its judgment. Although full faith and credit will not be given to a state court judgment if the rendering court did not have jurisdiction over the parties and the subject matter, the principles of res judicata and collateral estoppel apply even to jurisdictional issues. Fehlhaber v. Fehlhaber, 681 F.2d 1015, 1020 (5th Cir.1982), cert. denied 464 U.S. 818, 104 S.Ct. 79, 78 L.Ed.2d 90 (1983). The requirements of full faith and credit bar a party from collaterally attacking a divorce decree on jurisdictional grounds where there has been participation by that party in a divorce proceeding, where that party has been accorded full opportunity to contest the jurisdictional *940issues, and where the decree is not susceptible to such collateral attack in the courts of the state which rendered the decree. Johnson v. Muelberger, 340 U.S. 581, 586, 71 S.Ct. 474, 477, 95 L.Ed. 552 (1951); see also Key v. Wise, 629 F.2d 1049, 1056 (5th Cir.1980), cert. denied 454 U.S. 1103, 102 S.Ct. 682, 70 L.Ed.2d 647 (1981) (holding that a determination by a state court that it has jurisdiction of the case is generally conclusive when the jurisdictional question is fully litigated); Durfee v. Duke, 375 U.S. 106, 116, 84 S.Ct. 242, 248, 11 L.Ed.2d 186 (1963) (holding that where the jurisdictional issues had been fully and fairly litigated by the parties and finally determined in the state court, the federal district court was precluded from further inquiry); Salazar v. United States Air Force, 849 F.2d 1542, 1547 n. 9 (5th Cir.1988) (holding that the state court judgment which recited that the court had personal and subject matter jurisdiction and the obligation before it fell within a particular statutory definition was adequate to indicate that the statute was the basis for the court’s jurisdiction, so that the judgment was not subject to collateral attack); Peeples v. Peeples, 103 Ga.App. 462, 468-69, 119 S.E.2d 710 (1961) (holding that where judgment sued on was complete and regular upon its face and contained recitals as to jurisdictional facts, it was entitled to full faith and credit).
In the present case, debtor appeared by counsel in the California proceedings and has challenged the California court’s jurisdiction through a motion to dismiss and quash, a motion to reconsider and a separate action brought in the federal district court. In its February 1, 1991 Order, the California court found that it had proper jurisdiction pursuant to the Uniform Child Custody Jurisdiction Act. Therefore', this Court must give full faith and credit to the underlying debt established in the California proceedings.
Although the state court judgment has preclusive effect as to the nature and amount of the debt, this Court must address whether the underlying debt is dischargeable since the state court never addressed this issue. The Bankruptcy Code provides that debts which are actually in the nature of alimony, maintenance, or support are not dischargeable in bankruptcy. 11 U.S.C. § 523(a)(5). By requiring an obligation to be “actually in the nature of alimony, maintenance, or support,” Congress sought to ensure that the policy underlying § 523(a)(5) is not undermined either by the treatment of the obligation under state law or by the label which the parties attach to the obligation. In re Sampson, 997 F.2d 717, 722 (10th Cir.1993). Because the label which the parties attach to the obligation does not control, the Court must look beyond the language of the Agreement to the intent of the parties and the substance of the obligation. Id. at 722-23.
Debtor has not argued that the child support and spousal support obligations are not actually in the nature of support. In fact, in debtor’s Memorandum of Law he offers the following as a proposed finding: “However, if at any time Kansas accepts the judgment of California and agrees to enforce it, such judgment will not have been discharged herein because it will be deemed to have been a valid nondischargeable support obligation.” The Court finds that the child support and spousal support awarded by the California court is clearly in the nature of support and nondischargeable.
Debtor has, however, argued that the award of attorney’s fees to Bill Cook d/b/a Law Corporation are not in the nature of support. This Court has previously entered a default judgment to debtor on this issue. Therefore, the Court finds that the attorney’s fees debtor was ordered to pay to Bill J. Cook, d/b/a Law Corporation are dischargea-ble in debtor’s bankruptcy case.
IT IS THEREFORE ORDERED BY THE COURT that defendant’s claim for child support and spousal support is actually in the nature of alimony, maintenance or support, and is therefore NONDIS-CHARGEABLE pursuant to 11 U.S.C. § 523(a)(5).
IT IS FURTHER ORDERED BY THE COURT that the attorney’s fees payable to Bill J. Cook, d/b/a Law Corporation, were not in the nature of alimony, maintenance or support, and are therefore DISCHARGEA-BLE pursuant to 11 U.S.C. § 523(a)(5).
*941This Memorandum shall constitute findings of fact and conclusions of law under Rule 7052 of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules of Civil Procedure. A judgment based on this ruling will be entered on a separate document as required by Rule 9021 of the Federal Rules of Bankruptcy Procedure and Rule 58 of the Federal Rules of Civil Procedure.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491948/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS is a Chapter 7 liquidation case and the matter under consideration is a Complaint filed by Helen Burgan (Plaintiff) challenging the right of Steve Feder (Debtor) to receive a discharge. The Plaintiff in her one-count Complaint alleges that the Debtor should be denied his discharge pursuant to § 727(a)(4) of the Bankruptcy Code because, according to the Plaintiff, he committed a false oath by failing to disclose assets he owned at the time of the commencement of this case, and certain transfers made within one year of the filing of this case. The facts relevant to resolution of this controversy, as established at the final evidentiary hearings are as follows:
Prior to the commencement of this case, the Debtor owned and operated a business known as Shelving Systems as a sole proprietorship located in Naples, Florida and was, at the time relevant, in the business of installing shelving. In October 1989, the Debt- or purchased a 1990 Dodge truck which was titled in the name of Shelving Systems without indicating the actual owner of the truck. The purchase was financed through First Union National Bank of Florida who held a first lien on the vehicle. (Plfs Exh. 7). In January or February of 1993 the Debtor transferred ownership of the truck to his father, apparently without receiving any consideration for the transfer.
It is without dispute that at the time of the commencement of the case, the Debtor owned the following personal property: a small eight foot dinghy and motor, a Loran-C system, and other accessories for the boat, two television sets, a VCR, and a pistol.
The Debtor filed his Petition for Relief under Chapter 7 of the Bankruptcy Code on May 5, 1993. In his Schedule B of personal property, the Debtor, in response to Question 4, which called for the disclosure of household goods and furnishings, failed to list the television sets and VCR. The Debtor, in response to Question 8, which called for the disclosure of any firearms or other sports or hobby equipment, again answered “none.” In the Statement of Financial Affairs, “Question # 10. Other Transfers,” reads as follows:
List all other property, other than property transferred in the ordinary course of business or financial affairs of the debtor, transferred either absolutely or as security within one year immediately preceding the commencement of this case.
In response to this question the Debtor responded “none,” notwithstanding the transfer of the business truck to his parents in January or February 1993, or within five months of the filing of his Petition for Relief.
Schedule B also required, in Question 14, the disclosure of all Government and corporate bonds, and other negotiable and nonnegotiable instruments. To this request, the Debtor responded “none.” However, on May 21, 1993, less than twenty days after the filing of this bankruptcy, the Debtor executed a satisfaction of mortgage in an amount of *959$40,000.00 (Plfs Exh. 10). Nowhere on the Schedules or Statement of Financial Affairs is this mortgage disclosed.
In addition, in response to Question 24, he listed “none” to the request to disclose any boats, motors and accessories. However, on April 8, 1994 the Debtor listed in the classified section of the Naples Daily News an advertisement to sell an eight foot dinghy together with an outboard motor and other accessories. (Plfs Exh. 4).
Based upon the foregoing, the Plaintiff contends that the Debtor made a false oath by signing his Schedules and Statement of Financial Affairs under the penalty of perjury when he had failed to disclose assets and transfers on the Schedules and Statement of Financial Affairs. Therefore, according to the Plaintiff the Debtor should be denied his discharge pursuant to § 727(a)(4) of the Bankruptcy Code, which provides in pertinent part, as follows:
§ 727. Discharge
(a) The court shall grant the debtor a discharge, unless — •
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(4) the debtor knowingly and fraudulently, in or in connection with the case—
(A) made a false oath or account;
(B) presented or used a false claim;
(C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or
(D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor’s property or financial affairs;
The party objecting to the Debtor’s discharge has the burden of proving by a mere preponderance of the evidence that the Debtor’s discharge should be denied. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Once a party objecting to the discharge has met the initial burden of proving the objection by producing evidence establishing the basis for the objection, the ultimate burden of persuasion is placed on the Debtor. In re Goblick, 93 B.R. 771 (Bankr.M.D.Fla.1988); In re Chalik 748 F.2d 616 (11th Cir.1984). When a Debtor makes numerous omissions in the Statement of Affairs and Schedules, the omissions together may constitute a pattern demonstrating a reckless disregard for the truth. In re Clawson, 119 B.R. 851 (Bankr.M.D.Fla.1990). While it is always difficult to prove that a false oath was knowingly made, an inference of such intent can be drawn from circumstances surrounding the debtor’s disclosure, or lack thereof. In re Sklarin, 69 B.R. 949 (Bankr.S.D.Fla.1987).
This record is more than sufficient to warrant the finding that the Debtor did in fact willfully and knowingly commit a false oath in that the schedule which he executed under penalty of perjury failed to disclose any of the personal properties described above nor the transfer of the truck or satisfaction of the mortgage. While it is true that an isolated omission of an asset or an asset which is of no great value is generally excused and is insufficient to warrant a finding of false oath, the extensive omissions in this particular' instance clearly reveals a pattern which is sufficient to lead to the conclusion that the Debtor is, in fact, guilty of false oath.
This being the case, this Court is satisfied that this Debtor is not entitled to the protection of the general bankruptcy discharge and his discharge should be denied pursuant to § 727(a)(4).
A separate final judgment shall be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491950/ | MEMORANDUM OPINION
BERNARD MARKOVITZ, Bankruptcy Judge.
Several matters are before the court at this time.
Doctor’s Associates, Inc. has brought a motion (at No. 94-1279M) seeking payment as an administrative expense of postpetition *26royalties and advertising fees that accrued pursuant to certain franchise agreements.
Subway Real Estate Corporation and Subway Restaurants, Inc. have brought motions (at Nos. 94-1280M and 94-1281M, respectively) seeking payment as an administrative expense of postpetition rentals that accrued pursuant to certain subleases.
The chapter 7 trustee does not object to payment of the requested chapter 11 administrative expenses. He does, however, strenuously object to payment of the requested chapter 7 administrative expenses. According to the chapter 7 trustee, the bankruptcy estate is not liable for these expenses because debtor never had a contractual relationship with movants.
Though the trustee does not fully express his position, it appears to the court that he argues that he never indicated a willingness to run this business in chapter 7; he never requested the court grant him authority to run the business in chapter 7; and the court never authorized or directed him to run the business in chapter 7. To the contrary, the trustee took action against the principals of the debtor to assure all parties in interest that this estate would incur no further chapter 7 administrative debt.
Movants concede that debtor never had a contractual relationship with them but argue that the bankruptcy estate nonetheless is liable for the requested chapter 7 administrative expenses because debtor ratified the contracts and enjoyed the benefits thereof during the chapter 7 phase of this case.
Movants’ request for payment of postpetition expenses will be granted in part and denied in part. Their request for payment of chapter 11 administrative expenses will be granted because it is unopposed. However, them request for payment of chapter 7 administrative expenses will be denied. The trustee’s objection thereto will be sustained.
I
FACTS
On June 1, 1987, James L. Brown, James A. Brown and Doctor’s Associates, Inc. entered into a franchise agreement for operation of Subway Sandwich Shop franchise #3217 at Boulevard Plaza in Monroeville, Pennsylvania. On August 21,1987, James L. Brown and James A. Brown entered into a sublease with Subway Restaurants, Inc. for operation of the franchise at that location.
Shortly thereafter, in September of 1987, James L. Brown and James A. Brown formally incorporated J & JB, Inc.
On October 20, 1987, James L. Brown and James A. Brown entered into a second franchise agreement with Doctor’s Associates for operation of Subway Sandwich Shop franchise #3837 at McIntyre Square in Ross Township, Pennsylvania.
James L. Brown and James A. Brown entered into a third franchise agreement with Doctor’s Associates on August 23, 1988 for operation of Subway Sandwich Shop franchise # 5207 at Holiday Center, Monroeville, Pennsylvania. On August 10,1989, James L. Brown and James A. Brown entered into a written sublease with Subway Restaurants, Inc. for operation of the franchise at the Holiday Center location.
On September 15, 1990, James L. Brown, James A. Brown, and Joyce A. Brown entered into another franchise agreement with Doctor’s Associates for operation of Subway Sandwich Shop franchise # 10316 at Edge-wood Center in Edgewood, Pennsylvania. These same individuals had entered into a written sublease with Subway Real Estate Corporation on August 30, 1990, for operation of the franchise at that location.
On January 22, 1993, James L. Brown and James A. Brown entered into a written sublease with Subway Real Estate Corporation for operation of franchise #3837 at the McIntyre Square location.
Debtor J & JB, Inc. was not a party to any of the above agreements. The Browns entered into all of these agreements in their individual capacities and on their own behalves, not on behalf of J & JB, Inc. At no time did the Browns assign their rights under these agreements to J & JB, Inc.
On October 6, 1993, a joint voluntary chapter 11 petition was filed at Bankruptcy No. 93-23535-BM by J & JB, Inc., James L. *27Brown, James A. Brown, and Joyce A. Brown, doing business as Subway.
All four Subway franchises continued to operate during the chapter 11 proceeding. The role of J & JB, Inc. in the operation of the franchises prior to or subsequent to October 6, 1993 is unexplained.
On January 6, 1994, the United States of America brought a motion to dismiss for want of subject-matter jurisdiction. It argued that this court lacked jurisdiction under the Bankruptcy Code over a joint case filed by a corporation and three individuals. It asked that, at a minimum, the parties depriving the court of jurisdiction be dismissed from the case.
In response to the motion by the United States, J & JB, Inc. moved on January 26, 1994, to sever the individual debtors from its case. An order was issued on February 8, 1994, granting the motion of J & JB, Inc. and, accordingly, the Browns were no longer debtors herein.
On February 10,1994, a rule to show cause was issued why the case should not be converted to a chapter 7 proceeding due to debtor’s apparent inability to reorganize.
James L. Brown and Joyce A. Brown filed a voluntary joint chapter 13 petition on March 1, 1994 at Bankruptcy No. 94-20608-JKF.
The present case was converted to a chapter 7 proceeding on March 15, 1994, when debtor conceded that conversion to chapter 7 was appropriate. The order converting the ease also directed debtor to file a list of all postpetition claimants.
A chapter 7 trustee was appointed on March 16, 1994. At no time did the chapter 7 trustee request permission pursuant to § 721 of the Bankruptcy Code to operate the business of debtor J & JB, Inc. on an interim basis during the chapter 7 proceeding.
James L. Brown and Joyce A. Brown, individual debtors at Bankruptcy No. 94-20608-JKF, continued to operate the four franchises and did business as Subway subsequent to conversion to chapter 7 in this case and during them own chapter 13 case.
During this time, James L. Brown and Joyce A. Brown sought to use the listed telephone numbers for the Subway franchises. The chapter 7 trustee in this case took the position that the listings of those numbers were assets of the estate of J & JB, Inc. and refused to authorize the transfer of those listings to the Browns or to abandon them without an order of this court authorizing him to do so.
On April 13,1994, debtor J & JB, Inc. filed a motion to direct the chapter 7 trustee to withdraw an alleged directive to the telephone company to cease providing service to the Browns under the numbers in question. According to the Browns, the phone listings were being utilized by them individually while they were operating their own business pursuant to franchises which they individually owned.
An order was entered after a hearing on April 15, 1994, which authorized the chapter 7 trustee to abandon the disputed telephone numbers. Furthermore, it stated that any obligations arising out of the use of the numbers after October 6, 1993, would be the obligation of James L. Brown and Joyce A. Brown only.
On May 23, 1994, an order was entered dismissing the chapter 13 case of James L. Brown and Joyce A. Brown at Bankruptcy No. 94r-20608-JKF as of June 1, 1994. The order also directed the chapter 13 trustee in that case to turn over to the chapter 7 trustee in this case all funds received from the Browns during their chapter 13 case. The directive was based on the Browns’ representation at the § 341 meeting of creditors that all funds in the hands of the chapter 13 trustee had been generated from their operation of J & JB, Inc. That same order also directed the Browns to turn over to the chapter 7 trustee in this case all funds under their control that were generated by the business operations of J & JB, Inc., as well as any funds they generated while doing business individually as Subway franchisees. The court made no finding as to when the funds were generated. Specifically, the court did not determine that the funds were generated while debtors’s principals were in chapter 13 or consider whether they were *28earned prepetition or during the period debt- or was in chapter 11 or after conversion to chapter 7.
The Browns ceased operating the four Subway franchises and vacated the premises between April of 1994 and June of 1994.
On August 9, 1994, Doctor’s Associates, Subway Real Estate Corporation, and Subway Restaurants, Inc. filed motions for payment of postpetition expenses that are before the court at this time.
Doctor’s Associates seeks payment (at Motion No. 94-1279M) of royalties and advertising fees as postpetition expenses. Specifically, it seeks payment of $36,134.67 as a chapter 11 administrative expense and payment of $21,682.06 as a chapter 7 administrative expense.
Subway Real Estate Corporation seeks payment (at Motion No. 94-1280M) of unpaid rent as a postpetition expense. Specifically, it seeks payment of $27,241.99 as a chapter 11 administrative expense and payment of $17,445.89 as a chapter 7 administrative expense.
Subway Restaurants, Inc. also seeks payment (at Motion No. 94-1281M) of unpaid rent as a postpetition expense. Specifically, it seeks payment of $29,407.74 as a chapter 11 administrative expense and payment of $8,613.06 as a chapter 7 administrative expense.
The chapter 7 trustee asserted in response to the above motions that debtor’s estate is not liable for the expenses incurred subsequent to conversion to chapter 7 because debtor never operated or sought authority to operate in chapter 7 and because debtor did not have a contractual relationship with mov-ants.
An evidentiary hearing was held on the motions and the chapter 7 trustee’s objection thereto. All parties were given an opportunity to offer evidence on the issues before the court. At the hearing, the trustee asserted that he did not object to payment of the above expenses incurred during the chapter 11 phase of the case. He remained opposed, however, to the requests for payment of expenses incurred subsequent to conversion to chapter 7 on March 15, 1994.
II
ANALYSIS
Section 721 of the Code provides as follows:
The court may authorize the trustee to operate the business of the debtor for a limited period, if such operation is in the best interest of the estate and consistent with the orderly liquidation of the estate.
11 U.S.C. § 721.
The trustee in the present case did not request permission and did not receive authorization pursuant to § 721 to operate debtor’s business subsequent to conversion. To the contrary, the trustee endeavored to assure that debtor would not incur any chapter 7 administrative expenses when he refused to authorize the telephone company to transfer debtor’s phone numbers to debtor’s principals.
It is undisputed that no privity of contract existed between debtor and the movants. The franchise agreements and subleases were executed by debtor’s principals in their individual capacities. They did not execute the agreements as officers of J & JB, Inc. and did not assign their rights under these agreements to debtor. When debtor’s principals continued operating under the agreements after the filing of the chapter 11 petition, they did so in their own right.
The issue before the court is whether debt- or’s bankruptcy estate is liable to movants for royalties, advertising fees, and rentals for the period subsequent to conversion to chapter 7 even though debtor did not operate its business in chapter 7 and was not a party to any of the franchise agreements or subleases with movants.
As noted, the chapter 7 trustee has conceded that expenses incurred during the chapter 11 phase of the case are allowable but steadfastly objects to the request for payment of such expenses incurred after conversion to chapter 7.1 According to the *29chapter 7 trustee, the estate is not liable for these obligations because debtor had no contractual relationship with movants.
Movants assert that the absence of such a contractual relationship does not matter and insist that their chapter 7 administrative claims should be allowed because the bankruptcy estate has received the benefit of the contracts entered into by debtor’s principals.
Movants aver that the debtors at Bankruptcy No. 94-20608-JKF made payments to the chapter 13 trustee in that case from profits they realized from operating the four Subway franchises during their own chapter 13 proceeding and during the present bankruptcy case. These funds eventually were transferred pursuant to court order to the chapter 7 trustee in this case. According to movants:
[t]he Trustee’s argument that J & JB, Inc. is not liable on this claim because it was not a party to the contracts, is not correct. To the extent that J & JB, Inc. received the money from the operation of the business, it became contractually and equitable (sic) obligated upon the executory contracts which made that possible.
Movants have cited to In re Villa Roel, SI B.R. 879 (Bankr.D.D.C.1985) as support for the proposition that they ought to be treated as postpetition creditors even though the only contractual relations they had were with debtor’s principals, not with debtor.
Movants’ argument is without merit and must be rejected for the following reasons.
A corporation under certain circumstances may be liable for actions taken by its promoters or principals. For instance, pre-incorporation activities of a promoter may form the basis for corporate liability when those activities have been ratified by post-incorporation actions by the corporation. See McCloskey v. Charleroi Mt. Club, 390 Pa. 212, 216-17, 134 A.2d 873, 876 (1957).
Pre-incorporation activities by a corporation’s promoter also may be considered in determining whether a court has in per-sonam jurisdiction over the corporation, provided the promoter’s activities have been ratified by the corporation subsequent to its incorporation. See Rees v. Mosaic Technologies, Inc., 742 F.2d 765, 768-69 (3d Cir.1984).
Relying to a great extent upon Rees, the Villa Roel court held that a corporation may be liable on a contract entered into by its promoters (but not by the corporation itself), provided that the corporation has accepted the benefits of that contract:
It is a long-settled rule of law that a corporation may render itself liable on preliminary contracts made by its promoters by accepting the benefits therefrom, thereby adopting the contract by implication or estoppel. Rees v. Mosaic Technologies, Inc., 742 F.2d 765 (3d Cir.1984); see Air Traffic & Service Corp. v. Fay, 196 F.2d 40 (D.C.Cir.1952). “Similarly, a corporation is liable under a lease made by its promoters if it enters into possession under such lease.” 18 Am.Jur.2d Corporations, 122, p. 665 (1965).
In re Villa Roel, 57 B.R. at 881.
Our case is readily distinguishable from Villa Roel and the other cases in that the actions undertaken by the Browns under the franchise agreements and the subleases were never ratified during the chapter 7 phase of the present case.
In the first place, debtor was not involved at all in operating the four Subway franchises subsequent to conversion to chapter 7 on March 15,1994. To the contrary, debtor had ceased doing any business whatever as of that time and became defunct. The four franchises were operated by debtor’s principals, the Browns, on their own behalf. Accordingly, there is no basis for asserting that subsequent to conversion to chapter 7 debtor ratified the contracts its principals had entered into in their own names.
Movants make much of the fact that funds in possession of the chapter 13 trustee at Bankruptcy No. 94-20608-JKF were transferred pursuant to an order of court issued in that case on May 23, 1994, to the chapter 7 *30trustee in this case. According to movants, ratification of the contracts by debtor and/or the chapter 7 bankruptcy estate may be inferred from this transfer. Movants’ reliance upon this event is misplaced.
The burden of proof for a claim is upon different parties at different times. See In re Allegheny International, Inc., 954 F.2d 167, 173 (3d Cir.1993). The initial burden is upon the claimant to alleged facts sufficient to support the claim. If it does so, its claim is prima facie valid. Id. At that point, the burden then shifts to the objector to come forward with evidence negating the claim. The evidence presented must be “equal in force” to the prima facie case. Id. If the objector comes forward with sufficient evidence to negate one or more of the facts supporting the claim, the burden then reverts back to the claimant to prove the validity of the claim by a preponderance of the evidence. Id. at 174. Although the burden of proof may shift back and forth in this manner, the ultimate burden of persuasion remains at all times with the claimant. Id.
Movants have failed to meet their burden of persuasion in this instance. Ratification by debtor or by the chapter 7 bankruptcy estate cannot be inferred from the transfer of funds from the chapter 13 trustee to the chapter 7 trustee in this case.
In particular, movants have failed to demonstrate that these funds were earned by debtor’s principals during the chapter 7 phase of this case. It is just as likely (if not more so) that the funds were earned by the Browns prior to conversion to chapter 7 as it is likely that they were earned subsequent thereto. There is no basis for finding one way rather than the other. The testimony of James L. Brown on this point was neither clear nor persuasive. As a consequence, there is no basis for concluding that debtor or its bankruptcy estate enjoyed the benefits of the above contracts subsequent to conversion and that they therefore may be said to have ratified the contracts.
To summarize, movants have failed to establish that debtor’s estate should be held liable in any way for unpaid royalties, advertising fees, and rents that accrued subsequent to conversion of this case to a chapter 7 proceeding. There is no credible proof that the funds were generated while this debtor was in chapter 7 and/or that the activities of debtor’s principals or movants bene-fitted this chapter 7 estate. Their requests that these expenses be paid as administrative expenses of the chapter 7 estate accordingly must be denied.
An appropriate order shall be issued.
ORDER OF COURT
AND NOW at Pittsburgh this 21st day of December, 1994, in accordance with the accompanying Memorandum Opinion, it hereby is ORDERED, ADJUDGED and DECREED as follows:
(1) the motion by Doctor’s Associates, Inc., filed at Motion No. 94-1279M, for payment of postpetition expense is GRANTED IN PART AND DENIED IN PART. It is awarded the sum of $36,134.67 as a chapter 11 administrative expense. Its request for payment of the sum of $21,682.06 as a chapter 7 administrative expense is DENIED.
(2) the motion by Subway Real Estate Corporation, filed at Motion No. 94-1280M, for payment of postpetition expense is GRANTED IN PART AND DENIED IN PART. It is awarded the sum of $27,241.99 as a chapter 11 administrative expense. Its request for payment of the sum of $17,445.89 as a chapter 7 administrative expense is DENIED.
(3) the motion by Subway Restaurants, Inc., filed at Motion No. 94-1281M, for payment of postpetition expense is GRANTED IN PART AND DENIED IN PART. It is awarded the sum of $29,407.74 as a chapter 11 administrative expense. Its request for payment of the sum of $8,613.06 as a chapter 7 administrative expense is DENIED.
IT IS SO ORDERED.
. The most likely explanation for why the trustee has not objected to the requests for payment of | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491951/ | *162
MEMORANDUM OF DECISION RE: TRUSTEE’S OBJECTION TO DEBTOR’S CLAIM OF EXEMPTION UNDER CODE § 522(d) (10) (C)
ROBERT L. KRECHEVSKY, Chief Judge.
I.
ISSUE
The issue presented is whether Bankruptcy Code § 522(d)(10)(C) permits a debtor to exempt from the bankruptcy estate a $25,000 insurance disability payment received nine days prior to the filing of his petition, where the payment remained segregated in the debtor’s bank account on the date of filing. The parties have submitted the issue by way of a stipulation of facts and memoranda of law.
II.
BACKGROUND
David Reynolds Chapman, one of the debtors in this Chapter 7 case (the debtor), was involved in an automobile accident on November 24, 1992, and suffered injuries, including the loss of his left eye. The debtor was covered by, and submitted a claim under, a Group Accidental Death and Dismemberment insurance contract. On March 28, 1994, the insurer sent the debtor a disability benefits check in the amount of $25,000 representing the benefit for loss of the eye. On April 5, 1994, the debtor opened an account at Eagle Federal Savings Bank, and deposited this check. The debtor has deposited no other money into this account.
On April 14, 1994, the debtor and Linda Chapman filed a joint petition under Chapter 7. In his schedules, the debtor claimed as exempt pursuant to Code § 522(d)(10)(C) the bank account holding the disability benefit proceeds. The trustee thereafter timely filed an objection to this exemption.
III.
DISCUSSION
Section 522(d)(10)(C) permits a debtor to exempt from property of the estate “[t]he debtor’s right to receive ... (C) a disability, illness or unemployment benefit....” The debtor invokes this provision to exempt from property of the estate the $25,000 disability payment. The trustee contends that this provision creates an exemption only for the debtor’s right to receive a disability benefit, and that a benefit payment received by the debtor prepetition, even if identifiable post-petition, is not within the scope of this exemption.
The debtor, in support of the exemption, relies on In re Donaghy, 11 B.R. 677 (Bankr.S.D.N.Y.1981). In Donaghy, debtors received a lump sum pension benefit of $21,-992.87 three weeks before filing their joint bankruptcy petition. The debtors placed these funds in a bank account. In their schedules the debtors identified the account as accrued pension benefits, and claimed an exemption under Code § 522(d)(10)(E).1 The trustee objected to this exemption on the basis that the debtors had no “right to receive” a pension plan payment because the money had been disbursed to them three weeks prior to commencement of the case. The court allowed the exemption, concluding that:
The identifiable sum, although received by the debtors before they could file their joint petition, is a tangible reflection of “the debtor’s right to receive ... a payment under a ... pension ... plan” within the literal language of Code § 522(d)(10)(E) and in the spirit of the Congressional intent to exempt qualified pension benefits that are “akin to future earnings of the debtor.”
Donaghy, 11 B.R. at 680 (citation omitted).
The trustee, in his objection, relies on this court’s recent ruling in In re Cesare, 170 B.R. 37 (Bankr.D.Conn.1994) (appeal pending). In Cesare, the debtor claimed as exempt an individual retirement account (IRA). The IRA was funded by a prepetition lump *163sum payment from the employer when a company pension plan terminated. The ruling cast the issue as “whether the debtor’s $15,000 in his IRA may be exempted because the debtor received the funds on account of his pension plan, which plan would have been exempt under § 522(d)(10)(E) had the debtor retained an interest in the plan until the petition was filed.” Id. at 38. Reasoning that the plain language of Bankruptcy Code provides an exemption only for “a debtor’s right to receive a payment under a qualifying plan or contract,” the ruling concluded that “any funds due a debtor under such a plan or contract lose their exempt character once the debtor receives the funds.” Id. at 39 (citation omitted).
The Cesare opinion further supported this result by comparing the exemptions afforded under § 522(d)(10) with those under § 522(d)(11):
While § 522(d)(10) exempts only the debt- or’s “right to receive” certain property, § 522(d)(11) exempts both the debtor’s right to receive property enumerated by the statute as well as any other “property that is traceable to ” such property. Had Congress intended that the exemption provided by § 522(d)(10) include any property purchased with proceeds received on account of the exempted property, it would have provided for such a continued exemption as it did in § 522(d)(11).
Cesare, 170 B.R. at 39.
The court believes, after further reflection, that Cesare was correctly decided, and its rationale and the authorities cited therein are dispositive of the present dispute. As in Cesare, the debtor here received the payment sought to be exempted prior to filing his bankruptcy petition. On the filing date, the debtor thus had no “right to receive” a payment on which to base a valid exemption, because a right to receive logically terminates upon receipt. Further, there is no allegation of special circumstances in the parties’ stipulation, such as those relied upon in Donaghy (unemployed, elderly debtors, with husband inflicted with emphysema and cancer-stricken wife) to justify the exemption. Cf. In re McGoy, 86 B.R. 174, 176 (Bankr.E.D.Mo.1988) (stating that the Donaghy ruling “cannot be extended beyond the specific circumstances” of that case).
IV.
CONCLUSION
The trustee’s objection to the debtor’s claimed exemption of the bank account containing the funds from the disability payment must be, and hereby is, sustained. It is
SO ORDERED.
. This section provides an exemption for "[t]he debtor's right to receive ... a payment under a stock bonus, pension, profit-sharing, annuity or similar plan or contract....” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491952/ | JOHN C. NINFO, II, Bankruptcy Judge.
BACKGROUND
The Debtor in Possession in this Chapter 11 case, Dansville Properties, Inc., (the *175“Debtor”) has made a motion to be authorized to retain the firm of Lacy, Katzen, Ryen & Mittleman (“Lacy, Katzen”) as attorneys for the Debtor.
The required Affidavit of No Conflict filed by Lacy, Katzen with the Motion sets forth at paragraph 3 that:
The Debtor owes Lacy, Katzen, Ryen & Mittleman $12,164.20 for services heretofore rendered which remain unpaid. There is no security for this claim. This claim has priority over sums due to Waldemar Mazur and Ruth Mills who are or were insiders of the Debtor and who are obligated to Lacy, Katzen, Ryen & Mittle-man for the sums due from Debtor to Lacy, Katzen, Ryen & Mittleman. The claim should have no effect on any creditor even in the event of a liquidation.
The Office of the United States Trustee has filed a letter with the Court objecting to the appointment and setting forth its position that no attorney may be retained by a debtor in possession if there are pre-petition sums owed to that attorney which are not waived.
Lacy, Katzen filed a Response to the opposition which indicated that: (1) the only assets of the estate are forty-two acres of real property located in Dansville, New York which are improved by several buildings in substantial need of rehabilitation before they can be used; (2) a general unsecured creditor furnished the filing fee and a retainer for Lacy, Katzen; (3) another unsecured creditor paid franchise tax arrears to reinstate the Debtor as an active corporation and worked with Lacy, Katzen in filing the petition; (4) an additional unsecured creditor is the Debt- or’s President who assisted in preparing the petition and the Debtor’s schedules; (5) the real property owned by the Debtor is encumbered by a real property tax lien and a mortgage held by the President’s mother; and (6) except for the real property tax creditor and one unsecured creditor, all of the Debtor’s creditors either assisted Lacy, Kat-zen in filing the petition or requested that it act on their behalf. The Response further indicated that on the facts and circumstances of this case, Lacy, Katzen did not believe that its acting as the attorney for the Debtor would result in a material conflict.
DISCUSSION
Section 327(a) (applicable to a debtor in possession) provides that:
Except as otherwise provided in this section, the trustee, with the court’s approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee’s duties under this title.
Section 101(14) provides in part that:
“disinterested person” means person that—
(A) is not a creditor, an equity security holder, or an insider.
Congress could not have been more clear that a creditor is not a disinterested person and therefore cannot be employed by a debtor in possession under Section 327(a).
In its Response, Lacy, Katzen has cited In re Sharon Steel Corp., 152 B.R. 447 (Bankr.W.D.Pa.1993), aff'd, 154 B.R. 53 (W.D.Pa.1993) to show that some courts have applied general equitable principles to justify the appointment of professionals under Section 327(a), even though they are pre-petition creditors, when such an appointment arguably meets the practical realities of a particular case and, therefore, is in the best interests of the Debtor and the estate. However, the majority of courts employ a “per se ” rule, See In re CIC Investment Corporation, 175 B.R. 52 (9th Cir.1994).
The U.S. Court of Appeals for the Second Circuit has made it clear that Bankruptcy Courts cannot use the general equitable powers set forth in Section 105 “in a manner inconsistent with the commands of the Bankruptcy Code.” See F.D.I.C. v. Colonial Realty Company, 966 F.2d 57, 59 (2d Cir.1992) (quoting In re Plaza Diego Shopping Ctr., Inc., 911 F.2d 820, 830-31 (1st Cir.1990)).
CONCLUSION
The motion of the Debtor to employ Lacy, Katzen as its attorneys in its pending Chapter 11 case is in all respects denied for as *176long as Lacy, Katzen remains a pre-petition creditor of the Debtor.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484088/ | Order entered November 14, 2022
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-22-01019-CV
IN THE INTEREST OF S.O., MINOR CHILD
On Appeal from the 296th Judicial District Court
Collin County, Texas
Trial Court Cause No. 296-30101-2020
ORDER
Volume 16, an exhibit volume, of the reporter’s record in this parental
termination appeal was filed under seal. Although the trial court was authorized to
order the record sealed, see TEX. FAM. CODE ANN. § 161.210, nothing before the
Court reflects the trial court did so. Accordingly, we STRIKE volume 16 and
ORDER Janet L. Dugger, Official Court Reporter for the 296th Judicial District
Court, to file volume 16 without seal no later than November 21, 2022.
We DIRECT the Clerk of the Court to send a copy of this order to the
Honorable John Roach, Jr., Presiding Judge of the 296th Judicial District Court;
Ms. Dugger; and, the parties.
/s/ KEN MOLBERG
JUSTICE | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484113/ | In The
Court of Appeals
Sixth Appellate District of Texas at Texarkana
No. 06-22-00115-CR
WALTER MURPHY, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 5th District Court
Bowie County, Texas
Trial Court No. 18F0459-005
Before Morriss, C.J., Stevens and van Cleef, JJ.
Memorandum Opinion by Justice van Cleef
MEMORANDUM OPINION
In 2019, Walter Murphy was convicted of possession of a controlled substance and was
sentenced to twenty years’ imprisonment.1 On July 28, 2022, Murphy filed a document
captioned Petition for Reduction of Sentence. On August 4, 2022, the trial court entered an order
dismissing the petition, noting that it lacked jurisdiction to consider it. On August 25, 2022,
Murphy filed a document in the trial court captioned Appeal of Court Order. Both the trial court
and this Court interpreted the August 25 filing as Murphy’s attempt to appeal the trial court’s
August 4 dismissal order.
In Texas, a party may only appeal when the Texas Legislature has authorized an appeal.
Galitz v. State, 617 S.W.2d 949, 951 (Tex. Crim. App. 1981); see Abbott v. State, 271 S.W.3d
694, 696–97 (Tex. Crim. App. 2008) (“The standard for determining jurisdiction is not whether
the appeal is precluded by law, but whether the appeal is authorized by law.”). When the
Legislature passes legislation granting a right of appeal, in addition to granting its citizens that
substantive right, it also grants the appellate courts of this State jurisdiction to hear such appeals.
In the absence of such authorizing legislation, appellate courts are without jurisdiction and have
no authority to act.
In the criminal context, the Texas Legislature has authorized appeals from written
judgments and/or appealable orders. See Gutierrez v. State, 307 S.W.3d 318, 321 (Tex. Crim.
App. 2010). The trial court’s order dismissing, for want of jurisdiction, Murphy’s petition for a
1
This sentence was ordered to run concurrently with the twenty-year sentence Murphy received in a companion case
in which he likewise filed an appeal from the trial court’s order dismissing his petition seeking a sentence reduction.
The companion appeal bears our cause number 06-22-00116-CR.
2
sentence reduction does not appear to be an order from which the Texas Legislature has
authorized an appeal. In the absence of such authorization, we are without jurisdiction to hear
the appeal. See Raley v. State, 441 S.W.3d 647, 650–52 (Tex. App.—Houston [1st Dist.] 2014,
pet. ref’d).
By letter dated October 12, 2022, we notified Murphy of this jurisdictional issue and
afforded him an opportunity to respond. Murphy did not file a response.
Because there is no appealable order in the appellate record, we lack jurisdiction over this
appeal. Consequently, we dismiss the appeal for want of jurisdiction.
Charles van Cleef
Justice
Date Submitted: November 9, 2022
Date Decided: November 10, 2022
Do Not Publish
3 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484111/ | In The
Court of Appeals
Sixth Appellate District of Texas at Texarkana
No. 06-22-00076-CR
CASEY AUSTIN HOLLOWAY, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 196th District Court
Hunt County, Texas
Trial Court No. 33536CR
Before Morriss, C.J., Stevens and van Cleef, JJ.
Memorandum Opinion by Chief Justice Morriss
MEMORANDUM OPINION
Casey Austin Holloway pled guilty to the offense of continuous sexual abuse of a child in
exchange for the State’s agreement to forego prosecution on two other counts of continuous
sexual abuse of a child. As a result, the trial court convicted Holloway of one count of
continuous sexual abuse of a child, dismissed the State’s two other counts, and after a sentencing
hearing, sentenced Holloway to life imprisonment.1 The trial court’s certification of Holloway’s
right to appeal confirmed that the case involved a plea agreement but granted Holloway a limited
right to appeal his sentencing. Because Holloway’s points of error on appeal do not involve
sentencing matters, we dismiss this appeal for want of jurisdiction.
“At its core, a plea bargain is a contract between the state and the defendant.” Thomas v.
State, 516 S.W.3d 498, 501–02 (Tex. Crim. App. 2017) (quoting Moore v. State, 295 S.W.3d
329, 331 (Tex. Crim. App. 2009)). “Charge bargaining . . . involves questions of whether a
defendant ‘will plead guilty to the offense that has been alleged . . . , and of whether the
prosecutor will dismiss, or refrain from bringing, other charges.’” Id. at 502 (quoting Shankle v.
State, 119 S.W.3d 808, 813 (Tex. Crim. App. 2003)). Holloway’s agreement with the State is a
classic example of a charge bargain, which qualifies as a plea bargain subject to Rule 25.2(a)(2)
of the Texas Rules of Appellate Procedure. See TEX. R. APP. P. 25.2(a)(2); Kennedy v. State, 297
S.W.3d 338, 340–42 (Tex. Crim. App. 2009); Shankle, 119 S.W.3d at 813.
Rule 25.2 of the Texas Rules of Appellate Procedure governs the perfection of appeals in
criminal cases. See TEX. R. APP. P. 25.2. The Rule provides:
In a plea bargain case . . . a defendant may appeal only:
1
Before his plea, Holloway expressly acknowledged that the trial court could sentence him to life imprisonment.
2
(A) those matters that were raised by written motion filed and ruled on
before trial,
(B) after getting the trial court’s permission to appeal, or
(C) where the specific appeal is expressly authorized by statute.
TEX. R. APP. P. 25.2(a)(2).
Holloway’s points of error on appeal question the voluntariness of his bargained-for plea
of guilt. Because his complaint on appeal was not raised by pretrial motion and no statute
expressly authorizes his specific appeal, Holloway was required to get the trial court’s
permission to appeal. See id. The trial court’s certification says the case “is a plea bargain
case,” but that Holloway “has the right of appeal[] ON SENTENCING.” Consequently, the trial
court did not give Holloway permission to appeal the voluntariness of his pleas.
Because of Holloway’s specific plea agreement with the State, he does not have the trial
court’s permission to raise the issues addressed in his appellate brief. Simply put, Holloway has
no right of appeal on guilt/innocence. See TEX. R. APP. P. 25.2(a)(2); TEX. CODE CRIM. PROC.
ANN. art. 44.02; Shankle, 119 S.W.3d at 813–14. As a result, we dismiss Holloway’s appeal for
want of jurisdiction.
Josh R. Morriss, III
Chief Justice
Date Submitted: November 10, 2022
Date Decided: November 14, 2022
Do Not Publish
3 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484114/ | In The
Court of Appeals
Sixth Appellate District of Texas at Texarkana
No. 06-22-00116-CR
WALTER MURPHY, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 5th District Court
Bowie County, Texas
Trial Court No. 19F1148-005
Before Morriss, C.J., Stevens and van Cleef, JJ.
Memorandum Opinion by Chief Justice Morriss
MEMORANDUM OPINION
In 2019, Walter Murphy was convicted of possession of a controlled substance and was
sentenced to twenty years’ imprisonment.1 On July 28, 2022, Murphy filed a document
captioned Petition for Reduction of Sentence. On August 4, 2022, the trial court entered an order
dismissing the petition, noting that it lacked jurisdiction to consider it. On August 25, 2022,
Murphy filed a document in the trial court captioned Appeal of Court Order. Both the trial court
and this Court interpreted the August 25 filing as Murphy’s attempt to appeal the trial court’s
August 4 dismissal order.
In Texas, a party may appeal only when the Texas Legislature has authorized an appeal.
Galitz v. State, 617 S.W.2d 949, 951 (Tex. Crim. App. 1981); see Abbott v. State, 271 S.W.3d
694, 696–97 (Tex. Crim. App. 2008) (“The standard for determining jurisdiction is not whether
the appeal is precluded by law, but whether the appeal is authorized by law.”). When the
Legislature passes legislation granting a right of appeal, in addition to granting its citizens that
substantive right, it also grants the appellate courts of this State jurisdiction to hear such appeals.
In the absence of such authorizing legislation, appellate courts are without jurisdiction and have
no authority to act.
In the criminal context, the Texas Legislature has authorized appeals from written
judgments and/or appealable orders. See Gutierrez v. State, 307 S.W.3d 318, 321 (Tex. Crim.
App. 2010). The trial court’s order dismissing, for want of jurisdiction, Murphy’s petition for a
1
This sentence was ordered to run concurrently with the twenty-year sentence Murphy received in a companion case
in which he likewise filed an appeal from the trial court’s order dismissing his petition seeking a sentence reduction.
The companion appeal bears our cause number 06-22-00115-CR.
2
sentence reduction does not appear to be an order from which the Texas Legislature has
authorized an appeal. In the absence of such authorization, we are without jurisdiction to hear
the appeal. See Raley v. State, 441 S.W.3d 647, 650–52 (Tex. App.—Houston [1st Dist.] 2014,
pet. ref’d).
By letter dated October 12, 2022, we notified Murphy of this jurisdictional issue and
afforded him an opportunity to respond. Murphy did not file a response.
Because there is no appealable order in the appellate record, we lack jurisdiction over this
appeal. Consequently, we dismiss the appeal for want of jurisdiction.
Josh R. Morriss, III
Chief Justice
Date Submitted: November 9, 2022
Date Decided: November 10, 2022
Do Not Publish
3 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484135/ | COURT OF CHANCERY
OF THE
SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE
VICE CHANCELLOR 34 THE CIRCLE
GEORGETOWN, DELAWARE 19947
Date Submitted: November 2, 2022
Date Decided: November 16, 2022
Francis Pileggi, Esquire Kenneth Wan, Esquire
Cheneise Wright, Esquire Caneel Radinson-Blasucci, Esquire
Lewis Brisbois Bisgaard & Smith, LLP Delaware Department of Justice
500 Delaware Ave., Suite 700 Carvel State Building
Wilmington, DE 19801 820 French Street, 6th Floor
Wilmington, DE 19801
Re: Gavin J. Birney, Delaware State Sportsmen’s Association, Inc.
and Bridgeville Rifle & Pistol Club, LTD v. Delaware Department of
Safety and Homeland Security; Nathaniel McQueen Jr.,
Melissa Zebley, Civil Action No. 2022-0995-SG
Dear Counsel:
In this matter, the Plaintiffs (two gun clubs and an individual) contest the
validity of 11 Del. C. §§ 1445, 1448, codifying HB 451 (the “Statute”). The
Statute prohibits certain gun sales to, and possession by, individuals under the age
of 21. According to the Complaint,1 this law is unconstitutional under the U.S.
Constitution and violates the right to bear arms located in Article 1 Section 20 of
the Delaware Constitution of 1897, at least as applied to those aged 18-20 years.
The Defendants are State of Delaware officials and agencies (collectively, “the
1
Verified Compl. Declaratory and Injunctive Relief, DKT No. 1.
State”) that would be responsible for enforcing the Statute. Undoubtedly, the
Complaint raises interesting legal issues.
However, I must dismiss this Complaint (unless the Plaintiffs elect transfer
to the Superior Court) because the Complaint raises only legal issues. This is a
court of limited jurisdiction. Unless jurisdiction is conveyed by statute (a source of
jurisdiction not pertinent here), Chancery jurisdiction exists only where adequate
relief is not available at law.2 Two flavors of such jurisdiction exist: for litigation
of equitable causes of action (again, not applicable here); and where the relief
available at law would be inadequate.
It is the latter jurisdictional hook that is asserted by the Plaintiff as the basis
for Chancery jurisdiction. The Complaint seeks not only declaratory judgments
(available at law or in Chancery),3 but also a permanent injunction “to prevent [the
State] from enforcing [the Statute];”4 relief available only in equity. In a detailed
section of the Complaint the Plaintiffs recount the basis for subject-matter
jurisdiction: “This Court has subject-matter jurisdiction under 10 Del. C. § 341
because Plaintiffs seeks [sic] equitable relief in the form of a permanent injunction.
See, e.g., Higgin v. Albence . . . ; Rigby [ v. Jennings].”5 As to the caselaw cited, I
2
Takeda Pharm. U.S.A., Inc. v. Genentech, Inc., 2019 WL 1377221, at *4 (Del. Ch. Mar. 26,
2019) (citing Delawareans for Educ. Opportunity v. Carney, 2018 WL 4849935, at *5 (Del. Ch.
Oct. 5, 2018)).
3
10 Del C. § 6501.
4
Compl. 46.
5
Id. ¶ 19.
2
find it largely unhelpful. Higgin did not consider equitable jurisdiction,6 which
apparently was not raised by counsel or the court; Rigby did apply equitable relief,7
but Rigby is a Federal case—the Federal courts merged law and equity (and
obviated such subject matter questions) by at least 1938 when they adopted the
first incarnation of the Rules of Civil Procedure.8
Nonetheless, if the Plaintiffs require equity to enforce a finding of
unconstitutionality—that is, if it appears that the State would otherwise attempt to
enforce an unconstitutional statute—they have stated a quintessential basis for
equitable jurisdiction.
That premise is undoubtably correct, but the Plaintiffs’ apparent
conclusion—that the State will ignore a declaratory judgment of the Superior
Court, affirmed (if appealed) by the Delaware Supreme Court, is absurd. Also
absurd is the corollary conclusion—that State agencies, so unbridled and corrupt as
to enforce unconstitutional laws in the face of such a finding by a court of law,
would nonetheless be compliant with an order of this Court.
6
Higgin v. Albence, 2022 WL 4239590 (Del. Ch. Sept. 14, 2022), judgment entered, (Del. Ch.
2022), aff’d in part, rev’d in part, 2022 WL 5333790 (Del. Oct. 7, 2022), and amended, (Del.
Ch. 2022), and aff’d in part, rev’d in part, 2022 WL 5333790 (Del. Oct. 7, 2022).
7
Rigby v. Jennings, 2022 WL 4448220 (D. Del. Sept. 23, 2022).
8
Ross v. Bernhard, 396 U.S. 531, 539–40 (1970). Further, though different pleading was
required in equity and law prior to 1938, Article III judges sat for cases in both law and equity ab
initio. Kellen Funk, Equity’s Federalism, 97 Notre Dame L. Rev. 2057, 2058 (2022).
3
When considering whether a complaint states a ground for equitable
jurisdiction, this Court must look beyond the “facade of prayers,” and ascertain
what relief the plaintiffs are actually seeking.9 An incantation of words seeking
equitable relief works no magic if that relief is makeweight, pretextual or
superfluous to the true relief needed.10 Here, the Plaintiffs seek a determination
that the Statute is unconstitutional and unenforceable as violative of
constitutionally protected rights.11 Such a final judgement would no doubt cause
the agencies and officials involved to cease enforcing the Statute. For this Court to
adopt the position that a permanent injunction of potential wrongful enforcement is
necessary relief in such a case—like a similar finding that injunctive relief is
necessary to enforcement of any money judgement—would serve as an “open
sesame” to equity and would convert this into a court of general jurisdiction in
violation of 10 Del. C. §§ 341, 342.12
That is not to say that equity has no place in enforcement of constitutional
rights. It plainly, even famously, does.13 Where there is a real chance that relief
will not be forthcoming absent injunction, equity is invoked. Where the right
9
Int’l Bus. Machines Corp. v. Comdisco, Inc., 602 A.2d 74, 78 (Del. Ch. 1991) (citations
omitted).
10
Id.
11
Compl. 45–46.
12
See Comdisco, 602 A.2d at 78.
13
See Belton v. Gebhart, 87 A.2d 862 (Del. Ch.), aff’d, 91 A.2d 137 (Del. 1952), aff’d sub nom.
Brown v. Bd. of Educ. of Topeka, Kan., 349 U.S. 294 (1955).
4
requires a remedy bespoke to the facts, equity is invoked. Where an ongoing
deprivation of rights needs a remedy by interim relief, equity is invoked.14 Where,
as here, all that is sought at law is a legal declaration that an unconstitutional law is
unenforceable, and all that is sought in equity is a permanent injunction based on a
final adjudication of the former, the request for injunctive relief is an insufficient
tool to prize the door of Chancery.
It has been, and remains, my practice, where I doubt the existence of a
sufficient basis for equitable jurisdiction, to ask the parties to address the issue. In
that light, I should explain why I dismiss sua sponte here, without the advice of the
parties. A few years ago, I heard a similar complaint15 (the “Prior Action”)
alleging the unconstitutionality of state regulation of the right to bear arms, also
seeking declaratory judgement, and also invoking equity via enforcement of such
judgement by injunction.16 The plaintiff organizations in the Prior Action were the
very same as the Plaintiffs here. Those plaintiffs were represented by the same
counsel as the Plaintiffs here. After oral argument, I dismissed that matter sua
14
I note that the Complaint lacks a prayer for a preliminary injunction and seeks only a
permanent injunction.
15
Bridgeville Rifle & Pistol Club, Ltd v. Small, C.A. No. 11832-VCG (Del. Ch. Jun. 15, 2016)
(TRANSCRIPT).
16
Verified Compl. for Declaratory and Injunctive Relief, Bridgeville Rifle & Pistol Club, Ltd v.
Small, C.A. No. 11832-VCG (Del. Ch. Dec. 21, 2015), DKT No. 1.
5
sponte subject to transfer to the law courts, where, I note, the plaintiffs ultimately
received the relief they sought.17
In dismissing the Prior Action, I held from the bench that:
There was a request for injunctive relief here, and I certainly believe it
was made in good faith. I’m going to quote here the same language
that the court used in Doe v. Coupe quoted from the Comdisco
opinion. ‘It has been frequently said that this Court, in determining
jurisdiction, will go behind the facade of prayers to determine the true
reason for which plaintiff has brought the suit. By this, it is meant
that a judge in equity will take a practical view of the complaint and
will not permit a suit to be brought in Chancery where a complete
legal remedy otherwise exists but where the plaintiff has prayed for
some type of traditional equitable relief as a kind of formulaic open
sesame to the Court of Chancery. A practical analysis of the
adequacy of any legal remedy then must be the point of departure for
each matter which comes before this Court.’
***
Here, there is an allegation of irreparable harm, but it is irreparable
harm that is going to be repaired by, or to the extent it can be repaired,
that it’s going to be alleviated by a decision about the propriety of
these regulations; that is, by declaratory judgment.
All that is really necessary here is for a court to issue a declaratory
judgment. If the Superior Court or this Court tells the State that these
laws are not constitutional, then that really ends the matter. There is
no further relief that is necessary.18
That case, and holding, are on all fours here. Of course, I may be, or may
have been, mistaken, a matter which could be addressed by motion for reargument
or interlocutory appeal, if appropriate. And I do not hesitate to aver that I have
17
Bridgeville Rifle & Pistol Club, Ltd. v. Small, 176 A.3d 632, 661–62 (Del. 2017).
18
Bridgeville Rifle & Pistol Club, Ltd v. Small, C.A. No. 11832-VCG, 82–83 (Del. Ch. Jun. 15,
2016) (TRANSCRIPT).
6
great respect for Plaintiffs’ counsel, who is one of the leading equity practitioners
in our bar. On the other hand, I have no interest in having my courtroom become
the Echo Canyon of equity. Accordingly, the Complaint is dismissed with leave to
transfer. An Order is attached.
Sincerely,
/s/ Sam Glasscock III
Sam Glasscock III
7
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
GAVIN J. BIRNEY; DELAWARE )
STATE SPORTSMEN’S )
ASSOCIATION, INC. and )
BRIDGEVILLE RIFLE & PISTOL )
CLUB, LTD., )
)
Plaintiff, )
)
v. ) C.A. No. 2022-0995-SG
)
DELAWARE DEPARTMENT OF )
SAFETY AND HOMELAND )
SECURITY; NATHANIEL )
MCQUEEN JR. in his official )
capacity as Cabinet Secretary, )
Delaware Department of Safety and )
Homeland Security; and COL. )
MELISSA ZEBLEY in her official )
capacity as superintendent of the )
Delaware State Police, )
)
Defendant. )
ORDER DISMISSING THE COMPLAINT WITH LEAVE TO TRANSFER
AND NOW, this Wednesday, November 16, 2022, upon review of
Plaintiffs’ Verified Complaint for Declaratory and Injunctive Relief (the
“Complaint”), IT IS HEREBY ORDERED that the Complaint is DISMISSED in
its entirety with leave to transfer subject to 10 Del C. § 1902.
/s/ Sam Glasscock III
Vice Chancellor | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484139/ | IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Twanda Pierce-Boyce, :
:
Petitioner :
:
v. : No. 725 C.D. 2021
: Submitted: August 19, 2022
Unemployment Compensation :
Board of Review, :
:
Respondent :
BEFORE: HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE CHRISTINE FIZZANO CANNON, Judge
HONORABLE STACY WALLACE, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE WOJCIK FILED: November 16, 2022
Twanda Pierce-Boyce (Claimant) petitions for review from an order of
the Unemployment Compensation Board of Review (Board) that reversed the
decision of a referee and denied her unemployment compensation (UC) benefits
under Section 402(e) of the Unemployment Compensation (Law).1 Claimant
contends Employer failed to establish Claimant’s conduct violated a known work
policy. Additionally, Claimant asserts that the Board’s determination is not
supported by substantial evidence. Upon review, we affirm.
1
Act of December 5, 1926, Second Ex. Sess., P.L. (1937) 2897, as amended, 43 P.S.
§802(e). Section 402(e) of the Law provides, “[a]n employe shall be ineligible for compensation
for any week . . . [i]n which his unemployment is due to [her] discharge . . . from work for willful
misconduct connected with his work . . . .”
Claimant worked as a full-time therapist for Resources for Human
Development (Employer) from July 15, 2019, until her last day of work on August
26, 2020. After her separation from employment, Claimant applied for UC benefits,
which a local service center denied. Claimant appealed, and a referee held a hearing.
At the hearing, the referee heard testimony and received evidence from Claimant,
who proceeded pro se; Employer’s Tax Consultant Representative, Joel Kincaid;
and Employer’s Witness, Sharon Kopyc (Director).
Based on the testimony and evidence presented, the referee determined
that Employer did not meet its burden of proving that Claimant committed willful
misconduct. Thus, the referee concluded that Claimant was eligible for UC benefits.
Employer appealed to the Board.
Based on the record created at the referee’s hearing, the Board found
the following facts. Employer maintains an employee policy that provides for
dismissal of an employee on the grounds of either neglect of the individuals served
by Employer, or a violation of safety standards that may endanger another person.
Claimant was aware of Employer’s policy. On August 21, 2020, Claimant was asked
to transport a resident to a halfway house in Altoona from Employer’s Philadelphia
location. Claimant drove exceedingly fast during her trip, averaging a trip speed of
86 miles per hour and a peak speed of 96 miles per hour. Employer discharged
Claimant for violating its safety rules. Board’s April 19, 2021 Opinion (Board Op.,
4/19/21), Findings of Fact (F.F.) Nos. 1-5.
Although Claimant testified that she was driving with the flow of
traffic, the Board did not find this testimony credible. Board Op. at 2. Claimant
acknowledged that the speed limit was no more than 65 to 70 miles per hour. Id.
Considering Claimant’s average speed of 86 miles per hour, the Board concluded
2
that Claimant’s claims of traveling with the flow of traffic was neither reasonable
nor justified under the circumstances. Id.
The Board also noted that Claimant made several admissions of her
infractions throughout the record. Board Op. at 2.; see Certified Record (C.R.) at
91. For example, on her internet initial claims form, Claimant “disclosed that she
was discharged for driving ‘too fast,’ answered ‘yes’ to whether she violated []
[E]mployer’s rule, and that it was ‘reported through GPS that I was driving too
fast.’” Id.; see C.R. at 16, 19. When asked at the hearing if she contested the report,
Claimant “conceded to its accuracy, stating, ‘I don’t know about the GPS. I wasn’t
aware of the GPS but if that’s what they are recording, I’m not going to battle that
because I don’t know.’” Board Op. at 2; see C.R. at 91.
As for the GPS report, the Board concluded that the GPS report, which
the referee did not admit into evidence,2 did not constitute an assertion prohibited
under the rule against hearsay. C.R. at 91. The Board opined administrative
agencies are not bound by the “best evidence rule,” which would require Employer
to introduce a physical copy of the GPS report. Id. The Board determined Claimant
sufficiently conceded and corroborated the assertions of her excessive speed. Id. at
92.
Based on the evidence as corroborated by Claimant’s admissions, the
Board concluded that Employer met its burden of proving that Claimant deliberately
violated Employer’s policies. C.R. at 92. Thus, the Board reversed the referee’s
determination upon concluding that Claimant was ineligible for benefits under
2
The referee did not admit into the record a report from AZUGA Fleet. The referee noted
in his decision that Employer submitted the document one day before the hearing.
3
Section 402(e) of the Law.3 Claimant’s petition for review to this Court followed.4
Id.
On appeal, Claimant contends that Employer failed to establish the
existence and violation of a known work policy. Claimant contests she was never
made aware of the safety policies in question. She contends her conduct did not rise
to the level of disqualifying willful misconduct. Claimant avers the Board’s findings
are not supported by substantial evidence because Employer failed to provide any
non-hearsay evidence that she violated its policy.
“[W]illful misconduct is defined by the courts as: (1) wanton and
willful disregard of an employer’s interests; (2) deliberate violation of rules; (3)
disregard of the standards of behavior which an employer can rightfully expect from
an employee; or (4) negligence showing an intentional disregard of the employer’s
interests or the employee’s duties and obligations.” Johns v. Unemployment
Compensation Board of Review, 87 A.3d 1006, 1009 (Pa. Cmwlth. 2014), (citing
Grieb v. Unemployment Compensation Board of Review, 827 A.2d 422, 425 (Pa.
2002)).
The employer bears the initial burden of proving that a claimant
engaged in willful misconduct. Johns, 87 A.3d at 1009. A determination of whether
an employee’s actions amount to willful misconduct requires a consideration of “all
of the circumstances, including the reasons for the employee’s noncompliance with
the employer’s policy or directives.” Navickas v. Unemployment Compensation
3
The Board denied Claimant’s request for reconsideration of its decision. C.R. at 96, 99.
4
Our review is limited to determining whether necessary findings of fact were supported
by substantial evidence, whether errors of law were committed, or whether constitutional rights
were violated. Section 704 of the Administrative Agency Law, 2 Pa. C.S. §704; Johns v.
Unemployment Compensation Board of Review, 87 A.3d 1006 (Pa. Cmwlth. 2014).
4
Board of Review, 787 A.2d 284, 288 (Pa. 2001) (quoting Rebel v. Unemployment
Compensation Board of Review, 723 A.2d 156, 158 (Pa. 1998)). “Whether a
claimant’s actions constitute willful misconduct is a question of law fully reviewable
on appeal.” Johns, 87 A.3d at 1010.
Once an employer meets its burden of proving willful misconduct, the
burden shifts to the employee to prove good cause for her actions. Johns, 87 A.3d
at 1010. An employee establishes good cause where her actions are justified or
reasonable under the circumstances. Docherty v. Unemployment Compensation
Board of Review, 898 A.2d 1205, 1208-09 (Pa. Cmwlth. 2006).
Further, in UC cases, the Board is the ultimate fact-finder and is
empowered to resolve all issues of witness credibility, conflicting evidence, and
evidentiary weight. Ductmate Industries, Inc. v. Unemployment Compensation
Board of Review, 949 A.2d at 338, 342 (Pa. Cmwlth. 2008). It is irrelevant whether
the record contains evidence that would support findings other than those made by
the Board; the proper inquiry is whether the evidence supports the findings actually
made. Id. Substantial evidence is “such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion.” Id. Additionally, the party
prevailing below is entitled to the benefit of all reasonable inferences drawn from
the evidence. Id. This Court is bound by the Board’s findings of fact “so long as
the record taken as a whole contains substantial evidence to support them.”
Henderson v. Unemployment Compensation Board of Review, 77 A.3d 699, 718 (Pa.
Cmwlth. 2013).
When asserting that a discharge was based on a violation of a work rule,
an employer must establish the existence of the rule, the reasonableness of the rule,
the claimant’s knowledge of the rule, and its violation. Henderson, 77 A.3d at 718
5
(citing Ductmate, 949 A.2d at 344). An employee who has no notice of a work rule
will not be denied benefits based on willful misconduct. Tongel v. Unemployment
Compensation Board of Review, 501 A.2d 716 (Pa. Cmwlth. 1985). Moreover, “an
employee is charged with constructive notice of [a] rule or policy [if] it could have
been discovered by due diligence.” Gibson v. Unemployment Compensation Board
of Review, 760 A.2d 492, 495 (Pa. Cmwlth. 2000).
A work rule violation need not be shown where the behavior standard
is obvious, and the employee’s conduct is so inimical to the employer’s best interests
that discharge is a natural result. Spare v. Unemployment Compensation Board of
Review, 432 A.2d 283 (Pa. Cmwlth. 1981). It is well-settled law that “a disregard
of the standard of behavior which the employer had a right to expect of [an
employee], . . . [can be] willful misconduct, apart from whether or not . . . that
[employee violated work rules . . . .” Lee v. Temple University (Personnel), 363
A.2d 890, 892 (Pa. Cmwlth. 1976). “It is not necessary to have an employer’s rule
where the act itself is contrary to the motor vehicle laws of the Commonwealth.”
Cadden v. Unemployment Compensation Board of Review, 169 A.2d 334, 335 (Pa.
Super. 1961) (the claimant’s speeding “constituted . . . a willful disregard of the
employer’s interests and of the standards of behavior which the employer has a right
to expect of its employees”).
Here, the Board found that Employer maintains a policy that provides
for dismissal of an employee on the grounds of either neglect of the individuals
served by Employer or a violation of safety standards that may endanger another
person. F.F. No. 2. Although Employer did not produce a copy of the policy manual,
Employer quoted provisions of its manual on the Progressive Disciplinary Action
Form and Employer Questionnaire to establish the existence of its work rules. C.R.
6
at 23-31. Section 1102.3 of Employer’s policy manual forbids “neglect of an
individual [Employer] serve[s].” C.R. at 26. Section 1102.4 of Employer’s policy
manual provides for immediate dismissal for a “violation of safety [sic] and
negligent/unsafe behaviors that may endanger another person, destruction of
property and equipment.” Id. Employer’s Director testified that Claimant should
have been aware of the policies because they are made available to all employees
online. C.R. at 71.; Notes of Testimony, Referee’s January 5, 2021 hearing (N.T.)
at 11. When asked why a verbal warning was not given before termination, Director
testified that “excessive speed” is grounds for “immediate termination as [] indicated
in the policy manual.” Id. at 12.
Although Claimant denied awareness of Employer’s work rules, she
acknowledged the policies were available online; she testified she “did some driving
for training”; and she was aware that the maximum speed limit on her trip was 70
miles per hour.5 See N.T. at 14; Petitioner’s Brief at 6. Upon review, substantial
evidence supports the Board’s finding that Employer maintains policies providing
for termination if an employee either neglects a person in the care of the employer
or violates safety standards that may put another person at risk and that Claimant
was aware or should have been aware of Employer’s policies.6
Next, Claimant argues that substantial evidence does not support the
Board’s finding that she violated Employer’s policies or otherwise committed willful
5
See Section 3362 of Vehicle Code, 75 Pa. C.S. §3362 (maximum speed limit in the
Commonwealth is 70 miles per hour).
6
The reasonableness of these policies is manifest. See, e.g., Webb v. Unemployment
Compensation Board of Review, 670 A.2d 1212, 1215 (Pa. Cmwlth. 1996) (in determining whether
an employer’s policy is reasonable, we “must consider whether application of the rule or policy
under the circumstances is fair and just and appropriate to accomplish a legitimate interest of the
employer”).
7
misconduct. Claimant contends that the testimony of Employer’s Director
constitutes hearsay and is therefore incapable of supporting the Board’s findings of
fact without corroborating evidence.
Hearsay is “an out of court [statement] offered to prove the truth of the
fact asserted [in the statement].” Commonwealth v. Coleman, 326 A.2d 387, 388
(Pa. 1974). However, testimony based on an individual’s personal knowledge and
observations is not hearsay. See Baird v. Unemployment Compensation Board of
Review, 372 A.2d 1254, 1257 (Pa. Cmwlth. 1977). Moreover, a hearsay statement
that is not objected to is still competent evidence and may form the basis for a finding
of fact if it is corroborated by other competent evidence. Remaly v. Unemployment
Compensation Board of Review, 423 A.2d 814, 816 (Pa. Cmwlth. 1980). “[I]t is
unnecessary that the finding of willful misconduct be supported by substantial
evidence absent the hearsay. . . . All that is necessary is that the facts adding weight
or confirming the hearsay be established by competent evidence.” Socash v.
Unemployment Compensation Board of Review, 451 A.2d 1051, 1053 (Pa. Cmwlth.
1982).
In Socash, a claimant was discharged from his position as a truck driver
for speeding. In support, the employer offered the testimony of its supervisor. The
supervisor testified that he received a phone call from his customer directing him not
to send the claimant back to the jobsite because the claimant was speeding and
almost collided with another truck. The supervisor testified that he and the customer
had previously warned the claimant on several occasions about his speeding. The
claimant argued the supervisor’s testimony was hearsay and, as such, could not
support the Board’s findings. This Court disagreed noting that there was nothing on
the face of the supervisor’s testimony indicating it was based solely on out-of-court
8
declarations of another rather than direct impressions. Socash, 451 A.2d at 1052.
Although the supervisor testified that he had received a telephone call from his
customer regarding the incident, it was equally plausible that the supervisor had
made his own observations regarding the claimant’s excessive speed. “[T]he process
of assuming and inferring has been committed to the Board and not to this Court.”
Id.
In Socash, this Court reasoned that, even if the testimony was hearsay,
such testimony admitted without objection is sufficient to support a finding if it is
corroborated by other competent evidence. Socash, 451 A.2d at 1053 (citing Walker
v. Unemployment Compensation Board of Review, 367 A.2d 366 (Pa. Cmwlth.
1976)). The claimant’s testimony regarding the incident provided the necessary
corroboration. The claimant testified that he was driving a truck on the road in
question at the time of the alleged speeding incident; that he was observed by a
supervisory employee; that he engaged in maneuvers intended to accomplish his
arrival at a garage first and before another driver; and that the maneuvers created
dusty conditions on the road. “These circumstances lend[ed] weight and credibility
to the employer’s hearsay account of speeding.” Id. at 1053. Thus, we concluded
that the employer’s evidence was sufficiently corroborated by the claimant’s
admissions to support the Board’s findings that the claimant was terminated for
driving at an unsafe rate of speed. Id.
Here, Employer’s Director testified that Claimant was discharged for
violating its safety policy by speeding. N.T. at 9. Director testified regarding her
understanding that Claimant drove at high speeds while transporting a resident to a
halfway house based on a GPS report. Id. Director further testified that she received
an email from compliance personnel informing her that Claimant was traveling for
9
7 minutes at 96 miles per hour within an average speed of 85 miles per hour. Id.
Director testified that keeping up with the flow of traffic would not be an acceptable
reason for driving at that speed. Id. According to Director, there would never be a
time where driving at that speed would be acceptable. Id. at 11.
Although it appears that Director’s testimony regarding Claimant’s rate
of speed was based on out-of-court declarations – the GPS report and email –
Claimant did not object to Director’s testimony. Claimant’s testimony provided the
necessary corroboration. Claimant testified that she was driving the work vehicle
on the road in question at the time of the alleged speeding incident. N.T. at 13.
Claimant did not deny that she was speeding. N.T. at 13. Claimant testified “I know
at one point, the speed limit was 75 – I mean 70 miles per hour and 65. I’m not sure
after that.” N.T. at 14. Claimant acknowledged her speed was up to 76 miles per
hour, past the legal limit. N.T. at 13. Claimant defended that she was not pulled
over, stopped by the police, or issued a ticket and that no one was hurt by her driving.
N.T. at 13. When asked if there was anything else she wanted to share at the hearing,
Claimant replied:
[W]hen driving actually so when you look, you have to
look at the speedometer because it doesn’t actually seem
that you’re going as fast as the speedometer says, or if you
look at it, you would need to slow down. I do a lot of
driving, and I have no speed[ing] tickets whatsoever.
N.T. at 14.
Notably, Claimant did not dispute that she was driving at an average
rate of 85 miles per hour or as high as 96 miles an hour for an extended period. N.T.
at 14. Claimant testified “I don’t know about the GPS. I wasn’t aware of the GPS,
but if that’s what they are recording, I’m not going to battle that because I don’t
know.” Id. at 14. Claimant also acknowledged on her initial internet initial claims
10
form that Employer discharged her for driving too fast as reported on the GPS report.
Id. at 15, 17. Claimant explained that she was “driving with the flow of traffic.” Id.
at 16, 17.
Claimant’s testimony, lack of defense, and tacit admissions provide
ample corroboration of Director’s testimony to support the Board’s finding that
Claimant was driving “exceedingly fast” for most of her trip while transporting a
resident in a work vehicle. F.F. Nos. 3, 4. Claimant’s conduct constitutes a violation
of Employer’s safety policies. Even if Employer had not established a known work
rule, Claimant’s actions constituted a willful disregard of Employer’s interests and
of the standards of behavior that Employer has a right to expect of its employees.
See Cadden, 169 A.2d at 335. In short, Claimant did not show good cause for her
conduct.
Accordingly, the Board’s order is affirmed.
MICHAEL H. WOJCIK, Judge
11
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Twanda Pierce-Boyce, :
:
Petitioner :
:
v. : No. 725 C.D. 2021
:
Unemployment Compensation :
Board of Review, :
:
Respondent :
ORDER
AND NOW, this 16th day of November, 2022, the order of the
Unemployment Compensation Board of Review dated April 19, 2021, is
AFFIRMED.
__________________________________
MICHAEL H. WOJCIK, Judge | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484140/ | IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Robert J. Cummins, d/b/a Bob :
Cummins Construction Company :
:
v. :
:
Bradford Sanitary Authority, : No. 1107 C.D. 2021
Appellant : Submitted: June 24, 2022
BEFORE: HONORABLE ANNE E. COVEY, Judge
HONORABLE ELLEN CEISLER, Judge
HONORABLE LORI A. DUMAS, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
JUDGE COVEY FILED: November 16, 2022
Bradford Sanitary Authority (Authority) appeals to this Court for
review of the McKean County Common Pleas Court’s (trial court) September 9,
2021 order after remand that entered judgment in favor of Robert J. Cummins, d/b/a
Bob Cummins Construction Company (Cummins). The sole issue before this Court
is whether the trial court adhered to this Court’s June 8, 2020 Order issued relative
to Docket Nos. 1000, 1009 C.D. 2019, Cummins v. Bradford Sanitary Authority, 237
A.3d 584 (Pa. Cmwlth. 2020) (Cummins I). After review, this Court affirms in part,
and vacates and remands in part.
Background
The Authority owns and operates a wastewater treatment plant (Plant)
in Foster Township, McKean County, that serves the City of Bradford and other
nearby communities. When the Authority sought to conduct Wastewater Treatment
Plan Upgrades (Project), it retained Gannett Fleming, Inc. (GF) to provide
engineering and construction management services. Part of the Project required the
construction of concrete tanks containing sequencing batch reactors (SBRs) to treat
sewage and other wastewater at the Plant.
In 2013, the Authority issued an Invitation for Bids (IFB) from
contractors for the Project that included a contract and documents attached thereto
and incorporated therein (Contract). The IFB included a Project Manual containing,
inter alia, Instructions to Bidders and the Contract. Section 11393 of the Project
Manual contained the specifications for the SBR and its ancillary structures,
equipment, and controls (SBR Specifications). In Section 1.05 of the SBR
Specifications, the Authority designated as Acceptable Manufacturers: A. ABJ
Sanitaire, B. Ashbrook Simon Hartley (Ashbrook), and C. Aqua Aerobics.
Although the SBR Specifications authorized bidders to select Ashbrook
or Aqua Aerobics as acceptable manufacturers, Section 11.01.B of the Instructions
to Bidders (Section 11.01.B.3) stated:
1. Products named on the Contract Drawings, if any, and
products of manufacturers named first throughout the
Project Manual[,] constitute [GF’s] design.
2. Products of named manufacturers, other than the first
named manufacturer, appearing throughout the Project
Manual or on the Contract Drawings are accepted as
equal; however, the requirements of [Section] 6.03 of
the General Conditions regarding ‘equipment’ and
‘machinery’ shall apply.
3. If products of manufacturers other than those named
first differ from those named first in the Project Manual
or on the [Contract] Drawings to the extent that their
proper incorporation into the [work required by the
Contract Document (]Work[)] requires changes to the
structural, piping, mechanical, electrical,
instrumentation, or any other changes of whatsoever
2
nature, the [c]ontractor shall be responsible for such
changes.
Section 11.01.B (Cummins I Reproduced Record (R.R.) at 137a). Because it received
a better deal on the SBR system from Ashbrook than from ABJ Sanitaire, Cummins
proposed to install an Ashbrook SBR.
On February 12, 2014, the Authority and Cummins executed the
Contract for the Work. On March 11, 2014, GF issued Cummins a Notice to
Proceed. Cummins submitted the Ashbrook product data and shop drawings
reflecting changes Ashbrook proposed to GF’s design to incorporate the Ashbrook
SBR. GF determined, based on Cummins’ and Ashbrook’s assurances during the
bid and submittal processes, that the proposed Ashbrook SBR would meet the SBR
Specifications. After several meetings and some changes, GF marked Cummins’
final SBR shop drawings “Reviewed,” Cummins I R.R. at 640a, 3405a, and
Cummins installed the Ashbrook SBR at the Plant.
After the SBR was put into operation in 2015, the parties discovered an
influent overflow problem with the SBR system that Cummins claimed was due to
the 20-inch influent piping being too small to accommodate the Ashbrook system’s
sequencing. The Authority/GF disputed that the piping size was the cause, and
claimed that the overflow resulted from the automatic gates not controlling the flow,
and that a different piping configuration was necessary to accommodate the
Ashbrook SBR. Notwithstanding, neither Cummins nor Ashbrook had previously
identified to GF a need to increase the size of the 20-inch influent pipes in GF’s
design or to reconfigure the piping for the Ashbrook SBR to deliver the contractual
amount of wastewater. The parties disagreed on the solution and the cost thereof.
On or about December 22, 2015, GF certified that the Project was
substantially complete - except for the SBRs and two other items. However, because
the Authority believed Cummins’ performance was contrary to the Contract’s
3
provisions relative to the SBRs and other Project components, it denied certain
change orders and withheld Cummins’ final payment to correct or complete
Cummins’ work.
Cummins I
On March 17, 2016, Cummins filed a complaint in the trial court against
the Authority, alleging therein that the Authority breached the Contract, and seeking
recovery of the retainage and costs Cummins incurred to perform extra work
required by the change orders, plus interest, penalty interest, and attorney’s fees. On
August 29, 2016, Cummins filed its reply to the Authority’s new matter and
counterclaim. Thereafter, Cummins filed an amended complaint and a second
amended complaint.
On November 8, 2017, the Authority filed an answer and new matter to
Cummins’ second amended complaint, and asserted counterclaims against Cummins
for breach of contract. The Authority specifically counterclaimed that Cummins
failed to provide SBR-related and non-SBR-related services in accordance with the
Contract, and failed to timely achieve final Project completion. The parties
conducted extensive discovery and exchanged expert reports, and the trial court
ruled on numerous dispositive motions.
On February 15, 2019, the Authority filed a Motion in Limine
Concerning Contract Interpretation and a brief in support thereof. Therein, the
Authority asked the trial court to rule that Section 11.01.B.3 and the Contract clearly
and unambiguously made Cummins alone responsible to identify and make changes
necessary to incorporate the Ashbrook SBR into the Project. Cummins opposed the
Authority’s Motion in Limine Concerning Contract Interpretation on the basis that it
was the Authority’s attempt to relitigate a previously denied partial motion for
summary judgment.
4
By March 7, 2019 order, the trial court deferred decision on the
Authority’s Motion in Limine Concerning Contract Interpretation, stating:
[A]t this time, the [trial c]ourt is without sufficient
evidence to consider the [C]ontract as a whole, which is a
factor the [trial c]ourt must weigh in determining
ambiguity. Furthermore, the [trial c]ourt believes that if it
w[as] to determine ambiguity at this time that the [trial
c]ourt’s decision would impact the jury’s decision to
decide the facts so greatly that a jury’s decision could not
be independent of the [trial c]ourt’s decision and
influence, making the jury’s verdict and [the trial c]ourt’s
finding indivisible.
Trial Ct. March 7, 2019 Order at 1 (citations omitted). The trial court concluded:
“[T]he matter may be appropriately decided after a jury verdict through post-trial
motions and that deferral is the least restrict [sic] alternative to present the most
relevant evidence available.” Id. at 2.
The trial court conducted a jury trial from March 11 to 20, 2019. During
the trial, on March 15, 2019, the trial court issued an order denying the Authority’s
Motion in Limine Concerning Contract Interpretation, stating that since Section
11.01.B.3 was susceptible to more than one reasonable interpretation, the Contract
was ambiguous and, thus, its interpretation was properly before the jury. See Trial
Ct. Mar. 15, 2019 Order at 3. Notably, although the trial court acknowledged that
Section 11.01.B.3 was not the only Contract clause that gave rise to the parties’
dispute, the trial court quoted and analyzed only Section 11.01.B.3 before ruling that
the entire Contract was ambiguous. See Trial Ct. Mar. 15, 2019 Order at 2.
On March 21, 2019, the jury rendered a verdict in Cummins’ favor in
the amount of $488,243.24, consisting of the Contract balance that the Authority
withheld, along with a number of Cummins’ change order claims. The jury also
found that the Authority acted in bad faith in retaining the Contract balance. In
addition, the jury found against the Authority on 19 of its 20 counterclaims.
5
On March 29, 2019, Cummins filed a Motion to Mold the Verdict for
Interest, Penalty Interest and Attorney’s Fees (Cummins’ Motion), therein seeking
to have the trial court award the following additional amounts: (1) regular interest in
the amount of $112,548.00; (2) penalty interest in the amount of $88,372.00; (3)
attorney’s fees and costs in the amount of $449,107.55; and (4) litigation expenses
in the amount of $35,464.87. The Authority opposed Cummins’ Motion.
On April 1, 2019, the Authority filed a Motion for Post-Trial Relief
(Authority’s Motion), seeking judgment notwithstanding the verdict (JNOV) in its
favor or a new trial, claiming that the trial court improperly determined that the
Contract was ambiguous and erred by allowing the jury to rely on extrinsic evidence
to interpret the Contract provisions. The Authority also asserted that the trial court
erred by permitting the jury to decide Cummins’ bad faith claim and change
order/extra work claims. Cummins opposed the Authority’s Motion.
On June 27, 2019, relative to Cummins’ Motion, the trial court entered
judgment upon the verdict for the amounts the jury awarded to Cummins and
awarded regular interest and some of Cummins’ requested attorney’s fees, but
denied Cummins’ request for penalty interest. By separate June 27, 2019 order, the
trial court denied the Authority’s Motion.
The Authority and Cummins cross-appealed to this Court.1 The trial
court directed the parties to file Statements of Errors Complained of on Appeal
pursuant to Pennsylvania Rule of Appellate Procedure (Rule) 1925(b) (Cummins I
Rule 1925(b) Statement). On August 16 and 23, 2019, respectively, the parties filed
1
On July 23, 2019, the Authority appealed to this Court at Pa. Cmwlth. No. 1000 C.D.
2019. On July 25, 2019, Cummins filed a cross-appeal in this Court at Pa. Cmwlth. No. 1009 C.D.
2019. On October 21, 2019, this Court consolidated the appeals at Pa. Cmwlth. No. 1000 C.D.
2019.
Also, on July 23, 2019, the McKean County Prothonotary issued a Notice of Entry of
Judgment against the Authority in the amount of $857,743.14.
6
their Cummins I Rule 1925(b) Statements. On October 15, 2019, the trial court
issued its opinion pursuant to Rule 1925(a) (Cummins I Rule 1925(a) Opinion),
therein upholding its June 27, 2019 rulings relative to the Authority’s Motion.
On June 8, 2020, this Court held that the trial court erred by denying
the Authority’s Motion, because Section 11.01.B.3 clearly and unambiguously made
Cummins solely responsible for the defective system performance related to its
Ashbrook SBR. See Cummins I. Specifically, this Court concluded that the trial
court erred by concluding that the entire Contract was ambiguous and allowing
Cummins to present extrinsic evidence for the jury to interpret the Contract
language. In light of this Court’s ruling on the Authority’s Motion, this Court
vacated the trial court’s order granting in part and denying in part Cummins’ Motion
as moot. This Court further remanded the matter for the trial court to determine
whether, in light of this Court’s ruling, any issues remained. This Court instructed
that, if no outstanding issues remained, the trial court was to grant the Authority’s
Motion for JNOV; however, if there were outstanding issues, then the trial court was
to grant the Authority’s Motion for a new trial.2 See Cummins I, 237 A.3d at 603-
04; see also Authority Br. Appendix A (June 8, 2020 Order).
On Remand
Consistent with this Court’s direction in its June 8, 2020 Order, on
remand, the parties submitted briefs to the trial court regarding whether the trial court
should enter judgment for the Authority or order a new trial. In addition, the
Authority filed a Motion for Partial Summary Judgment (Motion after Remand) in
the trial court requesting: (1) judgment in the Authority’s favor on Cummins’ bad
2
Cummins petitioned for reargument, which this Court denied on August 3, 2020.
Cummins also petitioned the Pennsylvania Supreme Court for permission to appeal, which the
Supreme Court denied on February 17, 2021.
7
faith claim; (2) judgment in the Authority’s favor regarding certain change
order/extra work claims; and (3) judgment in the Authority’s favor on the
Authority’s non-SBR-related counterclaims.3 Cummins opposed the Authority’s
Motion after Remand.
By September 9, 2021 order, based on this Court’s ruling that the
Authority withheld the SBR-related Contract funds in good faith, the trial court
granted summary judgment in the Authority’s favor on Cummins’ bad faith claim.4
See Petition Ex. 1 (Trial Ct. Sept. 9, 2021 Order) at 6. The trial court denied
judgment in the Authority’s favor on the change order/extra work claims, reasoning:
[Cummins] asserts that there are numerous genuine issues
of material fact as to whether [the Authority] can enforce
change orders despite deviation from the specific
procedures outlined in the parties’ [C]ontract[] were
caused by [the Authority’s] own delays, were changes
directed by [the Authority], or where [the Authority] was
aware of the extra work performed by [Cummins].
Furthermore, at trial[,] the jury awarded damages to
[Cummins] for numerous extra work claims. Finally, the
jury verdict regarding the extra work claims was not
impacted by the Commonwealth Court’s decision, as none
of the extra work claims relates to the interpretation of
[Section] 11.01[.]B[.3] of the parties’ [C]ontract.
Trial Ct. Sept. 9, 2021 Order at 3. The trial court ordered that the jury’s verdict in
Cummins’ favor on the change order/extra work claims shall stand and not be retried,
because “[r]etrial would constitute an unnecessary waste of judicial resources and
would undermine the sanctity of the jury’s verdict.” Id. at 5.
3
The Authority also filed an interim Motion for Attorney’s Fees and Costs based on this
Court’s June 8, 2020 Order, which, on June 29, 2021, the trial court dismissed as premature.
4
However, the trial court added: “[T]he Commonwealth Court did not specifically address
bad faith claims arising under other aspects of the case, such as [the Authority’s] allegedly
frivolous counterclaims.” Trial Ct. Sept. 9, 2021 Order at 4.
8
The trial court also denied judgment in the Authority’s favor on its
counterclaims, stating:
[The Authority] alleges that the parties’ [C]ontract
mandates judgment in [its] favor, claiming that the express
terms of the [C]ontract and supposedly undisputed facts
require judgment in [its] favor.
On the other hand, [Cummins] argues that genuine issues
of material fact exist as to whether the [C]ontract required
[Cummins] to obtain an advance written change order and
- if so - whether the requirement was waived. [Cummins]
in turn asserts disputed issues of fact for each of the
counterclaims.
The parties assert facts which cannot simultaneously be
true. [Cummins] disputes virtually every aspect of [the
Authority’s] counterclaims and asserts defenses such as
waiver to support [its] position that the express terms of
the [C]ontract and the facts show that [the Authority] is
not necessarily entitled to relief on the counterclaims.
Furthermore, when the counterclaims were presented to
the jury at trial, the jury found in favor of [Cummins] on
the majority of them. [Cummins’] liability is simply not
as clear cut as [the Authority] asserts. The jury’s verdict
on the non-SBR-related counterclaims shall stand.
The majority of the counterclaims do not relate to the SBR
or to [Section] 11.01[.]B of the [C]ontract. The jury’s
verdict on all counterclaims not related to the SBR should
not be disturbed. [Cummins] argues that only two (2) of
the SBR-related counterclaims implicate [Section]
11.01[.]B[.3] and therefore only those two (2) should be
retried.
Trial Ct. Sept. 9, 2021 Order at 3-4. Accordingly, the trial court entered judgment
on the jury’s verdict in Cummins’ favor only on the non-SBR-related counterclaims,
ordered that the SBR-related issues “shall be retried in [their] entirety[,]” and
scheduled a new trial for July 5 to 16, 2022. Id. at 6.
9
Finally, the trial court directed:
Pursuant to [Section 702(b) of the Judicial Code,] 42
Pa.C.S.[] § 702(b), the [trial c]ourt is of the opinion that
this [o]rder involves a controlling question of law as to
which there is substantial ground for difference of opinion
and that an immediate appeal from the order may
materially advance the ultimate termination of the matter.
The appellate court may thus, in its discretion, permit an
appeal to be taken.
Trial Ct. Sept. 9, 2021 Order at 6.
Appeal from the Trial Court’s September 9, 2021 Order After Remand
The Authority filed a Petition for Permission to Appeal from the trial
court’s September 9, 2021 interlocutory order to this Court (Appeal Petition).
Cummins opposed the Appeal Petition. By February 18, 2022 Order, this Court
granted the Appeal Petition, but limited its review to the following issue:
Whether, on remand, the trial court adhered to this Court’s
[June 8, 2020 Order] relative to [Cummins I], or erred by
reinstating part of the jury verdict and entering judgment
for Cummins and/or permitting Cummins to dispute its
failure to properly incorporate the [SBRs]?
February 18, 2022 Order at 1.5 The parties filed briefs in support of their respective
positions. This matter is now ripe for review.
Discussion
The Authority argues that the trial court erred by refusing to enter
judgment in the Authority’s favor on the SBR-related claims, failing to grant the
Authority a new trial on all remaining claims and counterclaims (to the extent the
5
On February 28, 2022, the trial court issued a Rule 1925(a) Opinion, wherein it stated
only that the September 9, 2021 order was not erroneous and should be affirmed. See Authority
Br. Appendix B.
10
trial court did not enter judgment in the Authority’s favor on those claims), and
entering judgment in Cummins’ favor on the change order/extra work claims and
against the Authority on its non-SBR-related claims based on the same jury verdict
and judgment this Court vacated in its June 8, 2020 Order.
Cummins retorts that the trial court’s September 9, 2021 order was
entirely consistent with this Court’s June 8, 2020 Order, where this Court did not set
aside the jury’s verdict, expressly direct judgment in the Authority’s favor, or grant
a new trial in its entirety. Cummins claims that since the non-SBR-related claims
did not turn upon whether Section 11.01.B.3 was ambiguous, this Court’s ruling that
that provision was not ambiguous had no impact on the jury’s verdict concerning the
change order/extra work claims.
This Court has explained:
“[I]t has long been the law in Pennsylvania that[,]
following remand, a lower court is permitted to proceed
only in accordance with the remand order.”
Commonwealth v. Sepulveda, . . . 144 A.3d 1270, 1280
n.19 ([Pa.] 2016). In Levy v. Senate of Pennsylvania, 94
A.3d 436 (Pa. Cmwlth. [2014]) . . . , which [our] Supreme
Court cited with approval in Sepulveda, this Court
explained: “Where a case is remanded for a specific and
limited purpose, ‘issues not encompassed within the
remand order’ may not be decided on remand. A remand
does not permit a litigant a ‘proverbial second bite at the
apple.’” Levy, 94 A.3d at 442 (quoting In re Indep. Sch.
Dist. Consisting of the Borough of Wheatland, 912 A.2d
903, 908 (Pa. Cmwlth. 2006)).
Marshall v. Commonwealth, 197 A.3d 294, 306 (Pa. Cmwlth. 2018), aff’d, 214 A.3d
1239 (Pa. 2019).
This Court’s June 8, 2020 Order in Cummins I ruled that the Contract
was not ambiguous and directed, in relevant part:
[T]his matter is remanded for the trial court to determine
whether, in light of this Court’s ruling, any issues remain.
11
If there remain no outstanding issues, then the trial court
is to grant the Authority’s Motion for JNOV; however, if
there are outstanding issues, then the trial court is to grant
the Authority’s Motion for a new trial.
Id. at 603.
The June 8, 2020 Order was based on this Court’s review of the trial
court’s June 27, 2019 denial of the Authority’s Motion and partial grant of
Cummins’ Motion. Relevant here, the Authority’s Motion sought JNOV in the
Authority’s favor and/or a new trial, wherein the Authority argued: (1) the trial court
erred by finding that Section 11.01.B.3 was ambiguous, by allowing a jury to rely
on extrinsic evidence to decide the matter, and instructing the jury based on a
nonexistent ambiguity; (2) the trial court should enter judgment in the Authority’s
favor under the Commonwealth Procurement Code6 (relating to bad faith); (3) the
trial court’s failure to properly instruct the jury about interpreting Section 11.01.B.3
prejudiced the Authority’s affirmative SBR-related claims and requires a new trial;
(4) the trial court erred by instructing the jury that it could find that the Authority
waived the change order procedure; (5) the trial court erred by denying the
Authority’s nonsuit motions claiming that prior executed change orders barred
Cummins’ extra work claims for storm sewer re-routing (Issue No. 3), UV roof
replacement (Issue No. 19), topsoil (Issue No. 58), and control/survey (Issue No. 1);
(6) the Contract barred Cummins’ extra work claims for painting (Issue Nos. 2, 111-
115, 118), communication (Issue No. 30), the damaged pump (Issue No. 41), and
blower repair costs (Issue Nos. 109, 116, 119-121); (7) the trial court erred by
allowing Cummins’ claim for consequential damages; (8) the trial court should grant
a new trial on any of Cummins’ claims that survive the Authority’s Motion; and (9)
the trial court should grant the Authority a new trial on its counterclaims because the
6
62 Pa.C.S. §§ 101-2311.
12
trial court committed errors of law and an abuse of discretion, and because the jury’s
verdict was contrary to the evidence. See Cummins I R.R. at 2901a-2988a.
In its June 27, 2019 order denying the Authority’s Motion, the trial
court reviewed the law relative to contract interpretation, applied it to the language
of Section 11.01.B.3, and generally concluded: “[T]he [C]ontract is susceptible to
more than one reasonable interpretation.”7 Trial Ct. June 27, 2019 Order at 6
(Cummins I R.R. at 5499a). The trial court concluded that “almost all of [the
Authority’s] alleged errors are based upon the [trial c]ourt’s determination that the
[C]ontract was ambiguous[,]” id. at 2 (Cummins I R.R. at 5495a), specifically:
a. The [trial c]ourt affirms its previous finding that the
[C]ontract was ambiguous and[,] therefore, the [trial c]ourt
could not bar by law [Cummins’] claims as a matter of law.
b. The [trial c]ourt affirms its previous finding that the
[C]ontract was ambiguous and[,] therefore, the [trial c]ourt
could not bar by law [Cummins’] claims arising from the
[C]ontract by granting any of [the Authority’s] motions for
nonsuit.
c. The [trial c]ourt affirms its previous finding that the
[C]ontract was ambiguous and[,] therefore, the parties had
the burden of presenting relevant evidence. In turn, the
[trial c]ourt was not inclined to grant [the Authority’s]
Motion in [L]imine . . . Concerning Contract
Interpretation[,] as it would only serve to unfairly inhibit
[Cummins’] pursuit of presenting relevant evidence to the
jury[,] especially in light of the jury’s duty to interpret a
legally ambiguous contract.
d. . . . [A]mbiguity can[] be found simply because a clause
is susceptible to more than one interpretation[.] . . .
7
Just like it did in its March 15, 2019 order, in the June 27, 2019 order, the trial court
acknowledged that Section 11.01.B.3 was not the only Contract provision the parties disputed, but
determined that it was “most exemplary of the dispute[,]” id. at 4 (Cummins I R.R. at 5497a), and
focused its analysis solely on the ambiguity of Section 11.01.B.3 to conclude that the entire
Contract was ambiguous.
13
e. [The Authority] contends that the [trial c]ourt erred in
fashioning a jury instruction regarding contract
interpretation. . . . [T]he [trial c]ourt added . . . language
emphasizing that the jury should interpret a contract to
mean what the parties intended it to mean and not to
substitute the jury’s mind for the parties’ intentions[,] . . .
[which] . . . language [was] favorable to the
[Authority]. . . .
f. . . . [W]ith respect to consequential damages, the jury
awarded zero dollars and zero cents. . . . [Therefore, the
Authority] prevailed upon and successfully defended itself
from th[e consequential damages] claim. . . .
Id. at 6-10 (Cummins I R.R. at 5499a-5503a). The trial court’s June 27, 2019 order
did not specifically discuss the challenged change order/extra claims or
counterclaims.
On appeal, the Authority listed 25 points of trial court error in its
Cummins I Rule 1925(b) Statement. The Authority specifically claimed that the trial
court erred and/or abused its discretion by not granting a new trial based on the trial
court’s errors and because the verdict was contrary to the evidence (Error 25). In
addition, under the heading Contract Interpretation, the Authority claimed that the
trial court erred as a matter of law or abused its discretion by: failing to conclude
that the express terms of the Contract made Cummins alone responsible for all SBR-
related claims (Error 2); denying the Authority’s Motion in Limine Concerning
Contract Interpretation (Error 3); basing its March 7, 2019 order on the lack of
evidence from which to interpret the Contract and then, on March 15, 2019, before
evidence was presented at trial, concluding that Section 11.01.B.3 was ambiguous
(Error 4); denying the Authority’s motion for nonsuit after Cummins’ presented its
case-in-chief when the Contract made Cummins responsible for SBR-related claims
(Error 6); denying the Authority’s Motion when the Contract made Cummins
responsible for SBR-related claims (Error 7; see also Error 1); and issuing a jury
instruction concerning Section 11.01.B.3’s purported ambiguity (Error 8). See
14
Authority Cummins I Rule 1925(b) Statement at 1-2 (Cummins I R.R. at 5474a-
5475a).
Further, under the heading Cummins’ Change Order Claims, the
Authority asserted that the trial court erred as a matter of law and/or abused its
discretion by: denying the Authority’s nonsuit motion concerning Cummins’ change
order claims (Error 12); instructing the jury that it could find the Authority waived
the change order procedure for prior approval of extra work (Error 13); failing to
find that the Contract barred Cummins’ change order claims relating to Issue Nos. 1
(Control/Survey), 3 (Storm Sewer Re-Routing), 19 (UV Roof Replacement), and 58
(Topsoil) based on Cummins’ prior execution of change orders related thereto (Error
14); failing to find that the Contract barred Cummins’ change order claims relating
to Issue Nos. 111-115, 118 (Painting/Additional Painting) (Error 15); failing to find
that the Contract barred Cummins’ change order claims relating to Issue No. 30
(Communication) (Error 16); failing to find that the Contract barred Cummins’
change order claims relating to Issue No. 41 (Damaged Pump) (Error 17); and failing
to find that the Contract barred Cummins’ change order claims relating to Issue Nos.
109, 116, 119-121 (Blower Repair Costs) (Error 18). See Authority Cummins I Rule
1925(b) Statement at 3-4 (Cummins I R.R. at 5476a-5477a). The Authority also
claimed that the trial court erroneously denied its Motion in Limine to Exclude
Certain Opinions of Cummins’ Expert Hannon Engineering, P.C. (Error 5); allowed
the jury to consider that the Authority acted in bad faith under the Commonwealth
Procurement Code (Errors 9-11), failed to find that the Contract barred Cummins’
claim for consequential damages (Errors 19-20), and granted Cummins’ Motion
(Errors 21-24). See Authority Cummins I Rule 1925(b) Statement at 3-5 (Cummins
I R.R. at 5476a-5478a).
In the trial court’s Cummins I Rule 1925(a) Opinion addressing the
Authority’s claimed errors, the trial court again recognized that the Authority “rests
15
its appeal primarily upon the issue of [C]ontract interpretation . . . .” Trial Ct.
Cummins I Rule 1925(a) Op. at 2 (Cummins I R.R. at 5482a). The trial court
incorporated its March 15, 2019 and June 27, 2019 orders by reference and reiterated
that because the Contract was ambiguous, extrinsic evidence was properly put before
the jury to interpret it.8 Specifically, under the heading Jury Instruction, the trial
court explained:
[The Authority] has attempted to frame this issue as
though the [trial c]ourt only found [Section] 11.01.B.3 of
the Contract to be ambiguous and then punted to the jury
on what that specific clause meant. Rather, an accurate
contextual setting is that the [trial c]ourt concluded that the
whole [C]ontract, as exampled [sic] by certain provisions
and the [C]ontract being considered in its entirety, was
ambiguous; and[,] therefore, the jury should interpret its
individual terms.
Trial Ct. Cummins I Rule 1925(a) Op. at 6 (Cummins I R.R. at 5486a). Therefore,
the trial court “[a]ccept[ed] the premise that the [C]ontract was ambiguous as a
matter of law (which the [trial c]ourt insists is the proper determination) . . . .” Id.
The trial court defended that its jury instruction was an accurate representation of
the law and favored the Authority.9 The trial court held that a new trial was not
8
Again, as it did in its March 15, 2019 and June 27, 2019 orders, although the trial court
referred to other unspecified Contract provisions over which the parties had a dispute and which
were purportedly dispositive of the Contract’s ambiguity, the trial court only cited to and analyzed
Section 11.01.B.3. Moreover, the trial court did not specifically analyze the Authority’s
counterclaims or change order/extra work claims, except to state in its Cummins I Rule 1925(a)
Opinion that certain of the change order/extra work claims also failed due to Contract ambiguity.
See Trial Ct. Cummins I Rule 1925(a) Op. at 9 (Cummins I R.R. at 5489a); see also Cummins I,
237 A.3d at 602-03.
9
Although the trial court included in its jury instruction that, “when a contract is clear and
unequivocal, its meaning must be determined by its contents alone[,]” Trial Ct. June 27, 2019
Order at 8, the instruction did not inform the jury that “unambiguous contracts are interpreted by
the [trial] court as a matter of law,” not the jury. Cummins I, 237 A.3d at 593 (emphasis added)
(quoting Kripp v. Kripp, 849 A.2d 1159, 1163 (Pa. 2004)). However, because interpretation of the
Contract was not properly before the jury in the first instance, and in light of this Court’s
clarification herein, the trial court’s instruction related thereto was harmless error.
16
warranted because both parties “yielded great harvests of evidence” during the nine-
day trial. Trial Ct. Cummins I Rule 1925(a) Op. at 10 (Cummins I R.R. at 5490a).
Regarding the change order/extra work claims, the trial court declared:
[The Authority’s] Twelfth, Thirteenth, Fourteenth,
Fifteenth, Sixteenth, Seventeenth, and Eighteenth points
of appeal are again all based upon [C]ontract
interpretation. The [trial c]ourt has ruled that the
[C]ontract was ambiguous and it can be reasonably []
inferred from the [j]ury’s verdict that [it] agree[d]. [The
Authority’s] arguments must now fail as they have before.
Trial Ct. Cummins I Rule 1925(a) Op. at 9 (Cummins I R.R. at 5489a). The trial
court similarly upheld its decision relative to consequential damages, stating that the
Authority’s argument “rests upon the flawed conclusion that the Contract was
unambiguous and not subject to different reasonable interpretations[,]” and that this
“point of appeal is a new track but played from the same broken record.” Id. In
addition, regarding the Authority’s argument that the trial court erred by granting
Cummins’ Motion, the trial court responded that it was “yet another [C]ontract
ambiguity issue traipsing in disguise,” and dismissed the Authority’s claim of error,
stating: “The [trial c]ourt was asked to interpret a specific clause of the [C]ontract[,]”
which it found ambiguous. Id. at 10 (Cummins I R.R. at 5490a).
After an exhaustive review of the Contract on appeal, this Court held
regarding the Authority’s Motion:
To the extent that Section 11.01.B.3 was “the [C]ontract
clause most exemplary of the dispute,” Trial Ct. June 27,
2019 [Order] at 4 ([Cummins I] R.R. at 5497a), and this
Court has ruled, based upon its extensive review of the
Contract [], that Section 11.01.B.3 is not ambiguous, the
trial court erred by concluding that the entire Contract was
ambiguous. The trial court should have determined as a
matter of law, before allowing Cummins to proceed with
its case-in-chief and relying on Cummins’ evidence to
reach its conclusion, that the Contract placed sole
responsibility on Cummins for defective system
17
performance related to its Ashbrook SBR. By failing to
do so, the trial court erred by allowing the jury to interpret
the Contract language based on extrinsic evidence.[10]
Cummins I, 237 A.3d at 601 (footnote omitted). Regarding the change order/extra
work claims, this Court similarly held:
Because the trial court’s only basis for denying the
Authority’s Motion relative to the change order and extra
work claims was that the Contract was ambiguous, and
this Court has ruled that the Contract was not
ambiguous, the trial court’s June 27, 2019 order denying
the Authority’s Motion must be reversed.
Id. at 603 (bold emphasis added). Accordingly, this Court reversed the trial court’s
denial of the Authority’s Motion, and directed the trial court to determine whether
any claims survived this Court’s ruling. This Court ordered that, if issues still
remained despite this Court’s reversals, on remand, the trial court was directed to
grant the Authority’s Motion for a new trial as to those issues. See id.
This Court’s June 8, 2020 Order ruling that the Contract was not
ambiguous settled any and all Contract ambiguity issues. The trial court’s
actions on remand were bound by that conclusion. Specifically, in light of this
Court’s ruling that “the trial court erred by allowing the jury to interpret the Contract
language based on extrinsic evidence[,]” Cummins I, 237 A.3d at 601, this Court’s
June 8, 2020 Order reversed the following trial court rulings:
a. The [trial c]ourt affirms its previous finding that the
[C]ontract was ambiguous and[,] therefore, the [trial c]ourt
could not bar by law [Cummins’] claims as a matter of law.
b. The [trial c]ourt affirms its previous finding that the
[C]ontract was ambiguous and[,] therefore, the [trial c]ourt
could not bar by law [Cummins’] claims arising from the
[C]ontract by granting any of [the Authority’s] motions for
nonsuit.
10
Correspondingly, this Court vacated the trial court’s partial grant of Cummins’ Motion.
18
c. The [trial c]ourt affirms its previous finding that the
[C]ontract was ambiguous and[,] therefore, the parties had
the burden of presenting relevant evidence. In turn, the
[trial c]ourt was not inclined to grant [the Authority’s]
Motion in [L]imine to Exclude Evidence or Argument
Concerning Contract Interpretation[,] as it would only
serve to unfairly inhibit [Cummins’] pursuit of presenting
relevant evidence to the jury; especially in light of the
jury’s duty to interpret a legally ambiguous contract.
....
e. [The trial court upheld its jury instruction regarding
contract interpretation]. . . .
Trial Ct. June 27, 2019 Order at 6-9 (Cummins I R.R. at 5499a-5502a).
Notwithstanding, in its September 9, 2021 order deciding the
Authority’s Motion after Remand, the trial court interpreted that the change
order/extra work claims “w[ere] not impacted by [this Court’s June 8, 2020 Order],
as none of th[ose] claims relate[d] to the interpretation of [Section] 11.01.B[.3] of
the parties’ [C]ontract[,]” and genuine issues of material fact existed as to whether
the Authority could enforce change orders/extra work under the Contract. Trial Ct.
Sept. 9, 2021 Order at 3. Accordingly, the trial court ordered that the jury’s verdict
in Cummins’ favor in the amount of $228,323.24 on the change orders/extra work
claims shall stand. The trial court also concluded that the jury’s verdict on the
Authority’s remaining non-SBR-related counterclaims will stand and not be retried
because this Court “found no error regarding the jury’s verdict on [the Authority’s]
counterclaims” in its June 8, 2020 Order. Trial Ct. Sept. 9, 2021 Order at 5.
In its September 9, 2021 order, the trial court appeared to amend its
June 27, 2019 conclusion that the entire Contract was ambiguous, which this Court
reversed, and erroneously interpreted that the scope of this Court’s June 8, 2020
Order was limited to Section 11.01.B.3. This Court’s June 8, 2020 Order was not
19
so limited.11 In Cummins I, the trial court made extraordinarily broad-brush
determinations that, based solely on its reading of Section 11.01.B.3, the entire
Contract was ambiguous, it denied all of the Authority’s motions on that basis, and
it allowed the jury to consider extrinsic evidence at trial to interpret the Contract.
On appeal, this Court examined the same Contract language, concluded that the
Contract was not ambiguous, and reversed the trial court’s ambiguity-based rulings.
This Court’s June 8, 2020 Order was not limited to SBR-related Section 11.01.B.3
matters but, rather, extended to any and all matters the trial court permitted the jury
to decide based on extrinsic evidence after the trial court ruled that the Contract was
ambiguous, including but not limited to, the Authority’s Motion in Limine
Concerning Contract Interpretation, the Authority’s non-suit motions, the jury
instruction on contract interpretation, the change order/extra work claims, and the
counterclaims.
The Authority asserts:
[T]he [t]rial [c]ourt failed to adhere to this Court’s June 8,
2020 Order and erred by reinstating part of the jury
verdict, entering judgment for Cummins, and permitting
Cummins to dispute its failure to properly incorporate the
[SBR]. [The Authority] asks that the Court vacate the
11
The trial court’s March 15, 2019 and June 27, 2019 orders and Rule 1925(a) Opinion in
Cummins I made clear that the basis of all of the trial court’s prior rulings on SBR-related claims
and change order/extra work claims was that the entire Contract was ambiguous. Accordingly, on
appeal from the trial court’s June 27, 2019 order denying the Authority’s Motion, this Court
reviewed whether Section 11.01.B.3 was ambiguous and, thus, rendered the entire Contract
ambiguous.
It is unclear to this Court why the trial court did not identify and/or discuss the other
Contract provisions it claimed were also in dispute. Cummins references what it believed to be
the other provisions to which the trial court referred, and which Cummins raised to the trial court.
See Cummins Br. at 22-25. Notwithstanding, in the absence of the trial court’s analysis in its
March 15, 2019 and June 27, 2019 orders and its Cummins I Rule 1925(a) Opinion of other
Contract provisions that were ambiguous, on appeal, this Court is unable to determine whether the
trial court erred in its conclusions regarding those provisions. This Court certainly cannot be
expected to glean the trial court’s reasoning about unspecified other provisions out of thin air.
20
judgment, reverse the [t]rial [c]ourt’s September 9, 2021
[o]rder, enter a judgment of liability against Cummins and
in favor of the Authority that Cummins breached the
Contract by defectively incorporating the SBR, order the
[t]rial [c]ourt to interpret the Contract provisions
applicable to the non-SBR claims, and order a new trial on
all remaining SBR and non-SBR claims and counterclaims
for which the [t]rial [c]ourt does not enter judgment for the
Authority.
Authority Br. at 41. According to the Authority, “[n]o part of the judgment for
Cummins could survive given the effect of the [t]rial [c]ourt’s errors on the trial, and
the [t]rial [c]ourt therefore erred as a matter of law and abused its discretion in
reinstating judgment for Cummins.” Authority Br. at 31 (internal citation omitted).
Cummins takes the position that “this Court’s determination of
Cummins’ contractual responsibility does not equate to a finding of breach.”
Cummins Br. at 47. Moreover,
[the Authority’s] speculation that any error with respect to
[Section] 11.01.B.3 had to have tainted the jury’s verdict
on all claims is both without basis and unjustly dismissive
of the careful deliberations undertaken by the jury in
deciding each of Cummins’ fourteen extra work claims
and [the Authority’s] twenty counterclaims. These were
separate claims, involving separate pieces of equipment,
different sets of facts, and different specification sections.
Cummins Br. at 41.
This Court’s June 8, 2020 Order did not set aside the jury’s verdict,
expressly direct judgment in the Authority’s favor, nor grant a new trial in its
entirety. Rather, this Court ruled that Section 11.01.B.3 of the Contract was not
ambiguous, and, thus, Cummins was required to satisfy the Contract’s requirements
relative to the Ashbrook SBR. Accordingly, if a new trial on the SBR and SBR-
related change order/extra work claims and counterclaims was necessary to make
those determinations, then the trial court was to order a new trial thereon, which it
21
did. In addition, in light of this Court’s interpretation that no part of the Contract
was ambiguous, to the extent that the trial court permitted the jury to consider
extrinsic evidence to interpret the Contract to decide the non-SBR-related change
order/extra work claims and counterclaims, the trial court was to order a new trial
thereon, which it did not.
Applying this Court’s June 8, 2020 Order to the trial court’s
determinations under review in Cummins I, the trial court properly ordered a new
trial on all SBR-related matters, including the SBR-related change order/extra work
claims and counterclaims, on remand. However, the trial court erred by allowing
the jury’s verdict on the change order/extra work claims and counterclaims to stand
after this Court concluded that the trial court erroneously allowed the jury to decide
those claims based on extrinsic evidence in the first instance. This Court’s June 8,
2020 Order that the Contract was not ambiguous nullified the jury’s verdict related
thereto. Because judgment cannot automatically be entered in either party’s favor
on the change order/extra work claims raised in the Authority’s Motion after
Remand, they must be retried with the SBR-claims. In addition, since neither the
trial court nor this Court can ascertain whether or the extent to which the jury may
have relied on extrinsic evidence to decide the non-SBR-related counterclaims,12 the
non-SBR-related counterclaims must be retried with the SBR-claims.13
12
The trial court did not specifically address the Authority’s counterclaims in its March
15, 2019 and June 27, 2019 orders, its Cummins I Rule 1925(a) Opinion, or its September 9, 2021
order.
13
Cummins’ argument that the Authority waived its claim that the SBR-related and non-
SBR-related issues are so intertwined that all of the issues must be retried lacks merit because the
Authority timely asserted that position at its first opportunity - after the trial court conducted its
issue-by-issue extrapolation in the September 9, 2021 order.
22
Conclusion
Based on the foregoing, the portion of the trial court’s September 9,
2021 order granting judgment in the Authority’s favor on Cummins’ bad faith claim
is affirmed.
The portion of the trial court’s September 9, 2021 order granting a new
trial on the SBR-related claims, including the SBR-related counterclaims, is
affirmed. Because Cummins is solely liable under the Contract for defective system
performance related to its Ashbrook SBR, it is prohibited from retrying its liability
therefor at the new trial.
The portion of the trial court’s September 9, 2021 order relying on the
jury’s verdict relative to the change order/extra work claims is vacated, and the
matter is remanded for the trial court to include the change order/extra work claims
with the SBR-related claims at the new trial.
The portion of the trial court’s September 9, 2021 order allowing the
jury’s verdict on the non-SBR-related counterclaims to stand is also vacated, and the
matter is remanded for the trial court to include the non-SBR-related counterclaims
with the SBR-related claims and change order/extra work claims at the new trial.
_________________________________
ANNE E. COVEY, Judge
Judge Wallace did not participate in the decision in this matter.
23
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Robert J. Cummins, d/b/a Bob :
Cummins Construction Company :
:
v. :
:
Bradford Sanitary Authority, : No. 1107 C.D. 2021
Appellant :
ORDER
AND NOW, this 16th day of November, 2022, the portion of the
McKean County Common Pleas Court’s (trial court) September 9, 2021 order
granting judgment in Bradford Sanitary Authority’s (Authority’s) favor on Robert J.
Cummins, d/b/a Bob Cummins Construction Company’s (Cummins) bad faith claim
is AFFIRMED.
The portion of the trial court’s September 9, 2021 order granting a new
trial on the sequencing batch reactor (SBR)-related claims, including the Authority’s
SBR-related counterclaims, is AFFIRMED. Cummins is solely liable for defective
system performance related to its Ashbrook SBR, and is prohibited from retrying its
liability therefor at the new trial.
The portion of the trial court’s September 9, 2021 order relying on the
jury’s verdict relative to Cummins’ change order/extra work claims is VACATED,
and the matter is REMANDED for the trial court to include the change order/extra
work claims with the SBR-related claims at the new trial.
The portion of the trial court’s September 9, 2021 order allowing the
jury’s verdict on the non-SBR-related counterclaims to stand is also VACATED,
and the matter is REMANDED for the trial court to include the non-SBR-related
counterclaims with the SBR-related claims and change order/extra work claims at
the new trial.
Jurisdiction is relinquished.
_________________________________
ANNE E. COVEY, Judge | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484131/ | Cite as 2022 Ark. App. 473
ARKANSAS COURT OF APPEALS
DIVISION II
No. CV-21-484
GEORGIANNA BOOKER
Opinion Delivered November 16, 2022
APPELLANT/CROSS-APPELLEE
V. APPEAL FROM THE GARLAND
COUNTY CIRCUIT COURT
PATRICK BOOKER [NO. 26DR-19-35 ]
APPELLEE/CROSS-APPELLANT
HONORABLE LYNN WILLIAMS,
JUDGE
AFFIRMED
MIKE MURPHY, Judge
Georgianna Booker appeals the Garland County Circuit Court’s order in her divorce
from Patrick Booker. Patrick cross-appeals. On appeal, Georgianna argues that the court
erred in granting Patrick an unequal division of certain marital property and debts.
Alternatively, she argues the court erred in denying her credit for one-half of Patrick’s
military retirement benefits from 2003 through 2015. Overall, she contends the court’s
decision was ambiguous and the case warrants remanding so that the circuit court can make
a valuation of the property division. On cross-appeal, Patrick agrees that this case should be
remanded to clarify the value of the marital home to support its unequal division and the
value of the retirement accounts, taking into consideration the twelve-year setoff. We
previously dismissed the appeal and the cross-appeal without prejudice for lack of a final
order. The appeal is now properly before us. We affirm.
Georgianna and Patrick were married on April 19, 1980, and divorced by decree of
the Garland County Circuit Court on May 6, 2020. There were no minor children at the
time of the divorce, and the issues below and on appeal center on the division of marital
property and debts. At trial, there was testimony that the parties separated in 2003, and
Georgianna moved to Texas. The testimony differed on when the parties got back together,
but Patrick testified that Georgianna “showed up” again in 2015. Patrick testified that, from
2003 until around 2015, Georgianna did not contribute to the marriage in any way. She had
left and he had paid all the bills.
Following the hearing, the court found that Patrick was entitled to an unequal
division of the marital assets because he was the sole contributor to the acquisition,
preservation, and appreciation of the marital home and retirement accounts (excluding his
military retirement). It found that Georgianna was “not contributing to the marriage from
2003 through 2015” and was thus not entitled to the contribution to the marital assets for
that time. In pertinent part, the order further provided that the following:
IV.
The Court finds that [Georgianna] was not contributing to the marriage from
2003 through 2015 and should not be entitled to the contribution to the marital
assets for that time period.
....
VI.
2
The Court finds that [Georgianna] is solely reliable for Upgrade, Inc., Lowe’s,
Discover Card, Commerce Bank, and Navy Federal Credit Union debts that are solely
in her name are not marital property.
VII.
The real property and all marital personal property shall be auctioned within
a reasonable time on the courthouse steps or on the premises of the residence if
agreed upon by the parties. [Patrick] shall get a credit set off for the unequal
distribution after the sale of the property. The setoff should reflect what [Patrick] paid
on the marital home from 2003 through 2015. The remaining proceeds shall go
towards the marital debts and then be split equally between the parties. All personal
property not specifically mentioned in this Decree shall be sold in the same respective
manner on or about the same day.
....
IX.
[Georgianna] is entitled to one-half (½) of [Patrick]’s military retirement.
X.
The Court finds that there shall be an unequal division of [Patrick]’s other
retirement accounts in favor of [him]. Any division of these retirement accounts shall
exclude the years of 2003 through 2015.
From this order, the parties appeal.
This court reviews domestic-relations cases de novo, but we will not reverse the trial
court’s findings unless they are clearly erroneous. Reesnes v. Reesnes, 2022 Ark. App. 462. A
finding is clearly erroneous when, although there is evidence to support it, the reviewing
court on the entire evidence is left with a definite and firm conviction that a mistake has
been made. Id. Due deference is given to the circuit court’s superior position to determine
the credibility of witnesses and the weight to be given their testimony. Id. As to issues of law,
3
however, we give no deference to the circuit court; rather, we review issues of law and
statutory construction de novo. Id.
With respect to the division of property, we review the circuit court’s findings of fact
and affirm them unless they are clearly erroneous or against the preponderance of the
evidence; the division of property itself is also reviewed, and the same standard applies. Doss
v. Doss, 2018 Ark. App. 487, 561 S.W.3d 348. In accordance with Arkansas Code Annotated
section 9-12-315(a)(1) (Repl. 2020), at the time of entry of a divorce decree, the circuit court
shall equally distribute all marital property one-half to each party unless it is determined that
such a distribution would be inequitable; if the property is not divided equally, then the
circuit court must state the reasons and basis for not doing so, and the basis and reasons
should be recited in the order entered in the matter. While the circuit court must consider
the factors set forth in the statute and state its reasons for dividing property unequally, it is
not required to list each factor in its order or to weigh all the factors equally. Id.
For her first point, Georgianna contends that the unequal division was clearly
erroneous and that the court did not sufficiently state the reasons for the unequal division.
The court found that Patrick was entitled to an unequal division of assets under Arkansas
Code Annotated section 9-12-315(A)(1)(a)(viii), which states that the contribution of each
party in acquisition, preservation, or appreciation of marital property, including services as
a homemaker, is a factor the court may take into consideration when making a division of
property on some other basis than an equal distribution. The court found that Georgianna
did not contribute to the marriage from 2003 through 2015. She was living in Texas during
4
this time, having essentially abandoned the marriage and marital assets. It was not clearly
erroneous for the court to find that because Georgianna did not contribute to the marital
assets during this time, she should not get the benefit of those assets at the time of divorce.
Georgianna cites West v. West, 103 Ark. App. 269, 288 S.W.3d 680 (2008), to support
her argument that the decree was defective because it lacked explanation why an equal
division of the marital property was inequitable. In West, a default judgment stated that “an
even division of the property would be inequitable” because Charles was “the one who has
contributed to both the checking account and to the house, which made it possible for the
parties to have them.” West, 103 Ark. App. at 275, 288 S.W.3d at 685. This court ruled that
“simply reciting the source of the funds cannot equate to a proper consideration of the
contribution of each party in the acquisition, preservation, or appreciation of marital
property. . . . The trial court’s mere recitation of Charles’s contribution was an inadequate
explanation for the unequal distribution of marital property.” Id.
Here, the court does more than recite Patrick’s contribution. It cites the statute to
support its decision, provides specific dates, and finds that Patrick was the sole contributor
during that time. Under these facts, the court’s finding of unequal division was not clearly
erroneous.
Next, Georgianna argues that the court erred when it did not give her any credit for
the debt she incurred making improvements to the house. The court found her solely liable
for the debts in her name, but Georgianna argues that she should be credited for the new
windows and kitchen remodel on the marital home. This court has held that Arkansas Code
5
Annotated section 9-12-315 and its presumption of equal division does not apply to the
division of marital debts. Doss, 2018 Ark. App. 487, 561 S.W.3d 348. Here, given that the
debt was incurred due to expenses associated with the marital home, and upon the home’s
sale, she will receive half of the proceeds less what Patrick paid toward the mortgage while
she was not contributing to the marriage, it was not clearly erroneous for the court to allocate
the debt the way it did.
In the alternative, Georgianna asserts that if we do not reverse the inequitable asset
division, she should get credit for half of the military retirement benefits she did not receive
from 2003 through 2015. We disagree. Arkansas law does not require parties to a divorce to
account for every sum spent during a marriage. Chism v. Chism, 2018 Ark. App. 310, at 6,
551 S.W.3d 394, 398. The income was marital; thus, Patrick had the right to use and transfer
that money, as long as he was doing so nonfraudulently. See Skokos v. Skokos, 332 Ark. 520,
968 S.W.2d 26 (1998). Georgianna is not entitled to reimbursement or credit for the money
Patrick received absent proof of an intent to defraud, which Georgianna does not allege.
Thus, it was not erroneous for the court to not credit her those funds.
Last, both Georgianna and Patrick ask us to remand the case for the circuit court to
provide a value on the unequal division, but for different reasons. Georgianna would have
us remand the entire case because there are no values stated, which she contends makes it
difficult to determine just how unequal the division may really be. Patrick asks us to affirm
the unequal division but remand for the circuit court to provide a clearer value of the
property division.
6
Neither party sought to have the court address the valuation issues until now. To
preserve an issue for appeal, a party must object at the first opportunity and obtain a ruling
from the circuit court. Stell v. Stell, 2021 Ark. App. 478, 638 S.W.3d 855. We will not review
a matter on which the circuit court has not ruled, and the burden of obtaining a ruling is on
the movant; matters left unresolved are waived and may not be raised on appeal. Id. Neither
Georgianna nor Patrick preserved this issue for appeal. In the event additional clarification
is critical to carrying out the court’s orders, neither party is foreclosed from seeking it
pursuant to the circuit court’s continuing jurisdiction. See Stuart v. Stuart, 2012 Ark. App.
458, at 11, 422 S.W.3d 147, 154 (“The trial court ‘retains the power to clarify or interpret a
prior decree for more than ninety days in order to more accurately reflect the court’s original
intention.’”(quoting Linn v. Miller, 99 Ark. App. 407, 413, 261 S.W.3d 471,475 (2007))).
We affirm the circuit court’s division of property.
Affirmed.
ABRAMSON and GLADWIN, JJ., agree.
Tapp Law Firm, P.A., by: Tylar C.M. Tapp III, for appellant/cross-appellee.
The Ballard Firm, P.A., by: Adrew D. Ballard, for appellee/cross-appellant.
7 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484132/ | Cite as 2022 Ark. App. 467
ARKANSAS COURT OF APPEALS
DIVISION III
No. CV-21-523
CROWDER LAND COMPANY, LLC; Opinion Delivered November 16, 2022
ESTATE OF KENNETH E. PACE;
GRAYSON LAND & TIMBER APPEAL FROM THE OUACHITA
COMPANY, LP; ATWL RESOURCES, COUNTY CIRCUIT COURT
LLP; BAVARIAN TIMBER 2015, LLC; [NO. 05CV-19-146]
TWIN CREEKS TIMBER, LLC;
ROYDELL B. OSTEEN; AND HONORABLE SPENCER G.
KATHERINE BRUILLETTE SINGLETON, JUDGE
APPELLANTS
V.
CHARLES PAYNE AND EDNA PAYNE
AFFIRMED IN PART; REVERSED IN
APPELLEES PART
N. MARK KLAPPENBACH, Judge
Appellants appeal the Ouachita County Circuit Court order granting them a
prescriptive easement to traverse two logging roads that run across the lands of appellees,
Edna and Charles Payne.1 All of the properties involved are primarily used for timber
investment and recreational hunting. The circuit court’s grant of the easement is not at issue
1
The plaintiffs included in the judgment are Crowder Land Company, LLC; Kenneth
E. Pace; White Timber Company, LP; Grayson Land & Timber Company, LP Roger Guy
Smith; HGH Timber, LLC; ATWL Resources, LLC; Bavarian Timber 2015, LLC; Twin
Creeks Timber, LLC; Braxton Tatum, Jr.; Roydell B. Osteen; and Katherine Buillette. The
notice of appeal was filed by Crowder Land Company, LLC; Estate of Kenneth E. Pace;
Grayson Land & Timber Company, LP; ATWL Resources, LLC; Bavarian Timber 2015,
LLC; Twin Creeks Timber, LLC; Roydell B. Osteen; and Katherine Bruillette.
on appeal. Appellants contend that the circuit court clearly erred by (1) permitting appellees
the right to install a locked gate across the road easements and (2) restricting entry and use
of the road easements by any of appellants’ hunting lessees without permission of appellees.
We affirm in part and reverse in part.
Appellants own acreage that is landlocked and inaccessible to a public roadway unless
traversed by old logging roads—one called the “North Road” and the other called the “South
Road.”2 The logging roads were used for years without interruption. In December 2015,
the Paynes purchased approximately 110 acres of unimproved timberland in the area. The
Paynes improved their property by building a pond, building a shop with living quarters, and
providing for utilities including a water well. At some point, the Paynes placed obstructions
on the North and South Roads where those roads intersected their property. This led to the
lawsuit filed by appellants in 2019 seeking an easement by prescription or, alternatively, by
necessity to use both roads.
At trial, the circuit court found that the South Road had been used by appellants or
their predecessors dating back to 1969 and that the North Road had been used to access
their acreage dating back to 1990. The roads were used over the years to harvest timber, to
inspect the various properties, to maintain boundary markings, and to treat the timber.
When used to harvest timber, appellants or their agents added gravel to the roads, pulled up
2
Two of the landowners each own forty acres located to the north of the Paynes’ land
and are landlocked but for the use of the existing “North Road.” The remaining landowners
collectively own approximately 620 acres of timberland to the south of the Paynes’ land; they
are landlocked but for the use of the existing “South Road.”
2
ditches, cleared obstructions, and traversed the roads with logging equipment and log trucks.
The Paynes’ predecessors in title did not give permission to use the roads; people simply used
the roads. Appellants had also used their land for hunting or leased their property to others
for use in hunting. One witness testified about having a hunting lease and acquiring
permission to use the roads from the Paynes’ predecessors in title, but once the Paynes
became the owners, they denied him permission to use the roads.
The circuit court found that appellants had established a prescriptive easement to use
the North and South Roads over the Paynes’ property. The circuit court noted that the
appellants had collectively used the roads for decades in a manner that was open, notorious,
and sufficiently adverse to put the Paynes and their predecessors in title on notice of that
use. The circuit court permitted a twenty-five-foot-wide roadway for reasonable use and
reasonable maintenance of the prescriptive easement. Appellants were required to repair
any damage to the roads. The Paynes were permitted to install a locked gate “to prevent
public access” to the roads and to install “no trespassing” signs or paint. The court required
that any lock be a combination lock with the combination provided to all appellants, their
heirs, their assigns, and their contractors.
Appellants were permitted to use the roads for enjoyment of their property, including
to visit or inspect their property and to manage or harvest the timber on it. Appellants were
permitted to have their contractors use the roads. Appellants and their families were
permitted to use the roads for hunting purposes. The circuit court, however, restricted the
3
use of the roads by any of appellants’ hunting lessees, requiring that the hunters first gain
the Paynes’ permission to use the roads for that purpose.
Appellants paid for a subsequent survey to establish the metes and bounds of the
roadway easement, which the circuit court accepted, and the remaining claims were denied,
dismissed, or abandoned on appeal. Appellants appealed.3 The Paynes did not cross-appeal.
No one disputes that the circuit court correctly granted the prescriptive easement. It
is the scope of the easement that brings this appeal. Appellants first argue that the circuit
court clearly erred in giving the Paynes permission to install locked gates to access the roads.
Appellants have not demonstrated reversible error. At the end of the bench trial, in response
to the circuit court’s question of what appellants wanted the court to do, appellants’ attorney
said that his clients were “not opposed to a gated road” so long as each appellant “can
maintain their own lock” and “can control their own access,” expressing concern about the
problems that could be presented by using keyed locks. Thus, appellants acknowledged that
so long as they would have access to the roads, a locked gate would be a reasonable measure.
The circuit court accommodated that concern in the order by permitting the Paynes to install
gates with combination locks, provided that the combinations would be shared with
appellants, their heirs and assigns, and their contractors. Given the statements that
3
The Paynes filed a motion to dismiss appellants’ appeal before its submission to our
court. We denied that motion on February 2, 2022. To the extent that the Paynes reassert
those arguments in their appellate brief, we again reject them.
4
appellants’ counsel made directly to the circuit court’s query of what the appellants wanted
the court to do, we can find no reversible error in this point.4
Appellants’ second point on appeal concerns the order’s prohibition of road use by
any of appellants’ hunting lessees without obtaining permission from the Paynes. The Paynes
very candidly admit that this part of the circuit court’s order “is more problematic.” This
court reviews equity matters de novo on the record but will not reverse a finding of the lower
court unless it is clearly erroneous. Five Forks Hunting Club, LLC v. Nixon Fam. P’ship, 2019
Ark. App. 371, 584 S.W.3d 685. The hunting-lessee restriction is too burdensome on the
prescriptive easement granted to appellants, so we hold that on this provision, the circuit
court clearly erred.
Both the creation and extent of an easement by prescription are determined by the
adverse use of the property over a long period of time. Five Forks Hunting Club, LLC, 2019
Ark. App. 371, 584 S.W.3d 685 (affirming prescriptive easement and circuit court’s finding
that route and manner of use of the easement could not be altered from the use established
by Nixon and its lessees). As the extent of the easement becomes more difficult to discover,
the relations between the owner and the possessor of the servient estate become increasingly
subject to the governing principle that neither shall unreasonably interfere with the rights of
the other. Jordan v. Guinn, 253 Ark. 315, 321, 485 S.W.2d 715, 720 (1972). Randy Brown,
4
Also, appellants are responsible for repairing damage to the roads, so preventing
public access would protect appellants’ interest by lessening the opportunity for unnecessary
damage.
5
one of appellants’ hunting lessees, testified that he and “gobs of people” had used the roads
for decades to hunt under their hunting leases. Brown had been leasing hunt property for
thirty-one years and had always used those roads. Brown recalled that Roy Edmonson,
Cypress Creek, and his niece and her husband hunted and used those roads. Generally, the
right to use the easement passes with the transfer of a leasehold interest, such as a hunting
lease, whether mentioned in the instrument of transfer or not and may not be interfered
with by the servient estate. See Carver v. Jones, 28 Ark. App. 288, 294, 773 S.W.2d 842, 846
(1989). The right to hunt and fish, technically known as a profit à prendre, or a qualified
ownership, in the land for limited purpose of hunting and fishing, is a valuable and well-
recognized right and may be transferred between individuals separately from the land itself.
See Nelson v. State, 318 Ark. 146, 152, 883 S.W.2d 839, 842 (1994). We reverse the circuit
court order to the extent that it requires appellants’ third-party hunting lessees to obtain
permission from the Paynes to use the North Road and the South Road.
Affirmed in part; reversed in part.
GRUBER and BROWN, JJ., agree.
Harrell & Lindsey, P.A., by: Paul E. Lindsey, for appellants.
David P. Price; and Brian G. Brooks, Attorney at Law, PLLC, by: Brian G. Brooks, for
appellees.
6 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491953/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
THOMAS M. BRAHNEY, III, Chief Judge.
This matter came before the Court on a Motion for Summary Judgment filed by the United States of America (“United States”), and a Cross-Motion for Summary Judgment filed by the debtor. The underlying adversary proceeding was initiated by the filing of a Complaint by Debtor to Determine Dis-chargeability of Debt. A hearing was held on the motions on June 27, 1994 at which time the Court heard the statements of counsel. Upon consideration of the memoranda submitted, the record in this case and the related bankruptcy case, and the applicable law, the Court enters the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. The Debtor/Plaintiff, Jack M. Delaney, did not file timely federal income tax returns for the years 1982 through 1988.
2. On February 8,1988, the Internal Revenue Service made assessments of federal income taxes against the Debtor for the years 1982,1983, and 1984, for the amounts it believed to be due for those years, including penalties and interest, using a process known as “substitutes for returns”.
3. In the fall of 1989, after having been contacted by an Internal Revenue Service revenue officer, the Debtor met with the revenue officer to discuss his delinquent returns and his delinquent payment situation.
4. On or about November 1, 1989, the Debtor signed and turned in to the revenue officer delinquent income tax returns for at least the years 1985, 1986, 1987, and 1988.
5. Early in 1990, the Internal Revenue Service made assessments of income tax due from the Debtor for the years 1985, 1986, 1987, and 1988 on the basis of the delinquent returns he had submitted to the revenue officer for those years.
6. The Debtor filed his Chapter 7 petition in this Court on April 20, 1992.
*2527. The Internal Revenue Service made no assessments of income tax due from the Debtor for the years 1982, 1983, or 1984, other than those that were made by use of the substitute for return procedure on February 8, 1988.
8. On January 11,1993, the Internal Revenue Service mailed Debtor a notice of intent to levy for the three years in dispute.
CONCLUSIONS OF LAW
1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and this matter is a core proceeding under 28 U.S.C. § 157(b)(2)(I).
2. The Debtor filed this adversary proceeding in order to determine the discharge-ability of income taxes for the years 1982, 1983, and 1984. The Debtor claims that income tax returns for the years 1982, 1983, and 1984 were filed, thus making the 11 U.S.C. § 523(a)(1)(B)(i) exception to discharge inapplicable. The Debtor also maintains that the taxes in question are not priority taxes under 11 U.S.C § 507(a)(7)(A)(iii) because they had been assessed previously; therefore they do not fall under the 11 U.S.C. § 523(a)(1)(A) exception to discharge. The United States’ Motion for Summary Judgment maintains that, regardless of whether the Debtor filed returns for the years 1982 through 1988, the taxes attributable to those years are nondisehargeable because the Internal Revenue Service made no assessment based upon those returns prior to the date of the bankruptcy petition. After reviewing the memoranda filed and the applicable law, the Court finds that it must agree with the position advanced by the United States.1
3. 11 U.S.C. § 523(a)(1)(A) states in pertinent part that “this title does not discharge an individual from any debt . of the kind specified in section 507(a)(7) of this title” nor is a debt discharged “with respect to which a return, if required was not filed.” 11 U.S.C. § 523(a)(1)(B)(i).
Scenario # 1: The 1982 through 1984 returns were not filed.
4.If the returns were never filed, these taxes come within the exception to discharge under 11 U.S.C. § 523(a)(1)(B)(i). Therefore the taxes are nondisehargeable.
Scenario #2: The 1982 through 1984 returns were filed at the same time as the returns for 1985 through 1988 on or about November 1, 1989.
5. Substitute returns are not “returns” as that term is used in the Bankruptcy Code. In re Bergstrom, 949 F.2d 341, 342 (10th Cir.1991); In re Rench, 129 B.R. 649, 651 (Bankr.D.Kan.1991). The word return in § 523 means only those returns actually filed by the debtor. In re Chapin, 148 B.R. 304, 306 (Bankr.C.D.Ill.1992).
6. In this case, the only documents which would qualify as actual returns for purposes of § 523 are those which were purportedly filed on or about November 1, 1989. A debtor’s liability for federal income taxes for which the debtor never filed a return is not dischargeable even though the Internal Revenue Service had prepared substitutes for returns. In re Chastang, 116 B.R. 833, 834 (Bankr.M.D.Fla.1990).
7. Under 26 U.S.C. § 6501(a), the Internal Revenue Service has three years in which to make an assessment based on a filed return. According to the Debtor, his 1982, 1983, and 1984 returns were filed on or about November 1,1989. If the return was filed on that date then the Internal Revenue Service could have assessed the taxes for these three years at any time until November 1, 1992. No assessment was made on the basis of the purported filing of those returns. The Debt- or filed his petition herein on April 20, 1992, six months before the expiration of the three-year limitation period that the Internal Revenue Service had to make assessments.
8. The taxes for the three years in question constitute priority taxes under 11 U.S.C. § 507(a)(7)(A)(iii) because they were “not assessed before, but assessable, under applicable law or by agreement, after, the eom-*253mencement of the case.” In re Torrente, 75 B.R. 193 (Bankr.S.D.Fla.1987).
9. Under either possible version of the facts the taxes for the years 1982 through 1984 are nondischargeable. Either the Debt- or did not file his returns, in which case the taxes are nondischargeable under 11 U.S.C. § 523(a)(1)(B)(i) or he did file them, but the Internal Revenue Service made no assessment based on them prior to the date that his bankruptcy petition was filed and the taxes are nondischargeable under 11 U.S.C. § 523(a)(1)(A). Accordingly, the Court will deny the Motion for Summary Judgment filed by the Debtor and will grant the Motion for Summary Judgment filed by the United States. An appropriate Judgment will be entered.
. The parties do not dispute that all of the penalties for the years 1982 through 1988 are dis-chargeable. The taxes for the years 1985 through 1988 are also dischargeable. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491954/ | DECISION ON ORDER GRANTING MOTION OF CHAPTER 11 PLAN TRUSTEE FOR SUMMARY JUDGMENT AS TO ISSUES PERTAINING TO 11 U.S.C. § 547(b) (Doc. 15-1)
THOMAS F. WALDRON, Bankruptcy Judge.
JURISDICTIONAL STATEMENT
This proceeding, which arises under 28 U.S.C. § 1334(b) in a case referred to this court by the Standing Order of Reference entered in this district on July 30, 1984, is determined to be a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F) — proceedings to determine, avoid, or recover preferences.
Pending before the court is a Motion Of Chapter 11 Plan Trustee For Summary Judgment As To Issues Pertaining To 11 U.S.C. § 547(b) (Doc. 15-1) filed by the Chapter 11 Plan Trustee, David M. Whittaker (the “Trustee”), for International Diamond Exchange Jewelers, Inc. (the “debtor”). In response, Citra Trading Corporation (“Ci-tra”) filed Defendant, Citra Trading Corp.’s, Memorandum Contra Motion For Summary Judgment (Doc. 17-1). In this response, Ci-tra asserts that the Trustee has failed to establish all the elements necessary to constitute an avoidable preference, specifically those elements set forth under § 547(b)(3) and (b)(5). Citra has not asserted any defenses under § 547(c).
FACTS
Based upon the affidavit of Nancy Thru-ston, Secretary of International Diamond Exchange Jewelers, Inc., (Doc. 15-1, Ex. B), the affidavit of Alan C. Duvall, the Managing Partner of Duvall & Associates, Inc., Certified Public Accountants (Doc. 15-1, Ex. D), the affidavit of David M. Whittaker, the Trustee (Doc. 15-1, Ex. F), and the exhibits attached to the Trustee’s motion for summary judgment (Doc. 15-1), the court makes the following findings of fact:
1. The records of the debtor pertaining to invoices from creditors and payments to creditors were kept and made contemporaneously with the transactions between the debt- or and its creditors. (Doc. 15-1, Ex. B).
*2672. Debtor’s check, number 1212, dated November 8, 1991, in the amount of $1,000 was paid to the order of Citra and was honored by the bank on November 12, 1991. This check was a payment on the account owing from the debtor to Citra as set forth on Citra’s billing statement dated October 4, 1991. (Doc. 15-1, Ex. B).
3. Debtor’s check, number 1213, dated November 15, 1991, in the amount of $1,000 was paid to the order of Citra and was honored by the bank on November 18, 1991. This check was a payment on the account owing from the debtor to Citra as set forth on Citra’s billing statement dated October 4, 1991. (Doc. 15-1, Ex. B).
4. Debtor’s check, number 1214, dated November 22, 1991, in the amount of $1,000 was paid to the order of Citra and was honored by the bank on November 25, 1991. This check was a payment on the account owing from the debtor to Citra as set forth on Citra’s billing statement dated October 4, 1991. (Doc. 15-1, Ex. B).
5. Debtor’s check, number 1215, dated November 29, 1991, in the amount of $1,000 was paid to the order of Citra and was honored by the bank on December 2, 1991. This cheek was a payment on the account owing from the debtor to Citra as set forth on Citra’s billing statement dated October 4, 1991. (Doe. 15-1, Ex. B).
6. Debtor’s check, number 1216, dated December 6, 1991, in the amount of $1,000 was paid to the order of Citra and was honored by the bank on December 9, 1991. This check was a payment on the account owing from the debtor to Citra as set forth on Citra’s billing statement dated October 4, 1991. (Doc. 15-1, Ex. B).
7. Debtor’s check, number 1490, dated December 13, 1991, in the amount of $5,000 was paid to the order of Citra and was honored by the bank on December 16, 1991. This check was a payment on the account owing from the debtor to Citra as set forth on Citra’s billing statement dated October 4, 1991. (Doc. 15-1, Ex. B).
8. Debtor’s check, number 1846, dated December 20, 1991, in the amount of $1,000 was paid to the order of Citra and was honored by the bank on December 23, 1991. This check was a payment on the account owing from the debtor to Citra as set forth on Citra’s billing statement dated October 4, 1991. (Doc. 15-1, Ex. B).
9. On January 10, 1992, the debtor filed for bankruptcy relief under chapter 11.
10. A Consolidated Balance Sheet of the debtor, compiled in accordance with the standards established by the American Institute of Certified Public Accountants, was prepared by Duvall & Associates, Inc., Certified Public Accountants. (Doc. 15-1, Ex. D). This Consolidated Balance Sheet indicates that as of April 30, 1991, the liabilities of the debtor exceeded its assets. (Doc. 15-1, Ex. D).
11. At all times between April 30, 1991, when the debtor prepared its Consolidated Balance Sheet for the period ended April 30, 1991, and the date the debtor filed its chapter 11 petition, January 10,1992, the debtor’s total liabilities exceeded its total assets. (Doc. 15-1, Ex. B).
12. Liquidation of the debtor’s assets in a chapter 7 would only pay an estimated twenty percent of the claims of unsecured creditors exclusive of preference recoveries. Based upon the statements set forth in the debtor’s confirmed plan of reorganization, the Trustee has calculated a possible total distribution (including preference recoveries) of 44% to 62%. (Doc. 15-1, Ex. F).
13. On January 5, 1994, the Trustee filed an adversary complaint against several defendants, including Citra. This complaint alleged causes of action under 11 U.S.C. § 547 against each defendant. The court ordered the Trustee to assign a separate adversary file for each defendant. Each adversary, including this one, was assigned a separate number and filed mmc pro tunc on January 5, 1994.
14. Citra filed an answer (Doc. 3-1) and a supplemental answer (Doc. 13-1). Neither filing asserts any defenses to the Trustee’s preference complaint, but merely denies or admits the Trustee’s allegations.
15. On October 17,1994, the Trustee filed his Motion Of Chapter 11 Plan Trustee For *268Summary Judgment As To Issues Pertaining To 11 U.S.C. § 547(b) (Doc. 15-1) requesting that this court enter summary judgment in its favor pursuant to 11 U.S.C. § 547. On November 17, 1994, Citra filed Defendant, Citra Trading Corp.’s, Memorandum Contra Motion For Summary Judgment (Doc. 17-1). Citra disputes that the Trustee has established the elements of a preference. Citra has not raised any defenses.
DISCUSSION
Summary judgment is governed by Federal Rule of Bankruptcy Procedure 7056, which incorporates Rule 56 of the Federal Rules of Civil Procedure, and provides:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
Fed.R.Bankr.P. 7056(c). The party seeking-summary judgment bears the initial burden of establishing the absence of a genuine issue of material fact. The burden of demonstrating the existence of a genuine issue of material fact lies, however, with the non-moving party. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).
When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts.... In the language of the Rule, the nonmoving party must come forward with “specific facts showing that there is a genuine issue for trial.”
Matsushita Elec. Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986).
“The entry of summary judgment is always subject to the requirements of due process concerning notice and an opportunity to be heard, the opportunity for discovery and the exercise of the court’s discretion concerning the full presentation of evidence.” Ledford v. Tiedge (In re Sams), 106 B.R. 485, 491 (Bankr.S.D.Ohio 1989).
No genuine issues of material fact exist and the parties have had a full opportunity to be heard. Therefore, this proceeding is appropriate for summary judgment.
Section 547(b) of the Bankruptcy Code provides: Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made-
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
Pursuant to § 547(g), the trustee has the burden of proving the avoidability of a transfer under subsection (b). 11 U.S.C. § 547(g). Each of the five elements must be established by a preponderance of the evidence. Foreman Indus., Inc. v. Broadway Sand & Gravel (In re Foreman Indus., Inc.), 59 B.R. 145, 147 (Bankr.S.D.Ohio 1986).
The undisputed facts demonstrate that payments were made by the debtor for the benefit of Citra in payment of antecedent debt. October 12, 1991, was the ninetieth day prior to the date the debtor filed for bankruptcy relief. Subler Trucking, Inc. v. Kingsville-Ninety Auto/Truck Stop, Inc. (In re Subler Trucking, Inc.), 122 B.R. 318, 321 (Bankr.S.D.Ohio 1990) (the 90-day preference period is computed by counting backwards from the date the petition is filed; *269therefore, computation begins with the day before the filing date of the petition).
The debtor’s checks to Citra were honored on the following dates: November 12, 1991, November 18, 1991, November 25, 1991, December 2, 1991, December 9, 1991, December 16, 1991, and December 23, 1991.1 Therefore, all payments made by the debtor to Citra were within ninety days of the date the debtor filed for bankruptcy relief. Consequently, subsections (1), (2), and (4) of § 547(b) have been established by the Trustee.
Citra asserts that the Trustee has not established that the debtor was insolvent for purposes of § 547(b)(3). Citra disputes the calculations contained in the debtor’s balance sheet. Specifically, Citra states that the “Loan Payable Stockholder should be included in shareholder equity in determining whether or not the company was solvent at the time of the transfers,” that “net book value is an accounting fiction which does not under most circumstances equal the actual value of the assets,” that “there is no asset valuation for the ‘going-concern value’ of the company,” and that the “Accounts Payable Trade includes one and one-half to two percent service charges for past due accounts, a charge which if not in writing, is not a proper charge.” (Doc. 17-1, p. 2).
Section 101(32)(a) defines insolvent as follows:
“Insolvent” means — -
(A) with reference to an entity other than a partnership, and a municipality, financial condition such that the sum of such entity’s debts is greater than all of such entity’s property, at a fair valuation, exclusive of—
(i) property transferred, concealed, or removed with intent to hinder, delay, or defraud such entity’s creditors; and
(ii) property that may be exempted from property of the estate under section 522 of this title[.]
“Insolvency is essentially a balance sheet test — that is, a debtor is insolvent when the debtor’s liabilities exceed the debtor’s assets, excluding the value of preferences, fraudulent conveyances and exemptions.” In re Taubman, 160 B.R. 964, 979 (Bankr.S.D.Ohio 1993); Foreman, 59 B.R. at 149. For purposes of § 547, “the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition.” 11 U.S.C. § 547(f).
Fed.R.Evid. 3012 defines this presumption and requires the party against whom the presumption exists to come forward with evidence to-rebut the presumption, although the burden of proof remains on the party in whose favor the presumption exists. Akers v. Koubourlis (In re Koubourlis), 869 F.2d 1319, 1322 (9th Cir.1989). Thus, in the absence of evidence to rebut the presumption, the Trustee is entitled to rely on the § 547(f) presumption to establish the debt- or’s insolvency. Id. Therefore, if Citra came forward with evidence to rebut or meet the presumption, the burden of persuasion then rests with the Trustee to establish insolvency. Id. Citra, however, must demonstrate evidence of the debtor’s solvency. Id. “A speculative showing, such as simply questioning the debtor’s accounting methods, is insufficient.” Id.; see also Foreman, 59 B.R. at 149.
In this proceeding, Citra has merely questioned the debtor’s accounting methods. It has not provided any evidence to meet or rebut the presumption of the debtor’s insolvency. Therefore, Citra has not rebutted the presumption of insolvency, and the Trustee has sufficiently established insolvency for purposes of § 547(b)(3).
*270Citra also disputes that the Trustee has established the requirements under subsection (b)(5) because “[t]he checks in question were made as replacement cheeks for previously dishonored checks given” to Citra. (Doc. 17-1, p. 1). Section 547(b)(5) permits avoidance by a trustee of a transfer that enables a creditor to receive more than it would receive if the ease were a chapter 7 case and the transfer had not been made. This provision requires the bankruptcy court to “construct a ‘hypothetical chapter 7 case;’ i.e., to determine what the creditor would have received in a liquidation.” Still v. Rossville Bank (In re Chattanooga Wholesale Antiques, Inc.), 930 F.2d 458, 464 (6th Cir.1991). Unless the estate is sufficient to provide a 100% distribution, any unsecured creditor ... who receives a payment during the preference period is in a position to receive more than it would have received under a chapter 7 liquidation. Id. at 465. Thus, the court must undertake a two-part test. First, the court must determine what the creditor receives if the transfer is not avoided. Second, the court must determine what the creditor would have received in a liquidation case if the transfer had not been made.
Citra filed a proof of claim in the unsecured amount of $33,583.25.3 The undisputed facts establish that Citra received $11,000 within the preference period. Liquidation of the debtor’s assets in a chapter 7 would only pay an estimated twenty percent of the claims of unsecured creditors exclusive of preference recoveries. Thus, if the transfers are not avoided Citra would receive $11,000 plus 20% of $33,583.25 (or $6,716.65). If the transfer had not occurred Citra would only receive 20% of $33,583.25, or $6716.65. Therefore, Citra has received more than if the case were a ease under chapter 7 of this title; the transfer had not been made; and such creditor received payment of such debt to the extent provided by the provision of this title. Consequently, the Trustee has sufficiently established that the requirements for subsection § 547(b)(5).
Based upon the foregoing, the court concludes that the Trustee has established all the elements under § 547(b) to establish a preference.
Significantly, despite being afforded several opportunities, Citra has failed to set forth any defense to the Trustee’s complaint under § 547(c). As previously stated, Citra failed to raise any defense in its answer or in its supplemental answer (Doc. 13-1). Furthermore, Citra did not assert any defense in its response to the Trustee’s motion for summary judgment nor did it file any motion seeking additional opportunities to file any defenses. Notably, an order was previously entered, whereby the court stated:
The court does not intend to grant any party a further period in which to file any response, nor does the court intend to grant any party an opportunity to be heard in oral argument; however, any party is free to file a motion seeking such additional opportunities, provided the motion is filed at the time of the filing of the original motion for summary judgment or the response to the motion for summary judgment.
(Doc. 8-1). Consequently, because Citra failed to raise any defense to the Trustee’s preference action and because Citra failed to file a motion seeking additional opportunities to assert a defense, Citra is precluded from raising any defenses at this time.
Accordingly, the Motion Of Chapter 11 Plan Trustee For Summary Judgment As To Issues Pertaining To 11 U.S.C. § 547(b) (Doc. 15-1) is GRANTED. Judgment is granted in favor of International Diamond Exchange Jewelers, Inc. in the amount of $11,000 plus interest, pursuant to 28 U.S.C. § 1961(a) from the date of this complaint, January 5, 1994,4 and the costs of this proceeding.
SO ORDERED.
. Under § 547(b), a transfer made by check occurs on the date the check is honored. Barnhill v. Johnson, 503 U.S. 393, -, 112 S.Ct. 1386, 1388, 118 L.Ed.2d 39 (1992).
. Federal Rule of Evidence 301 provides:
In all civil actions and proceedings not otherwise provided for by Act of Congress or by these rules, a presumption imposes on the party against whom it is directed the burden of going forward with evidence to rebut or meet the presumption, but does not shift to such party the burden of proof in the sense of the risk of nonpersuasion, which remains throughout the trial upon the party on whom it was originally cast.
. Proof of claim number 13 filed on January 13, 1992.
. See Foreman Indus., 59 B.R. at 154-57. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491955/ | OPINION
KENNETH J. MEYERS, Bankruptcy Judge.
Debtors Jeffrey and Amy Moore (“debtors”) filed this turnover action to recover wages that were withheld by their employer within 90 days of bankruptcy pursuant to a wage deduction order obtained by creditor General Motors Acceptance Corporation (“GMAC”). In their complaint, the debtors allege that a total of $487 was obtained through a wage deduction proceeding within the 90-day preference period and that these wages were “part of the debtors’ estate” and were “properly exempted by the debtors.”
GMAC admits the factual allegations of the debtors’ complaint but asserts that the debtors are not entitled to recover the withheld wages because they failed to claim them as exempt in the wage deduction proceeding initiated by GMAC prior to bankruptcy. In support of its argument, GMAC cites the personal property exemption statute in Illinois, which provides in pertinent part:
The personal property exemptions set forth in this section shall not apply to or be allowed against any money, salary, or wages due or to become due to the debtor that were required to be withheld and upon which a wage deduction order has been entered....
735 ILCS 5/12-1001.
The debtors’ complaint does not specify the particular Bankruptcy Code provision under which they seek to avoid the transfer of wages to GMAC. However, they appear to allege that this transfer of wages was preferential under § 547 in that it was made within 90 days of bankruptcy. Only the trustee has standing under § 547 to avoid a preferential transfer; however, § 522(h) allows a debtor to avoid a transfer of property that the trustee could have avoided under § 547 if the trustee fails to act and the property could otherwise have been exempted by the debtor.1 See In re Pilgreen, 161 B.R. 552, 553-54 (Bankr.M.D.Ga.1989); In re Johnson, 53 B.R. 919, 921 (Bankr.N.D.Ill.1985). The debtors, therefore, may avoid the transfer of wages to GMAC if the transfer of these wages was avoidable by the trustee *281under § 547 and if the debtors could have exempted the wages once they had been recovered by the trustee as property of the estate.
The debtors in this case cannot prevail under § 522(h) because the trustee would be unable to avoid the transfer of wages under § 547. Section 547(c)(7) contains an exception to the avoidability of preferential transfers by the trustee, providing that a transfer may not be avoided by the trustee “if, in a case filed by an individual debtor whose debts are primarily consumer debts, the aggregate value of all property that constitutes or is affected by such transfer is less than $600.” 11 U.S.C. § 547(e)(7).2 By this provision, Congress expressed its intent to permit relatively small transfers of the debtor’s property before bankruptcy to stand regardless of whether they have the effect of preferring one creditor over another. In re Johnson, 53 B.R. at 921.
A debtor’s rights under § 522(h) are derivative in that they arise from the trustee’s right to avoid transfers of exempt property when the trustee has failed to assert such a right. Thus, if the trustee could not recover a transfer of exempt property under § 547, neither can the debtor under § 522(h). Id. In this case, the trustee is precluded by § 547(c)(7) from recovering the wages obtained by GMAC within 90 days of bankruptcy in the amount of $487. Accordingly, the debtors are likewise prevented from recovering such wages under § 522(h).
Section 522(f)(1) provides another theory by which the debtors might seek to recover these wagfes that is not dependent on the trustee’s avoiding power under § 547. See id. at 922, 924-25. Under § 522(f)(1), a debtor may avoid a judicial lien on property of the debtor if the lien impairs an exemption to which the debtor would otherwise be entitled.3 By this means, a debtor may recover such property for the estate in order to exempt it. Id. at 925.
Under Illinois law, a judicial lien is created on the debtor’s non-exempt wages by the service of summons in a wage deduction proceeding. 735 ILCS 5/12-808(b). The amount of the debtor’s non-exempt wages— the maximum amount that may be withheld — is 15% of the debtor’s gross wages. 735 ILCS 5/12-803. The debtor may claim further exemptions in the withheld wages, see 735 ILCS 5/12-804 (wages constituting pension and retirement fund benefits or contributions are exempt from deduction orders), and may request a hearing to dispute the wage deduction on this basis. See 735 ILCS 5/12 — 811(b). Once the court makes a determination of the proper disposition of the withheld wages, however, the debtor’s interest in the wages is transferred to the judgment creditor, and the debtor may no longer claim any exemption in the wages subject to the deduction order. See In re Garcia, 155 B.R. 173, 175-76 (N.D.Ill.1993); In re Wattjen, 150 B.R. 419, 424 (Bankr.N.D.Ill.1993).
In the present case, an order was entered in the wage deduction proceeding prior to bankruptcy, and the debtors thus had no interest in the withheld wages at the time of filing that they could claim as exempt in their bankruptcy proceeding. Because a wage deduction order had been entered before the debtors’ bankruptcy was commenced, this case is unlike those cases in which the debtor retained an interest in wages that were withheld pursuant to a wage deduction summons but as to which no order had been entered. See Garcia at 176; Waltjen at 425; cf. Johnson at 924 (summary judgment for creditor inappropriate where parties failed to indicate whether wages were held pursuant to summons or wage deduction order). While, in those cases, § 522(f)(1) was applicable to allow the debtor to avoid the *282wage deduction lien and protect his exemption, the debtors here had no interest in the wages transferred by the wage deduction order prior to bankruptcy and no exemption to be protected by avoidance of a judicial lien under § 522(f)(1).
The Illinois personal property exemption provision cited by GMAC substantiates this result by prohibiting the debtor’s exemption of wages required to be withheld and “upon which a wage deduction order has been entered.” See 735 ILCS 5/12-1001.4 Because a wage deduction order has been entered in this case, the debtors may no longer claim the wages as exempt under either the specific exemptions in the wage deduction proceeding or the general personal property exemptions in this bankruptcy proceeding. Cf. Johnson, 53 B.R. at 922-23, adhered to on reh’g, 57 B.R. 635 (debtor could assert exemption in withheld wages under general “wild card” exemption provision where no wage deduction order had been entered). In the absence of an available exemption in the withheld wages, § 522(f)(1) is not applicable to protect the debtors’ exemption by avoidance of a lien on the wages.
According to the debtors’ complaint, which stands admitted as to the facts of this case, GMAC obtained the wages in question pursuant to a wage deduction order entered prior to bankruptcy. As set forth above, the debtors may not avoid the transfer of these wages to GMAC under either § 522(h) or § 522(f)(1). The debtors, therefore, have no basis upon which to recover the wages held by GMAC pursuant to the wage deduction order, and the debtors’ complaint for turnover of these wages must be denied.
. Section 522(h) provides:
The debtor may avoid a transfer of property of the debtor ... to the extent that the debtor could have exempted such property under subsection (g)(1) of this section if the trustee had avoided such transfer, if—
(1) such transfer is avoidable by the trustee under section ... 547 ... of this title ... and
(2) the trustee does not attempt to avoid such transfer.
11 U.S.C. § 522(h). Section 522(g)(1), incorporated by reference in § 522(h)(1), allows the debtor to exempt property recovered by the trustee under § 547 to the extent the property was otherwise exemptible by the debtor and the property was involuntarily transferred and was not concealed by the debtor. See 11 U.S.C. § 522(g)(1).
. Section 547(c)(7) was renumbered as § 547(c)(8) under the Bankruptcy Reform Act of 1994, P.L. No. 103-394, 108 Stat. 4106, effective October 22, 1994.
. Section 522(f)(1) provides:
(f) [T]he debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—
(1) a judicial lien[.]
11 U.S.C. § 522(f)(1).
. Illinois has "opted out” of the federal exemption scheme of 11 U.S.C. § 522(d) so that Illinois residents are limited to exemptions provided by state law. See 11 U.S.C. § 522(b)(1); 735 ILCS 5/12-1201; In re Peacock, 119 B.R. 605, 607 (Bankr.N.D.Ill.1990), aff'd, 125 B.R. 526 (N.D.Ill.1991). The debtors here, therefore, may not claim an exemption in the wages withheld by GMAC under 11 U.S.C. § 522(d)(5) as stated in their Schedule C. | 01-04-2023 | 11-22-2022 |
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