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https://www.courtlistener.com/api/rest/v3/opinions/1522103/
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820 S.W.2d 591 (1991)
STATE of Missouri, Plaintiff-Respondent,
v.
Gene THOMPSON, Defendant-Appellant.
No. 59192.
Missouri Court of Appeals, Eastern District, Division Three.
October 29, 1991.
Motion for Rehearing and/or Transfer Denied December 4, 1991.
Application to Transfer Denied January 28, 1992.
*592 Alan G. Kimbrell, St. Louis, defendant-appellant.
Susan Hewitt, Asst. Pros. Atty., St. Charles County, St. Charles, for plaintiff-respondent.
Motion for Rehearing and/or Transfer to Supreme Court Denied December 4, 1991.
PUDLOWSKI, Presiding Judge.
The defendant, Gene Thompson, was convicted in a bench trial in the Associate Circuit Court of St. Charles County of four counts of animal abuse and sentenced to six months' jail time, with execution suspended except for ten days. The defendant appeals and claims the court erred in that: (1) the information filed against the defendant is fatally defective; (2) the evidence obtained from the defendant's barn and the fruits of that evidence should have been suppressed because it was obtained through an illegal search and seizure; (3) the evidence obtained from the horses at the Millstadt Rendering Company was also the result of an illegal search and seizure and should have been suppressed; and, (4) the state failed to meet its burden of proof as to the ownership or custody of the live dog found on the defendant's premises. We affirm.
On March 21, 1989, a real estate agent showed the defendant's home to Charla Shurtleff and her family. The defendant's home was for sale and the agent had permission to show it to the Shurtleff family. The defendant also had a garage, which had a sign warning people to stay out, and a barn on his land.
The agent and the Shurtleffs did not go into the garage because of the sign but noticed a dog next to the barn which they felt looked quite weak. One door to the barn was locked but the other door was held closed by a small latch which they easily opened. They all entered the barn and once inside discovered two dead horses and a dead dog. Mrs. Shurtleff left the *593 premises and called the St. Charles County Health Department.
Two rabies officers from the Health Department responded to Mrs. Shurtleff's call and met her and the agent at the defendant's residence. Mrs. Shurtleff showed the rabies officers the dead animals and the wizened dog. The rabies officers called the St. Charles County Sheriff's Department for assistance. The Sheriff's Department conducted an investigation of the barn and area around it and photographed the scene.
The rabies officers removed the live dog and dead dog from the scene and returned with the Health Department veterinarian. The doctor conducted an investigation of the dead horses in the barn and then returned to the doctor's clinic where she examined the live dog. The next day, March 22, the doctor performed a necropsy on the dead dog. On March 23, the doctor performed necropsies on the two dead horses, which the defendant had arranged to be removed to a rendering plant in Millstadt, Illinois.
The state charged the defendant with four counts of animal abuse and four counts of animal neglect. The defendant moved to suppress the evidence obtained through the search of his barn and the evidence from the necropsies performed on the horses in Millstadt. The court overruled his motion to suppress and the defendant, after a bench trial, was convicted on four counts of animal abuse. The four counts of animal neglect were dismissed.
The defendant's first point on appeal alleges that the information was fatally defective and failed to charge any offense, in that each of the counts charged disjunctively that the defendant had ownership or custody as to each animal abused. Count I, on which the defendant was convicted, read in part "the defendant, having ownership or custody of a small horse, white and brown in color, willfully failed to provide adequate care for said horse by not providing said horse with adequate food and water." The other three counts of animal neglect were essentially the same but referred to the other animals.
Defendant cites State v. Hook, 433 S.W.2d 41 (Mo.App.1968), in support of his contention that disjunctive charges and submissions are improper. The Hook case, however, deals with disjunctive submission of acts, one or more of which may constitute the same crime. Id. at 43.
In State v. Salem, 780 S.W.2d 683, 684 (Mo.App.1989), the court held that an information was sufficient which charged the defendant with having shot the victim knowingly or with the purpose of causing serious physical injury to him. The court ruled that Hook did not apply because just one act was charged, that of shooting the victim, although the intent accompanying the act was submitted in the disjunctive. Id. In State v. Virdure, 371 S.W.2d 196, 199 (Mo.1963), the court upheld an information containing the words "possession or control" because the words have common elements and do not connote entirely separate and distinct acts as constituting an offense.
Here, just one act was charged, that of failing to provide adequate care for the animals, while the surrounding circumstance of ownership or custody was charged in the disjunctive. Since only one act was charged Hook is not applicable here. In addition, the words ownership or custody have common elements and do not give rise to separate and distinct acts as constituting an offense. This point is denied.
The defendant's second point on appeal alleges that the court erred in overruling the defendant's motion to suppress the fruits of the evidence obtained through the warrantless search and seizure of the defendant's premises. The state raises several points in support of the warrantless search and seizure, however, since we find the defendant had no expectation of privacy as to the property searched and seized we will not discuss those points.
The proponent of a motion to suppress evidence has the burden of establishing that his constitutional rights were violated by the challenged search and seizure. State v. Burkhardt, 795 S.W.2d 399, 405 *594 (Mo. banc 1990). The burden, however, is on the state to justify a warrantless search and to demonstrate that it falls within an exception to the warrant requirement. Id. Before the defendant can complain of a violation of the fourth amendment he has to have a legitimate expectation of privacy in the place or thing being searched. Rakas v. Illinois, 439 U.S. 128, 143, 99 S. Ct. 421, 430, 58 L. Ed. 2d 387 (1978); State v. McCrary, 621 S.W.2d 266, 272 (Mo. banc 1981). The court has created a two-part test to determine whether a criminal defendant has a legitimate expectation of privacy in the thing or place searched. The defendant must have both an actual subjective expectation of privacy in the place or thing searched and this expectation must be reasonable or legitimate. The reasonableness or legitimacy of the expectation is measured by concepts of real or personal property law or to understandings that are recognized and permitted by society. State v. McCrary, 621 S.W.2d at 272-73.
In U.S. v. Harnage, 662 F. Supp. 766 (D.Colo.1987) the defendant's house was for sale and a detective obtained evidence through a warrantless search with a real estate agent. The court held that the defendant had no legitimate expectation of privacy given the fact that he held his house open to the public by putting it up for sale. Id. at 775. In State v. Urban, 798 S.W.2d 507 (Mo.App.1990) the defendant dropped off film at K-Mart to be developed. The court ruled that once the defendant dropped off the film she lost any reasonable expectation of privacy to it. By relinquishing the film to K-Mart, the defendant assumed the risk that the film's contents would be shown to the authorities. Id. at 515.
In reviewing the trial court's denial of the motion to suppress, we look only to determine whether the evidence was sufficient to support the ruling. State v. Burkhardt, 795 S.W.2d at 404. Here, the defendant opened his home, and the surrounding area, to the public by putting it up for sale. There was a sign on the garage indicating the defendant's desire to keep people out, but there was no evidence of such a sign on the barn. The real estate agent, who had obtained a key to defendant's house from his real estate agent, and the Shurtleff family had permission to be on the property. Thus, there is no evidence to support a finding that the defendant had an actual subjective expectation of privacy.
Even if the defendant had an actual subjective expectation of privacy in his barn, this expectation would not be reasonable or legitimate. When the defendant opened his land up to the public he lost any reasonable expectation of privacy. He assumed the risk that anything unlawful which was found on his property would be reported to the authorities. Therefore, because the defendant had no reasonable expectation of privacy in the property searched and seized, he cannot be heard to complain of an illegal search and seizure. Point denied.
The defendant's third point on appeal alleges the court erred in overruling his motion to suppress the report of the necropsies of the horses and the testimony in regard to them because this evidence was the product of an illegal search and seizure. The state argues that the defendant lost any reasonable expectation of privacy in the horses because he abandoned them when the rendering plant in Millstadt, Illinois picked up the horses.
Once a party abandons property he no longer has a reasonable expectation of privacy with regard to it at the time of a search or seizure. State v. Lingar, 726 S.W.2d 728, 736 (Mo. banc 1987); Settle v. State, 679 S.W.2d 310, 320 (Mo.App.1984). The defendant relies on Settle to argue that the horses were not voluntarily abandoned. In Settle, a police officer unlawfully detained the defendant while his identification was being checked. During the detention the defendant threw an object into a grassy area. The court ruled the defendant's action did not constitute a voluntary abandonment. The court stated that the police cannot use coercion to force an individual to abandon his right to privacy and then use the evidence against him. Property which is thrown away due to the unlawful activities of police officers is not to be *595 considered abandoned. Settle v. State, 679 S.W.2d at 321.
In reviewing the trial court's denial of the motion to suppress, we look only to determine whether the evidence was sufficient to support the ruling. State v. Burkhardt, 795 S.W.2d at 405. The defendant argues that a deputy of the St. Charles Sheriff's Department threatened the defendant with further prosecution if he failed to have the horses removed within 24 hours. The defendant testified, however, that he had spoken with the rendering plant about picking up the horses before the deputy spoke with him. The defendant's argument fails, therefore, on two grounds. First, the deputy's conduct did not amount to coercion and, second, even if the deputy's conduct was coercive it was not the cause of the defendant sending the horses to the rendering plant. Thus, the defendant abandoned the horses and had no reasonable expectation of privacy. This point is denied.
The defendant's fourth point alleges that the state did not meet its burden of proof as to the ownership or custody of the live dog removed from the defendant's premises. The defendant argues that the state's evidence was, at best, circumstantial as to the ownership of the dog.
In determining the sufficiency of evidence to support a conviction, all evidence tending to support the verdict must be considered as true, contrary evidence disregarded, and every reasonable inference supporting the verdict indulged. State v. Wahby, 775 S.W.2d 147, 154 (Mo. banc 1989). The defendant's argument that only circumstantial evidence supported the finding that he owned the live dog is irrelevant in that the state only needed to prove ownership or custody. There was direct evidence to support a finding that the defendant had custody of the dog, including the defendant's own testimony that he had locked the dog in the kennel to keep it away from the dead horses. This evidence is sufficient to support a finding that the defendant had custody of the live dog and we do not need to go into the circumstantial evidence as to ownership. This point is denied.
Judgment affirmed.
CRIST and AHRENS, JJ., concur.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/8302431/
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Mr. Chief Justice Green
delivered the opinion of the Court.
This is an ejectment suit to recover a small parcel of land in Montgomery county, tried before the circuit judge without a jury. There was a judgment below for defendant, from which the plaintiffs appealed in error to this court.
The facts are not in dispute. Prior to July 28, 1905, Alex Yarbrough was the owner of a farm of three hun*224dred eighty-eight acres known as the B. W. Ussery home place. On July 28, 1905, he conveyed one acre of this land to certain trustees, by deed as follows:
“For the purpose of public worship, I, Alex Yar-brough, have this day donated and do hereby transfer and convey to J. W. Morrison, Mac McCarter and Presley "Williams, trustees and their successors in office from time to time the following described tract of real estate lying and being in the 17th district of Montgomery county, Tennessee, and bounded as follows, to-wit:
Here description follows.
“The purpose of this conveyance is for the erection of a Baptist church to be held in trust by said trustees for the use of the membership and community at large for church purposes. So long as used for this purpose here-inabove stated and when no longer used as such the same is to revert back to the original tract of land.
“To have and to hold said land and every part of the same together with all improvements and appurtenances thereto belonging unto said Trustees and their successors in office so long as used for the purposes herein-above stated.”
The deed concludes with the usual covenants, and was duly executed and acknowledged.
After this conveyance to the trustees, a church seems to have been erected on the lot, and the edifice was used for religious worship for a number of years. About January 1, 1918, the use of this church was discontinued. The congregation .built another church house, and held their worship in the new building.
On April 5,1913, plaintiff Alex Yarbrough conveyed to Huggins and wife fifty-one acres of his farm. This fifty-one acres surrounded on the three sides the lot .previously *225conveyed to the trustees of the church, the fourth side of the church lot fronting on the road. In the deed of Alex Yarbrough to Huggins and wife the land was referred to as ‘ ‘ containing by estimation fifty-one acres be it the same, more or less, including and excluding one acre deeded for a church.”
On January 20, 1914, Huggins and wife conveyed the same fifty-one acres to the defendant Mack Yarbrough, and the deed of Huggins and wife followed the description of their deed from Alex Yarbrough, and excepted the one acre deeded for a church.
On February 19, 1919, after they had ceased to use this church as a place of worship, certain trustees and members of the said church executed a paper writing, by which they agreed "to disband our church and go to the new building erected between Lone Oak and Louise known as the Immanuel Baptist Church.” This paper contained also the following provision:
“We further covenant together and agree to give over to Mack Yarbrough our lot and improvements there, as they were to revert back to the original tract of land. Was so provided for in deed made to us by Alex Yar-brough. ’ ’
Plaintiff Alex Yarbrough made conveyances from time to time of small portions óf his original tract of three hundred eighty-eight acres, and in 1920, after the church had moved and had undertaken to transfer the church lot to defendant, Mack Yarbrough, plaintiff Alex Yar-brough conveyed the remainder of his original tract to his coplaintiffs, Huggins and wife, by a deed which it is conceded was sufficient to carry title to the one-acre church lot, if title to that lot had reverted to plaintiff *226Alex Yarbrough, and was in Mm when he made said deed to Huggins and wife.
This suit, as has been gathered, is by Alex Yarbrough and Huggins and wife, for the use of Huggins and wife, to recover from Mack Yarbrough the one-acre parcel of land formerly conveyed to the trustees of the church by Alex Yarbrough. When the church abandoned- the lot, and when the trustees and members executed the paper above referred to in favor of defendant Mack Yar-brough, he went into possession of- the premises, and was in possession at the time of this .suit.
The case obviously depends upon a proper construction of the deed of Alex Yarbrough to the trustees of the church, and a determination of the rights of the parties under such deed.
The contention of the plaintiffs is that the trustees of the church -under this deed took an estate upon condition, or an estate upon special limitation-; that if the estate was upon condition, the condition was broken when the trustees ceased to use the premises for church purposes and that the plaintiff, the grantor, was entitled to enter for condition broken; that if the estate was upon speciaL limitation, the trustees took a determinable fee; that the continuance of this estate depended upon the use of the property for church purposes; and that when such use ended the estate expired by its own limitation, and the title reverted to the grantor.
Several defenses were made in the trial court, but all of them were rejected by the circuit judge except one. These defenses, overruled by the trial judge, are also relied on in this court. Such defenses, however, are not available here. This is a law case, and the case is here *227by appeal in error, and not on a broad appeal in equity which, would open up the entire case. Upon this appeal in error we can only correct errors committed against the party prosecuting the appeal in error. State v. Willis, 130 Tenn., 403, 170 S. W., 1030, and cases cited.
The trial judge was of opinion that the true meaning of the deed of Alex Yarbrough to the trustees of the church -was, that when the land in controversy was abandoned for church purposes, it passed to the owner of that part of the original tract from which it was taken; that, as defendant Mack Yarbrough owned that portion of the original tract out of which this one-acre lot was carved, said one-acre lot passed to him. In other words, the trial judge treated the deed to the trustees as creating a conditional limitation in favor of the owner of that part of the original tract out of which the church lot was carved.
We think the language of the deed before us was not designed to create a bare fee determinable. The conveyance was to the trustees of the Baptist Church for church purposes, "so long as used for this purpose here-inabove stated, and, when no longer used as such, the same is to revert back to the original tract of land.”
An estate in fee simple upon special limitation, as counsel and some of the books call it, or a fee determinable, is thus defined:
"When an estate in fee simple is made subject to a special limitation it is known as a determinable or qualified fee. Such as estate is an estate limited to the grantee and his heirs until the happening of some future event, which must be of such a kind that it may by possibility never happen at all; it is an estate whose continu*228ance as a fee simple is made to depend upon the happening or not happening of some future event, but where the terms used in its creation are words of limitation, as distinguished from words of condition.
“Old examples of determinable fees are limitations to one and his heirs 'as long as the Church of St. Paul shall stand,’ or ‘until the grantee go to Rome;’ the most appropriate words to create a determinable fee being, during, so long as, till, until, whilst, etc., such words fitly prefacing a limitation. ...
“For example, where the grant was to a religious society, ‘To have and to hold to the said (society) and their assigns, so long as said real estate shall by said society or its assigns be devoted to the uses, interests and support of those doctrines of the Christian religion,’ set forth in a certain formulary, it was held to create a determinable fee, terminating without entry and reverting to the grantor when the use specified ceased. ’ ’ Brewster on Conveyancing, section 173 et seq.
Other illustrations will be found in Washburn on Real Property, sections 167, 169, 170. Such estates are fully recognized in this jurisdiction. Overton v. Lea, 108 Tenn., 505, 68 S. W., 250, and Lumsden v. Payne, 120 Tenn., 407, 114 S. W., 483, 21 L. R. A. (N. S.), 605.
It will be noted that the grant here was not merely to the trustees so long as the property was used for church purposes, but, on the determination of this period, there was a limitation over in favor of “the (owner of) the original tract of land.” The limitation over in favor of the third person destroys the idea that it -was the intention of the grantor to create simply a determinable fee in these trustees. When a determinable fee ends, the *229estate reverts to the grantor and his heirs. In conveying such an estate there remains in the grantor the reversion, or rather the possibility of a reverter. When the grantor conveys a determinable fee, and limits after it a fee absolute, he parts with all his estate, and there is no reversion or possibility of a reverter remaining in him. Such appears to have been the design of the grantor in this deed.
There remains the question as to whether the estate attempted to be created by the conveyance before us was an estate upon condition or an estate upon conditional limitation.
The distinction between an estate upon condition and a conditional limitation is thus drawn by Mi. Washburn:
“In this and many other respects, an estate upon condition, properly speaking, differs from what is known as a conditional limitation. In either case, the estate is a conditional one. But in the one, though the event happen upon which the estate may be defeated it requires some act to be done, such as making an entry, in order to effect this. In the other, the happening of the event is, in itself, the limit beyond which the estate no longer exists, but is determined by the operation of the law, without requiring any act to be done by any one. In case of a condition at common law, the grantor or his heirs alone can defeat the estate by entry for condition broken. In a conditional limitation, the estate determines, ipso facto, upon the happening of the event, and goes over at once to the grantor by reverter, or to the person to whom it is limited upon the happening of such contingency.” Washburn on Real Property (6th Ed.), section 970.
*230To the same effect see 4 Kent Com., pp. 126, 127.
The distinction between a condition and a conditional limitation is nowhere more clearly stated than by Bigelow, J., in Brattle Square Church v. Grant, 3 Gray (Mass.), 142, 63 Am. Dec., 725, which language is quoted and adopted in Fowlkes v. Wagoner (Tenn. Ch. App.), 46 S. W., 586, as follows:
“By the common law, a condition annexed to real estate could he reserved only to the grantor or devisor" and his heirs. Upon a breach of the condition, the estate of the grantee or devisee was not ipso facto terminated, but the law permitted it to continue beyond the time when the contingency upon which it was given or granted happened, and until an entry or claim was made by the grantor or his heirs, or the heirs of the devisor, who alone had the right to .take advantage of a breach. 2 Bl. Comm., 156; 4 Kent, Comm. (6th Ed.), 122, 127. Hence arose the distinction between a condition and a conditional limitation. A condition, followed by a limitation over to a third person in case the condition be not -fulfilled, or there be a breach of it, is termed a ‘conditional limitation.’ A condition determines an estate after breach, upon entry or claim by the grantor or his heirs, or the heirs of the devisor. A limitation marks the period which determines the estate, without any act on the part-of him who has the next expectant interest. Upon the happening of the prescribed contingency, the estate first limited comes at once to an end, and the subsequent estate arises. If it were otherwise, it would be in the power of the heir to defeat the limitation over, by neglecting or refusing to enter for breach of the condition. This distinction was originally introduced in the case of *231wills, to get rid of the embarrassment arising from the rule of the ancient common law, that an estate could not be limited to a stranger upon an event which went to abridge or destroy an estate previously limited. A conditional limitation is therefore of a mixed nature, partaking both of a condition and of a limitation; of a condition, because it defeats the estate previously limited; and of a limitation, because, upon the happening of the econtingency, the estate passes to the person having the next expectant interest, without entry or claim.”
Bearing in mind the language used in the deed before us, and testing it by the rules above laid down, it seems obvious that the intention of the grantor was to create a limitation over in favor of a third person, upon the cessation of the use of this property for church purposes. In other words, a conditional limitation was attempted. Although it may be assumed for the purposes of this case that the limitation, over in favor of “the original tract of land” should be read as in favor of the owner of the original tract of land, and although we assume that this is a sufficient description of a grantee under a deed, nevertheless we think the limitation over must fail since it is in plain violation of the rule against per-petuities. That rule is thus stated:
“. . . Executory limitations, whether of real or personal estate, in order to be valid, must vest in interest, if at all, within a life or lives in being and twenty-one years and a fraction thereafter, for the term of gestation in cases of posthumous birth.” Eager v. McCoy, 143 Tenn., 693, 228 S. W., 709, and cases cited,
Referring again to Fowlkes v. Wagoner, supra, it is there said:
*232“One material difference, therefore, between an estate in fee on condition and on a conditional limitation is, briefly, this: That the former leaves in the grantor a vested right, which, by its very nature, is reserved to him, as a present existing interest, transmissible to his heirs; while the latter passes the whole interest of the grantor at once, and creates an estate to arise and vest in a third person, upon a contingency, at a future and uncertain period of time. A grant of a fee on condition only creates an estate of a base or determinable nature in the grantee, leaving the right or possibility of reverter vested in the grantor. Such an interest or right in the grantor, as it does not arise and take effect upon a future uncertain or remote contingency, is not liable to the objection of violating the rule against per-petuities in the same degree with other conditional' and contingent interests in real estate of an executory charter. The possibility of reverter, being a vested interest in real property, is capable at all times of being released to the person holding the estate on condition, or his grantee, and, if so released, vests an absolute and indefeasible title thereto. . The grant or devise of a fee on condition does not, therefore, fetter and tie up estates, so as to prevent their alienation, and thus contravene the policy of the law which aims to secure the free and unembarrassed disposition of real property. It is otherwise with gifts or grants of estates in fee, with limitations over upon a condition or event of an uncertain or indeterminate nature. The limitation over being execu-tory, and depending upon a condition, or an event which may never happen, passes no vested interest or estate. It is impossible to ascertain in whom the ultimate right to *233the estate may vest, or whether it will ever vest at all, and therefore no conveyance or mode of alienation can pass an absolute title, because it is wholly uncertain iu whom the estate will vest on the happening of the event or breach of the condition upon which the ulterior gift is to take effect.”
The foregoing language is also taken from the opinion of the Massachusetts court in Brattle Square Church v. Grant, supra.
The limitation over in the deed before us rested upon a condition or event altogether uncertain and indeterminate. It was possible that the property conveyed might have been used for church purposes indefinitely; that the limitation over might never have vested. Therefore, such conditional limitation must be held void for remoteness.
Where there is an invalid limitation over, the general rule is that the preceding estate stands unaffected by the void limitation. First Universalist Society v. Boland, 155 Mass., 171, 29 N. E., 524, 15 L. R. A., 231; Lewis on Perpetuities, 657.
The preceding estate here; that is, the grant to the trustees, though not so designed, becomes a determinable fee, laying aside, as we must do, the limitation over. This preceding estate was to endure only so long as the land was used for church purposes. When the use of the land for church purposes was abandoned, the limitation over being void, there was a reversion to the grantor.
First Universalist Society v. Boland, supra, is directly in point. There was a grant there to a religious society so long as the land should be devoted by said society to *234the uses, interests, and support of specified doctrines of the Christian religion, and a limitation over was attempted, upon the diversion by such society of said land to other interests, uses or purposes. The limitation over was held void for remoteness, and the preceding estate having determined, it was held that there was a reversion to the original grantor. It is further held that the possibility of reverter in such a grantor, after such a conveyance, was not .invalid for remoteness.
Prom a consideration of these authorities we reach the conclusion that the trial judge was in error in dismissing plaintiff’s suit. The estate in the trustees of the church was determinable, and the limitation over in favor of the owner of the original tract being void for remoteness, the land reverted to the plaintiff Ales Yarbrough. Tie could not have conveyed his'possibility of reverter to Mack Yarbrough, because such an interest is not assignable. Board of Education of Humphries County v. Baker, 124 Tenn., 39, 134 S. W., 863. After the reversion, Alex Yarbrough conveyed to his coplaintiffs Huggins and wife. Huggins and wife are, therefore, entitled to recover the land.
The judgment below will be reversed, and a judgment will be entered here in favor of Huggins and wife. Alex Yarbrough has no interest, and is only a nominal party to the suit. The defendant Mack Yarbrough will pay the costs.
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01-03-2023
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10-17-2022
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https://www.courtlistener.com/api/rest/v3/opinions/1522085/
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430 B.R. 99 (2010)
In re YOUNG BROADCASTING INC., et al., Debtors.
No. 09-10645 (AJG).
United States Bankruptcy Court, S.D. New York.
April 19, 2010.
*105 Sonnenschein Nath & Rosenthal LLP By Peter D. Wolfson, Esq., Jo Christine Reed, Esq., New York, NY, for Debtors.
Paul, Weiss, Rifkind, Wharton & Garrison LLP By Andrew J. Ehrlich, Esq. Andrew N. Rosenberg, Esq., New York, NY, for the Official Committee of Unsecured Creditors.
Milbank, Tweed, Hadley & McCloy LLP By Linda Dakin-Grimm, Esq., Daniel M. Perry, Esq., Gregory A. Bray, Esq., Mark C. Scarsi, Esq., New York, NY, for Wachovia Bank, N.A., Agent for Senior Secured Lenders.
CONFIRMATION OPINION
ARTHUR J. GONZALEZ, Chief Bankruptcy Judge.
Before this Court are two proposed plans of reorganization. The Official Committee of Unsecured Creditors (the "Committee") of Young Broadcasting, Inc. ("YBI" or the "Debtor") and its affiliated debtors and debtors in possession in the above-captioned cases (collectively, the "Debtors") move before this Court seeking confirmation of the Committee's Amended *106 Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated November 4, 2009 (the "Committee Plan") pursuant to section 1129 of title 11 of the United States Code (the "Bankruptcy Code"). In the event that the Court denies confirmation of the Committee Plan, the Debtors[1] move for confirmation of the joint plan of Young Broadcasting, Inc. and its subsidiaries under chapter 11 of the Bankruptcy Code (as the same may be subsequently amended or supplemented and including all exhibits and supplements thereto, the "Debtors Plan"). For the reasons set forth below, the Court denies confirmation of the Committee Plan and grants confirmation of the Debtors Plan.
Background
On February 13, 2009 (the "Commencement Date"), the Debtors filed before this Court a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On September 16, 2009, Young Broadcasting Capital Corp. and Young Communications, Inc., two of the original Debtors' affiliates, each filed before this Court a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Pursuant to the Orders dated February 17, 2009 and October 29, 2009, these cases were jointly administered.[2]
The Debtors' Business
YBI, a Delaware corporation that is currently headquartered in New York, was founded in 1986 by Vincent Young ("Young") and his father, Adam Young. Thereafter, affiliated entities were formed and acquired. The Debtors own and operate ten television stations in geographically diverse markets[3] and a national television sales representation firm, Adam Young, Inc.[4]
*107 YBI is the borrower under a Fourth Amended and Restated Credit Agreement, dated as of May 3, 2005 (as subsequently amended and supplemented, and together with related loan and security documents, the "Credit Agreement"), among YBI, the Lenders (the "Lenders") from time to time party thereto, Wachovia (as administrative agent, collateral agent and issuing bank), Lehman Commercial Paper Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated (as syndication agents), BNP Paribas (as documentation agent), and Wachovia Capital Markets, LLC, Lehman Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (as joint lead arrangers and joint lead book-runners). The Credit Agreement originally provided for a $300 million term loan that matures in November 2012. Subsequent amendments increased the term loan to $350 million.[5] The YBI's obligations under the Credit Agreement are secured by a first priority security interest in and liens upon substantially all of the Debtors' assets. As of the Commencement Date, the allowed amount of secured obligations owed to the Lenders was $338,451,923.85.[6]
On March 1, 2001, YBI completed a private offering of $500 million of 10% senior subordinated notes due 2001. On December 23, 2003, YBI`completed another private offering of $140 million of 8¾ % senior subordinated notes due 2014. These two series of notes are collectively referred to as the "Senior Subordinated Notes" and have an aggregate face amount of $640 million. The Senior Subordinated Notes are general unsecured obligations of the YBI, subordinated in right of payment to all senior debt, including all of the YBI's indebtedness under the Credit Agreement. The Senior Subordinated Notes are guaranteed by each of the Debtors. As of December 31, 2008, the principal amount outstanding under the Senior Subordinated Notes was approximately $484.3 million.
Events Leading Up to the Debtors' Chapter 11 Filing
During the years leading up to the Commencement Date, the Debtors were burdened with debt and suffered a decline in revenue as a result of the general decrease in advertising budgets in the current recession. The Debtors also encountered increased competition from other television stations as well as alternate advertising vehicles such as newspapers, radio stations, magazines, cable networks, and internet portals. In particular, the Debtors' largest station, KRON-TV ("KRON"), suffered severe cash flow losses. The Debtors explored various options prior to filing Chapter 11, including cost savings initiatives, attempts to sell KRON, and discussions of out-of-court restructuring with the holders of the Senior Subordinated Notes (the "Noteholders"). These efforts were unsuccessful at solving the Debtors' dire financial problems. In February 2009, the Debtors' board of directors appointed David Pauker of Goldin Associates, LLC as the Debtors' Chief Restructuring Officer ("CRO") to effect a recapitalization and deleveraging through a Chapter 11 plan or a section 363 sale.
*108 The Auction, the Credit Bid, and the Competing Plans
When the cases were first filed, the Debtors pursued a dual track process, exploring a sale of substantially all of their assets while attempting to reach a consensual "stand alone" plan with their major constituents. At the time, the Debtors believed that a section 363 sale would best suit the Debtors' situation and maximize value for the estate. In April 2009, this Court approved the Debtors' bidding procedures for the sale of substantially all of their assets, and after an extensive marketing process, the Debtors received three qualified bids, all seeking to purchase substantially all of the Debtors' assets, and an expression of interest from a potential purchaser who had not participated in the sale process or conducted due diligence.[7] The Lenders were selected as the stalking horse bidder and offered to credit bid $200 million of their secured debt towards the purchase of the Debtors' assets and to cause the purchasing entity to assume all allowed administrative costs and cure claims, resulting in a bid value of approximately $219.9 million (the "Credit Bid").[8] After consultation with the Committee and the Lenders, the Debtors deemed the Credit Bid as the prevailing bid and the auction was canceled.[9]
By this time, however, the Debtors' business had improved and had produced sufficient cash flow to operate until at least the end of 2009. Consequently, this Court found that the emergency conditions required to authorize a sale of substantially all of the Debtors' assets outside the plan process were not satisfied and ruled that it would only consider approval of a sale as part of a plan. The Court then entered an order authorizing the Debtors to execute the Asset Purchase Agreement (the "APA") with the Lenders, subject to a further order confirming a plan of reorganization. Meanwhile, the Debtors began negotiating with the Committee to develop an alternative plan of reorganization.
Further, after the Court denied the Debtors' request to approve the sale, the Debtors moved to extend exclusivity, at which time the Committee objected and sought a lifting of exclusivity to file the Committee Plan.[10] The Debtors, with the consent of the Lenders, agreed to a lifting of exclusivity to permit the Committee to propose a plan, provided that the Committee Plan remained on the same timeline towards confirmation as the Debtors Plan. On August 12, 2009, this Court entered an order extending exclusivity with a carve-out to allow the Committee to file a competing *109 plan. The Debtors filed the joint plan of the Debtor and its debtor subsidiaries on September 24, 2009, an amended joint plan on November 4, 2009, and their Disclosure Statement for that plan on October 9, 2009. On October 9, 2009, the Committee filed its Disclosure Statement Supplement. On November 5, 2009, the Court approved both the Committee's Disclosure Statement Supplement for the Committee Plan and the Debtors' Disclosure Statement for the Debtors Plan. On November 6, 2009, the Court entered an order approving solicitation and voting procedures (the "Solicitation Order"). According to the Solicitation Order, the Debtors would solicit votes for the Debtors Plan and the Committee Plan on a single ballot. Creditors entitled to vote would receive a single ballot. On the ballot, creditors could vote for or against either plan and, if voting in favor of both plans, indicate a preference for one plan over the other. In November 2009, pursuant to the Solicitation Order, the Solicitation Package was mailed to creditors.
In December 2009, after a presentation of both plans to the Debtors' board of directors, it decided, exercising its fiduciary duties and business judgment, that it preferred the Committee Plan over the Debtors Plan. As a result, it seeks confirmation of the Debtors Plan only if the Court does not confirm the Committee Plan.
The Debtors Plan
The Debtors Plan, (1) fully compensates allowed administrative expenses, allowed priority claims, and secured claims other than the Lenders' claims; (2) creates a new company, New Young Broadcasting Holding Co., Inc. ("NewCo"), which would receive all of the common stock of the Reorganized Debtors (the "Company"), and in which the Lenders would receive all of the equity interests in complete satisfaction of their secured claims totaling $338 million as of the Commencement Date; (3) provides general unsecured creditors with their pro rata share of $1 million in the aggregate; (4) provides equity warrants in NewCo to the Noteholders if they voted to accept the Debtors Plan; and (5) provides no distribution to holders of equity interests in the Debtors. The Debtors Plan completely deleverages the Debtors as both the Senior Subordinated Notes and the Lenders' claim under the Credit Agreement are discharged and extinguished.
The Committee Plan
The treatment of allowed administrative expenses, allowed priority claims, secured claims, and general unsecured claims are the same under the Committee Plan as they are under the Debtors Plan. Likewise, holders of equity interests will also receive no distribution.[11]
However, under the Committee Plan, all $338 million of the debt owed to the Lenders under the Credit Agreement as of the Commencement Date, including accrued post petition interest and principal amortization payments, will be reinstated.[12] If the Credit Agreement is reinstated under the Committee Plan, at the time of the loan's maturity in November 2012, assuming *110 timely payment of interest and quarterly principal amortization payments, a principal balance of $325,000,000 (the "Debt") will become due. The Committee Plan further provides the Noteholders with a pro rata share of 10% of the Company's common stock and the opportunity to participate in a rights offering under which the Noteholders can purchase a pro rata share of $45.6 million of preferred stock plus 80% of the common stock in the Company. A Plan Support Agreement filed by certain backstop parties (the "Backstop Parties") in support of the Committee Plan provides for a cash investment in the amount of $45.6 million, which will pay all monetary defaults under the Credit Agreement, fund payments under the Committee Plan, and meet the working capital and general corporate needs of the Debtors. In addition, Young will receive all of the Class B shares of common stock of the Company, which converts to 10% of the Class A common stock upon full repayment of the Debt in November 2012.
Balloting Results
On January 18, 2010, the Declaration of Jane Sullivan Regarding Voting on, and Tabulation of, Ballots Accepting and Rejecting (I) The Debtors' Joint Plan Under Chapter 11 of the Bankruptcy Code and (II) the Official Committee of Unsecured Creditors' Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code ("Ballot Declaration"), containing balloting results, was filed. Below are the balloting results for both plans:
---------------------------------------------------------------------------------------------------
Amount Accepting Amount Rejecting Number Accepting Number Rejecting
Vote on (% of Amount (% of Amount (% of Amount (% of Amount
Debtors Plan Voted) Voted) Voted) Voted)
---------------------------------------------------------------------------------------------------
Lender Claims $295,448,513.35 $14,871,077.94 57 (81.43%) 13 (18.57%)
(Class B/Class 2) (95.21%) (4.79%)
---------------------------------------------------------------------------------------------------
Noteholder Claims $197,281,000.00 $141,163,000.00 26 (27.96%) 67 (72.04%)
(Class D/Class 6) (58.29%) (41.71%)
---------------------------------------------------------------------------------------------------
General Unsecured $7,499,225.45 $957,656.85 33 (43.42%) 43 (56.58%)
Claims (88.68%) (11.32%)
(Class E/Class 7)
===================================================================================================
Amount Accepting Amount Rejecting Number Accepting Number Rejecting
Vote on (% of Amount (% of Amount (% of Amount (% of Amount
Committee Plan Voted) Voted) Voted) Voted)
---------------------------------------------------------------------------------------------------
Lender Claims N/A N/A N/A N/A
(Class B/Class 2) (deemed accept) (deemed accept) (deemed accept) (deemed accept)
---------------------------------------------------------------------------------------------------
Noteholder Claims $338,291,000.00 $153,000.00 90 (96.77%) 3 (3.23%)
(Class D/Class 6) (99.95%) (0.05%)
---------------------------------------------------------------------------------------------------
General Unsecured $2,663,436.08 $5,793,446.22 52 (68.42%) 24 (31.58%)
Claims (31.49%) (68.51%)
(Class E/Class 7)
===================================================================================================
Amount Preferring Amount Preferring Number Preferring Number Preferring
Preference Debtors Plan Committee Plan Debtors Plan Committee Plan
Election (% of Amount (% of Amount (% of Amount (% of Amount
Voted) Voted) Voted) Voted)
---------------------------------------------------------------------------------------------------
Lender Claims $222,808,122.34 $61,908,799.41 22 (39.29%) 34 (60.71%)
(Class B/Class 2) (78.26%) (21.74%)
---------------------------------------------------------------------------------------------------
Noteholder Claims $58,123,000.00 $126,551,000.00 8 (38.10%) 13 (61.90%)
(Class D/Class 6)[13] (31.47%) (68.53%)
*111
---------------------------------------------------------------------------------------------------
General Unsecured $918,422.90 $72,018.52 6 (60.00%) 4 (40.00%)
Claims (92.73%) (7.27%)
(Class E/Class 7)
---------------------------------------------------------------------------------------------------
See JX-56, Ex. A.
On December 30, 2009, the Lenders filed a motion in limine (the "Daubert Motion") seeking an order from the Court to exclude (1) the expert report and testimony of Tom Kuhn ("Kuhn") of Allen & Company ("A & C") on the issues of the Company's ability to sell or refinance in November 2012, and (2) Kuhn's expert report and testimony on the Debtors' valuation. On January 11, 2010, the Committee filed an opposition to the Daubert Motion.
On January 19, 2010, a hearing (the "Confirmation Hearing") commenced on the issues of whether the Debtors Plan and the Committee Plan can be confirmed pursuant to Bankruptcy Rule 3017 and 3018 and sections 1126, 1128, and 1129 of the Bankruptcy Code.[14] The Confirmation Hearing continued on January 20, 2010, January 21, 2010, and concluded on January 25, 2010. As instructed by the Court, the parties filed post-hearing briefs, proposed findings of fact and conclusions of law, and post-trial reply briefs. The record of these proceedings was closed as of February 16, 2010.[15]
Discussion
Reinstatement of the Credit Agreement
The Lenders argue that the Committee Plan cannot be confirmed because it is premised upon an impermissible reinstatement of the Debt. In that regard, the Lenders contend that the Committee's proposed allocation of voting rights would trigger an immediate change of control *112 default under the Credit Agreement. The Lenders further argue that because that default is not being cured, the loan cannot be reinstated pursuant to section 1124(2).
The Committee contends that its proposed plan, as structured, complies with the Credit Agreement in all respects, including the provision that no event triggering a change of control occur. Alternatively, the Committee argues that if the Court determines that the primary structure for selecting directors for the board as set forth in the Committee Plan, contravenes the Credit Agreement, the secondary proposed structure, set forth in a footnote in the Supplemental Disclosure Statement, conforms to the Lenders' interpretation of the terms of the Credit Agreement. The Committee maintains that the alternative board structure is a technical fix and would not require re-solicitation under Bankruptcy Code section 1125 or Bankruptcy Rule 3019 because it does not alter any economic interest as it is neither material nor adverse to the only class (i.e., Noteholders) that had previously accepted Plan.
With respect to the alternate proposed board structure, the Lenders argue that the description of that proposal in the footnote of the Supplemental Disclosure Statement provides insufficient information to determine whether Mr. Young would retain the requisite percentage of Voting Stock or otherwise conform to the requirements of the Credit Agreement. The Lenders further argue that, to the extent the Committee seeks to further supplement its description of the structure, such modification would constitute a material change in the Committee Plan concerning the Backstop Parties' control of the board. Thus, it would require re-solicitation of the Committee Plan.
Of the provisions describing circumstances of default under the Credit Agreement, several describe the default that results from a transaction that precipitates a change of control. To avoid triggering the change of control provisions, section 6.01(j) of the Credit Agreement requires that Mr. Young, his immediate family members and certain persons controlled by Young (the "Affiliates" and together with Young and his immediate family members, the "Young group"), as well as members of management, have more than 40% of the Voting Stock by number of votes. Section 6.01(k)(i) of the Credit Agreement requires that if any person or group owns more than 30% of the total outstanding Voting Stock of the Debtors, then the Young group must own more than 30% or alternatively, the Young group must have the right or ability by voting power, contract, or otherwise to elect or designate for election a majority of the Debtors' board of directors. Section 6.01(k)(ii) requires that during any two-year period, those individuals who were directors at the beginning of such period constitute the majority of directors at the end of such period. To meet the "continuing" director requirement, it is sufficient if such director was elected (or was a shareholder-nominated director who was approved) by the majority of the directors or any earlier elected "continuing" director.
In the Credit Agreement, Voting Stock of a Person[16] is defined as the
Capital Stock[17] of such Person of the class or classes pursuant to which the *113 holders thereof have the general voting power under ordinary circumstances to elect the board of directors, managers or trustee of such Person (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).
Credit Agreement, § 1.01.
Under the Committee Plan, the board of directors is divided into two classes (A and B), and the Voting Stock to be issued is divided into two classes. There are a total of 5 million shares of New Common Stock in Class A and 500,000 shares of New Common Stock in Class B. The Class A stock represents 90% of the equity interests and the Class B stock represents 10% of the equity interests. Class A and Class B stockholders can vote for directors in both Class A and Class B in certain amounts. The Class A shareholders have a combined total of 105,000,000 director voteswith each of the 5 million shares entitled to 20 votes for Class A directors (100,000,000 votes) and 1 vote (5,000,000 votes) for class B directors. There are six Class A directors. There is only one Class B shareholderMr. Young, who can cast 500,500,000 director votes, as each of his 500,000 shares entitles him to 1000 votes (500,000,000 votes) for the Class B director and 1 vote (500,000 votes) for Class A directors.
The combined total of director votes for both Class A and B is 605,500,000 and Mr. Young can cast 500,500,000 of those votes. The Committee argues that this calculation gives Mr. Young over 82% of the vote, substantially in excess of the 40% required by the Credit Agreement. The Committee contends that the allocation of votes to Mr. Young technically complies with the requirement that he have at least 40% of the votes "by number of votes."
The Lenders argue that the change of control provisions in the Credit Agreement are intended to ensure that Mr. Young[18] maintain control of the Company. The Lenders contend that the Committee's manipulation of the votes allocated to the Voting Stock is an effort to circumvent the protections negotiated by the Lenders. The Lenders note that the Committee Plan clearly indicates that Mr. Young only has a 10% equity interest in the Company. Through the issuance of the Class B stock, owned exclusively by Mr. Young, he is allocated more than 40% of the "votes" for the directors. However, Mr. Young only has a nominal number of votes in connection with the election of the Class A directors and the overwhelming number of votes for the one Class B director. As such, Mr. Young cannot elect the 40% of the directors. Instead, he can only control the election of one of the seven directors, the one directorhimselfelected as the Class B director.
The Lenders argue that the interpretation advanced by the Committee would eliminate the protections negotiated by the Lenders to ensure that Mr. Young exert control over the board of directors. The Lenders contend that an entity acquiring control of the Company could always manipulate the voting rights of shareholders *114 to provide that certain shareholders had the requisite votes while actually exerting no control, thereby eliminating the protection intended by a change of control provision.
The Lenders also maintain that the allocation does not even technically comply with the requirements set forth in the Credit Agreement to avoid triggering a change of control because the Credit Agreement specifically defines Voting Stock as "Capital Stock . . . of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect the board of directors." (emphasis added). The Lenders argue that, pursuant to the Committee Plan, only Class A stock has general voting power that may be exercised under ordinary circumstances to elect the board of directors. The Lenders maintain that the capital stock granted to Mr. Young only grants him the right to elect himself as a member of the board of directors. Therefore, the Lenders contend that only the holders of Class A stock have the power to elect and control the board of directors. The Lenders note that "ordinary voting power" has been interpreted as the power to influence the composition of a board of directors. See JPMorgan Chase Bank, N.A. v. Charter Commc'ns Operating, LLC (In re Charter Commc'ns), 419 B.R. 221, 238, 248 (Bankr. S.D.N.Y.2009) (noting "that the ordinary voting power for the management of [a company] is exercised by means of shareholder votes for directors who in turn govern the management").
Each side cites to Charter to support their position. The Committee contends that it is sufficient if a plan allows for a "formalistic retention of control" notwithstanding a shift in the economic ownership. Charter, 419 B.R. at 248. The Lenders argue that, apart from the shift in economic ownership, the voting structure set forth in the Committee Plan does not allow for the Young group and members of management to retain the 40% control required by the Credit Agreement. The Lenders note that the structure set forth in the Charter plan complied with the specific terms of the credit agreement at issue there, which required that the relevant group retain the ability to control 35% of the board of directors. In Charter, because the structure set forth in the plan allowed the relevant group to elect 4 of the 11 directors, that group retained the power to elect over 36% of the directors and the condition requiring at least 35% control was met. Id. In the Committee Plan, by contrast, despite allocating all of the votes for the Class B shares to Mr. Young, he can only control the election of one director in Class B out of a total of seven directors in the combined Class A and B board of directors. Thus, for the combined board of directors, Mr. Young has less than 15% control while the terms of the Credit Agreement require that he, his family, the Affiliates, and the members of management retain 40%.
The Lenders also argue that the Committee Plan violates section 6.01(k)(i) of the Credit Agreement by ceding control of over 30% of the Voting Stock of the Company to a group other than the Young group. The Lenders note that, under the Committee Plan, the Backstop Parties will own more than 30% of the Voting Stock. Capital Research Group is an investment advisor that administers certain funds and together with those funds it constitutes a "group" under Section 13(d) of the Securities and Exchange Act of 1934, which is the relevant definition for group under the Credit Agreement. The Lenders contend that Capital Research funds will control approximately 80% of the Voting Stock. The Lenders argue that the Committee Plan will also replace the board of directors *115 in violation of section 6.01(k)(ii) of the Credit Agreement as the Backstop Parties and the Committee would control the election of the board of directors.
In disputing that the Young group would cede control of the board of directors to another group, the Committee again premises its argument on its interpretation of how the votes are calculated by number. Therefore, the Committee contends that because Mr. Young will have over 80% of the Voting Stock by number of votes, no other group can have more than 30%. With respect to the Lenders' argument concerning the replacement of the existing directors, the Committee notes that the terms of the Credit Agreement recognize that directors elected or approved by the current board of directors qualify towards the count of continuing directors. The Committee maintains that the requirement of the Credit Agreement is met because, although the Backstop Parties and the Committee would designate most of the directors, the board of directors has the discretion to nominate the directors.
Pursuant to section 1124(2) of the Bankruptcy Code, even if a holder of a claim or interest is entitled to accelerated payments of its claim after the occurrence of a default, a plan of reorganization can provide (with certain exceptions) that the default be cured, 11 U.S.C. § 1124(2)(A), and for reinstatement of the pre-default maturity, 11 U.S.C. § 1124(2)(B). This is all subject to the plan not altering any legal, equitable, or contractual rights to which the claim or interest is entitled. 11 U.S.C. § 1124(2)(E).[19]
Therefore, if the Debtors seek to reinstate the maturity of the loan, the Committee Plan must cure any defaults. The Lenders argue that the new corporate governance provisions under the Committee Plan will result in a change of control that constitutes a default under the terms of the Credit Agreement that has not been cured, precluding the reinstatement of its loan.
Thus, it is necessary to analyze the change of control provisions of the *116 Credit Agreement. Section 8.06 of the Credit Agreement provides that it is to be governed by, and construed, in accordance with the laws of the State of New York. Pursuant to New York law, in construing a contract, the plain meaning of the language controls. City of Hartford v. Chase, 942 F.2d 130, 134-35 (2d Cir.1991) (quoting Berger v. Heckler, 771 F.2d 1556, 1568 (2d Cir.1985)). When interpreting the contract, the court's role is to "give effect to the intent of the parties as revealed by the language they chose to use." Seiden Assocs. Inc. v. ANC Holdings, Inc., 959 F.2d at 425, 428 (2d Cir.1992) (citing Slatt v. Slatt, 64 N.Y.2d 966, 488 N.Y.S.2d 645, 477 N.E.2d 1099 (1985)). The terms employed are given their ordinarily-attributed meanings unless that procedure would lead to an absurd result. Mastrovincenzo v. City of New York, 435 F.3d 78, 104 (2d Cir. 2006) (citations omitted). Thus, "deference is to be paid to the plain meaning of the language . . . and the normal usage of the terms selected." City of Hartford, 942 F.2d at 134 (omission in original) (quoting Berger, 771 F.2d at 1568). The Court's objective is to "give effect to the expressed intentions of the parties." Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir.1989). In addition, there is a presumption that every clause was intended to have an effect. City of Hartford, 942 F.2d at 135.
Where the language has a "definite and precise meaning," which cannot be misconstrued, and where a reasonable person could only draw one conclusion as to its meaning, the contract is unambiguous. Hunt, 889 F.2d at 1277. Under New York law, whether the language employed in a contract is ambiguous is a question of law. Seiden Assocs., 959 F.2d at 429. The court determines whether a contract is ambiguous by reference to the contract alone. See Goodheart Clothing Co. v. Laura Goodman Enters., 962 F.2d 268, 272 (2d Cir.1992). If it is determined that the contract is unambiguous, its meaning is determined from the contract without resorting to any type of extrinsic evidence. Goldman v. Comm'r of Internal Revenue, 39 F.3d 402, 406 (2d Cir.1994) (citing Goodheart, 962 F.2d at 268); see also Hunt, 889 F.2d at 1277 (citations omitted). "Evidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing." W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162, 565 N.Y.S.2d 440, 443, 566 N.E.2d 639, 642 (1990). Extrinsic evidence is not admissible to create an ambiguity in a written agreement that is complete and clear and unambiguous on its face. W.W.W. Assocs., 77 N.Y.2d at 163, 565 N.Y.S.2d at 443, 566 N.E.2d at 642.
In determining whether a contract is ambiguous, a court examines the entire contract and the circumstances surrounding its implementation, including the relationship of the parties. Kass v. Kass, 91 N.Y.2d 554, 566, 696 N.E.2d 174, 180-81(1998). Moreover, words are not viewed in isolation but in context. Id. Thus, the terms of the contract are considered in the context of the obligation as a whole and the intention of the parties as shown by the words selected. Id. A court must discern "a sensible meaning" for the words selected. Id. (quoting Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519, 524, 159 N.E. 418 (1927)).
Therefore, although it has been observed that where a contract is unambiguous, a contract is formed, regardless of whether the parties had any "unexpressed intention," Hunt, 889 F.2d at 1277, nevertheless, "where the document makes clear the parties' over-all intention, courts examining isolated provisions should then choose that construction which will carry *117 out the plain purpose and object of the [agreement]." Kass, 91 N.Y.2d at 567, 673 N.Y.S.2d 350, 696 N.E.2d at 181 (alteration in original) (citations and internal quotations omitted).
Where the language in the contract is plain, it does "not become ambiguous merely because the parties urge different interpretations." Hunt, 889 F.2d at 1277. If the parties do not agree on the interpretation of contract clauses, the court must decide if the contract clauses are ambiguous when analyzed in "the context of the entire integrated agreement and . . . cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business." JA Apparel Corp. v. Abboud, 568 F.3d 390, 396-97 (2d Cir.2009) (citations and internal quotations omitted).
The Credit Agreement defines Voting Stock as "general voting power under ordinary circumstances to elect the board of directors. . . ." As noted by the Charter court, "ordinary voting power for the management of [a company] is exercised by means of shareholder votes for directors who in turn govern the management." Charter, 419 B.R. at 238. As such, general voting power must involve the power to influence the composition of the board of directors. Thus, if section 6.01(j) of the Credit Agreement requires that the Young group, together with members of management have 40% of the Voting Stock, the plain meaning of the provision requires that this group have the power to influence 40% of the composition of the entire board. Under the proposed plan, Mr. Young only retains the power to control less than 15% of the entire board.
The Committee relies on Charter to argue that the voting can be manipulated to technically conform to the requirements of the agreement. However, in Charter, the credit agreement at issue required that the incumbent group have 35% of the voting power for the management of the relevant company in that case. In accordance with that contractual requirement, even after the "manipulation" of the voting stock, the group was entitled to appoint 4 of the 11 directors of its board and therefore retained more than 35% of the voting power for the management. Thus, the relevant Charter group retained the minimum amount of control to comply with the credit agreement. As previously noted, the Young group only retains the power to control less than 15% of the entire board.
Thus, the Charter case is distinguishable because that court was addressing the separation of economic interests from voting power. Although the relevant control person in Charter only retained 10% of the economic interest, he continued to exert the requisite 35% general voting power. In the instant matter, however, the proposed structure will utilize two classes to dilute the general voting power of the current control group.
The Committee asserts that the only general voting power that the Voting Stock must have is the "general voting power to elect the board of directors" and that the Young group has power to elect members of the board of directors. The Committee contends that the structure complies with the 40% requirement because the Young group has 40% of the votes to elect directors even though those votes only allow them to elect one director in class B. The Committee further asserts that there is no control requirement because where the election of a majority of the board of directors is required elsewhere in the Credit Agreement, the terms of the agreement expressly provide for it. The Committee also argues that the Charter case noted that a credit agreement should be construed narrowly to enable a borrower to *118 engage in permissible corporate engineering.
The Lenders, however, are not arguing that the Young group should be empowered to control a majority of the board of directors. Rather, the Lenders maintain that, to comply with the Credit Agreement, the Young group and members of management have to control the election for 40% of the board of directors. Further, the Lenders argue that such an interpretation would accord with the purpose of the change of control provisions. According to the Lenders, those provisions are intended to protect the Lenders from a situation in which an outside party takes over the Company and holds the ability to dividend-out value from the Company and otherwise squeeze out value for the short term gain, leaving the Lenders with security worth less than the outstanding debt. The Lenders argue that the Committee Plan will allow such conduct because it does not bar the issuance of dividends. According to the Lenders, the Backstop Parties are financial institutions with a short-term investment plan.
In interpreting the Credit Agreement, all of the provisions must be read as part of an integrated agreement and each clause must be intended to have some effect. In analyzing all of the change of control provisions, the Court finds that their purpose is to preclude another group from gaining more control than the Young group and current management. Section 6.01(j) requires that 40% of the voting power be retained by the Young group and management. Section 6.01(k)(i) of the Credit Agreement provides that if another group acquires more than 30% of the Voting Stock, then the Young group is required to own at least that percentage. In a public company, a block acquiring 30% of the voting power could influence management. Reading sections 6.01(j) and 6.01(k)(i) together, it is clear that the intent of the change of control provisions was to insure that no one person or group would have more control than the Young group and management. Thus, by allowing Mr. Young to control a large number of votes that have no power to influence the composition of the entire board of directors, the proposed structure would not accord with the purpose of precluding another group from gaining more control than the Young group. The purpose of section 6.01(j) of the Credit Agreement is to provide the Young group and members of management with power to influence the composition of the board of directors and the voting structure proposed by the Committee Plan would not accord with that purpose. By creating the different classes of directors and only allowing Mr. Young to elect one director of the total of 7-directors board, the Committee's interpretation undermines the intent of those two sections.
As the proposed corporate governance structure precludes compliance with section 6.01 of the Credit Agreement, which requires retention of 40% of the Voting Power by the Young group and management, the loan cannot be reinstated under that structure.[20] The Committee, however, has also proposed an alternate structure that it maintains complies with the Lenders' interpretation of the change of control provisions.
The alternate board of directors structure proposed by the Committee provides for two classes of new common stock (A *119 and B) but only one class of directors. The Class A New Common Stock still represents 90% of the equity of the Company and the Class B New Common Stock represents 10% of the equity of the Company. Mr. Young will hold all of the class B common stock. The new class A and Class B common stock would vote together as a single class in all matters (other than certain class specific matters), including the election of directors. The class A shares would have 60% (by number of votes) and the class B shares would have 40% (by number of votes).
There would be seven directors on the board of directors and Mr. Young would be one of the directors as the Company's Chief Executive Officer. All of the directors would be nominated by the existing board of directors. Five of the new directors on the board would be designated by the Backstop Parties holding a majority of the equity commitment, three of which would be independent. An additional independent board member would be approved by the Committee. The board will be staggered with three classes of directors. The first of which would include the CEO. Upon the Class B conversion described in the Plan or the expiration of the two year employment term set forth in Mr. Young's employment Agreement, whichever occurs later, at the director's option, Mr. Young would be required to resign. Thereafter, the first class would have a one-year term. The second class would include the Committee board nominee and have a two-year term. The third class would include the remaining board members and have a three year term. The Amended and Restate By-laws or Amended and Restated Certificate of Incorporation or any Stockholders' Agreement would provide that Permitted Holders (as defined in the Credit Agreement) would have the right or ability by voting power, contract, or otherwise to elect or designate for election a majority of the board of directors.
The Committee maintains that there would be no default of the change of control provisions of the Credit Agreement because Mr. Young would continue to hold record and beneficial title to at least 40% (by number of votes) of the Voting Stock. In addition, the Committee asserts that no person, other than Mr. Young, would beneficially own more than 30% (by number of votes) of the Voting Stock.
The Lenders contend that the disclosure statement did not provide sufficient information concerning the alternative board structure to determine whether it complies with the change of control provisions of the Credit Agreement. The Lenders also argue that even if the proposed structure does comply, it is a material change to the Committee Plan and would require re-solicitation.
Pursuant to section 1127(a) of the Bankruptcy Code, with certain limitations, a proponent of a plan may modify its plan prior to confirmation and such modified plan then becomes its proposed plan. However, the disclosure requirements of section 1125 must be met, 11 U.S.C. § 1127(c). Moreover, Federal Rule of Bankruptcy Procedure 3019 provides, in relevant part that in a chapter 11 case,
after a plan has been accepted and before its confirmation, the proponent may file a modification of the plan. If the court finds after hearing . . . that the proposed modification does not adversely change the treatment of the claim of any creditor or the interest of any equity security holder who has not accepted in writing the modification, it shall be deemed accepted by all creditors and equity security holders who have previously accepted the plan.
The Lenders argue that the proposed alternate structure would be a material *120 change in the Committee Plan as it pertains to the Backstop Parties' control of the board.
The Committee argues that its proposal to implement the alternate plan structure complies with the disclosure requirements of 1125 of the Bankruptcy Code because it was described in a footnote in the Supplement to the Disclosure Statement. The Committee further argues that the proposal is not a modification to the proposed Committee Plan but that even if it is deemed a modification, it does not require re-solicitation under either Bankruptcy Code section 1125 or Federal Rule of Bankruptcy Procedure 3019 because it is a technical fix that does not alter any economic interest and, therefore, is not material or adverse to the Noteholder class, which was the only class that accepted the Committee's proposed Plan.
The description of the alternate board structure is contained in a footnote to the Supplemental Disclosure Statement, dated November 9, 2009. The information contained in that footnote is as follows:
Alternatively, the board of directors of the Reorganized Company may consist of seven (7) board members (one of whom would be Vincent Young as the Reorganized Company's Chief Executive Officer). Five (5) members of the New Board shall be designated by the existing board, subject to the approval of the Backstop Parties. At least three of these board members would be independent, and one (1) member of the New Board would be independent and approved by the Creditors' Committee. The organizational documents will provide for a staggered board under § 141(d) of the Delaware General Corporation Law whereby there will be three classes of directors. The first class would include the Chief Executive Officer and have a one year term; the second class would include the Creditors' Committee board nominee and have a two year term; and the third class would include the five remaining board members and have a three year term.
This description does not provide sufficient information to determine if it complies with the change of control provisions of the Credit Agreement. For example, there is no indication whether the Young group and management get 40% of the Voting Stock or whether the Young group would have more than any other person or group that might acquire 30% of the Voting Stock. Nor does the Committee provide enough information concerning the proposed amendment to the By-laws and Certificate of Incorporation and requirement that any Stockholder's Agreements would provide that Permitted Holders (as defined in the Credit Agreement) would have the right or ability by voting power, contract, or otherwise to elect or designate for election a majority of the board of directors.
The proposed modification is a modification to the corporate governance of the Company. Under the Committee Plan, in addition to the rights afforded to certain of the Noteholders to participate in the Rights Offering, the Noteholders will receive 10% of the Class A New Common Stock. Thus, all of the Noteholders will be stockholders and the provisions concerning corporate governance will impact the voting rights of the stock that they receive under the Committee's Plan. As such, it is a material modification. See In re Am. Solar King Corp., 90 B.R. 808, 824 (Bankr. W.D.Tex.1988) (noting that a plan modification is material if a creditor would be motivated to reconsider its prior acceptance if it knew of it, even if the creditor did not ultimately alter its acceptance). A material modification requires sufficient *121 disclosure to comply with section 1125 of the Bankruptcy Code. Therefore, the material modification to the corporate governance requires re-solicitation. Moreover, the Committee has not indicated that the Noteholder class has accepted the modification to the plan in writing, as permitted by Federal Rule of Bankruptcy Procedure 3019.
Under other circumstances, the Court might have allowed the Committee to re-solicit and more fully describe the suggested alternative proposed board structure. In addition to providing the required disclosure, permitting the Committee to elaborate concerning the proposed structure would have provided a basis upon which to determine whether that structure complied with the change of control provisions. In the context of these cases, however, and for the reasons that will be discussed in this Opinion, the Court does not reach the issue of whether the Committee should be afforded an opportunity to re-solicit its plan.
Motion in Limine
The Court now turns to the admissibility of Kuhn's expert report and testimony regarding the Company's ability to sell or refinance in November 2012 and his expert report and testimony regarding the Debtors' valuation.
Legal Standard for Admissibility of Expert Testimony
The admissibility of expert testimony is analyzed under Rule 702, which as amended in 2000, provides:
If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.
FED.R.EVID. 702.
The proponent of the expert testimony at issue must establish its admissibility by a preponderance of evidence. Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 592, n. 10, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993); Lippe v. Bairnco, Corp., 288 B.R. 678, 685 (S.D.N.Y.2003). The Supreme Court stated that trial courts are to serve as gatekeepers, which "entails a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue." Daubert, 509 U.S. at 592-93, 113 S. Ct. 2786; United States v. Williams, 506 F.3d 151, 160-61 (2d Cir.2007). This "gatekeeping" obligation applies to scientific testimony as well as to "testimony based on `technical' and `other specialized knowledge.'" Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 141, 119 S. Ct. 1167, 143 L. Ed. 2d 238, (1999).
As courts have explained, Rule 702 requires a court to make three determinations: (1) whether a witness is qualified as an expert to testify as to a particular matter; (2) whether that opinion is based upon reliable data and methodology; and (3) whether the expert's testimony is relevant. See Nimely v. City of New York, 414 F.3d 381, 396-97 (2d Cir.2005) (citation omitted); Schneider v. Fried, 320 F.3d 396, 404 (3d Cir.2003)("Rule 702 embodies a trilogy of restrictions on expert testimony: qualification, reliability, and fit." (citing In re Paoli R.R. Yard PCB Litig. (Paoli, II), 35 F.3d 717, 741-3 (3d Cir.1994), cert. denied, 513 U.S. 1190, 115 S. Ct. 1253, 131 L. Ed. 2d 134 (1995))).
*122 Qualification Standards
First, the witness proffered to testify as to specialized knowledge must be qualified as an expert. See Zaremba v. General Motors Corp., 360 F.3d 355, 360 (2d Cir.2004)(noting that, where the witness lacked qualification, an analysis of the remaining Daubert factors "seems almost superfluous"). Courts have liberally construed this requirement, holding that an expert's qualification can be based on a broad range of knowledge, skill, experience, training, or education. See United States v. Brown, 776 F.2d 397, 400 (2d Cir.1985) (qualification requirements of Rule 702 "must be read in light of the liberalizing purpose of the Rule"); In re Paoli R. Yard PCB Litig. (Paoli I), 916 F.2d 829, 855 (3d Cir.1990)("[V]arious kinds of `knowledge, skill, experience, training, or education' qualify an expert as such." (quoting FED.R.EVID. 702)); In re Fosamax, 645 F. Supp. 2d 164, 173 (S.D.N.Y.2009); TC Systems, Inc. v. Town of Colonie, N.Y., 213 F. Supp. 2d 171, 174 (N.D.N.Y.2002);
These bases for qualification are disjunctive such that practical experience may be crucial for one type of expert opinion while academic training may be essential for another. See e.g., Friendship Heights Assocs. v. Vlastimil Koubek, A.I.A., 785 F.2d 1154, 1159-60 (4th Cir.1986) (an expert was not unqualified merely because she lacked practical experience where she was qualified on the basis of her education); Berry v. City of Detroit, 25 F.3d 1342, 1349-52 (6th Cir.1994) (noting that an expert could testify to the principles on the basis of either formal training or experience alone, but rejecting the testimony of the instant witness for lacking both). Further, it is not required that an expert cite to publications that support his/her expert opinion. Heller v. Shaw Indus., 167 F.3d 146, 155 (3d Cir.1999) (finding no requirement "that a medical expert must always cite published studies on general causation in order to reliably conclude that a particular object caused a particular illness").
Essentially, a court is to consider the totality of a witness's qualifications in its analysis. See Atl. Specialty Ins. Co. v. Gold Coast Devs., Inc., No. 05-CV-4863, 2008 WL 974411, at *6, 2008 U.S. Dist. LEXIS 28744 (E.D.N.Y. Apr. 8, 2008).
Disputes regarding matters such as an expert's credentials go to the weight, not admissibility, of an expert's testimony. McCullock v. H.B. Fuller Co., 61 F.3d 1038, 1043 (2d Cir.1995); SR Int'l Bus. Ins. Co. v. World Trade Ctr. Props., LLC, 467 F.3d 107, 134 ("To the extent that there are gaps or inconsistencies in [the expert]'s testimony, those issues `go to the weight of the evidence, not to its admissibility.'" (quoting Campbell v. Metro. Prop. & Cas. Ins. Co., 239 F.3d, 179, 186 (2d Cir.2001))).
Kuhn's Qualifications
The Lenders argue that Kuhn is not qualified because, inter alia, he has no M.B.A. or business education credentials, he is not an economist, he has no commercial banking experience, and he has published no articles on the subject matter of his expert testimony.
The Court finds that Kuhn is qualified to testify as an expert under the Daubert standard; his background and practical experience in media-related transactions and the broadcast television industry qualify as expertise through "experience, training, or education" under Rule 702. Specifically, Kuhn has been a Managing Director at A & C for the last nine year, advising media/entertainment clients in mergers and acquisitions, financings, asset sales, and restructurings[21] (Kuhn Decl. ¶¶ 2-3; *123 Kuhn Dep. at 22). Prior to his employment at A & C, Kuhn was a Senior Vice President and General Counsel of USA Networks, Inc., where he worked on that company's financings, mergers and acquisitions, and general legal issues[22] (Kuhn Decl. ¶ 4). As a result of his experience at USA Networks, through actively participating in various aspects of the company's business, such as the budgeting and planning process (1/19/10 Hrg. Trans. at 230-31), Kuhn believes he has gained significance expertise in the economics and operations of television stations in general (Kuhn Dep. at 24).
The fact that Kuhn does not have an M.B.A. or related business credentials does not necessarily exclude him as an expert. Courts have held that academic training is not necessary if an expert's practical experience is sufficient to qualify him. See Friendship Heights Assocs., 785 F.2d at 1159-60; Berry, 25 F.3d 1342. In any event, with respect to opinions regarding financing and acquisitions of media companies, practical experience is likely more relevant than an academic degree in business and finance. Similarly, the fact that Kuhn has not published articles on the subject matter of which he is proffered to testify is also insufficient as grounds to exclude him as an expert in light of his professional expertise due to his work in numerous financings, restructurings, and mergers and acquisition transactions.
Further, although Kuhn was never a commercial banker who made lending decisions, he has had significant experience on the borrower side, as an advisor for substantial borrowers (1/19/10 Hrg. Trans. at 222), which left him with experience and knowledge of issues relating to media financing deals. To the extent that the Lenders challenge Kuhn's conclusions because he lacks experience as a commercial lender, such challenges were addressed on cross-examination and affect the weight, rather than the admissibility, of his testimony.
Upon considering the totality of Kuhn's background and qualifications in the context of the underlying goals and requirements of Rule 702, the Court finds that Kuhn qualifies as an expert in this case.
Reliability Standard
In addition to establishing the qualification of a proffered expert witness, the Committee must also prove, by a preponderance of evidence, that the proffered expert testimony is both relevant and reliable.[23]Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141, 119 S. Ct. 1167, 143 L. Ed. 2d 238 (1999); Daubert, 509 U.S. 579, 597, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993) (citing Bourjaily v. United States, 483 U.S. 171, 175-76, 107 S. Ct. 2775, 97 L. Ed. 2d 144 (1987)). In Daubert, the Supreme Court abandoned the bright-line rule articulated in Frye v. United States[24] and replaced it *124 with a standard that it deemed was more consistent with the liberal thrust of the Federal Rules. See Daubert, 509 U.S. at 588, 113 S. Ct. 2786; see also Zuchowicz v. United States, 140 F.3d 381, 386 n. 5 (2d Cir.1998) (discussing the Supreme Court's rejection of the Frye standard). In evaluating the reliability of an expert testimony, the Supreme Court has provided a list of nondispositive and non-exclusive factors for trial judges to consider. Among others, trial courts may consider: (1) whether a theory or method can be, and has been tested; (2) whether the theory or method has been subjected to peer review and publication; (3) a method's known or potential rate of error and the existence of standards controlling the method's operation; and (4) whether a particular theory or method has gained general acceptance in the relevant scientific or professional community.[25]Daubert, 509 U.S. at 593, 113 S. Ct. 2786; Kumho Tire, 526 U.S. at 151, 119 S. Ct. 1167; Lippe, 288 B.R. at 687-688; In re Med Diversified Inc., 334 B.R. at 95 (citing Daubert, 509 U.S. at 593-94, 113 S. Ct. 2786; Kumho Tire, 526 U.S. at 149, 119 S. Ct. 1167).
These factors are not meant to be a definitive checklist as the reliability inquiry under Rule 702 is a flexible one. Nimely v. City of New York, 414 F.3d 381, 397 (2d Cir.2005); Amorgianos v. Nat'l R.R. Passenger Corp., 303 F.3d 256, 266 (2d Cir.2002)("[T]he Daubert inquiry is fluid and will necessarily vary from case to case.").[26]
As a general matter, the standard for determining reliability of an expert testimony is not high: "The test of admissibility is not whether a particular scientific opinion has the best foundation, or even whether the opinion is supported by the best methodology or unassailable research. Rather the test is whether the `particular opinion is based on valid reasoning and reliable methodology.'" In re TMI Litigation, 193 F.3d 613, 665 (3d Cir.1999), amended on other grounds, 199 F.3d 158 (2000), cert. denied, 530 U.S. 1225, 120 S. Ct. 2238, 147 L. Ed. 2d 266 (2000) (quoting Kannankeril v. Terminix Int'l Inc., 128 F.3d 802, 806 (3d Cir.1997)). In its analysis, a court "must focus on the principles and methodology employed by the expert, without regard to the conclusions the expert has reached or the [court]'s belief as to the correctness of those conclusions." Amorgianos, 303 F.3d at 266 (citing Daubert, 509 U.S. at 595, 113 S. Ct. 2786).
On the other hand, expert testimony should be excluded if it is speculative or conjectural. Boucher v. U.S. Suzuki Motor Corp., 73 F.3d 18, 21 (2d Cir. 1996) (citing In re Air Disaster at Lockerbie *125 Scotland, 37 F.3d 804, 824 (2d Cir. 1994), cert. denied, 513 U.S. 1126, 115 S. Ct. 934, 130 L. Ed. 2d 880 (1995)); see also Gumbs v. Int'l Harvester, Inc., 718 F.2d 88, 98 (3d Cir.1983) (expert testimony based on speculative assumptions should not be admitted). Likewise, assumptions that are "`so unrealistic and contradictory as to suggest bad faith' or to be in essence an `apples to oranges comparison'" should also be excluded. Boucher, 73 F.3d at 21 (quoting Shatkin v. McDonnell Douglas Corp., 727 F.2d 202, 208 (2d Cir.1984)). "Nothing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence that connected to existing data only by the ipse dixit of the expert. A court may conclude that there is simply too great an analytical gap between the data and the opinion proffered." General Electric Co. v. Joiner, 522 U.S. 136, 146, 118 S. Ct. 512, 139 L. Ed. 2d 508 (1997); see Heller, 167 F.3d at 163 (3d Cir.1999) ("[A] district court must examine the expert's conclusions in order to determine whether they could reliably follow from the facts known to the expert and the methodology used."). Critically, Daubert requires that an expert illustrate the reliability of his methodology and analysis at every step. Paoli II, 35 F.3d at 745 ("[A]ny step that renders the analysis unreliable under the Daubert factors renders the expert's testimony inadmissible."). In sum, the court's task "is to make certain that an expert, whether basing testimony upon professional studies or personal experience, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field." Lippe, 288 B.R. at 686 (quoting Kumho Tire, 526 U.S. at 152, 119 S. Ct. 1167).
Kuhn's Testimony Regarding Sale and Refinancing
The Lenders argue that Kuhn's report and testimony regarding the Company's ability to consummate a sale or refinance must be excluded under Daubert because his opinion is "pure speculation" and assumes improvement of the credit market and overall economic environment.
Contrary to the Lenders' assertion that Kuhn relied on a layperson's pure speculation when making his financing opinion, Kuhn reviewed and analyzed industry data, applied them to the Debtors' circumstances, and arrived at a conclusion based on his background and experience in media transactions. In arriving at the conclusion about a sale in November 2012, Kuhn selected an exit multiple range in broadcast cash flow ("BCF") based on his analysis of historical precedent transactions and current public comparable companies (JX-5 at 13, 38-40). With respect to the likelihood of refinancing, Kuhn considered the leverage ratios of recent broadcast transactions (JX-5 at 14). Significantly, even though the two arrived at different conclusions on the same issue, the data that Kuhn considered are not dissimilar to those considered by Peter Cohen ("Cohen"), the expert retained by the Lenders, in forming his expert opinion.
Further, although Kuhn does assume an improvement of the economy, contrary to the Lenders' contention, this assumption is not the sole basis of Kuhn's opinion regarding a potential sale and refinance transaction. Without ruling on the propriety of this assumption, the Court does not find so wide of an "analytical gap between the data and the opinion proffered" to exclude Kuhn's opinion on this issue. Since exclusion of expert testimony is the exception rather than the rule, the Court finds that any weakness in this analysis goes to the weight rather than the admissibility of his opinion. Exclusion at this point would be an unwarranted expansion of the Court's "gatekeeper" function since *126 the reasonableness of assumptions made by experts can be tested through rigorous cross-examination and rebutted by contrary evidence at trial.
Therefore, the Court finds that Kuhn's proffered testimony regarding a sale or a refinance transaction in 2012 is admissible as it contains sufficient indicia of reliability and satisfies the Daubert standard.
Kuhn's Testimony Regarding Valuation
The Lenders assert that Kuhn's testimony regarding valuation of the Debtors is inadmissible because Kuhn's levered discount cash flow (the "Levered DCF") analysis is not a reliable method for purposes of valuation. It is undisputed that many courts have found discount cash flow ("DCF") to be the most commonly-used and accepted method of valuing an enterprise. Steiner Corp. v. Benninghoff, 5 F. Supp. 2d 1117, 1129 (D.Nev.1998) (DCF is "in theory the single best technique to estimate the value of an economic asset") (quoting Cede & Co. v. Technicolor, Inc., Civ. A. No. 7129, 1990 WL 161084, *7, 1990 Del. Ch. LEXIS 259 (Del. Ch.1990), aff'd in part, rev'd in part on other grounds, 634 A.2d 345 (Del.1993)); see Lippe, 288 B.R. at 689; In re Exide Techs., 303 B.R. 48, 63-65 (Bankr.D.Del.2003); In re Zenith Elecs. Corp., 241 B.R. 92, 103-05 (Bankr.D.Del.1999); In re Cellular Info. Sys. Inc., 171 B.R. 926, 930-37 (Bankr. S.D.N.Y.1994). In fact, although Kuhn performed both comparable company analysis and precedent transaction analysis, he attributed little weight to those two methods and relied primarily on the Levered DCF analysis to determine a range of valuations for the Debtors.
The Lenders argue that Kuhn misleadingly labeled his analysis a Levered DCF without having undertaken the necessary steps in a DCF analysis, which renders his valuation opinion unreliable and inadmissible. The Committee, on the other hand, contends that Kuhn utilized a method that is a reliable variation of the DCF analysis and simply made adjustments to fit the Debtors' circumstances. The question before the Court is twofold: (1) whether Kuhn conducted an acceptable variant of DCF analysis, and hence a DCF analysis, and (2) if Kuhn did not conduct a DCF analysis, whether the Levered DCF is a reliable method under the Daubert standard.
A DCF analysis arrives at a value, or a range of values, for a company by performing the following steps: (1) determine the projected distributable cash flow of a company within a forecast period of time; (2) determine the company's terminal value by the end of a forecast period, by applying a selected metric of value, which is usually a company's EBITDA, to an appropriate multiple; (3) determine the present value of both free cash flow and terminal value of the company by applying an appropriate discount rate; (4) calculate the sum of the present value of cash flow and present value of terminal value, which represents the total enterprise value of the company. See In re Exide Techs., 303 B.R. at 63; Steiner Corp. 5 F.Supp.2d at 1130; In re Nellson Nutraceutical, Inc., 356 B.R. 364, 367 (Bankr.D.Del.2006).
Kuhn, on the other hand, performed the following steps in his analysis: (1) determined zero projected distributable cash flow because the Committee assumes all cash will be accumulated to pay off the Debt upon maturity in November 2012; (2) determined the approximate value of equity in 2012 and assumed a sale of the Company at that value; (3) subtracts net debt and preferred stock outstanding from the projected sale value and labeled it "terminal value;" and (4) applied a discount rate, that accounts for only the cost of *127 equity, to determine the present value of the common equity.[27]
The Court finds that, although Kuhn uses DCF terminologies, there are practically no substantive similarities between the generally accepted DCF method and the Levered DCF method. Kuhn has made multiple novel assumptions that do not exist in the DCF analysis, such as an assumed sale of the company and a discount rate that accounts for the cost of equity instead of both the cost of debt and equity.[28] Kuhn's analysis altered another key component of the DCF method, which is the way a company's terminal value should be calculated. By assuming a sale in 2012, Kuhn completely failed to calculate the terminal value of the Company by applying appropriate metrics to multiples. It is a court's duty, as the gatekeeper, to ensure that an expert establishes the reliability of his methodology at every step. In light of the significant missteps and speculative assumptions in Kuhn's novel valuation approach, the Court finds that he did not conduct an appropriate DCF analysis.
The inquiry does not end here, however, because Kuhn's valuation analysis may still be admissible if the Court determines that the Levered DCF contains sufficient indicia of reliability under Daubert. It does not. The Levered DCF fails to meet any of the Daubert factors: it is not a method that has been tested or relied upon by other experts, it had never been subjected to peer review or discussed in any publication, the potential rate of error is unknown, and there is no evidence that this method was ever employed, discussed, and certainly not generally accepted in any academic or professional community.
The Committee attempts to distinguish the facts of this case by contending that, unlike experts who could not offer any explanation as to why they failed to utilized the DCF method,[29] Kuhn clearly stated that the Levered DCF is more appropriate to the facts of this case because it accounts for the value of the substantially below-market terms of the reinstated debt under the Committee Plan. Kuhn's explanation on the issue does not give him free rein to employ a brand new valuation method that he conceded has never been used by any valuation expert in court. In evaluating the reliability of an expert testimony, trial courts must focus on the methodology rather than the ultimate conclusions derived from the method. Methodologies that cannot be evaluated warrant exclusion. 24/7 Records, Inc. v. Sony Music Entm't, Inc., 514 F. Supp. 2d 571, 575 (S.D.N.Y.2007) (excluding testimony when expert witness based calculations on "intrinsic value" without justifying how that value had been translated into dollars, a methodology the court found could not be evaluated). Here, Kuhn's application *128 of facts to an untested method does not reflect the prerequisite level of "intellectual rigor that characterizes the practice of an expert" in the field of media valuation. Lippe, 288 B.R. at 686. Conclusions derived from the Levered DCF, therefore, are not products of reliable principles and methodologies, and the Court cannot simply rely on Kuhn's ipse dixit assertions about the reliability of such an analysis. Thus, the portion of Kuhn's expert report and testimony regarding valuation is inadmissible under Rule 702.
For the foregoing reasons, the Daubert Motion is granted, in part, and denied, in part.
Feasibility of the Committee Plan
In considering confirmation of a plan of reorganization, a court has an affirmative obligation to scrutinize the plan and determine whether it is feasible. See In re Johns-Manville Corp., 68 B.R. 618, 635 (Bankr.S.D.N.Y.1986), aff'd, 78 B.R. 407 (S.D.N.Y.1987), aff'd sub nom, Kane v. Johns-Manville Corp., 843 F.2d 636 (2d Cir.1988); In re Lakeside Global II, Ltd., 116 B.R. 499, 506 (Bankr.S.D.Tex.1989); In re Landmark at Plaza Park, Ltd., 7 B.R. 653, 659 (Bankr.D.N.J.1980).
Confirmation under section 1129(a)(11) requires that:
Confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan.
11 U.S.C. § 1129(a)(11).
The proponent of a proposed plan bears the burden of proving essential elements of confirmation by a preponderance of the evidence. Heartland Fed. Sav. & Loan Ass'n v. Briscoe Enters. Ltd., II (In re Briscoe Enters., Ltd., II), 994 F.2d 1160 (5th Cir.1993), cert. denied, 510 U.S. 992, 114 S. Ct. 550, 126 L. Ed. 2d 451 (1993); see also In re Danny Thomas Props. II Ltd. P'ship, 241 F.3d 959, 963 (8th Cir.2001).
The feasibility standard as set forth in section 1129(a)(11) requires a court to determine whether "a plan is workable and has a reasonable likelihood of success." In re WorldCom, Inc., No. 02-13533, 2003 Bankr.LEXIS 1401, at *168 (Bankr.S.D.N.Y.2003); In re The Leslie Fay Cos., 207 B.R. 764, 788 (Bankr. S.D.N.Y.1997); see also Johns-Manville, 843 F.2d at 649 ("[T]he feasibility standard is whether the plan offers a reasonable assurance of success."); In re Waern Bldg. Corp., 145 F.2d 584, 588 (7th Cir.1944) ("[T]he word feasible does not connote absolute insurance of success but only reasonable assurance of success."); In re Woodmere Investors, L.P., 178 B.R. 346, 361 (Bankr.S.D.N.Y.1995); In re 8315 Fourth Ave. Corp., 172 B.R. 725, 734 (Bankr.E.D.N.Y.1994); In re Whittaker Mem'l Hosp. Ass'n, Inc., 149 B.R. 812, 816 (Bankr.E.D.Va.1993) ("It is not a blanket guarantee which is required, but rather a reasonable likelihood of success."). As the Second Circuit explained, the key inquiry is whether, as a practical matter, provisions specified in the proposed plan of reorganization can be done post confirmation. In re Bergman, 585 F.2d 1171, 1179 (2d Cir.1978); In re Greene, 57 B.R. 272, 277-78 (Bankr.S.D.N.Y.1986).
The purpose of the feasibility test is "`to prevent confirmation of visionary schemes which promise creditors and equity holders more under a proposed plan than the debtor can possibly attain after confirmation.... [W]here the financial realities do not support the proposed plan's projections or where proposed assumptions are unreasonable, confirmation of the plan should be denied." In re Investors *129 Fla. Aggressive Growth Fund, Ltd., 168 B.R. 760, 765 (Bankr.N.D.Fla. 1994) (quoting In re Lakeside Global II, Ltd., 116 B.R. 499, 507 (Bankr.S.D.Tex. 1989)); see In re Prudential Energy Co., 58 B.R. 857, 862 (Bankr.S.D.N.Y.1986) (a plan based on impractical or visionary expectations cannot be confirmed); Stapleton v. Archer Daniels Midland Co. (In re Stapleton), 55 B.R. 716, 721 (S.D.Ga.1985).
Courts have found that "the feasibility test is firmly rooted in predictions based on objective fact." In re Clarkson, 767 F.2d 417, 420 (8th Cir.1985). While future projections are indicative of feasibility of a proposed plan, such projections must not be speculative, conjectural, or unrealistic. In re Inv. Co. of the Sw., Inc., 341 B.R. 298, 311 (10th Cir.BAP2006) (citing In re Trevarrow Lanes, Inc., 183 B.R. 475, 482 (Bankr.E.D.Mich.1995)). For instance, "[a] glaring discrepancy between the facts surrounding past performance and activity and predictions for the future is strong evidence that a debtor's projections are flawed and the plan is not feasible." Trevarrow Lanes, 183 B.R. at 482.
On the other hand, just as speculative prospects of success cannot sustain feasibility, the mere prospect of financial uncertainty cannot defeat feasibility. See In re U.S. Truck Co., 47 B.R. 932, 944 (E.D.Mich.1985). Success need not be guaranteed, so long as the plan has a "reasonable likelihood of success." In re Adelphia Bus. Solutions, Inc., 341 B.R. 415, 421-22 (Bankr.S.D.N.Y.2003) (citing Johns-Manville, 843 F.2d at 650 (the feasibility standard is whether a plan of reorganization offers a reasonable assurance of success); In re Texaco Inc., 84 B.R. 893, 910 (Bankr.S.D.N.Y.1988) (only a reasonable assurance of commercial viability is required); Prudential, 58 B.R. at 862 ("Guaranteed success in the stiff winds of commerce without the protection of the Code is not the standard under § 1129(a)(11)."); In re Briscoe Enters., Ltd. II, 994 F.2d 1160, 1166 (5th Cir.1993) ("Only a reasonable assurance of commercial viability is required.") (quoting In re Lakeside Global II, 116 B.R. at 507)).
In assessing the feasibility of a proposed plan, courts have identified the following probative factors:
1. the adequacy of the capital structure;
2. the earning power of the business;
3. economic conditions;
4. the ability of management;
5. the probability of the continuation of the same management; and
6. any other related matters which will determine the prospects of a sufficiently successful operation to enable performance of the provisions of the plan.[30]
However, the foregoing factors are neither exhaustive nor exclusive[31] as the analysis is fact intensive and merits a case by case analysis. In re Eddington Thread Mfg. Co., 181 B.R. 826, 833 (Bankr. E.D.Pa.1995).
The key issue in determining feasibility of the Committee Plan is whether it *130 is reasonably probable that the Debtors will be able to pay the Debt when it matures in November 2012, either through (1) a sale of the Company, or (2) refinancing of the Debt.
Tom Kuhn's Expert Opinion
In support of the feasibility of the Committee Plan, Kuhn of A & C was retained to perform extensive analysis of the Debtors' business and financial projections to determine: (1) adequacy of the capital structure of the Company;[32] (2) recovery analysis for the Debtors' creditors; and (3) potential valuation of the Company upon a sale or refinancing (JX-5 at 3). A & C performed the foregoing analysis based on projections[33] (the "Projections") prepared and provided by the Debtors (the "Base Case") and a more conservative scenario for projections (the "Stress Case")[34] that it created.
Kuhn concludes that, under the Committee Plan, the Company will have sufficient financial resources to cover its Capital Expenditure ("Capex") requirements, service financial obligations, and pay the balance due when the Debt matures in November 2012. Kuhn formed his opinion based on analysis under three methodologies: (1) comparable company analysis; (2) precedent transaction analysis; and (3) Levered DCF (Id. at 22). He stated he primarily relied on the Levered DCF when forming his expert opinion.[35]
For purposes of valuation, Kuhn testified that he did not determine the total enterprise value ("TEV") of the Debtors upon emergence from Chapter 11 because he did not consider it relevant to the issue of the Company's ability to service the Debt through a sale or refinancing in November 2012 (1/20 Hrg. Trans. at 14-15). Instead, Kuhn relied primarily on the Levered DCF method in determining the Company's value to equity in 2012. First, based on historical precedent transactions *131 that ranged from 8.1x16.1x projected Broadcast Cash Flow ("BCF") and current public comparable companies trading at 6.4x8.8x average 2009/2010 BCF, not including a control premium which would be expected in a sale transaction, Kuhn selected an exit multiple range of 7x11x BCF for a sale of the Company in November of 2012 (JX-5 at 13). Given this selected range, the implied enterprise value (or value to equity) of the Company is $401.1$597.3 million under the Base Case (Id. at 13) and $353.7$522.7 million under the Stress Case (Id. at 17). Kuhn opines that, under both the Base Case and the Stress Case, the sale of the Company in 2012 would not result in a value lower than the net debt outstanding at that time (Id. at 13, 17). Significantly, Kuhn assumes the existence of at least one third-party purchaser in November 2012 and further assumes that a third-party purchaser will offer to buy the Company at a price that reflects what he opines as the implied enterprise value of the Company in November 2012.[36]
Kuhn further opines that, in the event that the Company chooses not to sell, it will still be well-positioned to obtain refinancing in November 2012 because the net debt balance implies a debt to 2012/2013 EBITDA ratio of 5.4x and 6.9x under the Base Case and the Stress Case, respectively, which are both leverage ratios below the multiples at which historical broadcast transactions have been financed (Id. at 14, 17, and 40). Critically, Kuhn derived the leverage ratios by using an implied projected net debt balance of $239.5 million instead of the Debt's book value of $325 million and selected the 2012/2013 EBITDA even though the loan matures and must be refinanced by November 2012.
Peter Cohen's Expert Opinion
In evaluating the feasibility of the Committee Plan, Cohen of Blackstone Advisory Partners ("Blackstone") was retained by the Lenders to opine on (1) the overall value of the Debtor under its business plan, including how much a potential buyer would pay for the Company, and (2) the likelihood that the Debt will be refinanced at maturity in November 2012.
In valuing the Debtors, Cohen considered comparable company analysis, precedent transactions analysis, DCF, as well as the result of the recent auction process under which the Credit Bid ultimately prevailed. Cohen concluded that the TEV of the Debtors, based on projections of the Base Case, is $250$300 million upon emerging from Chapter 11, a value range that is less than the value of the Debt (JX-4 at 8). Using the same methodologies and under the Stress Case projections, Cohen concluded the Debtors' TEV is $200$250 million (Id.). Further, if the Credit Agreement were reinstated, the Company's total debt ratio upon exiting bankruptcy is 10.1x average 2009/2010 EBITDA, which significantly exceeds the current market value multiples for TEV of broadcasters (Id.).
With respect to meeting their obligations under the reinstated Credit Agreement through the prospect of a sale, Cohen opines that the assumption of a sale of the Company in 2012 based on 9.0x 2012/2013 BCF is unreasonable in light of (1) the bids generated in the previous auction for the Debtors, which were significantly below 9.0x BCF, and (2) current trading levels of comparable companies at approximately 7.0x 2009/2012 BCF, which *132 is also significantly lower than the Company's 9.0x multiple (Id. at 9).
Cohen further opines that the Company will be unable to refinance the Debt under the Committee Plan when it matures in November 2012 because the credit markets have significantly contracted and the Company will remain excessively levered with 2010/2011 net debt to EBITDA of 6.9x, which is at the high end of current and precedent leverage multiples for total debt of a television broadcaster (Id. at 36). Significantly, Cohen concludes that a "look back" average 2010/2011 EBITDA is the more appropriate figure to potential refinancers than a "look forward" average 2012/2013 EBITDA.[37] Further, Cohen observes that since the reinstated Credit Agreement has limited restrictions on dividends, in the event that the Company's equity owners distribute dividends prior to November 2012, the debt leverage will be even higher by the time the Debt reaches maturity (Id.).
The Debtors' Business Plan Projections
Since both Kuhn's and Cohen's expert opinions are based on the Projections, the Court will first turn to the issue of whether the Projections are reasonable and reliable in light of the evidence presented.[38]
Revenue Growth
Although the Debtors' management alleges that the Projections are conservative and reflect slow, consistent growth, the Court disagrees and finds the Company's projected growth to be aggressive and unrealistic. For example, the Debtors projected their EBITDA (earnings before interest, taxes, depreciation and amortization) to grow from $20.9 million in 2009 to $43.9 million in 2010 and their BCF to grow from $28.9 million in 2009 to $48.4 million in 2010. It is undisputed that the Company's projected EBITDA and BCF are significantly higher than what they were historically under both the Base Case and the Stress Case:
Historic Performance:
---------------------------------------------------------------------------------------
2007 2008 2009
---------------------------------------------------------------------------------------
EBITDA $32.3 million $25.4 million $20.9 million
---------------------------------------------------------------------------------------
BCF $45.1 million $39.3 million $28.9 million
---------------------------------------------------------------------------------------
See JX-4 at 17-18.
Base Case Projections:
---------------------------------------------------------------------------------------
2010 2011 2012
---------------------------------------------------------------------------------------
EBITDA $43.9 million $35.1 million $52.7 million
---------------------------------------------------------------------------------------
BCF $48.4 million $39.8 million $57.4 million
---------------------------------------------------------------------------------------
*133
See JX-5 at 15.
Stress Case Projections:
---------------------------------------------------------------------------------------
2010 2011 2012
---------------------------------------------------------------------------------------
EBITDA $37.3 million $28.7 million $45.5 million
---------------------------------------------------------------------------------------
BCF $42 million $33.3 million $50.2 million
---------------------------------------------------------------------------------------
See JX-5 at 18.
Further, the Debtors' BCF compound annual growth rate ("CAGR") and EBITDA CAGR also seems aggressive compared to those of their public peers during 2008 through 2010, which means that the Company's earnings are projected to grow at a much higher rate than that of their industry competitors during this period:
BCF CAGR 2008-2010
---------------------------------------------------------------------------------------
Average
w/out
Young Young Nexstar Gray Sinclair LIN TV Entravision Belo
---------------------------------------------------------------------------------------
12.8% -4.6% 1.0% -1.1% -3.7% -5.8% -7.2% -10.9%
---------------------------------------------------------------------------------------
See JX-4 at 23
EBITDA CAGR 2008-2010
---------------------------------------------------------------------------------------
Average
w/out
Young Young Nexstar Gray Sinclair LIN TV Entravision Belo
----------------------------------------------------------------------------------------
33.8% -6.7% -3.7% 3.7% -5% -5.3% -7.5% -22.3%
---------------------------------------------------------------------------------------
See JX-4 at 23.
The Court is particularly troubled by the aggressive EBITDA and BCF projections for 2012, which are approximately twice the EBITDA and BCF Projections for 2008, the last presidential election year.[39] Benchmark analysis of comparable companies beyond 2009-2010 have not been presented to show that the extent of revenue growth projected for the Company with respect to 2011 and 2012 is reasonable as compared to the rest of the TV broadcasting industry. The Court is also skeptical about the Debtors' ability to accurately make business projections and competently execute them as the same management group has historically failed at both tasks.[40]
Despite projecting aggressive growth in earnings with no change in their asset base, the Debtors estimate corporate expenses to be approximately one-third of what they were in past years and at a level considerably lower than corporate expenses of their public peers:[41]
*134
Corporate Expense
---------------------------------------------------------------------------------------
2007 2008 2009
---------------------------------------------------------------------------------------
Corporate Expense $12.8 million $13.9 million $4.5 million
---------------------------------------------------------------------------------------
See JX-3 at 11.
---------------------------------------------------------------------------------------
2010 2011 2012
---------------------------------------------------------------------------------------
Corporate Expense $4.5 million $4.7 million $4.8 million
---------------------------------------------------------------------------------------
See JX-3 at 11.
Corporate Expense % of Revenue 2010
---------------------------------------------------------------------------------------
Average
w/out
Young Young Belo Nexstar Entravision LIN TV Sinclair Gray
---------------------------------------------------------------------------------------
2.7% 6.0% 9.6% 9.0% 6.7% 4.6% 4.3% 1.5%
---------------------------------------------------------------------------------------
See JX-4 at 24.
The Debtors assert that the Projections are conservative because the Company's BCF and EBITDA margins are conservative compared to those of their public peers (Morgan Decl. at ¶ 22; JX-3 at 13).[42] Yet, the benchmarking analysis with respect to BCF and EBITDA margins is limited to 2008-2010 and does not address the aggressive projections for 2011 and 2012. Even with respect to BCF and EBITDA margins for 2009-2010, the Projections reflect an increase nearly double those of the Company's peers: (1) the Company's BCF margin is projected to increase by 38.2% while comparable companies' BCF margins are projected to increase by 17.29%; (2) the Company's EBITDA margins are projected to increase by 45.35% while comparable companies' EBITDA margins are projected to increase by 23.1% (1/19 Hrg. Trans. at 116-17). Further, conservative BCF and EBITDA margins do not automatically lead to conservative overall projections because margins reflect a company's profitability and not its overall revenue growth. Any perceived benefits from a conservative approach to projected margins would be offset by the extremely aggressive approach to projected revenue growth. For the reasons discussed, the Court finds the Company's projected EBITDA and BCF, particularly for 2011 and 2012, to be aggressive and overly optimistic.[43]
Capex
The Court also finds that the Debtors provided for inadequate Capex to support the rate of growth reflected in the Projections. First, the Debtors have deferred Capex over the last several years (JX-4 at 24; 1/19 Hrg. Trans. at 136). In fact, the Debtors' Capex has been lower than the Capex of their public peers from 2004 through 2009 (JX-3 at 15). In particular, *135 the Debtors' Vice President of Business Development and Operations Manager of various stations, Robert Peterson ("Peterson") testified that in 2009 management was very conservative in Capex budgeting and replaced only broken items and items that needed to be replaced to meet the company's FCC (Federal Communications Commission) requirements (1/20 Hrg. Trans. at 143-144), even though a number of the stations' equipment has reached the end of their useful lives (1/20 Hrg. Trans. at 147-149; Lender Ex. 50). In one of Peterson's emails to the Debtors' Chief Financial Officer, Executive Vice President, and Secretary, James A. Morgan ("Morgan"), which discusses Capex, Peterson stated that "it was very clear that we were to only consider emergency needs so I no longer tried to develop a plan to implement a budget for 2009." (Lender Ex. 53).
Though the Debtors assert that the projections were created using a bottom-up process, the Court finds that, although the opinions of Peterson and station managers were solicited and considered, Capex budgets were principally generated by upper management and did not necessarily reflect the Company's Capex needs. For instance, Peterson submitted Capex plans on multiple occasions in 2009, but even items that he identified as "key elements" were not approved by upper management. In one of his emails, Peterson expressed his frustration and stated, "We have never actually implemented any of the multitude of capx (sic) plans that have been submitted. I assume the next one will just be more of the same." (Lenders Ex. 52; 1/20 Hrg. Trans. at 161-162). In another email dated March 26, 2009, Morgan clearly instructed Peterson to create a Capex plan that would fit within an $8 million per year budget, an amount management previously deemed appropriate (Lender Ex. 44).[44] When asked whether he had understood his task to create a plan that would fit within the eight million dollar model, Peterson testified that he assumed his task was to let Morgan know whether it is acceptable to create a Capex plan by spending eight million dollars a year. However, the Court does not find Peterson's representation on this point to be credible because his email response to Morgan and his answer given in deposition on this point are inconsistent with his testimony. The Court finds that Peterson did, in fact, interpret Morgan's email instructions to mean that Peterson should create a Capex plan that would fit within the eight million dollar model. (1/20 Hrg. Trans. at 155).[45] Unsurprisingly, the budgets in Debtors' Five-Year Capital Plan were also generated by upper management (1/20 Hrg. Trans. at 162-164 (Peterson testified that the budgets in the "Debtors' Five Year Capital Plan" were produced by someone in the corporate office, and the first time he saw the document was shortly before his deposition after Thanksgiving 2009)).
Further, the Debtors also failed to create a Capex budget for its biggest station, KRON. The Capex Projections for KRON included a small amount in 2011 and none in 2012 (1/19 Hrg. Trans. 122; JX-21) *136 because it assumed that KRON would enter a shared-services agreement with another station. The Debtors' President, Debra McDermott ("McDermott"), testified that she has been exploring opportunities for KRON since March 2009 but no agreement has been signed to date (1/21 Hrg. Trans. at 52-53,121). Alternatively, McDermott mentioned the possibility of selling the building in which KRON is currently located, yet management has not even assessed the value of the building since eighteen months ago (Morgan Dep. at 66-68; 1/21 Hrg. Trans. at 52). Given the lack of a definitive and viable plan for KRON, the Debtors should have included a Capex budget for KRON in the Projections.
Considering the amount of the Debtors' deferred Capex over the last several years, the inadequate Capex plan for KRON,[46] and the Debtors' management's unpersuasive testimony that, despite compelling evidence to the contrary, KRON's Capex was generated via a bottom-up process, the Court finds the Debtors' $8 million per year Capex budget is insufficient to keep the Company competitive upon confirmation. By underestimating the amount of Capex, the Debtors have, in effect, inflated the EBITDA of the Company as reflected in the Projections.
The key deficiency in the Debtors' business plan is that the projected rate of growth in revenue necessarily presumes either a substantial improvement in the industry, increased industry market share within 2.5 years of emerging from bankruptcy, or both.[47] Although the Debtors may have reduced costs, made operational improvements, and cured some of the problems that led them into bankruptcy in the first place, there is simply not enough evidence on the record to suggest that cost reduction alone would necessarily give the Company sufficient advantages over its competitors to achieve the Projections. Even assuming that the Company will emerge from Chapter 11 as a leaner and more efficient entity, without adequate Capex and identifiable and unique competitive advantages, it is unreasonable to project that the Company could achieve substantially higher rate of growth than those of its competitors in an industry that shows no sign of dramatic turnaround within the next 2.5 years.
For the foregoing reasons, the Court finds that the Company would be unable to successfully execute its business plan and achieve the plan's optimistic projections.
Assumed Sale of the Company
Pursuant to the Court's holding in the Daubert Motion, any conclusions reached *137 by Kuhn based upon the Levered DCF is excluded. Thus, Kuhn's opinion that the Debtors would be able to satisfy the Debt upon maturity through an assumed sale in November 2012 is excluded from the record. However, even if that portion of Kuhn's testimony were not excluded, the Court finds that the assumed sale of the Company in November 2012 at a price that is equivalent to its future common equity value is not supported by any reasonable analysis.
First, Kuhn assumes that in approximately three years, "the overall economic environment will have improved to provide more liquidity and appetite for acquisitions in the broadcasting sector." (JX-5 at 29). Kuhn provided no explanation as to why this assumption is appropriate, particularly when he does not have specific experience and background in making predictions about the overall health of the economy.
More importantly, Kuhn assumes that a potential buyer would purchase the Company at a price that is equivalent to the Company's implied future common equity. On this point, the Court agrees with Cohen's opinion that a potential buyer would likely bid below the intrinsic value to achieve a desired return on equity invested. (JX-4 at 27). It is unrealistic to assume that a potential purchase price would include the full extent of the Company's intrinsic value, particularly when a balloon payment under the reinstated Credit Agreement is looming.[48]
In sum, the Court finds that the prospect of the Company's assumed sale at a price equivalent to its future common equity value in November 2012 is both unsubstantiated and purely speculative.
Refinancing[49]
Aside from an assumed sale, the Committee argues that the Company will be able to refinance the Debt before it comes due. The Committee makes this assertion because the Company's net debt to EBITDA multiples in 2011 and 2012 fall within the range of market value debt to EBITDA ratios of two comparable companies in the broadcasting industry, Sinclair Broadcast Group ("Sinclair") and Belo Corporation ("Belo"), both of which refinanced in late 2009.[50] Based on the Projections, the Company's net debt to EBITDA ratio in 2011 is 6.9x and its net debt to EBITDA ratio in 2012 is 5.6x, while Sinclair and Belo's total book debt to EBITDA are 6.3x *138 and 6.5x, respectively.[51] (JX-4 at 40-41; 1/25/10 Hrg. Tr. at 69). However, the Committee's argument, specifically its use of the net debt balance instead of the Debt balance that comes due in November 2012, is premised on faulty assumptions.
Using the Company's net debt balance of $239.5 million under the Base Case instead of the principal balance of the debt in the amount of $325 million due in November 2012, yields a substantially lower debt to EBITDA ratio, which appears in the Committee's analysis. The net debt amount is the principal balance of the debt, $325 million, minus the Company's annual cash accumulated based on the Projections.[52] Thus, the issues are: (1) the reasonableness of the assumption that the Company could, in fact, accumulate the projected cash accumulated under the Debtors' business plan; and (2) the probability that the Company's equity owners will preserve and contribute all of the accumulated cash upon the Debtors' exiting chapter 11 through November 2012 towards paying the Debt when it comes due so that the Company would only need to refinance the net debt balance.
The amount of cash accumulated impliedly assumes the soundness of the Projections and the Debtors' ability to execute their business plan. But as the Court found it unlikely that the Company could achieve its Projections, it is therefore unlikely that the purported amount of cash could be accumulated to achieve the net debt balance upon which the net debt to EBITDA ratio is premised.
Second, achieving the net debt balance also assumes if the Company accumulates cash, it will not distribute dividends to equity holders prior to November 2012. The Committee asserts that the new equity holders do not intend to distribute dividends and such payment would require board approval. However, under the Committee Plan, the Backstop Parties will have control over the board to obtain approval of such payments and it is alleged by the Lenders, and unrebutted by the Committee, that the Committee has refused to restrict the ability of new equity holders to distribute dividends pending satisfaction of the reinstated Credit Agreement.
Given the (1) uncertainty as to the amount of accumulated cash under the Projections, and (2) lack of legal restrictions preventing the equity holders from both distributing dividends and requiring the Company to set aside the cash accumulation for the November 2012 balloon payment, the Court finds that it is unreasonable for the Committee to assume that the Company will only need to refinance the net debt balance of $239.5 million rather than the Debt of $325 million. By implication, the Committee's theory that the Company will be able to refinance based on its net debt to EBITDA ratio, rather than the Debt to EBITDA ratio, is purely speculative. Therefore, the Committee has not met its burden in establishing that the Company will obtain refinancing when the Debt comes due in November 2012.
In conclusion, the Court finds that the Committee Plan is not feasible under section 1129(a)(11) because the Committee has failed to establish that the Company could satisfy the Debt upon maturity in *139 November 2012 through either a sale or by refinancing.[53]
Cramdown Requirements
The Lenders object to confirmation of the Committee Plan on the basis that it violates section 1129(b)(2)(B)(ii) because the Committee has failed to establish that the plan does not "discriminate unfairly" and is "fair and equitable." The Committee responded by arguing that the Lenders waived such claims by not asserting them before the court-imposed deadline and that they have no standing to assert such claims. The Court need not reach the issues of waiver and standing because it has an independent duty to ensure that the requirements of 11 U.S.C. § 1129 are satisfied, even if no objections to confirmation have been made. See In re Mid-State Raceway, Inc., No. 04-65745, 2006 Bankr.LEXIS 3950, *42 (Bankr. N.D.N.Y.2006) (citing In re Lernout & Hauspie Speech Prods., N.V., 301 B.R. 651, 656 (Bankr.D.Del.2003), aff'd, 308 B.R. 672 (D.Del.2004)); In re Valley Park Group, Inc., 96 B.R. 16, 21-22 (Bankr. N.D.N.Y.1989); In re Bolton, 188 B.R. 913, 915 (Bankr.D.Vt.1995) (exercising its independent duty by examining whether plan is saved by "new value" exception to the absolute priority rule).
Section 1129(a)(8) requires that each class of claims or interests under a proposed plan either accept the plan or be unimpaired under the plan. 11 U.S.C. § 1129(a)(8). Section 1129(b) allows for "cramdown" of a proposed plan even where the plan has not been accepted by all impaired classes of claims. 11 U.S.C. § 1129(b)(1) provides:
Notwithstanding section 510(a) of this title, if all of the applicable requirements of subsection (a) of this section other than paragraph (8) are met with respect to a plan, the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.
11 U.S.C. § 1129(b)(1).
Unfair Discrimination
Under 1129(b)(1), a plan unfairly discriminates when it treats similarly situated classes differently without a reasonable *140 basis for the disparate treatment. See Johns-Manville, 68 B.R. at 636; In re Pine Lake Village Apartment Co., 19 B.R. 819, 829-30 (Bankr.S.D.N.Y.1982). Where, however, a reasonable basis for the disparate treatment of two classes of similarly situated creditors exists, there is no unfair discrimination. See In re World-Com, Inc., No. 02-13533(AJG), 2003 WL 23861928, at *59 (Bankr.S.D.N.Y. Oct.31, 2003).[54]
The Lenders contend that the Committee Plan unfairly discriminates against the general unsecured creditors, who are receiving $1 million in the aggregate while the Noteholders are receiving 10% of the equity in the Company and the opportunity to participate in a rights offering under which the they can purchase a pro rata share of $45.6 million of preferred stock plus 80% of the common stock in the Company. The Committee argues that, based on Kuhn's valuation opinion, the Noteholders projected recovery of 10% of the Company's equity is approximately 2% of their claims which is less than the 5% cash recovery to trade creditors. Further, even if the plan is discriminatory, there is a reasonable basis for disparate treatment: the Noteholders and trade creditors bargained for different forms of recovery.
There is insufficient evidence on the record on this issue because the Committee has neither provided any evidence regarding the value of the subscription rights received by the Noteholders under the Committee Plan nor any evidence that the Noteholders and trade creditors bargained for different forms of recovery. Therefore, the Committee has failed to meet its burden in establishing by a preponderance of the evidence that the Committee Plan does not unfairly discriminate against the general unsecured creditors.
Fair and Equitable
Section 1129(b)(2)(B)(ii), known as the absolute priority rule, provides in relevant part:
For the purpose of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements:
(B) with respect to a class of unsecured claims
(ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property
11 U.S.C. 1129(b)(2)(B)(ii).
In Bank of America Trust and Savings Association v. 203 North LaSalle Street Partnership, the Supreme Court examined § 1129(b)(2)(B)(ii) and determined that the best reading of the phrase "on account of" indicated that "a causal relationship between holding the prior claim or interest and receiving or retaining property is what activates the absolute priority rule." Bank of Am. Nat'l Trust and Savings Ass'n v. 203 N. LaSalle St. P'ship, 526 U.S. 434, 451, 119 S. Ct. 1411, 143 L. Ed. 2d 607 (1999). In Charter, as referenced and discussed previously, the bankruptcy court confirmed a debtor's plan of reorganization, which included in part, a large financial settlement to an old equity holder of the company, in order to satisfy a change of control provision in a reinstated credit agreement. In re Charter Commc'ns, 419 *141 B.R. at 230-32. The Charter court found that, despite the significant financial gain to the old equity holder, the plan did not violate the absolute priority rule because the settlement provided to the old equity holder was not "on account of" his former equity interest, but only due to his cooperation during and after the reorganization process. In particular, the old equity holder had agreed to maintain the requisite voting power within the proposed reinstated credit agreement, transfer his valuable interests in solvent affiliates of the debtor, and compromise certain contract claims. Id. at 269. Since old equity holders are not universally precluded from gaining consideration, absent some evidence of a causal relationship, the Charter court would not find the new property interest to be "on account of" the equity holder's junior interest. Id. (citing In re PWS Holding, Corp., 228 F.3d 224, 242 (3d Cir.2000)); see also LaSalle, 526 U.S. at 453, 119 S. Ct. 1411 (noting that in some cases, old equity may be best equipped to pilot a reorganized company and "work out an equity-for-value reorganization").
The Lenders argue that the Committee Plan violates the absolute priority rule by providing Young with new equity in the Company even though general unsecured creditors were not paid in full and had voted to reject the Committee Plan. The Committee asserts that the Committee Plan expressly provides for cancellation of all old equity interests, and Young is not receiving any interest "on account of" his preexisting equity interest but rather than "on account of" his work going forward and the necessity of his cooperation so as to comply with the Credit Agreement.
The Court finds that the Committee has failed to meet its burden of establishing that its Plan fulfills the absolute priority rule. In Charter, the court found that the $375 million paid to old equity, although substantial in absolute dollar amount, was outweighed by the estimated $3 billion in benefits and savings to the debtor through reinstatement of a credit agreement, future tax savings, and proceeds of a rights offering under the proposed plan of reorganization. In re Charter, 419 B.R. 221 at 241 (noting that the value to the estate and its creditors outweighed old equity's consideration by a "high multiple"). Here, the Committee argues that the 10% economic interest distributed to Young is "on account of" the value added to the Debtors by way of reinstating the Credit Agreement with a below-market interest rate. However, the Committee has failed to quantify the value of the reinstated Credit Agreement to the Debtors compared to the 10% economic interest distributed to Young under the Committee Plan. As with the unfair discrimination standard, the Court finds that the Committee has failed to meet its burden of proof on the issue, as there is insufficient evidence on the record to evaluate whether the direct and indirect benefits to the Debtors of reinstating the Credit Agreement are of a greater value than the 10% interest distributed to Young under the Committee Plan.[55]
Confirmation of the Debtors Plan
The Committee objects to the Debtors Plan and argues that it is unconfirmable because (1) the terms, conditions, and covenants under the $10 million exit facility (the "Exit Facility")[56] for the Company *142 under the Debtors Plan are not sufficiently disclosed and (2) if the Committee Plan is confirmable, the Lenders will have received, as a matter of law, more than they are entitled to under the Debtors Plan in violation of the cramdown requirements of the Bankruptcy Code.
In response to the Committee's objection regarding the Exit Facility, the Lenders filed secured letters of intent from two providers for $20 million of chapter 11 exit financing with term sheets attached to the Declaration of Wachovia Bank, N.A. (the "Wachovia Declaration") on January 12, 2010. The Court finds that the Wachovia Declaration is sufficient for the purpose of disclosing of terms, conditions, and covenants under proposed Exit Facility.
Regarding the Committee's objection that the Lenders are receiving more value than their claim under the Debtors Plan in violation of the Bankruptcy Code, the Court finds it is undisputed that Debtors' current TEV is less than the amount of the Lenders' claim and any evidence of purported future valuation of the Company in November 2012 is purely speculative. Thus, the Lenders will receive less value than what they are owed under the Debtors Plan and the Committee's objection is overruled.
The Court finds that, with the exception of section 1129(a)(8), the Debtors Plan satisfies all applicable requirements of the Bankruptcy Code pursuant to section 1129(a). Further, the Court finds that the Debtors Plan does not "discriminate unfairly" and is "fair and equitable" with respect to the dissenting classes; therefore, the cramdown requirements under section 1129(b) are satisfied. In sum, the Debtors Plan satisfies all applicable criteria of section 1129 and is confirmable.
Accordingly, for the foregoing reasons, the Committee's motion to confirm the Committee Plan is DENIED. The Debtors' motion to confirm the Debtors Plan is GRANTED.[57] The Debtors are directed to settle an order consistent with this Opinion and submit a proposed order confirming the Debtors Plan.
NOTES
[1] The Debtors in these cases are Young Broadcasting, Inc.; Young Broadcasting of Lansing, Inc.; Young Broadcasting of Louisiana, Inc.; Young Broadcasting of Nashville, LLC; Young Broadcasting of Albany, Inc.; Young Broadcasting of Richmond, Inc; Young Broadcasting of Knoxville, Inc.; Young Broadcasting of Green Bay, Inc.; Young Broadcasting of Davenport, Inc.; Young Broadcasting of Sioux Falls, Inc.; Young Broadcasting of Rapid City, Inc.; Young Broadcasting of San Francisco, Inc.; Young Broadcasting of Nashville, Inc.; Young Broadcasting of Los Angeles, Inc.; Young Broadcasting Shared Services, Inc.; Adam Young, Inc.; WKRN, G.P.; WATE, G.P.; KLFY, L.P.; YBT, Inc.; YBK, Inc.; LAT, Inc.; Winnebago Television Corporation; Fidelity Television, Inc.; and Honey Bucket Films, Inc.; Young Broadcasting Capital Corp.; and Young Communications, Inc.
[2] Since the Commencement Date, the Debtors have continued to operate their businesses and manage their properties as debtors-in-possession ("DIP") pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.
[3] The stations are: Lansing, Michigan (WLNSa CBS network affiliate); Green Bay, Wisconsin (WBAYan ABC network affiliate); Lafayette, Louisiana (KLFYa CBS network affiliate); Nashville, Tennessee (WKRNan ABC network affiliate); Knoxville, Tennessee (WATEan ABC network affiliate); Albany, New York (WTENan ABC network affiliate); Richmond, Virginia (WRICan ABC network affiliate); Davenport, Iowa (KWQCan NBC network affiliate); Sioux Falls, South Dakota (KELOa CBS network affiliate); and San Francisco, California (KRONa MyNetworkTV network affiliate). The Debtors also operate satellite stations that rebroadcast programming from primary stations.
[4] The Debtors' television broadcasting stations reach 6% of the total U.S. television households and are ranked first in news broadcasting in a majority of their geographic markets. The Debtors employ approximately 1,107 employees nationwide and their primary customers are local, regional, and national advertisers. The broadcasting industry is cyclical. Revenue of the Debtors' business generally is higher during even-numbered election years due to spending by political candidates and supporters of ballot initiatives, with spending usually the highest in the fourth quarter. Revenue from political advertising spending is particularly higher during presidential election years (i.e., years divisible by four).
[5] Under the Credit Agreement, the secured obligation as amended bears a floating interest rate of LIBOR plus 2.5%. The Credit Agreement also requires that, so long as any amounts remain outstanding under Credit Agreement, the Debtor must maintain at least $10 million in cash reserve.
[6] This amount consists of outstanding principal in the amount of $338,125,000, plus unpaid prepetition fees, costs, and expenses as of the Commencement Date.
[7] During the Debtors' marketing process, sixty-nine potential bidders were contacted, twenty-nine of which negotiated confidentiality agreements entitling them access to due diligence information. The potential purchaser, who set forth a bid of $215 million, did not qualify to participate in the auction because the bid was not accompanied by a deposit and it was subject to additional due diligence that the bidder estimated would take two to three weeks to complete.
[8] The other two qualified bids offered to purchase the assets for $120 million.
[9] The other two qualified bidders indicated that they would not raise their bids to the level of the Credit Bid, did not intend to attend the auction, and demanded prompt return of their deposits. Both the Lenders and the Committee declined to give more time to the non-qualified bidder to conduct due diligence. The Debtors' financial advisor believes that the bids at the auction accurately reflect the market perception that the then current value of the Debtors' assets was less than the Credit Bid.
[10] At this time, the Committee also committed to make a cash infusion of $38 million to fund the Committee Plan. That commitment was later increased to $45.6 million in order to provide an additional working capital cushion to the Company.
[11] In an effort to address certain change of control provisions in the Credit Agreement, the Committee Plan provides that Mr. Young will receive all of the Class B shares of common stock of the Company, which converts to 10% of the Class A common stock upon full repayment of the Debt. The Court will subsequently address whether this provision adequately addresses the change of control provisions.
[12] The Lenders' other rights under the Credit Agreement remain the same as required by sections 1123(d) and 1124 of the Bankruptcy Code.
[13] These calculations only include the preference elections of those holders that voted to accept both plans.
[14] The parties also made oral arguments with respect to the Daubert Motion at the Confirmation Hearing on January 19, 2010.
[15] The Lenders filed an Evidentiary Objections and Motion to Strike numerous statements in Kuhn's Declaration on the basis that they violate Federal Rules of Civil Procedure 26(a)(2)(B) and 37(c)(1) as containing statements of purported fact and opinion that were not included in Kuhn's expert report. Courts have held that where an expert affidavit "`expound[ed] a wholly new and complex approach,'" as opposed to "`merely support[ing] an initial position,'" the expert's affidavit should be stricken. Point Prods. A.G. v. Sony Music Entm't, Inc., No. 93 Civ 4001, 2004 U.S. Dist. LEXIS 2676, at *32 (S.D.N.Y. 2004). However, where an expert's affidavit provides evidentiary details for an opinion expressed in his expert report, those portions of his or her affidavit can be considered. Id. Kuhn's statements in ¶¶ 3, 6, 10, 22, 25, 26, 27, 30, 32, 33, and 34 are not new opinions; they consist of details and explanations of statements he made in his expert report that are entirely consistent with and substantially similar to opinions expressed in his expert report. Thus, the Lenders' Evidentiary Objections and Motion to Strike with respect to ¶¶ 3, 6, 10, 22, 25, 26, 27, 30, 32, 33, and 34 are OVERRULED. Lenders' objection to ¶ 12 of Kuhn's Declaration is SUSTAINED because Kuhn cannot rely on the qualifications of his colleagues at A & C to buttress the reliability of his expert opinion. See Chartwell Litig. Trust v. Addus Healthcare, Inc., (In re Med Diversified, Inc.), 334 B.R. 89, 96 (Bankr.E.D.N.Y.2005). To rule otherwise would deprive the Lenders of their ability to cross-examine witnesses who are not testifying before the Court. The Lenders' also object to ¶ 24 of Kuhn's Declaration that "Based on current closing prices, public company comparables are trading at 6.6x-9.2x average 2009/2010 BCF, excluding any control premium." The Lenders' objection to ¶ 24 is SUSTAINED because Kuhn was making a statement about current trading prices of public company comparables, information that he did not possess at the time he submitted his expert report. This statement constitutes new opinion and new information and is, therefore, excluded from the record.
[16] Person is defined in the Credit Agreement as any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or any agency or political subdivision thereof. Credit Agreement § 1.01.
[17] Capital Stock of any Person is defined as any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock or other equity participations, including partnership interests, whether general or limited, of such Person, including any preferred stock. Credit Agreement § 1.01.
[18] Technically, under the terms of the Credit Agreement it is the Young group and members of management that should maintain control of the Company, however, because of that group only Mr. Young receives stock under the Committee Plan, that structure effectively would require Mr. Young to maintain that control.
[19] Section 1124 of the Bankruptcy Code provides as follows:
Except as provided in section 1123(a)(4) of this title, a class of claims or interests, is impaired under a plan unless, with respect to each claim or interest of such class, the plan
(1) leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest; or
(2) notwithstanding any contractual provision or applicable law that entitles the holder of such claim or interest to demand or receive accelerated payment of such claim or interest after the occurrence of a default
(A) cures any such default that occurred before or after the commencement of the case under this title, other than a default of a kind specified in section 365(b)(2) of this title or of a kind that section 365(b)(2) expressly does not require to be cured;
(B) reinstates the maturity of such claim or interest as such maturity existed before such default;
(C) compensates the holder of such claim or interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law:
(D) if such claim or such interest arises from any failure to perform a nonmonetary obligation, other than a default arising from failure to operate a nonresidential real property lease subject to section 365(b)(1)(A), compensates the holder of such claim or such interest (other than the debtor or an insider) for any actual pecuniary loss incurred by such holder as a result of such failure; and
(E) does not otherwise alter the legal, equitable, or contractual rights to which such claim or interest entitles the holder of such claim or interest.
[20] Inasmuch as the Court has determined that reinstatement of the loan is precluded because the Committee's main proposed board structure would violate section 6.01(j) of the Credit Agreement, the Court does not address the parties' dispute concerning the proper application of the two subsections of section 6.01(k).
[21] During his tenure at Allen & Company, Kuhn advised approximately 28 transactions, 18 of which were in the media and communications industry (Kuhn Decl. ¶ 3; Kuhn Dep. 22-23).
[22] During Kuhn's tenure at USA Networks, the company owned and operated 12 stations similar to the stations operated by the Debtors (JX-5 at 34).
[23] "Rule 702[] requires that the evidence or testimony `assist the trier of fact to understand the evidence or to determine a fact in issue.'" Daubert, 509 U.S. 579 at 591, 113 S. Ct. 2786. The Lenders do not object to the admissibility of Kuhn's testimony on the ground that it is irrelevant. Rather, the entire focus of their objection here is to reliability of the expert opinion. Therefore, the Court limits its analysis to the reliability factor under Rule 702.
[24] Frye v. United States, 293 F. 1013 (D.C.Cir. 1923), predates Rule 702 and stands for the proposition that expert opinions based on a scientific technique is inadmissible unless the technique is "generally accepted" as reliable in the relevant scientific community. Daubert v. Merrell Dow Pharms., Inc., 951 F.2d at 1128, 1129-30 (1991), vacated, 509 U.S. 579, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993). The Frye court further stated that expert opinion based on methodology that "diverge[s] significantly from the procedures accepted by recognized authorities in the field cannot be shown to be `generally accepted as a reliable technique.'" Daubert, 951 F.2d at 1130 (quoting United States v. Solomon, 753 F.2d at 1522, 1526 (9th Cir.1985)).
[25] In United States v. Downing, 753 F.2d 1224 (3d Cir.1985), the Third Circuit delineated additional factors that courts may consider with respect to the reliability of an expert testimony; these factors are, "[1] the degree to which the expert testifying is qualified, [2] the relationship of a technique to `more established modes of scientific analysis,' and [3] the `non-judicial uses to which the scientific technique are put.'" Paoli II, 35 F.3d at 742 (citing Downing, 753 F.2d at 1238-39).
[26] Depending on the facts of each case, the Daubert factors may or may not be pertinent in evaluating the reliability of an expert's testimony. See Kumho Tire, 526 U.S. at 150, 119 S. Ct. 1167.
[27] The discount rate is the cost of capital, which consists of calculating the company's cost of equity, cost of debt, and determine the weighted average of the costs of equity and debt, according to the company's capital structure or ratio of debt to equity. See Steiner Corp., 5 F.Supp.2d at 1133.
[28] The Committee argues that the weighted cost of debt is zero in the Levered DCF analysis because Kuhn had already accounted the cost of debt in the capital structure when determining the value of common equity in 2012. However, Kuhn failed to explain how he derived a discount rate range of 200% in his expert report. More importantly, the assumption he made is yet another example of Kuhn's impermissible modification of the generally accepted DCF method.
[29] Chartwell Litig., 334 B.R. at 99 (the expert never determined that the DCF method was inappropriate as a valuation method and failed to explain why he did not use it in his valuation analysis); Lippe, 288 B.R. at 695-97 (expert could not explain his failure to conduct a DCF analysis or why he chose certain multiples).
[30] In re Drexel Burnham Lambert Group, Inc., 138 B.R. 723, at 762-63 (Bankr.S.D.N.Y. 1992) (citing, In re Toy & Sports Warehouse, Inc., 37 B.R. 141, 151 (Bankr.S.D.N.Y. 1984); Prudential, 58 B.R. at 862-63); see also In re Clarkson, 767 F.2d at 420; Leslie Fay, 207 B.R. at 789; In re Sound Radio, Inc., 93 B.R. 849, 856 (Bankr.D.N.J.1988), aff'd in part, 103 B.R. 521 (D.N.J. 1989), aff'd, 908 F.2d 964 (3d Cir.1990); In re Adamson Co., 42 B.R. 169, 174 (Bankr.E.D.Va.1984).
[31] Drexel, 138 B.R. at 763 Cf. In re U.S. Truck Co., 800 F.2d 581, 589 (6th Cir.1986).
[32] In evaluating the adequacy of the Company's capital structure, Kuhn examined the Company's working capital, prospective availability of credit, its ability to meet debt service, and Capex (defined herein) requirements.
[33] A & C made the following adjustments to the Projections: assuming an effective date of February 28, 2010 (one month later than assumed in the Projections); investment of $45.6 million in new preferred equity with a 15% PIK coupon; reinstatement of $337 million existing debt based on the terms of the Credit Agreement excluding $2.2 million of annual management fees paid to Gray Consulting under the Debtors Plan and including $1.6 million of deferred compensation paid to senior management in 2010 (Kuhn Decl. at 8).
[34] The Stress Case assumes no growth in advertising revenue until 2011, except cyclical political advertising revenue, and lower base revenue in each subsequent year. It also assumes an additional $2 million in annual operating expenses (Id.).
[35] A & C did not attribute significant weight to the Comparable Company Analysis because it asserts that (1) the television broadcasting sector has been highly volatile over the past year and using a valuation range based on a specific point in time is not meaningful; (2) the comparable companies are highly levered such that implied trading values may reflect assumptions regarding the leverage in their capital structure as opposed to the underlying business fundamentals; and (3) unlike other industries, trading multiples in the broadcasting sector have historically been lower in a period of reduced cash flow, which could result in disproportionately depressed valuation in the current economy (Id. at 23). Similarly, A & C did not attribute significant weight to its Precedent Transactions Analysis because it asserts that (1) nearly all transactions occurred during or before 2007, where the economic environment was significantly different from the current economic environment, and (2) financing has become more difficult to arrange since mid-2008, resulting in less capital available in today's market (Id. at 25).
[36] To determine the implied present value of the Debtors based on a presumed sale in November 2012, A & C applied a discount rate range of 20%-30% to the equity value of the Debtors upon sale (JX-5 at 28).
[37] Cohen stated that the "look-back" average of 2010/2011 EBITDA is more appropriate because the Company will likely need to refinance the Debt by March 2012 to avoid receiving a "going concern" opinion from its auditors.
[38] On March 31, 2010 and April 6, 2010, two separate hearings were held before the Court in the Debtors' chapter 11 cases on issues unrelated to the confirmation of the competing plans. At these two hearings, the Debtors' counsel made various statements regarding recent developments in the Debtors' business operations. The Court did not consider those statements in making its findings in this Opinion as the Debtors did not move to re-open the record on confirmation that was closed as of February 16, 2010. It appears that had the record been re-opened and had the Court considered the statements made by the Debtors at these two hearings, they would not have materially altered the Court's analysis or determination on the issue before the Court.
[39] See supra note 4.
[40] The Debtors attempt to justify their inability to meet historic performance projections by representing that business plans prior to the Debtors' chapter 11 cases were used internally and revenue projections were designed to be aggressive in order to motivate the Debtors' sales team to exceed their goals (Morgan Decl. ¶ 13). However, the Court finds that this assertion is inconsistent with the fact that management made public statements on multiple occasions regarding the Debtor's revenue projections. (1/19 Hrg. Trans. at 155-160). Thus, the Court is not persuaded by the Debtors' explanation and finds that there is significant evidence showing the Debtors' historic failure to accurately make and execute revenue projections.
[41] Even accounting for cost savings that the Debtors have achieved in chapter 11, their corporate expenses projections for 2010 through 2012 still appear to be low.
[42] The Debtors' projections show estimated BCF margins of approximately 21.2% in 2009, 29.3% in 2010, compared to projected margins of over 31.8% in 2009 and 37.3% in 2010 of comparable companies (Morgan Dec. at ¶ 22; JX-3 at 13).
[43] Without a definitive plan to improve KRON, it also is unreasonable to project that this station would produce even modest profits upon plan confirmation. KRON's alleged improvement has been mixed and inconsistent at best. With respect to KRON's performance in 2009, Morgan testified that "During the summer, KRON was soft. KRON rebounded in September. It came back and started approaching its budget numbers. Its fourth quarter, it was a little under budget but it was coming back at the end...." (1/19 Hrg. Trans. at 179).
[44] In the email, Morgan wrote "... Our model assumes $8mm of capex per year starting now, 2009, forward (escalating at 1.5% per year) I need a "capex plan" for each year from now through 2013...." (Lender Ex. 44).
[45] "Q. And your response to Bob is that you'll go ahead and do this, correct?
A. That is correct.
Q. And he says his model assumes eight million of capex. Were youdid you understand your task to create a plan that would fit into this model?
A. Yes."
(Lenders Ex. 76 (Peterson Dep. at 45-46)).
[46] The Court finds that the Capex budget in the Debtors' business plan is insufficient on the basis of the amount of deferred Capex over the last several years alone, regardless of whether KRON eventually enters a shared-services agreement or is sold.
[47] There is no evidence that the broadcast television ("TV") industry would significantly improve over the next 2.5 years. To the contrary, broadcast TV has been losing market shares to cable and satellite TV (JX-4 at 12) as well as other forms of media (Id. at 13). According to Veronis Suhler Stevenson's Communications Industry Forecast 2009-2013, advertising spending will not begin to turn around from its recent dip until 2011 and will show no growth until 2012 (JX-1 at 21) ("The ad market will dip another 1.0 percent in 2010 before posting a modest turnaround in 2011. Growth will pick up in 2012 due to the influx of political and Olympics advertising. Overall, ad spending will post a CAGR of 0.4 percent during the 2008-2013 period ... continuing to be the slowest growing of the four communications sectors."). Moreover, local advertising, which is important to the Debtors' business, will not rebound as quickly as national advertising (Id. at 22). For purposes of this case, the Court is only concerned about the forecast up to November 2012; thus, the Court will not reach the question of whether the decline in the TV industry is cyclical or secular.
[48] Cohen also opines that a potential buyer would not pay for the intrinsic value of the Company because buyers (1) may not have full confidence in the Company's management and their projections, and (2) would also account for future tax attributes. (JX-4 at 27).
[49] The Credit Agreement does not require establishing a reserve account to satisfy the Debt in November 2012. Although the Lenders are not entitled to the protection afforded by a reserve account, the fact that the Committee would not commit to establishing such an account in its Plan is relevant in determining the amount that needs to be refinanced when the Debt matures in November 2012.
[50] Given that the Debt matures in November 2012, the Company would need to begin negotiations with potential lenders in the spring of 2012, particularly when there's evidence that the Company would otherwise receive a going concern opinion from its auditors. Potential lenders will definitely rely on the "look back" average of the Company's 2010/2011 EBITDA and will likely consider the Company's projected EBITDA for 2012. Any informed lender would also account for the fact that 2012 is a presidential election year with higher-than-average expected earnings. In addition, EBITDA projections of 2013 must incorporate higher debt service cost, as new financing almost certainly will require higher interest payment and more restrictive covenants than those present in the Credit Agreement.
[51] The market value of debt to EBITDA of Sinclair and Belo are 6.2x and 5.9x, respectively (JX-4 at 40)
[52] Under the Base Case, the Company's cash accumulation is $87.4 million and the net debt balance is $239.5 million. Under the Stress Case, the Company's cash accumulation is $67.2 million and the net debt balance is $259.7.
[53] By way of urging the Court to find its plan feasible, the Committee analogizes the facts of this case to In re DBSD N. Am., Inc., 419 B.R. 179 (Bankr.S.D.N.Y.2009), aff'd No. 09 Civ. 10156(LAK), 2010 WL 1223109 (S.D.N.Y. March 24, 2010), where a bankruptcy court confirmed a reinstatement plan over an objecting secured creditor and found that the debtor would be able to satisfy a balloon payment in four years by obtaining further financing or collaborating with a strategic partner. The facts of DBSD, however, are distinguishable from the facts of this case. At the time of its confirmation hearing, DBSD had already obtained three strategic transactions proposals, one of which came from the objecting secured creditor. By contrast, the Debtors have offered no evidence of any potential buyer of the Company. Further, DBSD had significant competitive advantages over comparable companies in the industry, both in terms of its superior technology and capital structure. The Debtors, on the other hand, offered no evidence of competitive advantages over comparable TV broadcasting companies, such as Sinclair and Belo, that would justify their aggressive revenue growth projections over the next 2.5 years. In fact, both Sinclair and Belo are larger companies with substantially lower senior debt to leverage ratio than that of the Debtors. Most importantly, the DBSD court found that the company's total enterprise value to be 6 to 8.44 times the amount of the objector's secured debt; the Debtors' total enterprise value upon exiting bankruptcy is less than the amount of debt owed to the Lenders.
[54] Courts have considered the following factors to determine whether a plan discriminates unfairly: (1) whether there is a reasonable basis for discriminating; (2) whether the debtor can consummate the plan without discriminating; (3) whether the discrimination is proposed in good faith; and (4) the degree of discrimination is in direct proportion to its rationale. WorldCom, 2003 WL 23861928, at *59.
[55] In light of the Court's holding regarding the Committee Plan's feasibility, the Court does not reach the issue of whether it would be appropriate to afford the Committee an opportunity to supplement the record to satisfy its burden with respect to the cramdown requirements under section 1129(b).
[56] Under Article VI.C of the Debtors Plan, "Exit Facility" means "a $10 million revolving credit facility for Reorganized Young, secured by all assets of Reorganized Mr. Young and its subsidiaries (as guarantors), entered into on the Effective Date."
[57] At the Confirmation Hearing, the Debtors requested the Court to consider confirmation of the Debtors Plan only if the Court finds the Committee Plan unconfirmable.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/1522133/
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430 B.R. 62 (2010)
In re Gregory K. DAVIS, Debtor.
No. 05-90690 K.
United States Bankruptcy Court, W.D. New York.
June 11, 2010.
*63 Dennis Gaughan, Hamburg, NY, George J. Navagh, Robert R. Radel, Buffalo, NY, for Debtor.
Thomas A. Dorey, Lakewood, NY, Trustee.
OPINION AND ORDER
MICHAEL J. KAPLAN, Bankruptcy Judge.
This being a surplus money Chapter 7 case, the Debtor has objected to proofs of claims that the Chapter 7 Trustee filed on behalf of creditors pursuant to Rule 3004, F.R.B.P., which states "if a creditor does not timely file a proof of claim under Rule 3002(c) or 3003(c), the Debtor or Trustee may file a proof of the claim within 30 days after the expiration of the time for filing claims prescribed by Rule 3002(c) or 3003(c), whichever is applicable. The Clerk shall forthwith give notice of the filing to the creditor, the Debtor and the Trustee."
In this case, the claims filed on behalf of creditors by the Trustee were not filed within the 30 day limitation contained in the Rule.
The Trustee argues that even so, the claims should be allowed as "late-filed" claims which, under 11 U.S.C. § 726, he argues, must be paid before any surplus is returned to the Debtor.
The Court finds that the Trustee has misread 11 U.S.C. § 726. This analysis begins with examination of 11 U.S.C. § 501. That statute contains five subsections. Subsection (a) states that "a creditor or an indenture trustee may file a proof of claim. An equity security holder may file a proof of interest." Subsection (c) states: "if a creditor does not timely file a proof of such creditor's claim, the Debtor or the Trustee may file a proof of such claim." In the legislative history to § 501, the deadlines for claims filing were clearly to be left to rulemaking.
Turning now to the text of § 726 of the Code one finds that § 726(a) is more detailed and nuanced than is suggested by the Trustee's argument here. The second sub-subsection of § 726(a) provides for distribution, pari passu, to all timely filed claims under § 501(a)-(c) and to claims "tardily filed under § 501(a) if 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 claim under § 501(a)". It is logical that claims tardily filed by the Trustee or Debtor would not be included in this distributive position because the Debtor and Trustee, of course, have actual knowledge of the claims bar date.
Most critically, the third sub-section of § 726(a) states that the next tier or payment *64 would be "in payment of any allowed unsecured claim, proof of which is tardily filed under § 501(a) of this title other than a claim of the kind specified in paragraph (2)(c) of this subsection." In other words, if a creditor or indenture trustee tardily filed a proof of claim under § 501(a) but is shown to have had notice or actual knowledge of the case in time for timely filing of a proof of claim under § 501(a), that creditor's claim is knocked down to the next tier of distribution. But, dispositively, claims tardily filed under § 501(c) are not accorded the same benefit that is accorded to creditors who had knowledge or notice in time to file a timely claim, but nonetheless filed a tardy claim.
Consequently, the statutory language makes it clear that late-filed claims, filed by the Trustee or Debtor pursuant to § 501(c) do not enjoy the same protection enjoyed by creditors who filed late claims under § 501(a).
Thus, the Trustee has overstated the protections accorded by § 726, and the Debtor's objection to the Trustee's late-filed claims must be sustained.
For purposes of this case alone, a further observation should be made. Although the Debtor did not initially serve notice of his claims objections on the creditors whose claims were filed by the Trustee, that omission was rectified at some point during the pendency of the objection. The Court is not sure that that notice would be a necessary step in reaching today's holding, because of a peculiarity that occurred in this specific case. What occurred is this. Congress' specific attention to the treatment of untimely claims under § 726 took the form of 1994 amendments thereto. In the 1996 iteration of the Federal Rules of Bankruptcy Procedure, a provision of Rule 3002 was abolished in light of the 1994 statutory amendments. That provision of Rule 3002 stated "in a Chapter 7 liquidation case, if a surplus remains after all claims allowed have been paid in full, the Court may grant an extension of time for the filing of claims against the surplus not filed within the time herein above prescribed." That provision was the authority for what has been known for a very long time as the "Surplus Money Notice."
For some reason, a Surplus Money Notice went out in this particular case on September 16, 2009, fixing October 9, 2009 as the bar date for "filing claims against surplus monies." The proofs of claims that the Trustee filed were not filed until November 15, 2009. Thus, the Trustee's claims on behalf of creditors were not timely even under the Surplus Money Notice that has not had lawful underpinnings since 1996. Consequently, to the extent that the addresses provided by the Debtor for the creditors in question are accurate addresses, the creditors for whom the Trustee filed claims had ignored the initial claims bar notice and this erroneous surplus money claims notice. Under that supposition, the Court might decide that notice to those creditors of the Debtor's objection to the Trustee's proofs of claim would not be essential to today's holding. The other possible assumption, however, is that the addresses that the Debtor provided for the creditors who did not file proofs of claim were erroneous addresses. If that is the case, requiring that the Debtor send notice of the claims objection to those same creditors at those same erroneous addresses would seem to serve no practical purpose, although it would promote obedience to the due process notion that an adverse party should be served at the party's "last known address" even if one knows that he, she or it is no longer there.
The Court does not today express an opinion as to how it would rule if the Debtor had never served his objection on *65 the creditors named in the Trustee's proofs of claims, given the peculiarities of the case with regard to the issuance of the surplus money notice.
The Court does, however, direct that in sending the required notice of entry of this Opinion and Order, the Clerk include in the mailing, the creditors named in the proofs of claims that the Trustee filed on each creditor's behalf.
SO ORDERED.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/1522132/
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217 F. Supp. 110 (1963)
UNITED STATES of America, Plaintiff,
v.
PENN-OLIN CHEMICAL COMPANY, Olin Mathieson Chemical Corporation and Pennsalt Chemicals Corporation, Defendants.
Civ. A. No. 2282.
United States District Court D. Delaware.
May 1, 1963.
*111 *112 Alexander Greenfeld and Leonard G. Hagner, U. S. Attys., District of Delaware, Wilmington, Del., Daniel J. Freed and Edward A. Copley, Justice Dept., Antitrust Division, Washington, D. C., for United States.
William S. Potter (Berl, Potter & Anderson), Wilmington, Del., for defendants.
H. Francis DeLone and John T. Subak (Dechert, Price & Rhoads), Philadelphia, Pa., for Pennsalt Chemicals Corp.
Albert R. Connelly and John W. Barnum (Cravath, Swaine & Moore), New York City, for Olin Mathieson Chemical Corp.
STEEL, District Judge.
The Government has brought a civil action against Penn-Olin Chemical Company (Penn-Olin), Olin Mathieson Chemical Corporation (Olin), and Pennsalt Chemicals Corporation (Pennsalt), in which it seeks to prevent and restrain them from allegedly continuing to violate Section 1 of the Sherman Act, 15 *113 U.S.C. § 1, and Section 7 of the Clayton Act, 15 U.S.C. § 18.[1]
The primary attack of the Government is directed against a joint venture between Pennsalt and Olin, pursuant to which they jointly organized and have controlled Penn-Olin for the purpose of having it construct a plant at Calvert City, Kentucky to produce and sell sodium chlorate. The Government charges that the effect of the joint venture and of the action of the parties thereunder may be to substantially lessen competition and tend to create a monopoly not only in sodium chlorate, but also in other non-chlorate chemicals, in violation of Section 1 of the Sherman Act and Section 7 of the Clayton Act. By an amendment to its complaint the Government has also charged that agreements between Pennsalt and Olin entered into in December 1957 and February 1958, denominated, respectively, the "sales agreement" and the "production agreement", restrain trade and commerce in sodium chlorate in violation of Section 1 of the Sherman Act.
JURISDICTION
The Court has jurisdiction over the person of each defendant, and by virtue of Section 15 of the Clayton Act, 15 U.S.C. § 25, and Section 4 of the Sherman Act, 15 U.S.C. § 4, it has jurisdiction over the subject matter of the action.
THE DEFENDANTS
Pennsalt is a Pennsylvania corporation with its principal place of business in Philadelphia, Pennsylvania. It is a chemical company engaged in the production and sale of about 400 chemicals and chemical products, at fifteen plants located in eleven states as follows:
Alabama Ohio
California Oregon
Georgia Pennsylvania (2
Illinois plants)
Kentucky (2 plants) Texas (3 plants)
Michigan Washington
Pennsalt's nationwide sales operations are conducted from its headquarters in Philadelphia and from 18 regional offices located in 13 states as follows:
Alabama New York
California (3 Ohio (2 offices)
offices) Oregon
Georgia Pennsylvania
Illinois (2 Texas (2 offices)
offices)
Michigan Washington
Missouri Wisconsin
Pennsalt has been engaged in the chemical business for over 110 years. In 1960 its sales amounted to over $90,000,000 on which it earned almost $5,000,000. During the same year, its assets were approximately $90,000,000. Since 1958 it has been engaged in a $55,000,000 capital *114 investment program for the modernization and expansion of existing facilities and the construction of new ones.
Olin is a corporation organized under the laws of Virginia with its principal place of business in New York City. It is a diversified industrial corporation. The Chemical Division is one of seven operating divisions, and accounts for approximately 30% of the corporation's operating revenues. Olin's Chemicals Division produces a great number and variety of chemicals and chemical products from plants located in 15 states as follows:
Alabama Mississippi
Arizona Nebraska
Arkansas New York
Georgia North Carolina
Illinois Pennsylvania
Kentucky Texas
Louisiana Virginia
Maryland
Olin was formed in 1954 by the merger of Olin Industries, Inc., and Mathieson Chemical Corporation. Olin's activity in the chemical business reaches back, through its predecessor, Mathieson Chemical Corporation, to 1892. In 1960 Olin had sales of $690,000,000 on which it earned a net profit of $35,000,000. Its assets during that year amounted to $860,000,000. During 1960 its capital expenditures were almost $49,000,000. Net sales of its chemical division in 1960 amounted to $217,000,000.
Penn-Olin is a Delaware corporation which was organized on February 25, 1960 by Olin and Pennsalt pursuant to a joint venture agreement between them dated February 11, 1960. Pennsalt and Olin each own one-half of Penn-Olin's capital stock. The officers of Penn-Olin are divided equally between officers of Pennsalt and officers of Olin. The board of directors of Penn-Olin is comprised equally of representatives of Pennsalt and those of Olin. Penn-Olin has no officers, directors or employees who are not concurrently employed by either Pennsalt or Olin. Penn-Olin constructed a plant at Calvert City, Kentucky at a cost of $6,454,000, for the production of 26,500 tons of sodium chlorate per year. It commenced production on September 1, 1961. By agreements executed in October 1961, dated as of January 2, 1961, Pennsalt undertook to operate the Penn-Olin plant and Olin agreed to sell its output.
All of the defendants are engaged in interstate commerce
THE ASSERTED ILLEGALITY OF THE JOINT VENTURE
The Government claims that each of the defendants was engaged in interstate commerce at the time when Pennsalt and Olin acquired the stock of Penn-Olin, that the acquisition of such stock was tantamount to an indirect acquisition by Pennsalt and Olin of the assets of the other at a time when each was subject to the jurisdiction of the Federal Trade Commission, and that the joint venture and the actions taken thereunder may result in a substantial lessening of competition in one or more sections of the country, or tend to create a monopoly, in sodium chlorate and other non-chlorate chemicals. For these reasons it is charged that Section 7 of the Clayton Act has been violated. The Government also charges that regardless of whether the joint venture involved an acquisition of stock or assets banned by Section 7 of the Clayton Act, it nevertheless constituted a combination in restraint of trade in violation of Section 1 of the Sherman Act.
The defendants deny the anticompetitive or monopolistic effect of the joint venture and assert that competition in the manufacture and sale of sodium chlorate has been increased by Penn-Olin entering the field. Defendants also contend that Section 7 of the Clayton Act is without application because, defendants say, Penn-Olin was not engaged in commerce when its stock was acquired by Olin and Pennsalt, and neither Olin nor Pennsalt acquired any interest in *115 the assets of the other when they acquired Penn-Olin stock.[2]
The last defense will not be discussed since, for the reasons hereafter stated, the joint venture did not have the anticompetitive effect at which Section 7 was aimed. The Sherman Act challenge will also be disregarded, for the anticompetitive standard imposed by Section 7 of the Clayton Act is less stringent than that of the Sherman Act. Brown Shoe Co. v. United States, 370 U.S. 294, 329, 82 S. Ct. 1502, 8 L. Ed. 2d 510 (1962).
Broadly speaking, the Section 7 issues to be resolved are whether the effect of the joint venture:
1. May be to substantially lessen competition or tend to create a monopoly;
2. In any section of the country;
3. In any line of commerce. These question will be discussed in inverse order:
The Relevant Lines of Commerce
The parties agree that two "line[s] of commerce" within the meaning of Section 7 of the Clayton Act are relevant to this case: sodium chlorate, and of the non-chlorates, calcium hypochlorite.[3]
Sodium Chlorate
Sodium chlorate is a white crystalline chemical. It is produced commercially by the electrolysis of an acidified solution of salt (sodium chloride). The process is closely akin to that used in the commercial production of chlorine and caustic soda. Sodium chlorate of like purity is a fungible commodity. Any which is produced for sale by a domestic producer is reasonably interchangeable with that of any other domestic producer.
In 1960 over 91,000 tons of sodium chlorate, valued at close to $18,000,000, were produced in the United States. The domestic production of sodium chlorate has increased greatly within the last ten years. From 1950-1955, the domestic production of sodium chlorate more than doubled, rising from 22,085 tons in 1950 to 46,972 tons in 1955. From 1950-1960, the production of sodium chlorate more than quadrupled, rising from 22,085 tons in 1950 to 91,900 tons in 1960.
In 1960, over 54,600 tons of sodium chlorate were produced east of the Rockies and 37,300 tons produced west. At the prevailing prices (9 cents per pound in the east and 10½ cents per pound in the west), eastern production was valued at over $9.8 million while western production amounted to $7.8 million.
The largest consumer of sodium chlorate is the pulp and paper industry. That industry uses sodium chlorate in the bleaching of pulp for brighter, higher quality paper. The pulp and paper manufacturers use sodium chlorate as a principal raw material to generate chlorine *116 dioxide, a gaseous material which possesses the unique ability to bleach cellulose fibers to a maximum whiteness with little or no loss of fiber strength. In 1958 70,541 tons of sodium chlorate were used commercially in the United States. Of this, 29,000 tons, or 41.1%, were used in pulp and paper bleaching. The next largest amount, 16,100 tons, or 22.8%, was used for herbicides (weed control). In 1960, the national shipments amounted to 81,928 tons of which 52,415, or 64%, were for pulp and paper mill consumption. Of the 47,036 tons shipped into the southeast in 1960, 39,563 tons, or 84%, were consumed by pulp and paper mills.
The recent growth of the sodium chlorate market is largely due to the adoption and rapid expansion of chlorine dioxide bleaching in the pulp industry.
In addition to its use by the pulp and paper industry, sodium chlorate is also used in agricultural chemicals (herbicides and defoliants) and in the production of ammonium perchlorate and other derivatives.
Since 1953 and prior to Penn-Olin, three producing companies, or their predecessors, have constituted the sodium chlorate industry in the United States: Hooker Chemical Corporation (Hooker), American Potash & Chemical Corporation (AmPot), and Pennsalt. Imports of sodium chlorate, stipulated to have been not substantial, have been as follows:
1956 892 tons
1957 335 tons
1958 1,322 tons
1959 2,596 tons
1960 4,152 tons
Hooker is the largest producer and seller of sodium chlorate in the United States. In 1956 Hooker acquired Oldbury Electro Chemical Company (Oldbury) which had produced sodium chlorate at Niagara Falls, New York since about 1900 and which, in 1954, had constructed a plant in Columbus, Mississippi to meet the growing demand for sodium chlorate in the southeast. At the time when Oldbury constructed its Columbus plant, it had no other facilities or activities at or near Columbus. The capacity of Hooker's Columbus plant was increased in 1956, 1958 and 1960; the capacity of the Niagara Falls plant was decreased in 1961. The capacity of Hooker's two plants has been as follows:
Niagara
Falls Columbus
1957 12,000 tons 17,435 tons
1958 12,000 tons 21,340 tons
1959 12,000 tons 29,150 tons
1960 18,000 tons 32,000 tons
1961 14,000 tons 32,000 tons
In 1960 Hooker had assets of $187,000,000 and net sales of $150,000,000.
AmPot is the second largest producer and seller of sodium chlorate in the United States. It entered the business in November 1955 by acquiring Western Electro Chemical Company (Western). The latter had a single plant at Henderson, Nevada, where it had produced sodium chlorate since 1941. In February 1957 AmPot authorized construction of a sodium chlorate plant at Aberdeen, Mississippi to meet the growing demand in the southeast, and to compete effectively in that market with Hooker's Columbus, Mississippi plant. AmPot has twice expanded the capacity of the original Aberdeen plant. The capacity of the two AmPot plants has been as follows:
Henderson Aberdeen
1957 27,000 tons _____
1958 27,000 tons _____
1959 27,000 tons 12,000 tons
1960 27,000 tons 15,000 tons
1961 28,000 tons 22,500 tons
In 1959 the total assets of AmPot were $73,000,000 and its net sales in that year were $50,500,000. AmPot uses the Solvay Process Division of Allied Chemical and Dye Corporation (Allied Chemical) as its sales agent for sales of sodium chlorate to the pulp and paper and textile industries. Allied Chemical is a leading producer and seller of chemicals in the United States. Allied Chemical uses its *117 large sales force and large technical service facilities and the Solvay process for generating chlorine dioxide in selling sodium chlorate produced by AmPot. In 1960 Allied Chemical had assets of $801,000,000 and sales and operating revenues of $766,000,000.
When AmPot's sodium chlorate plant at Aberdeen went on stream, Solvay was almost entirely responsible for selling the output of that plant. Today, the direct selling of the Aberdeen sodium chlorate output is largely AmPot's responsibility. AmPot contributes approximately 70% of the direct selling effort.
The percentages of sodium chlorate sales made by Hooker and AmPot in 1960 were as follows:
East of
U. S. Rockies Southeast
Hooker 45.9% 54.6% 49.6%
American
Potash 35.6% 37.9% 41.7%
------ ------ ------
Totals 81.5% 92.5% 91.3%
Pennsalt has produced sodium chlorate at Portland, Oregon since 1941 which it had sold principally west of the Rockies. The following tabulation sets forth its initial productive capacity at Portland and its expansion of that plant to date:
Tons Per
Year
October 1941 2,194
October 1942 3,448
January 1943 4,248
December 1949 5,448
February 1954 7,848
October 1957 12,392
October 1959 15,392
Until the early 1950's, Pennsalt's sales of sodium chlorate were principally for herbicidal use and virtually no sales were made to pulp and paper mills. At that time Solvay, which was selling sodium chlorate produced by AmPot, began offering its chlorine dioxide process to the pulp and paper industry conditioned upon the user purchasing its sodium chlorate requirements exclusively from Solvay. This led Pennsalt, in mid-1953, to enter into an agreement with Mathieson under which Pennsalt was permitted to install the Mathieson process in all the paper mills in the northwest.[4] After this occurred, Solvay was never again successful in putting in its process in the northwest, and by 1960 Pennsalt had attained 100% of the sodium chlorate business of the western pulp and paper industry.
In July 1961 a fourth company, Pittsburgh Plate Glass Company (PPG), announced that it would construct a 15,000 ton per year sodium chlorate plant at Lake Charles, Louisiana. PPG is a large, diversified industrial corporation which produces and sells chemicals through its Chemical Division, formerly a subsidiary company, Columbia Southern. PPG has large technical service, sales, market research, and laboratory forces already serving the south-eastern pulp and paper industry. In 1960 PPG had total assets of $625,000,000 and net sales of $628,000,000.
A fifth company, Pacific Engineering & Production Company of Nevada (Pacific), with the aid of a loan of $2,400,000 from American Cyanamid Company, is constructing at Henderson, Nevada a sodium chlorate plant with a capacity of 5,000 tons per year to commence production late in 1962. For its loan American Cyanamid received a promissory note of Pacific secured by deed of trust on all of Pacific's assets, an option to receive license on Pacific's processes, and an option to acquire all the assets of Pacific or 50% of its common stock. American Cyanamid is a leading producer and seller of chemicals in the United States.
Olin has never manufactured sodium chlorate for sale or been an independent seller of it. For years, however, it and its predecessor Mathieson has manufactured sodium chlorite which was sold to pulp and paper mills. The sodium chlorite, when dissolved in an acid *118 solution by the mills, generated chlorine dioxide which the mills used as a bleaching agent for the pulp.[5] The raw material used in the manufacture of sodium chlorite is sodium chlorate. In the early 1930's Mathieson produced sodium chlorate chemically for its own use in manufacturing sodium chlorite. During the late 1930's it stopped manufacturing sodium chlorate and turned to buying it. Approximately 5,000 tons of sodium chlorite are sold in the United States annually. Olin is the only domestic producer and 1960 was its best year.
Calcium Hypochlorite
Calcium hypochlorite, like sodium chlorate, is used in the production of pulp and paper. There are three important competitors in calcium hypochlorite: Olin, Pennsalt, and PPG.
In 1959 Pennsalt and Olin together accounted for $6,480,000 sales, or 88.8% of all calcium hypochlorite sold in the United States. Their respective market shares were:
Olin 62.4%
Pennsalt 26.4%
In 1960 Pennsalt and Olin accounted for 76.6% of the $6,900,000 sales of calcium hypochlorite throughout the United States. Ninety-nine percent of each company's sales were made in 43 states where both sold the product.
The competition between Olin and Pennsalt in the sale of calcium hypochlorite is substantial.
The Relevant Market
Section 7 of the Clayton Act is aimed at a substantial lessening of competition in "any section of the country", or, as the statute is frequently paraphrased, in any relevant market. Whether a given transaction may substantially lessen competition depends upon its probable effect in a relevant market. Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 329, 81 S. Ct. 623, 5 L. Ed. 2d 580 (1961). The delineation of a relevant market is therefore a necessary predicate for determining the anticompetitive effect of any transaction challenged under Section 7. Brown Shoe Co. v. United States, supra, 370 U.S. p. 335, 82 S.Ct. p. 1529.
Calcium Hypochlorite
In calcium hypochlorite the parties agree that the national market is the relevant one.
Sodium Chlorate
The parties likewise agree that there is a relevant southeastern market in sodium chlorate, and although they define this market somewhat differently, the difference is not significant.[6]
But here agreement ends. The Government claims that there are two other *119 relevant markets: the national market and the eastern market.
The national market, as the name implies, embraces the entire continental United States, except Alaska. The finding of a national market is important in the Government's view because it is said to put Pennsalt, Olin and Penn-Olin in the same area, to establish that Pennsalt and Olin should have been actual competitors, as a matter of law, at the time of Penn-Olin's creation, and to determine that Pennsalt and Penn-Olin were actual competitors, as a matter of law, following Penn-Olin's creation. Defendants deny that a national market exists.
The eastern market is defined as the entire United States east of the Continental Divide. It excluded only the states lying west of the Rocky Mountains, viz, Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington and Wyoming. Defendants say that the statistical analysis of the competitive effect of Penn-Olin is the same regardless of whether the eastern or southeastern market is deemed to be relevant, and that it is immaterial whether there is a relevant eastern market. This position, asserted both in defendants' brief and at the argument, was not controverted by the Government. It has made no effort to show a difference, significant in antitrust law, between the competition effect of the challenged transactions in the so-called eastern as against the southeastern market. The Court does not therefore feel called upon to make an independent analysis of the problem. So the issue is the narrow one whether the southeast is the only relevant market, or whether there is a relevant nationwide market as well
A market is relevant in determining whether a given transaction may substantially lessen competition only if it is an area of effective competition. Standard Oil Co. v. United States, 337 U.S. 293, 300, n. 5, 69 S. Ct. 1051, 93 L. Ed. 1371 (1949); United States v. Maryland and Virginia Milk Producers Ass'n, 167 F. Supp. 799, 802 (D.D.C.1958), aff'd 362 U.S. 458, 80 S. Ct. 847, 4 L. Ed. 2d 880 (1960). The two terms area of effective competition and relevant market are synonymous. Tampa Electric Co. v. Nashville Coal Co., supra, 365 U.S. p. 328, 81 S.Ct. p. 628.
Whether a geographic location is or is not an area of effective competition in a given case is a question of fact. Congress prescribed a pragmatic, factual approach to the definition of the relevant market and not a formal legalistic one. The geographic market in which the anticompetitive effect of a transaction is to be tested must both correspond to the commercial realities of the industry and be economically significant. Brown Shoe Co. v. United States, supra, 370 U.S. pp. 336-337, 82 S.Ct. pp. 1529-1530 (1962). It can be defined only in the light of the overall objectives of Section 7 and with particular recognition that it is being defined for the purpose of determining the reasonable probability of substantially lessening competition. United States v. Bethlehem Steel Corp., 168 F. Supp. 576, 588 (S.D.N.Y.1958).
When Pennsalt and Olin entered into the joint venture, there were only three companies in the United States which produced sodium chlorate for sale commercially: Hooker, AmPot and Pennsalt. Pennsalt had only one plant. It was on the west coast at Portland, Oregon. Hooker had two plants, both in the east. One was at Niagara Falls, New York, and the other at Columbus, Mississippi. AmPot had two plants one in the east at Aberdeen, Mississippi, and the other in the west at Henderson, Nevada. The Mississippi installations of AmPot and Hooker were both in the southeastern market.
The southeastern market was the one in which there was the heaviest concentration of sodium chlorate buyers.[7] Of *120 the buyers, the pulp and paper mills were far and away the largest.[8] Plants having almost half of the national sodium chlorate productive capacity were also located in the southeast.[9]
After the southeast, the largest concentration of buyers and the largest productive capacity were in the 11 states west of the Rocky Mountains.[10]
In 1960, therefore, the two most important markets in the United States, both from the standpoint of consumption and production, were first, the southeastern market, and second, the western market. Of foremost importance in determining whether there was a nationwide relevant market is the question whether western shippers could compete effectively in the southeast, and southeastern producers could compete effectively in the 11 western states. Unless they could, there was no relevant national market.
Normally of vital importance to competitive effectiveness are quality, price and service. So far as appears, neither AmPot, Hooker or Pennsalt enjoyed any advantage over the other in the quality of its product. From the standpoint of both price and service, Pennsalt was at a decided disadvantage, as against AmPot and Hooker, in supplying buyers in the southeast.
Pennsalt's price disadvantage resulted from the cost of transportation which it had to bear. To be competitive in the southeast, Pennsalt was faced with the necessity of absorbing the difference between the freight from its Portland plant and the buyer, and the freight between the buyer and the closest southeastern supplier. The freight disadvantage to AmPot in shipping a ton of sodium chlorate into the southeastern market from Henderson, Nevada as against shipping it from Aberdeen, Mississippi was approximately $25 to $30 a ton. This represented about 15% of the delivered price of $163 a ton. The freight disadvantage to Pennsalt was even greater.
A competitive price disadvantage arising from transportation costs is an important factor in determining the scope of a relevant market. United States v. Columbia Steel Co., 334 U.S. 495, 68 S. Ct. 1107, 92 L. Ed. 1533 (1948), reh. den. 334 U.S. 862, 68 S. Ct. 1525, 92 L. Ed. 1781 (1948); American Crystal Sugar Co. v. Cuban-American Sugar Co., 152 F. Supp. 387, 398 (S.D.N.Y.1957), aff'd 259 F.2d 524 (2d Cir. 1958); Erie Sand & Gravel Co. v. F. T. C., 291 F.2d 279, 281-282 (3d Cir. 1961). The record fails to suggest that Pennsalt was in a position to surmount or equalize its freight disadvantage because of lower operational costs, or otherwise.
Remoteness from southeastern buyers also placed Pennsalt at a service disadvantage. To pulp and paper manufacturers prompt delivery is a matter of importance. Delivery time for a shipment from Mississippi to the southeastern market is normally two to four days. Shipments from the northwest take ten to fourteen days. The chances of shipping delays increase as the distance between supplier and customer becomes greater. When Olin was acting as selling agent for Pennsalt under the December *121 1957 contract, Olin encountered buyer resistance because Pennsalt's production was located at a substantial distance from the market.
In addition, a buyer wants an assured source of supply. A remote seller such as Pennsalt who is called upon to absorb substantial freight costs cannot be viewed as a stable source of supply. It will, in all likelihood, favor buyers in its own vicinity whenever the supply situation becomes tight. This would appear to be particularly true in the case of Pennsalt since for many years both the bulk price and the drum price of sodium chlorate has been higher west of the Rockies than east of the Rockies. This price differential of about 15%, coupled with the freight equalization with which Pennsalt is burdened, would, in times of short supply, naturally cause Pennsalt to favor west coast purchasers at the expense of buyers in the southeast. The proximity of productive facilities in terms of the availability to a buyer of service and supply is also important in the delineation of a relevant market. Crown Zellerbach Corp. v. F. T. C., 296 F.2d 800, 817 (9th Cir. 1961), cert. den. 370 U.S. 937, 82 S. Ct. 1581, 8 L. Ed. 2d 807 (1962). See also Tampa Electric Co. v. Nashville Coal Co., supra, 365 U.S. pp. 331-333, 81 S.Ct. pp. 630-631.
The disadvantages inherent in the distance of Pennsalt's plant from southeastern buyers prevented Pennsalt from effectively competing against suppliers with plants in that area. To Pennsalt, the southeast was not a "natural locus of distribution". American Crystal Sugar Co. v. Cuban-American Sugar Co., supra, 152 F.Supp. p. 398. Pennsalt's proximity to pulp and paper manufacturers in the northwest made that market the natural distributional area for it. In 1960 Pennsalt supplied 100% of the sodium chlorate bought by pulp and paper manufacturers in the northwest.
The Government answers that Pennsalt's competitive handicaps are theoretical only. It argues that despite Pennsalt's natural, freight, or other burdens, it has hurdled all obstacles, and by its actual shipments across country has demonstrated its ability to effectively compete in the southeast. Theory, the Government says, is of little consequence as against the facts. United States v. Bethlehem Steel Corp., supra, 168 F.Supp. pp. 592, 599.
The Government points out that in 1960 Pennsalt shipped across country 4,877 tons of sodium chlorate, or 32% of its total shipments of 15,362 tons. The key factor which enabled Pennsalt to do this is said to have been the substantial excess of eastern demand over production.
Despite the Government's assertion of a substantial imbalance between supply and demand in the "eastern" market, none existed in the southeast. The total shipments of sodium chlorate to the southeast during 1960 was 47,035.76 tons. The total capacity of the southeastern plants was 47,000 tons; Hooker at Columbus, 32,000 tons; AmPot at Aberdeen, 15,000 tons. In 1960 the southeastern market was not a deficit area.[11]
In 1960 Pennsalt shipped into the southeastern market 4,186 tons, or 27% of its total shipments of 15,195 tons. Of these shipments, 3,203 tons were sold by Olin as agent for Pennsalt under their sales contract of December 1957.[12] Olin had long-standing contacts with many buyers as a result of other chemicals sold to them and enjoyed a unique good will because of having made the Mathieson process available without charge. The arrangement between Pennsalt and Olin was only temporary, and Pennsalt was losing $80,000 a year on the sales which Olin was making. Pennsalt's shipments of 3,203 tons in fulfillment of sales generated by Olin were of a special nonrecurring *122 kind. They cannot be considered as indicative of Pennsalt's effectiveness as an independent competitor in the southeast.
Apart from the 3,203 tons sold by Olin, Pennsalt shipped only 983 tons of sodium chlorate into the southeastern market.[13] The total shipments of sodium chlorate into the southeastern market in 1960 for all purposes was 47,035.76 tons. Of this, Hooker shipped 23,263.52 tons, or 49%, and AmPot shipped 19,586.24 tons, or 42%. Pennsalt's shipments of 3,203 tons under the sales agreement with Olin were 7%. The shipments which Pennsalt made in satisfaction of its own sales were 2%.
Furthermore, of the 983 tons shipped to the southeast by Pennsalt, independently of Olin, only 458.40 tons went to pulp and paper manufacturers.[14] This was 1% of the total tonnage of 39,562.83 which was shipped to the southeastern pulp and paper manufacturers in 1960. It compares with 18,127.71 tons, or 46%, shipped by Hooker, 17,556.72 tons, or 44%, shipped by Ampot, and 3,420 tons, or 9%, sold by Olin for Pennsalt.
In 1960 shipments of 7,472.93 tons of sodium chlorate were made to buyers, other than pulp and paper mills, in the southeast. The sales agreement which Pennsalt had with Olin left Pennsalt free to compete for this business. It succeeded in obtaining 525 tons, or about 7%.
Both in theory and in fact Pennsalt was not an effective competitor in the southeast.
In furtherance of its national market claim, the Government points out that in 1960 Ampot shipped across country 8,808 tons of sodium chlorate from its Henderson, Nevada plant, or 64% of its total shipments of 13,767.82 tons from that plant. Of these "across country" shipments, 7,237 tons, or 52.6%, of the shipments from Henderson went into the southeast. But at the time Ampot's Aberdeen plant, with a productive capacity of 15,000 tons, was unable to take care of the total tonnage of 19,586.24 tons which Ampot supplied to southeastern buyers. In contrast, Ampot's Henderson capacity of 27,000 tons far exceeded the 9,586.55 tons demanded by AmPot's customers in areas outside the southeast. This dual imbalance between supply and demand at Ampot's two plants was intracorporate and temporary. It was rectified in December 1960 when AmPat increased its capacity at Aberdeen by 7,500 tons. It was AmPot's intention to satisfy the requirements of its customers in the southeast out of this increased capacity at Aberdeen and not from Henderson.[15] So that such shipments as AmPot made into the southeast from Henderson are not significant in determining whether a western shipper can effectively compete for business in the southeast.
So far as shipments from the southeast to the west are concerned, in 1960 Ampot made no shipment from its Aberdeen plant to buyers west of the Rockies.
Hooker's situation with respect to east-west shipments was different. Although *123 in 1960 Hooker made no shipments to the west coast from its Niagara Falls plant, it shipped 2,708.35 tons from its Columbus plant to customers west of the Rockies. This was 14.9% of the 18,152.72 tons shipped into the area. It compares with 10,485 tons, or 57.8% shipped by Pennsalt from Portland and 4,959.37 tons, or 27.3% shipped by AmPot from Henderson. The 2,708.35 tons which Hooker shipped to buyers in the west represented 7% of the 37,559.91 tons which Hooker shipped from both Niagara Falls and Columbus.
At the time Hooker had excess productive capacity of magnitude. As against a total of 50,000 tons (Niagara Falls 18,000 tons, Columbus 32,000 tons) it shipped to all markets east of the Rockies only 34,851.6 tons, or 70% of its available capacity. Tonnage shipped from the Columbus plant to all markets east of the Rockies amounted to 26,478.23 tons leaving that plant with 5,521.77 tons at Columbus, or 20.9% of the plant capacity, to be disposed of. It was out of this excess that the 2,708.35 tons were supplied to the west. Of this, 1,920.65, or about 2/3 , went to a single buyer, U. S. Borax Co., for herbicidal use.
The total shipments of AmPot and Hooker from their eastern facilities were 52,964.88 tons; viz.:
Hooker shipments 37,559.91
Columbus and Niagara
Falls
AmPot shipments 15,404.97
Aberdeen ----------
Total 52,964.88
Of this, the 2,708 tons which Hooker shipped to the west coast from its excess capacity at its Columbus plant, amounted to 5%. The east-west shipments by Hooker in 1960 were undoubtedly the result of a desire to keep its plants operating as close to capacity as possible when eastern buyers were not available.
Here, there is no indication that an imbalance between supply and demand, either nationally or locally, had been the industry norm over a period of years or that it will be in the future. This circumstance makes irrelevant United States v. Bethlehem Steel Company, supra, which held that in determining the relevance of a market, freight costs were only a marginal factor when an industry-wide imbalance between supply and demand had persisted through the years and reflected an industry pattern (168 F. Supp. pp. 598-599).
In sum, neither Pennsalt nor AmPot could compete effectively from their western plants for business in the southeast where the highest concentration of buyers was located. Nor could AmPot or Hooker, the two companies having eastern facilities, effectively compete for business on the west coast. In each case the competitive limitation was due to market remoteness. There was no national market for sodium chlorate in 1960 relevant to an ascertainment of the competitive impact of the joint venture.
The Effect of the Joint Venture on Competition in Sodium Chlorate
On the competition issue, the initial position of the Government is novel and far reaching. It contends that Pennsalt and Olin could have competed with each other since each was as financially able and otherwise competent to compete on an individual basis as other sodium manufacturers which were doing so. In these circumstances, it is said that the antitrust laws required Pennsalt and Olin to compete individually or to stay out of business.[16] Their attempt to compete *124 jointly, through the medium of Penn-Olin, because of a desire for greater profitability and risk limitation, is therefore said to be violative of Section 7.
The Government thus lays aside as immaterial any consideration of whether, but for Penn-Olin, Pennsalt and Olin would have entered the market as individual competitors, or what the competitive effect of Penn-Olin may be in the light of relevant economic factors. Instead, it would substitute a conclusive presumption that any combination specified in Section 7 between companies having the overall capability to go into business alone has a pernicious effect on competition and lacks any redeeming virtue; it would make any such combination illegal per se. No precedent supports the Government's position and its lack of logic condemns it. Compare United States v. E. I. DuPont de Nemours & Co., 118 F. Supp. 41, 219-220 (D.Del.1953), aff'd 351 U.S. 377, 76 S. Ct. 994, 100 L. Ed. 1264 (1956) which held that under the Sherman Act it is not illegal per se for actual competitors to combine by means of a joint venture, but that a determination of the unreasonableness of the restraint is essential to its illegality.
The real issue is whether, based upon relevant economic factors, the formation of Penn-Olin has resulted, or as a reasonable probability will result, in a substantial lessening of competition or tend to create a monopoly in sodium chlorate in the southeastern part of the United States.
Prior to the joint venture, Olin had never produced sodium chlorate for sale in any market area or during any period of time. Nor had it ever sold sodium chlorate except for the limited time when it acted as sales agent for Pennsalt under the December 1957 contract. It had never purchased for its own use sodium chlorate from Pennsalt. On the other hand, Pennsalt had been manufacturing and selling sodium chlorate since 1941 from its plant at Portland, Oregon. Its shipments into the southeastern market were competitively not substantial.
The creation of Penn-Olin did not represent a combination of companies which were competing in the manufacture and sale of sodium chlorate in the southeastern market or elsewhere. Nor did it represent a combination of companies standing in the relationship of supplier and customer in the southeastern market or elsewhere.[17] It was neither a vertical combination or a horizontal combination.[18] Contrasted with these anticompetitive relationships which are frequently the subject of antitrust condemnation, the arrangement between Olin and Pennsalt was sui generis.
When Section 7 was amended in 1950 Congress was apprehensive of the rising tide of economic concentration as a dynamic force which it believed posed serious threats to the free enterprise system. One of the basic purposes of the 1950 amendment was to arrest in their incipiency combinations resulting in the concentration of power which would probably have the effect of jeopardizing to a substantial extent competition. Brown Shoe Co. v. United States, supra, 370 U.S. pp. 315, 317, 82 S.Ct. pp. 1518, 1519.
*125 The creation of Penn-Olin was not the typical case of one competitor menacing an industry by increasing its competitive power through the acquisition of another competitor. Penn-Olin was not the instrumentality through which two competitors sought to enlarge their economic power. Pennsalt and Olin were not competitors. Pennsalt was a company which had experience in the manufacture and sale of sodium chlorate in the far west. Olin was a company which had contacts of value with prospective customers in the southeast. Penn-Olin was the means by which the strength of the two companies was joined not for the purpose of further pre-empting a market which they already occupied, but to break into a market to challenge the supremacy of two companies which were dominating it.
Those companies were Hooker and AmPot. In 1960 Hooker supplied 49.5% and Ampot furnished 41.6% of the requirements of buyers in the southeast. Pennsalt's share, independent of the quantity sold by Olin as its sales agent, was 2.1%, and including Olin's sales, was 8.9%.
As for productive capacity, Pennsalt nationally was the smallest of the three companies. In 1960, Hooker had 50,000 tons, or 46.5%, AmPot 42,000 tons, or 39.1%, and Pennsalt 15,434 tons, or 14.4%. In the southeastern market, Hooker's plant at Columbus, Mississippi had a capacity of 32,000 tons, or 68%, of the total capacity in that market, and AmPot's 15,000 ton plant at Aberdeen possessed the remaining 32%. Pennsalt had no plant in the southeast.
When Penn-Olin goes on stream it can reasonably be expected to have an immediate effect on competitive conditions which theretofore existed. Thereafter, it is not to be supposed that Pennsalt will continue to make shipments to the southeast. What it otherwise might have supplied from Portland will be shipped by Penn-Olin from Calvert City. As an independent competitor in the southeast, Pennsalt will probably be finished. But the elimination of Pennsalt does not mean that competition will be substantially lessened within the intendment of Congress. Whether a combination described in Section 7 will have the anti-competitive effect forbidden by the Act, cannot be ascertained merely by looking at its effect upon the competitive activities of the combining companies. The critical determination is whether the combination substantially lessens competition generally in an economically significant market. Brown Shoe Co. v. United States, supra, 370 U.S. p. 335, 82 S.Ct. p. 1529. Pennsalt occupied only a relatively insignificant competitive position in the southeast. As will be later shown, the competitive benefits which derive from Penn-Olin entering the market far exceed any competitive loss resulting from Pennsalt's probable elimination.
The Government asserts that another immediate effect of the joint venture will be to make Olin a captive buyer of sodium chlorate from Penn-Olin and to deprive other suppliers of obtaining any of Olin's business. For some years Olin has been buying sodium chlorate at its Niagara Falls plant to use in the manufacture of sodium chlorite. Its requirements have been supplied by Hooker from its Niagara Falls plant.[19] While Olin's 50% ownership of Penn-Olin does not legally deprive Olin of the right to continue to buy from Hooker or anyone else, selfinterest *126 might lead Olin to buy from Penn-Olin. But it cannot be said that as a matter of reasonable probability Olin will do so. Whether purchasing from Penn-Olin will be to Olin's net advantage depends upon a balancing of the advantage which will accrue to Olin as a stockholder of Penn-Olin as against freight and service disadvantages inherent in shipments from Calvert City instead of a "next door" supplier. The record gives no indication how Olin will evaluate these conflicting considerations. In any event, however disadvantaged other suppliers may be in seeking Olin's business, it will not diminish competition for business in the southeast.
The primary attack of the Government is not directed to the alleged adverse affect of the joint venture on existing competition, but against its effect upon various aspects of potential competition.
The Government argues that the financial resources of defendants, as compared with those of Hooker and AmPot, are so great as to give Penn-Olin competitive advantages that will ultimately lead to market domination by it. This contention is based largely upon the proposition that the defendants, because of their size, will be able to use their combined buying power as a basis for making reciprocal arrangements with vendors who are sodium chlorate buyers, which will give Penn-Olin an undue sales advantage over its competitors.
Pennsalt is an acknowledged practitioner of reciprocity and uses purchasing-marketing coordination to further its sales efforts. Whether this is also the policy of Olin is more questionable. The record does not disclose whether Hooker and AmPot have or will endeavor to capitalize on their buying power to further their sales position. But in any event, whatever advantage Penn-Olin might be able to obtain through reciprocal arrangements because of the combined size of the defendants scarcely warrants the conclusion that as a matter of reasonable probability Penn-Olin will ultimately dominate the sodium chlorate market.
AmPot and Hooker are both multimillion dollar companies with established positions in the southeastern market. Neither is apt to be at a competitive disadvantage simply because of defendants' size. Thus far, neither has shown any disposition to lessen its competitive efforts because of confrontation by Penn-Olin. On the contrary, both have attempted to make themselves more formidable as business rivals. Prior to Penn-Olin, the capacity of the Hooker plant at Columbus was 29,150 tons. Since Penn-Olin, the capacity has been increased to 32,000 tons. After Penn-Olin's plan to build a plant at Calvert City became known, Hooker employed a new salesman who was a specialist in pulp and paper sales, and installed a pulp and paper research laboratory for its customers. It offered its customers five-year contracts guaranteeing them a firm price during the contract period. It also proposed to increase its selling efforts generally. These actions were due in part at least to the increased competition expected from Penn-Olin.
Similarly with AmPot. After AmPot learned of the joint venture it proceeded to expand the capacity of its Aberdeen plant from 12,000 to 22,500 tons, and began to offer five-year contracts to its customers guaranteeing them a fixed price for five years.
The determination in 1961 of PPG to enter the southeastern market makes the likelihood of market domination by Penn-Olin even more remote. PPG plans to construct a sodium chlorate plant at Lake Charles, Louisiana with an intended ultimate capacity of 15,000 tons. It is a company which in 1960 had assets of $625,000,000 and sales of $628,000,000. From the standpoint of size it is capable of competing effectively with Penn-Olin or anyone else. The Government's forecast that Penn-Olin will uproot Hooker and AmPot from their entrenched positions and ultimately become the dominant factor in the southeast is based on conjecture and nothing more.
The Government further asserts that the size of the Calvert City plant will *127 probably deter other companies from entering the southeastern market, when otherwise they might have done so. The Government points out that Penn-Olin's 26,500 ton plant was the largest ever built at one time in the United States, and that previously almost all plants at the outset went in the 2,000-15,000 range. By the time Penn-Olin was ready to build, the demand for sodium chlorate in the southeast had increased dramatically. The size of its plant was not out of line with competitors' plants then in existence or imminently in prospect. The in terrorem significance which the Government attributes to the disparity between the size of Penn-Olin's plant and those initially constructed by others under conditions which then prevailed, is not warranted.
Such evidence as there is should allay any fear that Penn-Olin, either because of the size of its plant or the combined resources of the defendants, will have any exclusionary effect upon potential entrants having antitrust relevance. When PPG announced its decision to build at Lake Charles, Louisiana, it knew of Penn-Olin's intention to build at Calvert City. Prospective competition from Penn-Olin's did not cause PPG to alter its plans. It is true that PPG made its decision after the present suit was begun. It cannot be supposed, however, that PPG's decision was made upon the basis of so hazardous a judgment that Penn-Olin would be eliminated or rendered substantially less effective competitively by a judgment in the Government's favor. It is more reasonable to conclude that PPG acted because an appraisal of market conditions convinced it that regardless of the outcome of the present litigation, additional sodium chlorate capacity was needed in the southeast and that after its plant was built, it would be able to obtain a fair share of the market for itself.
The Government points out that "rumor" indicated that the idea of building in the southeast occurred to the Solvay Division of Allied Chemical Corporation, Wyandotte Chemicals, and Virginia Smelting Company, but that none had done so. Penn-Olin is said to be the reason. This rumor was never substantiated. Each of the rumored potential competitors was interviewed by agents of the F.B.I. at the direction and under the supervision of counsel for the Government. Yet the Government called no witness from any of the companies. Its failure to do so at least suggests that it could find no one to corroborate its claim.
It is true that prior to the joint venture Pennsalt was of the opinion that the southeastern market could handle only one more significant producer; and both Pennsalt and Olin believed that by a prompt announcement on February 15, 1960 of the formation of Penn-Olin and its plans, the market might be preempted from other potential competitors.[20] But this evidence will not support the conclusion that one or more other companies were probably deterred by Penn-Olin from going into business in the southeast, since there is no proof that any newcomer other than PPG was considering doing so and PPG decided to enter the market after Penn-Olin had been announced. The absence of entry by others, in itself, is not too meaningful, since even before the formation of Penn-Olin was announced there had been no newcomers in the sodium chlorate industry for a decade. Furthermore, whether the unidentified companies which the Government asserts were probably excluded from the market would have been as effective business rivals as Penn-Olin is to be doubted. The combined experience of Pennsalt and Olin in sodium chlorate far exceeded that of any other potential market entrant. AmPot and Hooker had a virtual monopoly in the southeast and a formidable opponent was required if substantial inroads upon their entrenched positions were to be made.
*128 It cannot be held that as of the date of trial Penn-Olin probably deterred others from entering the field. What Penn-Olin's effect in the future may be upon would-be entrants can only be a matter of conjecture. Obviously, the number and strength of companies already in a market will have a bearing upon another's decision to enter it. But it is only one of a myriad of other factors which will control the decision. The imponderables are too great to hazard a forecast as to Penn-Olin's future deterrent effect, even on the basis of probabilities, which will have validity.
The Government makes the further argument that if Olin and Pennsalt had not determined to become partners via Penn-Olin, the probabilities are that both would have built a sodium chlorate plant somewhere in the southeast. Penn-Olin, the argument runs, thus prevented Pennsalt, an "actual" competitor, and Olin, a "potential" competitor, from independently competing in the southeast.[21]
The interest which Pennsalt had in building a sodium chlorate plant in the southeast was of long standing. Its 20-year operating experience at Portland had provided it with all requisite manufacturing know-how, and it was aware of the rapidly expanding market in the southeast. As early as 1951 it had cost studies made for a plant at Calvert City, Kentucky. From 1955 on the company gave almost continuous consideration to the establishment of a plant in the southeast. The record contains frequent expressions of optimism by Pennsalt personnel concerning the desirability of southeastern expansion. Yet no decision to proceed was ever arrived at. This was due primarily to the inability of the management to satisfy itself that the plant would be sufficiently profitable to meet the rate of return standard which it had established as a condition for new investments.
Olin's interest in manufacturing and selling sodium chlorate in the southeast for its own account likewise antedated the joint venture by a number of years. It realized that sodium chlorate would soon replace sodium chlorite as a raw material in the Mathieson process, and that the demand for sodium chlorate by pulp and paper mills in the southeast was rapidly expanding. It had extended experience in the technical aspects of bleaching pulp and paper. It possessed valuable contacts with the pulp and paper mills as a result of selling other chemicals to them, and having made available, without charge, the Mathieson process. This combination of circumstances led Olin to actively consider the possibility of building a plant of its own in the southeast. To that end, it had studies made of plant location, power availability, sales potential, manufacturing techniques, construction costs, profitability, and other relevant factors. But Olin, like Pennsalt, never decided to go forward independently with the project. The primary difficulty encountered every time the project was analyzed seemed to be the generally unsatisfactory rate of return.
Paralleling in point of time the studies which Pennsalt and Olin were making concerning the feasibility of building their own plants were several years of sporadic discussions between them relating to the possibility of entering the southeastern market by means of a joint arrangement of some kind. The joint venture agreement was the culmination of these discussions. The possibility of individual entry into the southeastern market had not been completely rejected *129 by either Pennsalt or Olin before they decided upon the joint venture.[22]
At the time when the joint venture was agreed upon Pennsalt and Olin each had an extensive background in sodium chlorate. Pennsalt had years of experience in manufacturing and selling it. Although Olin had never been a commercial manufacturer, it possessed a substantially developed manufacturing technique of its own, and also had available to it a process developed by Vickers-Krebs with whom it had been negotiating to construct a plant. Olin had contacts among the southeastern pulp and paper mills which Pennsalt lacked, but Pennsalt's own estimates indicate that in a reasonable time it would develop adequate business to support a plant if it decided to build. A suitable location for a plant was available to each company Calvert City, Kentucky for Pennsalt, and the TVA area around Chattanooga, Tennessee for Olin. The financing required would not have been a problem for either company. In short, when the joint venture agreement was signed, Pennsalt and Olin each possessed the resources and general capability needed to build its own plant in the southeast and to compete with Hooker and Ampot in that market. Each could have done so if it had wished. While neither company was able to satisfy itself with the rate of return potential of an individually owned plant, the forecasts of each company indicated that a plant could be operated with profit.[23] From the standpoint of profitability, however, Pennsalt and Olin both believed that they could make more money on their investment and that the risks would be less if their business were *130 carried on through a jointly owned plant rather than by means of plants individually owned.
The fact that Olin and Pennsalt each had the capability of building a plant and competing individually is of no controlling significance. It is important only as a factor in determining whether as a matter of probability both companies would have entered the market as individual competitors if Penn-Olin had not been formed.[24] Only in this event would potential competition between the two companies have been foreclosed by the joint venture. Whether or not as a matter of probability Pennsalt or Olin would have constructed a plant of its own in the absence of Penn-Olin, need not be decided, for the reasons hereinafter stated.
No evidence exists which will support a finding that if Penn-Olin had not been created Pennsalt and Olin would have simultaneously determined to build their own plants. Not only the inherent improbability of this occurring, but the protracted study which each company gave to the problem without arriving at an affirmative decision, negates such a likelihood. So that the best possible postulate on which the Government's case can be based is that one company would have decided to build while the other continued to ponder.
The decision by one company to build, however, might have had a bearing upon the decision of the other. The considerations which might induce one company to build its own plant when Hooker and AmPot were the only competitors would not necessarily be the same if a third competitor were about to enter the market. Pennsalt and Olin were each hesitant to build a plant of its own in a market occupied by two competitors. Whether the imminent presence of a third competitor might have made the prospect more or less appealing cannot be foretold. Neither company had ever faced the problem. The record affords no clue as to what action might have been taken if the problem had arisen. It is therefore impossible to conclude that as a matter of reasonable probability both Pennsalt and Olin would have built plants in the southeast if Penn-Olin had not been created.
The most favorable assumption that can be made from the Government's standpoint is that either Pennsalt or Olin but not both would have entered the southeastern market as an independent competitor if the two companies had not agreed to consolidate their efforts through Penn-Olin. Upon this assumption the effect of Penn-Olin was to eliminate Pennsalt or Olin, as the case may be, as a competitor. But even this hypothesized situation affords no basis for concluding that Penn-Olin had the effect of substantially lessening competition. Whether or not it did depends upon the competitive impact which Penn-Olin will have as against that which might have resulted if Pennsalt or Olin had been an individual market entrant.
The Government argues that any such comparison is irrelevant and that a determination that Olin (or Pennsalt) would have built its own plant but for Penn-Olin automatically condemns the joint venture.[25] Such an interpretation *131 would cut the heart out of Section 7. The Section denounces a substantial "lessening" of competition. "Lessening" is a word of comparison. It demands that the competitive situation which the challenged transaction has brought about be compared with that which otherwise would have existed. Under the Sherman Act competitive conditions before and after a trade restraint must be examined to determine its reasonableness. Board of Trade v. United States, 246 U.S. 231, 238, 38 S. Ct. 242, 62 L. Ed. 683 (1918). A similar comparison is no less essential in determining whether a transaction otherwise within the reach of the Clayton Act will affect competition adversely. If Penn-Olin had the effect of keeping Pennsalt or Olin out of the southeastern market, it runs afoul of Section 7 only if competition generally in the southeast will probably be substantially less under the joint entry by Pennsalt and Olin via Penn-Olin than it would have been if there had been individual entry by either Olin or Pennsalt.
In the classical horizontal combination case an appraisal of the competitive potential of each of the combining competitors can be made upon the basis of its prior record. Here there are no past records of Pennsalt or Olin that can be drawn upon to show their individual competitive effectiveness in the southeast, except those which pertain to the 1957-1960 period when Olin was acting temporarily as Pennsalt's sales agent. They establish a market penetration by Pennsalt and Olin which was insignificant compared with that of Hooker and AmPot. What the competitive impact of Pennsalt or Olin might have been if either had owned its own plant in the southeast cannot be determined from the record. Nor does the record disclose the competitive effectiveness, in terms of percent of business obtained or otherwise, which Penn-Olin has made since it began business.
Solely as a matter of theory, however, no reason exists to suppose that Penn-Olin will be a less effective competitor than Pennsalt or Olin would have been. The contrary conclusion is the more reasonable. Penn-Olin should be able to bring to the southeast the aggregate contributions of both companies. After all, Penn-Olin is owned and managed by both Olin and Pennsalt. Whatever manufacturing or marketing techniques, new product usages or other advantageous operational procedures are known to Olin or Pennsalt can be expected to be brought to the attention of Penn-Olin and utilized by it. Neither Pennsalt or Olin has any reason to suppress information which will be of advantage to Penn-Olin. All three companies are in business to make money, and competitive effectiveness is essential to the achievement of this objective.
Before trial, the Government interviewed and corresponded with a number of chemical companies and sodium chlorate producers. In spite of this, no witness was called to testify that the vigor of competition in the sale of sodium chlorate had been, or is likely to be, lessened by Penn-Olin. Nor did the plaintiff introduce any testimony from purchasers of sodium chlorate who complained of any lessening of competition in the industry. Dirkson, Eastern General Sales Manager of AmPot, who called by the Government, testified that there had been no lessening in competition *132 since the establishment of Penn-Olin and that he knew of no facts likely to lead to a lessening in the future.
It is not every lessening of competition which is forbidden by Section 7. The lessening of competition becomes a matter of legislative concern only if it is reduced to a substantial degree, that is to say to such an extent as will injuriously affect the public. International Shoe Co. v. F. T. C., 280 U.S. 291, 298, 50 S. Ct. 89, 74 L. Ed. 431 (1930).
Prior to Penn-Olin building its plant at Calvert City, Kentucky, Hooker and AmPot had virtually a monopoly in the southeast. With Penn-Olin will be three competitors; and when the PPG plant at Lake Charles goes on stream, there will be four. Each of the newcomers is a sizeable company and should be able to give a good account of itself. Actual and in-prospect production in the southeast will have more than doubled since the joint venture was entered into, as shown by the following tabulation:
Capacity in Tons
Company and Plant Location 1959 Projected 1962
Hooker 29,150 32,000
Columbus, Mississippi
AmPot 12,000 22,500
Aberdeen, Mississippi
Penn-Olin 26,500
Calvert City, Kentucky
PPG 15,000[26]
Lake Charles, Louisiana
------ -------
Total 41,150 96,000
The advent of Penn-Olin, and later PPG in the southeastern market, together with the increased production in that market, will in all likelihood increase the competition which theretofore existed and bring to buyers of sodium chlorate and to the public the benefits which normally result therefrom.
Congress, in amending Section 7 of the Clayton Act, recognized that all combinations were not anticompetitive, and that in some instances combinations may have the effect of stimulating competition. Brown Shoe Co. v. United States, supra, 370 U.S., p. 319, 82 S.Ct. p. 1521. The probabilities are that Penn-Olin will have that effect.
The Government makes an additional argument founded upon two agreements between Olin and Pennsalt which antedated the joint venture. One, the sales agreement, was made in December 1957; the other, the so-called production agreement, was made in February 1958. It is asserted that the joint venture consummated and perpetuated the restraints in sodium chlorate imposed by the two earlier agreements which were in themselves illegal. For this reason, the argument goes, even if Penn-Olin might have been lawful as a spontaneous creation, its heritage of restraints under the earlier agreements requires its dissolution. United States v. Yellow Cab Co., 332 U.S. 218, 227, 67 S. Ct. 1560, 91 L. Ed. 2010 (1947) is cited in support of this proposition.
As subsequently shown the sales agreement and production agreement were not in and of themselves in derogation of the Sherman Act. Nor, as has been previously shown, was the joint *133 venture, considered independently of the prior agreements, in violation of Section 7 of the Clayton Act. The fact that the three transactions the joint venture and the two agreements each legal when considered independently, occurred sequentially and as a part of the totality of events, cannot make them, in combination, illegal. United States v. Yellow Cab Co., supra, is not at variance with this view.
It is the burden of the Government to establish that the joint venture probably will have the effect of substantially lessening competition or that it will tend to create a monopoly in sodium chlorate in the southeastern market. This burden has not been met. The joint venture agreement, in its sodium chlorate aspect, violated neither Section 1 of the Sherman Act or Section 7 of the Clayton Act.
The Effect of the Joint Venture on Competition in Calcium Hypochlorite
As stated, Pennsalt and Olin are substantial competitors, on a nationwide scale, in calcium hypochlorite, one of the non-chlorate chemicals. Together they had 88.8% of the market in 1959 and 76.6% in 1960. The only other competitor of importance is PPG.
The joint venture letter agreement of February 11, 1960 provides that Penn-Olin will manufacture and market not only sodium chlorate but potassium chlorate and perchlorates as well. This agreement was superseded by the definitive contract of October 17, 1961 which limited the operation of the joint venture to sodium chlorate.[27] The Calvert City plant was constructed to produce sodium chlorate only. So that under its present contract and with its existing physical facilities, Penn-Olin cannot manufacture and sell calcium hypochlorite. It is not important that the breadth of the language of Penn-Olin's charter, frequently found in Delaware charters, authorizes it to do so. The Government concedes that it knows of no plans of the defendants to expand the Calvert City plant or to produce any product other than sodium chlorate.[28]
The Government asserts that in the operation of Penn-Olin high officials of Pennsalt and Olin who make the price and marketing and other pertinent decisions for their own companies will be interlocked with each other as officers and directors of Penn-Olin, and that the information concerning the chemical business which each brings to Penn-Olin's meetings will relate not only to their joint product, sodium chlorate, but also to non-chlorates, including calcium hypochlorite, in which they compete. Discussions which will ensue between the Pennsalt and Olin representatives in their common effort to make the sodium chlorate business a success, the Government argues, will inevitably lead to discussions of all phases of the nonchlorate business in which they are in competition, since chlorate and nonchlorate price policies, marketing areas, distribution systems and customers coincide or overlap. The Government asserts that in these circumstances it would "defy human nature" for the sodium chlorate partners to maintain an unfaltering zeal to compete in nonchlorates.
No evidence exists of collusion of any type, either actual or threatened, between defendants in the conduct of their non-chlorate operations. A finding of illegality in this area, if it is to be made, must rest upon an inference that a substantially lessening of competition between Pennsalt and Olin in non-chlorates will probably result because of the opportunity which their representatives have to make anticompetitive agreements when they meet in connection with Penn-Olin's affairs. Such an inference is incompatible with the holding in Maple Flooring Mfrs' Ass'n v. United States, 268 U.S. 563, 45 S. Ct. 578, 69 L. *134 Ed. 1093 (1925). There it was argued that a trade association consisting of hardwood flooring manufacturers in actual competition with each other which held meetings for the purpose of discussing and exchanging information about costs, commissions, freight rates, sales prices and other pertinent marketing data, would have the "necessary tendency" to unduly restrain competition in violation of Section 1 of the Sherman Act (p. 578, 45 S.Ct. p. 583). The Court held, however, that in the absence of proof that anticompetitive agreements or concerted action had been reached or attempted, there was no basis for inferring that the association meetings would result in a violation of the law (p. 586, 45 S.Ct. p. 586).
The probability of competition being substantially lessened by conduct specified in the antitrust statutes need not be established by direct evidence. Inferences that competitive restrictions will probably result are judicially acceptable if supported by adequate evidence. Here the proof shows only an opportunity for illegal activities. That is not enough. To equate opportunity for wrongdoing with likelihood of its occurrence reflects a cynicism toward business behavior which is without warrant. Presumption of probable wrongdoing cannot be a substitute for its proof.
There is no basis for finding that the joint venture and the activities of the parties thereunder probably will substantially lessen competition or tend to create a monopoly in calcium hypochlorite in violation of Section 1 of the Sherman Act or Section 7 of the Clayton Act.
THE ASSERTED ILLEGALITY OF SALES AND PRODUCTION AGREEMENTS
The Government challenges two agreements entered into by Olin and Pennsalt in December 1957 and February 1958, referred to, respectively, as the "sales" agreement and the "production" agreement. The Government contends that these agreements, in and of themselves and without reference to the joint venture, unreasonably restrained trade in violation of Section 1 of the Sherman Act.[29]
The relevant line of commerce is sodium chlorate. Although the evidence does not permit a statistical market analysis for 1957 and 1958 comparable to that previously made for 1960, there is no reason to believe that the situation was substantially different in the three years. Hence the southeast will be deemed to be the only relevant market in which to determine the competitive effect of the 1957 and 1958 agreements.
The Sales Agreement
The sales agreement had this background: In October 1957 the productive capacity of Pennsalt at its Portland plant was expanded from 7,848 to 12,392 tons. This enabled it to produce some tonnage which it could not sell on the west coast. At the time Pennsalt was desirous of exploring with Olin the possibility of a sodium chlorate joint venture in the southeast. Distribution by Olin of Pennsalt's production would permit the southeastern market to be jointly tested and enable Pennsalt to work off some of its surplus. Pennsalt thought that such a temporary arrangement might serve to stimulate Olin's interest in a joint venture. This combination of circumstances caused Pennsalt to initiate discussions with Olin which in December 1957 culminated in the agreement.
The agreement provided in substance that Pennsalt would make available to Olin's southern sales organization 2,000 tons of bulk sodium chlorate per year to be sold at prices established by local competition. Olin agreed to sell this sodium chlorate in bulk only to pulp and paper mills in the southeast. Pennsalt agreed to provide technical service upon Olin's request. Pennsalt reserved the right to serve directly only one southeastern pulp mill, Buckeye Cellulose Company at Foley, Florida. The agreement was on a *135 year-to-year basis, but the parties expected it would last for two or three years. The sales agreement was adhered to from the time when it was made until the joint venture agreement was signed.
The effect of the sales agreement was to preclude Olin from selling sodium chlorate manufactured by Pennsalt to anyone anywhere except pulp and paper mills in the southeast. Concurrently, it precluded Pennsalt from selling directly to the pulp and paper companies in the southeast, except Buckeye. This "territorial division" and "customer allocation", the Government asserts, foreclosed competition between Pennsalt and Olin in substantial geographical areas and consumer uses.
While the Government does not say so in so many words, it apparently takes the position that the territorial and customer restrictions imposed by the agreement constitute per se violations of the Sherman Act. It has recently been held, however, that a vertical arrangement by a manufacturer and a dealer-distributor restricting the right of the latter to sell only in specified territories and to designated customers cannot be deemed, as yet, to be a per se violation. White Motor Company v. United States, 372 U.S. 253, 83 S. Ct. 696, 9 L. Ed. 2d 738 (1963). This principle, now definitively settled, would appear to have even greater application in the instant case where the arrangement was between a manufacturer and its sales agent.
The Government argues that the sales agreement was not comparable to an arrangement between a manufacturer and distributor, such as was considered in White Motors. Rather, says the Government, the Pennsalt-Olin agreement was one between potential competitors since Pennsalt was an actual competitor in sodium chlorate and Olin was considering going into the same business.[30]
The principle that a horizontal market division between competitors is a per se violation of the Sherman Act rests upon the premise that all such agreements impose naked restraints on trade and have no purpose except to stifle competition. Because of their pernicious effect on competition and lack of any redeeming virtue, they are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. White Motor Company v. United States, supra.
Thus far this principle appears to have been limited to agreements between parties which are actual competitors. The Government admits that it knows of no instance where it has been brought to bear upon potential competitors.[31] Whether it can be applied in the instant case requires consideration in limine of the extent to which Olin and Pennsalt were potentially competitive.
The concept of potential competition is, to say the least, a flexible one, and is subject to almost unlimited gradations in meaning. The degree of likelihood of competition may cover a broad range. In point of time its prospect may be remote or imminent. Involved may be companies which are financially weak or strong or both. The problem may concern companies with experience in manufacturing and selling the same product in other relevant markets or companies which are newcomers to the industry. The potential market may be one occupied by other competitors, or one ripe for exploitation because of the absence of competition. A whole gamut of other environmental factors may be envisioned which will bear upon the significance of the so-called potential to compete. Only if the "potential competition" is analyzed and defined in the light of the evidence can the concept be meaningful in the solution of an antitrust problem. To simply describe companies as potential competitors is not enough.
Here, although Pennsalt had a plant in Portland since 1941, it had never been able to develop any business of significance *136 in the southeast. In its agreement with Olin it reserved the right to sell to only one customer, Buckeye. Pennsalt was able to retain the business of Buckeye only because of a unique circumstance which gave to Buckeye a particular freight advantage in receiving shipments from the west coast. The insignificance of Pennsalt as a competitive shipper from Portland to the southeast in 1960 has been discussed earlier in this opinion. The record is devoid of evidence to permit comparable analysis for 1957; but it does show that in 1957 Pennsalt shipped into the southeastern market only 597 tons. There is no reason to suppose that in 1957 Pennsalt was a more vital competitive factor in the southeast than it was in 1960.
So far as Olin is concerned, at the time when it entered into the agreement, it had never manufactured sodium chlorate for sale or sold it anywhere. Although it was studying the desirability of going into the business no decision to do so had been made.
In short, when the sales agreement was made, both Pennsalt and Olin were far removed from the point of becoming actual competitors in the southeastern market, or anywhere else. To say that they were potential competitors stretches the concept to the point where, in an antitrust context, it is virtually meaningless. Their relationship provides no basis for applying the per se violation rule applicable to actual competitors who agree to divide territories and customers between themselves.
So that whether the sales agreement is scrutinized simply as a contract between a manufacturer and his sales agent, analogous to the manufacturer-distributor-dealer relationship dealt with in White Motors, or is examined with emphasis upon the status of the parties as potential competitors, the "rule of reason" read into the Sherman Act by Standard Oil Co. v. United States, 221 U.S. 1, 59-62, 31 S. Ct. 502, 55 L. Ed. 619 (1911) must be applied, and the evidence examined to ascertain whether the restraint of trade which the sales agreement is said to have imposed, was unreasonable.
The sales agreement did not impose the severe territorial or customer limitations which the Government claims. It did not preclude Olin from manufacturing sodium chlorate or from purchasing it from Pennsalt's competitors; and if Olin did either it was free to sell the product to anybody outside of the southeast, and to anybody in the southeast other than pulp or paper mills.
The agreement did not prevent Pennsalt from selling sodium chlorate to anyone in the United States, except pulp and paper mills in the southeast. All that it did was to prevent Pennsalt from selling through its own personnel sodium chlorate to pulp and paper mills in the southeast. Even as to the latter business Pennsalt competed through the instrumentality of Olin, much as AmPot did through the Solvay Division of Allied Chemical.
The business which Olin was able to generate was not large. The sales which it made under the agreement in 1958 amounted to 1,113 tons, and in 1959 to 1,329 tons. In 1960, after Pennsalt and Olin had agreed to form Penn-Olin, 3,203 tons were sold. Olin enjoyed contacts and good will with the buyers which Pennsalt lacked. The probabilities are that Pennsalt was able to compete more effectively through Olin than it could have without Olin's assistance. In 1960, the year of its largest southeastern shipments, and with Olin's help, Pennsalt was only able to supply 9% of the total 47,035.76 tons shipped into the market. Of the remaining amount, Hooker and AmPot together supplied 91%. Even if the sales agreement be regarded as eliminating Pennsalt from competing for the business of the southeastern pulp and paper manufacturers, the exclusionary effect of the agreement was not substantial.
So far as a Sherman Act violation is concerned, the result must turn on the significance of the business practices in the terms of restraint of trade. United *137 States v. Masonite Corporation, 316 U.S. 265, 280, 62 S. Ct. 1070, 86 L. Ed. 1461 (1942). The sales agreement imposed no unreasonable restraint of trade upon sodium chlorate in the southeast, and did not violate Section 1 of the Sherman Act.
The Production Agreement
The second pre-joint venture agreement which the Government attacks is the so-called "production agreement" entered into on February 3, 1958. This is reflected in the memorandum written the following day by Mr. Logan, Vice President of Olin. There he details a visit which he had the preceding day with top officials of Pennsalt. The memorandum states:
"Drake (Pennsalt's president) outlined their long-range interest in chlorate in the south and suggested that there was sufficient that both Pennsalt and OM had to contribute to seriously consider joint activity.
* * * * * *
"It is felt that neither OM nor Pennsalt should move in the chlorate or perchlorate field without keeping the other party informed and I agreed to do so.
* * * * * *
"Either party is to bring to the attention of the other any unusual aspects of this business which might make it desirable to proceed further with production plans."
There is no justification for the claim that this agreement destroyed all opportunities for competition between Pennsalt and Olin and that plans for independent eastern production by each company were thereby thwarted. This was neither the intention nor the effect of the agreement.
Its purpose, according to Drake, was to make certain that if one party decided to "go it alone" while the joint venture was under consideration, the other party would be so advised since it would be futile for the latter to give further consideration to the joint venture. That the agreement was not designed to curtail individual market entry or to thwart plans therefor is borne out by activities of the parties after the understanding had been reached.
In September 1958 seven months after the agreement the agenda for Pennsalt's annual management meeting raised for firm decision the question whether it would build a sodium chlorate plant, and if so, where. At the meeting held in November 1958, tentative approval was reached to build a 30,000 ton sodium chlorate plant at Calvert City, Kentucky, 20,000 tons of which would be sold as such and 10,000 tons of which would be devoted to the production of ammonium perchlorate.[32] The action taken was based upon a study of the capital requirements and profitability of the venture reflected in a report of October 31, 1958 from A. S. Woodward, manager of engineering, to Vice President LaLande. The purpose of Pennsalt in going into perchlorates was to enable Pennsalt independently to undertake the manufacture of sodium chlorate. Pennsalt's interest in a plant of its own continued throughout 1958.
So far as Olin is concerned, the record is replete with evidence that its interest in building a sodium chlorate plant of its own was not terminated by the production agreement. Illustrative is the so-called Whither report of the Chemicals Division which was made on April 10, 1959. This recommended that Olin enter the sodium chlorate business immediately by constructing a 15,000 ton sodium chlorate plant adjacent to its existing chlorine-caustic soda plant at Mackintosh, Alabama. At a meeting on April 16, 1959 between representatives *138 of the Chemicals Division and corporate staff, the proposed Mackintosh project was not deemed sufficiently attractive to be approved. The matter was not dropped, but it was determined that there should be further study on certain specified points. In October 1959 the Chemicals Division filed another Whither report which made a definitive recommendation that sodium chlorate be a wholly Olin project but that the plant be located at Chattanooga instead of Mackintosh. Olin's corporate staff did not disapprove or otherwise act upon the October 1959 report prior to the joint venture decision of 1960.
In view of this evidence it is impossible to attribute to the production agreement the stultifying affect on individual competition by Olin and Pennsalt which the Government would ascribe to it. The agreement did not constitute an unreasonable restraint of trade in violation of Section 1 of the Sherman Act.
A judgment will be entered dismissing the complaint as amended.
The foregoing opinion constitutes the findings of fact and conclusions of law required by F.R.Civ.P. 52(a).
NOTES
[1] Section 1 of the Sherman Act provides in pertinent part:
"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States * * * is declared to be illegal."
Section 7 of the Clayton Act reads in pertinent part:
"No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.
* * * * *
"This section shall not apply to corporations purchasing such stock solely for investment and not using the same by voting or otherwise to bring about, or in attempting to bring about, the substantial lessening of competition. Nor shall anything contained in this section prevent a corporation engaged in commerce from causing the formation of subsidiary corporations for the actual carrying on of their immediate lawful business, or the natural and legitimate branches or extensions thereof, or from owning and holding all or a part of the stock of such subsidiary corporations, when the effect of such formation is not to substantially lessen competition."
[2] Defendants also argue that if these contentions are rejected, Penn-Olin must be regarded as a subsidiary of Olin and Pennsalt formed to carry on a lawful extension of their business, within the contemplation of the third paragraph of Section 7 of the Clayton Act (the second paragraph of the Act quoted in footnote 1). Hence, it is argued that defendants have violated Section 7 only if the effect of Penn-Olin's organization "is" and not "may be" substantially to lessen competition. It is unnecessary to consider this point in view of the determination that the joint venture probably will not adversely affect competition.
[3] The parties have stipulated: Olin and Pennsalt each produce and sell in commerce in the United States the following non-chlorates: ammonia, calcium hypochlorite, caustic soda, chlorine, hydrochloric acid, hydrofluoric acid and sulphuric acid. Competition, if any, in the sale of hydrochloric acid and sulphuric acid is de minimus. Olin and Pennsalt compete in the sale of the remaining five chemicals. Of these, calcium hypochlorite has been selected as a "guinea pig" to determine whether the joint venture constitutes a violation of the antitrust laws in the case of non-chlorate chemicals. The presence or absence of substantial competition between Olin and Pennsalt with respect to the production and sale of ammonia, caustic soda, chlorine, and hydrofluoric acid or of the existence of any relevant market for such chemicals, is not relevant to the determination of any issue in the case.
[4] See footnote 5.
[5] As a result of research which Mathieson did in chlorine dioxide, it developed the so-called Mathieson process for generating chlorine dioxide to bleach pulp without damaging the fibers. The process was designed to sell sodium chlorite as a new commercial chemical.
While the process of releasing chlorine dioxide from sodium chlorite is relatively easy and inexpensive compared to the generation of chlorine dioxide from sodium chlorate, in large scale production there is a three to one cost advantage in bleaching with chlorine dioxide made from chlorate instead of chlorite. This led Olin to realize that sodium chlorate would soon become the raw material for the process. In the early 1950's therefore Olin began to make its chlorine dioxide generation process available free to pulp and paper industry.
[6] The Government asserts that the southeastern market includes Alabama, Arkansas, Florida, Georgia, Kansas, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia and West Virginia. Defendants say that Kansas, Missouri and West Texas should be excluded. According to the Government, the exclusion of these two and one-half states makes scant difference. Consequently, in the following discussion Kansas and Missouri will be excluded, but the whole of Texas will be included. No evidence warrants splitting Texas and much of the evidence bearing upon competition treats it as an entity.
[7] Out of 82,094.70 tons shipped in 1960 within the United States, 47,035.76, or 57.3%, went to the southeastern market. Of the remainder, 18,152.72 tons, or 22- 2%, were shipped west of the Rockies, and the balance of 16,906.22, or 20.5%, went elsewhere.
[8] In 1960, of the 47,035.76 tons of sodium chlorate shipped to southeastern buyers, 39,562.83 tons, or 84.1%, were purchased by the pulp and paper industry. The amount so purchased represented 75.5% of the 52,415.03 tons purchased by all of the pulp and paper mills in the United States.
[9] As against the 1960 national productive capacity of 107,434 tons, plants having a tonnage capacity of 47,000 tons were in the southeast, viz., Hooker at Columbus, Mississippi with 32,000 tons, and AmPot at Aberdeen, Mississippi with 15,000 tons. The capacity of the latter was increased to 22,500 in December 1960.
[10] See footnote 7 as to buyer concentration. The productive capacity of the Pennsalt plant at Portland was 15,434 tons and that of AmPot at Henderson was 27,000 tons, making a total of 42,434 tons, as against the total national productive capacity of 107,434 tons.
[11] The supply situation was to be further improved in December 1960 when AmPot's capacity at Aberdeen was increased by 7,500 tons. This brought the total capacity of AmPot and Hooker in Mississippi up to 54,500 tons.
[12] This is discussed in detail at p. 1108 et seq. of this opinion.
[13] Of this amount, 363.5 tons went to Buckeye Cellulose Company, a subsidiary of Proctor & Gamble. Since Buckeye owned its own freight cars which were used to transport the sodium chlorate from Portland to Florida, the railroad made an allowance to Buckeye covering the cost of returning the cars to the point of origin. This circumstance, which gave Buckeye a unique advantage in receiving shipments from the west coast, coupled with the fact that Proctor & Gamble was an important customer for other products of Pennsalt, are the reasons why Pennsalt had the Buckeye account.
[14] This is 94.9 tons more than the 363.5 tons that went to Buckeye, the Pennsalt reserved account. It represents shipments to two other southeastern pulp and paper mills.
[15] It could hardly be expected to do otherwise since the freight disadvantage in shipping from Henderson to the southeast, as against shipping from Aberdeen, was $25 to $30 a ton, or something in excess of 15% of the bulk sales price of $163 in the southeastern market.
[16] The Post Trial Brief of the Government states (p. 1):
"This case involves a joint venture between two companies that could have competed."
The same brief states at p. 2:
"The fundamental issue posed by the trial of this case is whether the antitrust laws condemn the entry of competitors into business together when, except for subjective preferences based on profitability and risk, each could have done so alone."
The Government's reply brief states (p. 30):
"When competitors and potential competitors have comparable resources and face similar hurdles, the anti-trust laws require that they meet these challenges on individual terms or not at all. They may compete or not as they please. But the option to compete or combine is forbidden."
[17] Olin purchased sodium chlorate to use as a raw material in manufacturing sodium chlorite at its Niagara Falls plant. This sodium chlorate was purchased from Hooker's neighboring Niagara Falls plant. Pennsalt from its Portland plant could not have competed successfully with Hooker for Olin's business.
[18] When the arrangement is between companies standing in a supplier-customer relationship it is characterized as vertical; when between companies performing similar functions in the production or sale of comparable goods or services, it is said to be horizontal. Brown Shoe Co. v. United States, supra, 370 U.S. pp. 323, 334, 82 S.Ct. pp. 1522, 1523.
[19] Hooker's shipments to Olin have been as follows:
Year Tons
1957 1,300
1958 1,100
1959 1,300
1960 1,350
1961 (6 mos.) 560
Larger quantities of sodium chlorate sold in the United States, but produced outside of the United States, from 1958 to 1960, have been stipulated not to be substantial.
[20] Evidence of the intention of parties to a combination is an aid in predicting their probable future conduct and the probable effect of the combination. See Brown Shoe Co. v. United States, supra, 370 U.S. p. 329, n. 48, 82 S.Ct. p. 1526.
[21] An additional argument is that the practical effect of Penn-Olin was to bring about an allocation of markets between Olin and Pennsalt. Thus, it is said that the joint interest of the companies in Penn-Olin will necessarily prevent Pennsalt from competing from its Portland plant for business in the southeast, and has foreclosed Olin from competing for west coast business from the plant which, but for Penn-Olin, it would have built in the southeast. This argument assumes a national market of competitive effectiveness. The absence of such a market invalidates the argument.
[22] Osborne, the President of Penn-Olin, testified that Olin's decision to enter the joint venture was made without determining that Olin could not or would not be an independent competitor. He testified that that question "never reached the point of final decision."
Pennsalt asserts that on December 5, 1957 its management made its final decision that it should not build a plant of its own and that this decision was never reconsidered or changed. The view that the December 5, 1957 decision was final is rejected. The record is replete with evidence that after December 5, 1957 Pennsalt continued to manifest an interest in an independent sodium chlorate venture, although this was primarily in the posture of a combined sodium chlorate-ammonium perchlorate plant. The consideration which was given to the ammonium perchlorate aspect of the venture was basically to support the manufacture of sodium chlorate. Ammonium perchlorate was viewed as a "sweetener" to justify the investment economically, since ammonium perchlorate, as compared with sodium chlorate, yielded a relatively high rate of return on investment.
In December 1958 the management of Pennsalt agreed to launch a full-scale effort to determine the feasibility of a sodium chlorate-ammonium perchlorate plant. This effort was not made because in January 1959 Pennsalt resumed joint venture discussions with Olin. The January 1959 minutes of the Appropriation Committee of Pennsalt indicate that if Olin was not desirous of proceeding with the joint venture, data on doing the project alone should be resubmitted to the committee. As late as December 30, 1959, Land, General Manager, Industrial Chemicals Division East, was still of the view that no final decision had been made whether Pennsalt would build its own plant.
[23] For instance, the so-called Whither Report of the Chemical Division of Olin dated April 10, 1959 disclosed that if Olin built a 15,000 ton sodium chlorate plant at Mackintosh, Alabama, it could be expected to show a profit after taxes equal to 11% on the gross investment of $4,100,000. A revision of the Report in October 1959 revealed that if Olin constructed a combined sodium chlorate-chlorine-caustic plant at Chattanooga, Tennessee, the investment of $3,590,000 attributed to the 15,000 ton sodium chlorate facility would yield an aftertax profit of 13.1%.
A study made by Pennsalt in 1959 for a combined sodium chlorate-ammonium perchlorate plant at Calvert City, Kentucky showed that the $6,961,300 investment cost assigned to the 25,000 ton sodium chlorate phase would yield a 15.9% after-tax return.
Although both companies made a number of studies of the potential profit to be derived from a sodium chlorate plant and the anticipated yield on investment was not uniform, each of the studies forecast a profit.
[24] Section 7 is not concerned with possibilities of competition being substantially lessened; its aim is directed against combinations that probably will have that result. Brown Shoe Co. v. United States, supra, 370 U.S. p. 323, 82 S.Ct. p. 1522.
[25] The Transcript of Argument reads at pp. 125-126:
"THE COURT: Let me ask you: If I should come to the conclusion that as a matter of reasonable probability, absent the joint venture, Olin would have constructed a factory and sold its products in the southeast, if I should come to that conclusion, does the Government contend that from that the Government must * * * win?"
"MR. FREED: Yes.
"THE COURT: Let me ask you: Isn't there a further question as to whether or not the construction of a plant by Olin, sales of products by Olin in the southeast, would have produced a more competitive situation than did the joint venture? "MR. FREED: No, Your Honor, that would not be a legitimate question. It is not for the Government and it is not for the courts to weigh the advantages of combinations of competitors and what they give to the economy, and what individual companies give to the economy. * * *"
In arguing that competition created by the joint venture is irrelevant, the Government cites United States v. Minnesota Mining & Manufacturing Co., 92 F. Supp. 947 (D.Mass.1950) as an "important precedent". If the decision is susceptible of the interpretation which the Government gives it, it is inconsistent with the views herein expressed. United States v. Bethlehem Steel Corp., supra, 168 F. Supp. pp. 615-618, the other case relied upon by the Government, is clearly inapposite.
[26] To be achieved gradually on a stepped-up basis.
[27] Although this was after suit had been begun on January 6, 1961, Olin had determined internally in 1960 that the joint venture should be restricted to sodium chlorate.
[28] Transcript of Argument, p. 44.
[29] Transcript Argument, p. 54.
[30] Transcript of Argument, pp. 55-57.
[31] Transcript of Argument, p. 57.
[32] Ammonium perchlorate is used as an oxidizer for high energy solid state missile propellants. Sodium chlorate is the raw material out of which ammonium perchlorate is made. The profit obtainable from the latter was much greater than that which could be derived from the former. A plant which produced both products would yield an overall rate of return satisfactory to Pennsalt.
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430 B.R. 555 (2010)
In re Anthony A. MALFATTI, Debtor.
Bank of America, N.A. (USA), a National Bank and MBNA America Bank, N.A., a National Bank, Plaintiffs,
v.
Anthony A. Malfatti, Defendant.
Bankruptcy No. 09-43469-EDJ. Adversary No. 09-04318 AJ.
United States Bankruptcy Court, N.D. California.
May 28, 2010.
As Amended June 3, 2010.
*556 Douglas G. Boven, Reed Smith, LLP, San Francisco, CA, for Plaintiffs.
William F. Abbott, Law Offices of William F. Abbott, San Francisco, CA, for Defendant.
DECISION
EDWARD D. JELLEN, Bankruptcy Judge.
Plaintiffs Bank of America, N.A. (USA) ("BofA") and MBNA America Bank, N.A. ("MBNA"), (jointly, "Plaintiffs") have moved for summary judgment in this adversary proceeding. By their motion, *557 Plaintiffs seek a determination that, through the application of collateral estoppel, the liability of defendant Anthony A. Malfatti, the above debtor ("Malfatti"), under a pre-bankruptcy judgment issued by the Circuit Court of Jackson County, Alabama, is nondischargeable under Bankruptcy Code § 523(a)(6) (willful and malicious injury). The court will grant Plaintiffs' motion.
A. Background
The relevant facts are undisputed, and are set forth in a Declaration of John W. Scott, Plaintiffs' counsel of record in Civil Action No. CV-04-308 Circuit Court of Jackson County, Alabama. (Action No. CV-04-308, together with various other actions with which it was consolidated is hereafter referred to as the "Alabama Action".)
Plaintiffs filed their First Amended Third Party Complaints in the Alabama Action on September 2, 2005, seeking damages and injunctive relief against Malfatti, TA Financial Group ("TAF"), Arbitration Forum of America ("AFOA"), and others. In short, these complaints alleged that: (a) Malfatti was an officer and founding principal of TAF, which he ostensibly established as a non-profit corporation to provide educational services to credit card holders; (b) that Malfatti and TAF engaged in a fraudulent debt elimination scheme by which: (i) they manufactured a dispute with Plaintiffs and other credit card issuers, (ii) they produced documents by which the credit card agreements between the cardholders and Plaintiffs were unilaterally modified by the cardholders to permit them to arbitrate the "dispute" with AFOA, (iii) AFOA issued sham arbitration awards in favor of the cardholders, and (iv) such awards were submitted to Circuit Court of Jackson County, Alabama to be confirmed as judgments.
After they filed their original third party complaints, Plaintiffs filed motions to vacate the sham arbitration awards, which the Circuit Court granted on September 3, 2005.
On January 19, 2006, Malfatti and TAF, through their counsel, filed: (a) motions to dismiss Plaintiffs' complaints, which the Circuit Court denied, and (b) answers to the complaints, which included a one-line general denial of the allegations and an objection by Malfatti to the Circuit Court's jurisdiction.
Through his counsel, Malfatti then proceeded to file a complex series of motions and jurisdictional and other objections, none of which were successful. Malfatti and TAF also refused to provide documents in discovery or to attend duly noticed and re-noticed depositions. On November 21, 2006, Plaintiffs moved for entry of a default judgment against Malfatti and TAF, alleging numerous discovery and other abuses, and violations of Circuit Court orders over the course of the litigation. Through counsel, Malfatti filed opposition.
On March 6, 2007, the Circuit Court entered its order granting Plaintiffs' motion. On March 27, 2007, Malfatti and TAF filed a motion to set aside this order. The Circuit Court denied the motion. Malfatti and TAF also filed a Petition for Mandamus with the Supreme Court of Alabama, challenging the order. The Alabama Supreme Court denied the petition.
Malfatti's discovery abuses continued.
On February 4, 2008, the Circuit Court held an evidentiary hearing regarding damages. Through counsel, Malfatti filed a brief in opposition, and appeared at the hearing. On February 19, 2008, the Circuit Court entered its Judgment (the "Judgment") awarding BofA compensatory damages against Malfatti and TAF in the *558 sum of $103,464.97, plus punitive damages against Malfatti in the sum of $100,000, for a total of $203,464.97, plus punitive damages against TAF in the sum of $50,000. The Judgment awarded MBNA compensatory damages against Malfatti and TAF in the sum of $109,805.38, plus punitive damages against Malfatti in the sum of $100,000, for a total of $209,805.38, plus punitive damages against TAF in the sum of $50,000. The Judgment also provided that, under the doctrine of piercing the corporate veil, Malfatti was personally liable for the judgment against TAF. The Judgment also granted Plaintiffs the injunctive relief they had requested.[1]
Following entry of the Judgment, Malfatti and TAF filed a motion to amend, alter, or vacate the Judgment, which the Circuit Court denied.
On April 27, 2009, Malfatti filed his voluntary petition herein under chapter 7 of the Bankruptcy Code. Plaintiffs' complaint and the summary judgment motion now before the court followed.
B. Discussion
1. Summary Judgment
"Summary judgment is properly granted when there is no genuine issue of material fact and 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). Fed. R.Civ.P. 56, applicable herein via Fed. R.Bankr.P. 7056.
2. Bankruptcy Code § 523(a)(6)
Bankruptcy Code § 523(a)(6) provides "A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt . . . (6) for willful or malicious injury by the debtor to another entity or to the property of another entity." There can be no dispute that the extensive findings by the Circuit Court in the Alabama Litigation establish that Malfatti's debt to Plaintiffs resulted from Malfatti's causing them a willful and malicious injury within the meaning of Bankruptcy Code § 523(a)(6). See, generally, Kawaauhau v. Geiger, 523 U.S. 57, 118 S. Ct. 974, 140 L. Ed. 2d 90 (1998).
This is established by the provisions of the Judgment assessing punitive damages against Malfatti, and reciting the facts that
Bank of America and MNBA . . . (collectively, "Third Party Plaintiffs") have suffered and are suffering and will continue to suffer immediate and irreparable harm to their business as a proximate result of these third party defendants' wrongdoing. If these Third Party Defendants [which included Malfatti] are not enjoined from promoting, facilitating, and conducting sham debt elimination schemes and facilitating sham arbitration proceedings, Third Party Plaintiffs rights will be irreparably harmed.
. . .
Third Party Plaintiffs have no adequate remedy at law because issuance of appropriate injunctive relief is the only means by which this fraudulent scheme can effectively be stopped and prevented from recurring.
3. Collateral Estoppel
The major issue before the court is whether the findings by the Circuit Court *559 are entitled to collateral estoppel effect in this adversary proceeding. The parties agree that collateral estoppel may apply to nondischargeability proceedings under Bankruptcy Code § 523(a). Grogan v. Garner, 498 U.S. 279, 284-85, 111 S. Ct. 654, 658 n. 11, 112 L. Ed. 2d 755 (1991); In re Nourbakhsh, 67 F.3d 798, 801 (9th Cir. 1995). The parties also agree that under the federal full faith and credit statute, 28 U.S.C. § 1738,[2] this court must look to the collateral estoppel rules of the State of Alabama to make its determination. Nourbakhsh, 67 F.3d at 800; In re Bugna, 33 F.3d 1054, 1057 (1994).
The court turns, then, to Alabama law. In Wheeler v. First Alabama Bank of Birmingham, 364 So. 2d 1190, 1199 (Ala.1978), the Alabama Supreme Court set forth Alabama's requirements for collateral estoppel as follows:
Collateral estoppel operates where the subsequent suit between the same parties is not on the same cause of action. Requirements for collateral estoppel to operate are (1) issue identical to one involved in previous suit; (2) issue actually litigated in prior action; and (3) resolution of the issue was necessary to the prior judgment. . . . If these elements are present, the prior judgment is conclusive as to those issues actually determined in the prior suit.
See also Dairyland Ins. Co. v. Jackson, 566 So. 2d 723, 726 (Ala.1990).
Here, as to the "same parties" requirement, there is no dispute that Malfatti and Plaintiffs, the parties now before this court, were parties to the Alabama Litigation. With reference to the "identical issue" requirement, Malfatti does not dispute that the factual elements needed to prove a "willful and malicious" injury within the meaning of Bankruptcy Code § 523(a)(6) were at issue in the Alabama Litigation. Nor can he reasonably dispute, with reference to the final requirement, that resolution of those factual elements was necessary to the Judgment in the Alabama Litigation.
Malfatti's main argument, then, is that, because the Judgment is a default judgment, the matters determined by the Circuit Court were not "actually litigated," and thus, that this requirement for the application of collateral estoppel under Alabama law has not been met. Plaintiffs disagree.
Here, the court concludes that the Judgment is entitled to collateral estoppel effect under Alabama law. The court bases its conclusion on Malfatti's extensive participation in the Alabama Litigation with the assistance of legal counsel, his severe misconduct therein, and the case law hereinafter cited. This conclusion follows from the foregoing, whether or not Alabama would give collateral estoppel effect to findings in connection with a default judgment entered in a case in which the defaulting party did not extensively participate.
It is unclear whether, as an abstract proposition, Alabama courts permit application of collateral estoppel in a case, unlike the present case, where a court had entered a judgment by default on account of the defaulting party's failure to answer a complaint or defend an action. Malfatti has cited a number of reported decisions he contends mandate a negative answer, and Plaintiffs have cited a number of reported decisions they contend mandate an *560 affirmative answer. The fact, however, is that neither party has cited any decision by a court of the State of Alabama that definitively opines on the matter, one way or the other.
The decisions cited by Malfatti generally turned on the fact that the elements of the claim in the second case differed from those alleged in the first,[3] or involved consent decrees rather than default judgments.[4] Malfatti cites Central of Ga. Railway Co. v. Dothan National Bank, 206 Ala. 602, 91 So. 351, 357 (1921) and Irby v. Commercial National Bank, 204 Ala. 420, 85 So. 509 (1920) for the proposition that it is "`unquestionably the law'" of Alabama that a default judgment cannot be given preclusive effect through application of collateral estoppel. However, Malfatti took the "unquestionably the law" language from theses decisions out of context. The fact is that the "unquestionably the law" quote in both decisions had absolutely nothing to do with the collateral estoppel effect of default judgments.[5] Moreover, the decisions in Central of Ga. Railway and Irby turned on the fact that the claim or demand sued on in the second action was not included in the claim or demand adjudicated by the prior judgment. Central of Ga. Railway, 91 So. at 357; Irby, 85 So. at 510.
Malfatti cites Ex Parte Overton, 985 So. 2d 423 (Ala.2007) as a decision affirming that the issue has been well settled in Alabama for 68 years. Overton, however, concerned the right of an insurer who was not a party to the prior litigation to set aside a default judgment entered in that litigation. The court held that the insurer, as a non-party, lacked standing to do so, but noted that the insurer could bring an independent action alleging lack of coverage because coverage was not at issue in the first action. Id. at 433. Nothing in Overton opines on the issue of whether findings made in an action that concludes by entry of a default judgment are or are not preclusive by operation of collateral estoppel.
Malfatti cites three decisions by bankruptcy judges sitting in the Northern District of Alabama, none of which advance the inquiry. In In re Booth, 174 B.R. 619 (Bankr.N.D.Ala.1994) the issue involved a consent judgment, not a default judgment. Id. at 621. Even so, the bankruptcy court opined in a dictum that "[t]he law in Alabama, supported by the Eleventh Circuit and textwriters, is that neither a consent judgment nor a default judgment can satisfy the `actually litigated' element of collateral estoppel." Id. at 623. The citations that followed this dictum, however, concerned, respectively, consent judgments and not default judgments, AAA Equipment & Rental, Inc. v. Bailey, 384 So. 2d 107 (Ala.1980), Kaspar Wire Works, *561 Inc. v. Leco Engineering & Machine, Inc., 575 F.2d 530 (5th Cir.1978), and a default judgment where the issue was governed by Florida, not Alabama, law. Gibbs v. Air Canada, 810 F.2d 1529 (11th Cir.1987).
Clearly, then, Booth is of no assistance.
The other bankruptcy court decisions cited by Malfatti are Porterfield v. Cornner (In re Cornner), 191 B.R. 214 (Bankr. N.D.Ala.1995) and Dorian v. Cornner (In re Cornner), 191 B.R. 199 (Bankr.N.D.Ala. 1995). In both decisions, the bankruptcy judge stated in a footnote "it is doubtful that a default judgment has any collateral estoppel effect." Porterfield, 191 B.R. at 228 fn. 11; Dorian, 191 B.R. at 206 fn. 3. In both decisions, however, the authority cited for the court's expression of doubt was limited to a case involving a dismissal without prejudice, Smith v. Union Bank & Trust Co., 653 So. 2d 933 (Ala.1995), a case involving a stipulated judgment, AAA Equipment & Rental, Inc. v. Bailey, 384 So. 2d 107 (Ala.1980), and the Booth case.
Similarly, the Alabama decisions cited by Plaintiffs are inapposite here, in that they involved application of res judicata, rather than collateral estoppel,[6] or an appeal from entry of a default judgment.[7]
Given, then, the absence of definitive Alabama authority as to the issue at hand, it is appropriate for the court to look to several decisions, which although not binding here, involved facts very similar to those that are present here and the same four-part collateral estoppel test applied by the Alabama courts.[8]
The first such decision is In re Bush, 62 F.3d 1319 (11th Cir.1995). In Bush, the issue was whether a bankruptcy court was required to give collateral estoppel effect to a default judgment for fraud entered by a U.S. District Court sitting in Florida. As here, the debtor had engaged in numerous discovery and other violations including the debtor's failure to produce trial exhibits, to appear for a properly noticed deposition, and his providing phony excuses for his failure to appear. The district court entered a default judgment against the debtor.
Subsequently, in the debtor's bankruptcy case, the bankruptcy court gave collateral estoppel effect to the district court judgment, finding that the debtor had had an "ample opportunity to contest the fraud allegations in the prior action." Bush, 62 F.3d at 1323. On appeal, the Eleventh Circuit affirmed. The court reasoned:
Bush actively participated in the prior action over an extended period of time. Subsequently, he engaged in dilatory *562 and deliberately obstructive conduct, and a default judgment, based on fraud, was entered as sanction against him. He now attempts, in this bankruptcy proceeding, to avoid Section 523 by denying the fraud. Such abuse of the judicial process must not be rewarded by a blind application of the general rule denying collateral estoppel effect to a default judgment.
Id. at 1324.
As mentioned, Bush is not binding here. The litigation was in a state other than Alabama. And the trial court was a federal court, not a state court, meaning that 28 U.S.C. § 1738 (requiring federal courts to give full faith and credit to state acts and proceedings) was inapplicable. The reasoning, however, is compelling, and just as applicable to the facts here as they were to the facts in Bush.
Along the same lines is In re Daily, 47 F.3d 365 (9th Cir.1995). In Daily, the debtor had evaded discovery in a U.S. District Court RICO action (in Kansas) for a period of almost two years, and had engaged in a "deliberate, dilatory course of conduct." Id. at 367. The district court struck the debtor's answer, and entered a fraud judgment against him. Id. The Tenth Circuit affirmed. Thereafter, the debtor filed a bankruptcy case in Hawaii. The bankruptcy court in Hawaii applied collateral estoppel to render the fraud judgment nondischargeable. The district court affirmed.
So did the Ninth Circuit. The Ninth Circuit reasoned:
The judgment entered in the RICO action was not an ordinary default judgment. Daily did not simply decide the burden of litigation outweighed the advantages of opposing the FDIC's claim and fail to appear. He actively participated in the litigation, albeit obstructively, for two years before judgment was entered against him. A party who deliberately precludes resolution of factual issues through normal adjudicative procedures may be bound, in subsequent, related proceeding involving the same parties and issues by a prior judicial determination reached with completion of the usual process of adjudication. In such cases, the `actual litigation' requirement may be satisfied by substantial participation in an adversary context in which the party is afforded a reasonable opportunity to defend himself on the merits but chooses not to do so.
Id. at 368.
The Ninth Circuit went on to note that application of collateral estoppel under such circumstances would be consistent with the purpose of the doctrine, "`protect[ing] [the prevailing party] from the expense and vexation attending multiple lawsuits, conserv[ing] judicial resources, and foster[ing] reliance on judicial action by minimizing the possibility of inconsistent decisions.'" Id. at 368-69, quoting Montana v. U.S., 440 U.S. 147, 153-54, 99 S. Ct. 970, 973-74, 59 L. Ed. 2d 210 (1979).
Here, as in Daily, the Judgment followed Malfatti's "substantial participation in an adversary context" and Malfatti was "afforded a reasonable opportunity to defend himself on the merits" but chose not to do so. Again, Daily is not binding. But it certainly is persuasive.
Equally persuasive is the Fifth Circuit's decision in In re Gober, 100 F.3d 1195 (5th Cir.1996), another case in which the facts are remarkably similar to those present here. In Gober, the debtor, as here, had filed an answer to a state court complaint (in Texas) denying liability, and had actively litigated the matter for two years. The state court ended up striking the answer and entering a default judgment because, as here, the debtor had "repeatedly impeded *563 the course of the proceedings by refusing to comply with discovery and by defying court orders." Id. at 1205-1206.
In the debtor's subsequent bankruptcy case, the bankruptcy court held that collateral estoppel barred the debtor from relitigating the issues. On the debtor's appeal to the Fifth Circuit, the issue was whether the Texas state court default judgment was entitled to preclusive effect in the subsequent bankruptcy court dischargeability proceeding.
In its decision, which held in the affirmative, the Fifth Circuit took the occasion to discuss the "actually litigated" requirement of collateral estoppel. In doing so, the court noted that the general term "default judgment" is "used loosely to describe very different types of judgments under Texas law." Id. at 1204. The court then distinguished between a default judgments: (a) where a defendant fails to answer, and (b) where a defendant answers, but fails to appear at trial, opining that the latter type meets the actually litigated requirement.
The Fifth Circuit then held that under the facts before it, the situation resembled the latter type of default, observing that, as was the case here, the state court had held a damages hearing at which the creditor had the burden of establishing that the degree and type of the debtor's misconduct warranted punitive damages. Id. The Sixth Circuit's decision in In re Bursack, 65 F.3d 51 (6th Cir.1995) is in accord. (Under Tennessee law, "actually litigated" requirement was met when the debtor failed to appear for trial.)
This court cannot conceive of any reason why the compelling logic of the Eleventh, Ninth, Fifth, and Sixth Circuits in, respectively, Bush, Daily, Gober, and Bursack would not be followed by the courts of Alabama.
This is so because resolution of the collateral estoppel issue should not turn on the mere fact that the Judgment was a default judgment, but rather, on the facts that Malfatti's participation in the Alabama litigation was extensive and done with the assistance of counsel, and that Malfatti had every opportunity to defend Plaintiffs' action and elected not to do so, but instead, to engage in a prolonged course of obstructive conduct.
This conclusion is bolstered by the Supreme Court's decision in Montana v. U.S., 440 U.S. 147, 99 S. Ct. 970, 59 L. Ed. 2d 210 (1979), cited with approval by the Alabama Supreme Court in Century 21 Preferred Properties, Inc. v. Alabama Real Estate Commission, 401 So. 2d 764, 770 (1981). In Montana, the Supreme Court explained:
Under collateral estoppel, once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation. Application of both doctrines is central to the purpose for which civil courts have been established, the conclusive resolution of disputes within their jurisdictions. To preclude parties from contesting matters that they have had a full and fair opportunity to litigate protects their adversaries from the expense and vexation attending multiple lawsuits, conserves judicial resources, and fosters reliance on judicial action by minimizing the possibility of inconsistent decisions.
Montana, 440 U.S. at 153-54, 99 S.Ct. at 973-74 (internal citations omitted). Here, Malfatti has had "a full and fair opportunity to litigate" and his adversaries, Plaintiffs herein, should be protected "from the expense and vexation attending multiple lawsuits." Moreover, Malfatti should not be permitted to profit from his repeated *564 violations of the Circuit Court's orders by getting a "second bite out of the apple."
For the foregoing reasons, the court holds that the Judgment should be given collateral estoppel effect in this nondischargeability proceeding.
4. Damages
Malfatti argues that even if the Judgment is given collateral estoppel effect, the punitive damages the Circuit Court awarded are nevertheless dischargeable, citing In re Levy, 951 F.2d 196 (9th Cir.1991). Levy, however, has been overruled by Cohen v. de la Cruz, 523 U.S. 213, 118 S. Ct. 1212, 140 L. Ed. 2d 341 (1998). After de la Cruz, it has been clear that the punitive damages portion of a nondischargeable liability is nondischargeable. de la Cruz, 523 U.S. at 221, 118 S.Ct. at 1217-18. See also In re Britton, 950 F.2d 602 (9th Cir.1991).
Similarly, Malfatti argues that the attorneys' fees the Circuit Court awarded Plaintiffs are dischargeable, citing In re Fulwiler, 624 F.2d 908 (9th Cir.1980). Again, however, the Supreme Court's decision in de la Cruz makes clear that the attorneys' fees portion of a nondischargeable liability are nondischargeable. de la Cruz, 523 U.S. at 223, 118 S.Ct. at 1219.
C. Conclusion
The court will issue its judgment providing that Malfatti's liability to Plaintiffs under the Circuit Court's Judgment is non-dischargeable under Bankruptcy Code § 523(a)(6).
NOTES
[1] Portions of the Alabama Action remained at issue after entry of the Judgment. On June 30, 2009, the Circuit Court made extensive additional findings regarding the sham debt elimination and sham arbitration scams, and issued its Final Order and Judgment. This concluded the Alabama Litigation.
[2] 228 U.S.C. § 1738 provides, in relevant part that State acts and judicial proceedings "shall have the same full faith and credit in every court within the United States and its Territories and Possessions as they have by law or usage in the courts of such State . . . from which they are taken."
[3] Commissioners' Court of Tuscaloosa County v. State, 180 Ala. 479, 61 So. 431 (1913); Irby v. Commercial National Bank of Eufaula, 204 Ala. 420, 85 So. 509 (1920); Crowder v. Red Mountain Mining Co., 127 Ala. 254, 29 So. 847 (1900); Barnett v. Pinkston, 238 Ala. 327, 191 So. 371 (1939).
[4] Barnett v. Pinkston, 238 Ala. 327, 191 So. 371 (1939).
[5] The quote, in relevant part, reads: "It is unquestionably the law that a former judgment is a bar or estoppel against a prosecution upon the same claim or demand between the same parties, and concludes them, not only as to what was offered to maintain or defeat the claim or demand, but as to any other admissible matter which might have been offered. But where the second action between the same parties is upon a different claim, the demand in the prior action operates as an estoppel only as to matters in issue or points controverted, upon the determination of which the finding or verdict was rendered... ." Irby, 85 So. at 509-10; Central of Ga. Railway, 91 So. at 357 (quoting Irby).
[6] Walker v. Blackwell, 800 So. 2d 582 (Ala. 2001); McDonald v. U.S. Die Casting & Devel. Co., 628 So. 2d 433 (Ala. 1993).
[7] Jones v. McGaha, 470 So. 2d 1272 (Ala.Civ. App.1985).
[8] During oral argument on Plaintiffs' summary judgment motion, the court inquired whether it could and should certify the facts and issues present here to the Supreme Court of Alabama and request its opinion on the matter. Rule 18 of the Alabama Rules of Appellate Procedure sets forth Alabama's procedure for doing so. This court has concluded, however, that such certification would not be appropriate because (a) both parties here do not agree that certification is appropriate, and (b) it is unclear whether the Alabama Supreme Court would recognize this court as a "court of the United States" within the meaning of Rule 18. See In re Brickell Inv. Corp., 922 F.2d 696 (11th Cir.1991) (bankruptcy court is not a "court of the United States" for purposes of 26 U.S.C. § 7430); In re Davis, 899 F.2d 1136 (11th Cir.1990) (bankruptcy court is not a "court of the United States" for purposes of 28 U.S.C. § 2412); In re Sneller, 153 B.R. 343 (Bankr.M.D.Ala. 1993) (bankruptcy court is not a "court of the United States"); but see In re Brooks, 175 B.R. 409 (Bankr.S.D.Ala.1994) (bankruptcy court is a "court of the United States").
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217 N.J. Super. 20 (1987)
524 A.2d 1265
STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
v.
JAMES J. SHEEHAN, DEFENDANT-APPELLANT.
Superior Court of New Jersey, Appellate Division.
Submitted March 24, 1987.
Decided April 15, 1987.
*21 Before Judges PRESSLER, GAULKIN and BAIME.
*22 Alfred A. Slocum, Public Defender, attorney for appellant (Sara K. Walsh, designated counsel and on the brief).
W. Cary Edwards, Attorney General of New Jersey, attorney for respondent (Julie Davidson, Deputy Attorney General, of counsel and on the letter-brief).
The opinion of the court was delivered by BAIME, J.A.D.
Following the denial of his motion to suppress evidence, defendant entered a retraxit plea of guilty to possession of cocaine (N.J.S.A. 24:21-20a(1)). The trial judge imposed a probationary term of two years and fined defendant $250. In addition, defendant was assessed a penalty of $25 payable to the Violent Crimes Compensation Board. The sole argument advanced on appeal is that a warrant authorizing the search of the entire house in which defendant resided was unconstitutionally broad. We disagree and affirm.
The affidavit upon which the search warrant was issued was prepared by Detective George L. Arroyo, a highly experienced member of the narcotics bureau of the New Jersey State Police. The affidavit recited the following facts. Detective Arroyo received information from a confidential informant, who had proved reliable in the past, that drugs were being distributed from a house located at 674 Hamilton Street in the City of Rahway. Based upon the receipt of this information, the police established a surveillance of the premises during which they observed the informant conduct a drug transaction with an individual identified as Jeffrey Till. According to Detective Arroyo, the informant entered the house and emerged shortly thereafter with approximately one gram of cocaine. Ten days later, the detective, while acting undercover, entered the premises and purchased additional drugs from Till. Further investigation revealed that the house was owned by Florence M. Sheehan. Although the affidavit is devoid of any statement disclosing whether the premises constituted a single or multi-family *23 dwelling, a fair reading of the detailed description contained therein supports the thesis that the house was a single-family residence. In any event, based upon his experience Detective Arroyo concluded that controlled dangerous substances and various types of drug paraphernalia could be found in the house.
Predicated upon these facts, a Superior Court judge issued a warrant authorizing the search of the entire premises. During the ensuing search, the police confiscated cocaine and other drugs from Till's bedroom, a bedroom occupied by defendant and the kitchen.
Following his indictment, defendant filed a motion to suppress evidence pursuant to R. 3:5-7. The trial judge granted defendant's request for an evidentiary hearing to present facts which were allegedly omitted from the affidavit. At the hearing, Detective Arroyo amplified the affidavit by testifying that the house in which the drug purchases took place was a single-family, two-story residence with entranceways in the front and back. The second floor consisted of three bedrooms and a bathroom separated by a narrow hallway. According to the detective, both drug transactions had occurred in a bedroom occupied by Till. Detective Arroyo testified that Till kept the illicit drugs in a nightstand immediately adjacent to his bed. The doors to the other two bedrooms were open both when the detective purchased the cocaine and when he entered the premises to execute the search warrant. According to Detective Arroyo, he did not know that the other two bedrooms were occupied until the day of the search. At that time, the detective first became aware of the fact that defendant and his sister resided in the house along with Till and that each had a separate bedroom.
In denying defendant's motion to suppress, the trial judge determined that the facts recited in the affidavit were sufficient to establish probable cause to search the entire house. The judge rejected the argument that the warrant was overly broad *24 and that the search should have been confined to Till's bedroom. The fact that the drug purchases had occurred in the bedroom occupied by Till was found to be immaterial. The judge concluded that it was not incumbent upon Detective Arroyo to set forth these facts in his affidavit.
I
Before turning our attention to the merits of the arguments advanced, we are constrained to note certain procedural problems which, although not raised directly by the parties, cause us considerable concern. Specifically, we question whether defendant should have been permitted to challenge the legal efficacy of the search warrant based upon information known to the affiant but not set forth in the supporting affidavit and hence not considered by the issuing judge.
As a general rule, questions concerning the validity of a search warrant hinge upon the information contained within the four corners of the supporting affidavit. See, e.g., State v. Novembrino, 105 N.J. 95, 128 (1987); State v. Howery, 80 N.J. 563, 567 (1979), cert. den. 444 U.S. 994, 100 S.Ct. 527, 62 L.Ed.2d 424 (1979); State v. Fariello, 71 N.J. 552, 564 (1976); State v. Meighan, 173 N.J. Super. 440, 449 (App.Div. 1980), certif. den. 85 N.J. 122 (1980). In Franks v. Delaware, 438 U.S. 154, 98 S.Ct. 2674, 57 L.Ed.2d 667 (1978), however, the United States Supreme Court held that as a matter of federal constitutional law a criminal defendant under certain circumstances must be allowed to challenge the validity of a search warrant on the basis of alleged false statements contained in a supporting affidavit. 438 U.S. at 155-156, 98 S.Ct. at 2676, 57 L.Ed.2d at 672. Mindful of the substantial impact that its decision would otherwise have on already over-burdened criminal trial calendars, see State v. Petillo, 61 N.J. 165, 177-178 (1972), cert. den. 410 U.S. 945, 93 S.Ct. 1393, 35 L.Ed.2d 611 (1973), the Court stated that a defendant must make a "substantial preliminary showing of falsity" in the affidavit in order to be entitled to a *25 hearing. Franks v. Delaware, supra, 438 U.S. at 170, 98 S.Ct. at 2684, 57 L.Ed.2d at 681. In keeping with the overall objective of the exclusionary rule as a judge-made device to deter insolence in office, the Court emphasized that the defendant cannot rely on allegations of unintentional falsification in a warrant affidavit. Rather, he must allege "deliberate falsehood or ... reckless disregard for the truth." Id. at 171, 98 S.Ct. at 2684, 57 L.Ed.2d at 682. These allegations should be supported by an offer of proof including reliable statements by witnesses, and they must be proved by a preponderance of the evidence. Ibid. Finally, the statements challenged as false must be material to the extent that when they are excised from the affidavit, whatever remains no longer establishes the requisite probable cause to support issuance of the search warrant. 438 U.S. at 171-172, 98 S.Ct. at 2684, 57 L.Ed.2d at 682.
In State v. Howery, supra, our Supreme Court held that State constitutional requirements are coterminous with those of their federal counterparts. 80 N.J. at 568. Hence, "New Jersey courts, in entertaining veracity challenges, need go no further than is required as a matter of Federal Constitutional law by Franks v. Delaware, supra." Ibid.
While our research discloses no reported New Jersey opinion dealing with the precise issue, we have no hesitancy in holding that these principles apply with equal force to constitutional attacks upon search warrants based upon the claim that the supporting affidavits while facially sufficient nevertheless omit material facts. We hold that essentially the same factual predicate must be established in order to entitle the defendant to an evidentiary hearing. More specifically, the defendant must make a substantial preliminary showing that the affiant, either deliberately or with reckless disregard for the truth, failed to apprise the issuing judge of material information which, had it been included in the affidavit, would have militated against issuance of the search warrant. Cf. State v. Meighan, supra, 173 N.J. Super. at 448-449. Once a defendant *26 satisfies this threshold burden, he must be afforded an evidentiary hearing. If at such inquiry the defendant proves by a preponderance of the evidence that the affiant, deliberately or with reckless disregard for the truth, excluded material information from the affidavit which, had it been provided, would have caused the judge to refuse to issue the warrant, the evidence must be suppressed.
Applying these principles we find that defendant's request for an evidentiary hearing was materially deficient. At best, defendant claimed that the affidavit did not set forth all of the relevant information known by the affiant because it failed to disclose precisely where in the house the drug sales had occurred. Defendant never expressly alleged that the affiant, either deliberately or with reckless disregard for the truth, withheld vital information from the issuing judge. In light of this deficiency, we are of the view that the judge should not have accorded the defendant an evidentiary hearing. The validity of the search warrant should have been determined upon the information contained in the affidavit.
We have nevertheless decided to review defendant's arguments in light of the entire record including the evidence presented by the parties at the hearing. Although the State has made oblique reference to State v. Howery, supra, in its brief, both parties have chosen to argue the matter upon the common factual assumption that the drug sales described in the affidavit occurred in Till's bedroom and that defendant occupied a separate bedroom. The question thus presented is whether the warrant was unconstitutionally broad because it authorized the search of the entire house.
II
We commence our analysis with the fundamental principle that search warrants are strongly favored under the Federal and State constitutions. Illinois v. Gates, 462 U.S. 213, 236, 103 S.Ct. 2317, 2331, 76 L.Ed.2d 527, 546-547 (1983), reh'g den. *27 463 U.S. 1237, 104 S.Ct. 33, 77 L.Ed.2d 1453 (1983); State v. Kasabucki, 52 N.J. 110, 117 (1968); State v. Mark, 46 N.J. 262, 273 (1966); State v. Galvin, 161 N.J. Super. 524, 532 (App.Div. 1978); State v. Singleton, 158 N.J. Super. 517, 525 (App.Div. 1978), certif. den. 79 N.J. 470 (1978). The United States Supreme Court has repeatedly said that after-the-fact scrutiny of the sufficiency of an affidavit should not take the form of a de novo review. Illinois v. Gates, supra, 462 U.S. at 236, 103 S.Ct. at 2331, 76 L.Ed.2d at 546-547; Spinelli v. United States, 393 U.S. 410, 419, 89 S.Ct. 584, 590-91, 21 L.Ed.2d 637, 645 (1969); Aguilar v. Texas, 378 U.S. 108, 111, 84 S.Ct. 1509, 1512, 12 L.Ed.2d 723, 726 (1964). Our Supreme Court has expressed similar sentiments in a long line of decisions. State v. Perry, 59 N.J. 383, 393-394 (1971); State v. Bisaccia, 58 N.J. 586, 589 (1971); State v. Kasabucki, supra, 52 N.J. at 117; State v. Mark, supra, 46 N.J. at 272. A grudging or negative attitude by reviewing courts is repugnant to the Fourth Amendment's strong preference for searches conducted pursuant to a warrant. United States v. Ventresca, 380 U.S. 102, 108, 85 S.Ct. 741, 745-46, 13 L.Ed.2d 684, 688-689 (1965). Once the issuing judge has made a finding of probable cause on the proof submitted and has issued a search warrant, a reviewing court is obliged to pay substantial deference to his determination. State v. Kasabucki, supra, 52 N.J. at 117. The facts should not be reviewed from the vantage point of twenty-twenty hindsight by interpreting the supporting affidavit in a hyper-technical, rather than a commonsense manner. United States v. Ventresca, supra, 380 U.S. at 109, 85 S.Ct. at 746, 13 L.Ed.2d at 689. The resolution of doubtful or marginal cases should be largely determined by the preference to be accorded search warrants. Ibid.
Viewed in the light of this commonsense, nontechnical and positive approach, see State v. Kasabucki, supra, 52 N.J. at 117; State v. Contursi, 44 N.J. 422, 431 (1965), we are satisfied that the facts set forth in the affidavit, as supplemented by the evidence presented at the hearing, established probable *28 cause to search the entire premises. The Fourth Amendment categorically prohibits the issuance of any warrant which does not "particularly" describe "the place to be searched and the persons or things to be seized." U.S. Const., Amend. IV. As recently noted by the United States Supreme Court, "[t]he manifest purpose of this particularity requirement was to prevent general searches." Maryland v. Garrison, ___ U.S. ___, 107 S.Ct. 1013, 1017, 94 L.Ed.2d 72 (1987). "[B]y limiting the authorization to search to the specific areas and things for which there is probable cause to search, the requirement ensures that [police activity] will be carefully tailored to its justifications, and will not take on the character of the wideranging exploratory searches the Framers intended to prohibit." Ibid. Hence, the scope of a lawful search is defined by the object of the investigation and the places in which there is probable cause to believe that it may be found. State v. Reldan, 100 N.J. 187, 195 (1985). See also Harris v. United States, 331 U.S. 145, 152-153, 67 S.Ct. 1098, 1102, 91 L.Ed. 1399, 1406-1407 (1947), reh'g den. 331 U.S. 867, 67 S.Ct. 1527, 91 L.Ed. 1871 (1947).
In the context of a multiple-unit building, the particularity requirement mandates that the warrant describe the specific subunit to be searched. State v. Ratushny, 82 N.J. Super. 499, 505 (App.Div. 1964). See also United States v. Votteller, 544 F.2d 1355, 1362-1363 (6 Cir.1976); United States v. Hinton, 219 F.2d 324, 326 (7 Cir.1955). A warrant which authorizes the search of an entire building when cause is shown for searching only one apartment is overly broad and invalid.[1] 2 LaFave, Search and Seizure, A Treatise on the Fourth Amendment, § 4.5(b), at 215 (1987). See generally Annot. "Search Warrant: *29 Sufficiency of Description of Apartment or Room to be Searched in Multiple-Occupancy Structure," 11 A.L.R.3d 1330 (1967).
Although the question is of first impression in New Jersey, other jurisdictions have drawn a distinction between a multiple-unit building and a multiple-occupancy dwelling. See, e.g., State v. Teague, 469 So.2d 1310, 1312-1314 (Ala. Crim. App. 1985); Jackson v. State, 129 Ga. App. 901, 904-05, 201 S.E.2d 816, 819 (Ct.App. 1973); State v. Lehr, 258 N.W.2d 158, 159-160 (Iowa Sup.Ct. 1977); State v. Hymer, 400 So.2d 637, 638-639 (La.Sup.Ct. 1981); State v. Lorenz, 368 N.W.2d 284, 286-287 (Minn.Sup.Ct. 1985); State v. Coatney, 44 Or. App. 13, 18, 604 P.2d 1269, 1272 (Ct.App. 1980); State v. Willcutt, 19 Or. App. 93, 94-95, 526 P.2d 607, 608 (Ct.App. 1974); Poyner v. Commonwealth, 229 Va. 401, 411-12, 329 S.E.2d 815, 824 (Sup.Ct. 1985), cert. den. ___ U.S. ___, 106 S.Ct. 189, 88 L.Ed.2d 158 (1985); State v. Alexander, 41 Wash. App. 152, 154-55, 704 P.2d 618, 620-621 (Ct.App. 1985). The multiple-occupancy or community living exception is said to apply "where several persons or families occupy the premises in common rather than individually, as where they share common living quarters but have separate bedrooms." State v. Alexander, supra, 41 Wash. App. at 154-55, 704 P.2d at 620. Stated somewhat differently, "a multiple-occupancy structure is not automatically a multiple-unit structure." State v. Coatney, supra, 44 Or. App. at 18, 604 P.2d at 1272. The "essential ingredient" regarding the specificity requirement for search warrants in this context "relates not to the number of occupants but to the existence of separate units or subunits within a structure." Ibid. The mere fact that a structure contains several residents who are not related to one another "does not automatically convert its rooms into [separate and private] `subunits.'" Ibid. In the community living or multiple-occupancy situation, the courts have generally held that a "warrant describing the entire [dwelling unit] so occupied is valid and will justify a search of the entire premises." State v. Alexander, supra, 41 Wash. *30 App. at 154-55, 704 P.2d at 620. See also State v. Teague, supra, 469 So.2d at 1312-1314; Jackson v. State, supra, 129 Ga. App. at 904-05, 201 S.E.2d at 819; State v. Lehr, supra, 258 N.W.2d at 159-160; State v. Hymer, supra, 400 So.2d at 638-639; State v. Lorenz, supra, 368 N.W.2d at 286-287; State v. Coatney, supra, 44 Or. App. at 18, 604 P.2d at 1272; Poyner v. Commonwealth, supra, 229 Va. at 411-12, 329 S.E.2d at 824. Cf. United States v. Butler, 793 F.2d 951, 952-953 (8 Cir.1986); United States v. Gonzalez, 697 F.2d 155, 156 (6 Cir.1983); National City Trading Corp. v. United States, 635 F.2d 1020, 1024 (2 Cir.1980); United States v. Whitney, 633 F.2d 902, 907-908 (9 Cir.1980), cert. den. 450 U.S. 1004, 101 S.Ct. 1717, 68 L.Ed.2d 208 (1981); State v. Rodriguez, 198 N.J. Super. 569, 574 (App.Div. 1985).
The multiple-occupancy rule is predicated upon the thesis that occupants of a single living unit, whether related or not, generally have at least some access to each other's bedrooms. Each resident's reasonable expectation of privacy is thereby diminished. In his treatise, Professor LaFave offers this broad justification for treating community living situations differently than multiple-unit dwelling cases. 2 LaFave, Search and Seizure, A Treatise on the Fourth Amendment, supra, § 4.5(b), at 219-220. He states:
[W]here a significant portion of the premises is used in common and other portions, while ordinarily used by but one person or family, are an integral part of the described premises and are not secured against access by the other occupants, then the showing of probable cause extends to the entire premises. For example, if three persons share an apartment, using a living room, kitchen, bath and hall in common but holding separate bedrooms which are not locked, whichever one of the three is responsible for the described items being in the apartment could have concealed those items anywhere within, including the bedrooms of his cotenants. Ibid.
Although the multiple-occupancy rule has received wide support in other jurisdictions, we need not determine whether it should be applied in all situations involving community living. We merely hold that under the facts of this case it was not unreasonable for the police to expect to find evidence of criminality in bedrooms other than that occupied by Till. We emphasize *31 that the residence here clearly was not an apartment, boarding house, or any other type of separately divided or partitioned multiple-unit building. It is undisputed that the occupants shared the kitchen, living room, bathrooms and all other common areas. Although each had his or her own bedroom, none of these was an independent living unit, separately locked, or otherwise identifiable as a private space. As we have emphasized, at the time of the detective's entry, the door of each bedroom was open and each occupant had complete access to the entire house. There was no indication that defendant had sole and exclusive control over his bedroom. Till could readily have concealed incriminating items anywhere in the house, including defendant's bedroom. These circumstances strongly militated in favor of a thorough search of the entire residence. The warrant authorizing the search of the entire premises was thus not overly broad and it was not incumbent upon the police to terminate their search upon finding drugs in Till's bedroom.
Accordingly, the trial judge did not err when he denied defendant's motion to suppress. The judgment of conviction is affirmed.
NOTES
[1] An exception to this rule exists where the multiple-unit character of the premises is not known or is not reasonably apparent to the officer applying for and executing the warrant. See State v. Wright, 61 N.J. 146, 149 (1972); State v. Shumann, 156 N.J. Super. 563, 566-567 (App.Div. 1978); State v. Hendricks, 145 N.J. Super. 27, 33 (App.Div. 1976).
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820 S.W.2d 38 (1991)
Paul D. PETERS and Janice W. Peters, Appellants,
v.
DETSCO, INC., Appellee.
No. B14-90-00644-CV.
Court of Appeals of Texas, Houston (14th Dist).
November 27, 1991.
Rehearing Denied January 2, 1992.
*39 Keith M. Fletcher, Houston, for appellants.
James R. Scott, Richard F. Hightower, Kenneth S. Wall, Houston, for appellee.
Before PAUL PRESSLER, JUNELL and ELLIS, JJ.
OPINION
JUNELL, Justice.
This is a premises liability personal injury suit for damages. The trial court granted summary judgment in favor of Detsco, Inc., defendant in the trial court. Paul D. Peters, the injured party, and his wife, Janice W. Peters, appeal. We reverse the judgment of the trial court and remand the case to that court for further proceedings.
The basis for our reversal of the summary judgment can be explained by setting forth the summary judgment proof and stating our reasons for holding that fact issues remain for decision by the trier of fact in the trial court.
SUMMARY JUDGMENT PROOF
In late December, 1986, Circle-K, Inc. employed Detsco to perform a hydrostatic test to determine whether the underground gasoline storage tank was leaking. To do the requested testing, Detsco excavated an opening over the tank about three wide by ten feet long. To do this, Detsco removed the concrete over the top of the storage tank and hand dug down about three feet to the top of the tank. After determining that the tank was leaking, Detsco reported that fact to CircleK and recommended that Circle-K have the tank pumped out and then repaired or replaced. Detsco did not perform the actual pumping out of the tank and was not requested to do so. Detsco was not in the business of repairing tanks. Circle-K made no decision concerning the repair or the replacement of the tank until after the accident involved in this case. Before leaving the premises on the day Detsco tested the tank for leakage,
*40 Detsco placed a couple of four feet by eight feet sheets of plywood over the excavation, put dirt on top of the plywood and barricaded the ends and sides of the hole beneath the plywood so that no one would drive or walk off into the hole.
Detsco did not take any further action subsequent to leaving the premises that day because it was Circle-K's decision on how to proceed.
The accident in question occurred on April 9, 1987, more than three months after Detsco had tested the tank for leaks. During that period of time, Detsco had not been requested by Circle-K to do anything further with respect to the tank. On April 9, 1987, the tank floated up out of the ground. Circle-K called the Shoreacres Volunteer Fire Department to the scene because of the potential danger of a fire or explosion. Peters, a fire marshall with the Shoreacres Volunteer Fire Department, went to the scene after the fire chief and several fire fighters were already there. Peters was on the scene for about an hour before the accident occurred. Peters and the fire chief were standing only about a foot away from the edge of the hole from which the tank had floated up when the ground beneath Peters gave way. Peters and the fire chief had been standing there for three or four minutes before the ground gave way. When the ground gave way, Peters went straight down partially into the hole next to a piece of the plywood that had covered the excavation that Detsco had dug three months earlier. The plywood caught Peters underneath his ribs and he was dangling there. This was when Peters was injured. Immediately thereafter, the fire chief and another person jerked Peters back up out of the hole. Peters was the only one who fell. He was caught between the plywood and the edge of the dirt that had not fallen into the hole. Peters had no indication that the ground under him was about to give way. Before the accident occurred, Peters had walked into that same area once or twice before and others had also walked into that same area. Nothing in Peters's training or experience indicated to him that there was a danger of the ground giving way.
There was also summary judgment proof that Detsco employees were present at the scene before Peters arrived and after Peters arrived until he fell and was injured. There was no summary judgment proof from any of those employees.
STATUS OF PAUL D. PETERS
In his petition Peters alleged that he was on the premises of Circle-K as a licensee of both Circle-K and Detsco. Under his pleadings, under the summary judgment proof, and under applicable Texas authorities, Peters was a licensee of both Circle-K and Detsco.
Circle-K was the owner or occupier of the premises. Under long standing Texas law, a fireman who enters on a premises to perform duties as a fire fighter is a licensee with respect to the duty of the owner or occupier to keep the premises in a safe condition. Texas Cities Gas Co. v. Dickens, 140 Tex. 433, 168 S.W.2d 208, 210 (1943); Houston Belt and Terminal Ry. Co. v. O'Leary, 136 S.W. 601 (Tex.Civ. App.1911, writ ref'd). Therefore, Circle-K was a licensor and Peters was a licensee.
The Texas Supreme Court has held that a party such as Detsco, an independent contractor who for a time is put in control of a certain part of the premises in order to do certain work, is under the same duty to a licensee as the owner or occupier to keep the premise in a safe condition. City of Denton v. Van Page, 701 S.W.2d 831, 834 (Tex.1986). An independent contractor such as Detsco has the same duty, but not a higher duty, as the owner or occupier to keep the premises safe. See Restatement (Second) of Torts § 384 (1965). Therefore, the relationship between Detsco and Peters is that of licensor and licensee.
Generally, a licensor is under a duty not to injure a licensee by willful, wanton or gross negligence. Lower Neches Valley Authority v. Murphy, 536 S.W.2d 561, 563 (Tex.1976); State v. Tennison, 509 S.W.2d 560, 562 (Tex.1974); Buffalo Marine Service, Inc. v. Monteau, 761 S.W.2d 416, 420 (Tex.App.Houston [14th *41 Dist] 1988, no writ). However, an expansion of that duty arises when the licensor has actual knowledge of a dangerous condition that the licensee does not. In that instance the licensor owes a duty either to warn the licensee of the condition or make the condition reasonably safe. Lower Neches Valley Authority v. Murphy; 536 S.W.2d at 563; State v. Tennison, 509 S.W.2d at 562.
In our opinion, no dangerous condition arose until the storage tank floated up out of the ground. The dangerous condition that caused the injury to Peters was the danger that the ground where he was standing would give way because the tank had floated up, leaving a hole beneath the tank.
The burden on Detsco, the summary judgment movant, was to show by summary judgment proof that there was no fact issue concerning negligence of Detsco in failing to warn Peters of the dangerous condition after Detsco had actual knowledge thereof. The summary judgment proof showed that Detsco employees were on the scene after the tank floated up and for at least an hour after Peters arrived and before the accident occurred. These employees could have had actual knowledge of the danger that the ground beneath Peters might give way. Detsco's summary judgment proof did not negate that possible fact issue. If these employees had such actual knowledge, there would be a fact issue regarding their negligence in failing to warn Peters.
The summary judgment in favor of Detsco is reversed and the cause is remanded to the trial court.
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820 S.W.2d 557 (1991)
Joseph ROTHWEIL, Plaintiff/Appellant,
v.
WETTERAU, INC., Defendant/Respondent.
No. 59576.
Missouri Court of Appeals, Eastern District, Division Two.
October 22, 1991.
Motion for Rehearing and/or Transfer Denied December 4, 1991.
Application to Transfer Denied January 28, 1992.
*558 R. Greg Bailey, St. Louis, for plaintiff-appellant.
Robert W. Stewart, Kevin J. Lorenz, St. Louis, for defendant-respondent.
Motion for Rehearing and/or Transfer to Supreme Court Denied December 4, 1991.
GRIMM, Presiding Judge.
Plaintiff/employee's petition alleged he was alcohol and drug dependent, and that defendant/employer discriminated against him when it terminated his employment. In count one of his two count petition, he alleged employer violated Chapter 213,[*] Missouri's human rights law. In count two, he alleged wrongful discharge. The trial court sustained employer's motion to dismiss for failure to state a cause of action.
On appeal, employee alleges the trial court erred in dismissing his petition. He contends his addiction to drugs is a "handicap," as that term is defined in § 213.010(8), and his discharge was an unlawful employment practice. We disagree and affirm.
I.
A motion to dismiss concedes the truth of all facts well pleaded in the petition. All such facts are assumed true and the averments are given a liberal interpretation. Hester v. Barnett, 723 S.W.2d 544, 549 (Mo.App.W.D.1987). Utilizing this standard, we review the petition and judgment.
In his petition, employee alleges he had worked for employer since 1964 as a perishable warehouse supervisor. He had been cited for excellence in his work. However, "[d]uring the course of his life and his employment with [employer], [employee]... became progressively addicted and dependent upon alcohol and marijuana."
On September 25, 1989, employer conducted random drug tests of its employees, including employee. Employee submitted a urine specimen. The next day, employee met with employer and confessed his dependence on marijuana and asked for rehabilitation. Employer refused his request for rehabilitation, but told employee he would be allowed to resign.
A few days later, employee "sought professional help for his alcohol and marijuana dependence." On October 5, employer told employee his urine specimen had tested positive. Plaintiff refused to resign and employer terminated his employment.
*559 II.
In his first point, employee claims the trial court erred in dismissing his handicap discrimination claim. Employee claims that his dismissal for drug use violated § 213.055, which prohibits discharging an individual on the basis of a handicap.
Section 213.010(8) defines handicap as "a physical or mental impairment which substantially limits one or more of a person's major life activities, or a condition perceived as such, which with or without reasonable accommodation does not interfere with performing the job...."
The federal Equal Opportunity for Individuals with Disabilities Act of 1990 is similar to Missouri law in that it prohibits an employer from discriminating on the basis of a disability. 42 U.S.C.A. § 12112 (Supp. 1991). It explicitly excludes from protection, an employee "who is currently engaging in the illegal use of drugs...." 42 U.S.C.A. § 12114(a) (Supp.1991).
In contrast, Missouri's human rights law does not explicitly exclude current illegal drug users from its protection. Nevertheless, we find, based on public policy and as a matter of law, that the term "handicap" does not include self-inflicted addiction to illegal drugs.
The General Assembly has declared the possession, control, and distribution of marijuana to be illegal. §§ 195.017, 195.202, 195.211, RSMo (Cum.Supp.1990). In spite of this, employee asks that we interpret Missouri's human rights law to afford him protection when he violated the law by using illegal drugs. Such an interpretation would be inimical to the General Assembly's express intent to punish those who illegally use marijuana.
Here, employee's petition alleges that during the course of his life and his employment, he became progressively addicted and dependent on alcohol and marijuana. Further, the petition states he (1) "confessed his dependence upon marijuana to employer," (2) sought "help for his alcohol and marijuana dependance," and (3) was "evaluated and diagnosed [by a physician] as chemically dependent." These allegations preclude a finding that employee had a "handicap" within the meaning of chapter 213. Point denied.
III.
In employee's second point, he alleges that the court erred in dismissing his claim of wrongful discharge. He claims that the revised drug testing and rehabilitation policy that employer issued was a unilateral contract between employer and its employees.
"Under Missouri's employment at will doctrine an employer can dischargefor cause or without causean at will employee who does not otherwise fall within the protective reach of a contrary statutory provision and still not be subject to liability for wrongful discharge." Dake v. Tuell, 687 S.W.2d 191, 193 (Mo. banc 1985). To state a claim for wrongful discharge, an employee at will must plead "the essential elements of a valid contract." Id. at 193. These elements include offer, acceptance, and bargained for consideration. Johnson v. McDonnell Douglas Corp., 745 S.W.2d 661, 662 (Mo. banc 1988). None of these elements are present in this case.
Employee also asserts that his claim is an exception to the employee at will doctrine, because it is based on Missouri's human rights law. However, as stated above, employee's self-inflicted addiction to illegal drugs does not fall within the meaning of that law.
In addition, employee contends he has stated a cause of action under "the public policy exception to the employee at will doctrine." In cases where the public policy exception has been applied, the employee had the benefit of a constitutional provision, a statute, or a regulation based on a statute. Id. at 663. Those cases generally involved employees fired for (1) declining to violate a statute, (2) reporting violations of the law by employers or fellow employees, or (3) for asserting a legal right. See Boyle v. Vista Eyewear, Inc., 700 S.W.2d 859, 872-875 (Mo.App. W.D.1985).
Employee's petition does not plead any conduct which falls into any of the categories *560 which have been previously recognized as protected by the public policy exception. Furthermore, none of the statutes he relies upon create a right for him to use illegal drugs, nor do they impose a duty on an employer to refrain from firing an employee with a self-inflicted addiction to illegal drugs. Employee's second point is denied.
Employee's third point, relating to his request for a jury trial, is moot.
The trial court's judgment is affirmed.
SATZ and CRANDALL, JJ., concur.
NOTES
[*] All statutory references are to RSMo 1986, unless otherwise indicated.
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820 S.W.2d 844 (1991)
Lavon ROY and Robert E. Roy, Appellants,
v.
HOWARD-GLENDALE FUNERAL HOME, Appellee.
No. 01-90-00321-CV.
Court of Appeals of Texas, Houston (1st Dist.).
October 3, 1991.
Rehearing Denied November 14, 1991.
*845 William J. Eggleston, Houston, for appellants.
Jack McKinley, Kathleen Walsh Beirne, Houston, Michael Miller, Galveston, for appellee.
Before DUGGAN, MIRABAL and O'CONNOR, JJ.
OPINION
MIRABAL, Justice.
The Court's opinion of September 26, 1991, is withdrawn, and the following is substituted therefor.
Lavon Roy and her husband, Robert E. Roy ("the Roys"), appeal a take-nothing judgment in a suit for damages arising out of the purchase of a burial vault and funeral services from appellee, Howard-Glendale Funeral Home ("Howard-Glendale").
Bertha Carson died in 1971. Her only child, Lavon Roy, contacted Howard-Glendale and made arrangements for the funeral and burial services. Lavon and her husband, Robert Roy, purchased a white, pearlized, "permaseal" casket, plus a burial vault, as her mother's final resting place. Lavon made it known to the Howard-Glendale personnel that she wanted a waterproof casket and vault.
The burial was conducted without incident. In 1987, however, a problem developed involving the cemetery where Lavon's mother and, later, her father were buried. As a result, Lavon wanted her parents' remains moved to another cemetery. She contacted Howard-Glendale to assist her in the disinterment and reburial. The disinterment resulted in the discovery of the failure of the vault containing Lavon's mother's remains. When the cemetery crew attempted to remove the vault from the ground, the lid came off, revealing a vault full of water. The casket interior was checked and appeared to be dry, even though the entire exterior of the casket was stained from the water. Mrs. Roy's mother's vault was replaced with a new one; the vault manufacturing company provided the replacement vault to the Roys at no charge. The remains of Mrs. Roy's parents were reburied at another cemetery.
The Roys sued Howard-Glendale and its parent corporation, Service Corporation International, (SCI) alleging breach of contract, breach of the duty of good faith and fair dealing, and breach of warranty, as well as negligence, fraud, misrepresentation, and violations of the Texas Deceptive Trade PracticesConsumer Protection Act. The suit sought recovery of $3.5 million in actual damages, plus at least $20 million in exemplary damages, and attorney's fees.
The trial judge granted a directed verdict for SCI, and a partial directed verdict for Howard-Glendale on the claims of breach of fiduciary duty and breach of the duty of good faith and fair dealing. Jury questions were submitted on the remainder of the case against Howard-Glendale. Following are the jury's unanimous answers to the relevant questions:
1. In 1971, did Howard-Glendale Funeral Home make any express warranty about the outside container for Bertha Carson's grave?
Answer: NO
4. In providing services for Bertha Carson's funeral, was Howard-Glendale Funeral Home negligent?
Answer: NO
*846 6. In 1971, did Howard-Glendale Funeral Home commit fraud on Lavon Roy?
Answer: NO
8. In 1987, did Howard-Glendale Funeral Home make any misrepresentation that was a producing cause of damage to Lavon Roy?
Answer: NO
Based on these jury findings, the trial court signed a take-nothing judgment on December 19, 1989.
In point of error one, the Roys assert the trial court erred in refusing to submit the Roys' requested jury questions regarding breach of contract. The instructions and questions the Roys requested were the following:
Question Number 37
You are instructed that a breach of contract is an unjustified failure of one of the parties to the agreement to perform all or any part of what is promised in the agreement. You are further instructed that you must find that the breach was material. A breach of contract is material if the breach is of sufficient significance that a reasonable person would attach importance to it in considering whether a party has substantially performed its obligation under the contract. Did Howard-Glendale Funeral Home commit a material breach of the contract which caused damages to Lavon Roy and/or Robert E. Roy?
ANSWER: YES___.
NO ___.
Question Number 38
If you answered "Yes" to Question Number 37, answer the following and if your answer was "No" to Question Number 37, do not answer the following.
What sum of money, if paid now in cash, would fairly and reasonably compensate Lavon Roy and/or Robert E. Roy for their damages, if any, caused by a breach of the contract?
Answer in dollars and cents, if any, for each of the parties listed below.
(a) Lavon Roy: $____.
(b) Robert E. Roy: $____.
A trial court has broad discretion in submitting jury questions. Mobil Chemical v. Bell, 517 S.W.2d 245, 256 (Tex.1974). This discretion is subject only to the requirement that disputed issues must be fairly submitted to the jury for determination. Baker Marine Corp. v. Moseley, 645 S.W.2d 486, 489 (Tex.App.Corpus Christi 1982, writ refd n.r.e.); Tex.R.Civ.P. 277. The trial court's refusal to submit a requested issue is error if there is any probative evidence to support an affirmative finding on the issue. Brown v. Goldstein, 685 S.W.2d 640, 641 (Tex.1985); Southwestem Bell Tel. Co. v. Thomas, 554 S.W.2d 672, 674 (Tex.1977); 4M Linen & Uniform v. W.P. Ballard & Co., 793 S.W.2d 320, 326 (Tex.AppHouston [1st Dist.] 1990, writ denied). Even if the evidence is insufficient to sustain an affirmative finding, the trial court is obligated to submit the question if the evidence amounts to more than a scintilla. Garza v. Alviar, 395 S.W.2d 821, 824 (Tex.1965); Essex Crane Rental Corp. v. Striland Constr. Co., 753 S.W.2d 751, 755 (Tex.App.Dallas 1988, writ denied).
To determine if a trial court has abused its discretion in refusing to submit requested questions, the reviewing court looks at the evidence as if the trial court had instructed a verdict. Phillips Pipeline Co. v. Richardson, 680 S.W.2d 43, 48 (Tex. App.El Paso 1984, no writ). The evidence is considered in favor of the party whose questions were refused, and if there is conflicting probative evidence in the record, the questions are for determination by the jury. Id.
Howard-Glendale contends the question submitted by the trial court on express warranty encompassed the Roys' contract question, and submission of the contract question separately would have been superfluous or confusing to the jury.
In their last-filed amended petition, the Roys described the five causes of action they were asserting: (1) misrepresentation; (2) breach of warranty and breach of contract; (3) breach of fiduciary duty and negligence; (4) breach of the duty of good *847 faith and fair dealing; and (5) violation of the deceptive trade practices act. The Roys set out their cause of action for "breach of warranty and breach of contract" as follows:
Breach of Warranty and Breach of Contract
18. Plaintiffs hereby incorporate paragraphs 2 through 14 above.
19. In addition to the foregoing, Plaintiffs allege that Defendants expressly warranted orally, in writing, and impliedly that the funeral services for Bertha Carson which Defendants would provide would include a top of the line, waterproof Doric vault with a fiberglass lining, that the vault would be fit for the purposes intended and would remain so for fifty (50) years. Pursuant thereto, the attached written contract was executed.
20. Plaintiffs would show that these warranties were breached in that the container and the services actually provided were not as warranted, but were of substantially lesser quality, in that the outside container was not a top of the line waterproof Doric vault, contained no fiberglass whatsoever and was full of water approximately sixteen (16) years after burial.
21. Despite Plaintiffs' full performance, Defendants violated the above referenced obligations and promises under the contract, thereby breaching said contract and proximately causing the damages hereinafter alleged.
Under its pleadings, the Roys clearly alleged that Howard-Glendale breached its contract because it breached its warranties that:
1. The vault would be a top of the line, waterproof Doric vault;
2. the vault would contain a fiberglass lining; and
3. the vault would remain fit for the purposes intended for 50 years.
The written contract between the Roys and Howard-Glendale, introduced into evidence, describes the agreed on vault as: "Outside enclosure, Inv. # 307." Its cost was $220. The burial card check list identifies the ordered outside container with the words "C vault-DoricGold with Eastern Star Emblem." There is no dispute that the letter "C" meant "concrete" to everyone involved. There was a major dispute, however, about the meaning of "Doric." There are "Doric" companies and "Doric" products. The record shows that "a Doric" could be any container, vault or box manufactured by the local Doric company. It could also mean the unique "waterproof," fiberglass-lined, tongue-in-groove vault manufactured by a local franchisee of the National Doric company, the vault that the Roys insist they paid for ("the Doric-Doric"). There was also evidence indicating that "outside enclosure, Inv. # 307" meant the Sentry vault manufactured by the Doric Company. The Sentry vault was sprayed with asphalt on the inside and had a tongue-in-groove lid; it was the next-best quality vault after the "Doric-Doric," and was considered a "middle range" vault.
The original vault, removed from the ground at the time of the disinterment, was destroyed. There was some question raised about whether the chips and remnants the Roys offered as exhibits during trial were actually from the original container.
It is undisputed a vault was contracted for, paid for, and used as an outer enclosure for Mrs. Roy's mother's casket. There is substantial conflict in the evidence about what type of vault the parties intended the contract to cover, and what type of vault was actually put in the ground.
The Roys rely on a Corpus Christi court of appeals case for the propositions: (1) that "a breach of contract action lies when the goods ordered are not the goods received," and (2) that when the goods ordered are the ones that are received, then a breach of warranty action will lie if they "fail to live up to the promises made regarding their performance." Donnelley Marketing v. Lionel Sosa, Inc., 716 S.W.2d 598, 604 (Tex.App.Corpus Christi 1986, no writ). The Roys insist they were entitled to have a jury question submitted on breach of contract, since the evidence *848 raised the issue of whether the vault ordered was the vault received.
Although Donnelley supports the Roys' position, a recent Texas Supreme Court case does not. According to Southwestern Bell Tel. Co. v. FDP Corp., 811 S.W.2d 572, 576 (1991) (on motion for rehearing), the Roys have a breach of warranty cause of action, not a breach of contract case. Breach of contract and breach of warranty are not the same cause of action. The remedies for breach of contract are available to a buyer where the seller fails to make any delivery; the remedies for breach of warranty are available to a buyer who has received and accepted goods, but discovers they are defective in some manner. Id. at 576.
Based on the Southwestern Bell case, we hold, since Howard-Glendale delivered a vault to the Roys, which was used for many years, the Roys' claims, that the vault was defective because it was not the vault they ordered and/or that it was defective because it did not perform in the manner warranted, are both breach of warranty claims. Therefore, we hold the trial court did not err in refusing to submit the Roys' requested jury questions regarding breach of contract.
We overrule point of error one.
In their second point of error, the Roys assert the trial court erred in refusing to submit the following requested jury questions on breach of the duty of good faith and fair dealing:
Question Number 39
Did Howard-Glendale Funeral Home fail to act fairly and in good faith in the sale of the outside container to Lavon Roy and Robert E. Roy?
ANSWER: Yes___.
No ___.
Question Number 40
If you answered "Yes" to Question Number 39, answer the following and if your answer was "No" to Question Number 39, do not answer the following. What sum of money, if paid now in cash, would fairly and reasonably compensate Lavon Roy and/or Robert E. Roy for their damages, if any, which were proximately caused by Howard-Glendale Funeral Home's breach of good faith and fair dealing?
Answer in dollars and cents, if any, with respect to each of the parties listed below.
A. Lavon Roy: $____.
B. Robert E. Roy: $____.
Question Number 41
If you answered "Yes" to Question Number 39, answer the following and if your answer was "No" to Question Number 39, do not answer the following.
Was the breach of good faith and fair dealing by Howard-Glendale Funeral Home wanton or with malice? You are instructed that an act of failure to act is maliciously done if prompted and accompanied by ill will, spite, bad or evil motive or grudge.
You are further instructed that something is wantonly done, if done in reckless or callous disregard or conscious indifference to the rights of another.
ANSWER: Yes____.
No ____.
Question Number 42
If you answered "Yes" to Question Number 41, answer the following and if your answer was "No" to Question Number 41, do not answer the following.
What sum of money, if paid now in cash, would fairly and reasonably compensate Lavon Roy and/or Robert E. Roy for their damages, if any, which were proximately caused by Howard-Glendale Funeral Home's breach of good faith and fair dealing?
Answer in dollars and cents, if any, with respect to each of the parties listed below.
A. Lavon Roy: $____.
B. Robert E. Roy: $____.
The Roys acknowledge that if we sustain this point of error, we will be the first *849 court in Texas to impose a separate, common-law duty of good faith and fair dealing on parties to a funeral services contract.
In response to jury question six, the jury found Howard-Glendale did not commit fraud on Mrs. Roy in 1971. Further, the jury specifically found Howard-Glendale was not even negligent in providing services for the funeral, and that Howard-Glendale did not make any express warranties about the vault.
Since there is no precedent for imposing a common-law duty of good faith and fair dealing in the circumstances presented by this case, we hold the trial court did not abuse its discretion in refusing to submit the requested jury questions. Further, in light of the jury answers to the questions submitted, we hold that, even if the trial court did err, the error was harmless. See Island Recreation Dev. v. Republic of Texas Sav., 710 S.W.2d 551, 555 (Tex.1986) (error in the jury charge is reversible only if, when viewed in light of the totality of the circumstances, it amounted to such a denial of the rights of the complaining party as was reasonably calculated to cause and probably did cause rendition of an improper judgement.); see also Trevino v. Brookhill Capital Resources, 782 S.W.2d 279, 283 (Tex.App.Houston [1st Dist] 1989, writ denied); Tex.R.App.P. 81.
We overrule point of error two.
In their third point of error, the Roys assert that the jury's failure to find Howard-Glendale made an express warranty about the burial vault is contrary to the great weight and preponderance of the evidence.
When a jury negatively answers a special issue on which the appellant has the burden of proof, the proper standard for review of a factual sufficiency point is "great weight and preponderance," and the courts of appeals are to exercise their fact jurisdiction only to prevent a manifestly unjust result. Pool v. Ford Motor Co., 715 S.W.2d 629, 634 (Tex.1986); Ritchey v. Crawford, 734 S.W.2d 85, 87 (Tex.App. Houston [1st Dist] 1987, no writ). To assess the challenge to the jury's answer, this Court must examine the entire record and, after considering and weighing all of the evidence, set the verdict aside only if the evidence is so weak or the finding so against the great weight and preponderance of the evidence that it is clearly wrong and unjust. Cropper v. Caterpillar Tractor Co., 754 S.W.2d 646, 651 (Tex.1988); Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); Otis Elevator Co. v. Joseph, 749 S.W.2d 920, 923 (Tex.AppHouston [1st Dist] 1988, no writ).
The trier of fact is the sole judge of the credibility of the witnesses and the weight to be given their testimony. Rego Co. v. Brannon, 682 S.W.2d 677, 680 (Tex. App.Houston [1st Dist] 1984, writ refd n.r.e.). This Court may not substitute its opinion for that of the trier of fact merely because it might have reached a different fact conclusion. Herbert v. Herbert, 754 S.W.2d 141, 144 (Tex.1988). The Supreme Court has admonished the courts of appeals to be mindful that the preponderance of the evidence did not convince the jury, and reversal is warranted only where the great weight of the evidence supports an affirmative answer. Id.
The jury was provided the following definition of express warranty:
An express warranty is any affirmation of fact or promise made that relates to the thing being sold and becomes part of the basis of the agreement. It is not necessary that formal words such as "warrant" or "guarantee" be used or that there be a specific intent to make a warranty.[1]
The jury question, and answer, complained of are:
1. Question: In 1971, did Howard-Glendale Funeral Home make any express warranty about the outside container for Bertha Carson's grave?
Answer: NO
*850 In order to recover for breach of an express warranty, the Roys had to prove:
(1) an express affirmation of fact or promise by Harold-Glendale relating to the vault;
(2) that such affirmation or promise became a part of the basis of the bargain;
(3) that the Roys relied upon said affirmation of fact or promise;
(4) that the vault failed to comply with the express warranty;
(5) that the Roys were injured by such failure of the vault to comply with the express warranty; and
(6) that such failure was the proximate cause of the Roys' injuries.
Morris v. Adolf Coors Co., 735 S.W.2d 578, 586 (Tex.App.Fort Worth 1987, writ ref'd n.r.e.); General Supply & Equip. Co., Inc. v. Phillips, 490 S.W.2d 913, 917 (Tex.Civ. App.Tyler 1972, writ ref'd n.r.e.).
The Roys argue that the evidence clearly shows Howard-Glendale expressly warranted the vault the Roys ordered was "guaranteed to be waterproof for 50 years." Therefore, the Roys submit, the jury's failure to find Howard-Glendale made an express warranty that the vault would be "waterproof" is not supported by the evidence.
There is considerable testimony from both sides about what was and/or was not said about the vault. It is clear from all the testimony that the Roys were shown several small models or "cutaways" of the various vaults available. The warranty from the manufacturer was also explained to them.
The witnesses for Howard-Glendale, the expert witness for the Roys, who was a funeral director, and the vault manufacturer, all testified that funeral homes do not warrant the caskets or the vaults they sell; they are merely dealers. The warranties come only from the manufacturers.
The evidence required the jury's determination of the credibility and weight to be given to the witnesses' testimony on what was or was not said. We hold the evidence is factually sufficient to support the jury's finding.
We overrule point of error three.
We affirm the judgment.
NOTES
[1] This definition essentially tracks the language of Tex.Bus. 2.313(a)(1) (Tex. UCC) (Vernon 1968).
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430 B.R. 607 (2010)
In re Stanley E. JARVAR and Barbara J. Kramer-Jarvar, Debtors.
Barbara Jarvar, Plaintiff,
v.
Title Cash of Montana, Inc., EZ Title Pawn Inc, and Hutcheson Enterprises Inc, Defendants.
Bankruptcy No. 04-62762-7, Adversary No. 09-00028.
United States Bankruptcy Court, D. Montana.
April 29, 2010.
*609 James H. Cossitt, Jeffrey Keith Greenwell, James H. Cossitt, PC, Kalispell, MT, for Plaintiff.
Thane P. Johnson, Johnson, Berg, McEvoy & Bostock, PLLP, Kalispell, MT, for Defendants.
MEMORANDUM OF DECISION
RALPH B. KIRSCHER, Bankruptcy Judge.
At Butte in said District this 29th day of April, 2010.
*610 In this adversary proceeding Plaintiff's Second Motion for Summary Judgment (Docket No. 74) is pending against Defendants Title Cash of Montana, Inc. ("Title Cash"), EZ Title Pawn, Inc. ("EZ Title"), Hutcheson Enterprises, Inc. ("Hutcheson, Inc."), and Roy Hutcheson ("Hutcheson") on the issue of liability only on Counts V, VII, VIII, IX, and X of Plaintiff's 3rd Amended and Substituted Complaint ("3rd Complaint") (Dkt.64). Title Cash filed a response in opposition and a cross motion for partial summary judgment on Count V (Dkt.98[1]). Plaintiff filed a reply brief (Dkt.105), and a hearing on these matters was held at Missoula on March 19, 2010. The parties appeared represented by counsel. Attorneys James H. Cossitt ("Cossitt") of James H. Cossitt, PC, Kalispell, Montana, and Eric S. Hummel ("Hummel") of Kalispell appeared representing the Plaintiff, and Thane Johnson ("Johnson") of Johnson, Berg, McEvoy & Bostock, PLLP Kalispell appeared representing Defendants. After hearing argument of counsel the Court took both motions for summary judgment under advisement at the conclusion of the hearing. The motions for summary judgment and briefs have been reviewed by the Court, together with the record and applicable law. These matters are ready for decision. For the reasons set forth below, Plaintiff's second motion for summary judgment and Title Cash's cross motion for summary judgment both will be denied.
The parties agree that this Court has jurisdiction of this removed adversary proceeding under 28 U.S.C. § 1334(b) and 28 U.S.C. § 1367, and that this is a core proceeding under 28 U.S.C. § 157(b)(2). This memorandum contains the Court's findings of fact and conclusions of law under FED. R. BANKR.P. 7052 (applying FED.R.CIV.P. 52) in adversary proceedings.
Plaintiff's second motion[2] seeks summary judgment for liability on several counts of Plaintiff's 3rd Complaint. Count V seeks judgment against Title Cash for unfair or deceptive acts or practices in violation of the Montana Unfair Trade Practices and Consumer Protection Act of 1973 (hereinafter the "CPA"), MONTANA CODE ANNOTATED ("MCA") § 33-14-101, et seq.), with the amount of damages to be determined at trial. Count VII seeks judgment against Hutcheson and Hutcheson, Inc., based on the theory of alter ego. Count VIII seeks judgment[3] against EZ Title and Hutcheson based on theories of successor liability. Count IX seeks judgment against Title Cash, EZ Title, and Hutcheson, Inc., based on the equitable theory of piercing the corporate veil. *611 Count X seeks judgment and liability against all Defendants avoiding the corporate transfers from Title Cash to EZ Title as fraudulent transfer under MCA § 31-2-333(2). Title Cash opposes Plaintiff's second motion contending that genuine issues of material fact exist with respect to each Count, and moves for summary judgment barring Plaintiff's CPA claim of Count V under the theory of collateral estoppel.
FACTS
Plaintiff set forth the following facts in support of her second motion for summary judgment in her Statement of Uncontroverted Facts at Dkt. 75[4]:
I. CREATION AND DISSOLUTION OF TITLE CASH.
1. On 5/27/1999, Roy Hutcheson ("Hutcheson"), as Incorporator, filed Articles of Incorporation of Title Cash of Montana, Inc. ("Title Cash"). [Exhibit 1[5], page 118, lines 7-8; page 128, lines 22-25 to page 129, lines 1-2; Exhibit 2].
2. Hutcheson was named the Director in Title Cash's Articles of Incorporation. [Exhibit 2, Page 2].
3. Hutcheson owns 55% of Title Cash's stock. [Exhibit 1, page 118-119].
4. Hutcheson's wife and children own 45% of Title Cash's stock. [Id.].
5. Hutcheson is Title Cash's president and director. [Exhibit 1, page 118, lines 9-11; page 33, line 18 to page 34, line 11; Exhibit 2].
6. Hutcheson's address was listed as 3705 Sullivan Street, Madison, AL 35758 in Title Cash's Articles of Incorporation. [Exhibit 2, page 2].
7. Title Cash's principal mailing address was listed as 3705 Sullivan, Madison, AL 35758 in its Articles of Incorporation. [Exhibit 2, page 2].
8. On 8/31/2008, Title Cash and EZ Title Pawn, Inc. ("EZ Title") entered into an Asset Purchase Agreement. [Exhibit 11].
9. Hutcheson prepared the Asset Purchase Agreement. [Exhibit 1, page 39, lines 4-13].
10. Hutcheson signed the Asset Purchase Agreement as President for both the seller, Title Cash, and the purchaser, EZ Title. [Exhibit 1, page 33, line 18 to page 34, line 11; page 39, lines 4-13; See also Exhibit 11].
11. Pursuant to the Asset Purchase Agreement, EZ Title purchased Title Cash for $692,937.46. [Exhibit 1, page 39, lines8-25 to page 42, lines1-17; See also Exhibit 11].
12. Pursuant to the Asset Purchase Agreement, Title Cash assumed all liabilities associated with Title Cash's loans while agreeing to indemnify and hold EZ Title, its officers, directors and shareholders, harmless from all business operations that predate the closing of the transaction, which includes but is not limited to Kramer's litigation matter. [Exhibit 1, page 47, lines 1-19 (referring to the Asset Purchase Agreement discussed on page 45, lines 14-20); See also Exhibit 11].
13. On 2/02/2009, Hutcheson, as President of Title Cash, electronically filed a Montana Corporation Annual Report so Title Cash would remain active and in good standing and prevent involuntary *612 dissolution/revocation. [Exhibit 22].
14. On 3/16/2009, Hutcheson, as President of Title Cash, filed Articles of Dissolution for Title Cash. [Exhibit 23].
15. Hutcheson authorized Title Cash's date of dissolution as of 12/31/2008. [Exhibit 23, page 2].
II. CREATION OF EZ TITLE.
16. On 4/18/2000, Hutcheson, as Incorporator, filed Articles of Incorporation of EZ Title. [Exhibit 3].
17. Hutcheson was named the director on EZ Title's Articles of Incorporation. [Exhibit 3, Article VI].
18. Hutcheson is EZ Title's president. [Exhibit 1, page 33, line 18 to page 34, line 11; Exhibit 3].
19. Hutcheson owns 55% of EZ Title's stock. [Exhibit 1, page 34, lines 12-25 to page 35, lines 1-7].
20. Hutcheson's wife and children own 45% of EZ Title's stock. [Id.].
21. Hutcheson's address listed on EZ Title's Articles of Incorporation is 4211 Oakwood Ave., Huntsville, AL 35758. [Exhibit 3, Article VII].
22. The principal mailing address of EZ Title listed on the Articles of Incorporation is 4211 Oakwood Ave., Huntsville, AL 35810. [Exhibit 3, Article VIII].
III. CREATION OF HUTCHESON ENTERPRISES, INC.
23. On 8/16/2000, Hutcheson, as Incorporator, filed Articles of Incorporation of Hutcheson Enterprises, Inc. ("Hutcheson, Inc."). [Exhibit 1, page 16, line 13 to page 17 lines 4; Exhibit 4].
24. Hutcheson is named the registered agent in Hutcheson, Inc.'s Articles of Incorporation. [Exhibit 4, Article V].
25. Hutcheson was named the Director in Hutcheson, Inc.'s Articles of Incorporation. [Exhibit 4, Article VI].
26. Hutcheson is the president of Hutcheson, Inc. [Exhibit 1, page 12, lines 10-12].
27. Hutcheson owned 55% of Hutcheson, Inc.'s stock. [Exhibit 1, page 13, lines 6-25].
28. Hutcheson's wife and children own 45% of Hutcheson, Inc.'s stock. [Id.].
29. Hutcheson's address listed on Hutcheson, Inc.'s Articles of Incorporation was 4211 Oakwood Ave., Huntsville, AL 35758. [Exhibit 4, Article VII].
30. The principal mailing address of Hutcheson, Inc. listed on the Articles of Incorporation was 4211 Oakwood Ave. Huntsville, AL 35810. [Exhibit 4, Article VIII].
IV. EZ TITLE'S RELATIONSHIP TO TITLE CASH.
31. On 8/31/2008, EZ Title and Title Cash, through Hutcheson as President of both companies, signed an Asset Purchase Agreement that sold Title Cash's going concern value to EZ Title for $692,937.46. [Exhibit 1, page 33, line 22 to page 34, line 11; pages 39 to 42, lines 1-20; page 47, lines 1-19 (referring to the Asset Purchase Agreement discussed on page 45, lines 14-20); page 132, lines 13-18; page 133, lines 10-13; See also Exhibit 11].
32. Title Cash dissolved because of ongoing litigation that Hutcheson felt would bankrupt the company. [Exhibit 1, page 21, lines 2-12].
33. Pursuant to the Asset Purchase Agreement, EZ Title agreed to pay Title Cash $692,937.46, which Hutcheson testified was subsequently used to pay debts owed to Hutcheson, in exchange for Title Cash's: 1) going concern value; *613 2) agreement to assume all debts including but not limited to Kramer's litigation matter; and 3) agreement to indemnify and hold EZ Title, its officers, directors and shareholders, harmless from all business operations that predate the closing of the transaction, which includes but is not limited to Kramer's litigation matter. [Exhibit 1, page 131, line 20 to page 133; page 47, lines 1-19 (referring to the Asset Purchase Agreement discussed on page 45, lines 14-20); page 39, line 8 to page 42, line 20; Exhibit 11].
34. Pursuant to the Asset Purchase Agreement, EZ Title retained and is currently using the following: 1) the name d/b/a Title Cash; 2) Title Cash's phone lines; 3) Title Cash's utility, receivable bank accounts, fixed assets, petty cash, lease and other deposits; 4) Title Cash's customers files with account status of open, paid-out, charged-off and worthless checks; 5) Title Cash's leases; and 6) Title Cash's employees. [Exhibit 1, page 39, lines 22-25 (leases); page 47, lines 23-25 (leases); page 128, lines 1-7, 15-21 (leases); page 48, lines 7-11 (assets and utilities); page 128, lines 8-14 (assets); page 130, line 21 to page 131, line 1 (assets); page 132, lines 7-12 (utilities); page 48, lines 1-3 (phone lines); page 48, lines 4-6 (name); page 130, lines 13-23 (name); page 126, 127 (employees); Exhibit 11].
35. EZ Title and Title Cash hired the same attorney, Thane Johnson. [Docket 053-0; Exhibit 12].
V. HUTCHESON, INC.'S RELATIONSHIP TO TITLE CASH.
36. Title Cash pays Hutcheson, Inc. a basic, standard monthly rate for services it provides. [Exhibit 1, page 19, line 14 to page 21, line 8].
37. Hutcheson, Inc. performs several services that are involved in direct management of Title Cash. [See Id.].
38. Hutcheson, Inc. supervised Lisa Harshbarger while she was a manager of Title Cash. [Exhibit 1, page 20, line 14 to page 21, line 1; page 123, lines 3-8; Exhibit 5, page 51-54; page 57, lines 15-18].
39. Hutcheson, Inc. performs certain loans and loan administration for Title Cash. [Exhibit 1, Page 20, lines 14-21].
40. Hutcheson Inc. provides instructions to Title Cash employees, if the employees have something they do not know how to handle. [Exhibit 1, page 107, lines 7-13].
41. Hutcheson, Inc. provides accounting, taxes, managing facilities, human resources, and training for Title Cash. [Exhibit 1, page 19, lines 12-20; page 60, lines 17-19; Exhibit 5, page 51, line 12 to page 52, line 1].
42. Hutcheson, Inc., through Maurice Hardman, directed Title Cash in bankruptcy matters. [Exhibit 1, page 121, line 20 to page 122, line 11; Exhibit 5, page 35, lines 6-24; page 39, line 16 to page 40, line 6;].
43. Hutcheson, Inc. filed annual reports for Title Cash. [Exhibit 1, page 25, line 5 to page 26, line 2].
44. Dewanna McMeans, as a representative of Hutcheson, Inc. filed proofs of claims no. 13 & 14, in case number 01-53527. [Exhibit 1, page 81, line 17 to page 84, line 9; Exhibits 6, 7].
45. Hutcheson, Inc., provided directions regarding repossession of Kramer's 1999 Suburban. [Exhibit 1, page 100, line 15 to page 101, line 4].
46. Hutcheson, Inc. prepared spreadsheets for loan number 767 in regards to In the Matter of Title Cash of Montana, Inc., Case No. VI-01-2006, that was filed with the Department of *614 Administration. [Exhibit 1, page 105, line 24 to page 106, line 19 (referring to Exhibit 8 as noted by the quoted language); Exhibit 8].
47. Hutcheson, Inc. directed Title Cash's operations by determining the interest rates on customer loans. [See Exhibit 1, pages 109-112; Exhibits 9, 10].
48. Hutcheson, Inc., through Hutcheson and Tom Hutcheson, and pursuant to this matter, supervises and directs Harshbarger, the manager of Title Cash and EZ Title. [Exhibit 1, page 100, line 17 to page 101, line 4; Exhibit 5, page 57, lines 15-18].
49. Hutcheson, Inc. and Title Cash hired the same attorney, Thane Johnson, in this matter. [See Docket No. 053-0].
VI. FACTS RELEVANT TO COUNT V OF THE 3RD AMENDED AND SUBSTITUTED COMPLAINT.
50. On 11/02/2001, Kramer signed Notes 767 and 768. [Exhibits 14, 15].
51. Collateral listed on Note 767 was described as a 1999 CHEV, SUB, vehicle identification number ("VIN") xxx4993. [Exhibit 14].
52. Collateral in Note 768 was described as a 1999 GMC, SUB, VIN xxx4991. [Exhibit 15].
53. Title Cash knowingly and intentionally changed the VIN on Note 768 to comply with Title Cash's software that would not allow loans over $9,999.99 to be processed. [See Exhibit 1, page 74, line 17 to page 78, line 2; page 119, line 3 to page 120, line 5; page 120, line 17 to page 121, line 7].
54. On 11/23/2001, Kramer filed a Chapter 13 bankruptcy. [Case No. XX-XXXXX-XX, Docket No. 001-0].
55. On 01/23/2002, Trustee Robert Drummond mailed a letter to Title Cash that requested evidence of Title Cash's secured interest in Kramer's Suburban. [Exhibit 16].
56. On 3/29/2002, Title Cash knowingly and intentionally filed proof of claim 14, and correctly claimed that Note 767 created a security interest in Kramer's 1999 Suburban. [Exhibit 7].
57. On 3/29/2002, Title Cash knowingly and intentionally filed a false proof of claim # 13 that falsely claimed Note 768 created a security interest in Kramer's Suburban, and attempted to prove the security interest by filing a lien notice that was filed on VIN 4993. [See Exhibit 1, page 74, line 17 to page 78, line 2; page 119, line 3 to page 120, line 3; page 120, line 17 to page 121, line 7; Exhibit 6].
58. Title Cash withdrew proof of claims 13 and 14, and knowingly and intentionally filed two more proofs of claims that combined both notes and falsely claimed that both Notes 767 and 768 were secured. [Case No. 01-53527, Claim Nos. 15, 18].
59. On 2/03/2004, the trustee's final report was filed, which provided $6,046.00 in principal and $1,041.83 in interest for Title Cash of Kalispell's proof of claim 14. [Case No. 01-53527, Docket No. 100; Exhibit 17].
60. On 2/26/2007, Title Cash, through Peter Funk and Hutcheson Enterprise, mailed a letter to the Department of Administration with an enclosed spreadsheet for both Notes 767 and 768 that evidenced payments to both Notes during and after the Chapter 13 bankruptcy Case No. 01-53527, and after Kramer's Chapter 7, Case No. 04-62762, discharge on 1/19/2005. [Exhibit 19].
61. On 5/01/2007, Title Cash, through Peter Funk, signed a Settlement Agreement *615 with the Department of Banking agreeing that it engaged in unfair and fraudulent practices and admitted: 1) several errors in the transactions which caused Title Cash to make two separate loans, one loan which was improperly documented; and 2) loan number 768 is an unsecured loan. [Exhibit 20].
62. On 12/9/2008, Title Cash filed an Answer and Counterclaim and asserted in the Counterclaim, paragraph 3, that "Kramer entered into two Promissory Notes and security agreements with Title Cash secured by a security interest in a 1999 Chevrolet Suburban, VIN Number 1GNFK16RXXJ564993". [Exhibit 21].
VII. FACTS RELEVANT TO COUNT VII OF THE 3RD AMENDED AND SUBSTITUTED COMPLAINT.
A. Hutcheson's alter ego and corresponding liability.
63. Hutcheson is Title Cash's, EZ Title's, and Hutcheson, Inc.'s incorporator, director, and president. [Exhibit 1, page 118, lines 7-11; page 33, line 18 to page 34, line 11; page 128, line 22 to page 129, line 2; Exhibit 2].
64. Hutcheson owns 55% of the Title Cash's, EZ Title's, and Hutcheson, Inc.'s stock. [Exhibit 1, page 118, line 9 to page 119, line 2 (Title Cash); Exhibit 1, page 118, line 9 to page 119, line 2 (Hutcheson, Inc.); Exhibit 1, page 34, line 12 to page 35, line 7 (EZ Title)].
65. Hutcheson's wife and children collectively own 45% of Title Cash's, EZ Title's, and Hutcheson, Inc.'s stock. [Id.].
66. Hutcheson personally capitalized Title Cash at its inception with a line of credit of $5,000,000.00 to $10,000,000.00. [Exhibit 1, page 43, lines 1-20; page 44, line 8 to page 45, line 5].
67. Hutcheson's mailing address was identical as Title Cash's, EZ Title's, and Hutcheson, Inc.'s principal mailing addresses as listed on the respective articles of incorporation. [Exhibits 2, 3, 4].
68. Hutcheson has control of Title Cash, EZ Title, and Hutcheson, Inc. as their controlling shareholder, director, and president. [Exhibit 1, page 130, lines 13-17; Supra at ¶¶ 63, 64].
69. Hutcheson dissolved Title Cash, because he believed ongoing litigation would bankrupt the company. [Exhibit 1, page 21, lines 2-12].
70. Hutcheson prepared the Asset Purchase Agreement between Title Cash and EZ Title. [Exhibit 1, page 39, lines 4-13].
71. Pursuant to the Asset Purchase Agreement, EZ Title agreed to pay Title Cash $692,937.46, which was subsequently used to pay debt's owed to Hutcheson, in exchange for Title Cash's: 1) going concern value; 2) agreement to assume all debts including but not limited to Kramer's litigation matter; and 3) agreement to indemnify and hold EZ Title, its officers, directors and shareholders, harmless from all business operations that predate the closing of the transaction, which includes but is not limited to Kramer's litigation matter. [Supra at ¶ 33].
72. Hutcheson, through Hutcheson, Inc., was involved with direct management of Title Cash including approval of certain loans and loan administration, which included writing letters to the Department of Administration regarding the Kramer matter. [Exhibit 1, page 20, line 14 to page 21, line 1; Exhibit 24].
73. Hutcheson, through Hutcheson, Inc., provided directions regarding repossession of Kramer's 1999 Suburban. *616 [Exhibit 1, page 100, line 15 to page 101, line 4].
74. Hutcheson and Title Cash hired the same attorney, Thane Johnson, in this matter. [See Docket No. 072-0].
B. Hutcheson, Inc.'s alter ego and corresponding liability.
75. Title Cash pays Hutcheson, Inc. a basic, standard monthly rate for services it provides. [Exhibit 1, page 19, line 12 to page 20, line 8]. Hutcheson, Inc. performs several services that are involved in direct management of Title Cash. [Exhibit 1, page 20, lines 14-18].
76. Hutcheson, Inc. performs several services that are involved in direct management of Title Cash. [Exhibit 1, page 20, lines 14-18].
77. Hutcheson, Inc. supervised Lisa Harshbarger while she was a manager of Title Cash. [Exhibit 1, page 20, line 14 to page 21, line 1; page 123, lines 3-8; Exhibit 5, page 51, line 12 to page 52, line 1; page 57, lines 15-18].
78. Hutcheson, Inc. performs certain loans and loan administration for Title Cash. [Exhibit 1, Page 20, lines 14-21].
79. Hutcheson Inc. provides instructions to Title Cash employees, if the employees have something they do not know how to handle. [Exhibit 1, page 107, lines 10-13].
80. Hutcheson, Inc. provides accounting, taxes, managing facilities, human resources, and training for Title Cash. [Exhibit 1, page 19, lines 12-20; page 60, lines 17-19; Exhibit 5, page 51, line 12 to page 52, line 1].
81. Hutcheson, Inc., through Maurice Hardman, directed Title Cash in bankruptcy matters. [Exhibit 5, page 35, lines 6-24; page 39, line 16 to page 40, line 6; Exhibit 1, page 121, line 20 to page 122, line 11].
82. Hutcheson, Inc. filed annual reports for Title Cash. [Exhibit 1, page 25, lines 5-25; page 26, lines 1-2].
83. Dewanna McMeans, as a representative of Hutcheson, Inc. filed proofs of claims no. 13 & 14, in case number 01-53527. [Exhibit 1, page 81, line 17 to page 84, line 9; Exhibits 6, 7].
84. Hutcheson, Inc., provided directions regarding repossession of Kramer's 1999 Suburban. [Exhibit 1, page 100, line 15 to page 101, line 4].
85. Hutcheson, Inc. prepared spreadsheets for loan number 767 in regards to In the Matter of Title Cash of Montana, Inc., Case No. VI-01-2006 that was filed with the Department of Administration. [Exhibit 1, page 105, line 24 to page 106, line 19; See also Exhibits 8].
86. Hutcheson, Inc. directed Title Cash's operations by determining the interest rates on customer loans. [See Exhibit 1, page 111, lines 6-25; Exhibits 9, 10].
87. Hutcheson, Inc., through Hutcheson and Tom Hutcheson, and pursuant to this matter, supervises and directs all Title Cash and EZ Title employees. [Exhibit 1, page 100, line 17 to page 101, line 4; Exhibit 5, page 57, lines 15-18].
88. Hutcheson, Inc. and Title Cash hired the same attorney, Thane Johnson, in this matter. [See Docket No.'s 053-0, 072-0].
VIII. FACTS RELEVANT TO COUNT VIII OF THE 3RD AMENDED AND SUBSTITUTED COMPLAINT.
A. Hutcheson and EZ Title's liability pursuant to successor liability.
89. On 5/27/1999, Hutcheson, as Incorporator, filed Articles of Incorporation of Title Cash of Montana, Inc. *617 ("Title Cash"). [Exhibit 1, page 118, lines 7-8; page 128, line 22 to page 129, line 2; Exhibit 2].
90. Hutcheson was named the Director in Title Cash's Articles of Incorporation. [Exhibit 2, Page 2].
91. Hutcheson owns 55% of Title Cash's stock. [Exhibit 1, page 118, line 9 to page 119, line 2].
92. Hutcheson's wife and children own 45% of Title Cash's stock. [Id.].
93. Hutcheson is Title Cash's president. [Exhibit 1, page 118, lines 9-11; Exhibit 2].
94. On 4/18/2000, Hutcheson, as Incorporator, filed Articles of Incorporation of EZ Title. [Exhibit 3].
95. Hutcheson was named the director on EZ Title's Articles of Incorporation. [Exhibit 3, Article VI].
96. Hutcheson is EZ Title's president. [Exhibit 1, page 33, line 18 to page 34, line 11; page 39, lines 8-13; Exhibit 3].
97. Hutcheson owns 55% of EZ Title's stock. [Exhibit 1, page 34, line 12 to page 35, line 7].
98. Hutcheson's wife and children own 45% of EZ Title's stock. [Id.].
99. Title Cash dissolved because of ongoing litigation that Hutcheson felt would bankrupt the company. [Exhibit 1, page 21, lines 2-12].
100. On 8/31/2008, Hutcheson signed the Asset Purchase Agreement that he prepared, as President for both the Seller/Title Cash and the Purchaser/EZ Title. [Exhibit 1, page 33, line 18 to page 34, line 11; page 39, lines 8-13; See also Exhibit 11].
101. Pursuant to the Asset Purchase Agreement, EZ Title agreed to pay Title Cash $692,937.46, which was subsequently used to pay debt's owed to Hutcheson, in exchange for Title Cash's: 1) going concern value; 2) agreement to assume all debts including but not limited to Kramer's litigation matter; and 3) agreement to indemnify and hold EZ Title, its officers, directors and shareholders, harmless from all business operations that predate the closing of the transaction, which includes but is not limited to Kramer's litigation matter. [Exhibit 1, page 132, lines 4-6, lines 13-18; page 133, lines 10-13; page 47, lines 1-19 (referring to the Asset Purchase Agreement discussed on page 45, lines 14-20); page 39, line 8 to page 42, line 20; Exhibit 11].
102. Pursuant to the Asset Purchase Agreement, EZ Title retained and is currently using the following: 1) the name d/b/a Title Cash; 2) Title Cash's phone lines; 3) Title Cash's utility, receivable bank accounts, fixed assets, petty cash, lease and other deposits; 4) Title Cash's customers files with account status of open, paid-out, charged-off and worthless checks; 5) Title Cash's leases; and 6) Title Cash's employees. [Exhibit 1, page 39, lines 22-25 (leases); page 47, lines 23-25 (leases); page 128, lines 1-7, 15-21 (leases); page 48, lines 7-11 (assets and utilities); page 128, lines 8-14 (assets); page 130, lines 21 to page 131, line 1 (assets); page 132, lines 7-12 (utilities); page 48, lines 1-3 (phone lines); page 48, lines 4-6 (name); page 130, lines 13-23 (name); pages 126, 127 (employees); Exhibit 11].
103. EZ Title is paying for the legal fees of both EZ Title and Title Cash. [Exhibit 12].
IX. FACTS RELEVANT TO COUNT IX OF THE 3RD AMENDED AND SUBSTITUTED COMPLAINT.
A. Piercing Title Cash's corporate veil and holding Hutcheson liable for Title Cash's liabilities.
104. Hutcheson, as incorporator, director, president, and majority or controlling *618 shareholder of Title Cash, EZ Title, and Hutcheson, Inc., controls the operations and assets of the three entities. [See Supra at ¶¶ 1-3, 5, 16-19, 13, 25-27; Exhibit 1, page 61, lines 6-10; page 130, lines 9-17].
105. Hutcheson directed Title Cash's operations as an employee of Hutcheson, Inc. [Supra at ¶¶ 72, 73, 87].
106. Hutcheson continued conducting business as d/b/a Title Cash by transferring all of Title Cash's assets to EZ Title, another company that is owned solely by him and his family. [See Supra at ¶¶ 100-103, 105].
107. Hutcheson requires Title Cash and EZ Title employees to be trained by Hutcheson, Inc. [Exhibit 1, page 19, lines 12-20; page 60, lines 17-19; Exhibit 5, page 51, line 12 to page 52, line 1].
108. Hutcheson has an identical equitable ownership (55% ownership) in Title Cash, EZ Title, and Hutcheson, Inc. [Supra at ¶¶ 3, 19, 27].
109. Hutcheson's family has identical equitable ownership (45% ownership) in Title Cash, EZ Title, and Hutcheson, Inc. [Supra at ¶¶ 4, 20, 28].
110. Hutcheson operates Title Cash, EZ Title, and Hutcheson, Inc. as a single venture. [See Supra at ¶¶ 63-103].
111. Hutcheson transferred all of Title Cash's meaningful or significant assets to EZ Title. [Supra ¶ 102; Exhibit 2].
112. Hutcheson has Title Cash offices around the country. [Exhibit 1, page 61; Exhibit 13; Exhibit 5, page 57, lines 24-25; page 58, lines 1-2].
113. Pursuant to lawsuits that could have possibly bankrupt the company, Hutcheson transferred Title Cash's assets and going concern value to EZ Title while agreeing to indemnify and hold EZ Title, its officers, directors and shareholders, harmless from all business operations that predate the closing of the transaction, which includes but is not limited to Kramer's litigation matter. [Supra at ¶¶ 32-34; See also Exhibit 2].
114. Title Cash's, Hutcheson, Inc.'s, and EZ Title's addresses were the identical to Hutcheson's in their respective Articles of Incorporation. [See Exhibits 2, 3, 4].
115. Hutcheson concealed the identity of the financial interests of Title Cash and EZ Title until it filed the Motion to Quash. [See AP No. 09-28, Docket No. 043-0].
116. Hutcheson, Title Cash, EZ Title, and Hutcheson, Inc. hired the same attorney, Thane Johnson, in this matter. [See Docket No. 071-0].
B. Piercing Hutcheson, Inc.'s corporate veil.
117. Hutcheson, as President of Hutcheson, Inc., conducted business on behalf of Title Cash in this matter. [See Supra at ¶¶ 72, 73].
118. Hutcheson, Inc. directs some of Title Cash's legal affairs. [See Supra at ¶¶ 42-46].
119. Hutcheson, Inc.'s property is used to conduct training for Title Cash and EZ Title employees. [Supra at ¶ 41].
120. Hutcheson, Inc. and Title Cash share the same incorporator, director, and president, and shareholders. [Supra at ¶¶ 1, 2, 5, 23, 25, 26; See also Exhibits 2, 4].
121. Hutcheson, Inc. and Title Cash hired the same attorney, Thane Johnson, in this matter. [See Docket No. 053-0].
122. Hutcheson, Inc. failed to maintain a proper arm's length relationship with Title Cash. [See Supra at ¶¶ 75-88].
*619 C. Piercing EZ Title's corporate veil.
123. EZ Title and Title Cash share the same incorporator, director, president, and shareholders. [Supra at ¶¶ 1-5, 15-19; See also, Exhibit 2, 3].
124. Hutcheson, as president of both Title Cash and EZ Title, created and entered into an Asset Purchase Agreement on behalf of both companies. [Supra at ¶¶ 10, 70; Exhibit 11].
125. Pursuant to the Asset Purchase Agreement, EZ Title agreed to pay Title Cash $692,937.46, which was subsequently used to pay debt's owed to Hutcheson, in exchange for Title Cash's: 1) going concern value; 2) agreement to assume all debts including but not limited to Kramer's litigation matter; and 3) agreement to indemnify and hold EZ Title, its officers, directors and shareholders, harmless from all business operations that predate the closing of the transaction, which includes but is not limited to Kramer's litigation matter. [Supra at ¶ 101].
126. Pursuant to the Asset Purchase Agreement, EZ Title retained and is currently using the following: 1) the name d/b/a Title Cash; 2) Title Cash's phone lines; 3) Title Cash's utility, receivable bank accounts, fixed assets, petty cash, lease and other deposits; 4) Title Cash's customers files with account status of open, paid-out, charged-off and worthless checks; 5) Title Cash's leases; and 6) Title Cash's employees. [Supra at ¶ 102].
¶ 127. EZ Title and Title Cash hired the same attorney, Thane Johnson. [Docket 053-0; Exhibit 12].
128. EZ Title is paying for both Title Cash and EZ Title's legal fees. [Exhibit 12].
X. FACTS RELEVANT TO COUNT X OF THE 3RD AMENDED AND SUBSTITUTED COMPLAINT.
129. Hutcheson, as incorporator, director, president, and majority or controlling shareholder of Title Cash, EZ Title, and Hutcheson, Inc., controls the operations and assets of the three entities. [See Supra at ¶¶ 1-3, 5, 16-19, 13, 25-27; Exhibit 1, page 61, lines 6-10; page 130, lines 9-17].
130. The transfer of Title Cash's assets and going concern value to EZ Title is for the use and benefit of Hutcheson, Hutcheson, Inc. and EZ Title. [See Supra at ¶¶ 129, 104-110, 125, 126; Exhibit 1, page 19, line 5 to page 21, line 1].
131. Hutcheson, Title Cash, EZ Title, and Hutcheson, Inc. concealed the identity of the financial interests of Title Cash and EZ Title until it filed the Motion to Quash. [See AP No. 09-28, Docket No. 043-0].
132. Title Cash dissolved because of ongoing litigation that Hutcheson felt would bankrupt the company. [Exhibit 1, page 21, lines 2-12].
133. Title Cash transferred substantially all of its assets and going concern value while indemnifying and hold EZ Title, its officers, directors and shareholders, harmless from all business operations that predate the closing of the transaction, which includes but is not limited to Kramer's litigation matter. [Supra at ¶ 101].
134. The Asset Purchase Agreement occurred prior to incurring a judgment against Title Cash through this case. [Supra at ¶ 8].
Title Cash did not file a separate Statement of Genuine Issues as required by Montana Local Bankruptcy Rule ("Mont. LBR") 7056-1(a)(2). Instead, at pages 2 to 5 of its combined response brief and cross motion for partial summary judgment *620 (Dkt.98), in a narrative section beginning with the bold heading on page 2 which reads "ST T MENT OF HE ACT", Title Cash sets forth several facts regarding Title Cash's organization, its loans to the Plaintiff and security agreements, the violations proceedings and settlement agreement with the Montana Department of Administration, Banking Division, Plaintiff's bankruptcy proceedings, and the state court proceedings.
DISCUSSION
I. Summary Judgment.
Summary judgment is governed by FED. R. BANKR. P. 7056. Rule 7056, incorporating FED.R.CIV.P. 56(c), states that summary judgment "should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." "The proponent of a summary judgment motion bears a heavy burden to show that there are no disputed facts warranting disposition of the case on the law without trial." Younie v. Gonya (In re Younie), 211 B.R. 367, 373 (9th Cir. BAP 1997) (quoting Grzybowski v. Aquaslide "N' Dive Corp. (In re Aquaslide "N" Dive Corp.), 85 B.R. 545, 547 (9th Cir. BAP 1987)). The manner in which this burden is proven depends on which party has the burden on a particular claim or defense at the time of trial.
If the moving party will bear the burden of persuasion at trial, that party must support its motion with credible evidenceusing any of the materials specified in Rule 56(c)that would entitle it to a directed verdict if not controverted at trial. Such an affirmative showing shifts the burden of production to the party opposing the motion and requires that party either to produce evidentiary materials that demonstrate the existence of a "genuine issue" for trial or to submit an affidavit requesting additional time for discovery. If the burden of persuasion at trial would be on the nonmoving party, the party moving for summary judgment may satisfy Rule 56's burden of production in either of two ways. First, the moving party may submit affirmative evidence that negates an essential element of the nonmoving party's claim. Second, the moving party may demonstrate to the Court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim.
Celotex Corp. v. Catrett, 477 U.S. 317, 330-34, 106 S. Ct. 2548, 2557, 91 L. Ed. 2d 265 (1986) (Brennan dissent) (citations omitted). See also Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Companies, Inc., 210 F.3d 1099, 1102-06 (9th Cir.2000) (discussing burdens for withstanding summary judgment).
When seeking summary judgment, the moving party must initially identify those portions of the record before the Court which it believes establish an absence of material fact. T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n., 809 F.2d 626, 630 (9th Cir.1987). If the moving party adequately carries its burden, the party opposing summary judgment must then "set forth specific facts showing that there is a genuine issue for trial." Kaiser Cement Corp. v. Fischbach & Moore, Inc., 793 F.2d 1100, 1103-04 (9th Cir.1986), cert. denied, 479 U.S. 949, 107 S. Ct. 435, 93 L. Ed. 2d 384 (1986); FED. R. CIV. P. 56(e). See also Frederick S. Wyle Prof'l. Corp. v. Texaco, Inc., 764 F.2d 604, 608 (9th Cir. 1985) ("the opponent must affirmatively show that a material issue of fact remains in dispute"). That is, the opponent cannot assert the "mere existence of some alleged factual dispute between the parties." *621 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). Moreover, "[a] party opposing summary judgment may not simply question the credibility of the movant to foreclose summary judgment." Far Out Prods., Inc. v. Oskar, 247 F.3d 986, 997 (9th Cir.2001).
To demonstrate that a genuine factual issue exists, the objector must produce affidavits which are based on personal knowledge and the facts set forth therein must be admissible into evidence. Aquaslide, 85 B.R. at 547. All reasonable doubt as to the existence of genuine issues of material fact must be resolved against the moving party. Liberty Lobby, 477 U.S. at 247-48, 106 S.Ct. at 2509. However, "[d]isputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment." T.W. Elec. Serv., 809 F.2d at 630 (citing Liberty Lobby, 477 U.S. at 248, 106 S.Ct. at 2510). "A `material' fact is one that is relevant to an element of a claim or defense and whose existence might affect the outcome of the suit. The materiality of a fact is thus determined by the substantive law governing the claim or defense." Id.
If a rational trier of fact might resolve disputes raised during summary judgment proceedings in favor of the nonmoving party, summary judgment must be denied. T.W. Elec. Serv., 809 F.2d at 630; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986). Thus, the Court's ultimate inquiry is to determine whether the "specific facts" set forth by the nonmoving party, viewed along with the undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence. T.W. Elec. Serv., 809 F.2d at 631. In the absence of any disputed material facts, the inquiry shifts to whether the moving party is entitled to judgment as a matter of law. Celotex, 477 U.S. at 323, 106 S.Ct. at 2552-53.
Mont. LBR 7056-1 governs summary judgment motions in this Court. LBR 7056-1(a)(1) requires:
Statement of Uncontroverted Facts.
A separate, short, and concise "Statement of Uncontroverted Facts" must accompany every motion for summary judgment. Failure to submit this statement constitutes grounds for denial of the motion. The statement shall set forth separately each fact, in serial, not narrative form, and shall specify the specific portion of the record where the fact can be found (e.g., affidavit, deposition, etc.).
Plaintiff filed a separate statement of uncontroverted facts in support of her second motion for summary judgment. Title Cash did not file a separate statement of uncontroverted facts in support of its cross motion for summary judgment on Count V based on collateral estoppel. Pursuant to LBR 7056-1(a)(1), Title Cash's failure to submit its statement of uncontroverted facts constitutes grounds for summary denial, and the Court summarily denies Title Cash's cross motion for summary judgment on Count V based on its failure to comply with LBR 7056-1(a)(1)[6].
Title Cash's fact narrative in its combined brief and cross motion for partial summary judgment fails to satisfy LBR 7056-1(a)(2) which provides:
*622 Opposition. Opposition to a motion for summary judgment, if any, must be filed within ten (10) days after the motion is served. A separate, short, and concise "Statement of Genuine Issues", setting forth the specific facts, which the opposing party asserts establishes a genuine issue of material fact precluding summary judgment in favor of the moving party must be filed by the party opposing the motion together with an opposition brief.
Because Title Cash failed to file a separate Statement of Genuine Issues as required by LBR 7056-1(a)(2), LBR 7056-1(a)(3) applies which provides: "Facts Admitted. All material facts in the moving party's Statement of Uncontroverted Facts are deemed to be admitted unless controverted by a Statement of Genuine Issues filed by the opposing party." For purposes of Plaintiff's second motion for summary judgment, except where previously decided or where contradicted by the evidence the Court will deem the material facts in her Statement of Uncontroverted Facts admitted under LBR 7056-1(a)(3).
II. Count VMontana Consumer Protection Act Violations.
Plaintiff moves for summary judgment on Count V alleging violations of the Montana Consumer Protection Act ("CPA"), MCA § 30-14-101 et seq., and for violations of the Montana Title Loan Act, MCA § 31-1-826, seeking statutory damages and actual damages, treble damages, and attorney fees[7]. Plaintiff alleges several instances of unfair or deceptive acts by Title Cash in its conduct of trade or commerce with the Plaintiff. The list is at pages 6 through 8 of Plaintiff's second motion and memorandum, and includes: Willfully and knowingly entering into a loan (Note 768) with the Plaintiff and falsely collecting on Note 768; knowingly and intentionally changing the VIN of Plaintiff's Suburban on Note 768 and falsely claiming a security interest in the Suburban; willfully, knowingly and falsely filing false secured Proofs of Claim and amended claims; deceiving the Chapter 13 Trustee and applying payments from the Trustee to both secured Note 767 and unsecured Note 768 in violation of the Trustee's Final Report; admitting in a settlement agreement with the State of Montana, Department of Administration, Division of Banking and Financial Institution, that it engaged in unfair and fraudulent practices in violation of MCA § 31-1-825(1)(f) by collecting on Note 768 on a nonexistent vehicle; false representations to the Montana Motor Vehicle Department regarding the amount of debt secured by the security agreement; and fraudulent practices by stating in state court pleadings that Plaintiff entered into two notes and security agreements secured by the Suburban.
The Court notes that Plaintiff's contentions regarding the filing of proofs of claim are repeated from its first motion for summary judgment and supporting statement of uncontroverted fact. This Court in Dkt. 55 at page 4, footnote 5, and page 17, refused to grant summary judgment based on Plaintiff's statements in footnotes that Title Cash's proofs of claim were false. In Plaintiff's latest Statement of Uncontroverted Facts, Nos. 57 and 58, her allegations that the proofs of claim were false are repeated. However, the Court has already decided against granting Plaintiff summary judgment on whether Title Cash intentionally filed false claims. Plaintiff *623 did not seek to appeal that decision and did not move for reconsideration on whether Title Cash's claims were false.
All reasonable doubt as to the existence of genuine issues of material fact must be resolved against the moving party. Liberty Lobby, 477 U.S. at 247-48, 106 S.Ct. at 2509. Title Cash argues that questions of fact exist on whether its proofs of claim were false and whether Title Cash deceived the Trustee, and that the accusations are made without obtaining the perspective of the Trustee or Title Cash's bankruptcy attorney Gary S. Deschenes. Those points are well taken. The only evidence from the Chapter 13 Trustee is the letter, Ex. 16 attached to Dkt. 75, in which he requests information regarding Title Cash's secured interest. Ex. 16 does not support Plaintiff's contention that Title Cash deceived the Trustee, and no other statement from the Trustee exists in the record. Likewise, Plaintiff did not include a statement from Deschenes to support its contention that Title Cash filed false proofs of claim. At the summary judgment stage, this Court must resolve all reasonable doubt as to the existence of genuine issues of material fact against the moving party. Liberty Lobby, 477 U.S. at 247-48, 106 S.Ct. at 2509. If a rational trier of fact might resolve disputes raised during summary judgment proceedings in favor of the nonmoving party, summary judgment must be denied. T.W. Elec. Serv., 809 F.2d at 630; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. at 587, 106 S. Ct. 1348. With respect to the proofs of claim, deceiving the Trustee, and changing the VIN of the Suburban, the Court recognizes that a rational trier of fact might resolve disputes in favor of the nonmoving party, and therefore summary judgment must be denied.
With respect to the settlement agreement with the Montana Division of Banking and Financial Institutions, Ex. 20 to Dkt. 75, Plaintiff contends that Title Cash agreed that it "engaged in unfair and fraudulent practices." That contention mischaracterizes Ex. 20. Ex. 20 includes a statement that Title Cash was served with a notice of violation charging that Title Cash violated MCA § 31-1-825(1)(f) and engaged in unfair and fraudulent practices in violation of MCA § 31-1-825(1)(j). However, nowhere in Ex. 20 does Title Cash agree or admit that it engaged in the violations charged. Ex. 20 provides that Title Cash admits to errors and improper and incorrect documentation, and that they agree to settle the violations "to avoid a lengthy administrative process." On the third page of Ex. 20, however, Title Cash admits only to understanding "the nature of the violation alleged." (Emphasis added). Title Cash did not agree on Ex. 20 that it engaged in unfair and fraudulent practices, and Ex. 20 provides that it is the "complete agreement" between the parties. Title Cash agreed in Ex. 20 to release the liens from both loans and to refile the lien on Loan No. 767[8]. The Court concludes that Plaintiff failed to satisfy her burden of proof that no genuine issue of material fact exists on whether Title Cash engaged in unfair or deceptive acts and that Plaintiff is entitled to summary judgment as a matter of law on Count V.
Turning to Title Cash's cross motion for partial summary judgment, which the Court summarily denied above, the Court further denies the cross motion on the merits based upon collateral estoppel. To begin with, the filing by Title Cash of proofs of claim in Plaintiff's Chapter 13 case are only a few of the alleged unfair and deceptive acts alleged in Count V, so Title Cash would not be entitled to summary *624 judgment on Count V in its entirety even if collateral estoppel applied.
Claim preclusion provides that a final judgment on the merits bars further claims by parties or their privies based on the same cause of action. U.S. v. Bhatia, 545 F.3d 757, 759 (9th Cir.2008), quoting United States v. Schimmels (In re Schimmels), 127 F.3d 875, 881(9th Cir.1997) (other citations omitted). The related doctrine of collateral estoppel, or issue preclusion, provides that "when an issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in any future lawsuit." Bhatia, 545 F.3d at 759, quoting Ashe v. Swenson, 397 U.S. 436, 443, 90 S. Ct. 1189, 25 L. Ed. 2d 469 (1970)[9].
The Montana Supreme Court in Boyd v. First Interstate Bank of Kalispell, N.A. (1992), 253 Mont. 214, 218, 833 P.2d 149, 151, set out the 3 elements for collateral estoppel as: (1) The identical issue raised and previously decided in prior adjudication; (2) final judgment on the merits was issued in the prior adjudication; and (3) the party against whom the plea is now asserted was a party or in privity with a party to the prior adjudication.
Title Cash contends that collateral estoppel precludes Count V because of the Plaintiff/Debtor's motion for valuation and the binding effect of Debtor's confirmed Plan under 11 U.S.C. § 1327(a). The first element of collateral estoppel requires that the identical issue be raised and previously decided in prior adjudication. Boyd, 253 Mont. at 214, 833 P.2d at 151. Plaintiff's CPA claims under Count V are not identical, and were not raised or previously decided in the underlying Chapter 13 case. Plaintiff's CPA claims are based on violations of Montana statutes. The valuation of Title Cash's security and confirmation were heard and decided based on federal bankruptcy rules and statutes. In this Court's view they are not identical issues. Title Cash's cross motion for summary judgment fails to satisfy the requirements for collateral estoppel.
III. COUNT VIILiability Based on Alter Ego.
In Count VII Plaintiff seeks summary judgment against Hutcheson and Hutcheson, Inc., and to pierce the corporate veil of Hutcheson, Inc., as an equitable remedy and hold them liable for Title Cash's violations under other counts. Plaintiff argues that Hutcheson and Hutcheson, Inc., controlled Title Cash's decision making, and that Hutcheson was incorporator, director, president, and majority shareholder of Title Cash and Hutcheson, Inc., with his wife and children owning the remaining shares. Plaintiff argues that Hutcheson commingled operations of Title Cash and Hutcheson, Inc., and that Hutcheson controlled training, supervision, and controlled the decision making for Title Cash and Hutcheson, Inc. Because of the lack of corporate formalities Plaintiff seeks summary judgment against Defendants based upon Title Cash being the alter ego of both Hutcheson and Hutcheson, Inc.
Title Cash contends that substantial questions of material fact exist on the question of alter ego. Title Cash cites Hutcheson's deposition at pages 19, 124-25, and Lisa Harshbarger's deposition (Ex. 3 & 4 attached to Dkt. 98) at pages 14, 35, *625 37, 49, 55 and 66, as evidence that Title Cash managed its day-to-day work assignments and sought approval and assistance from Hutcheson, Inc., only for larger decisions for a monthly fee and that they were completely separate entities.
No concrete formula exists in Montana under which a court will disregard the separate identity of the corporate entity. Towe Antique Ford Foundation v. I.R.S., 999 F.2d 1387, 1391 (9th Cir.1993). Factors relevant to a finding of alter ego include but are not limited to: (1) whether the individual in a position of control or authority over the entity; (2) whether the individual controls the entity's actions without need to consult others; (3) whether the individual uses the entities to shield himself from personal liability; (4) whether the individual uses the business entity for his or her own financial benefit; (5) whether the individual mingles his own affairs in the affairs of the business entity; and (6) whether the individual uses the business entity to assume his own debts, or the debts of another, or whether the individual uses his own funds to pay the business entity's debts. Id. (citing cases including Hando v. PPG Indus., Inc., 236 Mont. 493, 771 P.2d 956, 960 (1989) and Drilcon, Inc. v. Roil Energy Corp., Inc., 230 Mont. 166, 749 P.2d 1058, 1063-64 (1988).
Considering the arguments of the parties and the deposition references, and resolving all reasonable doubt as to the existence of genuine issues of material fact against the moving party, Liberty Lobby, 477 U.S. at 247-48, 106 S.Ct. at 2509, the Court finds that some evidence exists of the Hando factors, such as ownership of Title Cash by Hutcheson and his family, and ultimate control. However, the Court concludes that Plaintiff has failed her burden for summary judgment on Count VII of showing that no genuine issue of material fact exists as to whether Title Cash is the alter ego of Hutcheson and Hutcheson, Inc., and that she is entitled to summary judgment on Count VII as a matter of law. Genuine issues of material fact remain on whether Hutcheson and Hutcheson, Inc., mingled their own affairs in the affairs of Title Cash, used it to assume their own debts, used Title Cash to shield themselves from personal liability or whether they used their own funds to pay Title Cash's debts, as well as the degree of control they exercised over Title Cash's operations. Towe, 999 F.2d at 1391; Hando, 771 P.2d at 960.
IV. COUNT VIIILiability Based on Alter Ego & Successor Liability.
In Count VIII Plaintiff seeks summary judgment against EZ Title and Hutcheson and to hold them liable for Title Cash's debts under the theory of successor liability, and under alter ego theory[10]. Plaintiff contends that, based on the asset purchase agreement whereby EZ Title purchased and retained Title Cash's assets, assumed its debts, and Title Cash agreed to indemnify and hold EZ Title, its officers, directors and shareholders harmless for Title Cash's liability, that Hutcheson and EZ Title have total control over Title Cash's assets, liabilities and legal matters and that Hutcheson was recipient of the monetary arrangement between Title Cash and EZ title, which commingled the two corporations' operations and assets. Plaintiff argues that Hutcheson and EZ Title are liable based on successor liability under two theories: (1) de facto *626 merger based on continuity of ownership and use of Title Cash's name, and EZ Title's assumptions of all liabilities and obligations regarding the Plaintiff Loan; and (2) mere continuation based on common identity of officers, directors and shareholders between Title Cash and EZ Title and the existence of only one corporation, EZ Title, at the completion of the transfer.
By Stipulation (Dkt.113) approved by this Court, EZ Title is liable for any judgment entered against Title Cash under Count VIII. The Stipulation is silent as to Hutcheson personally. Title Cash argues that questions of fact preclude summary judgment on Count VII because no consolidation or merger occurred under the asset purchase agreement, good consideration was given and EZ Title has separate books and hires its own employees. As to Hutcheson personally under Count VIII, to the extent it remains at issue the Court finds that Plaintiff failed to satisfy her burden for summary judgment against Hutcheson on the basis of successor liability, and the underlying liability for CPA violations under Count V.
V. COUNT IXLiability Based on Piercing the Corporate Veil.
Count IX seeks to hold EZ Title, Hutcheson, Inc., and Hutcheson liable based on piercing the corporate veil, based upon the case law summarized in Towe, 999 F.2d at 1391-92. Plaintiff argues that all the Defendants should be held liable for her claims because Hutcheson is the incorporator, president and majority shareholder of the other Defendant corporation, his family owns the remaining shares, he commingled the assets and operations of the Defendant corporations, did not adequately capitalize Title Cash, uses the corporations as a conduit to operate a single venture, concealed the identity of the financial interests of Title Cash and EZ Title, and failed to maintain a proper arm's length relationships between Title Cash, EZ Title and Hutcheson, Inc., and himself by transferring Title Cash's assets to EZ Title and using Hutcheson, Inc., to manage and train employees of Title Cash and EZ Title.
Title Cash contends that genuine issues of fact on Count IX remain to be decided. Title Cash argues that Title Cash was responsible for its day-to-day work assignments and sought approval from Hutcheson, Inc., for larger decisions, citing Hutcheson's deposition at pages 19 and 124-25. Title Cash argues that Title Cash is completely separate from Hutcheson, Inc., and that Title Cash contacted Hutcheson, Inc., employees rather than Hutcheson.
The Ninth Circuit in Towe noted that piercing the corporate veil is an equitable remedy used to curb injustices resulting from the improper use of a corporate entity, and that since it is an equitable remedy no concrete formula exists and its use depends upon the circumstances of each case. 999 F.2d at 1391-92, quoting Hando, 771 P.2d at 960. Montana courts consider two factors in determining whether to pierce the corporate veil: (1) the party seeking to pierce the corporate veil must show that the corporation is the alter ego of the individual; and (2) "there must be a showing that the corporate entity was used as a subterfuge to defeat public convenience, justify wrong, or perpetrate fraud." Towe, 999 F.2d at 1391, quoting Drilcon, 749 P.2d at 1064.
Because summary judgment will be denied as to Counts V (CPA violations) and VII (alter ego), the Court finds that Plaintiff has failed to satisfy her burden for summary judgment under Count IX for piercing the corporate veil. The Court resolves all reasonable doubt as to the existence of genuine issues of material fact *627 against the Plaintiff as the moving party. Liberty Lobby, 477 U.S. at 247-48, 106 S.Ct. at 2509. The Court further admits that a rational trier of fact might resolve disputes raised during summary judgment proceedings on Count IX in favor of the nonmoving party, and so summary judgment must be denied. T.W. Elec. Serv., 809 F.2d at 630; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. at 587, 106 S. Ct. 1348.
VI. COUNT XTo Avoid Corporate Transfers as Fraudulent Transfers.
In Count X Plaintiff seeks to avoid the entire series of corporate transfers between Title Cash and EZ Title as fraudulent transfers, and to hold EZ Title, Hutcheson and Hutcheson, Inc., jointly and severally liable for Plaintiff's damages. Plaintiff argues that Hutcheson created, dissolved, transferred, and continues to use Title Cash, EZ Title, and Hutcheson, Inc., with the actual intent to hinder, delay or defraud Plaintiff and other creditors determined under MCA § 31-2-333(2) by transferring all of Title Cash's assets to an insider while retaining possession and control of Title Cash and after being sued and shortly before a substantial debt was incurred, after which Title Cash became insolvent, concealing the transfer, and by absconding by failing to notify Plaintiff or the courts that Title Cash was dissolved. In addition to avoiding the transfers and liability Plaintiff seeks attachment of Defendants' assets, for an injunction, and for appointment of a receiver to take charge of their assets.
Title Cash's brief does not address Count X. Count X is based upon MCA § 31-2-333 which provides:
31-2-333. 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 or 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 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.
(2) In determining actual intent under subsection (1)(a), consideration may be given, among other factors, to whether:
(a) the transfer or obligation was to an insider;
(b) the debtor retained possession or control of the property transferred after the transfer;
(c) the transfer or obligation was disclosed or concealed;
(d) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
(e) the transfer was of substantially all the debtor's assets;
(f) the debtor absconded;
(g) the debtor removed or concealed assets;
(h) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
*628 (i) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
(j) the transfer occurred shortly before or shortly after a substantial debt was incurred; or
(k) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
Torgenrud v. Smith, 17 Mont. B.R. 277, 283-84 (Bankr.D.Mont.1999).
Montana law permits actual fraudulent intent to be established by circumstantial evidence, such as by various badges of fraud codified in § 31-2-333(2). Smith, 17 Mont. B.R. at 384; In re Valley Park, Inc., 16 Mont. B.R. 373, 380 (Bankr. D.Mont.1998); In re Teigen, 13 Mont. B.R. 143, 146-47 (9th Cir.1994) (citing O'Connor v. Lewis, 238 Mont. 270, 776 P.2d 1228, 1232-33 (1989)). The badges of fraud, if found, do not necessarily constitute fraud per se, but merely afford grounds from which the Court is authorized to conclude that a transaction surrounded by them is fraudulent. O'Connor, 776 P.2d at 1233; Montana Nat'l Bank v. Michels, 193 Mont. 295, 631 P.2d 1260, 1263 (1981).
Despite Title Cash's failure to address Count X in its brief, the Court still must resolve all reasonable doubt as to the existence of genuine issues of material fact against the Plaintiff as the moving party. Liberty Lobby, 477 U.S. at 247-48, 106 S.Ct. at 2509. The uncontroverted facts show that some of factors enumerated in MCA § 31-2-333(2) are present. On the other hand the Court notes that Plaintiff's uncontroverted fact No. 131 alleges that Defendants concealed the identity of financial interests until it filed the motion to quash, which Plaintiff's brief argues at page 21 shows that Defendants absconded. The two are not the same, and fact No. 131 on its face does not allege or show that Defendants absconded as Plaintiff argues.
As above, the Court concludes that a rational trier of fact might resolve disputes raised during summary judgment proceedings on Count X in favor of the nonmoving party, and so summary judgment must be denied. T.W. Elec. Serv., 809 F.2d at 630; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. at 587, 106 S. Ct. 1348. The Court finds that Plaintiff has failed to satisfy her burden for summary judgment under Count X to show an absence of genuine issue of material fact under MCA § 31-2-333 regarding whether the corporate transfers were made with actual intent to hinder, delay or defraud the Plaintiff.
On one final matter, Plaintiff's reply brief at Dkt. 105 extends to page 12. Mont. LBR 9013-2 specifically states that "[a]ny reply memoranda by the party moving for summary judgment shall not exceed 10 pages." At page 10 and continuing to the end of page 11 Plaintiff raises new theories seeking to hold Hutcheson personally liable under MCA § 35-1-935 and § 35-1-937. These statutes are not found in the Plaintiff's 3rd Complaint, or in Plaintiff's second motion for summary judgment and supporting brief. Defendants had no notice of these new claims until raised in Plaintiff's reply brief, and have not had an opportunity to respond. The new statutory claims offend fundamental notions of due process. This Court will not consider or decide Plaintiff's new claims based on MCA §§ 35-1-935 and 35-1-937.
CONCLUSIONS OF LAW
1. This Court has jurisdiction over this matter under 28 U.S.C. § 1334.
2. This Court has jurisdiction to hear all state law claims under 28 U.S.C. § 1367.
*629 3. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A).
4. Plaintiff failed to satisfy her burden of proof under Rule 7056(c) that no genuine issues of material fact exist and that Plaintiff is entitled to judgment as a matter of law under Counts V, VII, VIII, IX, and X of Plaintiff's 3rd Amended Complaint.
5. Title Cash failed to comply with Mont. LBR 7056-1(a)(1), which constitutes grounds for summary denial of its cross motion for summary judgment on Count V.
6. Title Cash failed to satisfy the requirement of identical issues as required for the application of the doctrine of collateral estoppel (issue preclusion).
IT IS ORDERED that a separate Order shall be entered in conformity with the above denying the Plaintiff's second motion for summary judgment (Dkt.74) and denying Title Cash's cross motion for partial summary judgment on Count V (Dkt.98).
NOTES
[1] The condition of Defendant's response brief and cross motion, Docket No. 98, warrants comment. The bold subject headings at pages 2, 5, 6, 8, 10, and 14, all are missing letters which render the headings almost indecipherable. Whether that is a result of a computer glitch or some other reason, it is not this Court's role to fill in the blanks. Rule 9011(b) requires an "inquiry reasonable under the circumstances" before presenting a paper to the Court, which at a minimum requires quality control such as review or proofreading before filing a paper. Johnson's filing of Dkt. 98 in such a condition falls short of the standard of practice expected in this Court.
[2] Plaintiff's first motion for summary judgment (Dkt. 18) was granted in part and denied in part by Memorandum of Decision (Dkt.55) and Order (Dkt.56) entered on December 18, 2009. Trial is scheduled to commence on May 17, 2010.
[3] By Stipulation (Dkt.113), which was approved by Order entered March 24, 2010 (Dkt.114) the parties agree that EZ Title is liable for any judgment entered against Title Cash under Count VIII. The Stipulation does not mention Hutcheson.
[4] In addition Plaintiff requested the Court take judicial notice of the factual findings set forth in Dkt. 55, pages 2-5, which are incorporated by reference as though set forth in full herein.
[5] All references to exhibits were in Plaintiff's Statement of Uncontroverted Facts (Dkt.75), and exhibits filed therewith.
[6] The Court denied Title Cash's prior motion for partial summary judgment for the same reason, stating: "This Court will not accept piecemeal factual contentions which are not in compliance with Rule 7056-1(a)(1)." Notwithstanding, the Court will address the merits of Title Cash's collateral estoppel argument below
[7] The 3rd Amended Complaint at page 20 prays for punitive damages in Count V under MCA § 27-1-220. That request was not repeated in her 2nd motion for summary judgment and memorandum at page 5.
[8] For some unexplained reason the other loan is identified as "678" not 768 on Ex. 20.
[9] The Ninth Circuit noted that the Supreme Court recently clarified that "claim preclusion" and "issue preclusion" are collectively referred to as "res judicata". Bhatia, 545 F.3d at 759 n. 2, quoting Taylor v. Sturgell, 553 U.S. 880, 128 S. Ct. 2161, 2171, 171 L. Ed. 2d 155 (2008).
[10] The alter ego averments are in the 3rd Complaint, but Plaintiff's brief argues only successor liability under Count VIII.
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83 A.2d 595 (1951)
GOTTLIEB
v.
HEYDEN CHEMICAL CORP.
Civil Action No. 236.
Court of Chancery of Delaware, New Castle.
October 8, 1951.
*596 Robert C. Barab, Wilmington, for plaintiff.
Richard F. Corroon, of Berl Potter & Anderson, Wilmington, Harmon Duncombe and George Rowe, Jr., New York City, for defendant.
SEITZ, Chancellor.
This is an action by a minority stockholder seeking to enjoin a restricted stock option plan adopted by the defendant corporation with the approval of a majority of stockholders. Plaintiff seeks also to have declared invalid an amendment to the certificate of incorporation divesting the stockholders of preemptive rights with respect to certain stock.
At a directors' meeting held March 14, 1951 the defendant's Board of Directors adopted a restricted stock option plan subject to ratification by the stockholders at the forthcoming annual meeting.
The Board of Directors at the same meeting also proposed an amendment to the certificate of incorporation exempting from the preemptive right up to a total of not exceeding 50,000 shares of stock issued to officers and employees pursuant to stock options.
Both the plan and the amendment were approved by an affirmative vote of the holders of a majority of the common stock at a meeting held April 26, 1951.
Plaintiff seeks to enjoin the effectuation of the stock option plan and the amendment to the certificate. She makes the following contentions:
(1) The amendment to the certificate eliminating the preemptive rights is invalid because it deprives non-assenting stockholders of vested rights;
(2) The stock option plan is invalid because it contemplates the transfer of corporate assets without consideration; and
(3) The plan being invalid for lack of consideration it cannot be adopted over minority dissent.
Both sides have filed motions for summary judgment and this is the decision thereon.
Plaintiff first argues that the amendment seeking to deprive non-assenting stockholders of their preemptive rights is invalid because it deprives her and other stockholders of their "vested" rights.
It is conceded that under Sec. 5 of the General Corporation Law of Delaware, Rev.Code 1935, § 2037, the provision here sought to be enacted by amendment could have been included in the certificate originally. The question is whether it can be done by amendment under Sec. 26, Rev. Code 1935, § 2058.
Plaintiff says that this preemptive right is a vested right and as to objectors it may not be destroyed without their consent.
It is established, as plaintiff points out, that the so-called "vested" rights of stockholders may not be taken away by amendment over objection, e.g., Keller v. Wilson and Co., 21 Del. Ch. 391, 190 A. 115. I assume that if a right, even though it would otherwise be characterized as vested, is one which Sec. 26 authorizes the stockholders to destroy by appropriate action, then to destroy such a right would not constitute illegal interference with a "vested" right. In other words a right would not be a "vested" right if Sec. 26 authorized the stockholders to destroy it. This would be so because the right to amend to destroy *597 such a right would be a part of the stockholder's contract when he purchased his stock.
The question then is whether Sec. 26 authorizes stockholders to amend a certificate of incorporation so as to cut off a preexisting preemptive right. Let us examine the language of Sec. 26. Section 26 of the General Corporation Law of Delaware provides in part: "Any corporation * * * may * * * amend its Certificate of Incorporation * * * by changing the * * * designations, preferences, or relative, participating, optional, or other special rights of the shares or the qualifications, limitations or restrictions of such rights * * * or by making any other change or alteration in its Certificate of Incorporation that may be desired * * * provided that every Certificate of Incorporation as so amended, changed or altered, shall contain only such provisions as it would be lawful and proper to insert in an original Certificate of Incorporation made at the time of making such amendment. * * *"
Section 26 clearly does not provide in express terms for the power to destroy preemptive rights by amendment. Does the language "other special rights" embrace preemptive rights? To answer this question we need first consider the nature of a preemptive right. In Kingston v. Home Life Insurance Co., 11 Del. Ch. 258, 101 A. 898, 900, this court said: "The right of shareholders to subscribe for new shares issued by a corporation as an increase of its capital stock in preference to outsiders is well established, and is called a shareholder's preemptive right."
There is a great deal of confusion as to the "proper" view which should be taken as to preemptive rights. See Drinker, 43 Harvard Law Review 586. It has been viewed by some courts solely as a means to safeguard a stockholder's proportionate voting control. See 11 Fletcher Cyc. of Corp. (Perm.Ed.) Sec. 5135. Other courts have suggested that it also is necessary to protect a stockholder's interest in the assets.
Plaintiff says that the preemptive right is not on the same plane as those enumerated rights which may be changed by amendment under Sec. 26. She says it is on a higher plane a vested rights plane similar to accrued and unpaid dividends on cumulative preferred stock. See Keller v. Wilson and Co., supra. Plaintiff must concede that voting rights may be changed by amendment under Sec. 26. See Morris v. American Public Utilities Co., 14 Del. Ch. 136, 122 A. 696. Yet the protection of the stockholder's relative voting position is the most important if not the only attribute of the preemptive right. The other important aspect of preemptive rights recognized by some courts is the interest of the stockholder in the assets. However, even if this aspect be here relevant, it cannot be assumed that the stock to be issued will not be issued for a value which will fairly reflect the "value" of the assets. So viewed the preemptive right would not seem to be in the same substantial category as accrued and unpaid dividends. This is but another way of saying I do not feel that it should be so considered in view of its attributes.
Plaintiff relies upon Albrecht, Maguire & Co. v. General Plastics Inc., 256 A.D. 134, 9 N.Y.S.2d 415, affirmed 280 N.Y. 840, 21 N.E.2d 887. It appears in that case that the New York court concluded that the power to amend to destroy preemptive rights was not given by the New York Stock Corporation Law, McK.Consol.Laws, c. 59. The court intimated that before such a statutory right to amend would be recognized it would have to appear "in express terms". The New York court did not characterize an existing preemptive right as a "vested" right but that label is unimportant because its use merely embodies a predetermined conclusion. I do not have the benefit of the language of the then existing New York statute governing amendments. To the extent that the Albrecht decision may be inconsistent with my conclusion, I can only indicate a preference for the reasoning here employed.
I therefore believe that a preemptive right rises no higher than rights which can be changed by amendment under *598 Sec. 26 [Rev.Code 1935, § 2058]. Since that section provides that "other special rights" may also be changed by amendment and since preemptive rights are, in my opinion, on no higher a qualitative level than rights which may be changed, I conclude that the quoted language embraces preemptive rights. It follows that the preemptive rights of plaintiff and others similarly situated were legally cut off on the basis of authority granted by Sec. 26.
Plaintiff's second contention is that the stock option plan is invalid because it contemplates the transfer of corporate assets without consideration. Plaintiff makes several allegations in her complaint but places her principal reliance in her motion for summary judgment on the allegation that the plan has no purpose other than to enable employees to acquire a proprietary interest in defendant. This being so the plaintiff contends that the plan is illegal on the authority of Rosenthal v. Burry Biscuit Co., Del.Ch., 60 A.2d 106. Defendant's answer denies this allegation and alleges that the purpose of the plan is to advance the interests of defendant and its subsidiaries and that the plan seeks to accomplish that purpose by providing for the granting of options to purchase stock to officers and key employees who are responsible for defendant's future growth and development and continued financial success.
It is true, as the court pointed out in Rosenthal v. Burry Biscuit Co., supra, that the mere desire to grant an interest by way of stock ownership, without more, is not sufficient consideration to support such a plan. However, it must be apparent that every stock option plan has as its purpose the desire to give corporate officials an opportunity to acquire a stock interest in the corporation. The crucial question is whether the ultimate objective behind such purpose is calculated to benefit the corporation to such an extent that it constitutes legal consideration. See Kerbs v. California Eastern Airways Inc., Del.Ch., 83 A.2d 473.
In view of the conflict in the respective positions of the parties here, I do not see how this conflict can properly be resolved on cross motions for summary judgment. The true picture will have to be developed upon final hearing. In view of this conclusion plaintiff's third contention need not be here considered. It follows that both motions must be denied except that an appropriate order may be entered on the preemptive rights question.
Order on notice.
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820 S.W.2d 837 (1991)
Samir Rachid SARIEDDINE, Appellant,
v.
Atef Jawad MOUSSA, Appellee.
No. 05-90-01035-CV.
Court of Appeals of Texas, Dallas.
October 2, 1991.
Rehearing Denied November 12, 1991.
*838 T. Ray Guy, Dallas, for appellant.
Bruce Priddy and Keith C. McDole, Dallas, for appellee.
Before STEWART, KINKEADE and CHAPMAN, JJ.
OPINION
CHAPMAN, Justice.
Samir R. Sarieddine sued to recover on a note on which Atef Jawad Moussa defaulted. Sarieddine's sole point of error is that the trial court erred in dismissing the case under the doctrine of forum non conveniens. We reverse and remand.
FACTS
Affidavits on file show that Sarieddine, a Lebanese citizen, has resided in Bellevue, Washington, since 1987.[1] Moussa, also a Lebanese citizen, has resided in Bahrain since 1981.[2]
In 1981, Moussa agreed to purchase all of Sarieddine's stock in C.M.C. Group, a Luxembourg corporation, for $4.4 million. Moussa defaulted under the 1981 agreement and a second agreement. A third agreement was negotiated by telephone and correspondence in 1986, with Sarieddine negotiating from Seattle and Moussa from Bahrain. Pursuant to the agreement, Moussa would pay Sarieddine the remaining $1,846,000 owed in installments. The *839 1986 agreement also contained the following forum selection clause with respect to actions under the agreement or note:
Any action to enforce the terms of this Agreement or any promissory or installment note ... may be brought in the court of any jurisdiction in which Moussa or any of his property or assets is located....
(Emphasis added.) In May 1988, Moussa defaulted a third time.
On or about May 28, 1988, a court in Abu-Dhabi served Moussa with a Provisional Attachment Order (the Attachment Order) prohibiting Moussa from making any payments to Sarieddine to the extent of 1,498,978 UAE dirhams (approximately $409,000) and 10,000 UAE dirhams (approximately $2,725) in court costs. Instead, Moussa was to pay a third party this amount owed under the Attachment Order. Sarieddine has employed counsel in Abu-Dhabi to appeal the judgment[3] that resulted in the Attachment Order.
Sarieddine filed suit in Dallas, Texas in February 1990 to recover approximately $1.5 million still owed by Moussa under the 1986 agreement and note. Moussa was personally served in Dallas on February 9, 1990. The trial court dismissed the case under the doctrine of forum non conveniens.
FORUM SELECTION CLAUSE
Sarieddine asserts that the forum selection clause precludes Moussa from asserting forum non conveniens. A forum selection clause is a valid means of asserting personal jurisdiction over a party. Monesson v. National Equip. Rental, Ltd., 594 S.W.2d 780, 781 (Tex.Civ.App. Dallas 1980, writ ref'd n.r.e.). A valid selection clause can also be treated as a waiver by the moving party of its right to assert its own convenience as a factor favoring transferring the case from the agreed forum. Plum Tree v. Stockment, 488 F.2d 754, 758 n. 7 (3rd Cir.1973). Although Sarieddine cites no Texas authority, and we fine none on point, federal case law persuades us that a trial court is not bound by the forum selection clause agreement if the interests of the witness and of the public strongly favor transferring the case to another forum. Id. While the forum selection clause might confer personal jurisdiction, we hold that it does not preclude consideration of a motion to dismiss on the theory of forum non conveniens. We will, therefore, consider the forum selection clause only as a factor in determining whether the trial court erred by dismissing this case under forum non conveniens.
Moussa contends that the forum selection clause is not valid because it is too vague. Affidavits show that the clause in question was contested and bargained for. Moussa proposed the terms "in any appropriate jurisdiction" rather than the "is located" language. After Sarieddine rejected Moussa's proposal, Moussa agreed to the "is located" language. Moussa now argues that the term "is located" means wherever he resides. Sarieddine argues that the forum selection clause entitles him to sue Moussa wherever Moussa can be personally served. We hold that Sarieddine's interpretation is more consistent with the common sense meaning of the word "located."
FORUM NON CONVENIENS
A. Forum Non Conveniens Defined
The doctrine of forum non conveniens is an equitable doctrine exercised by courts to resist imposition of an inconvenient jurisdiction on a litigant, even if jurisdiction is supported by the long-arm statute and would not violate due process. A trial court will exercise the doctrine of forum non conveniens when it determines that, for the convenience of the litigants and witnesses and in the interest of justice, the action should be instituted in another forum. Van Winkle-Hooker Co. v. Rice, 448 S.W.2d 824, 826 (Tex.Civ.App.Dallas 1969, no writ). In determining whether to *840 dismiss a case unaer me uoctrine 01 iorum non conveniens, the trial court must weigh a number of factors. Appropriate factors in applying the doctrine of forum non conveniens were detailed in Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 67 S. Ct. 839, 91 L. Ed. 1055 (1947). Texas courts have adopted the Gilbert factors. McNutt v. Teledyne Indus., Inc., 693 S.W.2d 666, 668 (Tex. App.Dallas 1985, writ dism'd); see also Cole v. Lee, 435 S.W.2d 283, 285 (Tex.Civ. App.Dallas 1968, writ dism'd); Forcum-Dean Co. v. Missouri Pac. R.R., 341 S.W.2d 464, 466 (Tex.Civ.App.San Antonio 1960, writ dism'd). Factors to be considered are the private interests of the litigants, the relative ease of access to sources of proof, the availability of compulsory process for attendance of unwilling witnesses, and the cost of obtaining attendance from willing witnesses. Gulf Oil, 330 U.S. at 508, 67 S.Ct. at 843. Other factors, known as "public factors," include the burden imposed upon the citizens of the state, the burden on the trial court, and the general interest in having localized controversies decided in the jurisdiction in which they arose. Gulf Oil, 330 U.S. at 507-08, 67 S.Ct. at 842-43. Another consideration is whether a judgment obtained in this jurisdiction will be enforceable. Flaiz v. Moore, 359 S.W.2d 872, 874 (Tex.1962). However, "unless the balance is strongly in favor of the defendant, the plaintiff's choice of forum should rarely be disturbed." Gulf Oil, 330 U.S. at 508, 67 S.Ct. at 843.
B. Jurisdiction
Before a court may invoke forum non conveniens, the court must find that it has jurisdiction over the defendant. McNutt, 693 S.W.2d at 668. Since Moussa was personally served in Dallas, Texas, he agreed that the trial court has jurisdiction over him due to the holding in the recent United States Supreme Court case, Burnham v. Superior Court of California, 495 U.S. 604, 110 S. Ct. 2105, 109 L. Ed. 2d 631 (1990) (jurisdiction based on physical presence alone constitutes due process). Because Moussa conceded jurisdiction, it is not necessary to determine whether Moussa maintained minimum contacts witn Texas or whether his activities were "continuous or systematic" so that the exercise of general jurisdiction over Moussa would not offend "fair play and substantial justice." McNutt, 693 S.W.2d at 668; see generally Guardian Royal Exchange Assur., Ltd. v. English China Clays P.L.C., 815 S.W.2d 223 (Tex.1991).
C. The Validity of Forum Non Conveniens in Texas
The first question we address is whether Texas still recognizes forum non conveniens after the recent Texas Supreme Court holding in Dow Chemical Co. v. Alfaro, 786 S.W.2d 674 (Tex.), cert, denied, ___ U.S. ___, 111 S. Ct. 671, 112 L. Ed. 2d 663 (1990). The court in Alfaro ruled that section 71.031 of the Civil Practice and Remedies Code abolished forum non conveniens in cases involving personal injury and wrongful death. Alfaro, 786 S.W.2d at 679. Sarieddine asserts that Alfaro has abolished forum non conveniens for all cases or, alternatively, that section 17.042 of the Texas Civil Practice & Remedies Code and rule 108 of the Texas Rules of Civil Procedure have abolished forum non conveniens in Texas.
In Alfaro, Costa Rican workers and their wives sued Dow Chemical Company and Shell Oil Company in Houston, Texas, under section 71.031 of the Civil Practice and Remedies Code for injuries suffered in Costa Rica. Section 71.031(a) provides:
(a) An action for damages for the death or personal injury of a citizen of this state, of the United States, or of a foreign country may be enforced in the courts of this state, although the wrongful act, neglect, or default causing the death or injury takes place in a foreign state or country....
TEX.CIV.PRAC. & REM.CODE ANN 71.031(a) (Vernon 1986). The Texas Supreme Court held in Alfaro that the phrase "may be enforced in the courts of this state" contained in section 71.031 is mandatory. The court concluded that forum non conveniens had been statutorily abolished for cases arising out of section 71.031. Alfaro, 786 *841 S.W.2d at 679. Alfaro is strictly limited to personal injury and wrongful death suits filed under section 71.031 of the Civil Practice and Remedies Code. See Alfaro, 786 S.W.2d at 679. Section 17.042, the Long Arm Statute, as well as sections 17.043 and 17.044 addresses the extent of personal jurisdiction granted to Texas courts by outlining who can be served. Tex.Civ.Prac. & Rem.Code Ann. §§ 17.042, 17.043, 17.044 (Vernon 1986). Sections 17.043 and 17.044 provide only for service of process. Tex. Civ.Prac. § 17.043, 17.-044 (Vernon 1986). There is no mandatory language in these statutes to justify holding that they abolish forum non conveniens. These statutes merely outline over whom Texas courts can acquire personal jurisdiction. While a trial court may be required to find jurisdiction over the defendant, there is no language in the statutes prohibiting the trial court from dismissing the case under a theory of forum non conveniens.
Concerning rule 108 of the Texas Rules of Civil Procedure, this rule codifies Texas due process standards by stating that a "defendant served with notice shall be required to appear and answer ... to the full extent that he may be required to appear and answer under the Constitution of the United States." Tex.R.Civ.P. 108. There is no language in rule 108 prohibiting a trial court from dismissing a case on a theory of forum non conveniens once the defendant has "appear[ed] and answered]." See Tex.R.Civ.P. 108.
We find that there is no basis for the assertion that Texas has abolished forum non conveniens for all cases. Therefore, we hold that Texas continues to recognize the validity of the theory of forum non conveniens for all cases except those involving personal injury or death.
D. Standard of Review
Before this Court can find that the trial court reversibly erred in dismissing the case under the doctrine of forum non conveniens, we must find that it abused its discretion in dismissing the case. McNutt, 693 S.W.2d at 668. We stated in McNutt that "`[a]buse of discretion' is more than mere error and amounts to arbitrary and unreasonable action." McNutt, 693 S.W.2d at 668. The defendant bears the burden of invoking the doctrine and moving to dismiss in favor of a foreign forum. As a general rule, the burden of persuasion runs to all elements of the forum non conveniens analysis. In re Air Crash Disaster near New Orleans, La., 821 F.2d 1147, 1164 (5th Cir.1987), vacated, 490 U.S. 1032, 109 S. Ct. 1928, 104 L. Ed. 2d 400 (1988); Van Winkle-Hooker, 448 S.W.2d at 827.
E. Alternative Forum
The doctrine of forum non conveniens presumes that at least two forums are available to the plaintiff to pursue the claim. Van Winkle-Hooker, 448 S.W.2d at 826. The "district court must first determine that an available and alternative forum exists. This is a two part inquiry: availability and adequacy." In re Air Crash, 821 F.2d at 1165. A "foreign forum is available when the entire case and all the parties can come within the jurisdiction of that forum." Quintero v. Klaveness Ship Lines, 914 F.2d 717, 727 (5th Cir.), cert, denied, ___ U.S.___, 111 S. Ct. 1322, 113 L. Ed. 2d 255 (1990). A foreign forum is adequate when the parties will not be deprived of all remedies or treated unfairly. In re Air Crash, 821 F.2d at 1165. An exception to the general rule that the defendant bears the burden on all elements of the forum non conveniens analysis is that, once the defendant establishes that an "available" forum exists, the plaintiff must prove that the available forum is not adequate. Vaz Borralho v. Keydril Co., 696 F.2d 379, 393-94 (5th Cir.1983). Justice Gonzalez, in his dissent in Alfaro, suggested a standard similar to the one we adopt today: that an alternative forum should be more than one where the defendant is amenable to process. See Alfaro, 786 S.W.2d at 695 (Gonzalez J., dissenting).
1. Available Forums
Applying this two-part test to this case, we must first determine whether there is evidence that any single "available" forum exists where all the defendants *842 are amenable to process. In re Air Crash, 821 F.2d at 1165. We hold that Lebanon is an available forum because both parties are citizens of Lebanon. Abu-Dhabi is also an available forum because Moussa has consented to jurisdiction there. Piper Aircraft v. Reyno, 454 U.S. 235, 242, 102 S. Ct. 252, 259, 70 L. Ed. 2d 419 (1981) (a defendant is amenable to process for purposes of a forum non conveniens analysis where the defendant agreed to "submit to the jurisdiction statutes of the Scottish courts"). Bahrain is also an available forum since Moussa resides in Bahrain. We conclude that Lebanon, Abu-Dhabi, and Bahrain are available forums for purposes of further forum non conveniens analysis. In re Air Crash, 821 F.2d at 1164.
2. Adequate Forums
Having determined that Lebanon, Abu-Dhabi, and Bahrain are available forums, we now must determine whether these forums are also "adequate." In re Air Crash, 821 F.2d at 1165. Sarieddine has not established the inadequacy of any of the available forums. Therefore, we will presume that all of the available forums are adequate and qualify as alternative forums. See Vaz Borralko v. Keydril Co., 696 F.2d at 393-94.
Having found that an alternative forum exists, we will now weigh the other factors to determine whether the balance so strongly favors Moussa that Sarieddine's choice of forum should be disturbed. Gulf Oil, 330 U.S. at 508, 67 S.Ct. at 843.
F. Analysis of Private and Public Factors
The determination of whether a forum is convenient rests upon several private and public factors that the United States Supreme Court stated should be considered and balanced by a court when presented with a motion to dismiss for forum non conveniens. "Unless the balance is strongly in favor of the defendant, the plaintiffs choice of forum should rarely be disturbed." Van Winkle-Hooker, 448 S.W.2d at 827. The burden of establishing that the balance strongly favors dismissal lies necessarily with the defendant. Van Winkle-Hooker, 448 S.W.2d at 827; In re Air Crash, 821 F.2d at 1164.
1. Private Interest Factors
The United States Supreme Court in Gulf Oil established that the private interests to be considered are:
the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing witnesses;... and all other practical problems that make trial of a case easy, expeditious and inexpensive. There may also be questions as to the enforceability of a judgment if one is obtained.
Gulf Oil, 330 U.S. at 508, 67 S.Ct. at 843. While Moussa states in his affidavit that witnesses involved in the negotiation reside in the "Middle East," there is no evidence that any of the potential alternative forums (Abu-Dhabi, Bahrain, or Lebanon) would be able to acquire personal jurisdiction over these witnesses. Moussa does state in his affidavit that the witnesses associated with the Attachment Order reside in Abu-Dhabi. Moussa has not pointed to any evidence that the potential alternative forums, other than Abu-Dhabi, would be able to acquire jurisdiction over these potential witnesses. The evidence shows only that Abu-Dhabi would be able to acquire jurisdiction over those witnesses associated with the Attachment Order and not necessarily any other potential witness. There is also no evidence that any of the potential alternative forums would be better able to compel production of documents involved in the negotiation of the contract. As for the convenience of the individual litigants, it appears that no matter where this case is ultimately tried, one of the litigants will have to travel across the ocean to litigate this case. Moussa, in his affidavit, states that any witnesses involved in the negotiation of the contract and note as well as those involved in the Attachment Order will have to travel from the Middle East if their testimony is required at trial. In addition to the inconvenience of potential witnesses from the Middle East, we must *843 consider Sarieddine's interest in having to travel to the Middle East to litigate. When balancing all the interests and considering the fact that Moussa consented to jurisdiction wherever he could be located, we hold that Moussa failed to establish that the balance of private interest factors so strongly favors him that Sarieddine's choice of forum should be disturbed. Gulf Oil, 330 U.S. at 508, 67 S.Ct. at 843.
2. Public Interest Factors
We next consider the public interest factors: the burden imposed upon the citizens and the courts of this state, the general interest in having localized controversies decided in the jurisdiction in which they arose, and the interest in having a diversity case tried in a forum that is familiar with the law that must govern the action. The Alfaro case suggests that additional burdens placed upon the community and the court are not sufficient reasons to dismiss a case properly filed in Texas even if the parties and events giving rise to the cause of action have no connection with Texas. In Alfaro, foreign plaintiffs were allowed to pursue a claim for injuries received in their native land against a foreign corporation over which the trial court determined it had jurisdiction. Alfaro, 786 S.W.2d at 675, 679; see also Alfaro, 786 S.W.2d at 686 (Doggett, J., concurring) ("If we began to refuse to hear lawsuits properly filed in Texas because they are sure to require time, we set a precedent that can be employed to deny Texans access to these courts."). The issues involved in this suit are not local to any single forum. The controversy involves a contract negotiated from two different continents implicating the law of many jurisdictions. Therefore, we cannot identify any one forum with a greater interest in the controversy between Moussa and Sarieddine.
Concerning choice of law, there are potentially as many choices of law as there are forums. Texas uses the "most significant relationship" test in determining the choice of law. Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex.1984). In a case involving a choice of United States law or foreign law, once a district court determines that foreign law clearly applies, it is then appropriate to apply forum non conveniens standards in determining whether to retain jurisdiction. DeMateos v. Texaco, Inc., 562 F.2d 895, 899 (3rd Cir.1977), cert, denied, 435 U.S. 904, 98 S. Ct. 1449, 55 L. Ed. 2d 494 (1978). However, "if United States law is applicable, the American court should retain jurisdiction rather than relegate the controversy to a foreign tribunal." Ismail v. Ismail, 702 S.W.2d 216, 223 (Tex.App.Houston [1st Dist.] 1985, writ ref'd n.r.e.) (citing Fisher v. Agios Nicolaos V, 628 F.2d 308, 314-15 (5th Cir.1980), cert, denied, 454 U.S. 816, 102 S. Ct. 92, 70 L. Ed. 2d 84 (1981)).
The burden of establishing that foreign law applies lies with the defendant. In re Air Crash, 821 F.2d at 1164. Moussa has suggested that a number of potential choices of law exist since the contract in issue was negotiated in Seattle, Washington, and Bahrain; signed in Switzerland and Bahrain; and involved the sale of companies incorporated under the laws of Liechtenstein, Lebanon, and Bahrain. There has been no showing by Moussa that the law of any one country should apply.
If we dismiss this case, the burden may simply be pushed to another forum whose interest in this litigation is no more tenable than ours. The burden was on Moussa to show that the balance of public factors strongly favors dismissing the case. See Gulf Oil, 330 U.S. at 508, 67 S.Ct. at 843. The evidence does not show that the balance of factors strongly favors dismissal.
ENFORCEABILITY OF THE ABDHABI ATTACHMENT ORDER
Moussa argues that if this case is tried in Texas, a Texas trial court would have to determine the validity of the Attachment Order. He claims that the order prevents him from paying Sarieddine the debt owed. Moussa is arguing the merits of the suit since the validity of the Attachment Order concerns whether he has a defense to suit by Sarieddine. We need not address this contention, because the merits of Sarieddine's *844 suit are not before us. The fact that the Attachment Order was litigated in Abu-Dhabi courts is also of no concern in a forum non conveniens analysis. The suit concerning the Attachment Order involved different parties and a different subject matter. That it was decided in another jurisdiction has no bearing on our analysis.
CONCLUSION
The doctrine of forum non conveniens should be exercised only in those cases where the balance of factors so strongly favors the defendant that, in the interest of justice, the case should be tried in another forum. The burden of proving that the factors are in his favor rests with the defendant. The trial court must consider not only the negatives of the plaintiff's forum of choice, but should also consider the negatives of the alternative forum. The trial court also may not dismiss simply because it determines that another forum is superior to that chosen by the plaintiff. We hold that Moussa failed to establish that the balance of private and public factors so strongly favors him that the trial court should have dismissed Sarieddine's suit. The trial court's dismissal constituted an abuse of discretion, and the cause may be reinstated on the trial court's docket. We reverse the judgment of the trial court and remand the cause for proceedings consistent with this opinion.
NOTES
[1] Before moving to Bellevue, Sarieddine resided in Abu-Dhabi from 1975 through 1986.
[2] Mousa lists as his only address a P.O. Box in Bahrain. Before he became a resident of Bahrain, Moussa resided in Abu-Dhabi. Moussa has never been resided in Texas or any other state in the United States.
[3] The judgment was a default judgment rendered after Sarieddine failed to answer in a suit filed by a third party in Abu-Dhabi. The plaintiff in the Abu-Dhabi suit is not a party in the current Texas suit.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/1522312/
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217 F.Supp. 210 (1963)
MONARCH LIFE INSURANCE COMPANY, Plaintiff,
v.
LOYAL PROTECTIVE LIFE INSURANCE COMPANY, Defendant.
United States District Court S. D. New York.
May 8, 1963.
*211 *212 Lord, Day & Lord, New York City, for plaintiff; John W. Castles, New York City, of counsel.
Alexander & Green, New York City, for defendant; Donald M. Dunn, New York City, of counsel.
LEVET, District Judge.
The defendant, Loyal Protective Life Insurance Company (Loyal), moves pursuant to Rule 12(b), Fed.R.Civ.P., to dismiss this action for lack of jurisdiction of the subject matter.
The complaint seeks treble damages from the defendant for the latter's violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. It alleges that both the plaintiff and the defendant are Massachusetts insurance companies licensed to and doing business in the State of New York; that both are in competition in the sale of accident and health insurance in interstate commerce throughout the United States; and that the defendant and a former general agent of the plaintiff conspired to illegally eliminate, restrain and boycott the plaintiff. Jurisdiction is alleged on the existence of a federal question and the amount in controversy, 28 U.S.C. §§ 1331 and 1337; Section 4 of the Clayton Act, 15 U.S.C. § 15, and Section 3(b) of the McCarran Ferguson Act, 15 U.S.C. § 1013(b).
A brief history of the statutory background is necessary to give a setting to the jurisdictional question posed. As part of the original Sherman Act, Congress enacted in 1890 Section 7 (26 Stat. 210), which provided jurisdiction and venue for private treble damage actions for violations of the Sherman Act. Thereafter, in 1914, Congress enacted the Clayton Act (38 Stat. 730) "[t]o supplement existing laws against unlawful restraints and monopolies, and for other purposes." Section 4 of that Act (38 Stat. 731) provided "[t]hat any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee."
Prior to 1944, the Supreme Court had held that the issuance of an insurance policy was not commerce (Paul v. Virginia, 8 Wall. 168, 19 L.Ed. 357 (1868); Hooper v. People of State of California, 155 U.S. 648, 654-655, 15 S.Ct. 207, 39 L.Ed. 297 (1895); New York Life Ins. Co. v. Deer Lodge County, 231 U.S. 495, 503-504, 34 S.Ct. 167, 58 L.Ed. 332 (1913)), and the several states retained the sole authority to regulate the insurance industry (see Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 414-416, 66 S.Ct. 1142, 90 L.Ed. 1342 (1946)).
However, in 1944, the Supreme Court in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, decided that a fire insurance company which conducted a substantial part of its business across state lines is engaged in "commerce among the several states" and subject to regulations by Congress under the Commerce Clause (id. at 539, 64 S.Ct. at 1166) and that Congress did not intend that the business of insurance should be exempt from the operation of the Sherman Act (id. at 553, 560, 64 S.Ct. at 1173, 1177).
In response to that decision, Congress in 1945 passed an Act, "[t]o express the intent of the Congress with reference to the regulation of the business of insurance." (59 Stat. 33 (1945), 15 U.S.C. §§ 1011-1015, hereinafter the "McCarran Act"), which provided in part:
"Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States. [15 U.S.C. § 1011]
"Sec. 2. (a) The business of insurance, and every person engaged *213 therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.
"(b) No act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after January 1, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State law. [15 U.S.C. § 1012]
"Sec. 3. (a) Until January 1, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, and the Act of June 19, 1936, known as the Robinson-Patman Anti-discrimination Act, shall not apply to the business of insurance or to acts in the conduct thereof.
"(b) Nothing contained in this Act shall render the said Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation. [15 U.S.C. § 1013]
"Sec. 4. Nothing contained in this Act shall be construed to affect in any manner the application to the business of insurance of the Act of July 5, 1935, as amended, known as the National Labor Relations Act, or the Act of June 25, 1938, as amended, known as the Fair Labor Standards Act of 1938, or the Act of June 5, 1920, known as the Merchant Marine Act, 1920. [15 U.S.C. § 1014]"[1]
Under Section 2(b) of the McCarran Act Congress specifically provided that the Sherman Act, the Clayton Act and the Federal Trade Commission Act shall not be applicable to the business of insurance in states where that business is regulated by state law. There was, however, a retention of federal jurisdiction in Section 3(b) to the effect that nothing in the McCarran Act shall prevent the applicability of the Sherman Act to any act or agreement of boycott, coercion or intimidation.
There is no question but that the State of New York regulates the business of insurance. See N.Y.Insurance Law, McK.Consol.Laws, c. 28 and N.Y. General Business Law, § 340, McK.Consol. Laws, c. 20. Consequently, the pro tanto repeal of the Sherman, Clayton and Federal Trade Commission Acts provided for in Section 2(b) is effective in New York and applicable to this case, subject only to the exceptions specified in Section 3(b) of the Act.
On July 7, 1955, Congress repealed Section 7 of the Sherman Act which, prior to that time, had provided for private treble damage actions for violations of the Sherman Act (69 Stat. 283 (1955)).
DEFENDANT'S CONTENTIONS
Loyal contends "(1) that Section 2(b) of the McCarran Act repeals the Sherman and Clayton Acts with respect to the insurance industry to the extent that this industry had been regulated by State law; (2) that Section 3(b) of the McCarran Act makes only the Sherman Act applicable to cases involving boycott, coercion, or intimidation, despite the repeal effected by Section 2(b); (3) that Section 4 of the Clayton Act, which provides a private treble damage remedy, is not made applicable to boycott violations *214 of the Sherman Act by Section 3(b) of the McCarran Act; (4) that Congress in repealing in 1955 Section 7 of the Sherman Act, which also provides a private treble damage remedy for Sherman Act violations, intended to confine suits under Section 3(b) of the McCarran Act to suits brought by the government, and to deprive private plaintiffs of the treble damage remedy and other civil remedies; and (5) that consequently since 1955 there has been no statutory basis for this court to award treble damages under Section 4 of the Clayton Act in actions based on Section 3(b) of the McCarran Act brought by private plaintiffs."
The apparent conflict between the lack of any jurisdictional basis in the Sherman Act for private treble damage actions alleging boycott in the insurance industry since the repeal of Section 7 and the continued applicability of the Sherman Act by virtue of Section 3(b) of the McCarran Act poses the jurisdictional issue in this case. The issue may be presented in three questions:
1. Does this court have jurisdiction under Section 3(b) of the McCarran Act?
2. Does Section 4 of the Clayton Act provide jurisdiction in spite of the Clayton Act's express inapplicability by the terms of Section 2(b) of the McCarran Act?
3. Absent jurisdiction under the specific provisions of the Sherman, Clayton and McCarran Acts, does this court have jurisdiction under 28 U.S.C. §§ 1331 and 1337?
I.
JURISDICTION UNDER SECTION 3(b) OF THE McCARRAN ACT
The only method by which Section 3(b) of the McCarran Act would provide jurisdiction of this cause is if it adopted by its terms Section 7 of the Sherman Act and thus have given to Section 7 post-repeal efficacy.
1. ADOPTION
It is well established that, absent a contrary intent of the legislature, the adoption or incorporation of a statute by reference is an adoption of the law as it existed at the time the adopting statute was enacted and is unaffected by any subsequent amendment or repeal of the statute adopted. Hassett v. Welch, 303 U.S. 303, 58 S.Ct. 559, 82 L.Ed. 858 (1938); United States ex rel. Kessler v. Mercur Corp., 83 F.2d 178 (2 Cir.), cert. denied 299 U.S. 576, 57 S.Ct. 40, 81 L.Ed. 424 (1936). See also Annot. 168 A.L.R. 627; Annot. 2 L.Ed.2d 2048. But at issue here is not the general rule nor any of its exceptions, but simply whether there was an adoption or incorporation by reference.
Whether there was or not is, of course, determined by the intent of the legislature. The starting point is the statute itself, which provides: "[n]othing contained in this Act shall render the said Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation." Is this an incorporation or adoption of the Sherman Act as it stood in 1945?
The language itself does not evidence an intent to adopt. This conclusion is supported by a comparison of the language in other cases where federal courts have held a statutory adoption. In each of these, the language itself evidenced a legislative intent to make the adopted statute an integral part of the adopting statute and rather than inserting a verbatim repetition of the adopted statute the legislative shorthand of incorporation by reference or adoption was employed.
Thus, in Kendall v. United States ex rel. Stokes, 12 Pet. 524, 9 L.Ed. 1181 (1838) one of the issues was the power of the then Circuit Court of the District of Columbia to issue the writ of mandamus to a public officer under the language "all the powers by law vested in the circuit courts and the judges of the circuit courts of the United States." (2 Stat. 103 (1801)) The court held that the language quoted adopted the Act of February 13, 1801 (2 Stat. 89), notwithstanding its subsequent repeal on March 8, 1802. (2 Stat. 132 (1802)). See also *215 In re Heath, 144 U.S. 92, 12 S.Ct. 615, 36 L.Ed. 358 (1892).
In Hassett v. Welch, 303 U.S. 303, 58 S.Ct. 559, 82 L.Ed. 858 (1938) the language "whether made, created, arising, existing, exercised, or relinquished before or after the enactment of this Act" (Section 302(h) Int.Rev.Code of 1926) was held to have adopted the law as it existed prior to a 1931 amendment.
Similarly, in United States ex rel. Kessler v. Mercur Corp., 83 F.2d 178 (2 Cir.), cert. denied 299 U.S. 576, 57 S.Ct. 40, 81 L.Ed. 424 (1936), at issue was Rev.Stat. § 3490, which provided "who shall do or commit any of the acts prohibited by any of the provisions of section fifty-four hundred and thirty eight." The court held that notwithstanding the subsequent amendment and repeal of Rev.Stat. § 5438, the incorporating statute (Rev.Stat. § 3490) was to be read as if Rev.Stat. § 5438 was not amended or repealed. See also, United States v. Rainwater, 244 F.2d 27 (8 Cir. 1957), aff'd 356 U.S. 590, 78 S.Ct. 946, 2 L.Ed.2d 996 (1958); United States v. McNinch, 242 F.2d 359 (4 Cir.), modified, 356 U.S. 595, 78 S.Ct. 950, 2 L.Ed.2d 1001 (1957); United States ex rel. Boyd v. McMurtry, 5 F.Supp. 515 (W.D.Ky. 1933); Olson v. Mellon, 4 F.Supp. 947 (W.D.Pa.1933), aff'd sub. nom. United States ex rel. Knight v. Mellon, 71 F.2d 1021 (3 Cir.), cert. denied 293 U.S. 615, 55 S.Ct. 147, 79 L.Ed. 704 (1934).
In Young v. United States, 178 F.2d 78 (9 Cir. 1949), cert. denied 339 U.S. 913, 70 S.Ct. 573, 94 L.Ed. 1339 (1950), the language at issue was that of then 38 U.S.C. § 697: "Except as otherwise provided in this chapter, the administrative, definitive, and penal provisions under sections * * *, 712-715, * * * of this title, shall be for application under this chapter." Again, the language of the incorporating statute made it clear that the incorporated statute was to become an integral part. In United States v. Excel Packing Co., 210 F.2d 596 (10 Cir.), cert. denied 348 U.S. 817, 75 S.Ct. 28, 99 L.Ed. 664 (1954), the language was equally clear: "Beef means meat graded as beef pursuant to the provisions of Distribution Regulation No. 2 * *." And, in Yarborough v. United States, 230 F.2d 56 (4 Cir.), cert. denied 351 U.S. 969, 76 S.Ct. 1034, 100 L.Ed. 1487 (1956), the court held incorporation by reference by the language "all provisions of law, including penalties, applicable with respect to the tax imposed by section 1400."
In this case, however, the exact converse is true. The language of Section 3(b) makes clear the Congressional desire that certain provisions of the Sherman Act were not to be part of the McCarran Act, but, rather, were to remain separate and apart. Section 3(b) of the McCarran Act was not an adoption of the Sherman Act. It merely provided that the Sherman Act should continue applicable to acts of boycott, coercion and intimidation if practiced in the insurance industry. Thus, by the McCarran Act, certain statutes were inapplicable to the insurance business while the applicability of the Sherman Act to the activities of boycott, coercion and intimidation was continued. This it seems is a far cry from adoption. The McCarran Act did not "adopt" any Act or any section.
This conclusion seems all but inescapable when reference is made to Section 4 of the McCarran Act, which provides: "Nothing contained in this Act shall be construed to affect in any manner the application to the business of insurance * * * the National Labor Relations Act, * * * the Fair Labor Standards Act * * * or * * * the Merchant Marine Act * * *." The similarity of this language with that of Section 3(b) is remarkable.
The Congressional intent appears to have been the same. The Report of the Senate Judiciary Committee, commenting on what was to become Section 4 of the Act, stated:
"Section 5 provides that the enactment of this Act shall not affect, in any manner, the present application of the National Labor Relations Act, or the Fair Labor Standards Act, to *216 the business of insurance." S.Rep. 20, 79th Cong., 1st Sess. 3 (1945).
Similarly, with respect to what was to become Section 3(b) of the Act, both the Senate and House Reports noted:
"(b) provides that at no time are the prohibitions in the Sherman Act against any act of boycott, coercion or intimidation suspended. These provisions of the Sherman Act remain in full force and effect." H.R. Rep. No. 143, 79th Cong., 1st Sess. (1945); S.Rep. No. 20, 79th Cong., 1st Sess. (1945).
There is no indication whatsoever that Congress in Section 4 intended to freeze the rights of those employed in the insurance business under the National Labor Relations Act or the Fair Labor Standards Act to the then-existing provisions. Such would be the complete antithesis of the Congressional desire.
The Congressional desire is both Sections 3(b) and 4 was the same; namely, to insure the continued applicability of certain federal legislation, notwithstanding the broad language of Section 2(b). Neither was an adoption or incorporation by reference.
Reference, therefore, in the McCarran Act to the Sherman Act is not equivalent to adoption or incorporation. Obviously, reference may be made to laws other than for the purpose of incorporating or adopting the provisions of the law referred to. (See 82 C.J.S. Statutes § 71, at p. 125) The limitations on the Sherman Act with respect to its applicability or non-applicability to the insurance business do not equal incorporation of that Act into the McCarran Act.
2. REPEAL OF SECTION 7 OF THE SHERMAN ACT
At the time of the enactment of the McCarran Act in 1945, the existing Section 7 of the Sherman Act was as follows:
"Any person who shall be injured in his business or property by any other person or corporation by reason of anything forbidden or declared to be unlawful by this act, may sue therefor in any circuit court of the United States in the district in which the defendant resides or is found, without respect to the amount in controversy, and shall recover three fold the damages by him sustained, and the costs of suit, including a reasonable attorney's fee."
Section 7 of the Sherman Act was repealed by the Act of July 7, 1955 (69 Stat. 283). Since it was not adopted by the McCarran Act, the repeal ended its effectiveness. It should be noted that in its complaint, plaintiff does not mention Section 7 of the Sherman Act. Instead, it relies on (a) Section 1 of the Sherman Act (15 U.S.C. § 1); (b) Section 4 of the Clayton Anti-Trust Act (15 U.S.C. § 15); and (c) Section 3(b) of the McCarran Act (15 U.S.C. § 1013(b)). (See par. 1 of complaint.)
It is my opinion, therefore, that Section 7 of the Sherman Act was repealed for all purposes and does not survive by reason of any reference to the Sherman Act contained in the McCarran Act.
This construction of the McCarran Act does not render meaningless the reservation contained in Section 3(b). Under Section 3(b) the federal government may continue to prosecute both civil and criminal actions for acts of boycott, coercion and intimidation in the insurance industry under Sections 1, 2 and 4 of the Sherman Act, 15 U.S.C. §§ 1, 2 and 4.[2]
Because of these conclusions I am forced to disagree with the only other *217 case dealing with this question, Professional & Business Men's Life Ins. Co. v. Bankers Life Co., 163 F.Supp. 274 (D.Mont.1958).[3] While the court in the Professional case held that there had been an adoption of Section 7 by Section 3(b) of the McCarran Act, it also noted that (1) diversity of citizenship existed (163 F.Supp. at 286); (2) the acts in question occurred prior to the effective repeal date of Section 7 of the Sherman Act and as to them Section 7 remains effective by virtue of 1 U.S.C. § 109; (3) the court stated that "there is no jurisdiction in this case by virtue of any provisions of the Clayton Act," and (4) "The Court experienced some doubt as to whether a private civil suit for treble damages was saved by the exception to the McCarran Act contained in Section 3(b) thereof." 163 F.Supp. at 283.
Accordingly, I conclude that Section 3(b) did not adopt or incorporate by reference Section 7 of the Sherman Act and, therefore, Section 3(b) provides no jurisdictional basis for the plaintiff's action.
II.
JURISDICTION UNDER SECTION 4 OF THE CLAYTON ACT
Section 4 of the Clayton Act, 15 U.S.C. § 15, provides jurisdiction and venue for violations of the "anti-trust laws" which by definition includes the Sherman Act, 15 U.S.C. § 12. The plaintiff contends that since Section 3(b) of the McCarran Act makes applicable Section 1 of the Sherman Act and jurisdiction is provided for Sherman Act violations under Section 4 of the Clayton Act, Section 4 of the Clayton Act provides jurisdiction since it does not "invalidate, impair, or supersede any law enacted by any State * * *."
The difficulties with this contention are twofold: first, it proceeds on an erroneous conclusion as to the Congressional intent, and, second, it violates the plain words of Section 2(b) of the McCarran Act.
The plaintiff's contentions proceed on the assumption that it was the Congressional intent only to invalidate those federal statutes which according to Section 2(b) of the McCarran Act "invalidate, impair, or supersede any [State] law." This is precisely what Congress' intention was not. Section 1 of the McCarran Act makes more than abundantly clear that Congress' intent was to allow "the continued regulation and taxation by the several States of the business of insurance" save only for those particular federal statutes expressly made applicable by Sections 3(b) and 4.
The second difficulty is that by the terms of Section 2(b) of the McCarran Act the Clayton Act is expressly rendered inapplicable to the business of insurance where state regulation exists. Section 3(b) saves from this exclusion only the Sherman Act relating to boycotts, coercion or intimidation. If the plaintiff's construction were to be followed it would necessitate this court to judicially amend Section 3(b) to include the Clayton Act. Such a judicial rewriting is clearly not warranted.
It is true, as the plaintiff contends, that Section 7 of the Sherman Act was repealed in 1955 because Congress considered it surplusage in view of the broader provisions of Section 4 of the Clayton Act. The Senate Report (S.Rep. No. 619, 84th Cong., 1st Sess. (1955) (to accompany H.R. 4954) states:
"Since the Clayton Act's section 4 is more comprehensive, section 7 of the Sherman Act is considered to be no longer necessary." U.S.Code Cong. and Admin.News 1955, p. 2329.
*218 Similarly, H.R. Rep. No. 422, 84th Cong., 1st Sess. (1955) (to accompany H.R. 4954) states at page 2:
"Section 3 of the bill repeals section 7 of the Sherman Act inasmuch as that section has long been superseded by section 4 of the Clayton Act. The two sections are virtually identical except that the latter provision authorizes private treble damage suits for violation of the antitrust laws as defined by section 1 of the Clayton Act, whereas the former statute authorizes such suits only for violations of the Sherman Act itself. At the present time, section 7 of the Sherman Act no longer appears in the United States Code and in prior compilations of Federal laws was considered as having been replaced by section 4 of the Clayton Act. Since the language in the proposed bill is broad enough, referring as it does to injuries `by reason of anything forbidden in the antitrust laws', to make section 7 of the Sherman Act unnecessary, it is deemed advisable explicitly to repeal section 7 of the Sherman Act."
The legislative reasoning thus expressed appears to be that (1) Section 7 of the Sherman Act and Section 4 of the Clayton Act "are virtually identical except that the latter provision authorizes private treble damage suits for violation of the antitrust laws as defined by section 1 of the Clayton Act, whereas the former statute authorizes such suits only for violations of the Sherman Act itself"; (2) that at the present time, Section 7 of the Sherman Act no longer appears in the United States Code and in prior compilations of Federal laws was considered as having been replaced by section 4 of the Clayton Act; (3) that "Since the language in the proposed bill is broad enough, referring as it does to injuries `by reason of anything forbidden in the antitrust laws', to make section 7 of the Sherman Act unnecessary, it is deemed advisable explicitly to repeal section 7 of the Sherman Act." Nowhere in the House Report, supra, the Senate Report, supra, the House Debates (101 Cong.Rec. 5129-5134 (1955)) or the Senate Debates (101 Cong.Rec. 9165-9166 (1955)) is there even a remote indication that the McCarran Act was considered or that the repeal was occasioned by a Congressional desire to preserve only governmental sanctions under Section 3(b) of the McCarran Act.
This court's function is not, however, to rewrite Section 3(b) to include the Clayton Act. This court must take the statute as it finds it and "[a]n omission at the time of enactment, whether careless or calculated, cannot be judicially supplied however much later wisdom may recommend the inclusion."[4]
Accordingly, Section 4 of the Clayton Act does not provide jurisdiction for the plaintiff's action.
III.
JURISDICTION UNDER 28 U.S.C. §§ 1331, 1337
The plaintiff also seeks to premise jurisdiction on the existence of a federal question and the requisite amount, 28 U.S.C. § 1331,[5] or on an act of Congress regulating commerce, 28 U.S.C. § 1337.[6]
The basis of any "arising under" jurisdiction is that the complaint, for jurisdictional purposes, must present a substantial claim having its source in and arising under a federal statute, International Ass'n of Machinists v. Central *219 Airlines Inc., 372 U.S. 682, 83 S.Ct. 956, 10 L.Ed.2d 67 (1963), or to use the words of Justice Holmes: "A suit arises under the law that creates the cause of action." American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 36 S.Ct. 585, 60 L.Ed. 987 (1916). See, generally, Hart & Wechsler, The Federal Courts and the Federal System, 763-69 (1953).
It is difficult to imagine a federal question arising under a federal statute, here the McCarran Act, which expressly declares its purpose to be to render inapplicable to a particular industry certain federal statutes. The plaintiff apparently realizes that and contends that, since under Section 3(b) the criminal provisions of the Sherman Act remain applicable to acts of boycott in the insurance industry, the existence of these criminal sanctions impliedly gives rise to a civil action for their violation, citing Reitmeister v. Reitmeister, 162 F.2d 691 (2 Cir. 1947).[7]
In Reitmeister, Judge Learned Hand held that a civil action for violations of § 605 of the Federal Communications Act, 47 U.S.C. § 605, would lie, although the statute provided no express provision for civil relief and imposed only criminal sanctions, stating, 162 F.2d at 694:
"* * * Although the Act does not expressly create any civil liability, we can see no reason why the situation is not within the doctrine which, in the absence of contrary implications, construes a criminal statute, enacted for the protection of a specified class, as creating a civil right in members of the class, although the only express sanctions are criminal. * * *" (Emphasis supplied)
Here, the contrary implications are manifest. In the McCarran Act, Congress expressly limited violations of the Sherman Act to acts of boycott, coercion or intimidation. In 1955, when Congress repealed Section 7, it impliedly, although perhaps unwittingly, stated there was no longer to be any private civil remedies for violations of the Sherman Act in the insurance industry. There is, therefore, no jurisdiction of the plaintiff's cause under either 28 U.S.C. § 1331 or § 1337.
CONCLUSION
Since Section 7 of the Sherman Act was repealed and not preserved by Section 3(b) of the McCarran Act (15 U.S.C. § 1013(b)) and since Section 4 of the Clayton Act (15 U.S.C. § 15) (although still applicable to Sherman Act offenses generally, i. e., other than insurance cases), is not applicable to the insurance industry under Section 3(b), I must conclude there is now no statute permitting a private civil action in the federal courts for acts or agreements of boycott in the insurance industry.
The net result is this:
1. The United States may still prosecute both criminal and civil actions under the Sherman Act for agreements to boycott, coerce or intimidate in the insurance business;
2. The federal courts under the Sherman Act do not have jurisdiction over private treble damage actions involving the insurance business (where state regulation exists) under the reservations of Section 3(b) of the McCarran Act (15 U.S.C. § 1013(b));
3. The plaintiff is relegated to the state courts for relief from boycott, etc. when the insurance business has been regulated by state law, as in New York.
By reason of the foregoing, the motion of defendant to dismiss for lack of jurisdiction of the subject matter is granted. Settle order on notice.
NOTES
[1] Section 2(b) and Section 3(a) were amended on July 25, 1947 (61 Stat. 448) to extend the moratorium to June 30, 1948.
[2] See, e. g., United States v. Insurance Board of Cleveland, 144 F.Supp. 684 (N. D.Ohio 1956) (boycotts) and D.C., 188 F.Supp. 949 (1960) (coercion and boycott); United States v. New Orleans Insurance Exchange, 148 F.Supp. 915 (E. D.La., 1957) (boycotts), aff'd 355 U.S. 22, 78 S.Ct. 96, 2 L.Ed.2d 66 (1957). See also In re Aviation Insurance Industry, 183 F.Supp. 374 (S.D.N.Y.1960). For several unreported cases see, Bicks, A Federal Outlook, 18 Record Ass'n Bar N.Y.C. 181, 189 (1963).
[3] California League of Independent Insurance Producers v. Aetna Cas. & Surety Co., 175 F.Supp. 857 and 179 F.Supp. 65 (N.D.Calif.1959), related to sufficiency of pleading a boycott, etc. rather than the jurisdictional points raised by defendant here.
[4] Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum.L.Rev. 527, 534 (1947).
[5] 28 U.S.C. § 1331: "(a) The district courts shall have original jurisdiction of all civil actions wherein the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs, and arises under the Constitution, laws, or treaties of the United States."
[6] 28 U.S.C. § 1337: "The district courts shall have original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating commerce or protecting trade and commerce against restraints and monopolies."
[7] The plaintiff does not contend that the treble damage remedy of Section 7 of the Sherman Act or Section 4 of the Clayton Act is applicable, but simply that under this jurisdictional basis compensatory damages may be awarded.
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15 N.J. Super. 466 (1951)
83 A.2d 551
WESLEY EDWARDS, ET ALS., PLAINTIFFS,
v.
JERRY LEOPOLDI, ET ALS., DEFENDANTS. ARTHUR McBRIDE, ET ALS., PLAINTIFFS,
v.
MILTON WEIHRAUCH, ET ALS., DEFENDANTS.
Superior Court of New Jersey, Chancery Division.
Decided September 20, 1951.
*467 Mr. Morton Stavis, attorney for plaintiffs.
Messrs. Kapelsohn, Lerner, Leuchter & Reitman (Mr. Sol D. Kapelsohn appearing), attorneys for defendants.
STEIN, J.S.C.
The firstly entitled case of Wesley Edwards v. Jerry Leopoldi came on for final hearing and was completed before the court. At the same time there came on for hearing the above entitled case of McBride v. Weihrauch. Thereupon a stipulation in writing in that case was filed by counsel with the court in which it was stated that the issues of fact and law being substantially identical or similar in both cases the "Intervenor-Plaintiff and the defendants agree to be bound in this cause by the final judgment to be entered in the above-mentioned cause of Edwards v. Leopoldi," and consent that a judgment to the same effect and in the same tenor as may be entered in the Edwards case may also be entered in the McBride case.
The United Electrical, Radio and Machine Workers of America (hereinafter referred to as the UE) was by order of the court permitted to intervene on the side of the plaintiffs in the cause. The subject matter of this controversy concerns the money, property and assets of UE Local 447 and the continued existence thereof as a local union of said UE. The intervening plaintiff contends that under the constitution of *468 the UE the UE has an obligation to preserve and protect this local as well as the continuation of all its local unions and has a property right and interest in the money, property and assets of its locals in that it is entitled to receive from its locals certain per capita taxes and other financial support, and in that upon the disbandment, secession or disaffiliation of a local its property reverts to the UE.
As a matter of convenience the following abbreviations will be used in this opinion: "CIO" for Congress of Industrial Organizations; "UE" for United Electrical, Radio & Machine Workers of America; "UE-CIO" for the foregoing in its status as a CIO affiliate; "IUE" for International Union of Electrical, Radio & Machine Workers (the "international" which was chartered by the CIO upon CIO's expulsion of UE); and "Local 447" for the local union in question, whose assets are the subject of this suit.
The defendants are the officers of the local union, which union became disaffiliated from the parent organization, the UE, and which disaffiliation the plaintiffs say, did not conform to the constitution of UE since it was in defiance of the provisions of article XVIII, sections N and O of the UE constitution which provides:
"Section N. If a local disbands, the local secretary and trustees shall send all funds and property belonging to the local to the General Secretary-Treasurer. The General Secretary-Treasurer shall hold this property intact for one year. If within that time, an application is made by at least fifteen (15) former members, a charter will be reissued and the funds and the property returned. Should no application be made within the year, the funds and property shall revert to the International Union.
Section O. Any local union whose good standing members fall below seven (7) may have its charter revoked in accordance with the provisions of Article 18, Section N, and Article 10, Section I, of the International Constitution. Members of such a group may become members-at-large, affiliated directly with the International Union in accordance with Article 20, Section C, or they may transfer to other local unions in the area.
Any disbandment, dissolution, secession or disaffiliation of any local shall be invalid and null and void if seven or more members indicate their desire to retain the local charter."
*469 The claim of the plaintiffs is based upon the fact that seven members of the local union opposed secession, and desired to retain the UE charter, for which reason plaintiffs say the secession is void.
Urged upon the court is the holding by the courts in this and other states that the relationship between members of an unincorporated corporation and between parent and subordinates thereof is contractual, and that the terms of the contract are to be found in the applicable constitutions. With this contention the defendants agree but say that in the instant case affiliation of UE with CIO became an implied condition of the contract of affiliation between Local 447 and UE, which compact was dissolved when the implied condition ceased to exist, and thereupon the UE constitution was no longer enforceable against the defendants.
In 1936 the CIO issued a charter of affiliation to the UE, upon the latter's application, and that affiliation continued until November, 1949, when the UE was expelled from the CIO.
Local 447 was organized in 1941 and at that time obtained its charter from the UE-CIO. It was established at the trial that the affiliation of the UE with the CIO was essential to and an indispensable ingredient of the growth and development of the UE as an important factor on the labor scene. The importance of UE's affiliation with the CIO was readily acknowledged by the UE itself in one of its publications, when it said that the activities of the CIO against the open shop industries "gave just the backing the UE & RW needed to swing the great electric and radio industries * * *."
From all the evidence adduced at the trial I am satisfied that its affiliation with the CIO formed the foundation upon which the UE built its large membership and that those persons who joined any local of the UE did so chiefly, if not solely, because the CIO stood and would continue to stand as their powerful protagonist in their endeavor to obtain higher wages and improve their working conditions.
*470 I think it has been adequately established by the defendants that the continued affiliation of the UE with the CIO was an essential condition of the contractual relationship that existed between the Local and the UE, and that when the UE was expelled from the CIO the most essential requirement for the continuance of the executory contractual relation ceased to exist.
In my opinion, the decision of this court in the case of Duris v. Iozzi, 6 N.J. Super. 530, 70 A.2d 793 (Ch. Div. 1949), controls the instant case. In the Duris case it was held that when the continued existence of a state of facts is an implied condition going to the essence of the contract, the destruction of that state of facts puts an end to the contract itself.
When this court had under advisement the issue in the Duris case, the New York Supreme Court, in an opinion by Mr. Justice Eder, decided the case of Clark v. Fitzgerald, now reported in 197 Misc. 355, 93 N.Y.S.2d 768. That court held that upon UE's expulsion from the CIO continuance of membership in a local union of the UE became a "meaningless and valueless connection," that under such circumstances and because of the implied condition that the UE's affiliation with CIO would continue, the members of the local union were relieved of any further obligation to continue their membership in UE and were free to affiliate themselves with the CIO or any other organization. In the Duris case I agreed with the reasoning employed and the result reached by Mr. Justice Eder. Since the two cases were decided the Supreme Court of Minnesota had before it for decision the same question considered in the Duris case and in the cited New York case. The Minnesota Court in Local 1140 v. United Electrical, Radio & Mach. Wkrs., 45 N.W.2d 408 (Dec. 1950) considered the same provisions in UE's constitution as are involved in the case sub judice. In an opinion which reviews a great many of the pertinent cases, the Chief Justice of the Minnesota Supreme Court approves and follows the holdings in the cited New York and New Jersey cases. Thus, *471 while the Duris case was not reviewed on appeal, its holding is altogether in harmony with the New York decision and now stands approved by the highest court in Minnesota, an authority entitled to great respect.
Counsel in their briefs have referred to the case of Walter Kidde & Co., Inc., v. United Electrical, Radio, etc., 7 N.J. 528, 82 A.2d 184 (1951). It is claimed for the plaintiffs that the decision of that case is dispositive of the present controversy. I fail to see that. It is true that in the cited case the expulsion of UE from CIO was asserted. However, such expulsion was there entirely without influence, for the reason that the expulsion occurred long after the matters complained of in that case had occurred. Of course, the expulsion cannot support or justify action taken previous to such expulsion. This is implicit in what Mr. Justice Heher stated in the Kidde case in respect of the fact of UE's expulsion. He said: "And the asserted expulsion of UE from CIO came on November 2, 1949, long after the action under review."
Judgment will be entered for the defendants. Form of judgment to be submitted on notice.
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156 B.R. 511 (1993)
In re Stanley B. BRITT, Jr. and Mildred D. Britt, Debtors.
Clyde O. BODIE, Jr. and Mary A. Bodie, Plaintiffs,
v.
Stanley B. BRITT, Jr., Defendant.
Bankruptcy No. 92-33104-S, Adversary Proceeding No. 92-3150-S.
United States Bankruptcy Court, E.D. Virginia, Richmond Division.
June 14, 1993.
*512 Michael A. Condyles, Maloney, Yeatts & Barr, Richmond, VA, for plaintiff.
Robert Cantor, Cantor & Cantor, Richmond, VA, for defendant.
MEMORANDUM OPINION
BLACKWELL N. SHELLEY, Bankruptcy Judge.
This matter comes before the Court on both the complaint of Clyde O. Bodie ("Bodie" or "plaintiff") and Mary A. Bodie to determine dischargeability of debt filed October 2, 1993, and the counterclaim of Stanley B. Britt ("Britt" or "defendant") against Bodie, in the answer filed on November 3, 1992, for default on a promissory note. The Bodies allege that Britt owes them $25,000 and prays that this Court determine such debt to be nondischargeable under the 11 U.S.C. § 523(a)(2), (4), and (6) exceptions to discharge provisions of the Bankruptcy Code, 11 U.S.C. § 101 et seq. (the "Code"). The Bodies allege that Britt, a real estate agent, breached his fiduciary duty by converting $25,000 held in *513 escrow on their behalf, and obtained the money from them by false pretenses, false representation, or actual fraud. Britt denies that the escrowed funds belonged to the Bodies. He claims that he deposited the money into the escrow account and that the money belonged to him and his wife. Britt counterclaims that Clyde Bodie owes the defendant $20,400 on a promissory note, an allegation that Bodie denies. Britt filed his petition under Chapter 11 of the Code on June 25, 1992. This Court has jurisdiction to determine dischargeability of a debt pursuant to 28 U.S.C. §§ 157 and 1334, and 11 U.S.C. § 523. After considering the evidence and arguments of counsel heard during trial held May 10, 1993, this Court makes the following findings of fact and conclusions of law.
Findings of Fact
I. Introduction
Some background information will more fully illuminate the facts surrounding the complaint and counterclaim. Bodie and Britt became acquainted in the early 1950s during their college years. Bodie became an engineer and land surveyor in the metropolitan area of Richmond, Virginia, and Britt became a land developer and real estate broker, principally in an area south and west of Richmond. Although they had some remote social connections, their relationship was mostly professional due to their respective occupations. Britt created limited partnerships, for which he would act as general partner. Other investors would buy in to the partnership as limited partners, and the partnership would acquire title to tracts of land to hold for speculation or development.
Bodie, with a 10% interest, was one of eight limited partners of Clay-Brown Associates, Ltd. ("Clay-Brown, Ltd."), which owned property at Newby's Bridge Road. Britt was the general partner. Clay-Brown, Ltd., was one of the three limited partnership partners of the MLHB Planning Partnership, another partnership set up by Britt. The MLHB Planning Partnership sold the property on Newby's Bridge Road as part of the MLHB Planning Partnership transaction. A portion of the proceeds of the MLHB sale is the subject of this dispute.
II. The Complaint
Upon becoming aware that the Huddleston property adjoining his home place came on the market for sale, Bodie asked Britt to make an offer in Britt's name for its purchase. Since the property for sale was next door, Bodie did not want to be recognized as the prospective purchaser. On March 29, 1989, Stanley A. Britt, as President of Stanley Britt Associates, Inc., ("S.B.A.") executed a real estate sales contract on behalf of "S.B.A. or assigns" for the purchase of 1763 May Way Drive, Powhatan, Virginia, from the owners, Randy and Suzanne Huddleston (the "sellers"). Plaintiff's Exhibit 1. On that same day, Bodie paid to Stan Britt the $500 deposit called for by the contract. There were two unusual conditions to the contract. First, the contract was "subject to closing on purchaser's property located at Newby's Bridge Rd." in Chesterfield County, Virginia. Second, the purchaser must confirm the closing mentioned in the first condition and deposit $25,000 into escrow by April 30, 1989. It appears to this Court that the closing mentioned in the contract is a clear reference to the MLHB Planning Partnership transaction mentioned supra. These conditions obviously benefitted the purchaser of the property since failure to satisfy the conditions would void the purchaser's obligation under the contract.
On April 28, 1989, Britt wrote a letter to the sellers in which he informed them of the satisfaction of the two contingencies to the contract, i.e. the closing of the Newby's Bridge Road sale and the $25,000 deposit in escrow, and of his intent to close the sale upon the terms and conditions stated therein. Plaintiff's Exhibit 6. On that same day he executed a handwritten assignment of the contract to the Bodies. Plaintiff's Exhibit 3. Also on April 28, Britt deposited $25,000 into the S.B.A. Escrow Account and sent copies of the deposit slip to the sellers as proof of having fulfilled that condition of the contract.
*514 Britt signed an affidavit on June 6, 1989, swearing under oath that he, in the name of S.B.A., entered into the contract as agent for the Bodies for the purpose of purchasing the real estate on behalf of the Bodies. Plaintiff's Exhibit 2. Bodie stated he needed this statement to assure his lender that he had an interest in the property. The affidavit acknowledged the previous assignment of the contract to the Bodies on April 28, 1989. See Plaintiff's Exhibit 3. Shortly thereafter, Bodie procured a commitment for a loan in the amount of $75,000 from Dominion Bank to purchase the property. He paid the bank a 1% commitment fee. Plaintiff's Exhibit 4.
The sellers, upon being advised that Britt assigned the contract to Bodie, their next-door neighbor, stated they intended not to settle. Bodie retained counsel and brought an action for specific performance in the Circuit Court of Powhatan County, Virginia. The sellers, in turn, sued Britt, and the cases were consolidated (the "Powhatan suits"). Bodie's counsel proceeded with the litigation and over the next several months asked Britt or Britt's attorney to transfer the escrowed funds to his attorney's escrow account so that he would be prepared to tender performance of Bodie's obligation under the contract. Bodie was without other funds to make the down payment. Britt, through his attorney, equivocated. Only later did Bodie realize that Britt had withdrawn the money from the escrow account.
The bank records of the S.B.A. Escrow Account reflect a $25,000 deposit on April 28, 1989. By June 22, 1989, the account balance reached $26,191.07. On November 6, Britt withdrew $3,000; on November 9, $2,000; on November 24, $11,000; on December 1, $4,000; on December 4, $4,000; and on December 29, $1,200; leaving a balance in the account of $991.07. Plaintiff's Exhibit 18. Britt made these withdrawals by check made payable to Stan Britt. Bodie ultimately had to dismiss the specific performance suit. He contends that his inability to assure performance of the contract by producing the $25,000 down payment precluded him from proceeding with the suit or purchasing the Huddleston property.
Bodie contends that the $25,000 deposited to the S.B.A. Escrow Account was his money from his interest in the sale of the Newby's Bridge Road property mentioned as a contingency in the Huddleston contract. Bodie alleges that Britt placed the money in that account in order for Bodie to perform on the contract. He had agreed with Britt to make a $25,000 down payment and finance the balance. Bodie testified that he did not have the down payment money and Britt proffered the $25,000 as Bodie's interest from the MLHB sale of the Newby's Bridge Road property. The MLHB partnership contracted to sell and did sell to Belmont Associates of Five Forks, L.P., properties of the partnership along Bailey's and Newby's Bridge Roads in Chesterfield County, Virginia, on April 17, 1989, for the sum of $3,400,000.
According to the settlement statement, Britt or his corporation was entitled to a $340,000 brokerage fee, $200,000 in reimbursement for zoning fees and costs, and it seems he received for the MLHB Partnership the sum of $142,942.32. Plaintiff's Exhibit 15. A portion of the monies due to Britt for the commission and the rezoning fee were to be paid to third parties. These sums total $417,554.16. The purchasers also executed and delivered a note for $500,000. It may be that Britt received on behalf of the MLHB Partnership $139,746.60 previously held in escrow pending execution of a guaranty agreement for the construction of a sewer. Britt testified that the settlement concluded within the week. It appears to this Court that the MLHB transaction settled by April 24, 1989, at the latest, prior to the confirmation of the Huddleson contract by letter dated April 28, 1989. See Plaintiff's Exhibit 6: Letter from Britt to the sellers (confirming the fulfillment of conditions to the contract and giving notice of the intent to close the sale). This Court finds that Britt knew or should have known whether or not Bodie's interest in the Clay-Brown partnership entitled him to any profit in the MLHB transaction at the time Britt made the escrow deposit and confirmed the contract.
*515 Britt claims that the MLHB partnership yielded no profit for Clay-Brown, Ltd., and therefore the $25,000 he placed in escrow could not have belonged to Bodie. Regarding Britt's assertion, his accountant, E. Douglas Wright, testified that he prepared work papers reflecting the allocation of sales proceeds of the MLHB transaction. Wright admitted that Britt asked him to prepare the report to show disappointed limited partners where all the money went. On page "D" of the work papers, an entry reads:
Charged to
Date Partnership Paid by Britt
4/10 BodieConsult $25,000 $25,000
Plaintiff's Exhibit 10: Accountant's Work Papers, page "D" 1.27. The accountant's work papers closely parallel entries reflected in the MLHB General Ledger prepared under Britt's direction. Two entries on the MLHB General Ledger read:
04/20/89 Clyde BodieConsulting Acct. 2149 $25,000
04/20/89 Clyde BodieConsulting Acct. 6256 $25,000
Plaintiff's Exhibit 11: MLHB General Ledger. The accountant's notes reflecting miscellaneous expenses of the MLHB Planning Partnership reveal an entry reading:
8. Bodie Consulting Fee 4/20/89 $25,000
Plaintiff's Exhibit 12, p. 3, item 8: Notes reflecting allocation of expenses of MLHB Planning PartnershipMisc. This Court finds from the testimony of the accountant and the exhibits admitted in evidence that Britt included in his calculation of the expenses paid out of the MLHB settlement a $25,000 payment to Bodie. It appears to this Court that Britt claims that he made this payment to Bodie in an effort to justify his reimbursement from the MLHB settlement funds. Bodie argues that this payment represents the $25,000 placed in escrow on Bodie's behalf under the real estate sales contract. Britt presented no contradictory evidence that he paid the consulting fee by any other means.
In discovery depositions taken on May 1, 1990, in the Powhatan lawsuits, Britt testified that Bodie was an engineer who would do engineering work for Britt personally on property Britt owned personally and through his interest in various limited partnerships. Plaintiff's Exhibit 21 at 6 1.18: Deposition of Stanley Britt taken in connection with Powhatan suits. Britt also testified that Bodie asked him to look at the Huddleston property on his behalf, and after further discussion, Bodie asked Britt to buy the property for him. Id. at 16 1.16, 19 1.11-13. Britt told Dot Mays, the seller's agent, that his "offer to purchase would be subject to another property closing. Of course that's where the funds would come from." Id. at 18. Britt testified further in the deposition that Bodie instructed him regarding the Huddleston property "that if we were going to close the other deal, to go ahead and execute a contract on it." Id. at 20 1.1. Britt admits that Bodie's money was going to be used to purchase the property. Id. 1.19-21. Britt further admits that the $25,000 was a portion of the proceeds *516 of the sale of the Newby's Bridge Road property. Id. at 29 1.10-18.
III. The Counterclaim
Britt alleges by counterclaim that Bodie still owes the $20,400 that Britt lent him to buy into the Clay-Brown partnership. The Clay-Brown Limited Partnership Agreement which formed the partnership, dated September 11, 1978, provided that Bodie pay for his interest in the partnership by performing surveys and engineering services for the partnership having a minimum value of $10,200. Plaintiffs' Exhibit 9, ¶ 2. Bodie stated that he did not have the money to make a capital contribution at the formation of the partnership, and that he and Britt understood that Bodie would contribute his services in lieu of any payment to the partnership. In conjunction with Bodie becoming a limited partner, Bodie executed a promissory note, the subject of the defendant's counterclaim, for $20,400 payable to Britt in equal annual installments over a period of ten years, plus interest. Bodie also guaranteed 10% of a $204,000 note given by Clay-Brown, Ltd., to The Bank of Powhatan as security for a loan made to purchase the real estate owned by the partnership. This Court finds that Bodie's 10% guarantee is indicative of his 10% ownership interest in the Clay-Brown partnership.
It appears to this Court that Bodie rendered engineering services to Britt personally and to Britt as general partner of Clay-Brown, Ltd. At Britt's request, Bodie completed at least two land use plans which this Court finds as having a value in excess of the $20,400 note given by Bodie to Britt. It also appears to this Court that although Bodie's land surveying and engineering corporation rendered services for which it was compensated, Bodie's personal services, which were independent of and did not involve his corporate identity, were not billed by him or his corporation. In addition to doing engineering work for Britt, Bodie also contributed cash. Bodie made two payments of approximately $3,000 each on the $204,000 Clay-Brown, Ltd., note held by the Bank of Powhatan. Other payments to Britt include:
March 23, 1988, a $10,000 check drawn on Bodie's partnership account in Chesco Associates, made payable to Britt;
October 1, 1979, a personal check made payable to Clay-Brown Associates in the amount of $3,690.20 endorsed and cashed by Britt, see Plaintiff's Exhibit 7;
November 9, 1984, a check in the amount of $2,000 and another check in the amount of $13,000, drawn on United Virginia Bank to Britt, for the benefit of Clay-Brown partnership, as testified to by Bodie.
The total of these payments amounts to $34,690.20. Bodie testified he was not engaged in any other business venture with Britt and this Court finds that the note executed by Bodie was in consideration for his acquisition of the partnership interest. No other credible evidence exists to refute this claim. It is clear from the evidence that Bodie has contributed more in cash and services to Britt and Clay-Brown, Ltd., than that required of him to pay for his interest in the partnership.
Bodie contends that Britt is judicially and equitably estopped to deny that the money placed in the escrow account belonged to Bodie. Having established that the escrowed funds were his, Bodie alleges a nondischargeable conversion and defalcation in a fiduciary capacity of those funds when Britt withdrew the money from escrow. Bodie also argues that Britt, as the principal broker of his firm, is a principal to the Huddleston transaction, and alleges Britt violated the regulations imposed upon brokers which govern escrowed funds.
Conclusions of Law
The case of Devon Energy Corp. v. Utica National Bank and Trust (In re Project 5 Drilling Program-1980), 30 B.R. 670 (Bankr.W.D.Okla.1983) describes the doctrine of equitable estoppel. A party who knows or should know the truth is absolutely precluded from denying any material fact upon which he has induced another, who was excusably ignorant and had *517 a right to rely on the true facts, to change his position in such a manner that he would suffer injury if such denial was allowed. Id. at 674 (citing Arizona ex rel. Gaines v. Cooper Queen Consolidated Mining Co., 233 U.S. 87, 34 S.Ct. 546, 58 L.Ed. 863 (1914)). The Devon Energy case lists several requirements that need to be met in order to invoke the doctrine of equitable estoppel.
First, there must be false representation or concealment of facts made with actual knowledge or constructive knowledge of its falsity. Second, the receiving party must have been without knowledge of the truth or the means for making such determination. Third, the statement must be made with the intent that it be acted on. Last, the receiving party must have acted upon it to his detriment.
30 B.R. at 674. This Court recognizes the application of equitable estoppel under Virginia law to cases in bankruptcy. See Alessio v. Adkins (In re Adkins), 102 B.R. 485, 488-89 (Bankr.E.D.Va.1989) (citing Coleman v. Nationwide Life Ins. Co., 211 Va. 579, 179 S.E.2d 466, 469 (1971); Trayer v. Bristol Parking, 198 Va. 595, 95 S.E.2d 224, 231 (1956) (equitable estoppel used to defeat a statute of limitations defense)).
It appears to this Court that the facts presented in this case fulfill all the requirements for the invocation of the doctrine of equitable estoppel to determine the ownership of the $25,000. Bodie testified that Britt told him that Bodie would place his portion of the proceeds of the sale of the MLHB property in escrow as down payment on the purchase of the Huddleston property. Bodie, being a limited partner and with no way of ascertaining the truth of Britt's statement, had a right to rely on what Britt, the general and managing partner, told him. In reliance upon Britt's representations, Bodie changed his position. He entered into a binding real estate sales contract, acquired an equitable interest in the Huddleston property, paid Britt a $500 earnest money deposit, procured a loan, and paid Dominion Bank a 1% loan origination fee. When the sellers refused to close, Bodie hired counsel and instituted a specific performance lawsuit to enforce the contract, all the while believing Britt's representation that the $25,000 belonged to him and would be used to tender performance under the contract.
Reliance on Britt's representation caused Bodie to suffer damages. Believing that the $25,000 in escrow was for his benefit, Bodie failed to demand repayment of the escrow money until it was too late, Britt having withdrawn it all. Bodie paid Britt $500 in earnest money and paid Dominion Bank a $750 loan origination fee. Bodie incurred legal fees and court costs with respect to the specific performance lawsuit. When Britt's withdrawal of the escrow money ultimately forced Bodie to abandon his specific performance lawsuit, Bodie lost the interest he had in the Huddleston property. Considering the fact that Bodie's reliance on Britt's representation caused Bodie to incur loan fees and the expense of litigation, and to lose his interest in the Huddleston property, this Court finds that Bodie was damaged to an extent greater than the $25,000 he now seeks to have determined nondischargeable. Because Britt's actions caused Bodie to change his position to his detriment, Britt cannot come into this Court and allege that the $25,000 never belonged to Bodie.
Not only is Britt estopped to deny the escrowed funds belonged to Bodie, but it also appears to this Court that Britt intended to and did distribute to Bodie $25,000 as his portion of the profits of the MLHB transaction to accommodate Bodie in the purchase of the Huddleston real estate. It is the Court's belief that Britt was acting as agent for Bodie at the time of the execution of the contract. Britt placed $25,000 in escrow upon the closing of the MLHB transaction. At the same time, Britt assigned his interest in the Huddleston contract to Bodie and wrote to the sellers of his intention to close the contract on its terms. The formation and assignment of the Huddleston contract coincided with the sale of the MLHB real estate. The evidence is not clear that the Clay-Brown real estate was part of the MLHB transaction, but the evidence is clear that Clay-Brown was a partner of MLHB and that Bodie *518 was a limited partner of Clay-Brown, Ltd. This Court finds that Bodie had a limited partnership interest in the MLHB transaction.
At the closing of the MLHB transaction, proceeds of that sale were transferred to one or more of Britt's checking accounts, and then Britt wrote a check for $25,000 from his personal checking account to the S.B.A. escrow account. Britt entered this payment on the MLHB General Ledger as consulting services and instructed his accountant to include this payment on the settlement report he hoped to use to convince other disgruntled limited partners that he was entitled to MLHB proceeds as reimbursement. This evidence leads the Court to two possible conclusions, both of which are against Britt's interest. Britt intended to make Bodie either a payment for consulting services or a partnership draw disguised as a payment for services. In either event, and in view of all the contradictory evidence, this Court cannot believe Britt's statement that the $25,000 placed in escrow was not Bodie's.
In determining whether this debt should be declared nondischargeable this Court notes the Real Estate Board Regulations governing brokers such as Britt. The regulations provide specific guidelines for disbursing funds held in a real estate company escrow account. The regulations require that funds placed in an escrow account shall remain in that account until the transaction has been consummated or terminated. Those provisions require that, in the event the transaction is not consummated, the broker shall hold such funds in escrow until:
1. All parties to the transaction have agreed in writing as to their disposition; or
2. A court of competent jurisdiction orders such disbursement of the funds; or
3. The broker can pay the funds to the party who is entitled to receive them in accordance with the clear and explicit terms of the contract which established the deposit. In the latter event, prior to disbursement, the broker shall give written notice to each party by either (i) hand-delivery receipted for by the addressee, or (ii) by regular and certified mail, that this payment will be made unless a written protest from a party is received by the broker within thirty days of the delivery or mailing, as appropriate, of that notice. A broker who has carried out the above procedure shall be construed to have fulfilled the requirements of this regulation.
Real Estate Board Regulations § 5.3(B)(1) at 16-17 (effective October 1, 1989, and in force at the time of the withdrawals from escrow). The customary procedure of Stan Britt Associates, Inc., for handling escrow funds complies generally with these regulations. See Plaintiff's Exhibit 19: Answer to Plaintiff's Interrogatory No. 4. In his answer to the interrogatory requesting him to describe the practice for handling escrowed funds, Britt responds that "Funds in connection with real estate sales would be deposited in escrow account and paid to seller or designated parties if closed or returned to the owners if not closed or contract is voided." Id.
It appears to this Court that Britt failed to comply with either the Real Estate Board Regulations or his own customary practices. He withdrew the funds while the contract was subject to a specific performance lawsuit, still subject to closing and not voided, and without the benefit of a court order. He paid the escrowed funds to himself when he was no longer a designated party to the contract, having assigned all his interest in the contract to Bodie. He withdrew the funds without the written agreement of all parties to the transaction, nor did he follow the regulation allowing payment to the party entitled to receive the funds in accordance to the clear and explicit terms of the contract. It appears to this Court that Britt's act of withdrawing the escrowed funds constitutes a defalcation in his fiduciary capacity as trustee of Bodie's down payment money.
On the issue of the counterclaim, it appears to this Court that Bodie made sufficient contributions to Clay-Brown, Ltd., *519 and to Britt personally, by rendering services to the partnership and to Britt and payment of monies by check written to Britt and to the partnership to satisfy both his obligation to the partnership, as contained in the partnership agreement, including his obligation under the promissory note made payable to Britt. For that foregoing reason, the counterclaim should be dismissed on the grounds of satisfaction of the debt. However, since Britt is the counterclaimant, not the partnership, this Court would be reluctant to rule at this time on any cause of action that Clay-Brown, Ltd., might asserted against Bodie.
For Britt to intentionally place Bodie's money in escrow and then remove the $25,000 from his corporate escrow account, without authority from or notice to Bodie or knowledge given to him, constituted fraud under § 523(a)(2)(A). In re Adkins, 102 B.R. at 488-89; see also In re Bosselait, 63 B.R. 452 (Bankr.E.D.Va. 1986). It is clear to this Court that Britt converted Bodie's $25,000 by deliberately and intentionally withdrawing Bodie's money from the escrow account, in knowing disregard for Bodie's rights to the money. Britt's act of conversion constitutes willful and malicious injury to another's property, the debt arising from which is nondischargeable under 11 U.S.C. § 523(a)(6). See Vaughn v. Murry (In re Murry), 116 B.R. 476 (Bankr.E.D.Va.1990). In addition, Virginia real estate law imposed a fiduciary responsibility upon Britt, as Bodie's agent, and his fraudulent act of removing the funds from escrow constituted a defalcation while acting in a fiduciary capacity as described in § 523(a)(4) of the Bankruptcy Code. See Goldberg v. Wolfington (In re Wolfington), 47 B.R. 762 (Bankr.E.D.Pa. 1985) (citing Hamby v. St. Paul Mercury Indemnity Co., 217 F.2d 78 (4th Cir.1954). Britt was aware that he was acting as agent for Bodie in the execution of the contract for the purchase of that property. He violated his responsibility under Real Estate Board Regulations § 5.3(B)(1), authorized under Va.Code § 54.1-2105 (Repl.Vol.1991), when he withdrew those funds by a series of checks made payable to himself, without notice to or knowledge of the other parties to the transaction, and particularly Bodie, who became a principal upon the execution of the contract. For the above reasons, this Court believes that Bodie is entitled to judgment in the amount of $25,000 and that the debt as arising therefrom should be determined to be nondischargeable in bankruptcy under 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(4). The Court can find no basis for judgment in favor of Mary A. Bodie and she should be dismissed as a party plaintiff to the action. An appropriate Order in conformity with this Memorandum Opinion shall issue.
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582 S.W.2d 772 (1979)
Erle Douglas McLEOD, et al., Relator,
v.
Honorable Ed J. HARRIS, Judge, et al., Respondents.
No. B-8228.
Supreme Court of Texas.
May 30, 1979.
Rehearing Denied June 27, 1979.
*773 Fisher, Roch & Gallagher, Mike T. Gallagher, Houston, Shirley, Shirley & Mackey, Michael G. Shirley, Texas City, for relator.
Elmo Schwab, Thornton & Dunnam, R. Richard Thornton, Galveston, for respondents.
BARROW, Justice.
The question presented here is whether respondent, Honorable Edward J. Harris, Judge of the 10th Judicial District Court of Galveston County, is required by the provisions of Article 200a, Section 6[1] to request the Presiding Judge of the Second Administrative District to hear relator's motion to recuse Judge Harris from hearing Cause No. 26,651, In the Matter of the Marriage of Erle Douglas McLeod and Sarah Helms McLeod which is now pending in the 306th Judicial District Court of Galveston County. We hold that the statute requires Judge Harris to make such request and conditionally grant the writ of mandamus.
Section 6 of Article 200a was amended by the 65th Legislature effective August 29, 1977 to provide in part:
"It shall be the duty of any district judge of any district within the Administrative District to diligently discharge the administrative responsibilities of office, to rule on a case within three months after that case has been taken under advisement, to extend the regular terms of his court, and to call special terms, when necessary to carry out the purposes of this Act and dispose of pending litigation. It shall also be the duty of a district judge in whose court an election contest or suit brought for the removal of a local official is filed to request the Presiding Judge of the Administrative Judicial District to assign a judge of the Administrative District who is not a resident of the county to hold a special or regular term of court in that county in order to dispose of such suits. A DISTRICT JUDGE SHALL REQUEST THE PRESIDING JUDGE TO ASSIGN A JUDGE OF THE ADMINISTRATIVE DISTRICT TO HEAR ANY MOTIONS TO RECUSE SUCH DISTRICT JUDGE FROM A CASE PENDING IN HIS COURT.. . ."
[The remainder of this section refers to matters not involved in this controversy.] (Emphasis Added)
Cause No. 26,651, being a suit for divorce, was filed by relator in the 306th Family District Court of Galveston County on June 13, 1978, but was assigned to Judge Harris because of a temporary vacancy in the office of Judge, 306th District Court. On January 26, 1979, relator filed his motion in said cause seeking to have Judge Harris recuse himself from hearing this divorce action because of the close personal relationship of Judge Harris and his wife with Sarah Helms McLeod and because of political differences between relator and Judge Harris. On February 6, 1979, Judge Harris conducted a hearing on said motion after refusing to request the Presiding Judge to appoint another judge to hear the motion and subsequently entered an order denying the motion.[2] Relator declined to offer evidence at this hearing before Judge Harris, but instead filed this proceeding seeking a writ of mandamus to compel Judge Harris to comply with the provisions of Article 200a, Section 6.
The statute states in mandatory language that the district judge shall request the Presiding Judge to assign a judge to hear any motions to recuse. Respondents urge, however, that this provision has reference only to the preceding sentence of the statute and therefore it is applicable only to *774 election contests or suits brought for the removal of local officials. Neither grammatical construction of the section nor the legislative history of the 1977 amendment justifies such a construction.
The 1977 amendment enumerates several duties of district judges. It provides that he shall rule on a case within three months after that case has been taken under advisement. Also where an election contest or suit brought for the removal of a local official is filed in his court, the district judge "shall request the Presiding Judge of the Administrative Judicial District to assign a judge of the Administrative District who is not a resident of the county" to dispose of such suit. There then follows the sentence in question which states that the district judge "shall request the Presiding Judge to assign a judge of the Administrative District to hear any motions to recuse such district judge from a case pending in his court." This requirement is unrelated to the prior sentence regarding election contests and suits for removal of a local official. Furthermore, there would be no need to repeat the prior mandatory direction that the district judge shall request the Presiding Judge to assign another judge to dispose of these suits. See Sullivan v. Berliner, 568 S.W.2d 844 (Tex.1978).
The legislative history of the 1977 amendment is contained in Interim Report of the Judiciary Committee of the House of Representatives of the Sixty-Fifth Legislative Session. This report states in part:
"MOTIONS TO DISQUALIFY, ELECTION CONTESTS, SUITS TO REMOVE COUNTY OFFICIALS
"The Presiding Judge should be given the duty to hear all motions to disqualify a judge from a case or to assign another judge to hear such motions. It should be the duty of the Presiding Judge to hear or to assign a visiting judge to hear any election contests or suits to remove county officials in a county. It is probably asking too much of judicial impartiality to expect a judge to rule objectively on a motion that he disqualify himself from a case for cause if he has not already recused himself voluntarily. By the same token, it is unfair to ask a judge of a county to hear an election contest or removal case when the judge himself is a political creature, perhaps aligned with one of the factions involved. A judge should not be placed in the position or be given the opportunity to rule in such cases. The Presiding Judge under the present statute has no authority to withdraw a case from a judge and the procedures for disqualifying the judge or removing him when he refused to do so are time-consuming and uncertain. The Committee recommends that the Presiding Judge be given the authority to assign a visiting judge to hear such matters, or to hear those matters himself."
It is clear from not only the heading of this section, but also from the contents thereof that the Committee was concerned about three separate situations where a visiting judge should properly be called upon to exercise judicial discretion.
It should be pointed out that under the terms of this statute, the motion to recuse does not in itself disqualify the local judge, nor do we here express any opinion relative to the merits of relator's motion. The statute merely requires that another judge be assigned to determine the merits of the motion[3].
*775 We conclude that under the express terms of Article 200a, Section 6, Judge Harris had the mandatory duty to request the Presiding Judge of the Second Administrative District to assign another district judge to hear relator's motion to recuse. We are certain that Judge Harris will comply with this opinion and request the Presiding Judge to assign another judge to hear relator's motion. In the event he fails to do so, a writ of mandamus will issue. The petition for writ of mandamus is conditionally granted.
NOTES
[1] All statutory references are to Texas Revised Civil Statutes Annotated.
[2] Parallel to Article 200a, Section 4, the district judges of the Second Administrative District have adopted Rules of Procedure including the following rule:
"In accordance with Art. 200a, Sec. 6, V.A. T.S. (as amended), it shall be the duty of a District Judge, in whose court is filed a motion for that judge to recuse himself, to request the Presiding Judge to assign another judge to hear such motion."
A similar rule has been adopted by other administrative districts. Since the rule in question is also court-made, we do not have a constitutional question of separation of powers.
[3] The basis for disqualification of a judge is contained in Article V, Section 11 of the Texas Constitution which provides in part:
"No judge shall sit in any case wherein he may be interested, or where either of the parties may be connected with him, either by affinity or consanguinity, within such a degree as may be prescribed by law, or when he shall have been counsel in the case."
This constitutional prohibition has been implemented by Art. 15, Tex.Rev.Civ.Stat.Ann., Art. 30.01 of the Tex.Code Crim.Pro.Ann., and by Canon 3C of the Code of Judicial Conduct as promulgated by the Supreme Court of Texas, amended as of February 18, 1977.
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217 F.Supp. 525 (1963)
Valerie BRADFORD, a minor, by and through her guardian ad litem, Eileen Bradford, and Eileen Bradford, Plaintiffs,
v.
MITCHELL BROTHERS TRUCK LINES, a corporation, William E. Kelly, Freightliner Corporation, a corporation, Rockwell-Standard Corporation, a corporation, Defendants.
Civ. 8544.
United States District Court N. D. California, N. D.
May 15, 1963.
*526 Walkup & Downing and James R. Hooper, San Francisco, Cal., for plaintiffs.
Dunne, Bledsoe, Smith, Phelps, Cathcart & Johnson, San Francisco, Cal., for Mitchell Bros. Truck Lines, a corporation, and William E. Kelly.
Pelton, Gunther & Gudmundson, San Francisco, Cal., for Freightliner Corp.
Boyd, Flageollet & Benson, San Francisco, Cal., for Rockwell-Standard Corp.
HALBERT, District Judge.
This action to recover damages for personal injuries and wrongful death was originally filed in the Superior Court of the State of California, in and for the County of Del Norte. Defendant William E. Kelly filed a petition for removal of the cause to this Court, alleging that the action is one of which this Court would have original jurisdiction under Title 28 U.S.C. § 1332 (diversity of citizenship), and is removable under Title 28 U.S.C. § 1441. In support of said allegation, the petition for removal recited that defendant Kelly is a citizen of Oregon, that defendant Kelly is informed and believes and on such information and belief alleges that none of the other named defendants is a citizen of California, that upon similar information and belief defendant Kelly "alleges that none of the plaintiffs is a citizen of Oregon," that the amount in controversy exceeds $10,000, and is between citizens of different states. Further proceedings were taken in this case and in this Court. Subsequently the Court became apprised of an ostensible defect in its jurisdiction over this cause, and on its own motion raised the question. As a result of the Court's action, defendant Rockwell-Standard has moved that this case be remanded to the Superior Court in Del Norte County. Defendant Kelly has moved to be allowed to amend, nunc pro tunc, his original petition for removal, and also opposes the motion to remand. Plaintiffs join with defendant Kelly in seeking the amendment to the removal petition.
It is clear that the original removal petition was a nullity, when viewed in the light of the requirements set forth in Title 28 U.S.C. § 1446(a). That section requires, inter alia, that a petition for removal shall contain a "short and plain statement of the facts" which entitle the petitioning party to remove the action. Included within the requirement of a "short and plain statement of the facts" is the requirement that jurisdictional allegations be set forth. Facts, as *527 opposed to legal conclusions, are not presented in the original petition. The citizenship of the plaintiffs is alleged not at all, and the allegation as to citizenship of certain of the defendants is made upon information and belief. A petition alleging diversity of citizenship upon information and belief is insufficient (Wolff v. Archibald, 8 Cir., 14 F. 369; and Hambleton v. Duham, 9 Cir., 22 F. 465).
Defendant Kelly now seeks to amend his petition for removal, nunc pro tunc, to attempt to properly set forth the jurisdiction of this Court. In connection with said motion, it should first be noted that § 1446(b) of Title 28 U.S.C. provides that a petition for removal shall be filed within twenty days after receipt of a copy of the pleading first setting forth grounds for removal. Although some courts have held that this twenty-day period is jurisdictional, and that therefore a federal court is without power to entertain a petition for removal filed after such period has elapsed (Gobet v. Ponce Intercontinental Hotels Corp., D.C., 184 F.Supp. 171; Washington-East Washington Joint Authority v. Roberts & Schaefer Co., D.C., 180 F.Supp. 15; Putterman v. Daveler, D.C., 169 F.Supp. 125; and Sunbeam Corp. v. Brazin, D.C., 138 F.Supp. 723), the weight of authority appears to support the proposition that the twenty-day period is not jurisdictional, and that it may be waived by failure to timely object thereto (See, e. g., McLeod v. Cities Service Gas Co., 10 Cir., 233 F.2d 242; Seigler v. American Surety Co., D.C., 151 F.Supp. 556; Green v. Zuck, D.C., 133 F.Supp. 436; and Fisher v. Exico Co., D.C., 13 F.R.D. 195). Assuming, therefore, that in an appropriate case a motion of the type made by defendant Kelly is proper, it remains to be seen whether this case is an appropriate one for the granting of such a motion.
The term "timely objection" has not been authoritatively construed, but the language of § 1447(c) of Title 28 U.S.C. is helpful in this connection. That section provides, in pertinent part, that "[i]f at any time before final judgment it appears that the case was removed improvidently and without jurisdiction, the district court shall remand the case * * *." (emphasis added). Since the present problem is one of jurisdiction as of the time of the removal, as set forth in the petition for removal, it would appear that remand by the Court at any time is proper (See: In re MacNeil Bros. Co., 1 Cir., 259 F.2d 386; and Mayner v. Utah Const. Co., D.C., 108 F.Supp. 532), without reference to whether a motion to remand is timely filed by a party to the action.
Reaching, then, the substantive issue of whether an amendment to the petition for removal is proper in the instant situation, it appears to this Court that the granting of such a motion would be improper. The great weight of authority, dealing mostly with defects in allegations of corporate jurisdiction under the provisions of Title 28 U.S.C. § 1332(c) as amended in 1958, sets forth the proposition that a failure to allege the principal place of business of a corporation, in addition to its place of incorporation, completely fails to set forth the required allegations of jurisdiction, and an amendment thereto to set forth such allegations is an amendment of fact rather than a mere correction of a defective form (Young v. Railway Express Agency, Inc., D.C., 209 F.Supp. 953; Evans-Hailey Co. v. Crane Co., D. C., 207 F.Supp. 193; F. & L. Drug Corp. v. American Central Ins. Co., D.C., 200 F.Supp. 718; Adams v. Ralph L. Smith Lumber Co., D.C., 181 F.Supp. 729; Roseberry v. Fredell, D.C., 174 F.Supp. 937; Brown v. Hartford Fire Ins. Co., D.C., 168 F.Supp. 796; White v. Sullivan, D.C., 107 F.Supp. 959; and Cline v. Belt, D.C., 43 F.Supp. 538; but see Fireman's Ins. Co. of Newark v. Robbins Coal Co., 5 Cir., 288 F.2d 349; Park v. Hopkins, D.C., 179 F.Supp. 671; McGuigan v. Roberts, D.C., 170 F.Supp. 372; and Hernandez v. Watson Bros. Trans. Co., D.C., 165 F.Supp. 720). This defect in the allegation of corporate jurisdiction, *528 in the opinion of this Court, is sufficient basis to remand the instant case to the Superior Court of Del Norte County.
Over and above the defect in corporate jurisdiction, however, it is also apparent that no allegation whatsoever exists in the original petition for removal as to the citizenship of the plaintiffs. The only allegation on this point in the original petition is stated in negative terms, that the plaintiffs, on information and belief, are not citizens of Oregon. On this point, even should this Court adopt the minority viewpoint as the sufficiency of the corporate jurisdictional allegations (which it does not), the minority admits that no amendment to a petition for removal may be made which would set forth totally new facts, as opposed to merely clarifying ambiguities in the original petition (See, e. g., Hernandez v. Watson Bros. Trans. Co., supra). This is a second and separate reason why this case must be remanded.
Defendant Kelly places great reliance upon Title 28 U.S.C. § 1653. That section provides that "Defective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts." It is to be noted, however, that the instant case involves not merely a defective allegation of jurisdiction, but, in effect, no allegation at all. Section 1653 has been interpreted as allowing amendments to cure defects of form but not of substance (Kinney v. Columbia Savings & Loan-Ass'n, 191 U.S. 78, 24 S.Ct. 30, 48 L.Ed. 103; F. & L. Drug Corp. v. American Central Ins. Co., supra; and cases cited therein). This means that an amendment will be allowed when there are enough facts alleged in the petition and accompanying pleadings to enable the court to determine without more that the basis for removal is present. Such is not the situation in the instant case. Section 1653 is, therefore, inapplicable.
In disposing of this matter, this Court takes notice of the general judicial rule that removal statutes are to be strictly construed against removal (Shamrock Oil & Gas Corp. v. Sneets, 313 U.S. 100, 61 S.Ct. 868, 85 L.Ed. 1214). There being a complete lack of factual allegations in the original petition for removal which would confer jurisdiction upon this Court, and said petition being substantively so defective as not to permit of amendment to clarify whatever ambiguities are contained therein, this Court has no choice but to adhere to the general rule and to deny defendant Kelly's motion to amend said petition, nunc pro tunc. This action is accordingly remanded to the Superior Court of the State of California, in and for the County of Del Norte, for all further proceedings.
It is so ordered.
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582 S.W.2d 632 (1979)
INTERNATIONAL AIRCRAFT SALES, INC., et al., Appellants,
v.
Lionel BETANCOURT et al., Appellees.
No. 1367.
Court of Civil Appeals of Texas, Corpus Christi.
May 31, 1979.
Rehearing Denied June 13, 1979.
*633 Ron W. Armstrong, Lee Arnett, Brownsville, for appellants.
Gordon L. Briscoe, Harlingen, for appellees.
YOUNG, Justice.
In this appeal arising from a suit on a note, the primary issue is whether the defendants established as a matter of law their defense of illegality of the origin of the note. Vendors of electronic components, Lionel Betancourt and John Phillips, appellees, sued International Aircraft Sales, Inc., and vendees, Raymond Kyral, Jr., and George Whitley, all appellants, on a $147,196.00 negotiable note which represented the balance due for goods received. Defendants answered asserting three defenses: 1) want of consideration because the components were, in effect, consigned to Kyral and Whitley rather than sold to them; 2) fraudulent inducement to sign the note herein; and 3) unenforceability of the note because it arose out of an illegal transaction, i. e., smuggling.
Trial was before a jury. The only issues considered by the jury dealt with the first and second of the above defenses. The remaining illegality defense was not submitted to the jury since the appellants considered it to be established as a matter of law. The jury found that the transaction here was a sale and that the appellees did not fraudulently induce the appellants to sign the note. Appellants moved that the court enter judgment in their favor based upon the illegality defense. The trial court, however, overruled the defendants' motion and entered judgment for the appellees. This appeal by the defendants followed on only one point of error; namely whether the illegality defense was established as a matter of law.
In the early part of 1975, Kyral and Whitley began smuggling television sets, stereos and other electronic components by airplane from Brownsville, Texas, to various places in Mexico. Sometime later, Betancourt and Phillips were introduced to Kyral and Whitley through a mutual friend. Betancourt and Phillips, who were already engaged in the sale of electronic components in San Benito, Texas, worked out an arrangement to sell Kyral and Whitley the *634 components to be smuggled into Mexico. Betancourt and Phillips were to order the merchandise from their suppliers and have it delivered in San Benito. Then, according to the instructions of Kyral and Whitley, they (Betancourt and Phillips) were to remove the electronic components from their cartons, cut the cartons apart, and put the cartons, inside out, back around the components. The cartons were then to be wrapped in brown kraft paper and the insignia "K & W" was to be written on the outside. Whereupon Betancourt and Phillips were then to make up 1,200 to 1,400 pound airplane loads of these rewrapped units and deliver them to Kyral's warehouse in Brownsville. Generally, Betancourt and Phillips were also to decide which components would comprise each load.
Betancourt and Phillips also were to arrange their invoices and other documentation so as to facilitate the smuggling of the goods into Mexico. Kyral and Whitley then stamped these documents to show that the goods had been exported so that Betancourt and Phillips would not be liable for any state sales tax.
The parties stipulated that it was illegal to ship this merchandise into Mexico. They also stipulated that Betancourt and Phillips knew that the merchandise in question was to be exported to Mexico and sold in Mexico. And the evidence is undisputed that Betancourt and Phillips knew that this was an illegal enterprise in Mexico. They also knew that Kyral had had an airplane confiscated in Mexico and that there was a substantial risk of having shipments confiscated.
Deliveries began in late 1975. Kyral and Whitley had told Betancourt and Phillips that they would be receiving their money about ten days from delivery. The payment would be in the form of checks written on a Mexican bank. During 1975, payments were made in five or ten days from delivery and everything went according to plans. In 1976, though, it began taking fifteen days or more for payment. On March 8, Betancourt and Phillips were notified that a Mexican check given to them as payment was worthless; as it turned out, every check they had received since January 8, 1976, was worthless. Those bogus checks caused their bank account to be overdrawn in an amount exceeding $200,000.00. Apparently, the purchasers in Mexico were paying for the smuggled goods with worthless checks, and Kyral and Whitley consequently ran out of money. Kyral then told Betancourt and Phillips that the checks would be taken care of in a few days. Over a period of about four weeks, Kyral did pay some of the checks, but only to the extent of $110,000.00.
In order to cover their resulting overdraft at the bank, Betancourt and Phillips executed a note to their bank in San Benito. Betancourt and Phillips then entered into a series of discussions and visits with Kyral in which payments on the dishonored checks were discussed. At one point, Kyral was asked to sign as surety of the note executed in favor of the bank. But he refused to do this. After a series of further discussions concerning how to take care of the dishonored checks, Betancourt and Phillips directed their attorney to draw up a negotiable note and two security agreements covering the four airplanes that Kyral and Whitley were using to transport the electronic components into Mexico.
On June 10, 1976, Betancourt and Phillips drove to Brownsville to meet with Kyral and Whitley. When Betancourt and Phillips arrived, Whitley was not yet present, so Betancourt and Phillips discussed the terms of the note and security agreements with Kyral. The evidence is undisputed that these discussions were directed toward honoring the checks. When Whitley arrived, both he and Kyral privately discussed the terms of the note and security agreements. After about ten minutes of deliberation, they met again with Betancourt and Phillips and each signed the note. Further, Kyral signed the security agreement as to two of the airplanes because they were in his name, and signed the security agreement in the name of International Aircraft Sales, Inc., as to the two other airplanes because they were registered as owned by *635 that corporation. Kyral later paid Betancourt and Phillips $8,000.00. No other payments were made and this suit followed.
At the trial, the note and security agreements made the basis of this suit were introduced without challenge. Thus, the plaintiff appellees made out a prima facie case of validity of the instruments. Hager v. Texas Distributors, Inc., 560 S.W.2d 773, 775 (Tex.Civ.App.Tyler 1976, writ ref'd n. r. e.). It was then the appellants' burden at trial to prove the illegality of the note. McKenzie v. Carte, 385 S.W.2d 520, 529 (Tex.Civ.App.Corpus Christi 1964, writ ref'd n. r. e.).
To determine whether the appellants have met their burden of establishing their illegality defense as a matter of law, we will first consider whether the agreement preceding the note herein was legal and then whether the illegality of the transaction tainted the note herein.
If a contract or sale is made with a view of violating the laws of another country, though not otherwise obnoxious to the law either of the forum or of the place where the contract is made, it will not be enforced. 15 Williston on Contracts, § 1748 (3rd ed. 1972), Restatement of Contracts, § 592 (1932); Rutkin v. Reinfeld, 229 F.2d 248, 255 (2nd Cir.), cert. denied, 352 U.S. 844, 77 S.Ct. 50, 1 L.Ed.2d 60 (1956). In applying this rule to cases of sales, however, the mere knowledge by a vendor of an intent on the part of the vendee to use the goods for an unlawful purpose will not bar recovery by the vendor on the contract of sale, but if the vendor in any way aids the vendee in his unlawful design to violate the law, such participation will render void the contract of sale and will bar recovery by the vendor. Stone v. Robinson, 203 S.W. 1132 (Tex.Civ.App.Amarillo 1918, no writ); 15 Williston on Contracts, § 1755 (1972), Restatement of Contracts, § 602 (1932). The Restatement of Contracts, § 602, illustrates the above rule in the following example, to-wit:
"2. In a State where the sale of certain plants is legal, A sells a quantity of them to B who desires to transport them to a State where quarantine regulations forbid their importation. In order to aid B in getting the goods to the desired place, A packs and marks them so as to conceal their character. The bargain is illegal and A cannot recover the price."
The facts of the instant case are closely similar to the above example. Here, Betancourt and Phillips removed the components from their boxes and rewrapped them so as to conceal their true identity. Moreover, they separated the components into lots of 1,200 to 1,400 pounds each so that they might be flown over the border illegally. And finally, Betancourt and Phillips filled out their invoices and other documentation so as to facilitate the smuggling of the items into Mexico. In addition to this, the evidence is conclusive that Betancourt and Phillips knew that the shipment of these goods into Mexico was illegal. We think the evidence is conclusive that the original agreement of sale between Betancourt and Phillips and Kyral and Whitley was illegal and not enforceable in a court of law.
Next we observe that promissory notes given in connection with a contract which is illegal are ordinarily not enforceable as between the parties to such instruments. Reed v. Brewer, 37 S.W. 418 (Tex. Sup.1896); Scoggins v. Furst & Thomas, 9 S.W.2d 405 (Tex.Civ.App.Texarkana 1928, writ dism'd w. o. j.). The test of whether a demand connected with an illegal act can be enforced is whether the plaintiff requires any aid from the illegal transaction to establish his case. Floyd v. Patterson, 72 Tex. 202, 10 S.W. 526, 527 (1888); Hall v. Edwards, 222 S.W. 167, 168 (Tex.Comm'n App.1920, jdgmt. adopted); Gulf Collateral, Inc. v. Cauble, 462 S.W.2d 619, 622 (Tex.Civ. App.Fort Worth 1971, no writ). Stated another way, in Cauble, the test is this:
"[I]f the tainted transaction has been completed, and another grows out of it collateral to it, dependent upon a new consideration, the new contract is not vitiated by the taint of the old one, and will be enforced."
*636 Though the appellees here were able to prove their case without referring to the illegal transaction, the appellants were not prevented from proving that the note was in some respect illegal or based upon an illegal consideration. See Scoggins v. Furst & Thomas, supra; 17 Am.Jur.2d, Contracts, § 219 (1964). We find the evidence to be undisputed that the transaction herein had not been completed in that Betancourt and Phillips delivered the electronic components, but had received worthless checks in payment. The appellants never did pay the debt but rather merely substituted one form of negotiable instrument, the note, for the earlier forms, the checks. The appellants did extend additional security to the appellees by giving them a security interest in the airplanes, but we find no evidence of the appellees giving any new consideration for the security agreements. Tex.Bus. & Comm.Code Ann. § 3.408 (1968). Such illegal consideration would render the note unenforceable. Scoggins v. Furst & Thomas, supra.
Kyral stated that his reason for signing the note was to "help" Betancourt and Phillips withstand their banker's pressure to pay up. There is a clear distinction between the motive inducing the execution of a contract and the consideration, though. One's motive does not amount to consideration. Hoffer v. Eastland Nat. Bank, 169 S.W.2d 275, 281 (Tex.Civ.App.Eastland 1943, no writ). All of the other evidence bearing on the relation between the note and the illegal contract conclusively indicates that the note arose out of the appellants' failure to pay for the goods delivered.
During trial, Betancourt was asked whether the note was a part of the entire series of dealings he had with Kyral and Whitley. He answered, "Yes, sir." Phillips stated at trial that on the day Kyral and Whitley signed the note Betancourt and Phillips showed them the bounced checks and asked for the note to be signed. When Kyral was asked to describe what happened prior to the signing of the note, he stated, "Basically, they were wanting their money. They wanted those checks made good. And it went on then to the note signing. And somehow the airplanes for collateral got brought up into the conversations." We think a mere change in the evidence of obligation does not validate that which is invalid. Sturdevant v. Falvey, 176 S.W. 908, 911 (Tex.Civ.App.El Paso 1915, writ ref'd). Consequently, we find the instant note to be tainted by the illegal contract and therefore unenforceable.
Appellees argue that the appellants had a moral obligation to pay for the goods delivered in spite of the illegal consideration and that the moral obligation is sufficient consideration for the contract. We disagree. Generally speaking, a moral obligation is not regarded as sufficient consideration to support a contract. C_____ v. W_____, 480 S.W.2d 474, 478 (Tex.Civ.App. Amarillo 1977, no writ); 13 Tex.Jur.2d, Contracts, § 68 (1960). In some limited circumstances, however, a moral consideration is deemed adequate consideration when the promise is to pay a debt based upon an antecedent consideration which the debtor is exempted from by virtue of a positive rule of law. Simpson v. Williams Rural High School Dist., 153 S.W.2d 852 (Tex.Civ. App.Amarillo 1941, writ ref'd). Most cases, though, which follow this rule are those cases involving contracts not involving serious moral turpitude, e. g., debts barred by limitations and bankruptcy. Simpson, supra. See 1 Williston on Contracts, § 150; Restatement of Contracts, §§ 8690, 535 (1932).
The parties herein were engaged in a course of conduct which directly conflicts with the laws of Mexico and thereby involves serious international overtones. We think this smuggling scheme was of such consequence that the public interest would be jeopardized by the enforcement of such contracts, and we think a note arising out of such contract cannot been enforced. See 1 Williston on Contracts, § 150 (1957).
Appellees further contend that the appellants waived the illegality ground of defense in that they did not submit it to the jury. In light of the above discussion, that *637 the defense was conclusively established, it did not need to be submitted to the jury in order to be preserved for appeal. Rule 279, T.R.C.P. Appellants' point of error is sustained.
The record reflects that the appellants' property has been sequestered. In light of our decision finding no enforceable debt, the appellants are entitled to have the property restored to their possession. Spicknall v. Panhandle State Bank of Borger, 278 S.W.2d 622 (Tex.Civ.App.Amarillo 1954, no writ); Rea v. P. E. Schow & Bros., 42 Tex.Civ.App. 600, 93 S.W. 706 (1906, no writ); 52 Tex.Jur.2d, Sequestration, § 98 (1964).
The judgment of the trial court is therefore reversed in part and judgment is here rendered that appellees take nothing in their action on the note. But that part of the judgment of the trial court denying the appellants' counterclaims is affirmed.
Reversed and rendered in part, and affirmed in part.
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582 S.W.2d 452 (1979)
Robert Michael DARLAND, Appellant,
v.
The STATE of Texas, Appellee.
Nos. 57521, 57522.
Court of Criminal Appeals of Texas, Panel No. 1.
June 20, 1979.
Philip S. Green, Houston, for appellant.
Carol S. Vance, Dist. Atty., Calvin A. Hartmann, and Frank Harmon, Asst. Dist. Attys., Houston, Robert Huttash, State's Atty., Austin, for the State.
Before ONION, P. J., and ROBERTS and CLINTON, JJ.
*453 OPINION
CLINTON, Judge.
This is an appeal from two convictions for involuntary manslaughter.[1] The jury assessed appellant's punishment in each case at three years confinement.
While driving Interstate Highway 610 in Houston on September 25, 1976 at approximately 12:30 a. m., Kelly Bitner and his fiancee observed appellant's then new 1977 black truck pass them headed south. The couple lost sight of the truck at the San Felipe overpass, but on coming over a rise they saw sparks at the far right side of the highway, and then observed appellant's truck careening across the freeway toward the left guard rail. An old pickup truck which had apparently been parked on the shoulder of the road because of a flat tire, rested off the right shoulder in the grass in a position 180 degrees from the way it had been parked on the shoulder. Two people were killed as a result.
Appellant's three grounds of error attack the admission of the results of an analysis made of his urine, a sample of which was obtained without appellant's consent a few hours after the collision.
Outside the presence of the jury, the following testimony was developed: Officer K. D. McGinn, a Houston Police Department accident investigator, obtained information at the collision scene which led him to seek appellant who had been taken to Ben Taub Hospital. On confronting appellant McGinn asked what had happened. Appellant replied, "I don't know what happened. I don't even know what I hit." McGinn testified that he could smell a strong odor of alcohol on appellant; from this, coupled with observations of appellant's walk, slurred speech and inability to sign his name on a consent to treatment form, McGinn formed an opinion that appellant was intoxicated.
McGinn talked with appellant as he lay on a stretcher; appellant said he needed to go to the restroom. McGinn checked with the nurse in charge who said appellant could do so, and McGinn obtained a styrofoam cup from the nurse as appellant got down from the stretcher. McGinn accompanied appellant into the restroom; after appellant had begun to urinate, McGinn placed the styrofoam cup in front of appellant so as to collect a specimen of urine. According to McGinn, appellant was aware of what the officer was doing and neither affirmatively consented nor objected in any way.
McGinn then left the hospital in order to deliver the specimen to the Houston Police Department where he left it in a crime lab lock box. Approximately 2½ hours later McGinn and another officer returned to Ben Taub Hospital in order to place appellant under arrest and confine him in the county jail.
After the trial court ruled McGinn's testimony admissible and it was elicited before the jury, the State called a police department chemist and toxicologist who testified that analysis of appellant's urine revealed a .15% blood alcohol content.[2]
*454 Appellant now specifically complains that "seizure" of the urine sample from him was without consent, and because he was under arrest at the time of the non-consensual "seizure," Art. 6701l-5, Section 1, V.A. C.S.[3] prohibited the admission into evidence of the results of the analysis.
Appellant correctly states that Schmerber v. California, 384 U.S. 757, 86 S.Ct. 1826, 16 L.Ed.2d 908 (1966),[4] and this Court's opinion on rehearing in Olson v. State, 484 S.W.2d 756 (Tex.Cr.App.1972), "have removed the constitutional impediment of consent as to the taking of a blood test or other chemical tests;" however, "this does not obviate the necessity of compliance with statutory provisions, even though statutory requirements may not now be constitutionally required." Olson, at 772.
Our statutory prohibition[5] against admission of non-consensual chemical analysis for blood alcohol content other than by breath analysis, has been held "by its explicit terms [to apply] only to persons who have been arrested." Bennett v. State, 522 S.W.2d 507, 509 (Tex.Cr.App.1975). Therefore, the dispositive issue presented by this ground is whether appellant was under arrest at the time Officer McGinn obtained the specimen of his urine.
Appellant urges that the surrounding facts and circumstances illustrate that he was restrained in his liberty of movement at the hospital, and therefore, an arrest had been effected notwithstanding the fact that appellant was not actually taken into custody. There is, however, nothing in the record before us which supports this assertion.
Officer McGinn testified that he neither restrained appellant in any way, nor instructed any other officer to guard appellant during McGinn's 2½ hour absence from the hospital. According to McGinn, no one would have stopped appellant had he attempted to leave at anytime before he was taken physically into police custody. McGinn testified that he did nothing to compel the collection of the sample of appellant's urine. Appellant testified on cross-examination that the first time he saw McGinn was when he and Officer D. H. Mays took appellant into custody at approximately 4:30 a. m. Appellant denied that McGinn had earlier questioned him about what had happened at the scene of the collision, and further denied that McGinn had either accompanied him to the restroom or obtained any of his urine.
Under this state of facts, we hold that appellant was not under arrest, and evidence of the chemical analysis of the urine McGinn obtained without affirmative consent from appellant was admissible. Bennett, supra. This ground of error is overruled.
Appellant next contends that securing a urine sample from him without his consent constituted an unreasonable seizure under the Fourth Amendment[6] to the United *455 States Constitution. The thrust of appellant's complaint is that Officer McGinn's actions were "unreasonable" under the circumstances in that the urine sample was not "taken by a physician in a hospital environment according to accepted medical practices" as blood had been extracted in Schmerber, supra, and thereafter approved by the Supreme Court. While appellant concedes that McGinn's actions did not involve an intrusion into his body, he nevertheless contends that they "did involve a collection of appellant's body fluids, which is arguably an extension of his body." Appellant further urges that "appellant's sanctity as a human being was violated by the search and seizure method which Officer McGinn utilized, [because] appellant never consented;" and finally, "appellant's constitutional right of privacy was violated by this unreasonable, involuntary seizure of his urine ... where there were no extreme circumstances to warrant the intrusion."
A thorough review of the record before us reveals no written motion to suppress challenging the seizure of the urine on the ground now urged; nor did appellant offer any objection to the evidence based on a Fourth Amendment breach at either the time the State offered McGinn's testimony or the expert testimony concerning the analysis of the urine sample. Because a primary purpose of requiring timely specific objections is to apprise the trial court of a party's complaint and thereby afford the judge an opportunity to rule,[7] it is elementary that only those grounds which have been urged in the court below may be presented to this Court for appellate review. Lejeune v. State, 538 S.W.2d 775 (Tex.Cr.App.1976). Appellant's failure to raise his Fourth Amendment claim at trial constitutes a waiver of that complaint. Writt v. State, 541 S.W.2d 424 (Tex.Cr.App. 1976); Connally v. State, 492 S.W.2d 578 (Tex.Cr.App. 1973).
Notwithstanding such waiver the record as a whole contradicts appellant's complaint that he was the victim of an invasion of privacy, establishment of which is a prerequisite to contest of the validity of a search and seizure. Kleasen v. State, 560 S.W.2d 938 (Tex.Cr.App.1978); see also, Alderman v. United States, 394 U.S. 165, 89 S.Ct. 961, 22 L.Ed.2d 176 (1969).
The established principle is that suppression of the product of a Fourth Amendment violation can be successfully urged only by those whose rights were violated by the search itself, not by those who are aggrieved solely by the introduction of damaging evidence. [Emphasis supplied] Alderman, 394 U.S. at 171, 172, 89 S.Ct. at 965.
In addition to appellant's failure to make affirmative complaint of his subjection to an unreasonable search and seizure at trial, appellant's direct testimony was that McGinn neither accompanied him to the restroom nor procured any of his urine; restated, appellant denied that a search of his person or a seizure of his "body fluid" ever occurred.
Clearly, alleged injury incident to a search and seizure necessarily assumes that a search and seizure was conducted. Cf. Warren v. State, 565 S.W.2d 931 (Tex.Cr. App.1978) [wherein the rationale for denying the defense of entrapment to one who denies commission of the offense involved is stated as being that the defense of entrapment necessarily assumes that the act charged was committed]. Appellant has accordingly failed to establish resultant injury to himself which would preclude the introduction of testimony against him gained as a result of the seizure he attacks on appeal. Cf. Hensley v. State, 494 S.W.2d 816 (Tex. *456 Cr.App.1973).[8] Appellant's second ground of error is without merit.
Lastly, appellant contends that the non-consensual seizure of the urine sample from him was so offensive as to "shock the conscience" and thus constituted a denial of due process of law.
Again, notwithstanding appellant's failure to apprise the trial court on this ground of complaint,[9] we will address it in the interest of justice. See Art. 40.09, Section 13, V.A.C.C.P.
Appellant relies on Rochin v. California, 342 U.S. 165, 72 S.Ct. 205, 96 L.Ed. 183 (1952) for advancement of the proposition that the police procedures employed to obtain a sample of his urine were "so brutal and offensive" as to violate due process. This contention is without merit.
In Rochin, supra, police officers unlawfully entered the defendant's home and bedroom, and saw capsules on the nightstand, at which time the defendant put the capsules in his mouth. The officers jumped on him and unsuccessfully attempted to extricate the capsules. The defendant was then handcuffed, taken to a hospital and forcibly given an emetic which caused vomiting and ultimately allowed the recovery of morphine capsules. The Supreme Court stated that this procedure shocked the conscience, offended "even hardened sensibilities," and that such a method was "too close to the rack and the screw to permit ... constitutional differentiation." 342 U.S. at 172, 72 S.Ct. at 210.
By contrast, the court held in Breithaupt v. Abram, 352 U.S. 432, 77 S.Ct. 408, 1 L.Ed.2d 448 (1957), that no due process right had been abridged by the extraction of a sample of a suspect's blood by an attending physician at the request of an officer while the motorist lay unconscious in the hospital. The absence of conscious consent, without more, was held not to necessarily render the taking a violation of a constitutional right.
... [D]ue process is not measured by the yardstick of personal reaction or the sphygmogram of the most sensitive person, but by that whole community sense of `decency and fairness' that has been woven by common experience into the fabric of acceptable conduct.
352 U.S. at 436, 77 S.Ct. at 410.
It is immediately apparent that the intrusion by the State involved in the procedure employed in Breithaupt, supra,[10] was greater than the intrusion, if any, made on appellant as established by the testimony of Officer McGinn. We think the chasmal distinction between the "brutal" procedure utilized in Rochin, supra, and the procedure applied in the instant case, speaks for itself. *457 Appellant's three grounds of error are overruled.
The judgments of conviction are affirmed.
NOTES
[1] Section 19.05, V.T.C.A., Penal Code provides:
(a) A person commits an offense if he:
* * * * * *
(2) by accident or mistake when operating a motor vehicle while intoxicated and, by reason of such intoxication, causes the death of an individual.
(b) For purposes of this section, "intoxication" means that the actor does not have the normal use of his mental or physical faculties by reason of the voluntary introduction of any substance into his body.
(c) An offense under this section is a felony of the third degree.
[2] Article 6701l-5, Section 3, V.A.C.S. provides in germane part:
"(a) Upon the trial of any criminal action or proceeding arising out of acts alleged to have been committed by any person while driving or in actual physical control of a motor vehicle and while under the influence of intoxicating liquor, evidence of the amount of alcohol in the person's blood, breath, urine, or any other bodily substance, shall be admissible and if there was at that time 0.10 percent or more by weight of alcohol in the person's blood, it shall be presumed that the person was under the influence of intoxicating liquor." [Emphasis supplied.]
The trial court submitted a jury instruction to this effect.
[3] Article 6701l-5, Section 1, V.A.C.S. provides:
Any person who operates a motor vehicle upon the public highways of this State shall be deemed to have given consent, subject to the provisions of this Act, to a chemical test, or tests, of his breath for the purpose of determining the alcoholic content of his blood if arrested for any offense arising out of acts alleged to have been committed while a person was driving or in actual physical control of a motor vehicle while under the influence of intoxicating liquor. Any person so arrested may consent to the taking of any other type of chemical test, or tests, to determine the alcoholic content of his blood, but he shall not be deemed, solely on the basis of his operation of a motor vehicle upon the public highways of this State, to have given consent to any type of chemical test, or tests, other than a chemical test, or tests, of his breath. The test, or tests, shall be administered at the direction of a law enforcement officer having reasonable grounds to believe the person to have been driving or in actual physical control of a motor vehicle upon the public highways of this State while under the influence of intoxicating liquor.
[4] Schmerber held that blood test evidence, although an incriminating product of compulsion, is neither testimonial nor relating to a communicative act or writing on the part of an accused, and is not, therefore, violative of the Fifth Amendment privilege against self-incrimination.
[5] See n. 3, supra.
[6] "The right of the people to be secure in their persons ... against unreasonable searches and seizures, shall not be violated...."
[7] In Zillender v. State, 557 S.W.2d 515, 517 (Tex.Cr.App. 1977), it was stated:
The generally acknowledged policies of requiring specific objections are twofold. First, a specific objection is required to inform the trial judge of the basis of the objection and afford him an opportunity to rule on it. Second, a specific objection is required to afford opposing counsel an opportunity to remove the objection or supply other [evidence].
[8] In Hensley, the appellant disclaimed ownership of the automobile searched and this Court held he had no standing to contest the search. This is arguably analogous to the situation presented here where appellant claims that the urine on which analysis was made was not his urine.
We do not say that a complaint as to the integrity of evidence introduced and used to convict is invalid; we merely reason that such a complaint is improperly grounded on the Fourth Amendment.
[9] Only after his other objections were overruled did appellant mention generally, "it comes under due process, the Fourteenth Amendment ...," to which the trial court remarked, "All right, sir."
[10] In concluding the intrusion in Breithaupt was wholly justified and consistent with principles of due process of law, the court stated at 439, 440 of 352 U.S., at 412 of 77 S.Ct.:
As against the right of an individual that his person be held inviolable, even against so slight an intrusion as is involved in applying a blood test of the kind to which millions of Americans submit as a matter of course nearly every day, must be set the interests of society in the scientific determination of intoxication, one of the great causes of the mortal hazards of the road. And the more so since the test likewise may establish innocence, thus affording protection against the treachery of judgment based on one or more of the senses. Furthermore, since our criminal law is to no small extent justified by the assumption of deterrence, the individual's right to immunity from such invasion of the body as is involved in a properly safeguarded blood test is far outweighed by the value of its deterrent effect due to public realization that the issue of driving while under the influence of alcohol can often by this method be taken out of the confusion of conflicting contentions. [Emphasis supplied]
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582 S.W.2d 779 (1976)
Marvin FENTIS
v.
The STATE of Texas, Appellee.
No. 51361.
Court of Criminal Appeals of Texas.
May 26, 1976.
Rehearing Denied July 18, 1979.
*780 John W. Sayer, on appeal only, Houston, for appellant; Craig A. Washington and Ealy A. Bennett, Houston, of counsel.
Carol S. Vance, Dist. Atty., Phyllis Bell and Robert C. Bennett, Jr., Asst. Dist. Attys., Houston, Jim D. Vollers, State's Atty., David S. McAngus, Asst. State's Atty., Austin, for the State.
OPINION
ODOM, Judge.
This appeal is from a conviction for murder under our former Penal Code. A jury assessed punishment at thirty-eight years.
Two grounds of error are raised. The first contends that the trial court erred in admitting evidence of appellant's resistance of arrest, flight, and eventual arrest, during which episode a police officer was shot in the knee. These events occurred in Garland; the murder forming the basis of this prosecution occurred in Houston. The trial court admitted all the above evidence upon the theory that the resistance to arrest, assault, and flight were probative of appellant's guilt of the murder charge.
The record reflects that the deceased, a uniformed off-duty police officer, was shot six times and killed in the parking lot of the Silver Dollar Saloon in Houston a few minutes after midnight on October 27, 1972. The circumstances of the murder reveal no motive for the slaying. Appellant, who was described as having an extreme "underbite" in that his lower jaw protruded from his face, was identified by witnesses as having been inside the saloon earlier that evening with two other men. The only witness to the shooting said that after hearing shots he turned around and saw two men. One, whom he identified in court as appellant, was holding a gun. Both men successfully fled.
On March 4, 1973, three uniformed police officers were patrolling in Garland. They saw appellant walking on a sidewalk in a suspicious manner and stopped to question him. As they alighted from their police car, appellant turned and started walking toward them. When instructed to remove his hand from his coat pocket, he said "Fuck you, whitey," pulled a pistol from his pocket, and commenced firing. After shooting one of the officers,[1] he made his escape, but was apprehended a few minutes later.
We must decide whether the admissibility of the Garland confrontation, and running away, was authorized by the well-established rule that in certain circumstances flight is evidence of guilt. If so, then under Hunter v. State, Tex.Cr.App., 530 S.W.2d 573, 575, the shooting would be admissible as an extraneous offense incidental to the flight.
The test governing flight was aptly stated in Damron v. State, 58 Tex.Cr.R. 255, 125 S.W. 396, 397:
"Evidence of flight is admissible, where one is charged with an offense, on the ground, in substance, that it is some evidence of guilt, and amounts in effect to a quasi admission of guilt of the offense charged. If, however, the flight is in *781 respect to another and different offense, it ought not to be considered as evidence of the guilt of an offense in which there was no flight."
In short, the circumstances must indicate that the flight is "so connected with the offense on trial as to render it relevant as a circumstance bearing upon his guilt," Hicks v. State, 82 Tex.Cr.R. 254, 199 S.W. 487, 488.
In Jones v. State, Tex.Cr.App., 481 S.W.2d 900, the State showed that one week after the primary offense the defendant committed a second robbery and attempted to flee, but was apprehended. We held that the attempted flight was more likely probative of consciousness of guilt of the second offense than the primary offense. Because the second offense was not otherwise admissible under any other exception to the rule barring the admission of extraneous offenses, the judgment was reversed. We reaffirm the holding in Jones, which is applicable whenever the flight sought to be shown follows and reasonably appears to be motivated by an extraneous offense, rather than the primary offense.
On the other hand, in Woods v. State, Tex.Cr.App., 480 S.W.2d 664, and Israel v. State, 158 Tex.Cr.R. 574, 258 S.W.2d 82, evidence of flight was held admissible even though there were intervening extraneous offenses because the facts in those cases indicated that the flight and the extraneous offenses were likely related to each other and were motivated by consciousness of guilt of the primary offense.
Here, too, an intervening extraneous offense of assault upon two police officers immediately preceded the flight. As in Woods, supra, and Israel, supra, and unlike Jones, supra, no motive for the extraneous offense independent of the primary offense appears. Instead, the circumstances strongly suggest that the extraneous offense and subsequent flight were all part of one effort to avoid a confrontation with law enforcement officers. See Hunter v. State, supra. The only motivation for the unprovoked attack that reasonably appears is consciousness of guilt of another offense. Any other explanation would go to the weight, not the admissibility, of the evidence. Ysasaga v. State, Tex.Cr.App., 444 S.W.2d 305; Carlisle v. State, 107 Tex.Cr.R. 408, 296 S.W. 889; Chastain v. State, 97 Tex.Cr.R. 182, 260 S.W. 172. The first ground of error is overruled.
The second ground of error contends that the trial court erred in denying appellant's motion for new trial on the ground of jury misconduct.
The record reflects that after a verdict of guilty was returned on August 16, 1974, appellant filed a motion for new trial on August 23. A first amended motion was filed on September 3. On September 23, the trial court in open court apparently allowed appellant until October 3 to file a second amended motion for new trial and added that a hearing pursuant to that motion would be held on November 15, 1974.
The second amended motion for new trial and supporting affidavits were not filed until November 11 and 14, respectively. On November 27, 1974, a hearing was held at which the trial court granted the State's motion to quash appellant's subpoenas for juror-witnesses, finding that the second amended motion and affidavits were insufficient to justify any hearing on the merits. Sentence was then pronounced.
It is apparent that the November 11 motion was late-filed, there being nothing in the record to reflect that the trial court ever extended the time for filing the same past October 3. Article 40.05, V.A.C.C.P. Nevertheless, if the trial court had proceeded to conduct a hearing on the merits within twenty days after the motion was filed, such act would be construed as a finding of good cause for the late filing of the motion, see Art. 40.05, supra, and the question whether the trial court abused his discretion in overruling the motion would be properly presented for review. Arsola v. State, 138 Tex.Cr.R. 1, 133 S.W.2d 585, and authorities there cited.
Here, however, the trial court declined to allow appellant to present witnesses and therefore refused to entertain the *782 motion. Where the motion was late-filed, no abuse of discretion has been shown. Defore v. State, Tex.Cr.App., 460 S.W.2d 128.
Because the trial court refused to hold a hearing on the late-filed second motion for new trial, we will not presume that an extension of the time for filing had been granted for good cause. Nothing is presented for review.
The judgment is affirmed.
ONION, P. J., dissents as to the admission of the extraneous offense.
NOTES
[1] See Fentis v. State, Tex.Cr.App., 528 S.W.2d 590, where this appellant's conviction for assault with intent to murder a peace officer, such prosecution arising out of this shooting in Garland, was reversed after the State at trial adduced that appellant had committed the Houston murder that is the subject of this prosecution.
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582 S.W.2d 246 (1979)
Bill PERSON et al., Appellants,
v.
Charles G. LATHAM, Appellee.
No. 8176.
Court of Civil Appeals of Texas, Beaumont.
May 17, 1979.
Rehearing Denied June 7, 1979.
*247 St. John Garwood, Jr., Houston, for appellants.
Charles A. Moore, Dwight E. Vorpahl, Houston, for appellee.
KEITH, Justice.
Plaintiffs below appeal from a judgment which did not grant them the relief to which they claim to be entitled to receive under the pleadings, evidence, and findings of the jury. Their claims arose out of alleged fraudulent misrepresentations relating to the sale of several lots in two subdivisions. The appeal is upon six points of error raising both factual and legal questions which we must discuss. However, we will condense, as much as possible, the tremendous record presented.[1]
Two brothers, Bill Person and Claude Person, brought suit against several defendants claiming that a salesman for the owners and developers, C. G. Latham, made false and fraudulent representations to induce them to purchase lots in two subdivisions in Montgomery County. We quote in the margin plaintiffs' pleadings describing a part of the scheme used.[2]
*248 Our record shows, conclusively, that the defendant Latham, by means of false and fraudulent representations, persuaded the plaintiffs, Bill and Claude Person, to invest in certain lots on Lake Conroe, and the jury so found. Bill Person secured a judgment for his damages as found by the jury, in the amount of $19,000 plus $20,000 in exemplary damages. Because of a plea of res judicata, to be discussed hereinafter, Claude Person was denied a recovery.[3]
As to Bill Person, the question presented is whether his recovery of actual damages should be trebled under the provisions of the Defective Trade Practices-Consumer Protection Act, Tex.Bus. & Comm.Code Ann. §§ 17.41, et seq. (Supp.1978-79), specifically § 17.45(1) and (2),[4] and, if so, may he recover exemplary damages in addition to the mandatory trebling of the damages under the Act. We overrule the contentions so advanced for the reasons now to be stated.
It is clear from the reading of the record that Bill Person was a willing and gullible victim of Latham's false representations. He agreed to purchase his lots on the representation that a "Mrs. Gigglia" would pay double his cost before any monthly installments matured. Of course, there was no "Mrs. Gigglia" and the jury so found. It fixed Bill's damages at the amount of the profit he would have realized had there been a Mrs. Gigglia and she had performed as Latham had promised. Bill's argument is to the effect that when he purchased the lots under these circumstances, he purchased Latham's services in selling the lots to Mrs. Gigglia. In so doing, he overlooks the limitation upon the definition of "goods" as defined in the statute. Under Bill's own testimony, he did not purchase such lots for use, but to become a link in a chain designed to fleece the mythical Mrs. Gigglia of her funds.
Texas follows the rule that statutes in derogation of the common law are not strictly construed; but, if the statute creates a liability unknown to the common law, or deprives a person of a common law right, the statute will not be extended beyond its plain meaning or applied to cases not clearly within its purview. And, since the legislature did not specifically define the word "use", its ordinary meaning will be applied. Satterfield v. Satterfield, 448 S.W.2d 456, 459 (Tex.1969).
Under the clear rules enunciated in Satterfield, supra, we decline to permit one conspirator to recover treble damages against his co-conspirator in a scheme to defraud a third person. Instead, we will apply the usual rules to the present prevailing facts.
Section 2.01 of the Code Construction Act, Tex.Rev.Civ.Stat.Ann. art. 5429b-2 (Supp.1978-79),[5] is in accord with the rule *249 enunciated in Satterfield, supra. We turn now to a few of the authorities defining the word "use".
In Southwestern Telegraph & Tel. Co. v. City of Dallas, 174 S.W. 636, 641 (Tex.Civ. App.Dallas 1915, writ ref'd), the court said: "`Use' means to make use of; to convert to one's own service; to put to a purpose; to hold, occupy, enjoy, or take the benefit of." In a more recent case of solid precedential value, James Stewart & Co. v. Mobley, 282 S.W.2d 290, 294 (Tex.Civ.App. Dallas 1955, writ ref'd), the court said: "`Use' is to employ for accomplishment of a purpose; to apply to one's services; to avail oneself of."
Black's Law Dictionary (Rev. 4th Ed., 1968) says that in the non-technical sense, the "`use' of a thing means that one is to enjoy, hold, occupy, or have some manner of benefit thereof." It also means "usefulness, utility, advantage, productive of benefit."
The word was defined by then Chief Justice Barrow, in Beggs v. Texas Dep't. of Mental Health & Mental Ret., 496 S.W.2d 252, 254 (Tex.Civ.App.San Antonio 1973, writ ref'd), as follows: "`to put or bring into action or service; to employ for or apply to a given purpose.'"
The jury found in Bill Person's favor each of the constituent elements of a cause of action under Tex.Bus. & Comm.Code Ann. § 27.01 (1968), and the jury found that the lots he purchased were worth $19,000 but that if Latham had performed as he represented, they would have been worth $38,000, so his judgment was for $19,000 plus exemplary damages in the sum of $20,000. Thus, we review a judgment wherein there has been a recovery under a special statute governing transactions involving real estate sold under false representations.
We note in passing that § 27.01 is derived from Tex.Rev.Civ.Stat.Ann. art. 4004 (1966), which for nearly a half century governed suits involving fraudulent representations with regard to land transactions and in stock of corporations. It is significant that the new Act, § 17.45(1), specifically excludes fraudulent representations as to stock in corporations: "`Goods' means tangible chattels...."
Moreover, the legislature did not indicate any intention to repeal or to modify the statute presently found in § 27.01. We have a special statute governing corporate stock and real estate and we find no imperative need to torture this case into one covered by the Deceptive Trade Practices Act.
Bill Person pleaded and proved a cause of action under § 27.01. See and compare, Stanfield v. O'Boyle, 462 S.W.2d 270, 271 (Tex.1971). We affirm his judgment on that cause of action against Latham. In so doing, we overrule and deny his claims to a recovery under § 17.45.
Claude Person was a rancher in Jack County and had no prior experience in buying or selling lots in real estate subdivisions. His brother Bill talked to him about buying some property in Montgomery County. Bill told him that "a lady was, was in the process of buying them, that she wanted them [the lots] to build a beautiful lake home." He, too, was gullible and frankly testified that he purchased a lot so "[t]hat I could resell it and make some money."
He and his wife drove to Lake Conroe and met Latham who showed them the lot that Latham represented as being the one "Mrs. Gigglia" needed to round out her lakefront property acquisition. Latham told them "that Clydean [Mrs. Claude Person] and I would make about five, would make $5,000 off that one particular lot." Subsequently, Latham told him that one "Roy James" was interested in purchasing two other lots for $20,000 each but that Claude could purchase them for $10,000 each. With the glint of large and quick profit, Claude purchased his lots. He soon found out that there was no substance to Latham's representations.
Claude Person filed his suit against the defendants in Montgomery County on October 31, 1975, and, eventually, his suit was consolidated with that of Bill which had been filed several weeks earlier. While Claude's suit was pending in Montgomery *250 County, he and another brother (Richard) filed a suit in Jack County on April 7, 1976, naming Latham as a party defendant. Claude specifically sought a recovery of $4,900 for money he had paid to Latham on the Montgomery County lots forming the basis of this suit then pending in that county.
Latham defaulted on the Jack County litigation and Claude, along with his wife and other brother as plaintiffs in Jack County, recovered judgment against Latham for $20,125, the judgment having been signed on June 19, 1976, based upon testimony heard by the trial court on May 27, 1976.
Latham learned of the default judgment and timely filed his original motion for new trial and it was timely amended on July 21. The parties agreed in writing filed with the court on August 17, that the amended motion would be argued on September 9 and acted upon within twenty days thereafter. See Tex.R.Civ.P. 329b, § 3.
No order was entered on September 29 so that the motion was overruled by operation of law upon that date. Sanders v. West Texas Utilities Co., 537 S.W.2d 787, 788 (Tex.Civ.App.Eastland 1976, writ ref'd). Notwithstanding this effect of the non-action on the part of the trial court, it still had jurisdiction over its judgment for an additional thirty days during which time it could have entered an order vacating, modifying, correcting, or reforming such judgment. Transamerican Leasing Co. v. Three Bears, Inc., 567 S.W.2d 799, 800 (Tex.1978); Mathes v. Kelton, 569 S.W.2d 876, 878 (Tex. 1978). No such action was taken by the trial court during that period.
Instead, within thirty days after September 29, counsel for the Jack County plaintiffs (Claude, et al.) filed an instrument among the papers entitled "Notice of Abandonment". In this instrument, counsel purported to act for all of the plaintiffs declaring "that they hereby abandon and forego those damages alleged in Paragraph I of Plaintiffs' First Original Petition." The noticed paragraph was one seeking $4,900 for money had and received by Latham on the lots purchased by Claude.
In filing this "abandonment", counsel recited that it was done pursuant to Tex.R. Civ.P. 165[6] and the "notice" contained this additional language:
"Plaintiffs hereby stipulate that the Judgment in this cause should be adjusted and credited with the figure of $4,900.00 for this purpose."
In April, 1977, the Sheriff sold several items of personal property under Claude's Jack County judgment for the sum of $95.00the precise amount of the court costs.[7] The effect of these maneuvers, if upheld in this court, is to permit Claude, et al., to litigate and recover a judgment for more than $20,000 in Jack County and to reserve Claude's claim for further litigation in Montgomery County. We decline to permit this result.
Reduced to its simplest form, Claude's position is that he was entitled to take a partial non-suit after he had secured a judgment upon his claim, thus enabling him to litigate the same claim elsewhere again. We have found no authority permitting such action or supporting such contention. Rule 165 permits an abandonment of a part of a claim or defense before but not after trial of the cause and entry of the judgment. We decline to apply Rule 165 to a case wherein judgment was rendered on a claim before the motion to abandon was filed.
Under the record which we have reviewed, the action of the trial court in sustaining the plea of res judicata was proper and all points attacking such action are overruled. Freeman v. McAninch, 87 Tex. *251 132, 27 S.W. 97 (1894). See also Z. Steakley and W. Howell, Jr., "Ruminations on Res Judicata", 28 S.W.L.J. 355, 363, et seq. (1974), where most of the modern authorities are cited and discussed.
Finding no error, the judgment of the trial court is affirmed.
NOTES
[1] The transcript contains more than five hundred pages; the statement of facts takes up more than eighteen hundred pages; and, there are more than one hundred fifty original exhibits. To compound the difficulties encountered in a record of such magnitude, appellee has not favored us with a brief answering any of the contentions brought forward.
[2] "The scheme and the plain, design and conspiracy also was for the purpose (among others) of tricking Plaintiffs, as buyers who did not want to purchase lots for themselves, into thinking they could resell the lots for a profit, and then covering up Defendants' frauds by various artifices and other dishonest maneuvers.... Essentially, these cover-up schemes involved at least two methods of operation. One method was to ask Plaintiffs to answer a questionnaire after a sale was completed, which asked if misrepresentations had been made. However, in each case Defendants knew (or should have known) that Plaintiffs had been fraudulently induced by Defendant, Latham, to answer that nothing had been misrepresented. Another method was to snare Plaintiffs, as buyers, into helping Defendant Latham locate still other buyers for a `referral fee', and then later falsely claim that the `referral fee' was improperly paid. Then, when Plaintiffs later complained that their lots hadn't been resold, these phony defenses (and others just as phony) would be thrown in their faces by Wilkerson and Bailey [two other defendants]."
[3] Subsequent to the entry of the judgment below, plaintiffs settled their controversies with all defendants except Latham who is our sole appellee; and, he has not favored us with a brief.
[4] § 17.45(1) of the amended Act reads:
"`Goods' means tangible chattels or real property purchased or leased for use."
§ 17.45(2) of the amended Act reads:
"`Services' means work, labor, or service purchased or leased for use, including services furnished in connection with the sale or repair of goods." (emphasis supplied)
[5] Art. 5429b-2, § 2.01 reads in part: "Words and phrases shall be read in context and construed according to the rules of grammar and common usage."
[6] Rule 165: "A party who abandons any part of his claim or defense, as contained in the pleadings, may have that fact entered of record, so as to show that the matters therein were not tried."
[7] Plaintiffs had alleged that the equipment, including a "new Massey Ferguson tractor model 235 diesel ...." was worth in excess of $15,000.
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156 B.R. 718 (1993)
In re STEVENS LINEN ASSOCIATES, INC., Debtor.
STEVENS LINEN ASSOCIATES, INC., Plaintiff,
v.
Hugh W. CRAWFORD, Jr. and Glenfed Financial Corporation, Defendants.
Bankruptcy No. 93-40042-JFQ, Adv. No. 93-4062.
United States Bankruptcy Court, D. Massachusetts.
July 14, 1993.
*719 John Woodward, Seder & Chandler, Worcester, MA, for plaintiff Stevens Linen Associates, Inc.
Joseph W. Allen, III, Dunn, Leader & Allen, Worcester, MA, C. Hall Swaim, C. Hall Swaim, Hale and Dorr, Boston, MA, for Hugh W. Crawford, Jr.
Richard L. Levine, Hill & Barlow, Boston, MA, for Glenfed Financial Corp.
OPINION
JAMES F. QUEENAN, Jr., Chief Judge.
This is a fraudulent transfer action brought by the debtor in possession, Stevens Linen Associates, Inc. ("Stevens"), seeking to avoid transfers made and obligations incurred in connection with a 1988 leveraged buyout of all its outstanding capital stock. The defendants are Hugh W. Crawford, Jr. ("Crawford"), who held most of the stock sold, and Glenfed Financial Corporation ("Glenfed"), which financed the transaction. Pursuant to section 544(b) of the Bankruptcy Code, Stevens seeks to assert for the benefit of all creditors the fraudulent transfer rights of three creditors under the Uniform Fraudulent Conveyance Act, in effect in Massachusetts as Chapter 109A of the Massachusetts General Laws. Now before the court are motions to dismiss the complaint filed by Crawford and Glenfed on the ground the action is time-barred because the controlling Massachusetts statute of limitations is the three year statute applicable to actions of tort, Mass.Gen.L. ch. 260, § 2A.
The allegations of the complaint, summarily stated and taken as true for the purpose of these motions, disclose the following. On September 28, 1988, Management Acquisition Corporation ("MAC"), a Massachusetts corporation capitalized at $200,000 and owned by individuals named Gregory Kline and Gary Piontkowski, entered into an agreement with Crawford and the other Stevens stockholders to purchase all their capital stock. The aggregate purchase price was $10,143,770, of which all but $1 million was to be paid in cash. At the closing on October 12, 1988, the following occurred: (i) MAC merged into Stevens, (ii) Glenfed loaned Stevens $9.5 million and disbursed most of the funds directly to Crawford and the other selling stockholders, (iii) Stevens issued promissory notes totaling $1 million payable to Crawford and the other sellers, (iv) Stevens entered into a "Confidentiality and Non-Competition" agreement with Crawford under which it agreed to pay him an additional $1.5 million, and (v) Stevens granted mortgages and security interests on all its property securing these various obligations.
The complaint contains fraudulent transfer counts against Crawford and Glenfed under the insolvency and unreasonably small capital sections of the Massachusetts statute. It also seeks to equitably subordinate the debts of Stevens and Glenfed to the claims of other creditors. The fraudulent transfer counts rely upon the claims of three creditors which were in existence in 1988 and are still in existence. One claim arises under a 1976 pension agreement and the other two under 1970 stock purchase agreements.
Having filed its chapter 11 petition on January 7, 1993, Stevens commenced this adversary proceeding on March 12, 1993. Unlike the Uniform Fraudulent Transfer Act in force in a growing number of states, the Uniform Fraudulent Conveyance Act in effect in Massachusetts and a few other jurisdictions has no special statute of limitations. This raises the question of what statute of limitations applies, the six year statute governing contract claims (Mass. Gen.L. ch. 260, § 2) or the three year statute governing tort claims (Mass.Gen.L. ch. 260, § 2A). Application of the three year tort statute would bar this action.
Citing American Jurisprudence 2d, Crawford and Glenfed contend most jurisdictions which have adopted the Uniform Fraudulent Conveyance Act have applied a tort statute of limitations to fraudulent transfer actions. See 37 Am.Jur.2d Fraudulent Conveyance § 194 at 854 (1968 ed. & 1992 Supp.). That may be. The Ninth Circuit, however, has held that a fraudulent transfer action sounds not in tort but in quasi-contract principles of unjust enrichment, *720 so as to be governed by the contract statute of limitations. See United States v. Neidorf, 522 F.2d 916 (9th Cir. 1975). In any event, the defendants concede, as they must, that Massachusetts law controls. They and Stevens differ sharply on what that law is.
A review of the Massachusetts case law, and the First Circuit's interpretation of that case law, leaves no doubt on the point. On the general question of applying the tort or contract statute of limitations, without specific reference to fraudulent transfers, the Supreme Judicial Court of Massachusetts looks to "the `gist of the action' or the essential nature of the plaintiff's claim." Hendrickson v. Sears, 365 Mass. 83, 310 N.E.2d 131, 132 (1974) (legal malpractice claim).
With respect to fraudulent transfer actions, the Massachusetts court has consistently regarded the gist of the action for statute of limitations purposes to depend upon the nature of the claim under which the plaintiff is a creditor. It regards the fraudulent transfer action as merely a remedy for that underlying claim.
The decision forming the basis for this line of cases did not involve a statute of limitations at all, but it set the pattern for those that did. In Blumenthal v. Blumenthal, 303 Mass. 275, 21 N.E.2d 244 (1939), a wife holding a judgment for breach of a separation agreement sought to set aside various conveyances made by her husband as transfers in fraud of creditors. Massachusetts did not then permit suits between husband and wife. The wife sought to circumvent this prohibition by asserting her status as a "creditor" under the Massachusetts enactment of the Uniform Fraudulent Conveyance Act in effect in Massachusetts, Mass.Gen.L. ch. 109A. The court rejected the argument, stating:
These statutory remedies furnish a method by which a claim at common law, when proven to be valid, may be satisfied out of the debtor's property. The essential basis of the proceeding is an indebtedness that could ordinarily be enforced in an action of contract, and the nature of the claim is in no way changed by the form of procedure. The claim is asserted in the form of a bill of complaint in order that, if proved, it may have the benefit of an equitable remedy to secure its satisfaction. The remedy is incidental to the claim. 21 N.E.2d at 246.
The First Circuit has relied on Blumenthal in resolving the very statute of limitation issue raised by the present motions. In Desmond v. Moffie, 375 F.2d 742 (1st Cir.1967), a trustee in bankruptcy sought to employ the rights of a contract claimant to set aside an allegedly fraudulent transfer. The court cited Blumenthal for the proposition that the essential nature of a fraudulent transfer action depends upon the nature of the claim which the plaintiff seeks to have satisfied. It therefore concluded the longer contract statute of limitations applied.
The defendants argue other Massachusetts decisions destroy the authority of Desmond. They point first to Moseley v. Briggs Realty Co., 320 Mass. 278, 69 N.E.2d 7, 10 (1946), where the Massachusetts court said: "The present suit falls within the class of equitable `actions of tort.'" It is true that Moseley involved a fraudulent transfer claim against stockholders, which arose from the debtor paying dividends while insolvent. But the plaintiff also asserted a cause of action against the debtor's directors under Mass. Gen.L. ch. 156, § 37 for improper approval of the dividends. The court made the quoted statement in the course of its discussion of the statute of limitations applicable to the action against the directors. The court was obviously referring only to that cause of action. It is disingenuous to contend otherwise. The court later referred to the statute of limitations applicable to the fraudulent transfer action. But here it said only: "The proper analogue in this case is an action of contract or of tort, which may be commenced `within six years after the cause of action accrues.' G.L. (Ter.Ed.) c. 260, § 2." Section 2 then imposed a six year limitations period for actions of both contract and tort, so the court did not have to rule on the nature of the *721 suit for limitations purposes. Presumably this is why in Desmond the First Circuit did not cite Moseley.
The defendants nevertheless contend a Massachusetts decision after Desmond demonstrates the tort statute of limitations governs fraudulent transfer actions. Foster v. Evans, 384 Mass. 687, 429 N.E.2d 995 (1981), the defendants say, settled the question in their favor. To the contrary, Foster squarely holds the statute of limitations governing fraudulent transfer claims depends not upon the nature of the fraudulent transfer action but rather upon the nature of the debt which the plaintiff seeks to satisfy from the property transferred. In Foster, the plaintiff had recovered judgment on a promissory note signed by the defendants in connection with their purchase of the plaintiff's business. The plaintiff then brought suit to set aside an allegedly fraudulent conveyance and have the property applied in satisfaction of the judgment. The court held the action was not time-barred because the underlying claim was based on a judgment entitled to a twenty year statute of limitations. The court rejected the contention that Moseley stands for the proposition that the tort statute of limitations governed fraudulent transfer actions. It pointed out the ruling in Moseley applying the tort statute of limitations referred to the cause of action for the statutory liability of directors, not the fraudulent transfer count.
In summary, the Massachusetts decisions, particularly Foster, establish that the statute of limitations in a fraudulent transfer action is the statute applicable to the claim which made the plaintiff a creditor. They regard the fraudulent transfer action as merely a remedy for collecting that claim rather than an action which of itself has to be squeezed into a tort or contract category for limitations purposes. The underlying claims asserted in the present fraudulent transfer action are unquestionably based upon contract. Indeed, one of these claims arises from a contract under seal, which has its own twenty year statute of limitations. See Mass.Gen.L. ch. 260 § 1. Hence either the six year or twenty year statute applies. Thus this adversary proceeding is not time-barred.
A separate order has issued denying the motions.
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16 N.J. Super. 22 (1951)
83 A.2d 775
JOSEPH P. SAYERS, SR., AS GUARDIAN AD LITEM OF WILLIAM FREDERICK SAYERS, A MINOR, AND JOSEPH P. SAYERS, SR., INDIVIDUALLY, PLAINTIFFS-RESPONDENTS,
v.
ALFRED RANGER AND ALBERT V. HEDELT. JOINTLY, SEVERALLY AND IN THE ALTERNATIVE, DEFENDANT-APPELLANT.
Superior Court of New Jersey, Appellate Division.
Argued August 6, 1951.
Decided October 22, 1951.
*23 Before Judges LEYDEN, DANIEL J. BRENNAN and SCHETTINO.
Mr. Edison Hedges argued the cause for respondents.
Mr. Robert Peacock argued the cause for appellant.
*24 The opinion of the court was delivered by DANIEL J. BRENNAN, J.S.C.
The defendant, Alfred Ranger, appeals from a judgment against him entered in the Law Division of the Superior Court, Atlantic County, awarding $1,000 to the plaintiff William Frederick Sayers, a minor, by his guardian ad litem, Joseph P. Sayers, Sr., and $151 to Joseph P. Sayers, Sr., in his own right.
The facts are that the infant plaintiff, a 14-year-old boy, a freshman in Pleasantville High School in this State, on March 17, 1950, by election, was jumping over a gymnasium horse used as one of the instrumentalities of physical exercise in the school. While in the course of said jump he fell and broke his arm. The complaint is predicated on the alleged negligence of the physical education teacher (Ranger) for failure to supervise the final jump of the infant and directing him to walk to the office of the supervisor after he was hurt. The defendant Hedelt, who was in charge of physical education in said high school, is charged with negligently attempting to attend to said arm.
The several members of the board of education and the secretary thereof were impleaded as defendants, but the counts contained in the amended complaint were, as to them, on motion of the attorney for the defendants and by appropriate order of the trial court, stricken, being dismissed for that they do not disclose a legal cause of action against these defendants.
During the trial the court granted a motion for judgment of dismissal as to the defendant Hedelt, and the case was submitted to the jury on the question of the alleged negligence of the individual defendant Ranger, the gymnasium teacher.
The single question for resolution is the right of the plaintiffs to have recovery in the light of the circumstances under the testimonial record. It should be noted that physical education is compulsory in our public school system for all those students above the kindergarten level who are physically fit, R.S. 18:14-93-96. The defendant Ranger is an accredited physical education instructor and from the testimony it *25 appears that proper mats were set out to protect the students and the jumps were supervised by the defendant and a volunteer student. In addition to these precautions against injury there was a demonstration by the defendant as to how the jump should be done. The testimony of the witnesses indicates that the infant plaintiff could choose the character of gymnasium exercise he wanted; that on the day of the accident he had successfully jumped several times; that he jumped in leap frog fashion; that he went to put his hands down and his foot hit the top boy throwing him off balance before his hands could get on the boy's back; that before the boy started the instructor cautioned him (as testified by the infant plaintiff): "This is dangerous and to do it the way he showed us and if we didn't think we could do it, not to, and seeing I had done it successfully before, I did it that time." It is manifest out of the mouth of the infant plaintiff that he was fully aware of the dangers implicit in this form of exercise. He was of sufficient intelligence and experience to realize the harmful potentialities of the situation. He elected to assume it and must be held to the consequences which ensued in the process thereof. There was nothing culpable or negligent in the conduct of the defendant. The accident was not the result of any wrongful or negligent act on the part of the defendant. If we assume negligence in the defendant, still no right of recovery was established. Knowledge of the danger compels assumption of the risk in such a case. Vorrath v. Burke, 63 N.J.L. 188, at 190 (Sup. Ct. 1899); North Hudson v. Flanagan, 57 N.J.L. 696 (E. & A. 1895); Sheets v. Connolly, 54 N.J.L. 518 (Sup. Ct. 1891); Clerici v. Gennari, 102 N.J.L. 377 (Sup. Ct. 1926); Gaincott v. Davis, 275 N.W. 229, 231 (Sup. Ct. Mich. 1937). The damage here complained of must have come from an act which is wrongful to sustain recovery. The record is barren of any proof that the defendant teacher was known to be unskillful or an improper person to do the work. There was no proof that the accident was due to defendant's negligence. *26 The defendant exercised due care under the circumstances. His obligation in that respect was satisfied.
So much of the amended complaint as charges as negligence of the defendant that he directed the boy to get up off the floor and walk to the office of the supervisor is insubstantial in law and fact. The record reveals that the boy was brought to the first-aid room not too long a distance away, there given preliminary assistance and afterwards transported to a hospital for proper treatment. Common experience dictates that transportation to a hospital is the better choice of expedients under the circumstances rather than waiting to summon a physician who would be ready and able to come to the scene of the event. The conduct of the teacher was more in the nature of humanitarian interest rather than evocative of any negligence.
Plaintiffs having failed to establish a right of recovery, the judgment is reversed.
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582 S.W.2d 255 (1979)
LIBERTY LEASING COMPANY, INC., Appellant,
v.
Jess F. STILL, Sr., Appellee.
No. 17407.
Court of Civil Appeals of Texas, Houston (1st Dist.).
May 24, 1979.
*256 Wendell S. Loomis, Houston, for appellant.
James R. Cornish, Houston, for appellee.
PEDEN, Justice.
Liberty Leasing Co., Inc., appeals from a take-nothing judgment in a suit based on a foreign judgment. The court, sitting without a jury, found that Mr. Jess Still was denied due process of law, so the Illinois judgment rendered against him was not entitled to full faith and credit. Findings of fact and conclusions of law were filed. Liberty Leasing alleges that a previous decision of the Waco Court of Civil Appeals in this case constitutes the law of the case, so the findings of the trial court and its judgment in this case should have been determined in keeping with that appeals court decision. Further, that the Illinois court had valid jurisdiction, and Liberty Leasing was entitled to recover $8,000 plus costs.
A Texas corporation named Stillco entered into an agreement to lease heavy construction equipment from Liberty Leasing, an Illinois corporation. The lease agreement designated Liberty Leasing Co., Inc., as lessor and Stillco, as lessee. Underneath this area were three boxes labelled "Corporation," "Partnership," and "Proprietorship" with instructions to "Check One;" the "Corporation" box was checked. At the bottom of lease, Stillco's name was again listed as lessee and the contract signed by Jess F. Still as president. His signature appears a second time immediately following his first signature. This time, however, in the "Title" space, the word "Individual" was typed in. There is yet another space labelled "Personally as an Individual" that was left blank. There is nothing in the agreement to suggest that anyone but Stillco was the lessee. It appears that Mr. Still signed as an individual only in the capacity of a guarantor, not as a lessee.
The only contract clause in issue in this case is paragraph 21, which provides:
This agreement shall be deemed to have been made in Cook County, Illinois, regardless of the order in which the signatures of the parties shall be affixed hereto, and shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of Illinois. The LESSEE hereby designates Lowell Sachnoff, 105 West Adams Street, Chicago, Illinois, 60603 and/or William Weaver, 105 West Adams Street, Chicago, Illinois, 60603 as agents for the purpose of accepting to forward by certified mail any process served upon him to the LESSEE at its address as set forth above.
Liberty Leasing filed suit against both Stillco, Inc., and Mr. Still in Cook County, Illinois. Still is a resident of Texas. On July 10, 1974, the Illinois court rendered judgment for Liberty Leasing against Stillco and Jess F. Still in the amount of $8,000. The order further stated:
IT IS ORDERED that defendants, Stillco Inc. and Jess F. Still shall return to the possession of plaintiff, within three *257 (3) days from the entry of this judgment, the following goods and chattels, to-wit:
1 only caterpillar D7 E Tractor, Serial No. 48A1157
1 only caterpillar 75 Dozer, Serial No. 59F-493
1 only caterpillar 173 Hyd. Control, S/N/ 48C-11281 OM4255,
or upon failure to do so, the plaintiff shall have and recover of defendants, Stillco Inc. and Jess F. Still the sum of $8,000.00 plus court costs.
Subsequently, Liberty Leasing filed suit in Texas alleging that Stillco and Jess F. Still had defaulted on the equipment lease, that Liberty Leasing had obtained judgment against Stillco and Still in Illinois, and that such judgment was entitled to full faith and credit. The Texas trial court awarded Liberty Leasing $9,453.01. Only Still appealed this judgment and as to him the Waco Court of Civil Appeals reversed the judgment of the trial court and remanded the cause. Still v. Liberty Leasing Co., 570 S.W.2d 93 (Tex.Civ.App.1978, no writ). The second trial resulted in this take-nothing judgment.
In its first two points of error, Liberty Leasing contends that the opinion of the Waco Court of Civil Appeals stated the law of the case, so the trial court in this case erred in rendering judgment contrary to that opinion's stated law. Further, Liberty Leasing attacks certain findings of the trial court, maintaining that they were not authorized because the trial court was required to follow the law of the case as expressed by the Waco court.
The opinion in Still v. Liberty Leasing Co., supra, addressed the only issue raised, whether the Illinois judgment was void because Still was not served with process and had no notice of the suit. The court stated at page 94:
There is no evidence that the agents appointed in the lease were served with process in the Illinois suit. As noted the Illinois judgment recites that defendants were `duly served with summons.' If there had been evidence that the agents appointed to receive process had in fact been served, the Illinois judgment would be enforceable in Texas as it would be in Illinois.
* * * * * *
Thus, the authenticated Illinois judgment raised a presumption that service of process was had on defendant; but such presumption vanished when defendant testified unequivocally he had not been served. At this juncture it was incumbent upon plaintiff to adduce evidence that the agents for service named in the lease agreement had actually been served, if such was the fact. This, plaintiff did not do.
Because Liberty Leasing failed to prove service of process on Still or due notice to him, the cause was "remanded to the trial court under the rule laid down in Morrow v. Shotwell, Tex., 477 S.W.2d 538, and Scott v. Liebman, Tex., 404 S.W.2d 288." The Texas Supreme Court stated in Morrow, at page 542:
See Scott v. Liebman, supra, where we said: `However, both the Court of Civil Appeals and this Court, having found error in the judgment of the trial court, are authorized in a proper case to remand in the interest of justice. Both courts have discretion in this matter. Dahlberg v. Holden, 150 Tex. 179, 238 S.W.2d 699 (1951) ....' We see no compelling reason at this late hour to recant our holdings in the cited cases; accordingly, we have concluded that this cause should be remanded to the trial court so that Morrow may, if he wishes, amend his pleadings and try his case on a different theory.
Liberty Leasing contends that because Still failed to complain on the first appeal that he was not designated as a lessee in the lease agreement, that he was not a named party to the lease agreement, or that he did not designate agents to accept service of process for him within the state, he is thereby precluded from asserting such issues at the second trial. Where the remand of a cause is accompanied by instructions restricting the retrial to particular *258 issues, the parties must keep within those issues and may not re-litigate matters controverted at the former trial. Owens v. Lubbock Independent School District, 237 S.W.2d 711 (Tex.Civ.App.1950, writ ref. n. r. e.). As the remand in our case was unrestricted, new issues could be raised at the second trial. This procedure is in accord with the Morrow v. Shotwell principle relied upon by the Waco court. Consequently, the court at the second trial was free to make findings of fact and conclusions of law based on the evidence adduced in that trial and unhampered by the prior appellate decision. Points of error 1 and 2 are overruled.
In its third point of error, Liberty Leasing asserts that the trial court erred in not rendering judgment in its favor because the Illinois judgment was entitled to full faith and credit. It maintains that the Illinois court had valid in personam jurisdiction over Still because when he signed the contract, he voluntarily assented to Illinois jurisdiction and to the appointment of an agent to receive process. In point of error 4, Liberty Leasing says that notice to the agent constituted notice to the principal. Finally, Liberty Leasing contends there was sufficient evidence in the record to support a finding that the Illinois court had jurisdiction.
Article IV, Section 1 of the United States Constitution provides in pertinent part:
Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State....
The full faith and credit clause does not automatically make a sister-state's judgment a judgment in another state. "A judgment in one State is conclusive upon the merits in every other State, but only if the court of the first State had power to pass on the meritshad jurisdiction, that is, to render the judgment." Williams v. North Carolina, 325 U.S. 227, 65 S.Ct. 1092, 1095, 89 L.Ed. 1577 (1945). The courts of one state have the right to question whether a court of another had jurisdiction when it entered the judgment sought to be afforded full faith and credit. Williams v. North Carolina, supra: Elkins v. West, 554 S.W.2d 821 (Tex.Civ.App.1977, no writ).
The trial court in our case was authorized to examine the jurisdiction of the Illinois court over Still. It found that Illinois was without jurisdiction, and we agree with that finding. The contract named a sole lessee, Stillco, Inc., and only the lessee designated an agent for service of process. Still testified that he never received notice of the Illinois trial and only learned of the judgment when suit was filed in Texas. He was not shown to have consented to jurisdiction of the Illinois court nor to have appointed an agent to receive service of process. Illinois lacked in personam jurisdiction over Still, so its judgment against him was not entitled to full faith and credit.
The judgment of the trial court is affirmed.
COLEMAN, C. J., and DOYLE, J., also sitting.
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179 F.Supp. 225 (1959)
Pauline C. BOWEN, administratrix of the Estate of Alphonso J. Harris,
v.
NEW YORK CENTRAL RAILROAD COMPANY and Boston and Albany Railroad.
Civ. A. No. 58-987.
United States District Court D. Massachusetts.
December 9, 1959.
*226 Joseph P. Coughlin, Cambridge, Mass., Gesmer & Geller, Boston, Mass., for plaintiff.
Richard J. Ferriter, Boston, Mass., Frank W. Crocker, Ropes, Gray, Best, Coolidge & Rugg, Boston, Mass., for defendant.
FRANCIS J. W. FORD, District Judge.
This is an action under the Federal Employers' Liability Act, 45 U.S.C.A. §§ 51-60, to recover for the death of Alphonso J. Harris. The complaint sets forth that the action is brought by the personal representative of Harris for the benefit of his surviving widow. The motions before the court at this time have been brought by the mother of four children alleged to be the illegitimate children of Harris. She seeks to intervene in their behalf and to amend the complaint to add them as beneficiaries.
The sole question raised is whether illegitimate children are within the meaning of the statute persons for whose benefit an action may be brought by the personal representative.[1] The act provides in similar language in 45 U.S. C.A. §§ 51 and 59 for actions "for the benefit of the surviving widow or husband and children of such employee; and, if none, then of such employee's parents; and if none, then of the next of kin dependent upon such employee * * *." Since the Federal Employers' Liability Act provides the exclusive remedy for beneficiaries in the case of the negligent injury or death of an employee working in furtherance of the interstate business of a railroad, New York Central R. Co. v. Winfield, 244 U.S. 147, 37 S.Ct. 546, 61 L.Ed. 1045, these children cannot recover unless they fall within the class of beneficiaries designated in the statute. It is the contention of the intervening petitioner that the word "children" as used in the statute should be interpreted so as to include illegitimate children.
The word "children" and the other terms used in the act to designate the various classes of beneficiaries were not defined in the act, and the determination of who is or is not included within the meaning of these terms must be sought in the applicable state law, in the present case the law of Massachusetts. Poff v. *227 Pennsylvania R. Co., 327 U.S. 399, 401, 66 S.Ct. 603, 90 L.Ed. 749; Seaboard Air Line Ry. v. Kenney, 240 U.S. 489, 493, 494, 36 S.Ct. 458, 60 L.Ed. 762.
In Seaboard Air Line suit was brought for the benefit of next of kin, who were illegitimate children of the mother of the deceased. The court stated in discussing who were included in the term "next of kin" as used in the FELA at page 493 of 240 U.S., at page 460 of 36 S.Ct.:
"But, as speaking generally, under our dual system of government, who are next of kin is determined by the legislation of the various States to whose authority that subject is normally committed, it would seem to be clear that the absence of a definition in the act of Congress plainly indicates the purpose of Congress to leave the determination of that question to the state law."
At common law in Massachusetts the words "child" and "children" have been held to refer only to a legitimate child or children. Town of Plymouth v. Hey, 285 Mass. 357, 359, 189 N.E. 100; Sanford v. Marsh, 180 Mass. 210, 62 N.E. 268. The same meaning has been given to these words in their statutory usage, especially in the Massachusetts workmen's compensation act. Olson's Case, 247 Mass. 570, 142 N.E. 808; Broadbent's Case, 240 Mass. 449, 452, 134 N.E. 632; Gritta's Case, 236 Mass. 204, 127 N.E. 889, 890. In the latter case illegitimate children were found to qualify for benefits, not because they were "children" within the meaning of the statute, but because they were found to fall within the class of "members of the [deceased] employee's family," M.G.L.A. c. 152, § 1, a class of beneficiaries found in the Massachusetts statute but not in the Federal Employers' Liability Act.
In the absence of any subsequent marriage between the decedent and the mother of these children, their status as illegitimate children is not changed by any acknowledgment or adjudication of paternity. Mass.G.L. Ch. 190, § 7; Irving v. Ford, 183 Mass. 448, 67 N.E. 366, 65 L.R.A. 177.
It is similarly clear that under Massachusetts law illegitimate children are not included within the class of "next of kin." Olson's Case, 247 Mass. 570, 142 N.E. 808, 809.
The conclusion must be that the illegitimate children on whose behalf these petitions are brought are not beneficiaries of the decedent entitled under the statute to the benefits of any recovery in the instant action.
The motions to intervene and to amend the complaint are denied.
NOTES
[1] The parties did not argue the question of whether these motions are the proper ones, from a procedural standpoint, for asserting the claims of these children.
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156 B.R. 713 (1993)
In re Robert Phillip PEARSON and Fannie Lancaster Pearson, Debtors.
Bankruptcy No. 92-18926.
United States Bankruptcy Court, D. Massachusetts.
June 4, 1993.
Harvey S. Shapiro, Joseph M. Szabo.
*714 MEMORANDUM
JOAN N. FEENEY, Bankruptcy Judge.
I. INTRODUCTION
The Court has before it the Interim Application and Itemized Disclosure of Harvey S. Shapiro Respecting the Allowance or Payment of Compensation and Reimbursement of Expenses to Counsel to Debtors. This case presents the following issue: What is reasonable compensation for a debtor's attorney in a Chapter 13 case? As in many jurisdictions, there are "customs" that govern the amount and method of payment of fees for debtors' counsel in the Eastern Division of the District of Massachusetts. See generally II Keith M. Lundin, Chapter 13 Bankruptcy, § 7.28 at 7-57 (1991). It was the practice of the late Chief Judge James N. Gabriel to allow fees in the approximate amount of $750. More recently, fees have been allowed, without the necessity of formal application, at a higher level, ranging from $750 to $1,500. This case provides the opportunity to transform the unwritten rules to written ones for the benefit of all Chapter 13 practitioners, particularly those who, with the increase in the number of Chapter 13 cases, are new to this area of practice.
II. THE PEARSON CASE
Robert and Fannie Pearson (the "Pearsons") filed a Chapter 13 petition on August 31, 1992. On September 16, 1992, they filed their Schedules and Statement of Affairs, as well as a Statement of Attorney Compensation. Approximately one week later they filed their Chapter 13 plan, having obtained Court approval for an extension of time within which to file it.
The Statement of Attorney Compensation signed by the Pearsons' attorney, Harvey S. Shapiro ("Attorney Shapiro"), contained the following information: "Filing fee and attorneys fees are to be paid by the Boston Teachers' Union Pre-Paid Legal Services Plan at the rate of $70.00/hour." At the commencement of the case, Attorney Shapiro had received no retainer.
The Debtors, through their Chapter 13 plan, proposed to submit future earnings of $2,270.32 per month for sixty months to satisfy their creditors, as well as net proceeds ("court award or settlement exclusive of attorneys fees, disbursements and subrogation rights of medical and other insurance carriers, if any") from the resolution of a personal injury suit pending in the Maine Superior Court, York County, up to a maximum of $20,592.97.
With respect to their personal residence located at 11 Pheasantwood Lane, Sharon, Massachusetts, which the Debtors valued at $170,450, the Debtors proposed to pay the secured claim of the Town of Sharon in the amount of $4,326.98 in full. The Debtors proposed to treat the $154,000 claim of Equitable Mortgage Associates ("Equitable"), a second mortgagee, as secured in the amount of $111,822.61 and unsecured in the amount of $42,177.39. Additionally, they proposed to make a lump sum payment of $11,822.61 to Equitable upon confirmation of their plan and to pay the $154,000 arrearage on that mortgage with monthly payments of $1,933.29. The Debtors proposed to pay the first mortgagee, Brookline Savings Bank ("Brookline"), $54,300.41 in monthly installments of $944.84 outside their plan. The third mortgage held by Martin Hodas in the amount of $24,000, which was set forth on Schedule A, was not specifically mentioned in their plan.
The Debtors divided their unsecured creditors into two classes: creditors with nondischargeable debts arising from student loans and regular unsecured creditors. The latter class was to receive the net proceeds of the Maine litigation.
On October 14, 1992, Equitable filed a motion for relief from stay, alleging that the Debtors lacked equity in their residence. The motion was heard on November 13, 1992, and the Debtors were instructed to commence an adversary proceeding with respect to the bifurcation of the mortgage claim.
In the meantime, Massachusetts Credit Union Share Insurance Corporation on behalf of the Massachusetts Teachers Association Credit Union (the "Credit Union") and *715 Martin Hodas ("Hodas") filed objections to the Debtors' plan. Although the creditors hold somewhat different claims, an attachment which the Debtors seek to avoid as impairing their exemption in the case of the Credit Union and a fully or partially unsecured mortgage, depending upon the value of the property, in the case of Hodas, both creditors objected to the liquidation value used by the Debtors in their plan. The Court sustained the objections, pending the outcome of the adversary proceeding which the Debtors commenced on November 17, 1992 by the filing of a "Complaint to Determine the Extent and Nature of Security Interest in Residential Premises, and for Damages on Account of Overcharges" in which the Credit Union, Hodas, Equitable, and Brookline are named defendants.
At this time, the Debtors have not succeeded in obtaining confirmation of their Chapter 13 plan, nor have they proposed an amended plan. They have obtained Court authority to employ an appraiser and to employ special counsel to continue the personal injury litigation in Maine. A pre-trial conference in the adversary proceeding commenced on November 17, 1993 was held on June 2, 1993. The Debtors' attorney reported a settlement with two of the defendants and the likelihood of settlement with the other defendant that responded to the complaint. The Court scheduled a trial for August 25, 1993.
Prior to the pre-trial hearing, Attorney Shapiro filed six supplements to his Statement of Attorney Compensation as follows:
1/11/93 $7,038.80 (inclusive of $120 fee) 09/28/92-12/31/92
2/17/93 $1,565.20 01/06/93-02/11/93
2/19/93 Agreement by Debtors to pay unreimbursed expenses
4/06/93 $756.20 02/19/93-04/05/93
5/06/93 $997.50 04/05/93-05/05/93
5/24/93 Agreement by Debtors to be obligated for attorney
fees and costs at the rate of $70.00/hour
In view of the supplements, it is evident that Attorney Shapiro's total fees shall exceed $11,000 in this case. The supplements also reveal Attorney Shapiro has been paid $10,357.70 by the Boston Teachers' Union Pre-Paid Legal Services Plan.
Upon receipt of the Supplemental Statement of Attorney Compensation dated January 11, 1993, this Court ordered Attorney Shapiro to file a fee application in conformance with 11 U.S.C. §§ 329, 330, Federal Rule of Bankruptcy Procedure 2016 and Local Rule 34. Attorney Shapiro complied with the order and filed an Interim Application and Itemized Disclosure of Harvey S. Shapiro Respecting the Allowance or Payment of Compensation and Reimbursement of Expenses to Counsel to Debtors (the "Application"). Attorney Shapiro seeks $10,309.94 for 144 hours of work at the rate of $70.00/hour in his Application, which covered the period from August 24, 1992 through January 31, 1993, as well as $229.94 for expenses. His Application contains a statement that $9,744.70 was "received or pending in full satisfaction." However, the Court is unable to reconcile this number ($9,744.70) with those appearing on the Supplements as of February 19, 1993, the time of the filing of the Application which total $8,604.
III. THE CODE AND THE RULES
Section 329 of the Bankruptcy Code provides the following:
(a) Any attorney representing a debtor in a case under this title, or in connection with such a case, whether or not such *716 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 by 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. With respect to the amount of compensation awarded, section 330 of the Bankruptcy Code provides in pertinent part:
(a) After notice to any parties in interest and to the United States trustee and a hearing, and subject to sections 326, 328, and 329 of this title, the court may award to . . . the debtor's attorney
(1) reasonable compensation for actual, necessary services rendered by such . . . attorney, . . . and by any paraprofessional persons employed by such . . . attorney, . . . based on the nature, the extent, and the value of such services, and the cost of comparable services other than in a case under this title; and
(2) reimbursement for actual, necessary expenses.
11 U.S.C. § 330.
Federal Rule of Bankruptcy Procedure 2016(b) implements section 329 by requiring every attorney for the debtor to file and transmit to the United States trustee the statement required by section 329 within 15 days of the order for relief. Federal Rules of Bankruptcy Procedure 2016(a) and 2017 govern the filing of fee applications and oversight of payments to attorneys, respectively. Moreover, Federal Rule of Bankruptcy Procedure 1006(b)(3) requires the payment in full of the filing fee before the debtor or Chapter 13 trustee may pay an attorney or any other person who renders services to the debtor in connection with the case.
IV. CASE LAW
The role of the Boston Teachers' Union Pre-Paid Legal Services Plan as the source of the funds to pay the Debtors' legal fees does not relieve the Court of its duty to examine the reasonableness of compensation. See In re Bush, 131 B.R. 364, 365 (Bankr.W.D.Mich.1991). As the Bush court recognized in circumstances that admittedly are different than the instant case:
This obligation is especially important in a Chapter 13 case where a debtor has neither inclination nor motivation to object to attorney's fees. Once disposable income has been determined, it generally makes no difference to the debtor whether that money goes to his or her attorney as fees or to the debtor's prepetition creditors, since, in any event, the money is not available to the debtor.
Id. at 365.
Although there are a plethora of cases regarding what amount of compensation is reasonable in the context of Chapter 13, see In re Bush, supra, ($600); In re Smith, 111 B.R. 81 (Bankr.E.D.PA.1990) ($1,000); In re Taylor, 100 B.R. 42 (Bankr. D.Colo.1989) ($970); In re Ashton, 92 B.R. 254 (Bankr.S.D.Ohio 1988) ($650); In re Richardson, 89 B.R. 716 (Bankr.N.D.Ill. 1988) ($750), a case from this circuit has set the parameters for this Court's analysis. See In re Rodriguez, 76 B.R. 252 (Bankr. D.P.R.1987). In that case, the bankruptcy court recognized that the First Circuit's adoption of the "lodestar" analysis common to attorney compensation determinations in other chapters is applicable to the review of the reasonableness of attorney compensation in Chapter 13 cases, Boston and Maine Corp. v. Moore, 776 F.2d 2, 6 (1st Cir.1985). That test provides for the adjustment *717 of the lodestar fee up or down upon consideration of twelve factors, including the novelty and difficulty of the issues raised, the skill required to perform the legal services, the amount in controversy and the results obtained, and customary fees for like work. See Harman v. Levin, 772 F.2d 1150, 1152 n. 1 (4th Cir.1985); Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974). The bankruptcy court also noted that the Court of Appeals for the First Circuit has permitted non-hourly fee arrangements. Rodriguez, supra, at 253; Boston and Maine Corp. v. Sheehan, Phinney, Bass & Green, 778 F.2d 890, 894 (1st Cir.1985). In Rodriguez, the court stated:
The practice in this district is to charge a fixed rate for the filing of a Chapter 13 petition. The Court finds that the rates ranging from $450.00 to $600.00 are reasonable provided the quality of service and results obtained are as expected by both the debtor and the Court and that the fee does not exceed twenty-five percent (25%) of the payments to be made under the plan.
76 B.R. at 254. The court explained that the 25% figure was based upon the Social Security Act, 42 U.S.C. § 406(b)(1), 20 C.F.R. § 404.1730 and a Puerto Rican law regulating attorneys' fees of a contingent nature in actions to recover damages. It added that when fees exceeded $600 or 25% of the payments under a Chapter 13 plan, it would apply the lodestar analysis to determine the reasonableness of the fee.
V. GENERAL CONCLUSIONS
This Court agrees with the approach taken by the bankruptcy court for the district of Puerto Rico. The Court also agrees that the time and labor required in an uncomplicated Chapter 13 case, particularly in light of the very recent United States Supreme Court decision in Nobelman v. American Savings Bank, ___ U.S. ___, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), that resolves the contentious mortgage bifurcation issue, is or should be approximately 10 hours for the preparation of schedules, the statement of affairs, and the Chapter 13 plan, and attendance at the section 341 meeting and confirmation hearing. Moreover, as the circuit court in Harman v. Levin, supra, noted, "Chapter 13 bankruptcy cases often involve a number of relatively routine questions with which regular practitioners quickly become familiar, so they represent the type of cases where a court may well utilize factors in addition to the time reasonably expended and a reasonable hourly rate." Id. at 1153. Accordingly, this Court shall permit fees in the range of $750-$1,000 without the need for filing a detailed fee application, although the Court obviously shall review all fees in view of the mandate of section 330 of the Bankruptcy Code, particularly if the Statement of Attorney Compensation and the Chapter 13 plan reveal that the fee may be excessive in light of the distribution to creditors.
With respect to the payment of fees in uncomplicated cases where no formal fee application is required, the Court shall permit debtor's counsel, if he or she receives a retainer, to apply one-half of the fee at the commencement of the case and the balance from a client fund account at confirmation, unless payment of all or part of the fees is to be made by the Chapter 13 trustee during the course of the debtor's plan.
In those circumstances where no plan is confirmed within 120 days of the commencement of the Chapter 13 case, this Court, in its discretion, shall issue an order to show cause why fees should not be disgorged as excessive. See In re Rodriguez, supra, at 253-54; Fed.R.Bankr.P. 2017.
In circumstances, such as the instant case, where fees exceed $1,000, the Court shall require the filing of a fee application that strictly conforms with the requirements of section 330, Fed.R.Bankr.P. 2016(a) and Local Rule 34.
V. ATTORNEY SHAPIRO'S APPLICATION
Attorney Shapiro divided his time according to five categories of work: 1) case administration; 2) document review; *718 3) motion for relief from stay, objections to plan, motions for employment of counsel (tort litigation), real estate appraiser, and broker (adversary proceeding); 4) research; and 5) litigation of adversary proceeding against Equitable Mortgage Associates, Brookline Savings Bank, Martin Hodas and MISC. Attorney Shapiro did not tabulate the number of hours spent on each category of work, but the Court's review of the Application reveals that he spent at least 45.92 hours on document review, at least 25.41 hours on research, 19.62 hours in conferences with his clients or other attorneys; and 38.39 hours preparing documents. The number of hours spent on this case appear at first blush to be excessive. However, in view of Attorney Shapiro's modest $70 hourly rate, the Court is not inclined to reduce Attorney Shapiro's fees for this reason, particularly as a review of the adversary proceeding indicates an exemplary degree of preparation and thoroughness on Attorney Shapiro's part.
Nevertheless, given the present status of the casea pending adversary proceeding the results of which will require the filing of an amended plan regardless of its outcome this Court shall authorize an award of interim compensation only at this time. Accordingly, the Court hereby allows Attorney Shapiro $7,500 in fees and $229.94 in expenses as an interim award. Attorney Shapiro shall file either a second interim application or a final fee application prior to the confirmation hearing. At that time, the Court will be in a position to fairly assess the reasonableness of Attorney Shapiro's fees and the benefit of his services to the estate. See 11 U.S.C. §§ 330(a), 503(b)(2), 507(a)(1).
An appropriate order shall issue.
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582 S.W.2d 955 (1979)
Moses NEWTON and Bill Fitzgerald, Appellants,
v.
Felix Allen CLARK, Appellee.
No. 79-30.
Supreme Court of Arkansas, In Banc.
July 2, 1979.
*956 Shackleford, Shackleford & Phillips, El Dorado, for appellants.
Griffin, Rainwater & Draper, Crossett, for appellee.
BYRD, Justice.
Appellee Felix Allen Clark was injured when he drove his pickup truck into the rear of a loaded log truck stalled on the Ouachita River Bridge on Highway No. 82. The collision occurred about dark and during a heavy thunderstorm. The log truck, a battered and beaten 1968 model Chevrolet with no tail lights, was owned and operated by appellant Moses Newton. Appellee brought this action against appellant Moses Newton and appellant Bill Fitzgerald, a contractor or timber dealer for Georgia Pacific Corporation. The theory of liability of appellant Bill Fitzgerald was based upon the allegation that he was negligent in contracting with appellant Moses Newton because Moses Newton was an incompetent contractor to haul logs. The jury found the issues in favor of appellee and assessed the damages at $155,000.
To understand Fitzgerald's contention that he is entitled to a directed verdict because Newton was not an independent contractor, it is necessary to understand the method employed by Georgia Pacific Corporation to obtain a supply of logs for the use of its paper mill operations. The record shows that Georgia Pacific Corporation does not purchase logs directly from the people who actually cut and deliver the logs. Instead Georgia Pacific contracts with a number of people such as appellant Fitzgerald to supply Georgia Pacific with logs. The contract covers logs that are cut from lands owned by Georgia Pacific and lands of other owners generally through deals made by the contractor or dealer such as Fitzgerald. The contractor or dealer in turn either contracts or employs producers to cut the logs from the designated areas at so much per cord. When the producer hauls the logs to the mill, the loaded truck is weighed unloaded, and then weighed again by Georgia Pacific. Georgia Pacific issues a ticket to the producer showing the number of cords of wood delivered, the contractor for whom the producer is working, and the zone from which the wood is cut. The producer in turn presents the ticket to the dealer and receives a check from the dealer for the cords of wood delivered at the price the dealer is paying for pulpwood. The price paid for pulpwood by the different dealers is generally the same and is generally known throughout the area. The dealer makes his profit between the price he pays for each cord and the amount per cord that Georgia Pacific pays him. The price that the dealer receives from Georgia Pacific is not a general known fact. Fitzgerald had four regular producers with whom he contracted to cut the logs from the areas he had marked and designated. However, appellant Newton was not among Fitzgerald's regular producers.
*957 The record shows that Moses Newton does not cut logs from lands marked and designated by Fitzgerald or any of the other contractor dealers. Newton makes his own arrangements with a landowner to cut logs and when he gets a load ready to go, he hauls the logs to Georgia Pacific's mill. The only reason Newton has any contact with Fitzgerald is that Georgia Pacific will not accept the logs unless they are credited to a contractor or dealer. Over the years Newton has called out the name of Fitzgerald or C. P. Johnson, another contractor dealer. Fitzgerald does not know that Newton is hauling logs until Newton presents his ticket for payment. During the calendar year 1975, Newton delivered four loads of logs (one on 9/18/75, two on 11/18/75 and one on 11/14/75). Newton hauled one load on January 12, 1976 and had hauled one load prior to noon on March 4, 1976. Appellee Clark was injured on March 4, 1976 when Newton's truck blew up on the Ouachita River Bridge while attempting to deliver the second load. Newton finally delivered the latter load to the mill on March 6, 1976. Fitzgerald paid the tickets for the delivery of each load when the tickets were presented.
Based upon the foregoing record the trial court should have directed a verdict for Fitzgerald for we agree with appellant Fitzgerald that Newton was not an independent contractor&i. e. Newton was a supplier of logs as far as Fitzgerald was concerned, Restatement of Agency § 14K. In other words, Newton was not hired to perform services for Fitzgerald. Rather at the time of the collision between appellee Clark and Newton's truck, the logs belonged to Newton and Fitzgerald had no obligation with respect to the logs until such time as the logs were delivered to the mill and Newton selected Fitzgerald as the contractor dealer to receive credit for the logs delivered.
For still another reason, we agree with appellant Fitzgerald that he was entitled to a directed verdicti. e. there is no evidence that Moses Newton was an incompetent contractor, even if we assume that Moses Newton was an independent contractor. The proof shows that Newton had been engaged in cutting and hauling pulpwood most of his life. Newton had hauled logs under the same arrangement for two or three years and been paid by Fitzgerald and so far as the record shows without incident. Appellee to avoid our holding in Western Arkansas Telephone Company v. Cotton, 259 Ark. 216, 532 S.W.2d 424 (1976), contends that there is no testimony or other evidence revealing that Fitzgerald's past experience with Newton had been successful or even satisfactory. In attempting to avoid the holding in Western Arkansas Telephone Co. v. Cotton, supra, that a contractor cannot be held liable on the theory of negligent selection of an independent contractor where the contractor had had previous successful experience with the independent contractor, appellee wishes to place the burden of proof upon appellant Fitzgerald of showing that the previous experience was successful. However, the burden of proof was upon appellee to prove that Fitzgerald either knew or should have known that Newton was incompetent in some manner and that his injuries arose out of that characteristic which rendered Newton incompetent to do the work and appellee by a mere showing of prior experience between the contractor and the independent contractor cannot shift the burden of proof to the contractor to show that the prior experience was successfuli. e the burden was upon appellee to show that such prior experience was other than successful. Furthermore, with respect to the particular characteristic of Newton, which appellee contends made Newton incompetenti. e. the awareness of Newton regarding proper emergency procedures on the highwaythere is a dispute in the evidence as to whether Newton put out the proper warning devices. The fact that the jury found Newton negligent with respect to this particular incident does not raise a presumption that Fitzgerald had notice or knowledge that Newton was incompetent with respect to his obligations of displaying emergency warnings.
*958 Moses Newton has also appealed contending that the trial court erred in permitting appellee to show that a blood test ordered by a State Policeman pursuant to Ark.Stat. Ann. § 75-1045(c)(2) could be introduced without complying with the requirements of Ark.Stat.Ann. § 75-1045(c)(2i. e. that the blood was withdrawn under the supervision of a licensed physician and that the testing method had been approved by the State Health Department.
The record shows that after leaving work at 5:00 p. m. appellee had consumed one beer with his brother. Just before the collision, appellee had been to a package store to obtain some additional beer. He admits that upon leaving the package store, he had opened one can of the beer for the purpose of drinking the same. The record does not show what part, if any, of the last can was consumed. However, the medical technologist, George Roberts, who performed a test on the blood allegedly drawn from appellee, at the request of the State policeman, testified that it contained 0.0% of alcohol.
To uphold the action of the trial court in admitting the blood test, appellee contends that the provisions of Ark.Stat. Ann. § 75-1045(c)(2) supra, are solely for the benefit of the driver and that the driver of the automobile can waive the requirements as to the method of withdrawing the blood and the method of testing. We disagree with appellee in his interpretation of the statute. It appears to us that the requirements were placed in the statute, supra, to assure the public and the driver that they could rely upon the tests in connection with highway safety in general. Newton, as a member of the public, has a right to expect that such tests ordered by the State Police will also be reliable. It follows that the trial court erred in admitting the blood test into evidence.
Newton also contends that the verdict is excessive but in view of the reversals for the reasons set forth above, we need not reach that issue.
Reversed and remanded.
HARRIS, C. J., and HICKMAN, J., would affirm.
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582 S.W.2d 394 (1979)
Eastman DILLON et al., Petitioners,
v.
Melvin LINTZ, Respondent.
No. B-7745.
Supreme Court of Texas.
May 16, 1979.
Andrews, Kurth, Campbell & Jones, Fred M. Knapp, Jr., Houston, for petitioners.
Goodman L. Caplan, Shapiro & Forbes, Arthur L. Forbes, Houston, for respondent.
POPE, Justice.
The question presented is whether the cause of action was barred by the three-year statute of limitations contained in article 581-33 C, the Securities Act.[1] Melvin Lintz instituted this suit against Eastman Dillon, Union Securities & Co., and Sam Dodd seeking a rescission of a contract for the sale of Omnitec securities. Trial to the court resulted in a judgment that Lintz take nothing. The court of civil appeals, by a divided court, reversed and rendered judgment for Lintz. 568 S.W.2d 147. We reverse the judgment of the court of civil appeals and affirm the judgment of the trial court.
On February 14, 1969, Sam Dodd, an agent employed by Eastman Dillon, telephoned Lintz and recommended that he purchase Omnitec securities for investment purposes. Based on this recommendation, Lintz authorized the purchase of 1,000 shares. Purchase was made on a "when, as and if issued" basis. Eastman Dillon confirmed the sale by telephone that day and mailed a letter of confirmation to Lintz a few days later. The confirmation stated that "we [Eastman Dillon] have this day [February 14, 1969] made the following transaction for your account .... This transaction is on WHEN, AS AND IF ISSUED OR WHEN DISTRIBUTED basis as indicated in `DESCRIPTION COLUMN.'" The description column listed "Omnitec Corporation when as and if issued."
The stock was issued on March 3, 1969, and Lintz paid the purchase price to Eastman Dillon on March 28. Lintz filed this suit against Eastman Dillon on February 28, 1972, alleging among the violations that the securities were not registered as required by the Securities Act. More than three years had passed if time commenced when the contract was made on February *395 14, 1969, but not if the time began when the stock was issued.
The nature of the condition precedent is controlling in this case. As we held in Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1 (Tex.1976), "A condition precedent may be either a condition to the formation of a contract or to an obligation to perform an existing agreement. Conditions may, therefore, relate either to the formation of contracts or to liability under them." See 5 S. Williston, A Treatise on the Law of Contracts, § 666 (3d ed. 1961).
We conclude, as did the trial court, that the contract was made on February 14, 1969, and the parties then had only to await the event of issuance of the stock before being bound on the obligation to pay. As revealed by the contract, it was not the intent to wait for the issuance of the stock to make the contract. "When-issued trading" is trading in unissued securities which is effected in contemplation of their issuance: a dealer simply makes a contract to sell the securities "when, as and if issued." 1 L. Loss, Securities Regulation at 221 (2d ed. 1961). Such an agreement is a conditional contract by which the parties are bound to perform if the securities are ultimately issued according to the terms specified. Loss & Vernon, When-issued Securities Trading in Law and Practice, 54 Yale L.J. 741 (1945).
Since this suit was not filed until February 28, 1972, Lintz exceeded the three years by two weeks. Therefore, the court of civil appeals erred in holding that his claim was not barred by the statute of limitations.
The judgment of the court of civil appeals is reversed, and the judgment of the trial court is affirmed.
NOTES
[1] In 1977, the 65th Legislature substantially amended Tex.Rev.Civ.Stat.Ann. art. 581-33, but this appeal is governed by the law as it existed prior to the amendment.
Article 581-33 C provided: "No person may sue under Subsection A(1) of this Section 33 more than three (3) years after the contract of sale."
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582 S.W.2d 461 (1979)
Marian Elizabeth ZANGHETTI, Appellant,
v.
The STATE of Texas, Appellee.
No. 58061.
Court of Criminal Appeals of Texas, Panel No. 3.
June 20, 1979.
*462 George M. Karam, Houston, for appellant.
Carol S. Vance, Dist. Atty., Clyde F. DeWitt, III, and James E. Rose, Asst. Dist. Attys., Houston, Robert Huttash, State's Atty., Austin, for the State.
Before ODOM, PHILLIPS and W. C. DAVIS, JJ.
OPINION
ODOM, Judge.
Appellant was convicted for the murder of her husband and placed on probation for ten years. The only issue raised is whether appellant is entitled to a free transcription of the court reporter's notes in order to prepare her appeal on the merits. Guillory v. State, Tex.Cr.App., 557 S.W.2d 118.
Determination of whether an appellant is entitled to a free transcription of the court reporter's notes must be decided on a case by case analysis. Stephens v. State, Tex.Cr.App., 509 S.W.2d 363. The issue is a matter of the defendant's financial status at the time of appeal, not at the time of trial. Barber v. State, Tex.Cr.App., 542 S.W.2d 412; Conrad v. State, Tex.Cr.App., 537 S.W.2d 755. Also, it is a matter of the individual defendant's financial condition, not that of his parents or other relative. Ex parte King, Tex.Cr.App., 550 S.W.2d 691; Conrad v. State, supra.
In this case, appellant retained counsel to represent her at trial, but still owed that attorney a considerable portion of his fee. At the time of the hearing on her financial condition, held in May 1977, she had over $10,000.00 of outstanding obligations, had monthly expenses of approximately $568, and had averaged about $400 a month over the preceding four months as a part-time bookkeeper at $4.50 an hour. Financial assistance from relatives enabled her to make up the difference needed to meet her monthly expenses.
She testified that during her marriage she had not worked outside the home, and that since her husband's death she had secured several jobs, but was fired when her employers found out she was under indictment. Her only property was some furniture which she valued at $250 and a 1974 Lincoln Continental. This automobile was appraised by a used car dealer at $2700, but he refused to buy it because there was no market for such a car. Another dealer also told her there was no market for the car. She also testified that the bank told her the book value for the car was $5000, but the record does not reflect the date of that information, which could have been 1976 when she refinanced the car. The outstanding encumbrance on the car was over $1600.
*463 It was stipulated that the record in the case would cost from $1500 to $2000. The State argues that the evidence of the car's book value of $5000 encumbered to $1600 shows appellant "had $3400 in available cash." The only evidence, however, is that there was no market for the car. The State also contends that appellant's $255-a-month apartment is relative luxury. There is no evidence, however, that the housing market in Houston would place her apartment in the luxury category, and appellant testified she could not find a cheaper apartment in a part of town where a single woman would feel safe.
Appellant has made a prima facie showing of a right to a free record on appeal. Stephens v. State, Tex.Cr.App., 509 S.W.2d 363. We also note, however, that over two years have elapsed since the hearing was held on appellant's motion for a hearing, and circumstances may have changed. A hearing may be held at any time during the criminal process if the trial court is placed on notice that there may be a change in the financial conditions that would alter the appellant's status as a pauper. Foley v. State, Tex.Cr.App., 514 S.W.2d 449. We hold that in the absence of a motion alleging a change in appellant's financial status that would enable her to pay for the record on appeal, she is entitled to one provided to her without cost.
The appeal is abated.
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217 F. Supp. 873 (1963)
Arthur L. LANG, Administrator of the Estate of Richard Klinkhammer, Plaintiff,
v.
The ELM CITY CONSTRUCTION COMPANY, Austin R. LeMoine, a.k.a. Augustin R. LeMoine, Defendants,
v.
SAVIN BROTHERS, INC., Third-Party Defendant.
Civ. No. 9024.
United States District Court D. Connecticut.
May 14, 1963.
*874 Ira B. Grudberg, of Jacobs, Jacobs, Jacobs & Jacobs, New Haven, Conn., for plaintiff.
John D. Fassett, of Wiggin & Dana, New Haven, Conn., for defendant The Elm City Const. Co.
Richard P. Heffernan, of Heffernan & Heffernan, West Hartford, Conn., for defendant LeMoine.
Francis J. Moran, New Haven, Conn., for third party defendant Savin Brothers, Inc.
TIMBERS, District Judge.
Plaintiff's motion, pursuant to Rule 12(f), Fed.R.Civ.P.,[1] to strike the first defense of defendant Elm City Construction Company, raises questions with respect to the Court's jurisdiction over the subject matter of this wrongful death action in view of the appointment of plaintiff as foreign administrator expressly for the purpose of creating diversity of citizenship.
Plaintiff's motion is granted; partial summary judgment may enter in favor of plaintiff on the first defense of defendant Elm City Construction Company.
FACTS
The facts necessary to a determination of this motion, as disclosed by the pleadings and other papers submitted on this motion, are not in dispute.
Richard Klinkhammer, age 24, sustained fatal injuries November 30, 1960 when a bulldozer[2] backed over him at the Long Wharf Redevelopment area in New Haven. The bulldozer was owned by defendant Elm City Construction Company which leased it to defendant Savin Brothers, Inc. whose employee, defendant Austin R. LeMoine, was operating it at the time of the accident. All defendants are Connecticut citizens.
Plaintiff Arthur L. Lang, administrator of the estate of Klinkhammer, is a Pennsylvania citizen. The prime motive for substituting[3] plaintiff as administrator of decedent's estate "was to obtain the requisite diversity of citizenship necessary to institute this particular action *875 in this particular forum."[4] Plaintiff was appointed administrator by the Probate Court for the District of North Branford, Connecticut; he has qualified and is acting as such.
The requisite jurisdictional amount is involved, plaintiff having sued for $200,000.
QUESTIONS PRESENTED
Two questions are presented by defendant Elm City Construction Company's first defense,[5] the answers to which are believed to be dispositive of the instant motion:
(1) Does 28 U.S.C. § 1359 require dismissal of this action on the ground plaintiff "has been improperly or collusively made or joined to invoke the jurisdiction" of this Court?
(2) Does Conn.Gen.Stat. § 52-21 require dismissal of this action on the ground plaintiff is presumed to reside "in the town where the court of probate which granted administration is held" [here, North Branford], thus destroying diversity jurisdiction?
The Court holds both questions must be answered in the negative.
I
28 U.S.C. § 1359
The citizenship of the fiduciary whether executor, administrator, trustee or guardianand not that of the decedent, beneficiary or ward, is looked to in determining diversity jurisdiction. 3 Moore's Federal Practice, ¶ 17.04, p. 1313 (2d ed. 1948); see Chappedelaine v. Dechenaux, 8 U.S. (4 Cranch.) 306, 2 L. Ed. 629 (1808). The rationale is that the fiduciary is the real party in interest. Rule 17(a), Fed.R.Civ.P. This Court has held that an administratrix is the proper party in the federal court to pursue a claim based on the Connecticut wrongful death statute; in denying a motion to dismiss for lack of jurisdiction, Judge Smith said, "The powers and duties of the administratrix under her appointment make her a real party in interest even though the recovery is for the ultimate benefit of others." O'Donnell *876 v. Hayden Truck Lines, 61 F. Supp. 823 (D.Conn. 1945).[6]
So far as this Court can discover, neither the United States Supreme Court nor the Court of Appeals for the Second Circuit has passed on the question whether appointment of a foreign fiduciary expressly for the purpose of creating diversity of citizenship is improper or collusive within the meaning of 28 U.S.C. § 1359.[7]
The Court of Appeals for the Third Circuit, sitting en banc in a case on all fours with the instant case, held such appointment of a foreign fiduciary expressly to create diversity was not improper or collusive. Corabi v. Auto Racing, Inc., 264 F.2d 784, 75 A.L.R. 2d 711 (3 Cir. 1959).[8] There a 12 year old boy was killed in Pennsylvania when a wheel detached from a racing car, went into the stands and struck him. His mother, with whom the boy had lived in Pennsylvania, was appointed his administratrix by the Orphans' Court for Allegheny County. Thereafter she resigned expressly for the purpose of enabling the Orphans' Court to appoint a non-resident administrator who could bring a wrongful death action in the United States District Court for the Western District of Pennsylvania. Such a non-resident administrator from Steubenville, Ohio, was appointed. Such a wrongful death action was instituted in the federal court in Pittsburgh. Defendants moved to dismiss on the ground diversity of citizenship between the parties was "simulated" and "designed solely and collusively to create jurisdiction." The district court denied the motion and certified the controlling question of law to the Third Circuit pursuant to 28 U.S.C. § 1292(b).
The Third Circuit, noting that "The Supreme Court of the United States has not ruled on this issue,"[9] stated the issue presented for determination as follows (264 F.2d 784, 785):
"Whether the resignation or renunciation of a resident administratrix and the appointment of a non-resident administrator, d. b. n., for the express purpose of creating diversity of citizenship between the parties, was collusive and, therefore, in violation of Section 1359, Title 28 U.S.C."
In answering this question in the negative, the court reviewed its own prior decisions dealing with the question;[10] found the facts in the case at bar to be within the ambit of the decision of the United States Supreme Court in the Black & White Taxicab case[11] rather than the decisions of the Supreme Court in the *877 Lehigh Mining case[12] and the Miller & Lux case;[13] discussed the terms "improperly" and "collusively" as used in the statute;[14] noted the cases supporting the court's view and those supporting a contrary view;[15] and concluded that "the arrangement here made is not within the reach of Section 1359. If what we deem to be the law is to be changed we think that it would be improper for that change to emanate from this court."[16]
While the decision of the Third Circuit in Corabi is not controlling on this Court, it is persuasive and will be followed, absent a decision on the question by the Supreme Court or the Second Circuit.[17]
*878 This Court accordingly holds that, while plaintiff was appointed foreign administrator expressly for the purpose of creating diversity of citizenship, he was not "improperly or collusively joined" to invoke the jurisdiction of this Court within the meaning of 28 U.S.C. § 1359.
II
Conn.Gen.Stat. § 52-21
Defendant Elm City Construction Company's first defense presents an alternative line of defense.
It argues, not without ingenuity, that Section 52-21[18] requires that a non-resident administrator be considered, in determining federal jurisdiction, as a resident of the town "where the court of probate which granted administration is held."
The short answer to defendant's contention, in the opinion of this Court, is that (i) the statute is not to be read as stripping the federal court of jurisdiction of actions brought by foreign fiduciaries, and (ii) if it were to be so read, this Court would be constrained to strike it down in view of the supremacy clause of the Constitution of the United States.[19]
Section 52-21, on its face and in the context in which it appears in the Connecticut General Statutes, deals with the Connecticut state court system.[20] It is part of Chapter 895, entitled "Jurisdiction and Venue" of "Civil Actions".[21] Surrounding sections emphasize the local character of the venue and jurisdiction provisions of the chapter, e. g. "Land lying in several counties or towns" (Section 52-17); "Return of action brought by foreign corporation" (Section 52-20); "Civil actions of party resident in Shelton brought to Bridgeport or Ansonia" (Section 52-25); "Transfers between Bridgeport, New Haven and Waterbury and Ansonia" (Section 52-26).
Defendant argues that, while Rule 17 (a) provides that "an * * * administrator * * * may sue in his own name without joining with him the party for whose benefit the action is brought," nevertheless Rule 17(b) directs that the capacity of a person acting in a representative capacity to sue "shall be determined by the law of the state in which the district court is held." It follows, so defendant argues, that this Court must look to Connecticut law to determine the capacity of a fiduciary to maintain an action in the federal court. Up to this point, there can be no quarrel with defendant's position.
But then defendant cites Noel v. St Johnsbury Trucking Co., 147 F. Supp. 432 (D.Conn.1956), in support of its further argument that this Court, in looking to Connecticut law to determine the capacity of a fiduciary to maintain an action *879 in the federal court, must read Section 52-21 as excluding foreign fiduciaries from suing in the federal court because "it has been held [citing Noel] that a foreign administrator may not maintain an action in that Court since he could not maintain an action in the courts of Connecticut." This argument the Court cannot accept.
In Noel, this Court dismissed the action on the ground plaintiff foreign administrator, although appointed by a New Hampshire court, brought suit in the federal court in Connecticut under the Connecticut Wrongful Death Act without first obtaining appointment as administrator by a Connecticut court. Aside from the fact that plaintiff foreign administrator in the instant case has obtained appointment as administrator by a Connecticut court, the basis of the dismissal in Noel was the absence of a remedy in the state courts. This Court, following the command of Erie[22] to reach the same result as the state court "across the square", simply followed state law which, for valid policy reasons, denies access to courts of this state to persons who fail to qualify to bring suit under the Connecticut Wrongful Death Act.
This is a far cry from reading into Section 52-21 a limitation upon federal diversity jurisdictiona limitation which would strip the federal court of jurisdiction of all actions brought by foreign fiduciaries and would restrict to the state courts all actions brought on behalf of a decedent's estate. A state legislature may not thus limit federal diversity jurisdiction.
In Railway Co. v. Whitton's Admr., 80 U.S. (13 Wall.) 270, 20 L. Ed. 571 (1871), the Supreme Court, in holding invalid a Wisconsin statute limiting all death actions to the state courts, said (80 U.S. (13 Wall.) 270, 286, 20 L. Ed. 571):
"In all cases, where a general right is thus conferred, it can be enforced in any Federal court within the State having jurisdiction of the parties. It cannot be withdrawn from the cognizance of such Federal court by any provision of State legislation that it shall only be enforced in a State court."
This rule has been uniformly followed. The Fourth Circuit regarded it as "axiomatic" in Markham v. City of Newport News, 292 F.2d 711, 713 (4 Cir. 1961), in holding that:
"[W]henever there was a substantive right enforceable in a judicial proceeding in any court of the state, it was enforceable in the courts of the United States if the controversy was between citizens of different states and involved the minimum amount of money."
Defendant argues that since Connecticut can deny to a foreign fiduciary any status to sue, it can deny to him only the status necessary to bring suit in the federal court. Rejecting an analogous argument, the Fourth Circuit in the Markham case, said (292 F.2d 711, 715):
"A state may exclude a foreign corporation and, generally, it may impose terms upon which it will permit a foreign corporation to do intrastate business within its borders. However, it may not condition the right to do business upon surrender of the foreign corporation's right to invoke the federal diversity jurisdiction."
This Court accordingly holds that from the fact plaintiff is a non-resident administrator it does not follow that he is presumed to reside in the town where the court of probate which granted administration is held, thus destroying diversity jurisdiction. In short, this Court holds that Conn.Gen.Stat. § 52-21 has no bearing whatever on determination of this Court's jurisdiction.
* * * *
Since this case presents controlling questions of law as to which there is substantial ground for difference of opinion *880 and an immediate appeal from this Court's order may materially advance the ultimate termination of this litigation,[23] a certificate pursuant to 28 U.S.C. § 1292(b) has been issued.
NOTES
[1] Since matters outside the pleadings have been presented to and not excluded by the Court on this motion, it is treated as a Rule 56 motion for partial summary judgment. Rules 12(b) and 12(c), Fed. R.Civ.P. The parties have so treated the motion; plaintiff and defendant Elm City Construction Company each request that summary judgment be granted in his or its favor.
[2] The Court ruled May 21, 1962 that the bulldozer here involved was a "motor vehicle" within the meaning of the Connecticut statute which imposes upon the lessor of a motor vehicle owned by him the same liability as that of the operator had he owned it. Conn.Gen.Stat. § 14-154 (1958).
[3] The original administratrix of decedent's estate, appointed January 6, 1961 by the Probate Court for the District of North Branford, Connecticut, was his mother, Mrs. Edith S. Klinkhammer, with whom decedent lived in North Branford at the time of his death. She was a resident of Connecticut, as were decedent's other intestate heirs. Mrs. Klinkhammer resigned as administratrix October 23, 1961, upon which date plaintiff was appointed successor administrator. The instant action was commenced November 1, 1961.
[4] The circumstances under which plaintiff was substituted as administrator of Klinkhammer's estate and the motive for his appointment are stated with candor in plaintiff's brief and are accepted by defendant Elm City Construction Company as a stipulation for purposes of this motion:
"Arthur L. Lang, the personal representative of the estate of Richard Klinkhammer, is and at all times here relevant has been a citizen of the State of Pennsylvania, a resident of Philadelphia. During the life of the decedent herein, Lang had no personal relationship with either the decedent or those who will now be the ultimate beneficiaries of the money judgment, if there be any, in the instant casenor is he presently an intimate of the parents of young Klinkhammer. The intestate heirs of the decedent, upon the advice of counsel, moved to have Mr. Lang substituted as administrator of their son's estate. The prime motive for this appointment was to obtain the requisite diversity of citizenship necessary to institute this particular action in this particular forum. The reason for counsel's advice concerning the appointment of a foreign administrator was its past and present belief that such a move would be in the best interests of the decedent's estate. Counsel are of that opinion because of the enlightened rules of practice in the Federal Courts, because of the uniform excellence of the judiciary in this district and circuit, and, finally, because the jury selection system used in this court has resulted consistently in the seating of intelligent jury panels."
[5] Defendant Elm City Construction Company's first defense reads as follows:
"This Court lacks jurisdiction of this action since the deceased was a citizen of the State of Connecticut, both defendants are citizens of the State of Connecticut, and the plaintiff is a citizen as a result of application of section 52-21 of the General Statutes of Connecticut and also because of the applicability of section 1359 of Title 28 of the U.S. Code."
[6] Compare Harris v. Barone, 147 Conn. 233, 234, 158 A.2d 855, 856, (1960), where the Supreme Court of Errors said "* * * While the right to bring suit for wrongful death is in the administrator, he does not act in his true capacity as administrator for the benefit of the estate but as agent or trustee for those beneficially interested."
This Court does not read Barone as indicating an administrator is not the real party in interest, and certainly not from the standpoint of determining diversity jurisdiction; nor does this Court agree with the observation of defendant's counsel that "decisions by the Supreme Court of Errors [referring to Barone] respecting the status of an administrator in bringing a wrongful death action strongly suggest that O'Donnell was incorrectly decided."
[7] 28 U.S.C. § 1359:
"Parties collusively joined or made. A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court."
[8] The Third Circuit, en banc, on the same day as it decided Corabi, held the same way on the same issue in Jamison v. Kammerer, 264 F.2d 789 (3 Cir. 1959).
[9] Corabi v. Auto Racing, Inc., 264 F.2d 784, 785 n. 1 (3 Cir. 1959).
[10] Jaffe v. Philadelphia & Western R. Co., 180 F.2d 1010, 1011-1013 (3 Cir. 1950); Fallat v. Gourau, 220 F.2d 325, 326 (3 Cir. 1955).
[11] Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276 U.S. 518, 48 S. Ct. 404, 72 L. Ed. 681 (1928).
[12] Lehigh Mining & Mfg. Co. v. Kelly, 160 U.S. 327, 16 S. Ct. 307, 40 L. Ed. 444 (1895).
[13] Miller & Lux, Inc. v. East Side Canal & Irrigation Co., 211 U.S. 293, 29 S. Ct. 111, 53 L. Ed. 189 (1908).
[14] Corabi v. Auto Racing, Inc., supra note 9, at 788.
[15] Id. at 788 n. 10.
[16] Id. at 788.
See bill introduced January 28, 1963 by Congressman Celler "to withdraw from the district court jurisdiction of suits brought by fiduciaries who have been appointed for the purpose of creating diversity of citizenship between the parties." H.R. 2832, 88th Cong., 1st Sess. (1963), 109 Cong.Rec. 1108 (1963).
[17] The Supreme Court in Mecom v. Fitzsimmons Drilling Co., 284 U.S. 183, 52 S. Ct. 84, 76 L. Ed. 233 (1931), while not construing 28 U.S.C. § 1359, did sanction a widow's substitution of a resident administrator to destroy diversity jurisdiction after she had twice brought suit in the state courts only to have such suits removed to the federal court each time; in holding that the motive or purpose of obtaining such appointment is immaterial on the question of identity or diversity of citizenship, the Supreme Court said (284 U.S. 183, 189, 52 S. Ct. 84, 87, 76 L. Ed. 233):
"But it is clear that the motive or purpose that actuated any or all of these parties in procuring a lawful and valid appointment is immaterial upon the question of identity or diversity of citizenship. To go behind the decree of the probate court would be collaterally to attack it, not for lack of jurisdiction of the subject-matter or absence of jurisdictional facts, but to inquire into purposes and motives of the parties before that court when, confessedly, they practiced no fraud upon it."
The federal courts for many years have sanctioned a change of citizenship to create diversity jurisdiction, holding that they have jurisdiction even though plaintiff changed his domiciliary state solely to create diversity. Robertson v. Carson, 86 U.S. (19 Wall.) 94, 106, 22 L. Ed. 178 (1873); Shoaf v. Fitzpatrick, 104 F.2d 290 (6 Cir. 1939); Dossett v. Davis, 29 F. Supp. 483 (E.D.Tenn.1939); Anderson v. Splint Coal Corp., 20 F. Supp. 233 (E.D.Ky.1937); King v. Kansas City Police Relief Assn., 60 F.2d 547 (W.D. Mo.1932). Only where the party changing his residence never had any intention of remaining in his new home was access to the federal courts deniedand that on the ground that he never really had changed his citizenship. Morris v. Gilmer, 129 U.S. 315, 9 S. Ct. 289, 32 L. Ed. 690 (1889); compare Simpson v. Phillipsdale Paper Mill Co., 223 F. 661 (D.Mass. 1915).
The Eighth Circuit has taken the same position as that of the Third Circuit in Corabi. County of Todd v. Loegering, 297 F.2d 470 (8 Cir. 1961), affirming 185 F. Supp. 134 (D.Minn.1960); McCoy v. Blakely, 217 F.2d 227 (8 Cir. 1954).
In the Second Circuit, the only reported decision touching upon the Corabi question appears to be Meehan v. Central Railroad Co. of New Jersey, 181 F. Supp. 594 (S.D.N.Y.1960). There the facts did not establish that the foreign administrator was appointed solely to create diversity jurisdiction and the court did not reach the question whether joinder was collusive or improper; but Judge Levet, in resolving the controversy as to whether plaintiff's interest was a "real interest" or a "nominal interest", did follow the rationale of Corabi.
See also McWilliams v. Dawson, 48 F. Supp. 538 (N.D.Tex.1943); Goff's Adm. v. Norfolk & W. R. Co., 36 F. 299 (W.D. Va.1888).
Smith v. Sperling, 354 U.S. 91, 77 S. Ct. 1112, 1 L. Ed. 2d 1205 (1957), although involving a consideration of 28 U.S.C. § 1359, is not here in point. The issue there concerned alignment of parties in a stockholder's derivative action where the corporation was antagonistic to enforcement of the claim. The statute was cited and implicitly no collusion was found to exist. The Supreme Court did not announce any guidelines with respect to improper or collusive joinder which would aid in resolving the question presented in the instant case.
[18] Conn.Gen.Stat. § 52-21 (1958):
"Action by nonresident executor or trustee. In any action brought by a nonresident executor, trustee under a will or administrator, the same court shall have jurisdiction as would have if the plaintiff resided in the town where the court of probate which granted administration is held."
[19] U.S.Const. art. VI, § 2.
[20] Defendant states in its brief, "Unquestionably the drafters of the section had in mind state courts in drafting the provision." This Court agrees.
[21] Chapter 895 of the 1958 Revision of the General Statutes is derived from the original codification, Section 968 of the 1888 Revision of the General Statutes, entitled "Venue, or Place of Trial of Civil Actions Within the Jurisdiction of the Superior Court, Courts of Common Pleas, and District Courts." The latter referred to "District Courts" which were part of the state court system. Not until the Judicial Code of 1911 abolished the federal "Circuit Court" and transferred jurisdiction to the federal "District Court" did the "District Court" become the baseline trial court in the federal system. See 1 Moore's Federal Practice, ¶ 0.2 [1], p. 12 (2d ed. 1961).
[22] Erie R. R. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938).
[23] Corabi v. Auto Racing, Inc., supra note 9, at 785.
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8 N.J. 54 (1951)
83 A.2d 710
MARY CAPONE, ADMINISTRATRIX AD PROSEQUENDUM OF THE ESTATE OF HARRY CAPONE, DECEASED, PLAINTIFF-RESPONDENT,
v.
HENRY K. NORTON, TRUSTEE OF THE PROPERTY OF NEW YORK, SUSQUEHANNA & WESTERN RAILROAD COMPANY, A CORPORATION, DEFENDANT-APPELLANT.
PETER PANEPINTO, ADMINISTRATOR AD PROSEQUENDUM OF THE ESTATE OF JEAN PANEPINTO, DECEASED, PLAINTIFF-RESPONDENT,
v.
HENRY K. NORTON, TRUSTEE, ETC., DEFENDANT-APPELLANT.
RIDGEWOOD CLEANERS, INC., A CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
v.
HENRY K. NORTON, TRUSTEE, ETC., DEFENDANT-APPELLANT.
The Supreme Court of New Jersey.
Argued September 17, 1951.
Decided October 15, 1951.
*57 Mr. Charles S. Barrett, Jr., argued the cause for the appellant (Messrs. Lum, Fairlie & Foster, attorneys).
Mr. Louis Santorf argued the cause for the respondents Mary Capone and Peter Panepinto (Mr. John A. Masiello, attorney for Mary Capone; Mr. Benjamin P. Galanti, attorney for Peter Panepinto).
Mr. Harry Nadell argued the cause for the respondent Ridgewood Cleaners, Inc. (Messrs. Cole, Morrill & Nadell, attorneys).
The opinion of the court was delivered by ACKERSON, J.
These cases arose out of a collision between an automobile owned by Ridgewood Cleaners, Inc., and a diesel engine of the New York, Susquehanna & Western Railroad Company at a grade crossing in the City of Paterson on June 19, 1948, resulting in the deaths of Harry Capone, driver of the automobile, and Jean Panepinto who was riding with him. Each decedent was 27 years old and unmarried.
*58 Three separate actions were instituted in the Superior Court, Law Division, against Harry K. Norton, trustee of the railroad company: one by Mary Capone, administratrix ad prosequendum of the estate of Harry Capone, another by Peter Panepinto, administrator ad prosequendum of the estate of Jean Panepinto, and the third by Ridgewood Cleaners, Inc., for damage to its car. These actions were consolidated for the purpose of trial and resulted in verdicts for the plaintiffs of $28,200 in the Capone case, $42,000 in the Panepinto case and $1,775 in the Ridgewood Cleaners case.
On motions by the defendant for a new trial, the court found that the damages assessed in the death actions were excessive and gave the plaintiffs the alternative of accepting reductions in the amounts of their respective verdicts or a new trial, the reductions being to $24,000 in the Capone case and $34,000 in the Panepinto case. These reductions were accepted and judgments in the reduced amounts were accordingly entered. The motion as to Ridgewood Cleaners, Inc., was denied.
Appeals by the defendant to the Appellate Division of the Superior Court were consolidated for argument and resulted in the affirmance of the judgment in the Ridgewood Cleaners, Inc., case and the reversal of the judgments in the Capone and Panepinto actions solely on the ground that the damages awarded were so excessive as to require a new trial limited to the single issue of damages.
On the petition of the defendant, trustee of the railroad company, and the cross-petition of the plaintiffs in the two death actions, we granted certification to review the judgments so entered in the Appellate Division.
The first point argued by the defendant on his appeal is that the trial court erred in allowing the testimony of witnesses whose names had not been furnished in response to interrogatories served by the defendant upon the plaintiff in each of the death actions pursuant to Rule 3:33. The interrogatories were identical and demanded that the plaintiff in each case "Furnish the names and addresses of any and all *59 witnesses to the said accident." The interrogatories were filed February 4, 1949, before defendant made answer to the Capone and Panepinto complaints which were filed January 26, and 25, 1949, respectively. In the Capone case, the plaintiff's answer, filed February 18, 1949, stated: "I personally do not know the names and addresses of any witnesses to the said accident." The answer in the Panepinto case, filed March 7, 1949, stated: "The only witness to the accident that deponent knows of is Louis Friedman Esq. of 64 Hamilton Street Paterson New Jersey," who, incidentally, was not called as a witness at the trial. The record does not reveal that any such interrogatory was served upon the plaintiff, Ridgewood Cleaners, Inc. On February 25, 1949, defendant moved for an order compelling "a complete answer" to the above quoted interrogatory in the Capone case, which motion was denied.
At the trial of the consolidated causes, which took place early in March, 1950, more than a year after the answers to the foregoing interrogatories had been filed, plaintiffs produced two eye-witnesses to the fatal accident whose names had not been set forth in said answers. One of these was Elizabeth J. Barker and defendant objected to her giving any testimony with reference to the occurrence because her name had not been given in response to the interrogatories, and the objection was overruled. No similar objection seems to have been interposed to the testimony of the other witness so produced. Defendant did not contend in the trial court, or in his brief or at the oral argument in this court, that the plaintiffs withheld the names of witnesses known to them or their attorneys at the time the answers to the interrogatories were made or at the time the above mentioned motion for a more complete answer to the specified interrogatory in the Capone case was denied, and no additional interrogatories to elicit any later information on the subject were served at any time throughout the year which elapsed before the trial.
Defendant argued in the trial court, as he does here, that the true interpretation of Rule 3:33 required the plaintiffs, *60 upon learning of additional witnesses, either directly or through their attorneys, to supplement their answers to the interrogatories by giving such later information. Rule 3:33, by reference to Rule 3:26-2, permits inquiry as to the "identity and location of any person having knowledge of relevant facts." However, we find nothing in Rule 3:33, as it stood at the time of this trial in March, 1949, which either expressly or by implication required a party to voluntarily supplement his answers to interrogatories by supplying the names of witnesses thereafter discovered by him or his attorney. Indeed, the rule indicates to the contrary, for it is therein provided that there is no limit to the number of interrogatories which may be served, "except as justice requires to protect the party from annoyance, expense, embarrassment, or oppression." Therefore, if a party seeks later information after his first interrogatories have been answered, he is free, within the specifications of the rule, to serve additional interrogatories or bring up the subject at the pretrial conference. The ruling in Evtush v. Hudson Bus Transportation Co., 7 N.J. 167 (1951), gives no support whatever to the defendant's contention since in that case it appeared the defendant had knowledge of the existence and names of witnesses before answering interrogatories and failed to disclose them. It is to be noted that Rule 3:33 was amended on June 7, 1951, so as to require the filing of supplemental answers to interrogatories under specified conditions, and, although the amendment is not applicable to the present case because adopted subsequent to the trial thereof, nevertheless, it is persuasive of the correctness of our interpretation of the original rule.
Therefore, under the circumstances revealed by the record before us, we find no reversible error in the trial court's rulings hereinabove considered.
We come now to consider the legal propriety of the action of the Appellate Division of the Superior Court in reversing the judgments in the two death actions on the ground that the verdicts therein were excessive, and in remanding them *61 for retrial on the issue of damages only. Both the defendant's appeal and the joint cross-appeal of the plaintiffs challenge different phases of such rulings.
The cross-appeal is directed to only one point, in which it is contended that the trial court's decision that the damages in the death actions were excessive and reducing the amounts thereof to the sums eventually accepted by the plaintiffs therein, being in the exercise of the court's discretionary power, is final unless the court was guilty of an abuse of discretion constituting a shock to reason and to justice, and, since the Appellate Division did not make such a finding, it was error to have reversed the judgments in their reduced amounts and to have remanded the causes for a new trial as to damages only upon any other basis than abuse of discretion, citing in support thereof Nelson v. Eastern Air Lines, Inc., 128 N.J.L. 46 (E. & A. 1941) and Batts v. Joseph Newman, Inc., 3 N.J. 503 (1950). The complete answer to this contention, however, is to be found in our more recent decision in Hager v. Weber, 7 N.J. 201 (1951) where practically the same question was presented. There, as here, we were called upon to determine the test to be applied by an appellate court, within constitutional limitations, in deciding when a verdict, which is claimed to be excessive, should be set aside as "contrary to the weight of the evidence" pursuant to Rule 1:2-20(a), made applicable to the Appellate Division by Rule 4:2-6, as the rule stood prior to its amendment on June 7, 1951. It was there held that in making such determination, "the trial judge and the appellate tribunal are controlled by the same criterion," and the inquiry for each is whether or not the verdict is "so excessive as irresistibly to give rise to the inference of mistake, passion, prejudice, or partiality, and by that standard to be palpably against the weight of the evidence." In the course of the opinion it was said that (at page 210):
"* * * The appellate tribunal cannot invade the constitutional office of the jury; it may not merely weigh the evidence where it is fairly susceptible of divergent inferences and substitute its own *62 judgment for that of the jury. But, if the verdict be so far contrary to the weight of the evidence as to give rise to the inescapable conclusion of mistake, passion, prejudice, or partiality, it cannot serve to support the judgment, and appellate correction of the error is not an interference with the constitutional security of the inferior court or the attribute of finality on the facts inherent in its judgments or the constitutional right of trial by jury."
Accordingly, in the instant cases it was not necessary for the Appellate Division to determine whether or not the trial court abused its discretion, and its finding that "the size of the verdict indicates a mistake as to the nature of the award, or else indignation aroused by what the jury considered was clear proof that the negligence of defendant's servants had caused the fatal accident," was sufficient, under the test approved in Hager v. Weber, supra, to warrant the remand of the death actions with respect to the issue of damages. It is to be noted that Rule 1:2-20(a) was amended on June 7, 1951, after the decision in the Hager case, to substantially incorporate the test approved therein.
The defendant, on the other hand, contends that the amounts awarded by the jury in the death actions were so excessive (the size of the award in the Ridgewood Cleaners case is not challenged) as to indicate they were the product of "mistake, passion or prejudice" which vitiates the verdicts in their entirety, including the basic finding of liability, thereby requiring a new trial of all issues in all of the actions.
We agree that on the evidence the verdicts in the death actions were clearly excessive. While we shall not attempt to detail the evidence, or lack of it, which leads to this conclusion, since we are satisfied with the summarization, analysis and evaluation of it appearing in the opinion of the Appellate Division, nevertheless we think it important to point out that while each of the decedents was 27 years old and unmarried, there was no proof as to the income or earning capacity of either of them so as to afford any measure by which to judge whether or not the claimed contributions to their parents (concerning which the evidence was very unsatisfactory) were within probable limits, and the prospective continuity and *63 duration thereof. Furthermore, while it appeared in the Capone case that the ages of the surviving father and mother were 71 and 66 years respectively, and in the Panepinto case, 53 and 50, nevertheless, there was no proof of the life expectancy of any of them or, for that matter, of any other of the next of kin. This was an important factor for consideration under the Death Act (R.S. 2:47-5) where the damages are measured by the "pecuniary injuries resulting from such death to the widow, surviving husband, and next of kin of the deceased."
Although the verdicts in the death actions were clearly excessive, we do not consider the size of the awards as indicating any infirmity in the determination of the basic issue of liability, but rather mistake on the part of the jurors in comprehending and applying the only measure available to them for the assessment of damages in a death action, i.e., "such damages as they shall deem fair and just with reference to the pecuniary injuries resulting from such death" to the specified survivors (R.S. 2:47-4), which has been uniformly interpreted to mean "a deprivation of a reasonable expectation of a pecuniary advantage which would have resulted by a continuance of the life of the deceased." Paulmier, adm'r. of Carhart v. Erie R.R. Co., 34 N.J.L. 151, 158 (Sup. Ct. 1870); Demarest v. Little, 47 N.J.L. 28, 30 (Sup. Ct. 1885); Graham v. Consolidated Traction Co., 64 N.J.L. 10, 13 (Sup. Ct. 1899). A difficult task is thereby imposed upon the jurors for they must of necessity "weigh probabilities, and to a large extent form their estimate of damages on conjectures and uncertainties," a process susceptible of many errors. Marendino v. Spitz, 121 N.J.L. 556, 558 (E. & A. 1938); Paulmier, adm'r. of Carhart v. Erie R.R. Co., supra; Demarest v. Little, supra. The record before us clearly indicates that it was in the performance of this difficult task that the jury in the case sub judice went astray and that this infirmity, while necessitating a new trial as to the amount of damages, did not affect the other issues involved. At the trial the issues of negligence and contributory negligence centered *64 around proofs submitted by the parties as to whether or not the operators of the railroad train had given any signal of its approach to this grade crossing, as required by R.S. 48:12-57, and whether or not the crossing gates had been lowered. Several witnesses testified for each side upon these subjects and plaintiffs' proofs with respect thereto were cogent and amply supported the finding of the jury with regard to the defendant's liability.
The case of Esposito v. Lazar, 2 N.J. 257, 261 (1949) is not helpful to the defendant's contention that the new trial should be in toto, for there it appeared the jury resolved the question of defendant's liability, which was "extremely in doubt," by awarding grossly inadequate damages by way of compromising the issue of liability and this, of course, vitiated the entire verdict.
When a new trial is necessary, it may be limited to the question with respect to which the verdict is found to be wrong. If separable and if the error relates solely to the question of damages, it may be set aside as to damages only. Rule 3:59-1; Paolercio v. Wright, 2 N.J. 412, 417 (1949). In the instant case the error relates solely to the assessment of the damages and it is clear that the Appellate Division did not err in limiting the new trial in the death actions to damages only and in affirming the judgment in favor of the Ridgewood Cleaners, Inc.
Finally, defendant argues that the trial court erred in denying his supplementary motion for a new trial on all issues because of the conduct of one of the jurors which came to defendant's attention after notice of the original motion had been served. The supplementary motion included a statement that defendant also would move, "if the court deems it necessary, to take the deposition of one or more of the jurors who sat."
Defendant presented in support of this motion the affidavit of a private detective, employed by the defendant's attorneys, in which the affiant stated he had interviewed two of the jurors shortly after the trial and was informed by *65 them that a fellow juror had told them, during the course of the trial, that he "had arrived at the scene of the accident, * * *, within approximately fifteen minutes after it had occurred." This is all of the evidence offered as to the conduct of the juror in question. There is no indication in this affidavit that the juror was guilty of any misconduct whatsoever, or that he communicated any information to his fellow jurors other than the fact that he had come upon the scene of the accident some time after it had occurred, or that, upon examination as a prospective juror, he had been interrogated about, or had answered untruthfully concerning, any previous knowledge of the case or his ability to decide the case fairly on the evidence produced. It is important to notice again, in this connection, that practically the only issues which went to the question of defendant's negligence were whether or not the statutory crossing signals had been given and the crossing gates properly operated immediately before the accident. As to these matters the juror came upon the scene too late to have any personal knowledge.
Therefore, under the foregoing circumstances, there was no denial of defendant's right to a fair trial by an impartial jury, and no error, in the exercise of the trial court's discretionary powers in such matters, by its refusal to grant a new trial as to all issues in the consolidated actions on the specified grounds.
The judgment of the Appellate Division of the Superior Court is accordingly affirmed.
For affirmance Chief Justice VANDERBILT, and Justices BURLING and ACKERSON 3.
For reversal Justices CASE and OLIPHANT 2.
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15 N.J. Super. 266 (1951)
83 A.2d 344
ERNEST F. HEYMAN, PLAINTIFF-RESPONDENT,
v.
JACOB BISHOP, DEFENDANT-APPELLANT.
Superior Court of New Jersey, Appellate Division.
Argued July 9, 1951.
Decided September 11, 1951.
*267 Before Judges COLIE, GRIMSHAW and HARTSHORNE.
Mr. Howard K. Stokes (Messrs. Wise & Wise, attorneys) argued the cause for appellant.
Mr. David Goldstein (Messrs. Goldstein & Novogrod, attorneys) argued the cause for respondent.
*268 The opinion of the court was delivered by COLIE, J.S.C.
The plaintiff, Ernest F. Heyman, instituted a suit in the Monmouth County District Court seeking a declaratory judgment. There is no dispute as to the following facts. The plaintiff is a tenant in Apartment No. 3 in an apartment house in Red Bank owned by the defendant. The last lease for Apartment No. 3 was for one year, commencing October 1, 1947 and expiring December 31, 1948, and contained a provision that "* * * nor shall the tenant keep or maintain in or about said premises or permit any other person to keep or maintain therein, any dog or other domestic or wild animals without the written consent of the landlord." Plaintiff's present status of Apartment No. 3 is as a hold-over tenant.
The plaintiff also was a tenant of Apartment No. 4 which is adjacent to and connected with Apartment No. 3. In Apartment No. 4 he maintained his medical office whereas Apartment No. 3 was his residence. Plaintiff is in possession of Apartment No. 4 under a written lease in which there is no prohibition against the keeping of a dog.
The court below adjudged "that the keeping and maintenance by the plaintiff tenant of a dog in Apartment No. 3 and No. 4 does not constitute a breach or violation of any existing covenant restricting the keeping and maintaining of a dog in said apartments." In arriving at this decision, the court below predicated its opinion upon the case of Sheild v. Welch, 4 N.J. 563 (1950), particularly that part thereof reading: "Since there was no renewal or extension of the written lease, then all of the terms thereof, including the sale commission provisions, expired with the termination of the lease." In the cited case, the plaintiff sought to recover of the defendant commissions, and predicated his right thereto upon the provisions of a written lease agreement between the defendant, Welch, and a tenant in the building. The court there was dealing with a collateral agreement and said, 4 N.J. at page 570: "The agreement in the lease for the payment of commissions was a collateral contract which expired with the *269 lease. The situation is somewhat analogous to an option to purchase contained in a lease. Our courts have held that such an option is a collateral contract which expires with the lease and cannot be exercised by a holdover tenant." Citing Wolk v. Widlansky, 142 N.J. Eq. 165 (Ch. 1948), affirmed 1 N.J. 491 (1949). The Sheild case dealt with a collateral agreement, i.e., for commissions upon a rental. In the instant case, the covenant prohibiting the keeping of animals was not a collateral agreement but rather a primary agreement and therefore it would appear to us that the excerpt from Sheild v. Welch, supra, which we have quoted above and upon which the court below predicated its decision, was dictum insofar as the opinion recites that all of the terms of the lease expired with its termination. It has been the settled rule in this State for many years that "* * * the tenancy arising from the tenant's holding over with the consent of the landlord is presumed to be upon the same terms as the original lease, so far as they are applicable to the new tenancy." Trust Co. of New Jersey v. Doherty, 117 N.J.L. 433 (E. & A. 1937). This rule is in line with the general rule throughout the country. See 32 Am. Jur. 798; 51 C.J.S. 738. The court below was of the opinion that R.S. 46:8-10 controlled the present case. It reads: "Whenever a tenant whose original term of leasing shall be for a period of one month or longer shall hold over or remain in possession of the demised premises beyond the term of the letting, the tenancy created by or resulting from acceptance of rent by the landlord shall be a tenancy from month to month in the absence of any agreement to the contrary." The effect of this statute, as we understand it, is to change the status of a tenant holding over under a written lease for one month or more to a tenancy from month to month in all cases.
Appellant also urges that the use of the words "in and about" as used in the lease for Apartment No. 3 extends the prohibition against keeping an animal to Apartment No. 4. With this we are not in agreement. Plaintiff had occupied Apartment No. 4 since 1942 under a lease which did not *270 prohibit the keeping of dogs. Nor was there an implied prohibition of dogs therein, since the parties stipulate that same was used for residential, as well as professional, purposes. Even when the lease for Apartment No. 3, first executed in 1945, prohibited the keeping of dogs, the lease for Apartment No. 4 continued to permit dogs, just as it had previously. The fair construction of the dog prohibition clause in the lease for Apartment No. 3 is, therefore, that dogs are not to be kept in Apartment No. 3, or in the premises "about" same, other than Apartment No. 4 where dogs, in accordance with the lease, had long been kept.
Holding as we do that the hold-over tenant is bound by the provision of the written lease as to Apartment No. 3 prohibiting the keeping of a dog therein, results in a reversal of the judgment under appeal so far as Apartment No. 3 is concerned, and an affirmance of the judgment below insofar as it holds that the keeping of the dog in Apartment No. 4 is not a breach or violation of any existing covenant.
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430 B.R. 817 (2010)
In re Stephen E. ALGIRE, Debtor.
JP Morgan Chase Bank, NA, Plaintiff,
v.
Stephen E. Algire, Defendant.
Bankruptcy No. 2:08-bk-59908. Adversary No. 2:09-ap-02123.
United States Bankruptcy Court, S.D. Ohio, Eastern Division.
June 1, 2010.
*819 James H. Cannon, Thomas R. Merry, Westerville, OH, for Plaintiff.
Timothy A. Pirtle, Columbus, OH, for Defendant.
MEMORANDUM OPINION AND ORDER ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
C. KATHRYN PRESTON, Bankruptcy Judge.
This cause came on for consideration of the Plaintiff's Motion for Summary Judgment (Doc. #29) and filed in the above captioned adversary proceeding. The Court having considered the record and the arguments of the parties, makes the following findings and conclusions.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334, and the standing General Order of Reference entered in this District. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue is properly before this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
I. Standard of Review for Motions for Summary Judgment
Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Bankruptcy Rule 7056, provides that summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The party seeking summary judgment bears the initial burden of "informing the . . . court of the basis for its motion, and identifying those portions of the [record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986).
If the movant satisfies this burden, the nonmoving party must then "set out specific facts showing a genuine issue for trial." Fed.R.Civ.P. 56(e)(2). The mere allegation of a factual dispute is not sufficient to defeat a motion for summary judgment; to prevail, the non-moving party must show that there exists some genuine issue of material fact. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). The court must deem as true the nonmoving party's evidence and must view all justifiable inferences in a light most favorable to the non-moving party. Matsushita Elec Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986); Anderson, 477 U.S. at 255, 106 S. Ct. 2505.
The Sixth Circuit has articulated the following standard to apply when evaluating a motion for summary judgment:
*820 [T]he moving [party] may discharge its burden by "pointing out to the . . . court. . . that there is an absence of evidence to support the nonmoving party's case." The nonmoving party cannot rest on its pleadings, but must identify specific facts supported by affidavits, or by depositions, answers to interrogatories, and admissions on file that show there is a genuine issue for trial. Although we must draw all inferences in favor of the nonmoving party, it must present significant and probative evidence in support of its complaint. "The mere existence of a scintilla of evidence in support of the [nonmoving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [nonmoving party]."
Hall v. Tollett, 128 F.3d 418, 422 (6th Cir.1997) (internal citations omitted). A material fact is one whose resolution will affect the determination of the underlying action. Tenn. Dep't of Mental Health & Mental Retardation v. Paul B., 88 F.3d 1466, 1472 (6th Cir.1996). An issue is genuine if a rational trier of fact could find in favor of either party on the issue. Schaffer v. A.O. Smith Harvestore Prods., Inc., 74 F.3d 722, 727 (6th Cir.1996) (citation omitted). "The substantive law determines which facts are `material' for summary judgment purposes." Hanover Ins. Co. v. American Eng'g Co., 33 F.3d 727, 730 (6th Cir.1994) (citations omitted). However, determinations of credibility, weight of the evidence, and legitimate inferences from the facts remain the province of the jury. Anderson, 477 U.S. at 255, 106 S. Ct. 2505.
In determining whether each party has met its burden, the court must keep in mind that "[o]ne of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses. . . ." Celotex, 477 U.S. at 323-24, 106 S. Ct. 2548. If otherwise appropriate, summary judgment may also be entered for a nonmoving party. K.E. Resources, Ltd. v. BMO Fin. Inc. (In re Century Offshore Mgmt. Corp.), 119 F.3d 409, 412 (E.D.Ky.1997); see also Celotex, 477 U.S. at 326, 106 S. Ct. 2548 ("[D]istrict courts are widely acknowledged to possess the power to enter summary judgments sua sponte, so long as the losing party was on notice that she had to come forward with all of her evidence.").
II. Findings of Fact
Upon the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, the Court makes the following findings of fact:
On December 16, 1999, Plaintiff, JP Morgan Chase Bank, NA, successor by merger to Bank One, NA ("Plaintiff"), extended a $100,000.00 line of credit to Midstate Electrical Construction, Inc. ("MECI"). To obtain this line of credit, Stephen E. Algire ("Defendant"), executed a promissory note on behalf of MECI as president and personally as guarantor. The note provided that no advances under the note would be used for personal, family, or household purposes, and that all advances would be used solely for business, commercial, agricultural or other similar purposes.
MECI drew from and made payments on the line of credit from around January 3, 2000 until around May 30, 2008, when MECI defaulted on the note. During this period, Defendant purchased a new roof for his personal residence, a hot tub, a livestock trailer, a John Deere lawnmower, and other items. He also made a down payment for a boat, and paid a line of credit on his personal residence which had been extended by Signal Bank. When MECI defaulted on the note in 2008, Defendant failed to fulfill his obligation as *821 guarantor. On June 24, 2008, Plaintiff obtained a judgment against MECI and Defendant as guarantor in the principal amount of $98,683.23, plus interest, late fees and attorneys' fees.
On October 14, 2008, Defendant filed a Petition for Relief under Chapter 13 of the Bankruptcy Code, and subsequently converted his case to one under Chapter 7 on January 19, 2010. Plaintiff followed with the instant adversary proceeding, asserting that Defendant used the funds in contravention of the terms of the note, and therefore, the debt should be declared nondischargeable due to Defendant's conduct.
III. Law and Analysis
From the facts set forth above, Plaintiff asserts that Defendant misused the funds loaned to MECI in a manner which renders the underlying debt nondischargeable pursuant to 11 U.S.C. § 523(a). More specifically, Plaintiff alleges that Defendant used the loan proceeds for his own personal aggrandizement, in the form of the purchases described above. According to Plaintiff, this constitutes embezzlement, and consequently, renders the debt nondischargeable pursuant to § 523(a)(4). Plaintiff's further alleges that Defendant used the loan proceeds willfully and maliciously to cause injury to Plaintiff and therefore said debt should also be found nondischargeable pursuant to § 523(a)(6).
The fundamental policy of the Bankruptcy Code is to provide a fresh start to "honest but unfortunate debtor[s]." Grogan v. Garner, 498 U.S. 279, 286, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991). For this reason, exceptions to discharge are to be strictly construed against the complaining party. Rembert v. AT & T Universal Card Serv., Inc. (In re Rembert), 141 F.3d 277, 281 (6th Cir.1998).
A. Count OneEmbezzlement
In Count One of the Complaint, Plaintiff seeks to except the debt from discharge pursuant to 11 U.S.C. § 523(a)(4). Section 523 of the Bankruptcy Code provides, in relevant part:
(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt . . .
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.
11 U.S.C. § 523(a)(4).
The phrase, "while acting in a fiduciary capacity" modifies the words, "fraud or defalcation", whereas embezzlement and larceny are separate grounds for nondischargeability under § 523(a)(4) regardless of whether a fiduciary relationship existed between debtor and creditor. Nat'l City Bank v. Imbody (In re Imbody), 104 B.R. 830, 840 (Bankr.N.D.Ohio 1989). For the purposes of dischargeability under § 523(a)(4), embezzlement is defined by federal law as "the fraudulent appropriation of property by a person to whom such property has been entrusted or into whose hands it has lawfully come." Brady v. McAllister (In re Brady), 101 F.3d 1165, 1172-73 (6th Cir.1996) (citations omitted). To establish embezzlement, a creditor must prove "that he entrusted his property to the debtor, the debtor appropriated the property for a use other than that for which it was entrusted, and the circumstances indicate fraud." Brady, 101 F.3d at 1173 (emphasis added) (citations omitted).
The first element of embezzlement under Brady is entrustment of one's property to another. Plaintiff asserts that it entrusted its property to Defendant upon issuance of the note. The note was for a business line of credit, or loan, for $100,000.00. But Plaintiff's business loan *822 to MECI was not an entrustment of Plaintiff's property to MECI or Defendant. This is due to the nature of a loan transaction. Once a lender transfers the loan funds, the lender typically loses control of those funds. The funds are usually deposited into the borrower's account, to which the lender has no access. The borrower has no obligation to hold the funds inviolate for the benefit of the lender. To the contrary, the borrower has almost absolute discretion over use of the funds: except for the general admonition against use of the funds for personal or household use, the borrower may use the funds to make payroll, purchase inventory, pay taxes, and meet any other legitimate business expense, even if such expenditure results in insufficient capital to make its payments under the debt instrument. Absent a default in payment under the debt instrument, the lender has no right to demand return of the funds. There is no expectation on the part of the lender that the same funds it transferred to the borrower will be returned; rather, the lender expects the borrower to pay the loan from income generated by its business operations. Thus, at the time Plaintiff funded the loan, loan proceeds ceased being Plaintiff's property; rather, at that moment, the loan proceeds became MECI's property. CNH Capital America, LLC v. Bangle (In re Bangle), 2010 WL 1903752 at *3 (Bankr. W.D.Tex.2010) (explaining that at the time of funding, loan proceeds were no longer the property of the lender). Therefore, Plaintiff fails to prove Defendant embezzled Plaintiff's property because Plaintiff has not established entrustment of its property to Defendant to satisfy the first prong of embezzlement.
Inasmuch as the Court holds that Plaintiff has not established entrustment of its property to Defendant to sufficiently assert a claim of nondischargeability for embezzlement, the Court does not find it necessary to enter into an analysis of the remaining requirements for an embezzlement claim. Plaintiff's claim for nondischargeability of Defendant's debt under § 523(a)(4) for embezzlement fails because Plaintiff did not entrust its property to Defendant.
B. Count TwoWillful and Malicious Injury
Plaintiff also asserts that Defendant's use of the loan funds for personal benefit constituted willful and malicious injury to Plaintiff. Section 523(a) of the Bankruptcy Code excepts from a bankruptcy discharge damages caused by willful and malicious injuries perpetrated by a debtor. Section 523(a)(6) provides in pertinent part:
(a) A discharge under section 727 . . . does not discharge an individual debtor from any debt
(6) for willful and malicious injury by the debtor to another entity. . . .
11 U.S.C. § 523(a)(6). Because the word "willful" in the statute modifies the word "injury," the United States Supreme Court has concluded that § 523(a)(6) requires a "deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S. Ct. 974, 140 L. Ed. 2d 90 (1998). "[T]he actor must intend `the consequences of an act,' not simply `the act itself.'" Id. at 61-62, 118 S. Ct. 974 (citation omitted).
1. Willful Injury
For the purposes of § 523(a)(6), willfulness is shown when it is demonstrated that the debtor either had a desire to cause the consequences of his act, or believed that injury was substantially certain to result from his conduct. Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 464 (6th Cir.1999); see also Petralia v. *823 Jercich (In re Jercich), 238 F.3d 1202, 1208 (9th Cir.2001). The focus is on the debtor's state of mind. The fact that debtor should have known the consequences of his actions is not sufficient to satisfy the requirements of willfulness. Markowitz, 190 F.3d at 465 n. 10. Similarly, damages arising from conduct which is reckless or negligent do not fall within the purview of § 523(a)(6). Kawaauhau, 523 U.S. at 59, 118 S. Ct. 974.
In the present case, Plaintiff alleges Defendant's expenditures coupled with his withdrawal of thousands of dollars on the line of credit supports a finding that Defendant knowingly used the loan proceeds without regard to whether Plaintiff would be paid on the underlying debt. This, Plaintiff continues, constitutes willfulness for the purposes of § 523(a)(6). Defendant contests this allegation by indicating that after these withdrawals he deposited personal funds into MECI's bank account, which exemplifies a lack of intent on his behalf to injure Plaintiff. Rather, Defendant posits, this evidence shows his intent to remunerate Plaintiff on the underlying debt.
The facts and assertions presented simply are not sufficient to show that no genuine issue of fact exists as to whether Defendant "either had a desire to cause the consequences of his act, or believed that injury was substantially certain to result from his conduct." Markowitz, 190 F.3d at 464. Without more facts pertaining to the relevant circumstances, Defendant's expenditures taken as a whole and MECI's draws on the line of credit are not enough to demonstrate Defendant acted willfully for the purposes of § 523(a)(6).
2. Malicious Injury
The second requirement of § 523(a)(6) is maliciousness. This requirement is met when it is demonstrated that (1) the debtor has committed a wrongful act, (2) the debtor undertook the act intentionally, (3) the act necessarily causes injury, and (4) there is no just cause or excuse for the action. Vulcan Coals, Inc. v. Howard, 946 F.2d 1226, 1228 (6th Cir.1991); Jercich, 238 F.3d at 1209. Plaintiff contends that Defendant acted maliciously by employing the loan proceeds to purchase a roof for his house, a hot tub, and other items, and to payoff a personal line of credit in the amount of approximately $27,000.00 to Signal Bank. Plaintiff asserts, in conclusory fashion, that there was no excuse for this conduct and said conduct constitutes maliciousness under § 523(a)(6). Taking the facts in a light most favorable to Defendant, there is not enough support for a finding that Defendant acted maliciously. To prove that Defendant acted maliciously, Plaintiff must first demonstrate that Defendant committed a wrongful act and that Defendant intentionally undertook the act. See Vulcan Coals Inc., 946 F.2d at 1228. A mere showing that Defendant may have used loan proceeds for his own personal use is insufficient to demonstrate that the act was wrongful. Again, Defendant counters Plaintiff's factual assertions by evidencing his personal deposits into the MECI's bank account subsequent to the alleged personal withdrawals. Additionally, Defendant counters that he has not engaged in any wrongful acts with the loan proceeds. He insists that loan proceeds were not used to purchase or pay for any of the items described by Plaintiff. He additionally insists that the lawnmower and livestock trailer were purchased for business purposes. As the Supreme Court has stated, determinations of credibility, weight of the evidence, and legitimate inferences drawn from the facts are not properly decided in the context of a motion for summary judgment.
*824 Plaintiff must also show that Defendant partook in the acts intentionally. Setting aside the issue of whether Defendant engaged in wrongful acts, Defendant states that he was unaware of any restriction on use of the loan funds. Plaintiff counters that Defendant's failure to read or understand the loan documents does not allow him to escape the consequences of their contents. While this is generally true as to the obligations therein, Plaintiff's lack of knowledge of the conditions contained in the documents can speak to his intent. Therefore, Defendant has shown the existence of a genuine dispute of fact on this prong of maliciousness.
Plaintiff must also demonstrate that there is a causal link between Defendant's act and an injury to Plaintiff. See Vulcan Coals Inc., 946 F.2d at 1228. Here, Plaintiff provides no such evidence. Plaintiff simply insists that Defendant used loan proceeds for his own personal use, Plaintiff does not evidence that these specific acts caused MECI to subsequently default on the loan, or that any other injury to Plaintiff was caused therefrom.
Finally, for the purposes of maliciousness, Plaintiff must demonstrate that there was no justification for Defendant's alleged wrongful acts. Plaintiff makes the conclusory assertion that there was no justification for Plaintiff's acts without any explanation or support why its assertion is true. This statement alone is not enough to demonstrate that there was no justification or just cause for Defendant's acts. Therefore, Plaintiff has failed to demonstrate that there is no genuine issue of material fact that Defendant's actions constitute maliciousness for purposes of § 523(a)(6).
IV. Conclusion
In accordance with the foregoing, the Court finds that Plaintiff never entrusted its property to Defendant and therefore the Complaint fails to state of cause of action for embezzlement against Defendant. Consequently, the Court grants summary judgment in favor of Defendant as to Count One of Plaintiff's Complaint, brought pursuant to § 523(a)(4).
As to Count Two of Plaintiff's Complaint, based upon willful and malicious injury, the Court finds that Plaintiff failed to demonstrate that there is no genuine issue of material fact, and that it is entitled to judgement as a matter of law. As a result, Plaintiff's Motion for Summary Judgment as to Count Two is denied. The trial scheduled for June 11, 2010 shall proceed in order to adjudicate Plaintiff's claim under § 523(a)(6).
IT IS SO ORDERED.
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IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-92-096-CR
THE STATE OF TEXAS,
APPELLANT
vs.
ROSEMARY GARCIA,
APPELLEE
NO. 3-92-097-CR
THE STATE OF TEXAS,
APPELLANT
vs.
JOE GARCIA,
APPELLEE
FROM THE DISTRICT COURT OF COMAL COUNTY, 22ND JUDICIAL DISTRICT
NOS. CR91-269 & CR91-270, HONORABLE ROBERT T. PFEUFFER, JUDGE
PER CURIAM
The State appeals from orders of the district court granting motions to quash the
indictments in these causes. Tex. Code Crim. Proc. Ann. art. 44.01(a)(1) (West Supp. 1992);
see State v. Moreno, 807 S.W.2d 327 (Tex. Crim. App. 1991). The underlying prosecutions are
for aggravated perjury. Tex. Penal Code Ann. § 37.03 (West 1989).
The indictment in number 3-92-096-CR alleges that on or about June 18, 1991,
Rosemary Garcia
did then and there intentionally, with intent to deceive and with knowledge of the
statement's meaning, make a false statement under oath namely, stating that LUIS
RODRIGUEZ, JR., was not away from her house on December 30th and January
1st in the evening for a period of more than 30 minutes, such sworn statement
being then and there required by law to be made under oath, while the said
defendant was then and there under oath administered by, MARAGARET
HERBRICH, District Clerk for the State of Texas, such false statement previously
made being false in that LUIS RODRIGUEZ, JR., was not with her at her house
at the time of the AGGRAVATED ROBBERY, and such false statement was then
and there material to and made in connection with an official proceeding, namely,
Cause No. CR. 91-144, in the 22ND JUDICIAL DISTRICT COURT of Comal
County, Texas, styled THE STATE OF TEXAS VS. LUIS RODRIGUEZ, JR.,
in that such statement then and there was material to such official proceedings.
The indictment in number 3-92-097-CR alleges that on or about June 18, 1991, Joe Garcia
did then and there intentionally, with intent to deceive and with knowledge of the
statement's meaning, make a false statement under oath namely, stating that LUIS
RODRIGUEZ, JR., was with him at his house and then with him to Marion on
December 30th and on December 29 he was with LUIS RODRIGUEZ, JR., the
entire time, such sworn statement being then and there required by law to be made
under oath, while the said defendant was then and there under oath administered
by, MARAGARET HERBRICH, District Clerk for the State of Texas, such false
statement previously made being false in that LUIS RODRIGUEZ, JR., was not
with him at his house or in Marion with him at the time of the AGGRAVATED
ROBBERY, and such false statement was then and there material to and made in
connection with an official proceeding, namely, Cause No. CR. 91-144, in the
22ND JUDICIAL DISTRICT COURT of Comal County, Texas, styled THE
STATE OF TEXAS VS. LUIS RODRIGUEZ, JR., in that such statement then and
there was material to such official proceedings.
Appellees filed identical motions to quash complaining that:
I.
The State's pleading fails to allege aggravated perjury as provided for by
the Texas Penal Code in that it fails to allege the facts that would show that any
statements made by [appellees] are material, as defined in the Texas Penal Code
and case law interpreting the same.
II.
Defendant would show the Court that the State's pleading wholly fails to
allege an offense under the Texas Penal Code because there is no pleading to
substantiate what, if anything, was a "false statement." Defendant would further
show that the State has failed to allege with particularity which, if any, statements
Defendant may have made are false.
Defendant would further show the Court that the State has failed to allege
the statutory requirement showing specific intent to deceive, as called for in the
Texas Penal Code.
At the hearing on the motions, defense counsel complained that the indictments did
not give appellees adequate notice on which to prepare a defense.
MR. ARLEDGE [counsel for Joe Garcia]: My motion to quash indictment goes
to several matters, there's basically four complaints, and three of the complaints
go to the failure of the State to allege with particularity why the statement that they
alleged to be false was material, and also exactly what statement they're alleging
to be false was made.
. . . .
MR. HULL [counsel for Rosemary Garcia]: Apparently the State is attempting in
their indictments to specify with some particularity, although I think they wholly
fail to do so, the statements of each of these two defendants that they consider to
have been perjury.
. . . .
MR. HULL: Well, your Honor, I believe that Mr. Arledge's point, and which we
do adopt, that the State is not necessarily required to make that attempt but if they
do, they have to make it with particularity so the defendant is on notice to
understand what they're accusing her of saying that constitutes perjury, and I don't
believe the State's indictment or amended indictment does that.
. . . .
MR. ARLEDGE: The first part of the indictment says, ". . . make a false
statement under oath namely, stating that Luis Rodriguez, Jr., was with him at his
house --"
. . . .
THE COURT: All right, ". . . namely, stating that Luis Rodriguez, Jr., was with
him at his house and then with him to Marion on December 30th . . ."
That's not even a complete sentence, is it?
MR. ARLEDGE: That's right. ". . . and on December 29 he was with Luis
Rodriguez, Jr., the entire time," and then they go down further in the indictment
and say that it was false.
THE COURT: Just a minute.
He was with Luis Rodriguez, Jr. the entire time . . .
MR. ARLEDGE: ". . . such sworn statement being," blah, blah, blah, and then
says, ". . . being false in that Luis Rodriguez, Jr., was not with him at his house
or in Marion with him at the time of the aggravated robbery."
Now what does that mean? That's my question. If they're going to plead
facts, or make a pleading of facts or law or anything else sufficient to give us an
opportunity to prepare a defense, they need to do that. And I still don't know what
it means.
. . . .
THE COURT: I think what has happened, there has been some words left out of
here that need to be put in there, and I don't think the typist got everything in there
that you all intended to put in because it doesn't make good sense in English.
MR. ARLEDGE: That's my main complaint about it. It ought to say --
THE COURT: It doesn't play.
. . . .
THE COURT: Motion to quash on the Joe Garcia matter looks like it's good on
its face but I will hear from Mr. Fisher [assistant district attorney] before I finally
rule.
. . . .
THE COURT: Now, what about Rosemary? Rosemary's is not that bad.
MR. HULL: But, Judge, what I'm trying to point out is the comparison, in the
first highlighted portion they say --
THE COURT: ". . . stating that Luis Rodriguez, Jr., was not away from her
house on December 30th and January 1st in the evening for a period of more than
30 minutes . . ."
MR. HULL: And down below I have highlighted where they say that it was a
false statement because he was not with her at her house at the time. That's two
different statements, they don't match.
THE COURT: Just a minute. ". . . such false statement previously made being
false in that Luis Rodriguez, Jr., was not with her at her house at the time of the
aggravated robbery."
MR. HULL: In my opinion, if I was going to do it, to do it right, would be to say
--
THE COURT: "not at her house on . . ."
MR. HULL: Exactly. It should match. Otherwise we don't know what
aggravated robbery they're talking about.
THE COURT: I agree.
During his remarks to the court, counsel for the State made the point that the
indictments allege all the statutory elements of the offense of aggravated perjury. He did not
respond to the complaint that, as worded, the indictments did not give appellees adequate notice
on which to prepare a defense.
In its only point of error, the State argues that the trial court erred by considering
appellees' notice complaint because the general allegations in the motions to quash did not
adequately inform the trial court of the specific manner in which notice was defective. Jones v.
State, 672 S.W.2d 798, 800 (Tex. Crim. App. 1984) (holding that inadequacy of motion could
be raised by State for first time on appeal). The State further argues that the oral arguments of
counsel at the hearing did not cure the inadequacies of the written motions. McDonald v. State,
692 S.W.2d 169, 174-75 (Tex. App.--Houston [1st Dist.] 1985, pet. ref'd). Whatever the merit
of these arguments, the State failed to preserve these contentions for appeal.
Jones, McDonald, and the other opinions cited by the State were appeals by the
defendant from orders overruling motions to quash. In this cause, on the other hand, the State
is the appellant and bears the burden of demonstrating that the trial court committed reversible
error. As a general rule, appellate courts will not consider errors not called to the trial court's
attention. Aylor v. State, 727 S.W.2d 727, 730 (Tex. App.--Austin 1987, pet. ref'd). To preserve
a complaint for appellate review, a party must have presented to the trial court a timely request,
objection, or motion, stating the specific grounds for the ruling he desired the court to make.
Tex. R. App. P. 52(a). The State may not complain on appeal that appellees' motions to quash
were not adequate to allege a notice defect because it did not present this contention to the trial
court. See State v. Nolan, 808 S.W.2d 556 (Tex. App.--Austin 1991, no pet.).
A motion to quash the indictment is addressed to the discretion of the trial court.
See Jones, 672 S.W.2d at 800. Other than to state the conclusion that the indictments gave
appellees adequate notice on which to prepare a defense, the State does not address the complaints
voiced at the hearing or the merits of the trial court's rulings. The State has failed to demonstrate
that the district court abused its discretion by granting the motions to quash.
The orders of the district court are affirmed.
[Before Chief Justice Carroll, Justices Jones and Kidd]
Affirmed
Filed: September 16, 1992
[Do Not Publish]
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IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-92-027-CR
DEMETRICH A. BROADUS,
APPELLANT
vs.
THE STATE OF TEXAS,
APPELLEE
FROM THE DISTRICT COURT OF BELL COUNTY, 264TH JUDICIAL DISTRICT
NO. 40,496, HONORABLE JOE CARROLL, JUDGE
PER CURIAM
A jury found appellant guilty of aggravated assault on a peace officer and assessed
punishment at imprisonment for four years and a $5000 fine. Tex. Penal Code Ann. § 22.02
(West 1989 & Supp. 1992). On the jury's recommendation, the district court suspended
imposition of sentence and placed appellant on probation. The only issue on appeal is the
sufficiency of the evidence.
The State's principal witness was the complainant, Victor Hall. On the night of
April 14, 1991, Hall was on duty at the Bell County jail where he is employed as a jailer.
Appellant was brought to the jail that night by a deputy sheriff following his arrest for public
intoxication. According to Hall, appellant was obviously intoxicated. He was also "very
aggressive, belligerent."
After being searched, appellant was placed in the "detox tank." Appellant began
to beat on the windows of this cell and shout that he was not intoxicated and should be released.
After appellant ignored Hall's entreaties to calm himself, the determination was made to move
appellant to the "violent tank." With the aid of another jailer, Hall took appellant to the second
cell, but appellant refused to enter the cell and physically resisted the officers. At this point, the
officers seized appellant, "lowered him to the floor and restrained him." Two more jailers were
called in for assistance. Hall described what happened next as follows:
A. They began to help us pick the inmate up. Officer Lauw and Corporal
Gloston grabbed him under his arms, picked him up off the floor while me
and Mr. Mahan got up off of the floor.
Q. So you moved from a position behind his back toward the front of him?
A. Yes, sir. As I was laying on his back, then they picked him up and turned
him around towards us.
Q. All right. Now, where did you move then?
A. I was getting up off the floor to go towards him to help restrain him, to put
him in the cell.
Q. What happened next?
A. He began kicking and swinging. And at which time I got kicked in ribs.
Q. All right. How far away from you -- how far away from him were you
when you were kicked?
A. About from me to you.
Q. About three feet or so?
A. About three feet.
Q. Describe how -- he looked directly at you?
A. He was facing towards me, and each officer had him by an arm, and he
basically kicked up both feet towards me.
Q. All right. So he was directing his kick towards you --
A. Yes, sir.
Q. -- then? Okay. Where did the kick land?
A. In my lower rib cage and in my side.
Q. Okay. Thank you. Is there any doubt in your mind that he intended to
kick you?
A. No, sir.
Q. What happened immediately after you were kicked?
A. I fell to the floor and begin trying to catch my breath.
Q. Describe how it felt to be kicked in the ribs?
A. It basically felt like somebody had stabbed me or poked something sharp
into my ribs.
Appellant testified that he was not intoxicated on the night in question and had been
arrested without cause. Appellant had been involved in a fight before his arrest, and he was in
considerable pain. According to appellant, his repeated requests for medical care were ignored
by the arresting officer and the jailers. Appellant admitted kicking Hall, but said that he did so
in self-defense because Hall was using excessive force and hurting him. An instruction on self-defense was included in the court's charge to the jury.
Appellant's challenge to the sufficiency of the evidence is, in essence, an attack on
the credibility of Hall and the other witnesses for the State. Appellant points to certain
inconsistencies in their testimony concerning, for example, who was holding appellant where and
whether appellant kicked Hall with one foot or two. Appellant urges that because of these
conflicts in the testimony, there is a reasonable doubt as to his guilt.
In determining the legal sufficiency of the evidence to support a criminal
conviction, the question is whether, after viewing all the evidence in the light most favorable to
the verdict, any rational trier of fact could have found the essential elements of the offense beyond
a reasonable doubt. Jackson v. Virginia, 443 U.S. 307 (1979); Griffin v. State, 614 S.W.2d 155
(Tex. Crim. App. 1981). It was the jury's responsibility, as trier of fact, to determine the
credibility of the witnesses and the weight to be given their testimony. Tex. Code Crim. Proc.
Ann. art. 38.04 (West 1979). Obviously, the jury found Hall to be a credible witness. From his
testimony, a rational trier of fact could find beyond a reasonable doubt that appellant intentionally
or knowingly caused bodily injury to Hall, knowing when he did so that Hall was a jailer
employed by the county jail.
In his argument under this point, appellant asserts that the verdict is against the
great weight and preponderance of the evidence. Legal-sufficiency and factual-sufficiency
complaints should be brought forward in separate points of error. Stone v. State, 823 S.W.2d
375, 377 n.2 (Tex. App.--Austin 1992, pet. ref'd, untimely filed). Nevertheless, we have
reviewed all the evidence that was before the jury and find that the verdict is not so contrary to
the overwhelming weight of the evidence as to be clearly wrong and unjust. Id. at 381.
The judgment of conviction is affirmed.
[Before Justices Powers, Aboussie, and B. A. Smith]
Affirmed
Filed: September 16, 1992
[Do Not Publish]
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83 A.2d 703 (1951)
POOLE
v.
HUDSON et ux.
Civil Action No. 58.
Superior Court of Delaware, New Castle.
August 13, 1951.
August F. Walz (of Hastings, Stockley & Walz), Wilmington, for plaintiff.
Henry A. Wise, Jr., Wilmington, for defendant Martha R. Hudson.
No appearance for defendant J. Gerald Hudson.
CAREY, J., sitting.
CAREY, Judge.
The question for decision is whether the defendant's affidavit "shows on its face a *704 condition of facts which, if true, would constitute a legal defense" to plaintiff's scire facias action. 1 Woolley Delaware Practice 197. More specifically, is it a complete defense in this case to show that Mrs. Hudson was "under the influence of opiates and did not know the nature and character of the papers she signed"?
The affidavit suggests, but does not expressly aver, mental incapacity at the time of the transaction. It was held in Delaware, at a very early date, that drunkenness, even though self induced, may furnish a ground for avoiding a contract. Dulany v. Greene, 4 Harr. 285. Unquestionably, mental incapacity resulting from the use of drugs would likewise justify the same result. But, in every instance of mental impairment, regardless of its cause, if no circumstances of unfairness, fraud, duress or undue influence appear, the reasoning powers must be so impaired as to render the person actually incapable of comprehending and acting rationally in the particular transaction. Warwick v. Addicks, 5 W.W.Harr. 43, 157 A. 205; 17 C.J.S., Contracts, § 133, page 479. For example, merely being under the influence of intoxicating liquor is not enough to avoid a contract. 17 C.J.S., Contracts, § 133, page 483. The same is true of drugs. Shotwell v. First National Bank, 127 Neb. 676, 256 N.W. 508. Incapacity does not necessarily result from "being under the influence".
In this case, the affiant does not aver that her mind was influenced by the drug to the extent that she was incapable of understanding the transaction. The plaintiff should not be deprived of his foreclosure remedy simply because she did not know the nature of the papers she signed if her lack of knowledge was not due to a mental inability to comprehend their true character. We are not here concerned with a situation where inequitable conduct on the part of the plaintiff or any one else influenced the action of a person under some temporary mental impairment. No such case is made out and those authorities which deal with that type of situation have no present materiality. Sutcliffe v. Heatley, 232 Mass. 231, 122 N.E. 317, which has been cited by defendant, is in that category.
Assuming, however, that the affiant actually intended her words to mean that she could not understand the papers she signed, the result would be the same. The transaction would not be void, but voidable, at most. Industrial Trust Co. v. Miller, 5 W.W.Harr. 554, 170 A. 923; Poole v. Newark Trust Co., 1 Terry 163, 8 A.2d 10. Where a contract has been entered into with a person mentally incompetent, in good faith, without fraud or imposition, for a fair consideration, without notice of the incompetency, and has been executed in whole or in part, the contract will not be set aside unless the parties can be restored to their original position. Poole v. Newark Trust Co., supra. This principle, though of equitable origin, is today applied in most common law Courts. I Williston on Contracts (Rev.Ed.) 746; Pichel v. Fair Store Co., 29 Ohio App. 322, 163 N.E. 511. It would be grossly unfair to allow a person to repudiate a contract without returning, or offering to return, the benefits which he received thereunder. 28 Am.Jur. 717; Flach v. Gottschalk Co., 88 Md. 368, 41 A. 908, 42 L.R.A. 745.
We have here, under the present assumption, nothing more than an averment of mental incapacity. The defendant does not say that the plaintiff had notice of her condition, or that she received no consideration, or that she was the victim of fraud or imposition, or that plaintiff was guilty of any bad faith. She does not say that she can and will return the consideration or has offered to return it.
The defendant's counsel questions the propriety of granting the present motion on the ground that all the pertinent facts are not before the Court, but he has not asked leave to file any further affidavits. Even if all of defendant's statements in the present record be true, no adequate defense is made out.
Plaintiff's motion must be granted.
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16 N.J. Super. 48 (1951)
83 A.2d 823
ANTHONY DE CARLUCCI, PLAINTIFF,
v.
HYMAN BRASLEY AND ERNEST HAYEN, DEFENDANTS.
Superior Court of New Jersey, Law Division.
Decided September 15, 1951.
*49 Mr. Louis J. Anzalone, attorney for plaintiff.
Messrs. Markley & Broadhurst, attorneys for defendant counterclaimant.
TENENBAUM, J.C.C. (temporarily assigned).
The plaintiff, Anthony De Carlucci, instituted suit sounding in tort, the gravamen of which complaint charges each defendant, Hyman Brasley and Ernest Hayen, with negligence, individually and jointly, in the operation of their respective motor vehicles, as a result of which he claimed damage to his automobile and personal injuries alleged to have been sustained by him, for all of which he sought damages.
The defendant, Ernest Hayen, by his counsel, Markley & Broadhurst, Esquires, filed his answer admitting ownership of the motor vehicle mentioned in the complaint, but made a general denial of all the other averments and interposed the defenses: (a) that the accident, and the resultant damages and injuries alleged, were the result of the negligence of the defendant, Hyman Brasley; (b) contributory negligence of the plaintiff, Anthony De Carlucci; (c) that the accident was solely and proximately caused by a person or persons other *50 than the defendant, Ernest Hayen, over whom he had no control. He likewise asserted a crossclaim against the defendant, Hyman Brasley, charging him with negligence, alleging it was the proximate cause of the accident and the resultant damage to his automobile, for which he sought recovery. Additionally, he advanced a counterclaim against the plaintiff, charging him with negligence which he avers was the proximate cause of the accident and the resultant damage to the defendant-counterclaimant's automobile, for which he sought recovery from the plaintiff.
Thus the issues were framed, and at some stage in the proceedings before trial an agent of the Commercial Casualty Insurance Company, the plaintiff's insurance carrier, settled the counterclaim of the defendant, Ernest Hayen, against the plaintiff for $150 and for that consideration accepted a release for the said amount running from Ernest Hayen to the plaintiff.
The defendant, Ernest Hayen, thereafter moved for an order of summary judgment of dismissal of the plaintiff's suit against him, urging for success the pronouncement in Kelleher v. Lozzi, 7 N.J. 17, 80 A.2d 196 (1951). To support the motion, James B. Emory, Esquire, a member of the firm of Markley & Broadhurst, Esquires, attorneys for defendant-counterclaimant, filed his affidavit alleging, inter alia:
"1. I am an Attorney and Counsellor at Law of the State of New Jersey, and a member of the firm of Markley & Broadhurst, Attorneys for the Defendant, Ernest Hayen, and the person in charge of the handling of this matter.
2. On March 1, 1951, Mr. Wertheimer of the Commercial Casualty Insurance Company, who carried the liability insurance on the automobile of the plaintiff, offered to settle the counterclaim of the defendant, Ernest Hayen, for $150.00. I accepted that offer and pursuant thereto, mailed to Mr. Wertheimer a Stipulation of Dismissal and a Release executed on April 12, 1951; said Release reciting the above stated consideration of $150.00, and running from Ernest Hayen to the plaintiff, Anthony DeCarlucci.
3. Subsequent thereto the said sum of $150.00 was paid to the defendant by a check of the Commercial Casualty Insurance Company; said check being made payable to Ernest Hayen and Markley & Broadhurst, Attorneys."
*51 The plaintiff, in resisting the motion, filed an affidavit alleging that Mr. Wertheimer of the Commercial Casualty Insurance Company was not his agent or representative, and that he never authorized the insurance company to settle any claims for personal injury or property damage, and further that the only authority that the Commercial Casualty Insurance Company had from him was to appear in defense of the counterclaim, and that his consent was never obtained to any settlement made by the Commercial Casualty Insurance Company.
Neither of the affidavits submitted indicate that the plaintiff, personally, or Louis J. Anzalone, his attorney, who instituted the suit on his behalf, participated in the negotiations which culminated in the settlement, or that either of them had any knowledge of the pendency of those negotiations. Neither does it appear in the affidavits that the consent of the plaintiff or his attorney was sought or obtained to the stipulation of dismissal or the acquisition of a release. The stipulation on file contains the following:
"It is hereby stipulated between the attorneys for the respective parties that the counterclaim filed by the defendant, Ernest Hayen, is hereby dismissed without costs to either party.
(Signed by) Markley & Broadhurst,
Attorneys for Counterclaimant
by J.B. Emory, partner.
(Signed) Raymond E. Taylor,
Attorney for plaintiff in defense
of Counterclaim."
It is to be observed that the stipulation was signed on behalf of the counterclaimant by "Markley & Broadhurst, * * * by J.B. Emory, partner," and by "Raymond E. Taylor, Attorney for plaintiff in defense of counterclaim." From this it is to be inferred that Raymond E. Taylor, attorney, was restricted in his authority, if he had any authority at all, to dealing with the counterclaim. In view of the absence of any show to the contrary, it may also be inferred that he actually represented an insurance carrier of the plaintiff; *52 it is not unusual for a litigant who is subjected to a counterclaim after the institution of suit to be represented by different counsel where the counterclaim affects the obligation of an insurance carrier upon a policy of insurance.
The affidavit of the plaintiff justifies the conclusion (indeed there seems to be no contrary claim) that the Mr. Wertheimer representing the Commercial Casualty Insurance Company was not his agent; that the plaintiff never authorized him to settle plaintiff's claims for personal injury or property damage, and that no authority was given to the insurance company to prejudice plaintiff's rights, nor was any consent obtained of the plaintiff to make the settlement referred to. The affidavit submitted by attorney for the counterclaimant is barren of any statement to the contrary.
The plaintiff initially engaged a lawyer, Louis J. Anzalone, of his own choosing, to institute his suit. When the defendant filed his counterclaim there was evidently imposed upon him by the insurance carrier another lawyer in the person of Raymond E. Taylor, to defend the counterclaim. The policy of liability insurance which the plaintiff had with the Commercial Casualty Insurance Company contained the standard provisions which leave to the insurer the question of whether a case is to be tried or settled.
In McDonald v. Royal Indemnity Insurance Company, 109 N.J.L. 308 (E. & A. 1932), it was said by the court:
"The insurer was under no obligation to pay in advance of trial, and the decision whether to settle or to try was committed to it. The plain words of the policy have no other meaning."
But this principle is not so elastic that it may be expanded to deprive the plaintiff of his right to maintain a suit in his own behalf where the conduct of the insurance company, in settling the counterclaim against the plaintiff, was without his knowledge, consent, participation, approval or cooperation.
The facts which impelled the court to reach its result in Kelleher v. Lozzi, supra, are in sharp contrast with those facts in the case under consideration. There, a consideration was *53 paid by the defendant to the plaintiff in settlement of the controversy, a release given, and a stipulation of dismissal signed by the attorney for the plaintiff and defendant. It is patent that there was participation by both parties to the settlement, or, at least, there was silence on the part of the insurance company, if such company was involved in carrying out the negotiations of settlement. The facts lack the element of settlement by a third person (insurance carrier). Mr. Justice Case rested his determination in the Kelleher case on estoppel resulting from the conduct of the parties inter sese.
Motion denied.
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15 N.J. Super. 381 (1951)
83 A.2d 460
ETHEL HOLLY, PLAINTIFF-APPELLANT,
v.
MEYERS HOTEL AND TAVERN, INC., A CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANT-RESPONDENT.
Superior Court of New Jersey, Appellate Division.
Argued September 10, 1951.
Decided September 26, 1951.
*384 Before Judges McGEEHAN, JAYNE, and Wm. J. BRENNAN, JR.
Mr. John A. Laird argued the cause for appellant (Mr. Nathan Cholodenko, attorney).
Mr. Andrew Lawrie argued the cause for respondent.
The opinion of the court was delivered by JAYNE, J.A.D.
The law applicable to the responsibilities of innkeepers is of ancient origin. The most industrious and *385 inquisitive research would probably fail to reveal when and where the first inn as such was established. The historian Herodotus awards the honor of establishing the first hotel to the Lydians. The Scriptures indicate that inns existed in Palestine and its adjoining countries. We read of the presence of "Khans" along the highways and "caravansaries" in the cities throughout Oriental countries. Perhaps nowhere in Europe did they more rapidly obtain an encampment than in England. Since the word "inn" is doubtless of Chaldaic origin, literally meaning "to pitch a tent," it may be said that the development and maintenance of inns have gradually expanded from the humble tents of the nomads of the desert to the magnificent structures of the 20th Century which in some instances seem to shelter a small village beneath a single roof.
Yet in the main the basic principles of law relating to the innkeeper's liabilities have continued to subsist. And so it may be remarked that the keepers of the enormous hotels in the great cities and recreational resorts of the United States of the present day derive their rights and trace their responsibilities to the host of the humble village inn of medieval England. More adventurous than circumspect would be the court that endeavored to innovate in the fundamental characteristics of so serviceable a branch of the law.
A phase of an innkeeper's responsibility is presented to us for consideration by the instant appeal. While the occurrence which induced this litigation is exceptional, it is not novel. This is a case of defenestration.
Since the trial judge granted a motion for the involuntary dismissal of the cause of action at the conclusion of the plaintiff's case, our summary of the testimony is stated in its aspect most favorable to the plaintiff's alleged claim.
It is acknowledged that the defendant was in control of the management of the 66-room hotel in Hoboken at the time of the mishap and thus occupied the legal status of an innkeeper.
On the afternoon of March 31, 1949, the captain of a ship engaged three rooms at the hotel for the accommodation of a *386 group of five Canadian sailors. The rooms so assigned were situate on the third floor, and evidently one of the rooms faced on Hudson Street. The chronological sequence of events is significant.
At 7 o'clock in the evening the sailors arrived at the hotel and proceeded to their rooms. Between 9:30 and 10 o'clock they communicated with the hotel clerk concerning the purchase of a bottle of rum. It was not supplied to them by the hotel.
At about 10:45 P.M. a female guest occupying a room on the third floor telephoned to the hotel clerk and imparted to him the information that the sailors were causing an unusual amount of noise. The clerk notified the sailors by telephone of the complaint and the sailors assured him that "they would be quiet." About 20 minutes later the same guest again communicated with the clerk and apprised him that "the noise had not subsided and they (the sailors) were throwing around what sounded like a shoe." Thereupon, at about 11:05 P.M., the hotel clerk personally announced his presence at the entrance of the room occupied by the sailors and again requested them to be quiet, asserting that otherwise they would be ejected from the premises.
Approximately two hours later the plaintiff was walking with her escort on the sidewalk alongside the hotel when a Coca Cola bottle was thrown out of the window above by one of the sailors. The bottle crashed on the pavement beside the plaintiff and a fragment of the broken glass entered the plaintiff's left eye. We may pause to state that the injury to her eye has been relatively serious.
The police were immediately summoned. The lights were still illuminated in the room inhabited by the sailors, and the police officers promptly visited the room, observed its disordered condition and interrogated the sailors except one who was on the bed drifting peacefully with the tides of sleep.
Initially there was a denial that any one of the group had thrown a bottle out of the window. The sailors were apprehended and subsequently one of them supplied the admission *387 that in attempting to throw the bottle from the table into a waste-paper basket beneath the open window, it accidentally passed out the window. The explanatory testimony of the crafty or repentant sailor taken at some proceeding of a criminal nature was incorporated in the transcript of the evidence in the present action.
Inasmuch as the hotel clerk had been previously notified that the sailors were engaged in throwing some object about, the court admitted testimony relating to the condition of the room upon the removal of its occupants. There were broken bottles and broken water glasses on the floor. There were "half moon shaped" indentations on the wall with shattered fragments of glass beneath. A plywood movable closet was broken, chairs were overturned and beds pulled out of position.
It must be immediately recognized that the subject matter of this appeal is confined solely to the consideration of the legal obligations of the defendant hotel company in the circumstances, and more specifically to the determination of whether the evidence adduced by the plaintiff was sufficient to sustain a prima facie cause of action against the hotel company for submission to the jury.
Basically the cause of action must necessarily be erected upon the existence of a duty which the defendant owed to the plaintiff and the failure of the defendant to fulfill that duty to the injury of the plaintiff. Moreover to sustain a recovery there must be some causal connection between the fall of the bottle and the omissions of duty of the proprietor of the hotel, his servants or persons for whose acts he may be held responsible. Obviously there is no proof that the hotel keeper or any servant of his threw the bottle. The case implicates a consideration of the legal relation existing between those who occupy rooms of a hotel as transient guests and the proprietor's responsibility for their acts.
The rights of the proprietor are not unrestricted. When a guest is given the key to his room, it symbolizes the surrender of the quarters to the guest subject only to such visitations at reasonable times as the proprietor or his servants *388 may deem necessary properly to maintain the rooms and to supervise their use so that they may not become obnoxious to the proprieties of behavior, morality and the law of the land. Apart from these privileges accorded the management, the guest is entitled to possess the free and unmolested use and enjoyment of his room or apartment without interference from any one. Indeed, unwarranted and unjustifiable interference by a proprietor or his servant may occasion consequential liabilities.
On the other side, the hotel proprietor has the undoubted right and in some circumstances the duty to evict a disorderly, malevolent and incorrigible guest.
The responsibility of the hotel proprietor for the injurious consequences of the wrongful acts of his guests to outsiders is recognized in that narrow zone between his inhibitions against unwarranted interference and his duty with respect to the management of his premises exemplified by the maxim, sic utere tuo ut alienum non laedas.
The generally accepted view is that an innkeeper is liable to a stranger for personal injury where the innkeeper or his servants knew or by the exercise of reasonable care could have known that the behavior of the guest was such as to indicate to one of average prudence that the guest might commit acts which would naturally result in injury to others. Among the reported decisions on the subject of recent years are Bruner v. Seelbach Hotel Co., 133 Ky. 41, 117 S.W. 373 (Ky. Ct. of App. 1909); Gore v. Whitmore Hotel Co., 229 Mo. App. 910, 83 S.W.2d 114 (Kansas City Ct. of App. 1935); Wolk v. Pittsburgh Hotels Co., 284 Pa. 545, 131 A. 537 (Sup. Ct. 1925); Kapphahn v. Martin Hotel Co., 230 Iowa 739, 298 N.W. 901 (Sup. Ct. 1941); Larson v. St. Francis Hotel, 83 Cal. App.2d 210, 188 P.2d 513 (Dist. Ct. of App. 1948); Agsten v. Lemma, 119 W. Va. 330, 193 S.E. 545 (Sup. Ct. of App. 1937). See, also, 32 C.J. 562, sec. 69; 14 R.C.L. 538, sec. 36; 28 Am. Jur. 636, sec. 138.
Contemplating therefore the nature of the legal duty that descended upon the defendant, we next encounter the questions *389 whether in the circumstances divulged by the evidence the defendant by the course of conduct of its representative was shown in at least a prima facie degree to have been negligent in the observance and fulfillment of its duty, and if so, was the dereliction in that particular made to appear by a similar degree of proof to have been a natural and proximate cause of the injury eventually sustained by the plaintiff.
In approaching the determination of those questions we are cognizant of the applicable general principles. The law makes no unreasonable demands. It does not require from any one superhuman wisdom, perspicacity, foresight and vigilance. It does not convert the innkeeper into a constant watchman and guardian of the conduct of his guests. The dictates of reasonable care do not impose unreasonable burdens.
In the pertinent decision rendered in Bruner v. Seelbach Hotel Co., supra, the Court of Appeals of Kentucky remarked "Besides, the fact must be remembered that ordinarily innkeepers have no control over their guests. It is only when they know, or by the exercise of ordinary care could know, that the guest's conduct is such that injury will naturally result to others, that they have the right to eject the guest, or take precautions to control his conduct."
The following quotation is taken from the well considered opinion of the Supreme Court of Pennsylvania in Wolk v. Pittsburgh Hotels Co., supra: "Undoubtedly the proprietor could no more be held responsible for the consequences of his guests' willful acts in throwing articles to the street unless he could prevent it, than he would be for the wrongful act of his servants outside the scope of employment. Nor would he be liable for the result of articles placed on the window sill falling to the street, unless he knew or had reason to know the thing placed there was of a dangerous nature, or likely to fall to the street."
We recently remarked in Gentile v. Pub. Service Coordinated Transport, 12 N.J. Super. 45 (App. Div. 1951), that: "Negligence in the abstract is a nihility. Both negligence *390 and reasonable care are relative terms. They derive their animation in the law of torts only when they are in articulation with a given body of factual conditions and circumstances." The present case conspicuously exemplifies the significance of that statement. In the light of the knowledge which had been imparted to the hotel clerk and of the information which in the exercise of reasonable vigilance and circumspection he could have acquired, was he remiss in his duty or was his conduct all that would naturally be expected of an ordinarily cautious and prudent person in his position under like or similar circumstances?
If in the deliberate and impartial consideration of that issue fair-minded men or women might honestly differ as to the conclusions to be logically drawn from the circumstances, then the issue should have been submitted to the jury for determination. Scarano v. Lindale, 121 N.J.L. 549 (E. & A. 1938); Schwartz v. Rothman, 1 N.J. 206 (1948); Fischetto Paper Mill Supply, Inc., v. Quigley Co., Inc., 3 N.J. 149 (1949); Antonio v. Edwards, 5 N.J. 48 (1950); Vadurro v. Yellow Cab Co. of Camden, 6 N.J. 102 (1950).
A motion for the involuntary dismissal of an action pursuant to Rule 3:41-2 under our present practice is comparable to a motion for an involuntary non-suit under our former practice. Morsey v. Erle, 4 N.J. 276 (1950). We are therefore to assume that the learned trial judge rationalized that notwithstanding the acceptance as true of all of the evidence on behalf of the plaintiff and of every favorable inference of fact that could be legitimately drawn therefrom, fair-minded jurors could not by the processes of logical deductions conclude that the defendant was guilty of any negligence which proximately contributed to the plaintiff's injury, and the judge accordingly pursued the course which the law imposes in such a state of the evidence. Kaufman v. Pennsylvania Railroad Co., 2 N.J. 318 (1949).
In these matters the fair-minded man is no less a theoretical personification than the ordinarily prudent man. To determine whether the fair-minded man could from the *391 evidence conclude within the precincts of rationality the existence of a state of facts which in the law establishes a prima facie cause of action is appropriately the prerogative of the judge; to decide whether amid those existing facts, if deemed actionable, the defendant acted or failed to act in conformity with the standard conduct of the ordinarily prudent person is appropriately to be presented to the forum of common knowledge and experience in which the jury functions.
Therefore in the consideration of the ruling under review we have endeavored to envision the entire field of the mental reactions which we conceive that a fair and logically minded person might experience in the cogitation of the factual circumstances of the present case.
We apprehend that the fair-minded person might entertain the following convictions: that the hotel clerk knew that there had been admitted to the hotel a group of sailors, off ship and apparently on temporary leave; that he learned from his first message from them that one or more had a propensity to indulge in intoxicating liquor and desired a bottle of rum; that he later learned that they had become boisterous to a degree annoying to a guest in other quarters; that he evidently regarded the complaint to be credible and sufficiently significant to induce him to admonish them; that it is not evident that the sailors denied the truth of the complaint but promised to cease; that about 20 minutes later he learned that the sailors had willfully disregarded his previous request and that they were engaged in "throwing" some object or objects about the room (we ascribe considerable significance to the information that the sailors were "throwing" objects because that is the type of mischief which ultimately caused the plaintiff injury); that the hotel clerk was then aware that the sailors were unusual guests in that they were uncommonly boisterous, inordinately mischievous, if not quarrelsome, and certainly disobedient; that in this instance he visited the entrance to the room, conversed with one of the sailors, again giving warning against a further *392 continuance of their misconduct; that the clerk did not enter the rooms to ascertain what objects they had been throwing and, notwithstanding his knowledge that the sailors had previously ignored his warning from which he might have anticipated the liklihood that they would do so again, he returned to the office, out of the range of hearing them and gave the matter no further attention because of the absence of a third complaint.
Additionally, perhaps, the fair-minded person might have inferred that the obstreperous "throwing" of bottles and drinking glasses continued spasmodically after the clerk's visit in proportion to the increase of their consumption of liquor; that such should have been reasonably anticipated and that in view of the knowledge of the extraordinary behavior of these guests a reasonably prudent and cautious clerk would have followed up his supervisory endeavors and kept those particular guests under some measure of surveillance, in which case the mishap would not have occurred.
Manifestly the pivotal point relates to the character of the conduct of the clerk following his visit to the rooms.
Reasonable anticipation, spoken of in the law of negligence as foresight for harm, is that expectation generated in the mind of the person of ordinary vigilance and circumspection in consequence of his reaction to a set of circumstances. The element of "foresight for harm" seems to be regarded as a factor of cogent significance in cases of this particular nature. Appreciating the knowledge of the clerk that the window was open and that a public street was beneath it, and his reason to believe that the sailors were in a devil-may-care mood and throwing objects in the room, we are unable to agree that his situation was so clearly beyond the range of the reasonable apprehension of injury to someone as to be excluded from the consideration of the jury and treated as a matter of law rather than as a factual problem. Moreover, in the present case we apprehend that the factual circumstances in material respects were not entirely free from divergent inferences. Illustratory are the following: did all *393 of the disorderly conduct of the guests precede in point of time the clerk's visit and thereupon cease, or did it thereafter persist? Did the sailors heed the clerk's last warning, desist from their offensive behavior, and was it in truth in the endeavor of the sailor to toss the bottle into the waste basket that it passed out of the window, hence an intervening act distinctly independent of and disassociated with the exhibitions of previous malfeasance? Unfortunately the complaining guest did not appear at the trial and impart her information concerning a continuance, if any, of the misbehavior.
Upon mature reflection we are constrained to conclude that this alleged cause of action in the existing state of the evidence and in recognition of the principles of law applicable to the measure of responsibility of the innkeeper ought to have been submitted to the jury. To warrant an involuntary dismissal it is not enough that the facts are without contradiction; the inference that is drawn from such facts must likewise be, in a legal sense, indubious, i.e., one about which reasonable men might not honestly differ. Furniture Co. v. Board of Education, 58 N.J.L. 646 (E. & A. 1896).
Judgment reversed and a new trial directed. Costs to abide the event.
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582 S.W.2d 191 (1979)
SOUTHWESTERN BELL TELEPHONE COMPANY, Appellant,
v.
Ruth DAVIS et al., Appellees.
No. 6062.
Court of Civil Appeals of Texas, Waco.
May 3, 1979.
*192 James E. Barden and Jerry R. Tucker, Sr., San Antonio, for appellant.
William O. Whitehurst, Jr., and Mack Kidd, Kidd & Whitehurst, Dicky Grigg, Spivey & Grigg, Joseph V. Crawford, Stubbeman, McRae, Sealy, Laughlin & Browder, Austin, for appellees.
OPINION
McDONALD, Chief Justice.
This is an appeal by defendant Southwestern Bell from judgment against it in favor of plaintiff Davis for $21,460.15, and plaintiff DeWitty for $96,717.92, in an automobile collision case.
On April 2, 1977 plaintiffs Davis and DeWitty were proceeding east on 12th Street in Austin, Texas. Mrs. Davis was driving her car, Mrs. DeWitty was a passenger. They were in a funeral procession travelling about 15 miles per hour. Esiquel Mindieta an employee of Southwestern Bell was proceeding north on Pleasant Valley Road towards its intersection with 12th Street. He ran into and collided with plaintiff's vehicle in the intersection, injuring both plaintiffs.
Plaintiffs filed this suit against Southwestern Bell alleging Mindieta in the course of his employment, was negligent in failing to keep proper lookout and in failing to timely apply his brakes. Defendant answered by general denial and counterclaim alleging plaintiff Davis was negligent in failing to keep proper lookout, failing to timely apply brakes, and in disregarding a red light.
Trial was to a jury which found:
1) Esiquel Mindieta was negligent in his lookout, and in the timely application of his brakes, which was a proximate cause of the occurrence.
2) Ruth Davis was not negligent: in her lookout; in timely application of her brakes; in observing traffic signals; or in the control of her speed.
3) Was conditionally submitted upon a finding of negligence on the part of both *193 parties, inquiring of the comparative negligence of the parties, and was accordingly not answered.
4) Was the damage issue as to plaintiff DeWitty, and found her damages as follows:
A. $3,367.92: past medical care.
B. $5,850.00: past earnings loss.
C. $7,500.00: past pain and mental anguish.
D. $12,500.00: future medical care.
E. $50,000.00: future loss of earnings.
F. $10,000.00: future pain and mental anguish.
5) Was the damage issue as to plaintiff Davis, and found her damages as follows:
A. $2,120.15: past medical care.
B. $1,640.00: past earnings loss.
C. $4,000.00: past pain and mental anguish.
D. $500.00: future medical care.
E. $4,000.00: future loss of earnings.
F. $250.00: future pain and mental anguish.
6) Fixed $1,250.00 as damage to Mrs. Davis's car.
7) Fixed $200.00 for rental of a car by Mrs. Davis while her car was being repaired.
8) Fixed $681.10 as damage to Southwestern Bell's vehicle.
9) Found the entrustment of the van to Mindieta by Southwestern Bell was gross negligence.
10) Awarded exemplary damages of: $7,500.00 to Mrs. DeWitty $7,500.00 to Mrs. Davis.
The trial court rendered judgment on the verdict for plaintiff Davis for $21,460.15; and for plaintiff DeWitty for $96,717.92.
Appellant appeals on 16 points contending:
1) There is no evidence and/or insufficient evidence to support the jury's answer to Issue 1, finding that Mindieta was negligent in failing to keep a proper lookout, and to timely apply his brakes, and such finding is against the great weight and preponderance of the evidence.
2) There is no evidence and/or insufficient evidence to support the jury's answer to Issue 2, finding plaintiff Davis not negligent, and such finding is against the great weight and preponderance of the evidence.
3) The trial court erred in permitting expert witness Ruble to testify when the facts were before the jury, and fully available for assessment without testimony of an expert who was not present at the scene of the accident when it occurred.
4) There is no evidence and/or insufficient evidence to support the jury's answer to Issue 4 finding plaintiff DeWitty's damages in the total sum of $96,716.42.
5) There is no evidence and/or insufficient evidence to support the jury's answer to Issue 5 finding plaintiff Davis's damages in the total sum of $22,460.15.
6) There is no evidence and/or insufficient evidence to support the jury's answers to Issues 9 and 10.
Contention 1 complains of the jury's finding that Southwestern Bell's driver Mindieta was negligent in failing to keep a proper lookout and to timely apply his brakes; contention 2 complains of the jury's finding plaintiff Davis was not negligent; and contention 3 complains of the trial court's permitting witness Ruble, an accident reconstructionist expert, to testify in the case.
There is evidence plaintiffs were travelling at approximately 15 miles per hour; that Mindieta was travelling approximately 25 miles per hour; that plaintiffs were in a funeral procession 10 or 11 cars back from the policeman; that all cars had their lights on; that plaintiffs were a half car length behind the car in front of them; that there were a number of cars behind them in the procession; that Mindieta hit plaintiffs in the intersection; that at the speed of both vehicles, the position of obstructions, the visibility line, the point at which the drivers of both vehicles could see the other driver, was a distance of approximately *194 two and three-fourths second away from the point of impact; that Mindieta could have reacted in three-fourths of a second, and stopped in approximately three-fourths of a second; that he could have stopped the van in 40 feet; that northbound travellers on Pleasant Valley Road could see the intersection through which the funeral procession was proceeding from 350 feet away. This plus the fact that all cars in the funeral procession had their headlights on authorized the jury to infer that Mindieta would have to notice that a funeral procession was going through the intersection.
Mrs. Davis was travelling at fifteen miles per hour one-half car length behind the car ahead of her in the funeral procession. A policeman was leading the procession. There is evidence that at the time the light facing Mindieta turned green, an automobile was just clearing the intersection. Thus, the jury could reasonably infer that Mrs. Davis was partially in the intersection when the light facing her turned red. Moreover, there is a universal custom developed over the years for automobiles to stop to allow a funeral procession to cross an intersection. See: Sundene v. Koppenhoefer, 343 Ill.App. 164, 98 N.E.2d 538.
The witness Ruble, an accident reconstructionist expert, testified extensively as to his qualifications; computed braking distances and times involved, and demonstrated to the jury with mathematical precision that if Mindieta had maintained a proper lookout and timely applied his brakes, the accident would not have happened. The testimony of experts are commonly permitted to testify to such matters as above if within their skill and expertise. Barker v. Dunham, Tex., 551 S.W.2d 41; Texas Law of Evidence, McCormick & Ray, Section 1400, pp. 233, 234 (1956); Lawson v. State of McDonald, Tex.Civ.App. (Waco) NRE, 524 S.W.2d 351; State Highway Dept. v. Hinson, Tex.Civ.App. (Corpus Christi) NRE, 517 S.W.2d 308; Pappas v. Estate of Laughlin, Tex.Civ.App. (Beaumont) NRE, 552 S.W.2d 525; McIlroy v. Wagley, Tex.Civ.App. (Corpus Christi) NRE, 437 S.W.2d 5; Pace v. Gutierrez, Tex. Civ.App. (Amarillo) NRE, 492 S.W.2d 356.
And defendant did not object to witness Ruble's testimony thereby waiving such point. Champion Mobile Homes v. Rasmussen, Tex.Civ.App. (Tyler) NRE, 553 S.W.2d 237; Battles v. Adams, Tex.Civ.App. (Austin) NRE, 415 S.W.2d 479.
Contentions 1, 2 and 3 are overruled.
Contentions 4 and 5 assert there is no evidence or insufficient evidence to support the jury's award to Mrs. DeWitty of $96,716.42, and to Mrs. Davis of $22.460.15.
Defendant specifically attacks findings: 4 D which awarded Mrs. DeWitty $12,500.00 for future medical care; 4 E which awarded Mrs. DeWitty $50,000.00 future loss of earnings; 5 D which awarded Mrs. Davis $500.00 future medical care; and 5 E which awarded Mrs. Davis $4,000.00 future loss of earnings. Defendant further complains of the testimony of the witness Dr. Hanson, a vocational rehabilitation expert, who testified extensively over objection, as to loss of earnings by Mrs. DeWitty in the future.
Mrs. DeWitty was 67 years old. Her work experience includes 22 years teaching music in the Austin public schools, production of a radio program of songs, and spirituals for 6 years; organizing and directing choral concerts involving 1400-1500 persons for State and National Baptist Conventions; lecturing, playing for weddings, teas and funerals, and writing and publishing songs and music. At the time of the accident she was earning some $10,500.00 per year from her music at Ebenezer Baptist Church, State and National conventions, weddings, teas, funerals and her hymnbook sales. She has lost $5,850.00 from the date of the accident to the time of trial. She sustained injuries to her right hand, shoulder, hip, knee and neck. As a result she has developed traumatic arthritis in her right hand which affects playing of the organ and piano. She has developed a progressive deformity of her right hand. She suffers pain and limitations which will intensify with time; she has active synovitis in her index *195 and long metacarpophalangeal joint of her right hand which is permanent; arthritic changes in her hip and knee which are permanent, and will result in increased pain and disability as time goes by. Since the accident she has been unable to maintain her former life. She has a life expectancy of between 10 and 14.9 years. There is evidence from which the jury could conclude that she is or in the near future will be rendered totally disabled from a vocational standpoint.
Mrs. DeWitty had $3,367.92 in medical expenses prior to trial. There is evidence that she should continue therapy and medical treatment and that she may need an operation. Appellant in its brief concedes that there is evidence to support some $6,600.00 in future medical expenses.
The award of future medical expenses is a matter about which no precise evidence is required, it being a matter particularly for the jury, and one upon which the jury may make its award based on the nature of the injuries, the medical care rendered before trial, and the condition of the injured party. City of Houston v. Moore, Tex.Civ.App. (Houston 1) NRE, 389 S.W.2d 545; Southwestern Bell Telephone Company v. Thomas, Tex.Civ.App. (Corpus Christi) 535 S.W.2d 686, Aff'd in part, reversed in part on other grounds, Tex., 554 S.W.2d 672.
Mrs. Davis was 57 years old. She is a musician who plays for her church, and for funerals and weddings. She lost $1,640.00 earnings from date of the accident to time of trial. She has a life expectancy of 21.3 years. She is still suffering from her injuries and particularly her right wrist and has not been able to perform her piano playing duties as much as prior to the accident; she does not feel well. She has past medical expenses of $2,120.15 resulting from her injuries sustained in the accident; and is having physical problems which affect her whole outlook on life.
Contentions 4 and 5 are overruled.
Contention 6 asserts there is no evidence or insufficient evidence to support the jury's answers to Issues 9 and 10.
Issue 9 found the entrustment of the van to Mindieta by Southwestern Bell was gross negligence, and Issue 10 awards $7,500.00 each exemplary damages to both plaintiffs.
The evidence is that Southwestern Bell hired Mindieta without inquiring or checking into his driving record; that he had his driver's license suspended two years prior to employment by Southwestern Bell for 6 months as a habitual violator of the traffic laws; that he was convicted after employment by Southwestern Bell for 4 traffic violations which involved 2 accidents; that he had a valid driver's license when employed by Southwestern Bell, that Southwestern Bell did not have any actual knowledge of his driving record. The foregoing evidence would amply sustain a finding of ordinary negligence for the entrustment of the vehicle to Mindieta. Union Transports, Inc. v. Braun, Tex.Civ.App. (Eastland) NWH, 318 S.W.2d 927; Mundy v. Pirie-Slaughter Motor Co., 146 Tex. 314, 206 S.W.2d 587; Hines v. Nelson, Tex.Civ.App. (Tyler) NWH, 547 S.W.2d 378.
But same will not sustain a finding of gross negligence. Bennett v. Howard, 141 Tex. 101, 170 S.W.2d 709; Abercrombie Co. v. Scott, Tex.Civ.App. (Galveston) NRE, 267 S.W.2d 206; Atlas Chemical Industries, Inc. v. Anderson, Tex., 524 S.W.2d 681.
Such cases hold that negligence or the want of ordinary care will not expose the actor to exemplary damages; but that instead it is settled that there must be a showing of "gross negligence" in order to obtain exemplary damages in a negligence case; and that "gross negligence, to be ground for exemplary damages, should be the entire want of care which would poise the belief that the act or omission complained of was the result of a conscious indifference to the right or welfare of the person or persons to be affected by it".
From the record it does not appear Southwestern Bell was consciously indifferent to the rights or welfare of plaintiffs, but that the negligent entrustment was ordinary *196 negligence only. Contention 6 is sustained.
The judgment is accordingly reformed to delete $7,500.00 from the recovery of each of the plaintiffs.
Additionally from the record we are of the opinion that the judgment as to plaintiff DeWitty is further excessive in the sum of $15,000.00 and that the judgment as to her should be reversed for this reason only. Appellee DeWitty is given 10 days from this date to file a remittitur of $15,000.00, Rule 440 TRCP. Flanigan v. Carswell, 159 Tex. 598, 324 S.W.2d 835; World Oil Co. v. Hicks, 129 Tex. 297, 103 S.W.2d 962; Caswell v. Satterwhite, Tex.Civ.App. (Waco) NRE, 277 S.W.2d 237; Big Town Nursing Home v. Newman, Tex.Civ.App. (Waco) NWH, 461 S.W.2d 195. If such remittitur is filed within 10 days the judgment of the trial court will be reformed and affirmed as to appellee DeWitty.
The judgment is severed and Reformed and Affirmed in the amount of $13,960.15, as to appellee Davis.
Reversed and Remanded as to appellee DeWitty.
OPINION AFTER FILING REMITTITUR
Appellee DeWitty having filed remittitur of $15,000. as suggested by this Court, the judgment of the trial court is reformed in conformity with such remittitur and is affirmed in the amount of $74,217.92.
Costs of appeal taxed 1/6 against appellee Davis; 1/6 against appellee DeWitty; and 2/3 against appellant.
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198 Md. 311 (1951)
83 A.2d 866
HENKEL
v.
ALEXANDER, COMMITTEE
[No. 3, October Term, 1951.]
Court of Appeals of Maryland.
Decided October 31, 1951.
Rehearing denied December 5, 1951.
The cause was argued before MARBURY, C.J., and DELAPLAINE, COLLINS, GRASON, HENDERSON and MARKELL, JJ.
Hyman Ginsberg, with whom were Ginsberg and Ginsberg on the brief, for appellant.
Walter V. Harrison for appellee.
MARBURY, C.J., delivered the opinion of the Court.
Abraham M. Zimmers, a man in his early eighties, made and executed, on May 4, 1950, a deed to Christina L. Caprarola, and Christina L. Caprarola, on the same *313 day, made and executed a deed to Zimmers and Lucinda D. Henkel, the appellant, as joint tenants. The property conveyed by these deeds was 1412 Hollins Street in the city of Baltimore, and had been conveyed to Zimmers and his wife, as tenants by the entireties, on December 16, 1931. The deed recited that Mrs. Zimmers died in August, 1936. Mr. Zimmers had continued, after his wife's death, to make his home in this property.
In the latter part of 1950, Zimmers was declared incompetent by a decree of the Circuit Court of Baltimore City, and Eugene A. Alexander, III, was appointed committee of his personal estate. On December 28, 1950, the committee filed a bill of complaint in the Circuit Court of Baltimore City against Lucinda D. Henkel to set aside the two deeds above mentioned, alleging that at the time of their execution, Zimmers' mind was impaired, and he was wholly incapable of making a valid deed, and that during the continuance of that infirmity, he had been induced by Miss Henkel to have the deeds executed which gave her an interest in joint tenancy in the property. Miss Henkel filed an answer, alleging that Zimmers was wholly capable of making a valid deed on May 4, 1950, and denying that she induced him to execute any deed during any imbecility or incapacity on his part, and stating that the deeds in question were executed by him in accordance with his fixed and declared intention of many years standing. After the taking of testimony, the chancellor found that Zimmers was not in a mental condition to execute a valid deed on May 4, 1950, and he set aside the two deeds and declared them to be utterly null and void to all intents and purposes whatsoever, so far as they might interfere with the claim of the committee to the real property mentioned. From this decree Miss Henkel appealed.
It appears from the testimony that this property was the home of Zimmers and his wife, that they had no children, and that Miss Henkel was the niece of Mrs. Zimmers. Her uncle, brother of her father, testified that from the time Lucinda was four or five years old, *314 he would take her to the Zimmers to stay over the weekend, and that they were very devoted to her. He said that relationship continued through all the years, and he had heard Mr. Zimmers and his wife say often that everything they possessed would eventually belong to Lucinda. There was also testimony in the case that after Mrs. Zimmers' death, Lucinda Henkel visited Zimmers at frequent intervals, caused medical and hospital attention to be furnished him, and brought him delicacies from time to time. She was a schoolteacher, and, when he was sick, she would go to his home after school and try to get proper food for him. His home was apparently in a filthy condition, there was no one to clean it up or look after it, and she tried to get him to come to her house to live, but he refused. Miss Henkel, however, did not testify in her own behalf, but was called by the committee to prove her signature to a petition she filed in the lunacy proceedings to have herself appointed as the committee. She did not, in any of her testimony, state anything about Zimmers' mental condition. In the petition she filed in the lunacy case, she alleged that he owed her $250.00, that he had about $134.00 in various savings accounts, and a paid-up life insurance policy of $129.00, and that she believed he was "probably now incompetent because of the infirmities mentioned in the petition instituting these proceedings filed on November 6, 1950" by his half-brother. She requested the court, on account of her rights, and the danger that they might be prejudiced, to appoint her as committee, stating that she has a greater interest than any person in the person and estate of the incompetent.
The testimony of Dr. Hyman Schiff, who was one of the two physicians who certified that Zimmers was incompetent on October 27, 1950, stated that he had seen Zimmers about a month before and had taken him to the Baltimore City Hospital because he was affected with shortness of breath. He said that at that time his opinion was that he was not able to take care of himself, either physically or mentally. The certificate that Dr. Schiff *315 filed in October, 1950, stated that Zimmers was incompetent by reason of a mental disability, suffering from senile arteriosclerosis. The other doctor who certified in October was Dr. Samuel Legum. He said that, in October, Zimmers was not capable of executing a valid deed, that with the hardening of the arteries which he had, he could not conceive that he was much different five months previously, and that five or six months prior to October 31, or even a year before, it was his opinion that Zimmers was very likely incompetent from a mental standpoint. Another doctor (Dr. Nathan Racusin) who saw him in the latter part of 1949, and during the months of April and May, 1950, found him suffering from shortness of breath, and swelling of his feet, legs and ankles. The examination made at that time disclosed him to have high blood pressure, hardening of the arteries, and arteriosclerotic heart disease, which the doctor said was a form of degenerative heart disease frequently encountered in elderly individuals. Dr. Racusin, however, said that at the times he saw him, he seemed normal mentally to him. Dr. Esther L. Richards, associate professor of psychiatry at Johns Hopkins University, in charge of the out patient department of Phipps Clinic and psychiatric consultant of the Baltimore City Hospitals, examined Zimmers on November 2, 1950. She said the hospital history showed that he was first admitted to the hospital on May 13, 1950, with cardiac failure and senile emphysema, and was operated on for hernia. He was admitted the second time on August 9, 1950, because of shortness of breath and swelling of the feet and ankles. His blood pressure was 246 over 118. He was admitted the third time on September 10 for the same complaints for which he was admitted in August. The diagnosis was hypertensive, arteriosclerotic cardiovascular disease with enlargement of the heart, senile emphysema. The witness said that the condition of general cerebral arteriosclerosis had been existing for some time, that hardening of the arteries is slow and gradual in onset, and it was her opinion that, in May, 1950, he was suffering *316 from senile degeneration, and from the nature of his disease, and from her observations when she examined him, he could not have executed a valid deed or contract in May, 1950.
We have had many cases before us in the past few years of elderly people who have conveyed their property to others, either in pursuance of contracts to take care of them, or in order to insure that the property will belong to favorite relatives after the deaths of the grantors. The first question arising in these cases is always whether the grantor has the mental capacity necessary to execute a valid deed. If it is found that he or she has not such competency, then, of course, the conveyance must be set aside, no matter what the relationship of the grantee is to the grantor. On the other hand, if the grantor was competent when he or she executed the conveyance in question, it will be upheld unless it is shown that it was not made by the free will of the grantor.
On the primary question of the mental capacity of Zimmers on May 4, 1950, we have, in addition to the medical testimony, evidence given by the president of the Carrollton Bank, who was also a Notary and who went with the scrivener to take Zimmers' acknowledgment. He had known Zimmers for ten or twelve years previously, and said that when the latter executed the deed, he was not any different from any other time when the witness had known him, that there appeared to be nothing to indicate that he was not capable of performing a rational act, and there was nothing about Zimmers which would cause the witness to hesitate to do business with him. The lawyer who drew the deed testified that he prepared the papers in his office at the request of Miss Henkel, although she was not present at the signing. He had previously known Zimmers. He and the president of the bank went to Zimmers' home, and explained to Zimmers very thoroughly what were the papers, and the latter said that was what he wanted, and then the deed was executed. He said there was no doubt in his *317 mind that Zimmers was a perfectly free agent, and that what was done was what he wanted. The interview only took about fifteen minutes.
Where the question of the mental capacity of anyone on a certain date is the issue, evidence of physicians, who saw the patient at a later date is admissible, if they state that the mental disease from which he is suffering at the later date, was, in their opinion, affecting him at the earlier date, so that he could not then execute a valid deed. But it has been also stated in the decisions so holding that such evidence is not legally sufficient to establish the fact of mental incapacity at the earlier date. Kelley v. Stanton, 141 Md. 380, 384, 118 A. 863, will case; Belote v. Brown, 193 Md. 114, 121-123, 65 A.2d 910, 913; Grant v. Curtin, 194 Md. 363, 384-386, 71 A.2d 304, 314; Morton v. Thomas, 197 Md. 623, 628, 80 A.2d 901, 904. Here we have the testimony of three physicians who never saw Zimmers until six months after the deeds were executed. The only physician who saw him about that time said he appeared normal, and so did the lawyer and the bank president notary who were present at the time. Under these circumstances, we cannot agree with the chancellor that there was sufficient evidence to find that Zimmers lacked mental capacity to execute his deed which is here questioned.
This conclusion leads us to the second contention which is that the grantee improperly induced the grantor to make the deed. This was not decided by the Chancellor. It is well settled that mere old age is not sufficient to invalidate a deed or will from a parent, or one in loco parentis, to a child, although it is a fact to be considered in determining whether undue influence or persuasion was exercised. Mead v. Gilbert, 170 Md. 592, 605, 185 A. 668. Hoffman v. Rickell, 191 Md. 591, 598, 62 A.2d 597. And it has also been held that "when a competent person, in pursuance of a long cherished purpose, makes a voluntary gift to a favorite relative, whom he has raised from childhood, and with whom he has lived on intimate and affectionate terms, there is no *318 presumption that the donee exerted undue influence, and the court should not set such a deed aside, except upon strong and conclusive proof." Williams v. Robinson, 183 Md. 117, 120, 36 A.2d 547, 549. On the other hand, where the grantee is in a dominant position, the burden shifts, and the grantee must show that the transaction is fair and reasonable in all respects. Upman v. Thomey, 145 Md. 347, 359, 125 A. 860.
In this case, there is some testimony that both Zimmers and his wife, who were childless, were devoted to the appellant, treated her as if she were their child, and said repeatedly that everything they had would go to her. If this was their intention, the deeds in question would carry it out. The testimony relied on by appellee consists of the evidence of a neighbor named Thomas who had know Zimmers since 1947, and saw him quite frequently until 1950. He said that on many occasions, Zimmers discussed Miss Henkel and seemed to think that she was trying to do him out of his property. Two or three times or more he had said that she kept "agitating" him all the time, but the witness did not know just what he meant. The witness also said that Zimmers told him that if anything happened to him, he wanted his brother, Harry, to have the property. He also testified that Zimmers did not keep his house clean, he just existed there, and lived like a tramp. There was some lady who lived on the second floor who helped him out, but he did not want any help from anyone, and wanted to be alone all the time. He also said that Zimmers told him he signed his niece's name on the deed in one of his weak moments. There was also testimony from a Mrs. Saville who had known Mr. Zimmers for about twenty years. She started to go to see him right after he lost his wife. She said that Zimmers talked to her confidentially, and would say: "Lucinda was here again last night," and "As usual the same thing, she wants this property." He said he would not sign it over to her, that she was only an in-law, his brother was the nearest relative, and when he was asked why he did not make a *319 will, he said: "What's the use? My brother is the legal heir, and he will get everything." The same witness also said that he complained that Lucinda was such a drag on him ever since he was married. He said he had educated her and raised her, and what grieved him most was to be treated the way she was now treating him. He said she stole from him and "she took everything", his watch, chain, and even a little pot of candy, cuff buttons, and a bag of pennies. On a later occasion, he said they forced him to sign a deed and he did not spell his name right on the deed, and he did that purposely. He said he was "sick of the Henkels". He said that Lucinda brought a lawyer and forced him to sign the deed.
This testimony does not justify the conclusion that there was undue influence exercised upon Zimmers, but it is not denied by the appellant, and this lack of contradiction must be taken into consideration when we determine whether the transaction was fair and reasonable. Miss Henkel was in possession of more knowledge about Zimmers' affairs than anyone else. She was looking after him, and she got the lawyer who was to draw the deeds. We think she was in a confidential relation to him and this places upon her the duty of showing that the conveyances were fair under all the circumstances. We do not think she has met that burden.
There is no consideration for the deeds, they constitute a pure gift, and Zimmers thereby stripped himself of half of all he had to care for him in his old age. We cannot hold such a transaction to be fair and reasonable. The decree, therefore, must be affirmed.
Decree affirmed with costs.
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582 S.W.2d 539 (1979)
Jon Kenneth FERGUSON et al., Appellants,
v.
W. E. McCARRELL et al., Appellees.
No. 12896.
Court of Civil Appeals of Texas, Austin.
May 9, 1979.
Rehearing Denied June 6, 1979.
T. Turner Pope, III, Kamp & Pope, Houston, for appellants.
Fred Clark, New Braunfels, for appellees.
O'QUINN, Justice.
This appeal is from judgment in district court in three lawsuits, consolidated for trial, brought in 1976 by appellees alleging that appellants endorsed and guaranteed payment of three promissory notes aggregating $80,850, made originally by Associated Equities, Inc., payable to W. E. McCarrell *540 in the amount of $45,850 and to Vince Narcisso in the sum of $35,000.
Under seven points of error the appellants, Jon Kenneth Ferguson and Johnny B. Ferguson, appeal from a judgment below for appellees in the sum of $117,555.58, including interest and attorney's fees.
This case went to trial April 4, 1978, at which time appellees, over objection by appellants, were permitted by the court to file a supplemental petition alleging that Associated Equities, Inc., maker of the notes sued on, "... is presently and notoriously insolvent. Such defendant has filed, under Chapter 10, Title 11, U.S.C.A. a petition for corporate reorganization and accordingly has stated that the corporation is insolvent or unable to pay its debts as they mature."
The record shows that on the day prior to the beginning of trial the court, over appellants' objection, granted appellees' motion for severance and separate trials as to Associated Equities, and ordered the "... causes of action asserted against ... Associated Equities, Inc.... severed from the causes of action alleged against John [sic] B. Furgeson [sic] and John [sic] Kenneth Furgeson [sic] in each of the ... causes and a separate trial ... ordered as to such corporate Defendant ..."
Trial proceeded thereafter to verdict and judgment without Associated Equities, Inc., as a party, and no judgment was taken against the corporation as maker of the note. Upon affirmative answers by the jury to three special issues inquiring whether the three promissory notes, which appellants had endorsed and guaranteed, were due and owing in each instance to the alleged holders of the notes, the trial court entered judgment against the endorsers and guarantors for principal, accrued interest, and attorney's fees in the aggregate sum of $117,555.58.
Appellants bring seven points of error under which their main contention is that it was improper to sever the corporate maker of the notes, and proceed to judgment against the parties conditionally liable, without pleading and proof that the corporation was "actually or notoriously insolvent" within the terms of Articles 1986 and 2088, V.A.C.S.
Under provisions of Article 1986, "The acceptor of a bill of exchange, or a principal obligor in a contract, may be sued either alone or jointly with any other party who may be liable thereon; but no judgment shall be rendered against a party not primarily liable on such bill or other contract, unless judgment be also rendered against such acceptor or other principal obligor, except where the plaintiff may discontinue his suit against such principal obligor as hereinafter provided" [in Article 2088]. (Emphasis added).
Article 2088, covering instances where discontinuance of suit is as to the principal obligor, provides:
"Where a suit is discontinued as to the principal obligor, no judgment can be rendered therein against an indorser, guarantor, surety or drawer of an accepted bill who is jointly sued, unless it is alleged and proved that such principal obligor resides beyond the limits of the State, or in such part of the same that he cannot be reached by the ordinary process of law, or that his residence is unknown and cannot be ascertained by the use of reasonable diligence, or that he is dead or actually or notoriously insolvent." (Emphasis added).
Appellees did not file a brief and failed to make appearance and oral argument before this Court. The record clearly shows, however, that appellees tried the case on the theory that Associated Equities, Inc., had been shown to be insolvent, and that appellees as plaintiffs below were entitled under Article 2088 to proceed against the appellants as guarantors of the obligation without rendition of judgment, in addition, against Associated Equities, Inc., as the principal obligor. Appellees alleged in their supplemental petition, filed the day trial started, that Associated Equities was "presently and notoriously insolvent."
The defendants below, including the guarantors who are now appellants, filed *541 their plea in abatement immediately prior to the trial date due to "the automatic stay of all proceedings against Associated Equities, Inc.," by reason of its voluntary petition filed a month earlier in federal bankruptcy court under Chapter 10. The purpose of the bankruptcy proceedings is to enable the corporation to reorganize and sell its subdivision lots "at a value vastly exceeding the amount owing to both secured and unsecured creditors and obtain a profit for the corporation and its owners."
The record contains notice of initial meeting of creditors of Associated Equities and reveals that assets ($1,900,000.00) of the corporation exceed its liabilities ($1,619,089.22) by $280,910.78. The corporation conceded at the time of filing its voluntary petition that the petitioner was "unable to pay its debts as they mature."
Appellants contend that appellees failed to show that Associated Equities, Inc., was insolvent, as required by Article 2088 if judgment is taken against the guarantors and not against the principal obligor, and that the trial court erred in not following the holding of the Supreme Court of Texas in Smith v. Ojerholm, 93 Tex. 35, 53 S.W. 341 (1899), construing the statutory rule in effect at that time which was substantially in the same language found in the present law. Appellants also argue that a court of civil appeals in 1976 applied the rule stated in Ojerholm under facts dealing with a principal obligor, as in the present case, having a petition in bankruptcy pending in the bankruptcy court showing its assets greater than its liabilities. Cook v. Citizens National Bank, 538 S.W.2d 460, 466 (Tex. Civ.App. Beaumont 1976, no writ).
The Supreme Court, in Ojerholm, stated the reason behind enactment of the law, which in substantially the same language has been a part of the written laws of Texas nearly 140 years, in this fashion: "The reason for relieving the indorsee from the necessity of suing the principal debtor in the excepted cases was either that a suit against him was not practicable, or that it would result in no good. Hence we think that it cannot be said that a principal is insolvent, within the meaning of that statute, when any part of the debt can be made by execution against him." (Emphasis added). (53 S.W. 341).
"When a trader is unable," the Supreme Court continued, "to meet his obligations in the regular course of business, he is technically said to be insolvent. Should we apply that meaning to our statute, the indorsee would, in some cases, be excused from suing the maker of the note, although he might have ample property to satisfy an execution against him.... It cannot be said that a debtor is insolvent, within the meaning of our law, as to his creditor, when he holds property against which the creditor may enforce a lien for the payment of the debt." (53 S.W. 341-342).
We have carefully reviewed the terms of the written contracts in this case in the light of recent decisions of the Supreme Court of Texas and conclude that appellants, by their agreement to "endorse and guarantee the payment of this note," became primary obligors, permitting the holders of the notes to enforce payment against appellants without the necessity of proceeding against Associated Equities. Universal Metals and Machinery, Inc. v. Bohart, 539 S.W.2d 874 (Tex.Sup.1976); Reece v. First State Bank of Denton, 566 S.W.2d 296 (Tex.Sup.1978); Hopkins v. First National Bank at Brownsville, 546 S.W.2d 84 (Tex.Civ.App. Corpus Christi), writ ref'd n. r. e. per curiam, 551 S.W.2d 343 (Tex.1977).
In Bohart the Supreme Court reviewed the effect on contracts of guaranty by the terms of Section 3.416(a), Texas Business and Commerce Code (1968). That section provides: "`Payment guaranteed' or equivalent words added to a signature mean that the signer engages that if the instrument is not paid when due he will pay it according to its tenor without resort by the holder to any other party."
In Hopkins the Court described the note and a guaranty of payment as separate undertakings in the sense that the guarantor may be sued apart from the maker because a guarantor of payment becomes *542 primarily liable and waives requirement that the holder of the note take action against the maker as a condition precedent to the guarantor's liability. (551 S.W.2d 345).
In Reece the Court pointed out that in Bohart, because there "was an absolute and unconditional guaranty of payment, this Court held that the guarantor was not freed from liability because of the forged signature of the maker. The reasoning behind this," the Court added, "is that a guarantor of payment is akin to a co-maker in that both are primary obligors, and the holder of the note can enforce it against either party." (566 S.W.2d 297).
In the present case the three notes at the outset provide "For value received, I, we, or either of us, the undersigned, promise to pay ..." The body of the notes specify amounts, interest rates, dates for payment, place of payment, acceleration at option of holder in event of failure to pay interest or principal installment, and attorney's fees. The notes are signed and attested properly for the corporation, Associated Equities, Inc., followed by the statement, "I, we, or any of us, individually and collectively endorse and guarantee the payment of this note," (emphasis added), to which is appended the signatures of the several guarantors.
We hold that this contract, as found in the three notes, falls within the doctrine of Bohart, Hopkins, and Reece which makes the guarantors primary obligors, subject to suit for collection by the holders without necessity of joinder of, or judgment against, the corporate maker.
Appellants' points of error one through five, under which they contend the trial court erred in severing from this suit, Associated Equities, maker of the notes, and in rendering judgment against appellants without also holding the corporate maker of the notes, are overruled.
Under points six and seven appellants claim error in submitting a special issue on the McCarrell note, in the amount of $10,850, and in rendering judgment on the note against appellants.
Appellants argue that since the original note was not offered or received in evidence and there was no evidence that McCarrell was holder of the note, the special issue was erroneously submitted and it was error to render judgment on the jury finding that the note for $10,850 signed by appellants was due and owing to W. E. McCarrell.
That McCarrell was holder of the note and had not transferred it to any other person was established at the trial by the testimony of McCarrell on two occasions. When asked, "On this note for the $10,850, do you presently own that note, sir?" McCarrell replied, "Yes, sir." McCarrell also testified that no part of the note had been paid and that he had made demand for payment.
In response to requests for admissions, the record shows, appellants admitted that the note for $10,850 had been executed by Associated Equities on June 21, 1974, "payable to W. E. McCarrell"; that a "true and correct copy of the promissory note ... is attached to Plaintiff's Original Petition on file in this cause"; that the note "was delivered to the Plaintiff, his agent, servant, or employee, by one or more of the Defendants"; and that McCarrell had "made demand upon Defendants ... to pay the promissory note ..."
By statutory authority, reproductions of written instruments, by photostatic or other processes, which accurately reproduce originals of the written instruments, may be used in trials where the party using the copy offers the original "or reasonably accounts for its absence, or where there is no bona fide dispute as to its being an accurate reproduction of the original." (Emphasis added). Article 3731c, V.A.C.S.; Acts 1959, 56th Leg., p. 867, ch. 393, sec. 1.
McCarrell testified that he had the original at his home in Tulsa, Oklahoma, and offered to produce it later. By responses to request for admissions, appellants agreed that the photographic type of copy attached to McCarrell's petition was a "true and correct copy of the promissory note." With the copy in hand, McCarrell testified to its essential contents, as well as to the consideration forming the basis for the note, and *543 testified that appellants signed the note pursuant to McCarrell's insistence, prior to the making of the note, that appellants individually guarantee payment. As observed earlier, McCarrell also testified that he was at the time of trial owner of the note for $10,850, which had not been paid after demand for payment.
It appears there can be no bona fide dispute that the reproduction attached to McCarrell's petition was an accurate reproduction of the original. The requests and responses as to all three notes were introduced without objection at the trial. Appellants are bound by their admissions.
We conclude that McCarrell proved his cause of action in the suit for collection of the note for $10,850, and appellants' points of error under which they make a contrary contention are overruled. Rule 169, Texas Rules of Civil Procedure, authorizes the "request for the admission ... of the genuineness of any relevant documents," the primary purpose of the Rule, as pointed out by the Supreme Court, being "to simplify trials by eliminating matters about which there is no real controversy." Fireman's Fund Ins. Co. v. Commercial Standard Ins. Co., 490 S.W.2d 818, 825 (Tex.Sup. 1972).
The judgment of the trial court is affirmed.
Affirmed.
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582 S.W.2d 786 (1978)
Billy J. McMAHON and Bobby F. McCormick, Appellants,
v.
The STATE of Texas, Appellee.
No. 58240.
Court of Criminal Appeals of Texas, En Banc.
November 22, 1978.
Rehearing Denied January 10, 1979.
*788 Lawrence R. Scroggins, D. Jennings Bryant, Jr., and Barry Barton Kieval, Houston, for appellants.
William S. Warren, Dist. Atty., Center, for the State.
Before the court en banc.
Rehearing En Banc Denied January 10, 1979.
OPINION
DOUGLAS, Judge.
Following a change of venue from Shelby County, appellants McMahon and McCormick were convicted in a joint trial for the offense of capital murder. Each appellant was assessed the death penalty.
The State alleged and proved that appellants murdered Earl Hammond for remuneration. See V.T.C.A., Penal Code, Section 19.03. The sufficiency of the evidence to support the convictions is not challenged.
The deceased's wife, Becky Hammond, and her lover, Tony Bohannon, hired appellants to execute the deceased. Bohannon first offered to employ appellant McMahon in this regard in May, 1976, when they met in a store in Center. McMahon rejected this offer and returned to his home in Houston. McMahon subsequently discussed the matter with appellant McCormick who agreed to assist him in the event an agreement with Bohannon could be reached.
Thereafter, McMahon went to Center on several occasions and discussed the murder contract with Bohannon. On one of those occasions McMahon told Bohannon that he would commit the murder for twenty-five thousand dollars. Bohannon responded that he would have to discuss the terms with another party (Becky Hammond) and then contact him again. No agreement was made at that time.
McMahon met Bohannon again in mid-June of 1976 whereupon the agreement was finally consummated. McMahon told Bohannon that he and another person would commit the murder in exchange for ten thousand dollars or more. Several days later Bohannon talked to McMahon and instructed him to kill the deceased on June 19, 1976. Appellants left Houston on that date and drove to Center. McMahon took a .32 caliber revolver with him.
When they arrived in Center, Bohannon gave the gunmen further instructions and money for the purchase of a .12 gauge shotgun. They bought such a gun in Center. McMahon gave the clerk his operator's license "for identification" and she made a photograph of it. McMahon asked for buckshot. When he was told that they had none, he stated that he wanted shot that would kill. That evening appellants hid in the woods behind the deceased's house. When the deceased returned home from work appellants executed him.
*789 The death was caused by multiple pistol and shotgun wounds. An autopsy revealed no evidence of a struggle on the part of the deceased.
After the offense was committed, appellants met Bohannon at a predetermined location. He gave them between ten and fifteen thousand dollars in cash. This money belonged to the owners of a store where the deceased was manager and where Becky Hammond and Bohannon worked. Instead of making the deposit of the cash, it was delivered to the killers. Appellants returned to Houston the same night and fled to Mississippi the next day. They eventually went to Mobile, Alabama, where they surrendered to officers of the local police department.
Becky Hammond and Tony Bohannon testified about their roles in the offense. Both of them had been convicted for the murder and were serving their time.
A half-brother of Billy McMahon testified that Bobby McCormick and Billy McMahon came to his house in Mobile, Alabama and gave him some $1400 and a .12 gauge shotgun and told him that they had killed a "dude" with it.
Appellants waived extradition on August 9, 1976, and were returned to this State on August 11. McCormick gave a written confession to investigating officers on August 16 while he was in custody in Center. McMahon gave a written confession to officers the next day.
McCormick's first contention is that the trial court erred in ruling that his confession was voluntary and in admitting into evidence the fruits thereof. The question of the voluntariness and admissibility of the written statement, however, is not before us because it was not introduced into evidence. Ex parte Parker, 485 S.W.2d 585 (Tex.Cr.App.1972). See also Perbetsky v. State, 429 S.W.2d 471 (Tex.Cr.App.1968).
Further, McCormick does not specify what, if any, evidence was obtained as the result of the confession. The record discloses no objections by him on this basis to the evidence introduced. Moreover, McMahon's confession related the events surrounding the crime in a very detailed fashion. Assuming that McCormick's confession was obtained in violation of his constitutional rights, it is apparent that the relevant evidence would have been obtained by means sufficiently distinguishable from the underlying illegality to be purged of the primary taint. See Wong Sun v. United States, 371 U.S. 471, 83 S.Ct. 407, 9 L.Ed.2d 441 (1963); Santiago v. State, 444 S.W.2d 758 (Tex.Cr. App.1969).
McMahon contends that the trial court erred in ruling that his written confession was voluntary and admissible. He argues that the confession was the product of compulsion and inducement.
In compliance with the requirements of Jackson v. Denno, 378 U.S. 368, 84 S.Ct. 1774, 12 L.Ed.2d 908 (1964), and Article 38.22, V.A.C.C.P., the court held a hearing outside the presence of the jury to determine whether the confession was voluntary. Evidence introduced at the hearing showed that appellants were transported from Alabama to Center immediately after they were taken into custody on August 11, 1976, by three Center police officers and a Texas Ranger. McMahon was questioned during the trip by Jimmy Matthews, a policeman of Center, but he made no incriminating statements at that time and there is no indication that this questioning affected his confession which was made six days later. Compare Farr v. State, 519 S.W.2d 876 (Tex.Cr.App.1975).
McMahon testified at the hearing that when appellants and the officers arrived in Center he was taken before a justice of the peace and warned in accordance with Article 15.17, V.A.C.C.P. McMahon stated that he was interviewed on August 17 by Officer Matthews and Ranger Maurice Cook. According to McMahon, the officers told him that McCormick had confessed and that their intention was to give McMahon an opportunity to avoid the electric chair. He also testified that, before this, his father told him that he understood that McCormick had confessed. McMahon told them that he would not make a statement unless *790 his attorney was present. McMahon testified that the officers produced McCormick's written statement and began reading from it. McMahon then gave a written statement to the officers.
On cross-examination, McMahon testified that he had stopped attending school in the tenth grade but that he had developed fair reading and writing skills. He further testified that he was not mistreated by any of the officers before he gave the confession.
Both Officer Matthews and Ranger Cook testified. Ranger Cook testified that he read McMahon his Miranda warning, had him execute a written waiver of his rights and finally obtained a signed statement. While Ranger Cook was examined extensively by both the prosecution and defense concerning McCormick's confession, he gave no further testimony concerning McMahon. Matthews testified that he made no promise to McMahon that the giving of the confession would keep him from getting the electric chair. Ranger Cook testified that he was with McMahon during the questioning except for a period of some five minutes and that Matthews made no promise to him.
The confession itself recites that Matthews and Ranger Cook were the officers that took the confession. Matthews also warned McMahon of his rights. The statement at the top of the first page recites that no promises were made to the appellant. Cook testified that he did read parts of McCormick's confession to McMahon before McMahon made his statement, but only because McMahon had already been told by his father that McCormick had confessed. Cook further testified that McMahon asked to see McCormick's confession and that when the officers refused McMahon asked them to read part of it to him. Cook denied that either he or Officer Matthews ever promised McMahon that he could avoid the death penalty by making the confession.
A confession based upon an inducement, such as a promise that the State would not seek the death penalty, would be inadmissible. Sherman v. State, 532 S.W.2d 634 (Tex.Cr.App.1976). Relying upon Farr v. State, 519 S.W.2d 876 (Tex.Cr.App.1975), appellant urges that since Matthews and Cook did not controvert McMahon's testimony at the suppression hearing the confession is inadmissible as a matter of law. When the State fails to controvert evidence of coercion, and there is no showing that the individuals who could controvert such statements are unavailable, we have long held that the confession is inadmissible as a matter of law. Farr v. State, supra; Prince v. State, 155 Tex.Cr.R. 108, 231 S.W.2d 419 (1950).
However, in the instant case, we cannot agree that the evidence was uncontradicted. The confession did contain a statement that McMahon had not been promised anything in return for making the confession. McMahon himself had testified that this portion of the confession had been read aloud to him. The statement in the confession and the testimony of Cook constituted evidence of the lack of any such promise. Matthews controverted McMahon's testimony during the trial.
The trial court is the sole judge of the weight and credibility of the evidence. Aranda v. State, 506 S.W.2d 221 (Tex.Cr.App. 1974); Myre v. State, 545 S.W.2d 820 (Tex. Cr.App.1977). He was able to observe the demeanor of McMahon as he testified. He had before him all of the circumstances concerning the confession. He chose to disbelieve McMahon. We conclude that the judge did not abuse his discretion in ruling that the confession was admissible.
McMahon also argues that his confession was obtained by the use of McCormick's confession and is therefore the fruit of the poisonous tree. Wong Sun v. United States, 371 U.S. 471, 83 S.Ct. 407, 9 L.Ed.2d 441 (1963). Assuming, without deciding, that the McCormick confession was illegally obtained, McMahon has no standing to attack that confession. See Hull v. State, 510 S.W.2d 358 (Tex.Cr.App.1974); People v. Varnum, 66 Cal.2d 808, 59 Cal.Rptr. 108, 427 P.2d 772 (1967), cert. denied 390 U.S. 529, 88 S.Ct. 1208, 20 L.Ed.2d 86 (1968).
*791 Appellants next complain of the admission into evidence of a copy of a deposit slip reflecting a deposit in the amount of $13,000.00. The slip was prepared by Becky Hammond on the day of the offense and introduced by the State as proof of the remuneration received by the appellants for the murder of Earl Hammond.
Judy Fitzgerald testified that she was the bookkeeper for Due's Minimax and the present custodian of the store's financial records, including those records and deposit slips which were received from the store's previous management. Appellants contend that because the deposit slip in question was executed prior to Mrs. Fitzgerald's employment as bookkeeper, and because she therefore could not be certain when the copy had been made, a proper predicate was not laid for its introduction under Article 3737e, V.A.C.S.
Becky Hammond testified that on the night of her husband's murder she was the bookkeeper for Due's Minimax and that she regularly prepared deposit slips for the store. She further stated that she and Tony Bohannon determined that they would pay appellants for the murder of the deceased by using money from the store that should have been deposited and that on the night of the offense she prepared the deposit slip. Bohannon testified that he took the money after telling the deceased that it would be deposited and delivered the cash to the killers after the murder.
Assuming arguendo that the trial court erred in admitting the deposit slip into evidence, such error was waived or rendered harmless. The improper admission of evidence does not constitute reversible error if the same facts are shown by other evidence which is unchallenged. Hughes v. State, 562 S.W.2d 857 (Tex.Cr. App.1978); Watson v. State, 532 S.W.2d 619 (Tex.Cr.App.1976).
Appellants next contend that the prosecution improperly commented upon their failure to testify. Specifically, they complain of the following remarks by John Walker, a prosecutor, at the punishment phase of the trial:
"Have you seen any remorse? Have you seen any remorse on the part of the defendants?
"MR. BRYANT: I object to that, Your Honor. That is a comment on the Defendants failure to testify in this case, and at this time I would ask immediately for a mistrial.
"THE COURT: Denied.
"MR. BRYANT: Note our exception.
"THE COURT: Exception noted.
"MR. WALKER: Have you heard any evidence of redeeming value, true evidence of redeeming value of these defendants? Have you any such evidence? Have you heard of it? It doesn't exist in this case. You haven't heard it."
No objection was made to the prosecutor's last remarks. Error, if any, relating to that part of the argument was waived by appellants' failure to timely object. Collins v. State, 548 S.W.2d 368 (Tex.Cr.App.1976).
In reviewing the prosecutor's argument as a whole, moreover, we do not agree that it constituted an improper comment on the appellants' failure to testify. In Nowlin v. State, 507 S.W.2d 534 (Tex.Cr. App.1974), this Court stated that before a prosecutor's argument may be so construed the language used must be viewed from the jury's standpoint and the implication that the language refers to the defendant's failure to testify must be a necessary one. It is not sufficient that the language might be construed as an implied or indirect allusion. Turner v. State, 504 S.W.2d 843 (Tex.Cr. App.1974); Armstrong v. State, 502 S.W.2d 731 (Tex.Cr.App.1973). If the prosecutor's remarks may be reasonably construed as referring to the defendant's failure to present evidence through a witness other than himself, reversal is not required. Brown v. State, 475 S.W.2d 761 (Tex.Cr. App.1971); Alvear v. State, 170 Tex.Cr.R. 378, 341 S.W.2d 426 (1960).
In this case, the district attorney's remarks were not addressed to the jury at the guilt phase, but rather at the punishment *792 phase. In this connection, appellants were not the only individuals in a position to testify to the presence or absence of remorseful feelings on their part. Twenty-one reputation or character witnesses were called by the defense. They testified that appellants probably would not commit acts of violence in the future.
In Tarpley v. State, 565 S.W.2d 525 (Tex. Cr.App.1978), the prosecutor stated (referring to the defendant):
"He's shown no reason to me, and I don't think he's shown you any reason why he shouldn't be put away"
We held no reversible error in that argument. We conclude that the prosecutor's argument in the present case could reasonably have been construed not to be a reference to the appellants' failure to testify but to their failure to show through other witnesses any remorse for their role in the commission of the murder.
Appellants contend that the evidence is insufficient to support the jury's finding that they would probably constitute a continuing threat to society. See Article 37.071(b)(2), V.A.C.C.P. Each reputation witness testified, in essence, that appellants' reputations for being peaceful, law-abiding citizens were good, and that probably neither appellant would commit future acts of violence. Because the State presented no evidence at the punishment phase, appellants argue that we should hold that the evidence supporting the second special issue is insufficient as a matter of law.
It is now well established that evidence presented at the guilt phase of the trial may be considered by the jury in the process of resolving the three special issues submitted at the punishment phase. Brock v. State, 556 S.W.2d 309 (Tex.Cr.App.1977); Burns v. State, 556 S.W.2d 270 (Tex.Cr.App. 1977); Moore v. State, 542 S.W.2d 664 (Tex. Cr.App.1976); and Smith v. State, 540 S.W.2d 693 (Tex.Cr.App.1976). Evidence presented at the guilt phase in the present case shows that appellants' greed motivated them to kill and that they executed the deceased with cruel calculation. McMahon's confession reveals that appellants contemplated at least one more murder for hire:
"... Tony [Bohannon] told me, after I asked him if this was going to be the only one (killing) provided things worked out and Tony said it would be about three months and he might have another one that that [sic] would pay about fifty thousand dollars. I told Tony to call me and Bobby and I would do it.. . ."
Evelyn Barton identified appellants as the parties who had purchased a Remington Model 870 .12 gauge shotgun at her place of employment on the date of the offense. Appellants asked for buckshot ammunition. Barbara Livingston and David Adams recalled that when Barton told McMahon that she had no such ammunition in stock McMahon's response was, "Well, give me something that will kill."
Joe Hooker, a physician, testified that he went to the scene of the crime and examined the deceased's body and then assisted with the autopsy. Hooker stated that during his entire medical career he had never observed a human body so thoroughly destroyed by reason of gunshot wounds. Ed Roberts was one of the investigating officers. He testified that, although he had been acquainted with the deceased, the body he observed was only identifiable by the name tag on the shirt.
Furthermore, there was no evidence of mitigating circumstances presented to the jury. See Hovila v. State, 562 S.W.2d 243 (Tex.Cr.App.1978); Robinson v. State, 548 S.W.2d 63 (Tex.Cr.App.1977). Cf. Warren v. State, 562 S.W.2d 474 (Tex.Cr.App.1978). Accordingly, we hold that the evidence is sufficient to support the jury's determination that appellants would probably constitute a continuing threat to society. See Brock v. State, supra; Burns v. State, supra.
Appellants insist that the court erred in failing to declare a mistrial on its own motion after being notified of the attempted bribery of a juror.
*793 The record reflects that on the evening of December 30, 1976, Charles Brazzil was at the home of his son-in-law, Juror Jim Ishmael. While at the Ishmael home, Brazzil received a telephone call from an anonymous individual who offered to pay Ishmael five hundred dollars to "hang the jury." Brazzil communicated this to his son-in-law and to the trial judge.
Appellants correctly argue that the rule against jurors conversing with unauthorized persons about a case is so strong that injury to the accused is presumed. Williams v. State, 463 S.W.2d 436 (Tex.Cr. App.1971); Cole v. State, 157 Tex.Cr.R. 469, 250 S.W.2d 201 (1952). As the State points out, however, this presumption is rebuttable. Before a new trial will be warranted, there must be injury to the accused. Thus, if it is shown that the case was not discussed, or that nothing prejudicial to the accused was said, then the verdict will be upheld. Williams v. State, supra; Cole v. State, supra.
In the present case, the bribe attempt was immediately reported to the court and an evidentiary hearing was held on the matter. Testimony adduced at the hearing revealed that no bribe was accepted, that nothing occurred between juror Ishmael and the anonymous caller, and that Ishmael discussed the case with no one. Since all the facts were fully before the court and no prejudice to appellants was demonstrated, the State discharged its burden of showing that the declaration of a mistrial was unnecessary. No objection was made. Trial judges should seldom declare mistrials on their own motions because in many cases jeopardy will attach. The judge did not err in failing to grant a mistrial on his own motion.
Appellants' next contention is that the admission into evidence of a money bag was error. This contention is premised on the argument that the bag was a fruit of the confessions.
No objection to the money bag was raised at trial. Thus, any error was waived. Lejeune v. State, 538 S.W.2d 775 (Tex.Cr.App. 1976); Phillips v. State, 511 S.W.2d 22 (Tex. Cr.App.1974).
McCormick contends the court erred in admitting McMahon's confession. He argues that since this confession implicates him along with McMahon and since he was unable to cross-examine McMahon, his right to confront the witnesses against him was abridged.
Introduction, at a joint trial, of a non-testifying codefendant's confession which implicates the other defendant, violates the defendant's confrontation clause rights. Bruton v. United States, 391 U.S. 123, 88 S.Ct. 1620, 20 L.Ed.2d 476 (1968); Evans v. State, 534 S.W.2d 707 (Tex.Cr. App.1976). This error can be avoided by either granting each defendant a separate trial or, if possible, editing the confession so that it does not implicate the other defendant. Ex parte Smith, 513 S.W.2d 839 (Tex. Cr.App.1974); Carey v. State, 455 S.W.2d 217 (Tex.Cr.App.1970). Also, the harmless error doctrine is applicable to confrontation clause rights. Harrington v. California, 395 U.S. 250, 89 S.Ct. 1726, 23 L.Ed.2d 284 (1969); Carey v. State, supra.
In the instant case, references to McCormick could not be excised from the confession without the jury realizing that the excised portions referred to McCormick. Therefore, the only way to protect McCormick's rights, while allowing the State to use the confession against McMahon, would be to have separate trials. The State sought such a severance. Appellants, represented by the same counsel, opposed the severance. The trial court refused to sever the cases.
In Carey v. State, supra, we cited appellant's failure to request a severance as one ground for holding the Bruton error harmless. Similarly, in Moore v. State, 504 S.W.2d 904, 905, n. 1 (Tex.Cr.App.1974), we considered the Bruton question as unassigned error and again concluded that the failure to request a severance was one factor in determining that the error was harmless.
*794 The case at bar squarely presents the question of whether opposition to the State's request for a severance waives a denial of confrontation clause rights. The cases previously discussed indicate that the confrontation clause rights are such that a violation may be harmless error and failure to seek a severance is a factor to consider in determining harmless error. We see no reason why such rights cannot also be waived by trial strategy. The only feasible method to protect McCormick's confrontation clause rights was to try appellants separately. The State sought such a severance; the defense successfully opposed it. We hold that under these facts McCormick waived his right to confront McMahon with respect to the confession.
There being no reversible error, the judgments are affirmed.
ODOM and PHILLIPS, JJ., concur in the result.
ROBERTS, J., dissents.
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83 A.2d 697 (1951)
SAUNDERS
v.
CRESSWELL ROLL FORMING CO., Limited.
No. 706 Civil Action, 1950.
Superior Court of Delaware, New Castle.
August 8, 1951.
William Marvel, of Morford, Bennethum, Marvel & Cooch, Wilmington, for plaintiff.
Henry M. Canby, of Richards, Layton & Finger, Wilmington, for defendant.
CAREY, Judge.
In opposing the present motion, the plaintiff contends that a plea of the statute of limitations, being an affirmative defense, is waived when not relied on in the original answer. Burton v. Waples, 3 Har. 75, is cited. In that case, the Court held that the plea is to the remedy and not to the substance of the action; that it deals with the legal merits as contrasted with the real merits. It was indicated that the Court had no power to permit the change because of the wording of the constitutional provision authorizing the Court to allow amendments in civil actions when necessary in order to try causes according to their real merits. Leave to amend was therefore refused, the Court saying: "There is no reason why these parties, having placed their causes at issue on all the points of defense which the defendant pleased to set up, should now, at the moment of trial, be permitted to amend for any purpose which will not subserve the real merits of the case". A similar ruling *698 had previously been made in Waples v. McGee, 2 Harv. 444.
At the time the Burton case was decided (i. e. about 1840), no statute or rule of Court seems to have been in existence which had any bearing upon the matter. The only basis mentioned in justification of the Court's power to allow amendments was the constitutional provision indicated above, which is now found in Section 24, Article IV of the present constitution. In 1852, what is now Section 4888, Revised Code of Delaware 1935 came into our statute books. By its terms the Superior Court was given power, at any time before judgment, to allow amendments either in form, or substance, of any process, pleading or proceeding, in such action, on such terms as shall be just and reasonable. In 1899 and 1900, respectively, the cases of Kirwin Mfg. Co. v. Truxton, 2 Penn. 48, 44 A. 427, and MacFarlane v. Garrett and Barr, 3 Penn. 36, 49 A. 175, were decided. In them, it was held that the allowance of amendments, in form or substance, is now a matter of sound judicial discretion. In the MacFarlane case, Judge Spruance pointed out that since 1852 the Court had been very liberal in the allowance of amendments. He also made the very pertinent observation that it was highly improbable that the Court would have denied the amendment requested in the McGee case, if the statute of 1852 had then been in force.
If the decision in Burton v. Waples, supra, is correctly understood as being based upon a lack of power to allow amendments of this nature, it clearly does not represent the present law of this State.
With respect to the actual exercise of its discretionary power to permit amendments, the present attitude of the Court is reflected in Rule 15(a), which follows the exact language of the Federal Rule of the same number. A party is privileged to amend without leave under some conditions; otherwise only by consent of the adverse party or leave of Court, which "shall be freely given when justice so requires". Of course, under Rule 12(h) the defense of the statute of limitations is waived unless presented in a proper manner at a proper time, but this rule does not prevent the granting of amendments pursuant to Rule 15.
The Federal Courts "have not been hesitant to allow amendments for the purpose of presenting the real issues of the case, where the party has not been guilty of bad faith, is not acting for purposes of delay, the opposing party will not be unduly prejudiced or the trial of the issue unduly delayed". 3 Moore's Federal Practice (2nd. ed.) 828; Rupe v. Associated Electric Co., D.C., 6 F.R.D. 309; Magee v. McNany, D.C., 10 F.R.D. 5. I see no reason why a petition for an amendment raising the defense of limitations should be governed by different standards. A request precisely like the present one was granted in DiTrapani v. M. A. Henry Co., D.C., 7 F.R.D. 123.
In this case, the requested change will bring into the case an issue which may be very important to the defendant. There is nothing to indicate bad faith or an intent to delay the matter. No undue prejudice to plaintiff is suggested. The parties agree that no delay in the trial will result, for it cannot take place earlier than November in any event.
The petition to amend will be granted.
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83 A.2d 762 (1951)
STATE ex rel. MITCHELL et al.
v.
WOLCOTT et al.
No. 1, February Session, 1951.
Supreme Court of Delaware.
September 25, 1951.
*764 Daniel J. Layton, Jr., of Georgetown, for relators.
Robert W. Tunnell, of Tunnell & Tunnell, of Georgetown, for interveners.
Before SOUTHERLAND, C. J., SEITZ, Chancellor, and RICHARDS, P. J.
SOUTHERLAND, Chief Justice.
This is an original petition for a writ of mandamus to the Superior Court of Sussex County, constituting the Board of Canvass. Relators seek an order commanding it to reconvene and ascertain the state of the election held in Sussex County on November 7, 1950; and, in so doing, to reject all the votes cast in one of the election districts in the County for certain candidates for office.
Several questions are raised, but the only one we need consider is this:
May the Superior Court, sitting as a Board of Canvass to ascertain the state of the election, take cognizance of a charge that the election officers unlawfully held open the polls for a period of time beyond the legal closing hour of the election, and received and counted ballots tendered during that period?
The essential facts are these:
On November 7, 1950, the day of the general election, the polling place of the Second Election District of the Third Representative District of Sussex County, was opened, in accordance with law, between seven and seven-thirty o'clock in the morning and remained open during the day for the reception of ballots. Upon the approach of the time fixed by law for closing the election (six o'clock), a substantial number of electors were standing in line outside the polling place, awaiting an opportunity to enter and cast their ballots. It was apparent that if the election should be closed at six o'clock many electors would be unable to vote. An understanding was reached between the Democratic County Chairman and the Republican District Committeeman that all persons standing in line at six o'clock should be permitted to vote, and this understanding was made known to the waiting electors and others. One of those present protested this decision, both to the committeemen and to one of the Judges of Election. The objection was unavailing. The electors in line at six o'clock (or very shortly thereafter), numbering 284, were permitted to vote. Sometime after six o'clock those still in line, numbering about 250, were admitted to the polling place. The last voter cast his ballot at 7:45 p. m., and the election was closed.
On November 9, 1950, the day fixed for the convening of the Superior Court as the Board of Canvass (hereinafter called "the Board of Canvass"), certain of the relators, who were the Republican candidates for certain county offices balloted for at the election, and who, on the face of the returns, had been defeated, presented to the Court a petition under oath alleging the more important of the facts above set forth. The petitioners asserted that the ballots of the 284 electors voting after six o'clock were illegal, and, having been intermingled with valid ballots, were no longer identifiable, and charged that the acts of the committeemen and the election officers amounted to fraud and changed the outcome of the election. The petition prayed that the Board make an order rejecting the entire vote of the election district.
The Board of Canvass declined to act upon the petition; whereupon, on December 6, 1950 the relators (together with one other unsuccessful candidate) filed the petition now before us. Subsequently the successful Democratic candidates were permitted to intervene and assume the defense of the action. The interveners filed answers and also a motion for summary judgment with supporting affidavits. Relators filed answering affidavits and also a motion to dismiss the motion for summary judgment. Relators' motion was denied, Del., 83 A.2d 759, and the case is before us on interveners' motion for summary judgment.
That a violation of the election laws has been made out is beyond question. The statute, 1935 Code, Sec. 1863, directs that the election be closed at six *765 o'clock; it was held open for an hour and three-quarters beyond that hour. Neither the agreement of the party leaders to hold the polls open, nor the fact that such a practice had in the past been customary in some election districts of the State, supplies any justification for the action of the election officers. The crowding of approximately 250 electors into the polling place, in violation of law, 1935 Code, Sec. 1855, emphasizes the original error. The desire to give every citizen the opportunity to vote is natural and understandable, but it may not be allowed to override the law. At the hour of six o'clock the election should have been closed; and the agreement to hold it open, and the acts of the election officers in yielding to the agreement and accepting 284 votes cast after six o'clock, were wholly unwarranted.
As to the effect on the result of the election, however, we decide nothing. We do not reach the question, since we think that the wrong is not one remediable by a proceeding before the Board of Canvass.
Prior to the adoption of the Constitution of 1897, the election laws provided for county boards of canvass consisting of the inspectors of the hundreds in each county and the sheriff of the county. Code 1893, Ch. 18, Sec. 24. Their duty was to "ascertain the state of the election throughout the county, by calculating the aggregate amount of all the votes for each office that shall have been given, in all the hundreds of the county, for every person voted for for such office." Sec. 28. In McCoy v. State ex rel. Allee, 2 Marv. 543, 36 A. 81, 82, 83, the Court of Errors and Appeals held the powers of the board to be, "in general, ministerial, and not discretionary or judicial, in their character." The certificates of election, signed by the inspector and judges and delivered to the sheriff, Secs. 23 and 25, were held to be "the sole and exclusive evidence" to which the board of canvass might look in performing its duty. Conceding that the board must necessarily determine the genuineness of the certificates, the Court held further that the board had no power "to inquire into the validity of any election * * *, nor into the irregularity or misconduct attending any election * * *, nor into the legality of any vote or votes given therein, nor to throw out * * * [any] vote or votes appearing to have been given therein, upon the face of the said certificates of election * * *." 2 Marv. 560, 561, 36 A. 82.
Clearly, the former board of canvass could not have entertained such a petition as was presented by the relators to the Board of Canvass in this case.
To what extent were the powers and duties of the boards of canvass enlarged by the Constitution of 1897?
Article V, Section 6, of the Constitution, referred to hereinafter as Section 6, in effect constitutes the Superior Court of each county a Board of Canvass, directs the delivery of the certificates of election and ballot boxes to the prothonotary, and directs the Court to "publicly ascertain the state of the election throughout the county, by calculating the aggregate amount of all the votes for each office that shall be given in all the hundreds and election districts of the county for every person voted for for such office."
The scope of this duty is that of the former board. The second and third paragraphs of Section 6, however, confer the following papers:
"In case the certificates of election of any hundred or election district shall not be produced, or in case the certificates produced do not agree, or in case of complaint under oath of fraud or mistake in any such certificate, or in case fraud or mistake is apparent on the face of any such certificate, the court shall have power to issue summary process against the election officers or any other persons to bring them forthwith into court with the election papers in their possession or control, and to open the ballot boxes and take therefrom any paper contained therein, and to make a recount of the ballots contained therein, and to correct any fraud or mistake in any certificate or paper relating to such election.
*766 "The said court shall have all other the jurisdiction and powers now vested by law in the boards of canvass, and such other powers as shall be provided by law."
Relators contend that the language above quoted transformed the board of canvass from a purely ministerial body into a judicial or at least a quasi-judicial one, with power to inquire into fraud or wrongdoing in the conduct of the election affecting the result, and correct the certificates accordingly.
We agree that to a limited extent the Board of Canvass now exercises quasi-judicial powers (e. g., in rejecting ballots illegal on their face), but it by no means follows that those powers extend to the hearing and determination of every act of fraud or wrongdoing in the conduct of the election. The powers of the Board are, as before, primarily directed to the existence of "fraud or mistake in any such certificate", e. g., questions of its genuineness, or of a defect apparent on its face, or the like;[1] and what may be called the newly-added powers are largely, if not wholly, limited to an examination of the election papers and of the contents of the ballot box.
This conclusion is impelled, we think, by several considerations.
First, the Superior Court is, under the Constitution, still primarily a board of canvass whose function is to count the vote. Granting that it is "the Superior Court" for the purpose of review of its action by writ of mandamus from this Court, State ex rel. Walker v. Harrington, 3 Terry 14, 42 Del. 14, 27 A.2d 67, it yet remains true that it is a body specially created and constituted for a limited purpose, to perform specified duties, largely ministerial in nature. The framers of the Constitution, in transferring to the Superior Court the powers and duties of the former boards of canvass, added certain specified powers and none others. Had it been the intent to confer upon the new Boards general power over the conduct of elections as affecting the returns, language to that effect would certainly have been included. The McCoy case was decided prior to the adoption of the Constitution, and the limited powers of a board of canvass well known. The Constitutional Convention of 1897 "accepted and gave sanction to, the language of the McCoy case, at least, insofar as it construed the powers, duties and functions of boards of canvass, * * *." Per Speakman, J., in State ex rel. Walker v. Harrington, 3 Terry 14, 33, 42 Del. 14, 33, 27 A.2d 67, 75. The rule expressio unius is applicable here. It must follow, we think, that there was no intention to expand the powers of the Board of Canvass beyond those clearly enumerated in the Constitution or necessarily implied, and such other powers as the General Assembly might subsequently confer under the third paragraph of Section 6. The act of Assembly of June 1, 1898, 21 Del.L.Ch. 38, Sec. 23, 1935 Code, Sec. 1866, does nothing more in effect than to reaffirm the constitutional provisions.
Relators' counsel point to the concluding phrase of the second paragraph of Section 6, conferring power "to correct any fraud or mistake in any certificate", as authorizing the Board to correct any fraud in the conduct of the election which may lead to an incorrect result. This language cannot thus be divorced from its context. Its scope is clearly confined to errors resulting from the examination authorized by the preceding language of the sentence, i. e., the examination of the election papers and the contents of the ballot box.
Second, the certificates of election issued by the Board of Canvass upon the completion of the count are only prima facie title to office, McCoy v. State, supra, and the fifth paragraph of Section 6 of Article V of the Constitution expressly so provides: "No act or determination of the court in the discharge of the duties *767 imposed upon it by this section shall be conclusive in the trial of any contested election."
A defeated candidate claiming, among other things, malconduct of the election officers or the reception of illegal votes is afforded a remedy in the Superior Court as such. See 1935 Code, Ch. 64. If relators' contention is accepted, the issue of the election officers' misconduct is first tried before the Board of Canvass, and the losing candidate may then re-try it before the Superior Court, the first decision not being res judicata. Such an anomalous result is to be shunned.
Third, to permit the trial before the Board of Canvass of cases of the kind here presented, involving protracted hearings, would seriously interfere with the orderly progress of the canvass and unjustifiably delay the count. If petitions charging fraud or misconduct in the election are to be entertained, an opportunity must be given to other interested parties to deny the charges and to be heard. The time-consuming nature of such a proceeding is wholly foreign to the purpose and intent of the Constitution that certificates of election may be speedily issued to candidates elected on the face of the returns, to enable them to enter upon the discharge of their official duties. The argument ab inconvenienti is not to be pushed too far; but it has weight in resolving the question of intent.
In support of their contention that the Board of Canvass may inquire into misconduct of election officers in holding the election, relators cite the decisions of the Supreme Court in State ex rel. Walker v. Harrington, supra, and State ex rel. Wahl v. Richards, 5 Terry 566, 64 A.2d 400, 404. Interveners ask us to re-examine these cases so far as they uphold the jurisdiction of this Court to issue mandamus to the Board of Canvass. Nothing is suggested as a sufficient basis for such a re-examination, and we reaffirm the holding of this Court's jurisdiction to issue the writ to the Board. We think, however, that both decisions are distinguishable from the case at bar. In both, the evidence of the claimed illegality of the votes was ascertainable from the contents of the ballot box. In the first case the challenged votes were those of absentee soldiers and identifiable as such, see 1935 Code, Ch. 60, Art. 4; and in the second case, the illegality appeared from the presence in the ballot box of envelopes, not signed by the clerks of election, containing 101 ballots.
Relators' counsel argues that the Supreme Court in the Harrington case held it to be the duty of the Board of Canvass to determine the constitutionality of the "Soldiers Vote Act", a duty that was necessarily judicial in its nature; and that if the powers of the Board include the power to determine a constitutional question, they must surely include the power to pass on the questions involved here. Apart from the fact that this argument ignores the limiting language of Section 6, we disagree with its major premise, i. e., that the Supreme Court has held it to be the duty of the Board to decide a constitutional point. Rejecting the argument that the Supreme Court should in a mandamus proceeding directed to an administrative officer refuse to pass upon the constitutionality of a statute, Judge Speakman said: "But after all, the question before us is not whether it was or was not the duty of the respondents to pass upon the constitutionality of the statute in question, the question is whether or not it is our duty to do so." 3 Terry 37, 42 Del. 37, 27 A.2d 77.
From the authorities cited by the Court, it appears that the substance of the holding is that it is no defense to a petition for mandamus to compel an administrative board to act in accordance with law to urge that the ascertainment of the law involves a constitutional question which the board chose not to determine for itself. This is only to say that the power of the Court to issue the writ does not depend upon any supposed duty of an administrative officer to resolve a question of constitutional law, but upon its power to compel the officer to act in accordance with law.
*768 As for the comment of the Chancellor in the Richards case, supra, to the effect that the decision in the Harrington case was that "the Superior Court should have rejected [the soldiers'] vote," we doubt whether it was intended as an interpretation of the prior opinion on the point we are discussing.
Accordingly, we think that the Supreme Court did not, in the Harrington case, hold it to be the duty of the Board of Canvass to decide a constitutional question.
It should be further observed that the Harrington case does not hold that mandamus will issue as of course to decide all legal questions that may confront the Board of Canvass in the performance of its duties. Mandamus is a discretionary remedy, State ex rel. Miller v. Loft, Inc., 4 W.W.Harr. 538, 34 Del. 538, 156 A. 170, and its use to review the rulings of the Board might conceivably be inappropriate in certain cases.
The question before us is whether the Board of Canvass has power to enter upon an inquiry into misconduct of the election officers of the kind here complained of. For the reasons above given, we hold that it has no such power, and is therefore under no legal duty to act upon a petition alleging such misconduct.
From this holding it necessarily follows that the writ of mandamus cannot issue.
Interveners' motion for summary judgment must be granted, and the petition dismissed.
NOTES
[1] It is not without significance that relators' petition to the Board of Canvass fails to allege any fraud or mistake in the certificate as such.
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582 S.W.2d 577 (1979)
Jim Bill WILLIAMS, et ux, Appellants,
v.
T. R. BENNETT, Appellee.
No. 8260.
Court of Civil Appeals of Texas, Beaumont.
May 17, 1979.
Rehearing Denied June 7, 1979.
Mike Gallagher, Houston, for appellants.
Ralph Zeleskey, Lufkin, for appellee.
KEITH, Justice.
Plaintiffs below appeal from a judgment non obstante veredicto entered in a jury trial on a medical malpractice suit, concerning the alleged wrongful discharge of Janette Williams from Memorial Hospital in Lufkin, Texas, and the alleged subsequent abandonment by defendant, Dr. T. R. Bennett.
Janette Williams was admitted to the hospital, where defendant performed a hysterectomy on her on December 17, 1974. Subsequently, she developed a spiking fever. It was obvious to defendant that plaintiff had an infection, but he was unable to find it. However, he treated her with several types of antibiotics. On December 24, defendant removed the bandage from plaintiff's incision, removed several of her sutures, and discovered that she had a subcutaneous abscessa large amount of pus discharged from her incision. He removed half of her sutures and let the abscess *578 drain. He continued her on antibiotics and changed them until she responded to one and her temperature returned to within normal limits. He had taken cultures of the pus that came from the incision. On December 31, defendant decided to release plaintiff from the hospitalher temperature was normal and as of that date the cultures contained no growth. He told her to return to his office the next week for the removal of her other sutures. He did not give her any medication, either antibiotics or pain medication.
On January 1, 1975, the hospital lab sent a report on plaintiff's cultures to defendant; they contained a "rare microaerophilic gamma streptococci". Defendant testified that the term "rare" meant that the lab saw very few of these organisms growing, i. e., "[o]ne or two organisms per microscopic field", as opposed to the streptococci strain itself being unusual. Defendant never informed plaintiff of this report.
Plaintiff was to return to defendant's office on January 6 for the removal of her sutures, but a member of her family cancelled her appointment because of severely cold and rainy weather. On January 7, she went to her family doctor, Dr. Burch, because defendant was on vacation. Dr. Burch removed her remaining sutures and prescribed antibiotics and pain medication.
On January 10, plaintiff went to the emergency room at Woodland Heights Hospital in Lufkin, Texas, where she was treated by Dr. William Mitchell, who was "on call" for defendant. This doctor broke open several infectious abscesses at her incisional site and prescribed both pain medication and antibiotics to combat her infection.
For approximately forty-five days from the date of her discharge, plaintiff was in intense pain. But, she never returned to defendant's office. His receptionist and nurse tried to contact her, but no one answered the telephone. No one informed them that the phone was out-of-order. Several appointments were made on behalf of plaintiff with defendant's office, but they were either cancelled or she did not show for them. In the latter part of January, defendant had his secretary send her a letter to call the office and set up a post-operative examination. She called and made an appointment for January 28 but did not show for it. At trial, Mrs. Williams admitted that she never contacted defendant after her hospital dismissal because "I didn't want him to doctor me."
Plaintiff and her husband filed suit against defendant for wrongful discharge and abandonment. At trial, the jury found that defendant had discharged plaintiff from the hospital at a time when a reasonably prudent physician from the same or similar community acting under the same or similar circumstances in the exercise of ordinary care would not have done so (Special Issue No. 1); that such discharge was a proximate cause of her injuries (Special Issue No. 2); and that because of said discharge, she should receive damages in the amount of $20,000 for her past physical pain and mental anguish, $1,500 for the loss of her household services in the past, and $2,700 for the loss of her capacity to perform household services which, in reasonable probability, would be sustained in the future. The jury failed to find that defendant had abandoned plaintiff (Special Issue No. 3) and, consequently, did not have to reach Special Issue No. 4 on proximate cause. Defendant moved for a judgment non obstante veredicto, which the court granted on the ground that there was no evidence to support the jury's affirmative answer to Special Issue No. 1.
Plaintiffs appeal this judgment on two points of error. First, plaintiffs complain that the court erred in granting a judgment non obstante veredicto because the record contained ample evidence to support the jury's affirmative answer to Special Issue No. 1.
To sustain the action of a trial court in granting a motion for a judgment non obstante veredicto, we must find that there is no evidence upon which the jury could have made the findings relied upon. Therefore, we must consider the evidence in the light most favorable to the party against whom the motion is sought and every reasonable *579 intendment deducible from the evidence is indulged in that party's favor. Douglass v. Panama, Inc., 504 S.W.2d 776, 777 (Tex.1974).
It is well-settled Texas law that a patient has no cause of action against his doctor for malpractice, either in diagnosis or treatment, unless he proves by a doctor of the same school of practice as the defendant that the diagnosis or treatment complained of was negligence and that it was a proximate cause of the patient's injuries. Hart v. Van Zandt, 399 S.W.2d 791, 797 (Tex.1965); Bowles v. Bourdon, 148 Tex. 1, 219 S.W.2d 779, 782 (1949); Smith v. Guthrie, 557 S.W.2d 163, 165 (Tex.Civ.App. Fort Worth 1977, writ ref'd n. r. e.). This standard of care may be proven by the testimony of a doctor-defendant. Wilson v. Scott, 412 S.W.2d 299, 303 (Tex.1967); Smith v. Guthrie, supra; Gaut v. Quast, 505 S.W.2d 367, 369 (Tex.Civ.App.Houston [14th Dist.]), writ ref'd n. r. e. per curiam, 510 S.W.2d 90 (Tex.1974).
Plaintiffs did not call any medical experts to testify, other than defendant. They contend that his testimony proved the standard of care he was required to use and that he failed to meet that standard. We disagree.
Defendant testified that it was bad medical practice to discharge a person from the hospital during a virulent infectious process. He further testified that it would not be in keeping with the standard of medical practice in his community to discharge a patient if she had a virulent infection and did not show other signs of responding to medical treatment.
Defendant's testimony did not establish that he failed to meet the standards to which he had testified. There is no proof that plaintiff had a virulent infection when she left the hospital. The January 1 lab report only showed that on December 25 she had such an infection. By December 31, plaintiff was recuperating normally according to defendant's discharge summaryshe had no temperature, her bowel movements had resumed, she was eating, and she was ambulatory. Defendant consistently maintained throughout his entire testimony that plaintiff did not have an active infection on December 31 and that the abscess was sterile. He testified that based upon the medical standards of his community, it was his opinion that plaintiff was ready for discharge on December 31. Plaintiffs have presented us with no expert evidence to the contrary. There is no evidence to prove that the infection which she had on January 10 was related to her previous infection. Therefore, point of error one is overruled.
In their second point of error, plaintiffs complain that the jury's answer to the special issues on abandonment is against the great weight and preponderance of the evidence. We disagree.
The jury was instructed in the following manner:
"[T]he term `abandonment' means the severance of the physician/patient relationship without reasonable and actual notice of the physician's intent to sever such a relationship at a time when there is a necessity for continuing medical care or alternatively the failure to provide for adequate medical attention in the event of the physician's unavailability at a time when there is a necessity for continuing medical care."
The jury was further instructed that "there can be no abandonment of a patient by a physician when the patient has voluntarily chosen not to return to his or her physician, or has discharged or dismissed his or her physician." See Lee v. Dewbre, 362 S.W.2d 900, 902 (Tex.Civ.App.Amarillo 1962, no writ); Hernandez v. Smith, 552 F.2d 142, 146-47 n. 7 (5th Cir. 1977). See also Perdue, "The Law of Medical MalpracticeThe Cause of Action", 11 Hous.L.Rev. 1, 12-13 (1973).
Having reviewed the entire record [Garza v. Alviar, 395 S.W.2d 821, 823 (Tex. 1965)], we find that the jury's answer was not against the great weight and preponderance of the evidence. It appears that there was a severance of the physician/patient relationship between Mrs. Williams and defendant, but it was caused by Mrs. *580 Williams, not defendant, who voluntarily chose not to return to defendant. Point of error two is overruled.
Having found no error, we affirm the judgment of the trial court.
AFFIRMED.
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582 S.W.2d 873 (1979)
Reve THOMAS, Appellant,
v.
OIL & GAS BUILDING, INC., Wally Lucio and E. D. Hand, Appellees.
No. 1348.
Court of Civil Appeals of Texas, Corpus Christi.
April 19, 1979.
Rehearings Denied June 13, 1979.
*875 David L. Perry, Edwards & Perry, Corpus Christi, for appellant.
William A. Abernethy, Meredith, Donnell & Edmonds, David J. Dunn, Dyer, Redford, Burnett, Wray & Woolsey, Guy H. Allison, Jack K. Dahlberg, Jr., Corpus Christi, for appellees.
OPINION
BISSETT, Justice.
This is a slip and fall case. Reve Thomas brought suit against Wally Lucio, E. D. Hand and Oil & Gas Building, Inc., to recover damages allegedly sustained by her when she slipped and fell in a hallway in a building owned by Oil & Gas Building, Inc.
Reve Thomas sought a joint and several judgment against the three defendants, each of whom filed a general denial and a plea of contributory negligence. In addition, Oil & Gas Building, Inc., brought a cross-action against Wally Lucio and E. D. *876 Hand for indemnity, or in the alternative, contribution, should plaintiff recover any money damages against it.
Trial was to a jury. All issues respecting the liability of Wally Lucio and Oil & Gas Building, Inc., were answered favorably to them. The jury, however, convicted E. D. Hand of negligence which proximately caused the fall. In answer to the comparative negligence issue, the jury found that the percentage of negligence attributable to Reve Thomas was 45% and that attributable to E. D. Hand was 55%. With regard to the damage issues, the jury found that the reasonable medical expenses incurred by Reve Thomas in the past were $1,956.45; the amount of medical costs she would, in reasonable probability, incur in the future were $500.00; and the amount for loss of earning capacity in the past was $1,000.00. Based on the jury verdict, judgment was rendered for Reve Thomas against E. D. Hand for $1,901.05 and that she take nothing against Wally Lucio and Oil & Gas Building, Inc. Only Reve Thomas has perfected an appeal to this Court.
Some several weeks before plaintiff slipped and fell, an officer of the defendant Building contracted with the defendant Hand for the purchase and installation of carpet in the central hallway of an office building, which was owned by the Building. Hand then hired the defendant Lucio to install the carpet. There was no contact thereafter between the Building and Hand, and there was never any contact between the Building and Lucio.
By her first point of error, plaintiff attacks the trial court's action in allowing the defendants a total of nine peremptory challenges to the jury panel, as opposed to only six such challenges allowed to her. Prior to the jury voir dire, plaintiff orally moved the trial court to equalize the jury strikes so that the total number of strikes allocated to her would equal the total number allocated to all of the defendants combined. In support of her motion, plaintiff argued that there was no practical antagonism between the three defendants, as evidenced by the pleadings and by a representation by counsel for all defendants that they intended to collaborate in making their jury strikes. This motion was overruled, and the court allocated six strikes to plaintiff and three each to the defendants.
Rule 233, T.R.C.P., provides that each party to a civil suit tried in a district court shall be entitled to six peremptory challenges. The term "each party," as used in the Rule, does not mean the same thing as the word "person," but means each litigant or group of litigants whose interest is antagonistic to another litigant or group of litigants. Retail Credit Company v. Hyman, 316 S.W.2d 769 (Tex.Civ.App.Houston 158, writ ref'd). The question of antagonism is to be determined by the information available at the time to the trial court revealed from an analysis of the pleadings, as well as from facts disclosed by pre-trial proceedings and which have been specifically called to the court's attention. Perkins v. Freeman, 518 S.W.2d 532 (Tex.Sup.1974). The inquiry is whether there is an antagonism as to fact issues on which the jury will pass. Perkins, supra.
To be considered in connection with Rule 233 in multiple party cases is Tex.Rev.Civ. Stat.Ann. art. 2151a (Supp.1978-79), which became effective on July 15, 1971. It reads:
"After proper alignment of parties, it shall be the duty of the court to equalize the number of peremptory challenges provided under Rule 233, Texas Rules of Civil Procedure, Annotated, in accordance with the ends of justice so that no party is given an unequal advantage because of the number of peremptory challenges allowed that party."
In construing article 2151a, this Court held, in King v. Maldonado, 552 S.W.2d 940 (Tex.Civ.App.Corpus Christi 1977, writ ref'd n. r. e.) that:
"... in multiple party cases, Article 2151a does not require, as a matter of *877 law, that each side, after alignment, is entitled to the same number of peremptory challenges as that allowed the opposite side. If the Legislature, in enacting the statute, had intended in all such cases for each side to have the same number of peremptory challenges following proper alignment of the parties, the statute would have so stated. Since it did not do so, the matter is left to the sound discretion of the trial court."
See also Dean v. Texas Bitulithic Co., 538 S.W.2d 825 (Tex.Civ.App.1976, writ ref'd n. r. e.).
After the parties were aligned by the trial court, it became the court's duty to equalize the number of peremptory challenges "in accordance with the ends of justice so that no party is given an unequal advantage." The interests of the defendants in this case were clearly antagonistic on some of the issues. Any advantage which the three defendants may have derived by being allowed to collaborate in making their strikes was offset by the granting of only three peremptory challenges to each of the defendants instead of six.
Plaintiff further contends that the allocation of nine extra strikes to the three defendants was materially unfair. In support of that contention plaintiff argues that it filed a "Bill of Exceptions" with the trial court which advised the court that had she been given the additional strikes, she would have struck four named persons. The document which is contended to constitute a Bill of Exceptions appears in the transcript, not in the statement of facts.
Rule 372(f), T.R.C.P., reads:
"Bills of exceptions not in the statement of facts shall be presented to the judge for his allowance and signature."
The record does not reveal that the purported bill was ever presented to the judge for his allowance. The document does not bear the signature of the trial judge. The asserted "Bill of Exceptions" is not in compliance with Rule 372(f); we do not consider it for any purpose. See Goodpasture v. Coastal Industrial Water Authority, 490 S.W.2d 883 (Tex.Civ.App.Houston [1st Dist.] 1973, writ ref'd n. r. e.); Scoggins v. Scoggins, 531 S.W.2d 245 (Tex.Civ.App.Tyler 1975, no writ); Burchfield v. Geitz, 516 S.W.2d 229 (Tex.Civ.App.El Paso 1974, no writ).
Under the record here presented, we do not believe that the action by the trial court in allocating three peremptory challenges to each defendant and six peremptory challenges to plaintiff resulted in a trial or judgment that was materially unfair to plaintiff. No abuse of discretion is shown. Plaintiff's first point is overruled.
The jury, in answer to Special Issue No. 2, answered "No" to the inquiry as to whether Lucio's failure to warn plaintiff of the glue on the floor of the hallway was negligence which proximately caused the fall, and in answer to Special Issue No. 3, answered "No" to the inquiry as to whether Lucio's failure to barricade or rope-off entrances to the hallway was negligence which was a proximate cause of the fall. Those answers are attacked by plaintiff in her third and fourth points as being against the overwhelming weight and preponderance of the evidence.
The carpet installation process involved spreading of glue on the existing vinyl floor of the Building and then laying rubberbacked carpet over the glue. The following diagram shows the layout of the hallways of the Building, and the offices that open into the hallways:
[See following illustration.]
*878
Lucio's procedure in laying the carpet was as follows: a piece of carpet the length of the hallway would be laid lengthwise, but rolled or folded over to cover only about half the length of the hall; glue would then be spread on the uncovered half of the hall; the carpet would then be unrolled onto the glue and that half of the carpet glued in place. The remaining unglued half would then be flipped back to expose the other half of the hall and the same process would be repeated until the entire floor was covered with carpet. Following this procedure, Lucio had carpeted the east end of the Building the morning of July 12. During the afternoon of July 12, when the plaintiff fell, he was engaged in carpeting the west end.
It is undisputed that the spreading of glue on the vinyl floor of the Building created a slippery and dangerous condition. There is also evidence that a person who is unfamiliar with adhesives would be unlikely to appreciate the slippery or dangerous condition of the floor at the time plaintiff fell. It is undisputed that plaintiff was not familiar with adhesives.
On the day of her injury, plaintiff entered the building through its Front Entrance, turned left down the central hallway and proceeded to the office of Mr. Clyde Wright, where she remained for a short period of time. At the time she entered the Building, she noticed a carpet truck which was parked near the entrance. She said that the presence of the truck gave her the impression that the Building was being measured for the installation of carpet over the coming weekend. After leaving Mr. Wright's office, plaintiff proceeded to the office of Allen & Shumate at the far west end of the central hallway. The office of Wright is not shown on the diagram, but the office of Allen & Shumate is shown thereon. Plaintiff testified that from the time she first entered the Building until she entered the Allen & Shumate office, she did not see any carpet installer at work in the hallway. Plaintiff remained in the Allen & Shumate office for some twenty minutes. As she exited the office, she initially stepped onto a dry and uncarpeted area about 17 inches wide which extended across *879 the west end of the hallway in front of the Allen & Shumate office. She then noticed the men laying carpet at the place marked [] on the diagram. At that time the carpet was folded lengthwise against the north wall of the hallway, and the southern half of the hallway was uncovered by carpet. According to plaintiff, after initially stepping into the 17 inch area, she then stepped into the uncovered southern half of the hallway, which was then covered with freshly applied glue, slipped and fell into the office of Rhodes & Hicks. The obviousness of the glue, both as to sight and odor, is in dispute.
It is undisputed that Lucio was an independent contractor who created, in the performance of his work, a dangerous condition on the premises of the building. As such, he owed the same duty of care to business invitees, such as the plaintiff, as the Building itself would have owed. Restatement (Second) of Torts, § 384 (1965). Such a duty would include warning invitees of unreasonably dangerous conditions. Restatement (Second) of Torts, § 343 (1965). The duty to warn would not be affected by the invitee's knowledge of the dangerous condition. Such knowledge, even if derived from facts which displayed the danger openly and obviously, would only go to the invitee's own negligence. Parker v. Highland Park, Inc., 565 S.W.2d 512 (Tex.Sup. 1978)
Lucio testified that, because of the risk of harm to occupants of the building, he would rather have installed the carpet after business hours or over the weekend. Royce Poelma, a floor covering contractor, testified that the glue which was used by Lucio was sufficiently transparent that a person unfamiliar with adhesives would be unlikely to appreciate its slippery or dangerous condition. For this reason, he said that the area of work should be completely barricaded if the building is open for business. David Gross, president of the defendant Building, testified that installation of carpet in an office building should be done after business hours or during the weekends because of the risk of harm to persons in the building. There is no evidence that the work area was barricaded or roped-off at any time.
Some people in the building were warned on July 12, 1974, and before plaintiff fell, of the danger presented by the glue on the hallway floor. Lucio testified that he instructed his employees to give verbal warnings to the tenants by going into the various offices and talking to the persons present. Although Lucio had no personal knowledge as to whether these instructions were ever carried out, the record contains the testimony of secretaries from both the Allen & Shumate and the Rhodes & Hicks offices who stated that they had received personal warnings.
Plaintiff testified that she never received any warning, verbal or otherwise, while in the building. This testimony stood uncontradicted by any evidence of probative force. The mere fact that she was present in offices, the occupants of which had been warned previously, raises no more than a mere suspicion that she, too, received some type of warning. Plaintiff further testified that while she did see the rolled-up carpet to her left as she left the Allen & Shumate office, and while she stepped to her right in order to go around the roll, she did not perceive any danger in stepping to her right.
Considering all of the evidence, and weighing it very carefully, it is our opinion that any finding by the jury that Lucio's failure to warn or failure to barricade was not negligence is against the great weight and preponderance of the evidence. Further, any finding that a slip and fall was not foreseeable to Lucio would likewise be against the great weight and preponderance of the evidence. The evidence is simply overwhelming to the effect that a reasonable person should have realized the dangerous condition created by the glue and the probability that users of the building would not appreciate the danger. The finding by the jury that Lucio's negligence in not warning or barricading was not a cause in fact of the plaintiff's accident is against the great weight and preponderance of the *880 evidence. Plaintiff's third and fourth points are sustained.
Plaintiff, in her second point of error, complains of the jury's answers of "None" to the inquiry relating to whether she was entitled to any money damages for "physical pain and mental anguish in the past" (Special Issue 21A), and for "loss of physical capacity other than wage earning capacity in the past" (Special Issue 21C). She contends that such findings are against the overwhelming weight and preponderance of the evidence.
Defendants, by counterpoints, claim that plaintiff, by moving that the trial court accept the jury verdict, waived her objections to such answers by the jury, and further say that this Court should not consider the point because of such waiver.
Rule 293, T.R.C.P., in essence, provides that when a verdict is accurate and in proper form, that it "shall be entered upon the minutes of the court." If the verdict is not responsive to the issue submitted, or contains conflicting findings, Rule 295, T.R. C.P., provides:
"... the court shall call the jury's attention thereto in writing and send them back for further deliberation."
In the instant case, the jury awarded plaintiff $1,956.45 as damages for past medical expenses (Special Issue 19). When the verdict was returned, but prior to its being received by the court, counsel for all defendants advised the court that the award of $1,195.46 for past medical bills (Special Issue 19) and nothing for past pain and mental anguish (Special Issue 21A), and nothing for loss of physical capacity other than wage earning capacity in the past (Special Issue 21C), created a conflict which could be cured by sending the jury back for further deliberation. Counsel for plaintiff, while expressing dissatisfaction with the answers to Special Issues 21A and 21C, nevertheless, told the court that under the circumstances, and in the light of the provisions of Rule 293, the court was required to accept and receive the verdict, and so moved. The court then accepted and received the verdict.
Concerning the matter of conflicting findings, the courts have classified them as 1) irreconcilable conflicts and 2) fatal conflicts. Fatal conflicts are fundamentally erroneous and may not be waived; conflicts which are not fatal but which are irreconcilable may be waived. Little Rock Furniture Mfg. Co. v. Dunn, 148 Tex. 197, 222 S.W.2d 985 (1949). Defendants argue that the matter of conflicting answers in this case is controlled by the rule laid down in the Little Rock case, as follows:
"... To require a judgment entered on a verdict containing conflicting answers to be set aside, the conflict between the answers must be such that one answer would establish a cause of action or defense, while the other would destroy it... The test in such [a] case is, whether taking the finding alone in the one instance, a judgment should be entered in favor of the plaintiff; and taking it alone in the other, judgment should be entered in favor of the defendant.. . ."
Defendants argue that when the above test is applied to the facts of the instant case, the conflicting answers have no effect with regard to the liability aspect of the trial court's judgment, and the application of the test here merely results in a change in the amount of recovery to which plaintiff would be entitled. They further argue that the conflict presented by the jury's answer to the damage issues in this case is not fatal, and, therefore, any objection which plaintiff may have had to such answers was waived when she moved that the court accept the verdict.
We hold that the answers to Special Issues 21A and 21C are not in conflict with the answer to Special Issue 19. In Little Rock Furniture Mfg. Co. v. Dunn, supra, the conflict was between the liability issues, not the damage issues. Neither the rule therein laid down nor the test announced apply to this case. The answers to all of the issues under discussion (19, 21A and 21C), have no bearing on liability. Special Issues concerning the act, negligence and *881 proximate cause are fact issues which deal with liability as a legal proposition; special issues concerning damages deal solely with independent elements of damage. See Grabes v. Reinhard Bohle Machine Tools, Inc., 381 S.W.2d 395 (Tex.Civ.App.Corpus Christi 1964, writ ref'd n. r. e.). An answer favorable to the plaintiff concerning one of the elements submitted and an answer of "none" or "zero dollars" to another issue does not put the answers in conflict. It merely shows that the plaintiff, according to the jury, met his burden of proof in one instance but not in the other.
We are of the opinion that the trial judge properly received the verdict without resubmitting such issues to the jury for further deliberation because of an irreconcilable non-fatal conflict. Plaintiff did not, by her motion, waive her right to attack the answer to Special Issues 21A and 21C in this appeal on the ground that each answer was against the overwhelming weight and preponderance of the evidence.
The fact that plaintiff was injured is not in dispute. As a result of her fall, she suffered a broken right ankle. This injury required surgery, hospitalization for ten days, a cast for approximately six weeks and crutches for approximately six months.
Plaintiff testified that, after leaving the hospital, her ankle was stiff, sore, and burned all the way up to the middle of her calf. Hospital records reveal that she was given prescription pain-killing medicine while in the hospital. Although the operating surgeon testified that plaintiff never complained to him of severe pain, he also testified that pain was a possible side effect of her injury, which he considered "serious." Plaintiff also testified that before the accident, she was teaching three art classes, painting for recreation and enjoyment, attending Art League field trips, doing volunteer door-to-door work for groups such as the Cancer Society and Heart Fund, and going on dine and dance dates with her husband. After the accident, however, she stated that she could only teach two art classes, found it more difficult to paint, had stopped attending field trips and doing volunteer door-to-door work, and could no longer dance.
As a general rule, it is ordinarily the prerogative of the jury to set damages, but they have no authority to completely ignore the undisputed facts and arbitrarily fix an amount neither authorized nor supported by the evidence. Clark v. Brewer, 471 S.W.2d 639 (Tex.Civ.App.Corpus Christi 1971, no writ); Taylor v. Head, 414 S.W.2d 542 (Tex.Civ.App.Texarkana 1967, writ ref'd n. r. e.); Bolen v. Timmons, 407 S.W.2d 947 (Tex.Civ.App.Amarillo 1966, no writ). The jury must award something for every element of damage resulting from an injury. Bazzano v. Ware, 530 S.W.2d 650 (Tex.Civ.App.Beaumont 1975, writ ref'd n. r. e.); Gallegos v. Clegg, 417 S.W.2d 347 (Tex.Civ.App.Corpus Christi 1967, writ ref'd n. r. e.); Shofner v. McKey, 345 S.W.2d 826 (Tex.Civ.App.San Antonio 1961, no writ); Clark v. Brewer, supra.
An analysis of the evidence in this case shows that the answers to Special Issues 21A and 21C to the effect that plaintiff did not suffer any "physical pain and mental anguish in the past" and did not sustain any "loss of physical capacity other than wage earning capacity in the past" are not only unsupported by any evidence, but are directly contrary to all the evidence. We are not here presented with a question of inadequacy of an award for some amount of damages with respect to the answers to Special Issues 21A and 21C, but whether the complete denial of any money damages for past physical pain and mental anguish and for loss of past physical capacity, as limited, were proper. In order to sustain the jury's answers to the contested issues, we would be required to hold that a preponderance of the evidence establishes that the injury was totally unaccompanied by pain and mental anguish and that the injury did not, in any way, result in a past loss of physical capacity except for loss in wage earning capacity. We are unable to so hold on the record presented here. The jury's answers to Special Issues 21A and 21C are against the great weight and preponderance of the evidence. The award of "None" *882 in response to each of such issues is an arbitrary denial of any recovery for each of the elements of damages in question. Plaintiff's second point is sustained.
By her fifth point of error, plaintiff contends that the trial court committed reversible error in refusing to instruct the jury, with respect to each issue involving the Building, that an owner of property is charged by law with knowledge of any dangerous condition which a reasonable inspection would have revealed. Plaintiff contends that the failure to give the tendered instruction "permeates the charge on all issues pertaining to the Building because what the Building should have done must be considered in light of the duty to inspect." Plaintiff complains that the charge, as submitted, allowed the jury to assume that the Building "had no obligation to inspect, and was not required to warn or guard against unknown dangers which a reasonable inspection would have revealed."
Rule 277, T.R.C.P., requires that the court "shall submit such explanatory instructions and definitions as shall be proper..." An instruction is "proper" if it finds support in any evidence and the inferences to be drawn therefrom, and if it might be of some aid or assistance to the jury in answering the issues submitted. First State Bank & Trust Co. of Edinburg v. George, 519 S.W.2d 198 (Tex.Civ.App. Corpus Christi 1974, writ ref'd n. r. e.); Meija v. Liberty Mutual Ins. Co., 544 S.W.2d 690 (Tex.Civ.App.Houston [14th Dist.] 1976, no writ). In Texas, the trial court has considerable discretion in deciding what instructions are necessary and proper in submitting issues to the jury. Spradling v. Williams, 553 S.W.2d 143, 145 (Tex.Civ. App.Beaumont 1977), aff'd 566 S.W.2d 561 (Tex.Sup.1978); McCane Sondock Detective Agency v. Penland Distributors, Inc., 523 S.W.2d 62 (Tex.Civ.App.Houston [14th Dist.] 1975, no writ); First State Bank & Trust Co. of Edinburg v. George, 519 S.W.2d 198 (Tex.Civ.App.Corpus Christi 1974, writ ref'd n. r. e.). The question before us is whether the requested instruction might have been of some aid or assistance to the jury in answering the issues submitted. This question cannot be answered without first examining the issues which were submitted in this case.
The jury returned negative answers to each of the following special issues which were submitted concerning the liability of the Building in this case:
1. (9) "Do you find from a preponderance of the evidence that the Oil & Gas Center Building knew, or, in the exercise of ordinary care, should have discovered, that glue was being applied to the floor prior to Reve Thomas' fall?"
2. (10) "Do you find from a preponderance of the evidence that the failure of the building to warn Reve Thomas of the glue on the floor was negligence which was a proximate cause of her fall?"
3. (11) "Do you find from a preponderance of the evidence that the failure of the Oil & Gas Center Building to direct that carpet installation occur outside of regular business hours was negligence which was a proximate cause of Reve Thomas' fall?
4. (12) "Do you find from a preponderance of the evidence that the failure of the Oil & Gas Center Building to have a particular person in charge of building operations on the day in question was negligence which was a proximate cause of Reve Thomas' fall?"
5. (13) "Do you find from a preponderance of the evidence that the failure of the Oil & Gas Center Building to inspect its building and to become aware of the carpet installation was negligence which was a proximate cause of Reve Thomas' fall?"
Plaintiff did not object to the content or to the form of any of the above quoted special issues which were submitted to the jury. In addition, plaintiff does not attack on legal or factual sufficiency grounds the jury's answers to any of these special issues.
We fail to see how the charge as submitted necessarily allows the jury to assume *883 that the Building was under no obligation to "inspect," "warn" or "guard against unknown dangers which a reasonable inspection would have revealed." The special issues specifically required the jury to examine the Building's conduct with respect to each "obligation" plaintiff mentions. The issues are framed in language that enable the jurors to understand the inquiries being made. The requested instructions were not necessary to assist the jury in properly answering any of the special issues pertaining to the Building's liability. In fact, we are of the opinion that the requested instruction is sufficiently unrelated to special issues number 10, 11 and 12 that the instruction might have confused the jury in answering these special issues. It cannot be said that the trial judge abused his discretion in refusing to submit the proffered instruction under the circumstances of this case. Plaintiff's point of error number five is overruled.
That portion of the judgment which decreed that Reve Thomas, plaintiff, take nothing against Oil & Gas Building, Inc., is affirmed, and the action brought against the defendant Oil & Gas Building, Inc., is severed from the action brought against the defendants E. D. Hand and Wally Lucio. Those portions of the judgment which decreed that Reve Thomas, plaintiff, recover $1,901.05 against the defendant E. D. Hand and that plaintiff take nothing against the defendant Wally Lucio are reversed and the cause as to the defendants E. D. Hand and Wally Lucio is remanded to the trial court for a new trial. Costs of this appeal are assessed 75% to the defendants E. D. Hand and Wally Lucio and 25% to the plaintiff Reve Thomas.
AFFIRMED IN PART, AND REVERSED AND REMANDED IN PART.
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582 S.W.2d 44 (1978)
Edward S. FITZPATRICK, Appellant,
v.
CRESTFIELD FARM, INC., Workmen's Compensation Board and James R. Yocom, Commissioner of Labor and Custodian of the Special Fund, Appellees.
Court of Appeals of Kentucky.
July 14, 1978.
William G. Cox, Cox & Cox, Lexington, for appellant.
W.R. Patterson, Jr., Landrum, Patterson & Dickey, Robert S. Walker, III, Brown, Sledd & McCann, Lexington, for appellee, Crestfield Farm, Inc.
Kenneth E. Hollis, Gen. Counsel, Dept. of Labor, Frankfort, John Riehl, Jr., Asst. Counsel, Dept. of Labor, Louisville, for appellee, Special Fund.
William L. Huffman, Director, Workmen's Compensation Bd., Frankfort, for appellee, Kentucky Workmen's Compensation Board.
Before LESTER, VANCE and WILHOIT, JJ.
*45 LESTER, Judge.
Appellant takes issue with a decision of the circuit court which reversed an award of the Workmen's Compensation Board.
In order to dispose of this appeal in an expeditious manner, we will briefly comment that appellant's third issue presented to us, namely, that the agriculture exclusion contained in the Workmen's Compensation Act is violative of the equal protection clauses of the state and federal constitutions because of discriminatory classification of workers, is without merit. Furthermore, as was the situation in Peck v. Condor, Ky., 540 S.W.2d 10 (1976), we will not express an opinion with respect to the possible invalidity of a statute when such an issue was not presented on appeal to the circuit court from the board.
The main thrust of this appeal is whether the operator of a farm who boarded thoroughbred race horses was excluded from the operation of the Workmen's Compensation Act in view of the definition of agriculture as provided in KRS 342.620(16). After a detailed review of the records of the board, the circuit court and the briefs before this court, we have concluded that the learned trial judge reached the correct conclusions in his well written and reasoned opinion and in affirming that judgment, we adopt his determinations as those of this court. The opinion of the Fayette Circuit Court follows.
This is an appeal from a decision of the Workmen's Compensation Board holding that the Petitioner, Crestfield Farm, Inc., was an employer, mandatorily subject to and required to comply with the provisions of the Kentucky Workmen's Compensation law. The Board also awarded compensation to the Petitioner's employee, Edward S. Fitzpatrick, and dismissed the Special Fund from any liability by way of apportionment. However, since it is the opinion of this Court that the Workmen's Compensation Board was in error in holding Petitioner subject to the Workmen's Compensation Act, the other issues raised by this appeal need not be considered.
The findings of fact and conclusions of law of the Board typically may be found contained in one short paragraph as follows:
"We hold that the defendant, Crestfield Farm, Inc., was not engaged principally in agriculture. The financial report filed indicates the farm involved was operated principally for the boarding of horses. Therefore, this defendant was subject to the mandatory provisions of the Act."
KRS 342.630(1), for our purposes, sets out the employers mandatorily subject to the Act as follows:
(1) Any person, other than one engaged solely in agriculture, that has in this state one or more employees subject to this chapter.
It should be noted that in order to qualify for the so called agricultural exemption, a person must be engaged solely in agriculture and not merely engaged principally in agriculture. The Board probably was confused by language used in KRS 342.610(2) which doesn't have anything to do with this case.
The evidence before the Board clearly and unequivocally established that the petitioner operated farm premises consisting of one hundred and twenty acres of land containing one horse barn, one barn used for both tobacco and horses, and one four stall shed used for horses and to store machinery. On this farm is raised tobacco, hay, cattle, and thoroughbred yearlings. Also, thoroughbred brood mares owned by other people are fed, housed and cared for on the farm. The financial report referred to by the Board shows the gross receipts from the operation of the farm over a three year period, 1972, 1973, and 1974. The report shows a breakdown of receipts from boarding brood mares, the sale of yearlings, the sale of cattle, the sale of tobacco, and other income. The report indicated that over the three year period mentioned an average of approximately 73% of gross receipts came from boarding brood mares owned by others. Evidently, the Board came to the conclusion that feeding, housing and caring for brood mares on farm premises was not encompassed *46 within the definition of agriculture. So far as we are able to determine from the authorities presented by the attorneys for the parties and from our own research, the Board in this case is the only Workmen's Compensation Board in the United States to have come up with such a startling conclusion. No authority for, nor any rational basis for such a conclusion is offered by the Board, nor by any of the attorneys for the parties and this Court can find none.
Many courts throughout the United States, including the Court of Appeals of Kentucky, have had occasion to define the meaning of "agriculture", "agricultural pursuits", "engaged in agriculture", and the like when faced with situations involving Workmen's Compensation Laws, tax laws, zoning laws, and other statutes using such terminology. Although some definitions have been more restrictive than others, we have not found where any Court has held that the usual practice of animal husbandry is not included within the general term "agriculture". According to Webster's Dictionary "animal husbandry" is a branch of agriculture concerned with the production and care of domestic animals.
KRS 342.620 undertakes to define agriculture as follows:
(16) "Agriculture" means the operation of farm premises, including the planting, cultivation, producing, growing, harvesting, and preparation for market of agricultural or horticultural commodities thereon, the raising of livestock for food products and for racing purposes, and poultry thereon, and any work performed as an incident to or in conjunction with such farm operations. It shall not include the commercial processing, packing, drying, storing, or canning of such commodities for market, or making cheese or butter or other dairy products for market."
Although the reasoning of the Board is not disclosed in its opinion, it would appear that the Board must have taken the position that since boarding of brood mares was not specifically mentioned within the legislative definition of "agriculture", it should be excluded. If this was the theory of the Board, we believe it to be incorrect. The legislative definition of agriculture is stated in general terms as meaning "the operation of farm premises" and the following enumeration of more specific types of activity to be included within the general term does not have the effect of excluding all that is not mentioned. Particularly is this true when in the same definition the legislature went on specifically to enumerate those activities which were not to be included within the general term. Therefore, the question to be decided by the Court is whether or not feeding, housing, and caring for brood mares is an activity ordinarily and customarily conducted on farm premises and an activity generally recognized as an agricultural pursuit.
It would seem remarkably clear that animal husbandry is an agricultural pursuit and that feeding, housing, and caring for horses is an activity customarily conducted on farm premises and an activity generally recognized as an agricultural pursuit. This being the case, perhaps the Board considered that if the owner and operator of farm premises fed, housed, and cared for horses belonging to someone else for a fee, that this circumstance would change the activity from operation of farm premises to the operation of a "hortel" giving the operation a commercial rather than agricultural connotation. We recognize that in the case of Bob White Packing Company v. Hardy, Ky., 340 S.W.2d 245, (1960), the Court of Appeals decided that it was not just the nature of the work which the employee was doing at the time of the injury that determined coverage, but that the whole character of the employment should be considered in determining whether a person was employed in agriculture. In that case the employer operated a slaughter house and meat packing company and incidental to that business operated a farm for the keeping and feeding of cattle until slaughtering time.
We have also considered the case of Barres v. Waterson [Watterson] Hotel Company, *47 196 Ky. 100, 244 S.W. 308 (1922), where the Court in the domestic servant exemption, found that a maid working at a large hotel was not engaged in domestic employment, but industrial employment, even though the actual tasks which she performed were similar to those performed by a domestic servant in a private home.
We think the distinction between those cases and the case at bar is that the packing house business and the hotel business are both well recognized as being commercial and industrial enterprises even though both to some extent utilize agricultural products. However, the "hortel" has not been generally recognized as being a separate and distinct commercial enterprise. While some people may make reference to the race horse "industry", the definition of agriculture set out in the statute specifically includes the raising of livestock for racing purposes. The "raising" of race horses obviously includes feeding, housing, and caring for brood mares. It would be an illogical and impermissibly narrow distinction to say that raising race horses is agriculture, but that once they are "raised", (presumably from foal to racing age) their feeding, housing, and care rendered on farm premises becomes a commercial operation.
Neither can this Court find any logical basis for making a distinction based on the ownership of the horses involved. The activity of feeding, housing, and caring for the horses is exactly the same whether the horse is owned by the operator of the farm premises or someone else. The normal routine of farm operation is not changed simply because the farm operator cares for brood mares owned by others in addition to caring for his own brood mares.
Counsel for respondent argues that a "liberal" construction of the statute would authorize the holding of the Board. KRS 342.004 provides that the Act be liberally construed on questions of law, as distinguished from evidence. This requirement is not peculiar to the Workmen Compensation Statute. KRS 446.080(1) requires that all statutes of this state be liberally construed with a view to promote their objects and to carry out the intent of the legislature.
Respondent cites Dick v. International Harvester Company, Ky., 310 S.W.2d 514 (1958) which holds that any doubt as to the scope and application of workmen compensation laws must be resolved in favor of the workman or his dependents. However, the problem with this case is that the plain language of the statute leaves no room for doubt. Where the intention of the legislature is so apparent on the face of a statute that there can be no question as to its meaning there is no room for construction, liberal or otherwise. See Gilbert v. Greene, 185 Ky. 817, 216 S.W. 105 (1919).
While we must keep in mind the humane and beneficent purpose of workmen compensation laws, we must also keep in mind the duty of the Court to construe the law so as to do justice both to employer and employee. The rule of liberal construction does not mean disregard for statute or its repeal under the guise of construction. Kentucky Cardinal Coal Corporation v. Delph, 296 Ky. 295, 176 S.W.2d 886 (1943).
Counsel for respondent stated at the initial hearing before the Board Hearing Officer that it was his intention to persuade the Board to declare race horse farms covered by the Act. We believe this is a matter to be addressed to the legislature and not the Board or the Courts. As a practical matter most of the large race horse farms have come under the Act voluntarily. For the Courts to declare that boarding horses is covered by the Act would impose an unexpected hardship, primarily upon persons operating smaller farms, who have had no legislative notice nor opportunity to obtain insurance coverage. See Robinson v. Lytle, 276 Ky. 397, 124 S.W.2d 78 (1938).
It is the opinion of this Court that this case should be remanded back to the Board with Directions to dismiss the case against the Petitioner, Crestfield Farm, Inc.
The judgment is affirmed.
All concur.
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179 F.Supp. 363 (1959)
Delores BRANDT, Plaintiff,
v.
Howard Bell OLSON and Fred Carlson Company, Inc., sometimes known as Fred Carlson Company, Defendants and Third-Party Plaintiffs (Walter J. Galus, Third-Party Defendant).
Civ. No. 856.
United States District Court N. D. Iowa, E. D.
December 31, 1959.
*364 Reed, Beers, Beers & Holmes, Waterloo, Iowa, Henry J. Brandt and Mitchell Kilanowski, Chicago, Ill., for plaintiff.
George Lindeman and Bruce M. Snell, Jr. (of Beecher, Buckmaster, Beecher & Lindeman), Waterloo, Iowa, for defendants and third-party plaintiffs.
Leo J. Cohrt (of Swisher, Cohrt, Swisher & Finch), Waterloo, Iowa, for third-party defendant.
GRAVEN, District Judge.
In this motor vehicle collision case there has been submitted to the Court a motion of the third-party defendant which raises questions as to jurisdiction, venue, indemnity or contribution, and the scope of the Iowa Nonresident Motorist Service Act.
It appears that on August 31, 1956, a collision occurred on an Iowa highway between an automobile in which the plaintiff was riding and a road grader owned by the defendant Fred Carlson Company and operated by its employee, the defendant Howard Bell Olson. The automobile in which the plaintiff was riding was being operated by the third-party defendant, one Galus. The plaintiff brought the present action in this *365 Court against the defendants Fred Carlson Company and Howard Bell Olson to recover for damage to her automobile and personal injuries sustained by her as a result of the collision.
Jurisdiction is based upon diversity of citizenship and the requisite amount involved in the controversy. The plaintiff is a citizen and resident of the State of Illinois. The defendant Fred Carlson Company is an Iowa corporation with its principal place of business in Iowa. The defendant Howard Bell Olson is a citizen and resident of the State of Texas. The third-party defendant is a citizen and resident of the State of Missouri. The plaintiff seeks to recover the sum of $100,000 from the defendants. The claim of the defendants for indemnity or contribution is, therefore, in excess of $10,000, exclusive of interest and costs.
Rule 14(a) of the Federal Rules of Civil Procedure, 28 U.S.C.A., provides for service by a defendant of "a summons and complaint upon a person not a party to the action who is or may be liable to him for all or part of the plaintiff's claim against him. * * *" The purpose of Rule 14 is to avoid circuity of action and multiplicity of suits. Waylander-Peterson Co. v. Great Northern Ry. Co., 8 Cir., 1953, 201 F.2d 408, 415, 37 A.L.R.2d 1399. In the case of United States v. Acord, 10 Cir., 1954, 209 F.2d 709, at page 712, the Court stated:
"The purpose of Rule 14 was to accomplish in one proceeding the adjudication of the rights of all persons concerned in the controversy and to prevent the necessity of trying several related claims in different lawsuits. * * *"
Rule 33 of the Iowa Rules of Civil Procedure, 58 I.C.A., is analogous to Rule 14 of the Federal Rules of Civil Procedure. See Cook, Iowa Rules of Civil Procedure, Revised Edition (1951), p. 230.
Pursuant to leave of Court, the defendants filed a third-party complaint against the third-party defendant under Rule 14(a). Service of summons was made upon the third-party defendant under the Iowa Nonresident Motorist Service Act, Sections 321.498-321.512, Code of Iowa 1958, I.C.A.
It appears that all of the States and the District of Columbia have nonresident motorist service acts. See Knoop v. Anderson, D.C.N.D.Iowa, 1947, 71 F. Supp. 832. Those acts provide that the operator of a motor vehicle, by using the highways of the particular state, shall be deemed by such use to constitute a designated public officer in the state as his agent or attorney for the service of process in actions growing out of such use.
The particular portion of the Iowa Nonresident Motorist Service Act here involved is Section 321.498, which provides as follows:
"The acceptance by any nonresident of this state of the privileges extended by the laws of this state to nonresident operators or owners of operating a motor vehicle, or having the same operated, within this state shall be deemed:
"1. An agreement by him that he shall be subject to the jurisdiction of the district court of this state over all civil actions and proceedings against him for damages to person or property growing or arising out of such use and operation (emphasis supplied), and
"2. An appointment by such nonresident of the commissioner of the public safety department of this state as his lawful attorney upon whom may be served all original notices of suit pertaining to such actions and proceedings, and
"3. An agreement by such nonresident that any original notice of suit so served shall be of the same legal force and validity as if personally served on him in this state."
Rule 4(d) (7) of the Federal Rules of Civil Procedure provides, in part, that a summons and complaint may be served in the manner prescribed by *366 the law of the state in which service is made. When an action is brought in federal court and a third-party claim is asserted therein which is within the scope of the nonresident motorist service act of the state in which the court is sitting, service of the third-party summons may properly be made under Rule 4(d) (7) and the court acquires jurisdiction of the third-party defendant. See Berkey v. Rockwell Spring & Axle Co., D.C.1958, 162 F.Supp. 493; Pasternack v. Dalo, D.C.1955, 17 F.R.D. 420; Weisler v. Matta, D.C.1951, 95 F. Supp. 152; Sussan v. Strasser, D.C.1941, 36 F.Supp. 266; 3 Moore's Federal Practice, 2d ed. 1948, par. 4.18. Rule 4(f), which declares that "All process other than a subpoena may be served anywhere within the territorial limits of the state in which the district court is held and, when a statute of the United States so provides, beyond the territorial limits of that state. * * *" is not a limitation upon Rule 4(d) (7). Giffin v. Ensign, 3 Cir., 1956, 234 F.2d 307; Holbrook v. Cafiero, D.C.1955, 18 F.R.D. 218; Pasternack v. Dalo, supra. But cf. concurring opinion of Maris, J., in McCoy v. Siler, 3 Cir., 1953, 205 F.2d 498, 501.
The third-party defendant asserts that service of summons as to the third-party claim may not be made upon him under the Iowa Nonresident Motorist Service Act, and asks that the service of summons upon him be quashed. The third-party defendant further asserts that the Court lacks jurisdiction of his person and, in the alternative, even if the service be valid the third-party claim does not meet the venue requirements of Section 1391(a), 28 U.S.C. The third-party defendant further asserts in the alternative that even if the service be valid and the jurisdictional and venue requirements are met, the third-party complaint fails to state a claim for indemnity or contribution under the Iowa law.
This Court has recently considered the Iowa law relating to indemnity and contribution between concurrent tort-feasors in the case of Chicago & North Western Ry. Co. v. Chicago, Rock Island & Pacific R. Co., D.C.N.D.Iowa 1959, 179 F.Supp. 33. Under the Iowa law the right of a tort-feasor to indemnity or contribution, in a proper situation, is well recognized. The Iowa rule allowing contribution between concurrent tort-feasors is of recent origin. It had its origin in the case of Best v. Yerkes, 1956, 247 Iowa 800, 77 N.W.2d 23, 60 A.L.R.2d 1354. Since the pronouncement of the Iowa Supreme Court in that case, claims for contribution in motor vehicle collision cases have become frequent. Therefore, the questions raised by the third-party defendant as to service and venue are of special importance. The third-party defendant, as noted, has sought to raise the question of the right of the defendants to either indemnity or contribution under the Iowa law. It is the view and holding of the Court that on the face of the pleadings it cannot be held as a matter of law that the third-party defendant is not or may not be liable to the defendants for all or part of the plaintiff's claim against them.
If the Fred Carlson Company as plaintiff had brought an action in this State against Galus as defendant for damages sustained by it as a result of the collision, there would seem to be no question but that such action would constitute a civil action or proceeding against him for damages to person or property growing or arising out of the use and operation by him of a motor vehicle on the Iowa highways, and Galus does not contend otherwise. It is his contention that the claim for indemnity or contribution asserted by the defendants does not constitute a civil action or proceeding "against him for damages to person or property growing or arising out" of the operation of the automobile and use of an Iowa highway within the scope of Section 321.498. In that connection he asserts that a third-party claim for indemnity or contribution does not come within the scope of Section 321.498; that hence the Commissioner of the Public Safety Department of Iowa has not been designated his attorney or agent *367 for the service of process as to such claim; that consequently he has not been served with process in the manner prescribed by the law of Iowa or by any statute of the United States in accordance with Rule 4(d) (7); and that therefore this Court lacks jurisdiction of his person. The third-party defendant does not challenge the mechanics of the manner in which he was served. The question, then, is whether an Iowa Court in which a defendant is sued for damages allegedly resulting from his negligent operation of a motor vehicle upon an Iowa highway and who wishes to assert a claim for indemnity or contribution against a third party as an alleged concurrent tort-feasor, may acquire jurisdiction of such party by serving him under the Iowa Nonresident Motorist Service Act.
The Iowa Supreme Court has not passed upon the question. It is, therefore, necessary to consider decisions in cases arising under the nonresident motorist acts of other states. The decisions of other courts on the question are somewhat sparse. The case most nearly in point is Malkin v. Arundel Corp., D.C. 1941, 36 F.Supp. 948. That case involved a collision on a Maryland highway between a car driven by one Anna Malkin and carrying Irving Malkin, both of whom were Massachusetts citizens, and a car driven by a Maryland citizen as the alleged agent of a Maryland corporation. In Irving Malkin's suit against the Maryland driver and corporation, the defendants obtained an order to make Anna Malkin a third-party defendant. Anna Malkin moved to vacate the order, to dismiss the third-party complaint against her, and to quash the service of summons against her which had been made on the Maryland Secretary of State under the Maryland nonresident motorist statute, Code 1939, art. 56, § 188. That statute provided in substance that the use of Maryland roads by nonresidents "shall be deemed equivalent to an appointment by such non-resident * * * of the Secretary of State * * * to be his * * * true and lawful attorney upon whom may be served all lawful processes in any action or proceeding * * * against him * * * growing out of any accident or collision in which said non-resident may be involved, while operating or causing to be operated, a motor vehicle on such public highway." Anna Malkin contended that service upon the Secretary of State was invalid for the reason that the above provision applies only where a Maryland citizen as plaintiff is asserting an original substantive right against a nonresident, and does not authorize or contemplate such service in a third-party proceeding. The Court held that the language of the statute was broad enough to cover the third-party action insofar as the sufficiency of service was concerned.
In Maddry v. Moore Bros. Lumber Co., 1940, 195 La. 979, 197 So. 651, the Court, in response to a question certified to it by the Court of Appeal, answered that a nonresident defendant can be subjected to the jurisdiction of Louisiana courts through the substituted service of process provided for by the Louisiana statute, Act No. 184 of 1932, § 1, in an action instituted by a resident employee of such defendant for workmen's compensation, growing out of an accident or collision in which the nonresident defendant's agent was involved while operating a motor vehicle on Louisiana highways. With reference to the statute, the Court said (197 So. at page 652):
"The language used, `any action or proceeding,' is very broad and covers the instant case. If it had been the intention of the Legislature that the service of process was to be restricted to actions ex delicto it appears that there would have been some language used to that effect. From the very language used, which is very broad and all inclusive, it would appear that it was the intention of the Legislature to embrace actions of any and every nature growing out of an accident or collision in which the non-resident is involved while making such use of the highways of this State."
*368 Southeastern Greyhound Lines v. Myers, 1941, 288 Ky. 337, 156 S.W.2d 161, 138 A.L.R. 1461, involved a collision between the plaintiff's bus and a truck owned and operated by the defendant due to the concurrent negligence of the drivers. A passenger on the bus recovered a judgment against the plaintiff for injuries sustained in the collision. The plaintiff thereafter brought a separate action against the defendant, a nonresident, for contribution. The Kentucky statute provided, in § 12-1 thereof, that any nonresident owner or operator of any motor vehicle shall, by operating or having the same operated within Kentucky, constitute the Secretary of State his agent for the service of process "in any civil suit or proceeding instituted in the courts of the Commonwealth of Kentucky against such operator or owner of such motor vehicle, arising out of, or by reason of any accident or collision or damage occurring within the Commonwealth in which such motor vehicle is involved." The Court held that service could be had under the aforesaid provision upon the nonresident defendant in the action against him for contribution, which was authorized by statute. The Court declared (156 S.W. 2d at pages 163-164):
"It is true the right in appellant to maintain the action arises from a contract implied from the provisions of section 484a but the subject matter of the proceeding arose out of and by reason of the accident. * * * That appellant acquired the right to assert the claim by implied contract does not militate against his right to take advantage of the provisions of section 12-1, nor does it alter the fact that the proceeding is essentially a civil case instituted in one of the courts of the Commonwealth of Kentucky against a nonresident operator and owner of a motor vehicle, arising out of and by reason of an accident occurring within the Commonwealth in which such motor vehicle was involved. That being true, the Secretary of State was the process agent of the defendant and service on the agent brought the principal within the jurisdiction of the court."
McKay v. Citizens Rapid Transit Co., 1950, 190 Va. 851, 59 S.E.2d 121, 20 A.L.R.2d 918, is to the same effect.
In Dart Transit Co., Inc. v. Wiggins, 1953, 1 Ill.App.2d 126, 117 N.E.2d 314, plaintiff, the lessee of a truck owned and operated by the defendants, who were residents of Florida, was compelled to pay a sum to persons injured as a result of a collision in Illinois. Plaintiff then brought suit against the defendants for indemnity based, in part, on the terms of the trip lease agreement. The defendants were served under the Illinois nonresident service statute, Ill.Rev.Stat. 1951, c. 95½, § 23, which provided that the use and operation by any person of a motor vehicle over Illinois highways shall be deemed an appointment of the Secretary of State to be his attorney upon whom may be served "all legal process in any action or proceeding against him, growing out of such use or resulting in damage or loss to person or property, * * *." The defendants' motion to quash summons was granted by the trial court on the ground that the cause of action arose out of a contractual obligation, rather than tort, and therefore did not grow out of the use and operation of the motor vehicle over Illinois highways. On appeal the judgment was ordered reversed, the Court holding that under the language of the statute the Secretary of State may be served with process on behalf of a nonresident in any action or proceeding against such nonresident growing out of the use of Illinois highways, and that such service of process is not restricted to actions ex delicto. The Court stated (117 N.E.2d at page 319):
"The words `in any action or proceeding' are unqualified, the only requirement for substituted service being that the action must grow out of the use and operation of a motor vehicle over the Illinois highways. We are of the opinion that *369 the accident under consideration grew out of such use, and that therefore the service of summons upon the defendants herein was proper."
The Court further declared (117 N.E. 2d at pages 316, 318) that it was impressed by the argument in the Maddry case, supra, that if it had been the intention of the legislature to restrict service of process to actions ex delicto some language to that effect would have been used.
Gore v. United States, D.C.1959, 171 F. Supp. 136, involved an action under the Federal Tort Claims Act, 28 U.S.C.A. § 2671 et seq., to recover for personal injuries and property damage sustained by the plaintiffs in a collision in Massachusetts with a motor vehicle owned by the United States and alleged to have been negligently operated by the employee of another. The United States impleaded the driver and his employer, claiming that the vehicle was being transported by the employer under a contract with the United States which required the employer to hold the government harmless from liability for injury or damage to third persons. The third-party defendants, having been served under the Massachusetts nonresident motorist statute, M.G.L.A. c. 90 §§ 3A, 3C, argued that that statute was inapplicable because the government's claim against them was based solely on contract. In holding that the service was valid and that it had jurisdiction of the third-party defendants, the Court declared (at page 138):
"While the contract is an element of the government's claim against the third-party defendants, the action appears from the pleadings to be clearly one arising out of the operation by Keal, through its servant Leathers, of a motor vehicle on a Massachusetts highway. * * *"
As heretofore noted, the Iowa Supreme Court has not as yet passed upon the question here presented. It is, therefore, necessary to anticipate its holding on the question. The defendants in their answer to the plaintiff's complaint allege, inter alia, that the negligence of the third-party defendant was the sole proximate cause of the collision. In their third-party complaint they allege the above and, in the alternative, that if the negligence of the defendants was a proximate cause of the collision, negligence on the part of the third-party defendant was a concurring proximate cause of the collision. The third-party defendant was operating a motor vehicle on an Iowa highway for viatory purposes. In connection with such operation and use a collision occurred.
It is the contention of the defendants that if judgment is rendered in favor of the plaintiff on her claim against them arising out of the collision, under the Iowa law they are entitled to either indemnity or contribution. In effect, the defendants are saying to the third-party defendant: "If we are required to respond in damages to the plaintiff, we want to recover over against you because it was your negligence, primarily or at least equally with our own, which caused the injuries and damages of which the plaintiff complains." It seems clear that such a claim is one for damages to person or property growing or arising out of use and operation of a motor vehicle upon the Iowa highways. The term "all civil actions and proceedings" is very broad in scope. It is the view of the Court that the third-party claim comes within the scope of Section 321.498, subd. 1 of the Iowa Nonresident Motorist Service Act, and that the Iowa Supreme Court would so hold were the question presented to it.
It is the holding of the Court that the third-party claim of the defendants is within the scope of the Act and that the motion of the third-party defendant to quash is not well taken.
In connection with the matter of jurisdiction, it is the contention of the third-party defendant that since he is a nonresident of the State of Iowa the attempt to bring him into this action by means of Rule 14(a) constitutes an attempt to extend the jurisdiction of this Court contrary to Rule 82 of the Federal *370 Rules of Civil Procedure. That Rule provides: "These rules shall not be construed to extend or limit the jurisdiction of the United States district courts or the venue of actions therein." The federal courts have always deemed that their statutory jurisdiction is supplemented by an ancillary jurisdiction lacking express statutory authorization. The theory is that ancillary jurisdiction is essential to the independence and self-sufficiency of the federal courts. Prior to the adoption of the Federal Rules of Civil Procedure the federal courts tended to regard their ancillary jurisdiction as being somewhat limited in scope and inelastic in character. Following the adoption of the Federal Rules of Civil Procedure, with their liberal provisions as to joinder of parties and claims, the federal courts in many cases found themselves confronted with numerous parties who were asserting various and conflicting claims. With numerous parties and numerous claims being immediately before courts in the same action there was the natural wish and desire on the part of such courts to dispose of the entire litigation in the same proceeding. Because of such situations and such desire, the federal courts have, since the adoption of the Federal Rules of Civil Procedure, frequently examined and re-examined the scope and extent of their ancillary jurisdiction. Such examination and re-examination disclosed to many of such courts that their ancillary jurisdiction was much broader and much more elastic than it had previously been understood to be.
Since the adoption of the Federal Rules of Civil Procedure, it has been recognized that important provisions relating to the addition of parties would have limited effect if the same jurisdictional and venue requirements were to be applied in the case of added parties as to the action between the original parties. However, it is also recognized that while the Rules should be liberally construed, they cannot be used to extend jurisdiction or venue. Baltimore & O. R. Co. v. Saunders, 4 Cir., 1947, 159 F.2d 481, 484, commented upon in 33 Iowa Law Review 140 (1947); Lesnik v. Public Industrials Corp., 2 Cir., 1944, 144 F.2d 968, 973. The federal courts have employed the concept of ancillary jurisdiction in an effort to balance federal jurisdictional requirements with the liberal provisions of the Rules as to additional parties. Lesnik v. Public Industrials Corp., supra, 144 F.2d at pages 973, 974; Moncrief v. Pennsylvania R. Co., D.C.1947, 73 F.Supp. 815, 816. Where a federal district court has jurisdiction of the parties and the subject matter involved in the principal action, as here, and a third-party proceeding growing out of the same transaction and involving many of the same facts as the principal action is instituted, such third-party proceeding is generally regarded as being ancillary to the principal action, so that the Court has jurisdiction of the subject matter of the third-party proceeding even though there is no diversity of citizenship between the plaintiff or defendant and the third-party defendant. That is, where the federal court has jurisdiction of the principal suit, diversity of citizenship between the plaintiff or defendant and the third-party defendant is not necessary if the third-party proceeding is ancillary to the main action. Waylander-Peterson Co. v. Great Northern Ry. Co., 8 Cir., 1953, 201 F.2d 408, 37 A.L.R.2d 1399; Lawrence v. Great Northern Ry. Co., D.C.1951, 98 F.Supp. 746, affirmed, 8 Cir., 1953, 201 F.2d 408; 1 Barron and Holtzoff, Federal Practice and Procedure, Sec. 424. The claim of a defendant for indemnity or contribution is ancillary to the principal suit. Waylander-Peterson Co. v. Great Northern Ry. Co., supra.
In the present case it seems clear that this Court has in personam jurisdiction of the third-party defendant by virtue of the service made upon him under the Iowa Nonresident Motorist Service Act, and jurisdiction of the subject matter of the third-party complaint by virtue of its ancillary character.
There is next to be considered the contention of the third-party defendant *371 that the venue of the third-party claim is improper under Section 1391(a), 28 U.S.C.A. That Section provides:
"A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in the judicial district where all plaintiffs or all defendants reside."
The third-party defendant contends that by virtue of the above provision he may be sued only in the judicial district in which he resides. In this connection he also refers to Rule 82 which, as heretofore noted, provides that the Rules shall not be construed to extend the venue of actions.
Venue is a privilege personal to the defendant which he may waive either expressly or impliedly. Commercial Cas. Ins. Co. v. Consolidated Stone Co., 1929, 278 U.S. 177, 179, 49 S.Ct. 98, 73 L.Ed. 252; Panama R. Co. v. Johnson, 1924, 264 U.S. 375, 44 S.Ct. 391, 68 L.Ed. 748; McCoy v. Siler, 3 Cir., 1953, 205 F.2d 498, 499; Martin v. Fischbach Trucking Co., 1 Cir., 1950, 183 F.2d 53, 54; Heiss v. Nielsen, D.C.1955, 132 F.Supp. 541, 543; Weber v. Threlkel, D.C.1954, 126 F.Supp. 98, 99; Steele v. Dennis, D.C. 1945, 62 F.Supp. 73, 74; Krueger v. Hider, D.C.1943, 48 F.Supp. 708. It was heretofore noted that the defendant Howard Bell Olson is a citizen and resident of Texas. An answer has been filed on his behalf without an objection to venue having been made. It may be that any objection which he might have had concerning venue has been waived. At any rate, the third-party defendant cannot, and does not, urge that venue in the principal action is improper, because the privilege of objecting to venue in the main action is a personal privilege belonging to the defendant Olson and not to the third-party defendant. Until the defendant successfully asserts whatever privilege regarding venue which he may have, the main action is properly before the Court. Carlisle v. S. C. Loveland Co., Inc., D.C.1948, 77 F.Supp. 51, appeal dismissed, 3 Cir., 1949, 175 F.2d 418.
Many of the nonresident motorist service acts, including Iowa's, are cast in terms of agreement or consent. In other words they provide that a nonresident motorist, by using the highways of a state, impliedly agrees or consents to submit to the jurisdiction of that state concerning any action for damages arising or growing out of such use. As stated by the United States Supreme Court in the case of Olberding v. Illinois Central R. Co., 1953, 346 U.S. 338, at page 341, 74 S.Ct. 83, at page 85, 98 L.Ed. 39, "The defendant may protest to high heaven his unwillingness to be sued and it avails him not. * * *" It is now authoritatively settled that, although a nonresident motorist may subject himself to the jurisdiction of a state by using its highways, such use does not in itself constitute a waiver of his venue privilege under Section 1391(a), 28 U.S.C. Olberding v. Illinois Central R. Co., supra; Lied Motor Car Co. v. Maxey, 8 Cir., 1953, 208 F.2d 672. However, those and other cases cited by the third-party defendant have to do with the matter of venue as between the parties to a principal suit. They do not deal with a situation where a third-party claim is asserted following the institution of the principal suit.
If the Fred Carlson Company and Howard Bell Olson had originally, as plaintiffs, brought suit in this Court against Galus as defendant for damages sustained by them as a result of the collision, they undoubtedly would have been met with the challenge that the venue requirements of Section 1391(a), 28 U.S. C., had not been complied with in that neither Olson nor Galus resides in this judicial district, which challenge would have been well taken.
The question, then, is presented whether a third-party claim which is ancillary to the principal suit in the matter of jurisdiction is also ancillary in the matter of venue. In 3 Moore's Federal Practice, 2d ed. 1948, par. 14.28 [2], it is stated:
"* * * by the great weight of authority the claim of the thirdparty *372 plaintiff against the third-party defendant is regarded as ancillary for jurisdictional purposes, and hence no independent jurisdictional ground is needed to support adjudication. If then, for example, in a non-federal case a third-party proceeding is sufficiently ancillary to permit the bringing in of a third party who is a citizen of the same state as the defendant, and thus avoid the constitutional limitations on the jurisdiction of the federal courts, it should also be considered ancillary for the purpose of mere statutory restrictions on the place of trial. * * *
"* * * the venue statutes which are designed to govern an original action are not applicable. The courts have not been in accord on this matter. But what is believed to be the better authority supports the view herein advocated: the third-party defendant has no objection based on venue."
Decisions which support the proposition that, in third-party actions, the venue requirements of an original and independent action need not be met include United States v. Acord, 10 Cir., 1954, 209 F.2d 709, certiorari denied 1954, 347 U.S. 975, 74 S.Ct. 786, 98 L.Ed. 1115; Gore v. United States, D.C.1959, 171 F.Supp. 136; McGrath v. Lund's Fisheries, Inc., D.C.1959, 170 F.Supp. 173; O'Brien v. Allen, D.C.1955, 137 F.Supp. 691; Leatherman v. Star, D.C.1950, 94 F.Supp. 220; Carlisle v. S. C. Loveland Co., Inc., D.C.1948, 77 F.Supp. 51, appeal dismissed, 3 Cir., 1949, 175 F.2d 418; Moncrief v. Pennsylvania R. Co., D.C.1947, 73 F.Supp. 815; Gray v. Hartford Acc. & Indem. Co., D.C.1940, 31 F.Supp. 299; Morrell v. United Air Lines Transport Corp., D.C.1939, 29 F.Supp. 757. In McGrath v. Lund's Fisheries, Inc., supra, 170 F.Supp. at page 175, the Court stated:
"A few of the older cases held that the foregoing principles [that third-party proceedings are ancillary to the original action and independent jurisdiction of the third-party proceedings is not required] did not apply to the venue of the action in the third party proceedings. (Citing King v. Shepherd, D.C.1938, 26 F.Supp. 357, and Lewis v. United Air Lines Transport Corp., D.C. 1939, 29 F.Supp. 112. These cases are the ones most frequently cited in support of the minority view.)
"A great majority, and all of the later cases and text writers, take the position that the venue of the third party proceedings will follow that of the original proceedings and third party defendants may be brought in without regard to venue."
Accord, Leatherman v. Star, supra, 94 F. Supp. at pages 222-223. The reasons which give the court jurisdiction of the ancillary proceeding by virtue of its jurisdiction of the principal action also support the conclusion that venue in the ancillary proceeding may rest upon the venue in the principal action. United States v. Acord, supra; Gore v. United States, supra; Moncrief v. Pennsylvania R. Co., supra. Furthermore, "* * * it is clear that the spirit and purpose of Rule 14 to a great extent would be frustrated if the venue statutes had to be applied to third-party proceedings under the Rule. * * *" Moncrief v. Pennsylvania R. Co., supra, 73 F.Supp. at page 816; Morrell v. United Air Lines Transport Corp., supra, 29 F.Supp. at page 759.
It is clear that the Court would possess jurisdiction of the subject matter of the third-party claim even if there were no diversity of citizenship between the defendants and the third-party defendant, the reasons being that (1) the Court has jurisdiction of the parties and subject matter of the principal action and the venue requirements as to that action are met and (2) the third-party claim is ancillary to the principal action and no independent basis of jurisdiction of such claim is necessary. Under such circumstances it is also clear that the thirdparty *373 defendant would have no valid objection as to venue. It is the view of this Court that such result is not altered by the mere fact that in this case an independent jurisdictional basis exists by reason of the diversity of citizenship between the defendants and third-party defendant.
It is the holding of the Court that the venue of the third-party claim is proper.
It is hereby ordered that the motion of the third-party defendant be and the same is hereby overruled in all respects.
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582 S.W.2d 173 (1979)
The TRANSPORT INSURANCE COMPANY, Appellant,
v.
Jimmie Q. CAMPBELL, Appellee.
No. 17292.
Court of Civil Appeals of Texas, Houston (1st Dist.).
April 12, 1979.
Rehearing Denied May 17, 1979.
*174 Talbert, Giessel & Stone, Alice Giessel, Houston, for appellant.
Thurlow & Hennessy, Edward J. Hennessy, Houston, for appellee.
Before COLEMAN, C. J., and PEDEN and DOYLE, JJ.
COLEMAN, Chief Justice.
This is an appeal from a judgment entered on a jury verdict awarding Jimmie Q. Campbell total and permanent disability benefits under the Workers' Compensation Act. The Transport Insurance Company contends that there is no evidence that a blow to the back of Campbell's head sustained in the course of his employment was the producing cause of the total incapacity subsequently sustained by Campbell due to a stroke (hemiplegia).
Mr. Campbell was a long haul truck driver employed by J. H. Rose Truck Line. On October 12, 1973 he drove into the Rose Truck terminal located in Montebello, California. While he was attempting to attach a trailer to the tractor which he was driving, it was found that the mud flap brackets attached to his tractor would have to be removed.
Mr. Campbell was directed to remove the brackets and while in a squatting position using a wrench to remove a nut holding the bracket, the wrench slipped causing him to fall back and bang the back of his head against the trailer dolly. He suffered a painful blow which caused a bump to rise on his head, but the force of the blow did not break the skin. He did not lose consciousness. He reported the incident and continued to remove the mud flaps. At about two o'clock on the morning of October 12, he left the Montebello terminal.
Mr. Campbell testified that he then drove to Rialto, California, a distance of some 50 miles where he drove into a truck stop for fuel. It was just before daylight when he arrived in Rialto. At that time he was having no physical difficulty, but because he was tired he decided to rest. He secured a room at the truck stop and went to bed.
*175 About ten o'clock in the morning he woke up, took a shower and shaved. At that time he had a slight headache which had persisted since he had bumped his head. However, he was not sure that he had the headache while he drove from Montebello. He stated that he didn't pay "all that much attention" to it.
After he finished cleaning up he took two aspirin for the headache and then cleaned his truck and fueled up. He went into the restaurant and ordered breakfast. While he was eating his breakfast he noticed he was losing control of his hand. He remembered that he had dropped a bundle of clothing when he went from his room to the truck. While he was paying his bill his leg gave way and he fell to the floor. He got up and went across the driveway to a pay phone and called his mother to tell her that he was going paralyzed on his left side. He then walked to the door of the truck stop and fell again and was unable to get up. An ambulance took him to the San Bernardino Community Hospital. At that time Mr. Campbell was suffering from soft paralysis of his left side.
Mr. Campbell had undergone a physical examination on May 5, 1973, when he went to work for J. H. Rose. This was an examination required by the Interstate Commerce Commission. It was performed by a doctor selected by J. H. Rose, and after the results of the physical were known he was employed.
Mr. Campbell testified that at one time he had Bell's Palsy, which went away in about three or four weeks. He testified that he had never been treated for hypertension or high blood pressure and had never taken medication for those problems. He had never been treated for a heart attack.
When Mr. Campbell arrived at the emergency room of the hospital he was first seen by the doctor on duty, who instituted emergency procedures including a spinal tap. This doctor called in Doctor Lutz, an internist, who continued to treat Mr. Campbell while he was in the San Bernardino Hospital. Doctor Lutz called in Doctor Prahar, a neurosurgeon, for consultation. During his stay in the hospital Mr. Campbell was examined by Doctor Cover, a specialist in internal medicine, who was employed by Transport Insurance Company. Doctor Cover examined Mr. Campbell on October 23, 1973. Thereafter Mr. Campbell was transferred to the Veterans Administration Hospital and was not seen again by these doctors.
Where the circumstances shown by the evidence are such that it is reasonable to believe that a job-related incident precipitates a physical failure, a jury finding that the incident was a producing cause of the plaintiff's disability is supported by evidence. In determining the question of reasonableness, consideration must be given to the time interval between the incident and physical failure and whether the occurrence is competent to produce such a result. Baird v. Texas Employers' Insurance Association, 495 S.W.2d 207 (Tex.1973); Insurance Company of North America v. Kneten, 440 S.W.2d 52 (Tex.1969). The Supreme Court of Texas has been liberal in construing the word "accidental" and "injury" in cases involving heart attacks and strokes, and in reaching the conclusion that the record at hand presented some evidence of a particular strain, overexertion or shock which caused the incapacity. Baird v. Texas Employers' Insurance Association, 495 S.W.2d 207 (Tex.1973). Where the disability results from certain other conditions, such as cancer, where causation is less well understood, the plaintiff has the burden to prove by a competent medical witness that in reasonable medical probability the alleged event or accident caused the injury. However, it is not critical, as matter of semantics, that the doctor use the particular words "in reasonable medical probability" if that is, in context, the substance of his testimony. Insurance Company of North America v. Kneten, 440 S.W.2d 52 (Tex. 1969).
Doctor Lutz, the treating physician, testified that Mr. Campbell told him that he had received a bump on the head and that at the time he took a physical examination for *176 his job he had been told that he had high blood pressure. On examining Mr. Campbell he found a significantly elevated blood pressure, distorted speech, a harsh heart murmur and paralysis of the left side. He testified that based on medical probability Mr. Campbell had developed a clot in the brain or had a clot elsewhere which had traveled to the brain, and had paralyzed the left side of his body. He considered it probable that the blood clot was caused by high blood pressure. He recognized the possibility that the bump on the head could have caused the stroke but felt that it was highly unlikely, He stated that a trauma to the head would ordinarily cause medical symptoms which would become apparent immediately or else would probably cause "a very insidious development of symptoms and findings over a period of perhaps weeks or months." The fact that Mr. Campbell's symptoms developed rather dramatically and suddenly over several minutes is more compatible with a stroke syndrome, a clot or a hemorrhage. Because of the sketchy information he had at the time the testimony was given, Dr. Lutz could not be sure but was of the opinion that a blood clot, as opposed to a hemorrhage, was more likely to be the cause of Mr. Campbell's condition.
Doctor Prahar saw Mr. Campbell only one time and gave an opinion based upon his experience with head injuries and his knowledge of the causes of hemiplegia gained from the study of other cases. In terms of medical probability it was his opinion that the cause of Mr. Campbell's condition was hardening of the arteries in the blood vessels to the head. Based on reasonable medical probability he did not think that the blow to the head had anything to do with the stroke in Mr. Campbell's case. He stated that he would not discount the possibility that the hemiplegia could have been caused by a blow to the head but that in his opinion it was unrelated.
Doctor Cover, who examined Mr. Campbell at the request of Transport Insurance Company, testified that he obtained from Mr. Campbell a history of prior hypertension. He diagnosed Mr. Campbell's condition as a weak paralysis probably due to clotting in the cerebral blood vessels. He did not relate Mr. Campbell's condition to the minor blow or to any condition of his employment. He considered that the most likely cause of the paralysis in terms of medical probability to be his hypertension. He stated that he considered it significant that Mr. Campbell was not struck down by the blow and did not have any interval symptoms such as a headache or "impaired mentation." It was his opinion that in Mr. Campbell's case of all the possible causes of the stroke, the possibility of a blow contributing to that result would be about the least likely and extremely remote, although he could not entirely discount the possibility. At a later time when he had been furnished certain data from the Veterans Hospital he stated "now I recognize the possibility that there was hemorrhage and that such a hemorrhage could be the result of trauma." However, he again stated that in his opinion Mr. Campbell's paralysis was not related to the bump on his bead.
As was stated in Baird v. Texas Employers' Insurance Association, 495 S.W.2d 207 (Tex.1973), "an answer to the problem of whether the evidence, most often circumstantial in nature, together with the inferences that may be drawn therefrom, present issues of fact, is always difficult in this type of case. There is no precise rule to measure probative force and by which to decide if questions of fact are raised by the evidence." Here we have a blow to the head sufficient in force to cause pain and swelling. No other symptoms appear for some eight hours. A short time before Campbell suffered his first disabling symptoms he had a slight headache. He was not sure he had a headache prior to that time. Within a short period of time after noticing the headache, Mr. Campbell suffered paralysis of his left side. There is medical testimony that a blow to the head might cause a hemorrhage that might result in hemiplegia. There is no evidence that the blow to the head suffered by the plaintiff in fact caused a hemorrhage. Each of the doctors testified that in reasonable medical probability the stroke was caused by hypertension. *177 Two of the doctors testified that the plaintiff gave a history of previous hypertension. The plaintiff denied giving this information to the doctors. Doctor Lutz testified that his examination of the patient revealed that he was suffering from hypertension and that he treated him for that condition while in the hospital.
There is medical testimony which can be considered in evaluating the circumstantial evidence relied on to establish a necessary chain of causation from the blow on the head to the condition of hemiplegia. Doctor Lutz testified that hypertension is known to produce vascular disease, hardening of the arteries, and increases the risk of strokes. He testified that there are numerous causes of hypertension but that probably in ninety percent of the cases the cause is unknown. He testified that blunt trauma to the body could be the cause of a blood clot but that the most usual cause is atherosclerosis. A blow to the head could tear a blood vessel which might result in either a major or a minor hemorrhage. Blood would leak into surrounding tissue and if the tissue is strong enough it would be localized there and absorbed or altered chemically and replaced by a scar. If the tissue is not sufficiently strong to contain the blood, it would leak into other structures which might increase the pressure within the brain. The increased pressure might lead to hemiplegia. Doctor Lutz also testified that a hemorrhage resulting from head injury usually tends to develop with headache, vomiting, and dizziness before the development of a hemiplegia.
There is no medical testimony sufficient to support the finding of the jury that there was a causal relationship between the blow on the head and the hemiplegia. In assessing the sufficiency of the circumstantial evidence to support the jury verdict we are mindful of the general rule that to establish a fact by circumstantial evidence, the circumstances relied on must have probative force sufficient to constitute a basis of legal inference; it is not enough that they raise a mere surmise or suspicion of the existence of the fact or permit a purely speculative conclusion. The circumstances relied on must be of such a character at to be reasonably satisfactory and convincing. At all events they must not be equally consistent with the nonexistence of the ultimate fact. Where the proven circumstances are consistent with either of two theories and there is nothing to show that one rather than the other probably is correct, then neither is proven. Baker v. Loftin, 222 S.W. 195 (Tex.Comm.App.1920, judg. approved); Republic National Life Insurance Company v. Bullard, 399 S.W.2d 376 (Tex. Civ.App.-Houston, writ ref'd. n. r. e.); Polasek v. Quinius, 438 S.W.2d 828 (Tex.Civ. App.-Austin 1969, writ ref'd. n. r. e.)
The facts presented do not reasonably lead to a conclusion that the plaintiff's injury was caused by the blow to the head rather than that the injury was caused by hypertension. Common experience and knowledge in the area under consideration is speculative and unreliable and the medical testimony is strong and uniform to the effect that the blow to the head was not in reasonable medical probability a factor in the causation of the hemiplegia.
Since there is no evidence that the blow to the head caused or contributed to the disability of the plaintiff, the trial court erred in overruling defendant's motion for directed verdict made at the close of all the evidence. The judgment is reversed and judgment is rendered for appellant.
On Motion for Rehearing
On reconsideration of the evidence we have concluded that we were in error in reversing this case. The rule of Garza v. Alviar, 395 S.W.2d 821 (Tex.1965) must be applied and we can consider only the evidence and inferences tending to support the jury findings, and must disregard all evidence and inferences to the contrary.
The medical witnesses agreed that the exact cause of the plaintiff's hemiplegia could not be pinpointed because sufficient testing was not performed. They agreed that a blow to the head of the plaintiff could result in that condition. They relied on a history of hypertension which the *178 plaintiff denied relating to them. We conclude that the medical testimony to the effect that hypertension was the probable cause of the hemiplegia must be disregarded. Furthermore, since this testimony was based on general medical experience and medical literature rather than the specific symptoms of the plaintiff, we do not consider the finding on causation to be so contrary to the great weight and preponderance of the evidence as to be clearly wrong.
Mr. Campbell testified that he was not having any difficulties with his health and had passed a work related physical examination a few months prior to the date on which he received a blow to his head. The blow was severe enough to raise a knot on his head and to cause a headache. The headache persisted in a mild form until the time of his collapse some eight to ten hours later. No incident intervened between the blow to the head and the on-set of the hemiplegia. No unusual exertion was experienced during this period of time. He stopped for the night a short time after the accident because he was not feeling well. When he got up the next morning he began experiencing symptoms which led to his collapse within a short period of time.
The circumstances are such to lead to the reasonable conclusion that the job related incident precipitated the hemiplegia. The testimony of the doctor is not so adverse to the existence of probable cause as to overcome the weight of the circumstantial evidence. Insurance Company of North America v. Kneten, 440 S.W.2d 52 (Tex.1969).
The motion for rehearing is granted and the judgment heretofore rendered by this court is withdrawn. The judgment of the trial court is affirmed.
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582 S.W.2d 151 (1979)
Ex parte Carl Gene DEATON.
No. 61136.
Court of Criminal Appeals of Texas, Panel No. 2.
June 13, 1979.
Ronald R. Waldie, Dallas, for appellant.
Henry Wade, Dist. Atty., Karen Chilton Beverly, Bradley K. Lollar and C. Wayne Huff, Asst. Dist. Attys., Dallas, Robert Huttash, State's Atty., Austin, for the State.
Before DOUGLAS, TOM G. DAVIS and DALLY, JJ.
*152 OPINION
TOM G. DAVIS, Judge.
This is an appeal from an order denying appellant relief made following a hearing in a habeas corpus proceeding in the trial court. In such hearing appellant sought unsuccessfully to have the trial court rescind its order requiring that his $15,000 appeal bond be a cash bond rather than an undertaking supported by sureties.
Appellant was found guilty by a jury on February 7, 1979, and his punishment was assessed at 10 years. On February 19, 1979 sentence was pronounced and at the conclusion of same the court stated "I am continuing the $15,000 bond for the purpose of appeal." On March 12, 1979 appellant's motion for new trial was overruled. At this hearing the court noted that it had an affidavit of the surety to surrender the principal. The prosecutor asked the court to take into consideration in setting bail information he had received from the bailiff that appellant had made verbal threats toward the prosecutor. The court then ordered that it was "going to make this a $15,000 cash bond for appeal purposes."
At the habeas corpus hearing on March 16, 1979 it was developed through testimony from appellant that he had been free on a $15,000 surety bond from the time of his arrest until the time that the court required a cash bond at the motion for new trial hearing, and that appellant could make another surety bond in that amount but that it was impossible for him to make a cash bond. Ted Ladinski, an employee of Triple A Bail Bonds in Denton, testified that appellant had been working in the Longview office of the same company and that he was prepared to make a surety bond for him in the amount of $15,000. Wayne Wilkins, the bailiff at appellant's trial, overheard what he "would consider to be a threat" toward the prosecutor. Wilkins stated that appellant was "agitated at the time" when he stated that the prosecutor was not concerned with dispensing of justice and "that he wanted to see Mr. Robinson [prosecutor]."
Article 44.04, V.A.C.C.P.[1] provides in pertinent part:
"(c) Pending the appeal from any felony conviction where the punishment does not exceed 15 years confinement, the trial court may deny bail and commit the defendant to custody if there then exists good cause to believe that the defendant would not appear when his conviction became final or is likely to commit another offense while on bail, permit the defendant to remain at large on the existing bail, or, if not then on bail, admit him to reasonable bail until his conviction becomes final. The court may impose reasonable conditions on bail pending the finality of his conviction. On a finding by the court on a preponderance of the evidence of a violation of a condition, the court may revoke the bail.
"(d) After conviction, either pending determination of any motion for new trial or pending final determination of the appeal, the court in which trial was had may increase or decrease the amount of bail, as it deems proper, either upon its own motion or the motion of the State or the defendant."
There is no question but what the court has authority to increase or decrease the amount of bail pending appeal pursuant to Article 44.04(d), supra. This is not the issue presented herein. We are confronted with the question of whether the court can require cash bail pending appeal?
Article 17.02, V.A.C.C.P., "Definition of `bail bond'" provides:
"A `bail bond' is a written undertaking entered into by the defendant and his sureties for the appearance of the principal therein before some court or magistrate to answer a criminal accusation; provided, however, that the defendant upon execution of such bail bond may deposit with the custodian of funds of the *153 court in which the prosecution is pending current money of the United States in the amount of the bond in lieu of having sureties signing the same. Any cash funds deposited under this Article shall be receipted for by the officer receiving the same and shall be refunded to the defendant if and when the defendant complies with the conditions of his bond, and upon order of the court."
In the Interpretative Commentary following Article 17.01, V.A.C.C.P. the Honorable W. A. Morrison makes the following observation concerning cash bail which was authorized for the first time in Article 17.02, supra:
"Members of the Committee were disturbed by cases where people of means who were capable of posting a cash bond, but who were away from home when arrested and were required under the existing statutes to pay a professional bondsman an exorbitant fee in order to make bail."
Article 17.02, supra, provides that the defendant may deposit money in the amount of the bond in lieu of having sureties signing same. The language of the statute as well as the commentary regarding same makes it clear that the Legislature intended that a defendant be given the option or privilege under Article 17.02, supra, of posting cash in lieu of having sureties sign the bond. It does not grant to the court the authority to deny a defendant the right of posting a surety bond in a bailable case. The authority granted the court in Article 44.04, supra, to "impose reasonable conditions on bail pending the finality of his conviction" does not vest the court with the discretion to require a cash or surety bond to the exclusion of the other. The State appears to urge that since the court could deny bail pending appeal under Article 44.04(c), supra, ("if there then exists good cause to believe that the defendant would not appear when his conviction became final or is likely to commit another offense while on bail") it could use the requirement of cash bail to deny appellant an appeal bond. While the State is correct in urging that bail can be denied upon proof of the required conditions set forth in Article 44.04(c), the requirement of cash bail cannot be used as a means to that end.
We hold that the trial court did not have authority to require appellant to have a cash bond pending appeal rather than a bond supported by sureties. In the absence of the required proof enabling the court to deny bail under Article 44.04(c), supra, the court shall set bail pending appeal in accordance with the statutes of this State and the requirements of this opinion.
It is so ordered.
NOTES
[1] In Ex Parte Briones, 563 S.W.2d 270 this Court held that the provisions of Article 44.04(c), V.A.C.C.P. rather than Article 42.09, V.A.C.C.P., shall be applied to determine whether to grant or deny bail pending appeal.
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15 N.J. Super. 604 (1951)
83 A.2d 809
JOHN J. GROGAN, EDWARD J. BORRONE AND CARMELA FINIZIO, PLAINTIFFS,
v.
FRED M. DeSAPIO, MICHAEL M. BORELLI, THOMAS A. GALLO, THE MAYOR AND COUNCIL OF THE CITY OF HOBOKEN, A MUNICIPAL CORPORATION OF NEW JERSEY, AND THE BOARD OF COMMISSIONERS OF THE MAYOR AND COUNCIL OF THE CITY OF HOBOKEN, N.J., DEFENDANTS.
Superior Court of New Jersey, Law Division.
Decided September 6, 1951.
*607 Messrs. McGlynn, Weintraub & Stein (Mr. Joseph Weintraub appearing), attorneys for plaintiffs.
Mr. Dominick J. Marrone (Mr. Otmar J. Pellet appearing), attorney for defendants.
HARTSHORNE, J.C.C. (temporarily assigned).
Plaintiffs, two of the members of the Board of Commissioners of the City of Hoboken, together with a taxpayer, have filed the above complaint against the three other Hoboken city commissioners, plus the board itself and the municipality as a body corporate, asking that the resolutions passed at the so-called organization meeting of the board on May 15, 1951, distributing the city departments and subordinate administrative functions between the individual commissioners, be set aside as illegal and void. After the filing of the complaint, plaintiffs, under the order of the court, took lengthy depositions of defendants for discovery before trial. As a result of such discovery, plaintiffs thereupon obtained the authority of the court to amend their complaint in order to amplify the charges therein contained.
Defendants move to strike the amended complaint for failure to state a cause of action. Rule 3:12-2. We accordingly turn to the allegations of such complaint, which, for the purpose of this motion, the court must take as true.
After charging that the defendants, the majority of the Hoboken commissioners, met previous to the organization meeting, without notice to the plaintiff minority members, and in their absence agreed to strip the minority commissioners of practically all the powers and functions usually vested in the departments to which they were to be assigned, the amended complaint adds:
"By said agreement made privately as set forth in Paragraph 9, each individual defendant irrevocably bound himself to vote for said resolutions A, B, C, D, and E, at the public organization meeting and to do so notwithstanding anything which the plaintiff commissioners might urge in opposition thereto at said public meeting. The *608 said individual defendants severally and jointly determined prior to said public meeting that they would not at the public meeting listen to, consider or deliberate upon any objections which the plaintiff commissioners might advance at the public meeting in opposition to said distribution of powers and duties, and at the said public meeting the individual defendants did refuse to enter into any discussions of the subject with the plaintiff commissioners. The said resolutions were not the product of the joint deliberation of all of the members of the Board of Commissioners, nor the product of joint deliberation of the members of the Board at a meeting held on notice to all members of the Board, but in fact were the product of a private meeting held by the individual defendants alone without notice to the plaintiff commissioners and without opportunity to them to participate as members of the Board therein."
This substantially charges that, at least as to the resolutions in question, the organization meeting called for by the statute (R.S. 40:72-6) was a mere sham, the entire administration of the City of Hoboken having been irrevocably decided upon at a preceding private gathering of the majority commissioners, meeting as individuals and in the absence of, and without notice to, the minority commissioners.
In further paragraphs of the complaint detailed allegations are made which need not be recited at length, charging that, instead of these resolutions having been adopted for public purposes and by a method "appropriate" to the public welfare, within the discretion of the commissioners (R.S. 40:72-5), said resolutions were not "appropriate" to the public welfare, according to facts specifically alleged, but were in fact "adopted in bad faith and constitute an abuse of discretion and fraud upon the statute."
Defendants' motion to strike the amended complaint thus, in essence, poses the questions:
(1) Can the administrative set-up of a city government, operating under the commission form, be finally determined upon by the majority of the board, meeting privately as individuals, in the absence of the minority; or must same in fact result from the regular organization meeting, participated in freely and with an open mind, by a quorum at least, of each of the duly elected commissioners?
*609 (2) Can such administrative set-up of such city government be the product, not of the actual judgment of the members of the city commission, exercised in their sound discretion, as "appropriate" for the public welfare, but in disregard of the public welfare, in bad faith, and as an abuse of discretion?
To answer these questions in detail would appear almost a matter of supererogation. But since the first question is claimed to be one of novel impression, in city government at least, and as to the second the application of the principles involved has often proven difficult, we proceed.
Considering the first question, we turn primarily to the statute by which the state authorizes the city to govern itself. This specifically provides that the administrative subdivision of the city government shall occur at the organization meeting.
R.S. 40:72-5 "The board of commissioners shall determine the powers and duties to be performed by each department and shall assign such powers and duties to each department as it may deem appropriate. The board shall prescribe the powers and duties of all officers and employees and may assign particular officers and employees to one or more departments and may require any officer or employee to perform duties in two or more departments if the work required of such officer or employee in such different departments be similar in character, and make such other rules and regulations as may be necessary or proper for the efficient and economical conduct of the business of the municipality."
R.S. 40:72-6. "The board of commissioners shall, at the first regular meeting after the election of its members, designate by majority vote one commissioner to be director of the department of public affairs, one commissioner to be director of revenue and finance, one to be director of the department of public safety, one to be director of the department of public works, and one to be director of the department of parks and public property, * * *."
Obviously, such statutory meeting connotes a true meeting where, to reach a lawful decision, each of the participants will consider with an open mind the viewpoints of his colleagues before reaching a decision. Thus alone can the basic principles of representative government be achieved, whereby the people are governed, not by some of their duly-elected *610 representatives, but by all of them. Were this not the case, no meeting at all need occur. Each commissioner could as well mail his vote separately from his own home, and thereby decide the method of governing the city.
Our courts have long recognized this principle. In Whittingham v. Hopkins, 70 N.J.L. 322 (E. & A. 1903), the court said at p. 325, in alluding to a decision made by an analogous local governing body: "One object of the law, manifestly, was to obtain the benefit of the combined judgment of these public officers while assembled together as a body, having opportunity to interchange opinions with each other in their final action. Signing upon separate occasions by individual officers, in the absence of their associates and upon the pressure, perhaps, of interested parties, might be fraught with great danger to both public and private interests." Recently this same principle was reiterated by our present Supreme Court in alluding to the action of a quasi-legislative state board: "the findings of fact shall be the product of deliberation and conference of all members of the board to the end that their views and reasoning be considered by the other members in reaching a determination." New Jersey Bell Tel. Co. v. Communications Workers, etc., 5 N.J. 354, 380 (1950).
The argument of the defendants to the contrary relies upon an alleged analogy to a party caucus. But, even admitting the analogy, this involves a misunderstanding of the true nature of a caucus, an institution recognized in New Jersey more by custom than by the written law. A party caucus, when properly conducted, performs an appropriate function in attempting to attain a tentative consensus between various elements within the same party, so that the viewpoint of these various elements may be better determined, and thus this viewpoint better and more simply expressed, at the legal meeting which follows. However, it is the consideration of the matter, and action thereon, at this lawful meeting which is, and must be, the real and determining factor. This is made clear in the present situation by the very words of the *611 statute above quoted. It is not the individual commissioners, but "the board of commissioners (which) shall determine the powers and duties to be performed by each department and shall assign such powers and duties to each department as it (the board) may deem appropriate. The board shall prescribe the powers and duties of all officers and employees * * *"
Obviously, where, as alleged in the complaint, the statutory determination has been made, in fact and irrevocably, before the lawful meeting occurred, such meeting is but a sham. In regard to the matter in question, the meeting is thus as if it had never occurred. That valid action must emanate from a valid meeting is clear, not only from the above authorities, but from the following: Holcombe v. Trenton White City Co., 80 N.J. Eq. 122, 133, 134 (Ch. 1912); Dey v. Mayor and Common Council of Jersey City, 19 N.J. Eq. 412, 416 (Ch. 1869); State v. Union Light, Heat & Power Co., 182 N.W. 539 (N.D. 1921); Herrington v. District Township of Liston, 47 Iowa 11 (Sup. Ct. 1877); 2 Dillon, Municipal Corporations (5th ed.), sec. 501.
We next turn to the allegations of the complaint that the resolutions in question are not "appropriate" as required by the statute, but on the contrary were "adopted in bad faith and as an abuse of discretion and fraud upon the statute." Not only the courts of this State, but those throughout the country have had many occasions to consider the effect of such allegations as to municipal action. And, in view of the widely variant character of the factual situations involved, the courts have naturally stressed in each case the effect of the different factors predominating in such case, with a resultant difference in verbiage. However, the principles running through the decisions both in this State and throughout the country seem clear. 2 McQuillin, Municipal Corporations (3rd ed.), sec. 10.37. These principles can be simply stated. Courts exist solely to declare and enforce the law, and are without authority as to matters of mere governmental policy. Hence, all personal or political maneuvering, which complies *612 with the law, in substance as well as in form, is beyond the authority of the courts to control. Thus if, because of either personal or political motives, officials fail to take the course of action best suited to the public interest, but take a course less beneficial to the public, yet, if the action taken was both in fact and in form in accord with the law, the remedy available to the citizens for the failure to take the best course lies, not with the courts, but at the polls.
On the other hand, if officials violate the law either in substance or in form, the courts are available for a remedy. This is so whether such violation was due to personal or political maneuvering, to bad faith, to an abuse of discretion, or for other cause. Such possible motives indeed are evidential, in corroboration of the claim that the action taken was in fact in violation of the law. In the case at bar the primary question in this regard is whether the above resolutions were "appropriate" to the public interest within the discretion of the commissioners. This discretion means an honest, and not a purely arbitrary or corrupt, discretion. Tagliareni v. Stilz, 120 N.J.L. 5 (Sup. Ct. 1938), affirmed 121 N.J.L. 49 (E. & A. 1938); Berdan v. Passaic Valley Sewerage Com'rs., 82 N.J. Eq. 235 (Ch. 1913); Oakley v. Atlantic City, 63 N.J.L. 127 (Sup. Ct. 1899); Blair v. Brady, 11 N.J. Misc. 854 (Sup. Ct. 1933). It is, of course, quite immaterial that in such cases the facts involved did not call for court action under the above principles. The allegations of the present complaint in this regard, with which we are here solely concerned, and the truth of which is not presently open to question, detail why such resolutions can in no real sense be considered "appropriate" to the welfare of the city. And such allegations then continue in detail to charge that the reasons advanced by the defendant commissioners themselves for the adoption of such resolutions were patently unsound, and that the defendants voted for same, not because they deemed them so "appropriate," but for other reasons amounting to bad faith and an abuse of their discretion as public officials. That such allegations *613 entitle plaintiffs to submit the truth of their charges to the determination of a jury, is in accord with the principles recognized by our courts in the above cases.
Nor is Moore v. Haddonfield, 62 N.J.L. 386 (E. & A. 1898) to the contrary. In the Haddonfield case, the court's allusion to bad motives, on which defendants rely, comes at the very end of its opinion, and only after it finds that its previous reasoning "disposes of the question that was reargued from the point of view upon which the decision rests." It would thus seem that this language as to motives is little more than dicta, and by a sharply divided court, in which the Chancellor and the Chief Justice take opposing views. Furthermore, in the later case of American Grocery Co. v. New Brunswick, 124 N.J.L. 293 (Sup. Ct. 1940), affirmed 126 N.J.L. 367 (E. & A. 1941), at page 297, the Haddonfield case is cited as being one where "neither personal interest, fraud or corruption on the part of the commissioners is intimated or charged." For the court there cites the Haddonfield case as holding motives to be immaterial, "under these circumstances." See in accord with the American Grocery case, Clark v. Landis Township, 126 N.J.L. 371 (Sup. Ct. 1941); Reimer v. Mayor, etc., of Allendale, 123 N.J.L. 563 (Sup. Ct. 1939); McQuillin, Municipal Corporations, sec. 10.37, supra.
To the defendants' objection to the joinder of a taxpayer as plaintiff, and of the individual commissioners as well as the corporate municipality as defendants, the answer is clear. A taxpayer is the traditional party plaintiff to proceedings under prerogative writs, or in lieu of prerogative writs, charging a violation of the statutes relating to government. Haines v. Burlington County Bridge Commission, 1 N.J. Super. 163, 170 (App. Div. 1949); Streeper v. Auditorium Kennel Club, 13 N.J. Misc. 584 (Sup. Ct. 1935). That the individual commissioners have an interest in the resolutions now under attack, passed solely by their votes, is obvious. That the municipal corporation is concerned with *614 the distribution of its administrative functions is also clear. See Tagliareni v. Stilz, supra.
Since the complaint, asking that the resolutions in question be set aside as illegal, sets forth a cause of action, for the reasons stated, the motion to dismiss will be denied.
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582 S.W.2d 463 (1979)
Robert James BERRY, Appellant,
v.
The STATE of Texas, Appellee.
No. 58227.
Court of Criminal Appeals of Texas, Panel No. 2.
June 20, 1979.
*464 J. R. Musslewhite, Houston, for appellant.
Carol S. Vance, Dist. Atty., William W. Burge and Edward A. Dodd, Asst. Dist. Attys., Houston, Robert Huttash, State's Atty., Austin, for the State.
Before DOUGLAS, TOM G. DAVIS and DALLY, JJ.
OPINION
TOM G. DAVIS, Judge.
Appeal is taken from a conviction for aggravated rape. Punishment enhanced by one prior felony conviction was assessed by the jury at life.
The prosecutrix identified appellant as the person who raped her at gunpoint in her apartment about 5:00 A.M. on March 21, 1977. She reported the offense to the apartment manager who in turn notified the police. On the evening of the same day appellant called the prosecutrix and asked her to meet him at a restaurant. She suggested that appellant pick her up. The police were notified and appellant was arrested.
Appellant contends that the statement taken from him "was not freely and voluntarily given by him, was the direct result of unlawful force and coercion and findings to the contrary made by the trial judge were against the greater weight of the evidence."
At the hearing on the motion to suppress appellant testified that arresting officer Tyler made the following threat:
"He threatened to blow to blow my head offhe told me that if Officer Wade hadn't have been with him, he would have blowed by head off the minute I got out of the car. He told me that when I got to the penitentiary, I was going to get a beating, `cause I was a rape fiend. And I told him that they didn't do people like that in the penitentiary. And he told me he would arrange for it at the City jail."
Immediately after appellant's arrest he was taken to the office of the apartment complex where the prosecutrix resided. Appellant stated that a security guard slapped him and said "if he ever seen me around that apartment project again, he'd blow my head off." The security guard did not represent himself as being a police officer.
Appellant was turned over "to two other officers" who took him to the police station. Officer Tyler did not accompany appellant to the police station nor was he there when the confession was taken. Appellant testified that the officers who took him to the police station did not threaten or physically abuse him. Officer Trimble took the confession from appellant at the police station approximately an hour and a half after he was arrested. Appellant related that Trimble read and explained his rights to him. Appellant stated that he had been to the Texas Department of Corrections on four previous occasions and that he understood his rights. In response to questions from both the prosecutor and his counsel appellant stated that Trimble did not physically abuse or threaten him. Officer Trimble refuted appellant's testimony that he was given a statement from the prosecutrix to use in making his confession. Trimble testified that appellant did not act as if he were in fear or under any threat and did not tell Trimble that he had been threatened by Tyler or any other officer that he was going to receive a beating in jail. Appellant's contention that the statement was not freely and voluntarily given appears to be bottomed on his testimony that he was afraid of the beating which was threatened by Officer Tyler coupled with the fact that he had received "some amount of beating" following the arrest.
Appellant calls our attention to the fact that neither Tyler nor the apartment security guard was called to refute appellant's testimony. See Farr v. State, Tex.Cr.App., 519 S.W.2d 876; Sherman v. State, Tex.Cr. App., 532 S.W.2d 634; Smith v. State, Tex. Cr.App., 547 S.W.2d 6.
*465 In Brooks v. State, 130 Tex. Crim. 561, 95 S.W.2d 136 it was held that a confession was not rendered inadmissible as a matter of law because of the assault by an officer on the defendant which was prior to, disconnected with, and in no way related to the confession. The sheriff testified that he kicked the defendant because he called him a liar. There was no evidence about any threat to the defendant if he did not give a confession. While noting that the action of the sheriff in kicking a prisoner was regrettable, it was concluded that the assault was anterior to the confession, disconnected therewith and in no way related to the confession or any effort to obtain or force a confession.
The totality of the circumstances must be examined to determine whether a confession is voluntary. Farr v. State, Tex. Cr.App., 519 S.W.2d 876. In Farr the evidence was uncontradicted that there was coercion and abuse at the time of arrest, and that an arresting officer was present at the time of the confession who reminded defendant that if he did not sign the confession, another arresting officer would exert physical force again. This Court was unable to conclude as a matter of law that the confession was voluntarily made.
In Smith v. State, 547 S.W.2d 6 we noted the significance in a break in the stream of events from the initial coercion to the giving of the confession.
There is no showing that the security guard who slapped appellant at the apartment complex was a police officer. Assuming that such were the case, the words spoken and the assault in no way relate to appellant making a confession. The guard's threat was directed toward appellant ever returning to the "apartment project." Appellant's testimony relative to arresting officer Tyler's threats shows that such threats were disconnected with and in no way related to the confession or any effort to obtain or force a confession. The threat that appellant was going to receive a beating in jail or the Texas Department of Corrections was in no way conditioned upon or related to the giving or withholding of a confession. We conclude that the court's findings regarding the admissibility of the confession are supported by the evidence.
Appellant contends the court erred in admitting "State's Exhibit #7 in evidence before the jury in that the copies of the five alleged convictions indicate that appellant did not waive his right to a trial by jury in writing and in open court."
The five convictions to which appellant directs his complaint are convictions out of Limestone County and not the conviction relied on for enhancement out of Ector County. The record reflects that appellant entered a plea of true to the conviction relied on for enhancement.
Appellant's complaint is directed to State's Exhibit No. 7, pen papers containing judgments in five felony convictions from Limestone County. Appellant testified that he was one and the same person convicted in each of these offenses and counsel for appellant expressly stated that there was no objection to the admission of the exhibit into evidence.
Appellant calls our attention to those portions of the Limestone County judgments which relate to waiver of jury. The portion in question reads:
"Thereupon the defendant requested the consent and approval of the Court to waive the right of a trial by a jury, and whereas such consent and approval, of the duly elected and acting attorney representing the State, in writing duly signed by said attorney, was filed in the papers in said cause before the defendant entered the plea of guilty, and it appears that all prerequisites required by law for the waiving of this right have been performed. Therefore the Court now gives its consent and approval for the said defendant to waive the right of a trial by a jury."
Appellant's position appears to be that since there is no express recital in the judgments that the appellant waived his right to trial by jury in writing as required by Art. 1.13, V.A.C.C.P. that we can infer that there was a lack of this requirement and the judgments are void.
*466 The recitation in the judgments that "it appeared that all prerequisites required by law for the waiving of this right [trial by jury] have been performed" overcome any inference of irregularity which may arise from the omission about which appellant complains. See Ex Parte Huddleston, 149 Tex. Crim. 388, 194 S.W.2d 401. Clearly, the judgments are not subject to collateral attack under the complaint here advanced.
The judgment is affirmed.
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582 S.W.2d 444 (1979)
John Ray EARNHART, Appellant,
v.
The STATE of Texas, Appellee.
No. 57245.
Court of Criminal Appeals of Texas, Panel No. 3.
June 20, 1979.
*445 Joe M. Joiner, Sherman, for appellant.
Robert Huttash, State's Atty., Austin, for the State.
*446 Before DALLY, W. C. DAVIS and CLINTON, JJ.
OPINION
DALLY, Judge.
This is an appeal from a conviction for murder. The punishment was assessed at imprisonment for twenty years.
Appellant challenges the sufficiency of the evidence to support the conviction; complains of the admission in evidence of statements made by the appellant; complains of the prosecutor's argument to the jury; and contends that the trial court erroneously communicated an additional instruction to the jurors after their deliberation began.
Appellant and his brother, James Edwin Earnhart, were convicted of murdering Spurgeon Elkins at appellant's home in Grayson County, on November 30, 1974. The two men were tried together, but filed separate appeals; the conviction of James Edwin Earnhart was recently reversed in Earnhart v. State, Tex.Cr.App., 575 S.W.2d 551 (1979). A detailed statement of the facts of the offense is included in that opinion, and the reader is referred to that account as a supplement to the facts set out here.
At 9:00 p. m. on November 30, 1974, Grayson County Deputy Sheriff Hal Curtis received a telephone call from the Whitesboro Police Department concerning a call they had received. As a result of the conversation Curtis called the Earnhart residence, and asked who was speaking; the speaker responded, "John Earnhart." Curtis then asked the speaker if he had a problem at the residence, and the speaker answered, "Hell, yes, I do. There has been a man killed in my house."
At 9:30 p. m. Grayson County Deputy Sheriffs Don Teague and Troy Adams arrived at the Earnhart residence simultaneously with police officers from Whitesboro and Collinsville, two highway patrol officers, and ambulance personnel. A Justice of the Peace, M. H. Richards, had arrived shortly before. Adams testified, and was corroborated by Teague, that when they arrived appellant came out of the house to meet them and said:
"Come in here. The son of a bitch drove in here in that pickup there with that camper on it, bleeding like a stuck hog, and he's laid down in my bed and died."
Appellant stated that he did not know the deceased; appellant's brother told the officers that he knew the deceased.
Adams checked the deceased's pickup for evidence of blood, but found none. Teague checked the engine; it was cold. Appellant told Teague that the deceased had driven in two hours previously, which would have been 7:30 p. m. Teague testified that he had driven by the house earlier that day at 4:00 p. m. and had seen the deceased's pickup parked out front. Richards, who was a mortician as well as a Justice of the Peace, testified that when he saw the deceased at 9:00 p. m., the deceased had been dead for four to five hours.
Teague testified that the Earnhart brothers became suspects when they told him that no one else had been at the house. Teague also testified that on other occasions he had seen both brothers at the house, but he believed appellant actually lived at the house. Appellant referred to the house as "my house."
When the officers entered the house they found the deceased lying on a bed in the living room. There was blood on the bed, a large puddle of blood under an easy chair in the living room, and blood in various other parts of the room and in other rooms in the house. Teague testified that one of the deceased's eyes was blue and swollen, and there was a hole in the top of his head. According to Adams the house was in "quite a turmoil," and there were beer cans and a gin bottle littering the floor. Both brothers appeared to be drunk; Teague testified that appellant was "drunk crazy, wild," whereas his brother Jim was cooperative.
Both brothers were arrested and taken to jail. Before leaving, appellant, who was wearing only an undershirt, went to a back *447 bedroom to get a shirt. According to Adams appellant picked up a green shirt as if to put it on, then said, "It's got blood on it. I want to get a clean one." When Adams asked appellant if that was his shirt, appellant replied that it was.
The next day officers thoroughly investigated the scene of the crime. They found a .22 rifle stained with blood in a bedroom, six spent .22 cartridges in the living room, and three lead bullets. One of the bullets was lying on the floor of the living room, and the other two were imbedded in a wall, apparently after having been fired through one of the living room doors.
Allen Jones, a Dallas County firearms examiner, testified that two of the bullets were too mutilated to determine whether they had been fired from the rifle found in the house. The other bullet had "major and minor class characteristics" in common with the rifle, but it lacked sufficiently detailed striations to conclusively determine that it had been fired from the weapon. The gun was in operating condition. Jones testified that two of the cartridges had been discharged by the weapon, but he could not tell whether the other four cartridges had.
Sarah Williams, an employee of the Dallas County Criminal Investigation Laboratory, testified that she compared blood samples taken from the Earnhart brothers, the deceased, and the scene of the offense. According to Williams the brothers' blood samples were identical in type, and the deceased's blood type was different from the brothers. Both types were found in the blood sample taken from the barrel of the rifle. Appellant had cut his left thumb badly while shutting off a chain saw the day before the offense occurred; according to Teague the thumb was still bleeding and appellant was holding it when he and Adams arrived at the scene. Appellant's brother had hurt his ribs, but was not bleeding. A blood sample taken from the puddle of blood beneath the easy chair matched the deceased's blood type, as did a blood sample from the green shirt which appellant tried to pick up.
Dr. Vincent DeMayo, a Dallas County medical examiner, testified that the deceased received a gunshot wound from a .22 caliber weapon in the right frontal region of his scalp, and the wound was the cause of the deceased's death. A .22 caliber bullet, too mutilated to be of use for comparison purposes, was removed from the deceased's head. DeMayo stated that the muzzle of the weapon was in contact with the deceased's head when it was discharged, and that the weapon was held at "a shallow angle, pointing downward and backwards." According to DeMayo the wound would have caused the deceased to be paralyzed on the left side, and it was "highly improbable" that he could have moved after being wounded. The deceased's left knee was scraped, and DeMayo testified that the scrape could have been caused by dragging the knee across a hard surface. The alcohol content in the deceased's blood was .289, which DeMayo stated approached the point of alcoholic unconsciousness.
Blood was found, in addition to the living room, in the hall and the bathroom. Grayson County Chief Deputy Sheriff Shelby Bowling testified on the basis of the splashes or "fingers" formed by the blood as it hit the floor, that the trail of blood began in the easy chair, led from there out of the living room, down the hall to the bathroom, and back to the bed in the living room where the deceased was found.
Appellant contends that the evidence adduced does not support the conviction. Summarizing, the deceased died in appellant's house from a gunshot wound caused by a .22 caliber weapon. A .22 caliber rifle found in the house was shown to have been discharged at least twice at the appellant's house. Appellant made a suspicious exculpatory statement immediately upon the arrival of peace officers. The evidence showed that the statement was false, and the statement was inconsistent with a statement previously made by appellant to another officer over the telephone. The latter statement acknowledged that someone had been killed in appellant's house. Appellant evidenced ownership of a *448 shirt which was stained with blood of the same type as the victim's blood. No one besides the Earnhart brothers and the deceased were at the house at the time of the offense. This evidence weighs more strongly against appellant than it does against his brother. See Earnhart v. State, supra. We find that the evidence, viewed in a light most favorable to the State, is sufficient to support the jury's finding of guilt. Compare Easley v. State, 564 S.W.2d 742 (Tex. Cr.App.1978); Indo v. State, 502 S.W.2d 166 (Tex.Cr.App.1973); Baker v. State, 447 S.W.2d 172 (Tex.Cr.App.1969).
Appellant contends that it was error to admit statements made by appellant and his brother after they had been arrested and before they had been informed of their constitutional rights. Specifically, appellant complains of Adams' testimony that when appellant picked up the green shirt he said, "That's got blood on it, I don't want to wear that ... I'd like to get a clean shirt," and the appellant's affirmative response when Adams asked him if it was his shirt. Appellant objected to this testimony; the trial court sustained his objection, and instructed the jury to disregard the testimony. Appellant did not request a mistrial. A hearing outside the presence of the jury was held, and it was established that at the time of the statement appellant had not been advised of his rights in accordance with Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694 (1966).
Subsequently, Adams testified before the jury as follows:
"Q. And after he was placed under arrest, what did you then do?
"A. I accompanied him into the back room, or the southwest bedroom of the house. He wanted to get a shirt.
"Q. What did you observe him do?
"A. He picked up a shirt from a box in the southeast bedroom.
"Q. What did he do with this shirt?
"A. He picked the shirt up to put it on. Then, he said, `It's got blood on it. I want to get a clean one.'
"MR. JOINER: I still object to that statement.
"THE COURT: All right. We will overrule the objection."
It was later elicited, without objection, that when Adams asked appellant whether the shirt was his, appellant replied, "Yes, it was his."
Appellant's statement to the effect that the shirt had blood on it, and he wanted another one, was a voluntary statement, not in response to any inquiry by Adams, and not the product of interrogation. Such voluntary statements are admissible. See Art. 38.22(5), V.A.C.C.P.; Larocca v. State, 479 S.W.2d 669 (Tex.Cr.App.1972); Walker v. State, 470 S.W.2d 669 (Tex.Cr.App.1971). Adams' testimony that appellant picked up the shirt to put it on, and then put on a clean shirt, was also admissible. This evidence clearly showed that the green shirt was appellant's. The admission of appellant's response to Adams' question was harmless error beyond a reasonable doubt. See Wood v. State, 573 S.W.2d 207 (Tex.Cr. App.1978); Hunnicutt v. State, 531 S.W.2d 618 (Tex.Cr.App.1976); Bridger v. State, 503 S.W.2d 801 (Tex.Cr.App.1974). Moreover, appellant waived the error. His objection to Adams' original testimony was sustained, and he did not request a mistrial; Adams' subsequent testimony as to appellant's response was elicited without objection.
Appellant does not point to the admission of any other statements made by appellant or his brother, in violation of Art. 38.22, supra, and we find none in the record. This ground of error is overruled.
Appellant complains of the admission in evidence of the telephone conversation between appellant and Deputy Sheriff Curtis. Appellant objected to the admission of the conversation at trial on the grounds that Curtis could not identify appellant as the speaker, except by the speaker's reference to himself as "John Earnhart." In admitting the contents of a telephone conversation, the identity of the speaker is sufficiently established if the message reveals that the speaker has knowledge of *449 facts that only the speaker would be likely to know. Gleason v. Davis, 155 Tex. 467, 289 S.W.2d 228 (1956). Here appellant told Curtis facts concerning the death of the deceased that only he or his brother would know. Also, identity is established if a call is made to a business office over a line maintained by it for business purposes and the speaker represents that he is the one called, and there is no proof to the contrary. See Gleason v. Davis, supra; Spolane v. Coy, 153 S.W.2d 672 (Tex.Civ.App.1941). Curtis testified that he called the number listed as Earnhart Septic Tank, on Highway 377, north of Pottsboro. See also Woods v. State, 478 S.W.2d 541 (Tex.Cr.App. 1972); Churchill v. State, 167 Tex. Crim. 26, 317 S.W.2d 541 (Tex.Cr.App.1958); Burnett v. State, 162 Tex. Crim. 1, 280 S.W.2d 260 (Tex. Cr.App.1955).
The statement made by appellant to Curtis was hearsay, but was admissible as an admission. Moreover, there was no objection at trial that the conversation was hearsay. No error is shown.
During jury argument the prosecutor made the following comment:
"Ladies and gentlemen, I told you on the first day you came into this courtroom that I was only required to prove that these defendants killed Spurgeon Ledale Elkins by shooting him with a gun. I don't have to tell you why. If I knew why, I would tell you, but I wasn't there. There were only three people there. By John Ray Earnhart's own words, no one else was there but his brother Jim Earnhart and this dead man.
"MR. JOINER: We object to that. That is not a proper argument, not a proper statement. We object to his making a statement like that.
"THE COURT: All right. Ladies and gentlemen, I will overrule the objection with this instruction. The deductions which Counsel make are deductions from the evidence as they remember it. You, of course, will remember the evidence as it was presented. What they say is not evidence."
Appellant contends that the statement constituted a comment on his failure to testify. Appellant's objection was general, and appellant did not notify the trial court of the grounds for his objection. Appellant did not clarify the grounds for his objection after the trial court gave its instruction to the jury, or press for further relief. No error is preserved.
Appellant contends that the prosecutor went outside the record and made a comment on appellant's right to remain silent when he stated that "... aiding a person overtly is no different from one of them saying, `I will tell the story and don't you say a word.'" Appellant objected at trial on the grounds that the statement was outside the record. The objection was sustained, and appellant did not request an instruction to disregard or a mistrial. Appellant's contention is overruled.
Appellant complains of another remark by the prosecutor immediately following the last remark. However, appellant did not object to the remark, and no error is preserved.
After the jury began deliberating they sent a note to the court asking whether it was possible to give each defendant a different sentence. The trial court responded with the following written statement:
"MEMBERS OF THE JURY:
"I have your communication reading as follows:
"`Is it possible to give each defendant a different sentence?"
"In answer thereto, you are instructed that you have been provided with separate charges as to each defendant. You will be governed by the law contained therein and return a separate verdict as to each defendant.
"You will retire to consider your verdict."
Appellant contends that the answer given constituted an additional charge to the jury, and the trial court failed to answer the question in the proper manner. The answer simply referred the jury to the charges they *450 already had before them. A referral to the original charge is not considered an additional instruction. Allaben v. State, 418 S.W.2d 517 (Tex.Cr.App.1967); Pigg v. State, 162 Tex. Crim. 521, 287 S.W.2d 673 (Tex.Cr.App. 1956). The trial court submitted the written answer to the State and appellant for objections before sending it in to the jury. Appellant's counsel expressly waived the reading of the answer in open court. The requirements of Art. 36.27, V.A. C.C.P. regarding communications with the jury were satisfied. See Hardeman v. State, 552 S.W.2d 433 (Tex.Cr.App.1977); Smith v. State, 513 S.W.2d 823 (Tex.Cr.App. 1974). No error is shown.
The judgment is affirmed.
CLINTON, Judge, dissenting.
This circumstantial evidence case was tainted with its trait of weakness from the moment Deputy Sheriffs Don Teague and Troy Adams independently and for different reasons surmised that the Earnhart brothers were culpable.
Teague said that the Earnharts became suspects when "they told me that no one else had been there;" for his part, Adams said they became suspects when it appeared, from the lack of blood in his pickup truck and all the blood inside the house that Elkins had not been hurt before he got to the house. Acting on their respective suspicions the deputies observed the body of the deceasedneither realizing that the deceased had been shotengaged the brothers in conversation and made a limited inspection of the immediate area of the room where the body was found. It was the careful search the following day, along with detailed examination, of the premises which produced the forensic evidence and related testimony of the searching officers and expert witnesses. The facts and circumstances thus derived are summarized in the opinion in this case supplemented by the detailed statement in the case of brother James Earnhart.
From the testimony it seems that all conversation leading up to the Earnhart brothers being told they were under arrest occurred in the same room where the body of the deceased was found and examined. Whenever it appeared that the officers were going to take the brothers to jail and before either one had been given a Miranda warning,[1] appellant expressed to Adams his desire to go to a back room and get a shirt; Adams accompanied him and as appellant picked up a shirt out of a "clothes box" Adams heard him say, "That's got blood on it, I don't want to wear that.[2]" Adams then asked, "Is that yours?" and appellant replied, "Yes" and, further saying he wanted a clean shirt, he obtained one.
Adams was responding to a question asking where else he had observed blood and when his response was given, appellant immediately objected "to all this testimony" stating, "The man was under arrest and has not received any warnings, and we would like the jury not to consider any of this testimony." The trial court sustained that objection, instructed the jury not to consider the last answer "relative to what Mr. Earnhart said" and upon request of appellant instructed Adams just to answer the questions. The State obtained a bench conference after which the trial court excused the jury and asked the State to develop the "time factor" further. After some testimony and dialogue, during which the prosecutor represented, erroneously, as it turned out, that Teague had previously properly warned appellant, the State insisted that statements of appellant were spontaneous, res gestae of the arrest and not an oral confession; whereupon the trial court adjourned court to "take a look at this" and thereafter announced he would overrule the objection but let appellant clearly develop that at the time in question appellant "never had been warned of his rights."
*451 In his second ground of error, appellant complains, inter alia, of admission of his statements in the back or southwest bedroom, pointing to legislative concern reflected by Articles 15.17 and 38.22, V.A.C. C.P. and citing Lopez v. State, 384 S.W.2d 345 (Tex.Cr.App.1964). Conceding the point, still one problem confronting appellant and this Court is that in his final question to Adams on recross examination as to his questioning James Earnhart, appellant got a reply to the effect that Adams did not ask James anything, followed by a non-responsive reiteration that Adams "did ask John Ray if that was his shirt;" whereupon without objectionthe State asked Adams what was appellant's reply to the last question and Adams quoted appellant as saying, "Yes, it was his." Under the circumstances of earlier objections and the hearing and ruling of the trial court outside presence of the jury, Art. 40.09, § 6(d)(3), V.A.C.C.P., obviates renewing an objection in presence of the jury, Price v. State, 460 S.W.2d 420 (Tex.Cr.App.1970).
Admitting the statement of ownership of the shirt was error of constitutional dimension, Smith v. State, 507 S.W.2d 779 (Tex. Cr.App.1974). But the question remains whether error in admitting the statement was harmless beyond a reasonable doubt within the latitude afforded a reviewing court by Harrington v. California, 395 U.S. 250, 89 S. Ct. 1726, 23 L. Ed. 2d 284 (1969) and Chapman v. California, 386 U.S. 18, 87 S. Ct. 824, 17 L. Ed. 2d 705 (1967) that is definitively analyzed in Bridger v. State, 503 S.W.2d 801, 804-805 (Tex.Cr.App.1974). Having thoroughly read the record and summarized its salient features elsewhere or by reference to the opinion in No. 57,138, I am persuaded that evidence of guilt of our appellant in this circumstantial case is only slightly above the level of insufficiency to convict his brother: his blood type on the rifle that was thought to be but, in view of expert testimony that all he could say about the fatal projectile was that it was .22 caliber, was not proved to be, the murder weapon; his seemingly but not necessarily inconsistent reports to peace officers as to arrival and cause of condition of deceased; his occupancy of the house in which a trail of blood spots suggest movement of Elkins from a chair in the living room to the bathroom and back to a bed in the living roomthese factors, along with evidence of blood of deceased on the soiled shirt, appear to be highlights of what the prosecutor told the jury "is a difficult case and I am sure that your decision will be difficult."
In these circumstances, I am not convinced that impact of evidence that appellant admitted ownership of the bloody shirt on the minds of the average jurors would be so slight as to be harmless beyond a reasonable doubt or that the verdict would have been the same had the tainted evidence not been admitted. To the contrary, there is more than a reasonable possibility that the evidence complained of contributed to the conviction; cf. Myre v. State, 545 S.W.2d 820, 827 (Tex.Cr.App.1977); Cunningham v. State, 500 S.W.2d 820, 824 (Tex. Cr.App.1973). See also Gonzales v. State, 581 S.W.2d 690 (Tex.Cr.App.1979). The majority would have it that because appellant picked up the green shirt and, upon observing its condition, cast it aside, his acts "clearly showed that the green shirt" was his. The majority perceives today what the deputy sheriff standing next to appellant that night plainly did not. Adams asking the question, "Is that yours?" belies the hindsight perception of the majority. I agree with Deputy Adams that, given the described condition of the house and its occupants that night, merely because appellant picked up a shirt out of a "clothes box" did not mean that it was his shirt. Just as Deputy Adams felt he had to ask the question in order to learn the fact of ownership, so we should deny him the fruits of the constitutionally impermissible inquiry.
For the violation of constitutional rights, I would reverse and remand.
NOTES
[1] Adams admitted that he did not warn them but thought Teague may have; whereupon the prosecutor expressed a desire to call Teague to show a warning before appellant was moved from the "southeast" room; in his testimony Teague "couldn't say" that either was warned in the house but that he had given the warnings when he "already had them in the car."
[2] According to expert opinion, blood on the shirt was compatible with blood of deceased.
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582 S.W.2d 703 (1979)
STATE of Missouri, Plaintiff-Respondent,
v.
Michael Lee LENZA, Defendant-Appellant.
No. 39114.
Missouri Court of Appeals, Eastern District, Division Two.
April 24, 1979.
Motion for Rehearing and/or Transfer Denied June 15, 1979.
Application to Transfer Denied July 17, 1979.
*704 Donald L. Wolff and Paul J. Passanante, Clayton, for defendant-appellant.
John D. Ashcroft, Atty. Gen., Paul Robert Otto, Jeff W. Schaeperkoetter, Asst. Attys. Gen., Jefferson City, Courtney Goodman, Jr., Pros. Atty., James Hartenbach, Asst. Pros. Atty., Julius D. Cosentino, Clayton, for plaintiff-respondent.
Motion for Rehearing and/or Transfer to Supreme Court Denied June 15, 1979.
*705 STEWART, Judge.
Defendant, Michael Lee Lenza, was convicted of the crime of murder in the second degree as a result of the death of his former wife, Tina Lenza. The jury fixed his punishment at life imprisonment. Defendant appeals from the judgment entered upon the jury verdict. We affirm.
Defendant presents eleven issues for our consideration. We will not consider the points in the order in the brief but will sometimes refer to them as numbered in the brief. We consider first defendant's contention that "The State failed to make a submissible case in that it was not shown that the alleged victim died as a result of the criminal agency of the appellant."
In determining this issue we view the evidence in the light most favorable to the verdict. We accept as true all of the evidence, circumstantial and direct, tending to prove defendant's guilt, together with all favorable inferences that can reasonably be drawn from that evidence and disregard all evidence and inferences to the contrary. State v. Miceli, 549 S.W.2d 113 (Mo.App. 1977).[1]
With these principles in mind we review the facts pertinent to this issue. The facts necessary to the determination to other issues will be related as those issues are discussed.
Tina Lenza died on Friday, December 12, 1975. Her body was found in a bathtub on the second floor of the home of her parents where she was living. The tub was full and Tina's head was under the water face up.
An autopsy revealed a dark red hemorrhage or contusion to the right side of the head in the temporal parietal area; a three inch vertical fracture to the back of the skull in the left occipital area. There were also numerous contusions on the inferior surface of the brain along the base and on the cerebellum. The fracture was most likely caused by the head striking something relatively flat while moving with a fair amount of force rather than something striking the head. The injury was consistent with the head striking a floor or the rounded surface of a bath tub. The injury would be more likely to occur if one were to fall without breaking the fall. There was no evidence that Tina had tried to break a fall. There were no bruises to her elbows, arms or hands. The contusion to the right side of the head resulted from a much less severe force than the force that caused the skull fracture.
The autopsy also revealed edema, fluid and congestion in the lower lobes of the lungs. The tracheal-bronchial tree was partially filled and contained a bloody mucous. It was the opinion of the medical examiner that the primary cause of death was drowning.
The defendant and Tina Lenza had been married and living in Columbia. They had two children, one of early school age and the other eight months of age. They returned to St. Louis prior to April of 1975 after marital problems developed. Household goods and personal items were brought to the home of Tina's parents, Robert and Beverly Wolff, and stored in the basement. Defendant had been forbidden to enter the Wolff home. When he came to pick up the children he waited on the porch. During the summer Tina went through the items that were stored in the basement and set some things belonging to defendant out on the front porch where he picked them up.
A decree dissolving the marriage of Tina and defendant had been entered on November 14, 1975. A stipulation had also been filed. Tina was granted primary custody of the children and defendant was given some temporary custody of the children. The grant of temporary custody did not include Fridays. There was no provision giving him any of the household goods.
On Friday, December 12, Tina had planned to take her step-grandfather, Kenneth Nelson, Christmas shopping. Mrs. Wolff and the Lenza children were going to the Nelson home so that Mrs. Wolff could stay with Mrs. Nelson, her invalid mother, and watch the children while Tina and Mr.
*706 Nelson were shopping. Mr. Nelson spoke with Tina by telephone between 10:30 and 11:00 o'clock A.M. and was advised that Tina was waiting for her mother to return home; that they would "be right down."
Mrs. Wolff had a job interview at 10:00 o'clock that morning. From the job interview she went to the home of a friend and neighbor, Mrs. Gravatt. She arrived there about 10:45 A.M. When Mrs. Wolff noticed it was 11:35 she hurried to leave because she was to pick up Tina and the children and be at the Nelson's around noon. Mrs. Wolff was in a good mood as she backed out of the driveway and headed home. The Wolff home was just a few minutes away. Mrs. Wolff was wearing her leather coat.
About 10:20 A.M. defendant called his employer stating that he was sick and would not report for work. Because of shortage of help the supervisor had one of the other employees call defendant at home to see if he could possibly come to work. Defendant's brother answered and said that defendant was not home. It was payday but defendant did not pick up his check.
Alicia, Tina's sister was living at home. She was leaving for work at 7:45 A.M. when she last saw Tina alive. Tina and Mrs. Wolff were seated at the table in the family room. Tina had thick long black hair which went below her waist. She washed her hair every two or three days. It would take her about two hours to dry her hair using an electric dryer. She had washed her hair the night before and it was done up in a bun on top of her head.
Alicia returned home for lunch at about 11:50 A.M. She parked her car in front of the house and went along side of the house to the rear. As she started up the stairs to the back porch she saw defendant inside the house. He was near the rear door rolling a barrel toward the open door. This barrel was a cardboard or fiber drum about 36" in height and 22" in diameter. It had a steel lid with a rim or ring that locked the lid onto the barrel. Defendant rolled the barrel out the door. When he saw Alicia he said "Hi". He struggled in lifting the barrel as if it was heavy. He then came down the steps carrying the barrel. He lost his balance but held onto the barrel and regained his balance. As he got to the bottom of the stairs Alicia went up the stairs and into the house. She went through the house looking for someone. When she got into the living room at the stairway leading to the second floor she heard the shower running. She went to the bathroom on the second floor. The bathroom door was standing open, the shower door was closed and the shower was running. She called for Tina and when there was no response she opened the shower door and saw her sister, apparently dead. Tina was nude, her hair was down covering her face, which was facing upward under the water. It was later learned that Tina was wearing earrings and had a ring on her hand. Alicia turned the water off and noticed that it was cool. She then closed the shower door and ran to a next door neighbor for help. As she was returning with the neighbor she saw defendant get into his van that was parked in the alley. The alley has only one exit and the van was faced toward the exit.
Tina's body was removed by firemen who made attempts at resuscitation. The tub was then one-half to three-quarters full of water. A wash cloth had been forced into the drain. The water was clear and the soap dish was dry.
A search of the house revealed that the glass panel in the rear door nearest the knob and lock had been broken out. The glass was found in a trash bag. The baby was asleep in the dining room in a porta-crib with the sides down. His fresh clothing was laid out on the table in the family room. The baby's diaper bag was on the couch in the living room. The leather coat that Mrs. Wolff had been wearing when she left Mrs. Gravatt was also on the couch. The light next to the chair in the family room and the television set were on and Tina's knitting was on a table next to the chair. Tina's glasses were found on the floor under the television set. A key to the apartment the Lenza's had occupied in Columbia, Missouri was also found on the floor of the family room.
*707 The clothes Tina had been wearing in the early morning were found on the bed in her bedroom on the second floor. Her shoes, socks and underwear were found on the bathroom floor. There were some clean clothes on the hamper in the bathroom.
A search of the basement revealed that fruit jars that had been stored in the barrel that defendant carried out were stacked in the basement. None of the household goods stored in the basement had been disturbed nor were any other objects missing from the Wolff household.
The defendant was arrested in Columbia, Missouri.
Neither Mrs. Wolff nor the barrel have been seen since the date of Tina's death.
Defendant did not take the stand in his own behalf.
Where, as here, there are no eye witnesses and the State must rely on circumstantial evidence, the facts and circumstances must be consistent with each other and with the hypothesis of defendant's guilt. They must also be inconsistent with and exclude every reasonable hypotheses of his innocence. The circumstances do not have to be absolutely conclusive of guilt nor do they have to demonstrate the impossibility of innocence. The existence of other possible hypothesis is not sufficient to remove the case from the jury. State v. Miceli, 549 S.W.2d 113 (Mo.App.1977).
Defendant, relying primarily on State v. Lane, 497 S.W.2d 207 (Mo.App.1973), argues that his presence "at the scene of the crime and that he possessed the opportunity to commit the crime is not circumstantial evidence sufficient to justify a conviction."
Contrary to defendant's argument we find that there was sufficient circumstantial evidence to require submission of the case to the jury. We agree that mere presence at the scene is not ordinarily sufficient circumstantial evidence to warrant submission. State v. Lane, supra. However, in this case, defendant was present inside the Wolff home, a place that was forbidden to him. The marriage of the parties had just been dissolved; the settlement left him with none of the possessions acquired during the marriage. There is evidence from which the jury could find that there was ill feeling toward the victim. The fact that the glass was broken from the door tends to show a violent and unwelcome entry. Defendant, who was not ill, advised his employer that he was sick, indicates some purpose in going to the victim's house. The circumstances surrounding the victim's death indicate a violent death that was not self-inflicted. The side of her head showed signs of having been struck by a blow to the head. Her glasses were found on the floor under the television set, a place where they would not be expected to have been placed voluntarily. She had a fracture to the back of the skull and showed no sign of attempting to break a fall indicating a force other than an accidental fall.
Tina was expected to leave the house upon the arrival of her mother. The baby's clothes were set aside preparatory to dressing him at the last minute. His diaper bag was placed on the couch where it could be taken on the way out indicating that Tina planned a hurried exit on the arrival of her mother. She would not have left the sides of the baby's crib down while showering.
The jury could find that she did not get into the tub of her own volition. Her hair was down, she had washed it the day before and it required two hours to dry. Considering her plans for the day it is highly unlikely she would wet her hair. Her finger nails were freshly painted and she was wearing earrings, neither consistent with taking a shower. The jury was warranted in finding that the wash cloth was stuffed in the drain to prevent water from escaping and the shower was running. It is not likely that one would stop the drain while taking a shower. The bathroom door was standing open, an unlikely circumstance for a person occupying a bathroom.
When defendant was seen leaving the house he was rolling the barrel. He then lifted it with some difficulty and struggled with it as he negotiated the stairs. There was obviously something of considerable *708 weight in the barrel. Aside from the barrel no personal items were missing from the Wolff home. There is evidence that Mrs. Wolff had entered the house 10 to 15 minutes before defendant was seen leaving with the barrel. Her car was parked at the house and the coat she had been wearing when last seen was found on the couch in the living room. The jury could find that the burden in the barrel was Mrs. Wolff. Considering the above facts with the fact that defendant fled to Columbia, Missouri, there was sufficient evidence from which a jury could find that Tina Lenza was killed by drowning by the criminal agency of defendant. See State v. Lusk, 452 S.W.2d 219, 222 (Mo.1970).
Defendant asserts that the court erred in giving instruction Number 7, murder in the second degree, MAI-CR 6.06 and instruction Number 9, manslaughter, MAI-CR 6.08 for the reason that the evidence did not support the submission of these instructions. As we understand defendant's point, this contention has been effectively answered under the first issue just discussed.
If it is defendant's contention by this point that the court erred in "instructing down" after giving an instruction on murder in the first degree the issue has been answered by State v. King, 577 S.W.2d 621 (Mo.1979) and requires no further discussion.
Defendant contends that it was error to admit evidence of the disappearance of Beverly Wolff because it constitutes evidence of a crime other than the crime with which he was charged. Defendant cites State v. Shilkett, 356 Mo. 1081, 204 S.W.2d 920, 923 (1947) for the proposition that, "Evidence of other crimes, when not properly related to the cause on trial, violates defendant's right to be tried for the offense for which he is indicted." In Shilkett the defendant shot the victim under circumstances that were susceptible of innocent explanation of accident. The court held that it was not error to admit evidence of the belligerency of defendant and of his use of the gun on two occasions earlier in the day at places other than the place where the victim was killed. The court recognized the exception to the general rule "where the evidence of such other crimes tends to establish the absence of mistake or accident." Id. 204 S.W.2d 923. In the case at bar, as in Shilkett, it was urged by defendant in the trial court that Tina's death was accidental. The fact that defendant came out of the house heavily laden with the barrel along with the further facts that when last seen Mrs. Wolff was headed home at a time that would coincide with defendant's presence in the house, her leather coat was found on the couch, her car was parked in front of the house and that she was not seen again would tend to show that the appearance of accident was contrived and that Mrs. Wolff's disappearance would prevent discovery of the true facts.
From what we have said above the evidence was also admissible as part of a continuous occurrence intimately connected with the crime for which defendant was being tried. State v. Garner, 530 S.W.2d 420, 423 (Mo.App.1975).
Defendant next challenges the information in lieu of indictment upon which the case went to trial. The information in question was filed before our Supreme Court had ruled State v. Duren, 547 S.W.2d 476 (Mo.1977). The case was tried thereafter. Before the trial began the court announced that in view of recent opinions the defendant, if found guilty as charged, would be assessed punishment in accordance with § 559.011. He referred to the charge as murder in the first degree.
The information upon which the case was tried states facts which bring it within the provisions of § 559.005, capital murder.[2] By *709 § 559.009 capital murder is punishable by death. The Supreme Court in State v. Duren, supra held that §§ 559.005 and 559.009 were unconstitutional. It also held that an indictment or information charging capital murder was viable under § 559.011 as charging murder in the first degree and that the crime was punishable as murder in the first degree, life imprisonment, except that a person convicted under the statute would not be eligible for probation or parole for fifty years.[3] The statement of the trial court did not change the form or content of the information, it merely recognized the legal effect of Duren. See also State v. Thomas, 579 S.W.2d 145 (Mo.App.1979).
Defendant next complains that the court erred in permitting the State "to voir dire the jury panel on the issue of their ability to assess punishment for murder in the first degree at life imprisonment without probation or parole for fifty years for the reason that it was not a matter with which the jury would be concerned in deciding the case." (emphasis added)
This issue was not presented to the trial court in the motion for new trial. The only reason given in the motion for new trial was that the comment of the State was inconsistent with Instruction No. 5. The issue now presented to us has not been preserved to our review. State v. Blankenship, 536 S.W.2d 520 (Mo.App.1976).
The next point relied on reads:
"The trial court committed prejudicial and reversible error in overruling appellant's motion to suppress evidence relating to the search of his premises at 1015 Rayburn and allowing, over appellant's objection, evidence obtained pursuant to that search to be admitted into evidence and considered by the jury."
This point fails to tell us wherein and why it is claimed the motion to suppress should have been sustained, what evidence was admitted and wherein and why it was error to admit that evidence. The point does not comply with Rule 84.04(d) and will not be considered. Thummel v. King, 570 S.W.2d 679, 685 (Mo.1978).
Defendant complains of the admission of testimony of Officers Higgins and Wren. The officers testified that a surveillance was placed on defendant's home after they learned of Tina's death and the disappearance of Mrs. Wolff. They observed defendant's brother, Douglas, go to the house and remove a large amount of clothing. They followed Douglas to a shopping center where he bought flashlights and a safety razor. They continued to follow Douglas until he appeared to sense that he was being followed. He took evasive action and eluded the officers.
We question whether defendant has preserved anything for review for the reason that the testimony of Officer Wren was received without objection and only a general objection was made to the testimony of Higgins. Defendant attacks the relevancy of the above evidence. A fact which tends to prove or disprove a fact in issue or to corroborate relevant evidence that bears on the principal issue is relevant. The question of relevancy is a matter to be determined by the trial court and if there is doubt concerning relevance the evidence should be admitted for evaluation by the trier of the facts. State v. Sanderson, 528 S.W.2d 527, 531 (Mo.App.1975).
Under the circumstances of this case the evidence was relevant because it had a tendency to show that defendant was attempting to elude the police. He did not go to his place of employment for his pay check. He also advised his employer that he was unable to work because of illness. He did not return to his living quarters, rather his brother was seen going into the *710 house where defendant lived and obtained clothing from that house. Defendant was later found in Columbia, Missouri. Flight or concealment and the facts and circumstances surrounding are relevant and admissible to show consciousness of guilt. See State v. Cochran, 366 S.W.2d 360, 362 (Mo. 1963). The trial court properly admitted the evidence of Officers Higgins and Wren.
We do not consider points numbered V, VI and VII in defendant's brief. Points VI and V complain of testimony of Mr. Nelson and Mrs. Gravatt respectively as being "irrelevant, immaterial and incompetent." These are not the same as the hearsay objections presented to the trial court in the motion for new trial. An appellant may not on appeal change or broaden the assertions of error as presented to the trial court. State v. Gilbert, 544 S.W.2d 595, 598 (Mo.App.1976). Further these points constitute mere general objections and are not sufficient to preserve alleged error for review. State v. Morrow, 541 S.W.2d 738, 741 (Mo.App.1976).
In point VII defendant complains of the admission of the testimony of Sgt. Langford concerning tests made with respect to drainage of the water in the tub because the evidence was "irrelevant, immaterial and incompetent." This is not the grounds stated in the motion for new trial and will not be reviewed for the same reason stated above. State v. Blankenship, supra. This point is also defective under Morrow, supra.
The defendant complains that the trial court erred in giving instruction Number 12 with respect to circumstantial evidence and in refusing instruction A offered by defendant on the same subject.
Instruction Number 12 given by the court is MAI-CR 3.42 which reads:
"Circumstantial evidence is the proof of facts or circumstances that give rise to a reasonable inference of other facts that tend to show the guilt or innocence of the defendant. Circumstantial evidence should be considered by you, together with all the other evidence in the case in arriving at your verdict.
"You should not find the defendant guilty unless the facts and circumstances proved are consistent with each other and the guilt of the defendant, and inconsistent with any reasonable theory of his innocence."
Instruction A offered by defendant is MAI-CR 3.42 modified. The modification is found in the second paragraph of MAI-CR 3.42. With emphasis added to the additions made to the approved instruction, the paragraph reads as follows:
"You should not find the defendant guilty unless the facts and circumstances proved are consistent with each other and with the hypothesis that the defendant is guilty, and inconsistent with any theory of his innocence and with every reasonable hypothesis except his guilt."
It is contended that MAI-CR 3.42 is a misstatement of the law which is correctly stated in defendant's offered instruction A. Defendant relies on State v. Oliver, 520 S.W.2d 99 (Mo.App.1975). Oliver was tried before the effective date of MAI-CR and is not applicable. Defendant presents an intriguing argument on the issue, however, it is not the prerogative of this court or of the trial court to make the determination sought by defendant. Rule 20.02(c) provides:
"Whenever there is an MAI-CR instruction or verdict form applicable under the law to the facts, the MAI-CR instruction or verdict form shall be given or used to the exclusion of any other on the same subject."
The failure to give the MAI-CR instruction applicable to the case constitutes error on the part of the trial court. Rule 20.02(e), State v. Dodson, 556 S.W.2d 938, 951 (Mo.App.1977). The trial court was required to give instruction Number 12 to the exclusion of instruction A and we may not convict the trial court of error in giving an instruction that it is required to give.
We have carefully reviewed the transcript of the trial and of the motion to suppress and the record as required by Rule 28.02 and find no prejudicial error.
*711 The judgment of the trial court is affirmed.
STEPHAN, P. J., and KELLY, J., concur.
NOTES
[1] We have not been furnished with any of the exhibits.
[2] "MICHAEL LEE LENZA on the 12th day of December, 1975 did wilfully, unlawfully and feloniously, knowingly, deliberately, premeditatedly and of his malice aforethought, make an assault upon one Tina Lenza, the said Michael Lee Lenza then and there unlawfully, wilfully, feloniously, knowingly, deliberately, premeditatedly and of his malice aforethought and with the intent to take the life of Tina Lenza, did drown the body of Tina Lenza thereby inflicting mortal injury from which Tina Lenza did die on December 12, 1975."
[3] "If the category of capital murder or the penalty prescribed herein is declared to be unconstitutional by the Missouri supreme court or the United States Supreme Court, all killings which would be capital murder under any of the circumstances specified in section [559.005] shall be deemed to be murder in the first degree and the offender shall be punished accordingly, except that he shall not be eligible for probation or parole until he has served a minimum of fifty years of his sentence."
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38 N.J. 156 (1962)
183 A.2d 74
WILLIAM F. McANDREW, INDIVIDUALLY AND AS GUARDIAN AD LITEM OF ROBERT McANDREW, AN INFANT, AND FRANCES McANDREW, PLAINTIFFS-APPELLANTS,
v.
ANDREW MULARCHUK, ET AL., DEFENDANTS, AND BOROUGH OF KEANSBURG, A MUNICIPALITY, DEFENDANT-RESPONDENT.
The Supreme Court of New Jersey.
Argued March 5, 1962.
Decided July 2, 1962.
*158 Mr. Prospero DeBona argued the cause for plaintiffs-appellants (Messrs. Milton and Keane, attorneys; Mr. DeBona, of counsel).
Mr. James L. Melhuish argued the cause for defendant-respondent (Messrs. Doyle, Galvin, French & Melhuish, attorneys; Mr. Melhuish, of counsel).
The opinion of the court was delivered by SCHETTINO, J.
This appeal is from an order of the trial court granting a motion striking compensatory damages as an issue in a new trial which was directed by our former opinion in this cause. 33 N.J. 172 (1960). Defendant's motion was based upon the theory that at the original trial the jury had ascertained by its verdict the amount of compensatory damages regardless of who caused the injury and that plaintiffs, having once tried this issue, could not retry it before another jury.
A short summary of the litigation leading up to this appeal is as follows. Robert McAndrew, an infant, was wounded by a bullet fired by defendant Mularchuk, a reserve police officer of the defendant Borough of Keansburg. His father, plaintiff William F. McAndrew, as guardian ad litem, brought an action against both the policeman and the municipality for personal injuries to Robert. Mr. McAndrew and his wife, plaintiff Frances McAndrew, sought consequential damages as parents of Robert.
Evidence was submitted at the trial from which it could be inferred that the wounding resulted either from a shot *159 fired directly at the fleeing Robert McAndrew or from one aimed at the ground which ricocheted. Defendant municipality moved for an involuntary dismissal at the end of plaintiffs' case and the trial court reserved decision. At the end of the entire case, the trial court dismissed the action against Keansburg.
The jury returned a verdict against Mularchuk, assessing compensatory damages of $1,500 to Robert, $1,500 to his parents, and punitive damages of $5,000 to Robert.
Among the defendants was Shirley Siegel doing business as the Club Miami. She was sued in the capacity of employer of Mularchuk. A verdict of no cause of action was returned in favor of Shirley Siegel and plaintiffs did not appeal from that portion of the judgment.
On appeal of the dismissal as to Keansburg, the Appellate Division reversed. 56 N.J. Super. 219 (1959). We affirmed the Appellate Division, holding that the proof might sustain the municipality's liability on two theories (33 N.J., at p. 196): the first, "active wrongdoing in authorizing Mularchuk, when on duty, to carry a revolver without any training or adequate training in its handling and use"; or the second, "under the doctrine of respondeat superior for the negligent act of commission of Mularchuk, or his wrongful intentional act in shooting McAndrew, committed during the course and scope of his police duty."
Prior to the new trial, Keansburg moved as stated above and when the trial court granted the motion, plaintiffs moved before the Appellate Division for leave to appeal the interlocutory determination. The motion was denied. When plaintiffs moved similarly before us, we granted the motion. R.R. 1:2-3.
Plaintiffs contend that to bind them on the issue of compensatory damages is to ignore the rule requiring mutuality of estoppel, citing Miller v. Stieglitz, 113 N.J.L. 40, 44-45 (E. & A. 1934). As we understand the authorities, the rule is that an estoppel by judgment is mutual if both litigants are concluded by the judgment otherwise it *160 binds neither. Expressed in another form the estoppel effect of the judgment operates mutually if the person taking advantage of the judgment would have been bound by it had it gone the other way. But it has also been stated that there is "an established and clear exception to the rule to the effect that `If the defendant's responsibility is necessarily dependent upon the culpability of another, who was the immediate actor and who, in an action against him by the same plaintiff for the same act, has been adjudged not culpable, the defendant may have the benefit of that judgment as an estoppel even though he would not have been bound by it had it been the other way.'" Coca-Cola Co. v. Pepsi-Cola Co., 6 W.W. Harr. 124, 36 Del. 124, 172 A. 260, 261-262 (Super. Ct. 1945). See also Note, "Developments In The Law Res Judicata," 65 Harv. L. Rev. 818, 862, 863, 864 (1952).
We first consider the general nature of a verdict assessing compensatory damages. Theoretically, compensatory damages involve the quantum of hurt to a plaintiff resulting from an injury regardless of who caused the injury from which the damages spring. As stated in Betcher v. McChesney, 255 Pa. 394, 100 A. 124, 125-126 (Sup. Ct. 1917):
"* * * It was a single injury that was suffered, a single tort that caused it, and a single compensation that was claimed. Every * * * element that entered into the admeasurement of the damages in order to determine the compensation, * * * [was] * * * adjudicated in the action * * * brought by the plaintiff against the defendant's servant."
Here, one act alone the shooting by Mularchuk caused the injury. True, this act may have stemmed from a breach of duty on the part of Mularchuk or from a breach of different duties by Keansburg combined with Mularchuk's negligence or active wrong-doing in shooting Robert McAndrew. But only one set of injuries resulted from the shooting and the liability of Keansburg, even if it is *161 guilty of concurrent fault, ultimately does depend upon the conduct of Mularchuk. Vaniewsky v. Demarest Brothers Co., 106 N.J.L. 34 (Sup. Ct. 1929), affirmed on opinion below, 107 N.J.L. 389 (E. & A. 1931).
We must assume that in the former trial plaintiffs completely tried the issue of compensation. All parties submitted their proofs in full. Compare Pinnix v. Griffin, 221 N.C. 348, 20 S.E.2d 366 (Sup. Ct. 1942); Annot., 141 A.L.R. 1168 (1942). The jury determined that plaintiffs suffered to the extent of $3,000 in compensatory damages and plaintiffs did not attack the sufficiency of the verdict. Generally the question to be decided is whether a party has had his day in court on an issue, rather than whether he has had his day in court on that issue against a particular litigant. Note, "Developments In The Law Res Judicata," 65 Harv. L. Rev. supra, at pp. 857, 862 (1952). Cf. Harding v. Carr, 79 R.I. 32, 83 A.2d 79, 82 (Sup. Ct. 1951); Cantrell v. Burnett & Henderson Co., 187 Tenn. 552, 216 S.W.2d 307, 310 (Sup. Ct. 1948); Coca-Cola Co. v. Pepsi-Cola Co., supra.
For these reasons, Keansburg correctly contends that plaintiffs are bound by the verdict they obtained against Mularchuk. But, Keansburg, of course, may not rely upon only a part of that verdict. If it chooses to accept the verdict, it must accept it in its entirety. Hence, Keansburg, upon such reliance, could not contend that (1) the damages in fact were less than the amount of the verdict; (2) Mularchuk was not guilty of wrongful conduct; (3) Robert McAndrew was guilty of contributory fault, or (4) Mularchuk was acting as the servant of Shirley Siegel (Club Miami) in whose favor that issue was decided by the same verdict. Cf. Kelley v. Curtiss, 16 N.J. 265 (1954); Salitan v. Magnus, 62 N.J. Super. 323 (App. Div. 1960), certif-denied 33 N.J. 388 (1960); Note, "Developments In The Law Res Judicata," 65 Harv. L. Rev. supra, at pp. 862, 863, 864.
*162 Thus, in view of Keansburg's election, the issues it may contest are (1) whether Mularchuk was an employee of Keansburg at the time of the incident and was acting within the scope of his employment when he shot Robert McAndrew, and (2) whether Keansburg was guilty of active wrongdoing in authorizing Mularchuk to carry a gun without any or adequate training in its handling and use, which proximately contributed to the injury. If a jury finds in favor of plaintiffs on either issue, a verdict must be returned for plaintiffs in the amount of $3,000.
Affirmed, costs to abide the outcome of the retrial.
JACOBS, J., concurs in result.
For affirmance Chief Justice WEINTRAUB, and Justices JACOBS, FRANCIS, PROCTOR, HALL, SCHETTINO and HANEMAN 7.
For reversal None.
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IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-92-158-CR
ALTO NAUERT, JR.,
APPELLANT
vs.
THE STATE OF TEXAS,
APPELLEE
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 299TH JUDICIAL DISTRICT
NO. 0915060, HONORABLE TOM BLACKWELL, JUDGE
PER CURIAM
A jury found appellant guilty of aggravated sexual assault. Tex. Penal Code Ann.
§ 22.021 (West 1989). The district court assessed punishment, enhanced by previous felony
convictions, at imprisonment for forty years. There is no dispute as to the sufficiency of the
evidence, which shows that appellant sexually assaulted an eight-year-old girl.
In his first point of error, appellant contends the court should have granted his
motion for mistrial made after improper jury argument by the prosecutor. The incident occurred
during the State's opening argument, as the prosecutor sought to convince the jury of the
complainant's credibility.
The defendant's attorney will have you believe that she's making it up
because that's what you're left with. . . . That's amazing. But that's the
alternative theory to believing that he did it because not only has she convinced
herself, she's convinced a counselor who specializes in treating sexually abused
kids. She's convinced the Travis County Sheriff's Office. She's convinced us.
She's convinced --
At this point, appellant objected to "the prosecutor's version about his own belief about the guilt
or innocence of the accused." The objection was sustained and the court instructed the jury to
"disregard the last comment that the prosecutor previously made."
It was error to argue that the jury should believe the complaining witness because
the prosecutors and investigators believed her. Gardner v. State, 730 S.W.2d 675, 698 (Tex.
Crim. App. 1997). But the argument, like the similar argument in Gardner, was not so
inflammatory as to be incurable. We hold that the district court's prompt instruction to disregard
cured the error. The first point of error is overruled.
Appellant's second point of error complains of the court's refusal to admit in
evidence an admission by the complainant's father that he had sexually assaulted her. Appellant
contends this evidence was relevant to the defensive theory that appellant had been wrongly
accused of an act committed by someone else. The bill of exception reflects that appellant and
the child's father were both incarcerated in the county jail several years before the incident giving
rise to this prosecution. According to the bill, appellant would have testified that "he [the father]
was in there for sexual assault . . . and he said he assaulted her, you know." From the context,
it appears that the "her" referred to is the complainant. The State's hearsay objection to this
testimony was sustained.
Appellant argues that the father's hearsay statement was a statement against social
interest, that is, a "statement which . . . so far tended . . . to make him an object of hatred,
ridicule, or disgrace, that a reasonable man in his position would not have made the statement
unless he believed it to be true." Tex. R. Crim. Evid. 803(24). The State responds that the
proffered evidence was a statement against penal interest and properly excluded in the absence of
corroborating circumstances clearly indicating its trustworthiness. Id.
Rule 803(24) is significantly more liberal in the admission of statements against
penal interest than was prior law. See Ramirez v. State, 543 S.W.2d 631 (Tex. Crim. App.
1976). Like prior law, however, the rule requires that a statement against penal interest be
corroborated to guard against fabrication and to insure its trustworthiness. Significantly,
corroborating circumstances are not required for the admission of a statement against the
declarant's pecuniary, proprietary, or social interest.
The State notes that, by its nature, a statement against penal interest is also a
statement against social interest. By saying "I sexually assaulted my daughter," the declarant both
exposes himself to criminal liability and makes himself an object of ridicule and disgrace. While
the same might not be said of a statement admitting the commission of some minor criminal
offense, it is certainly true of any statement admitting a felony or crime of moral turpitude. The
State argues that to be admissible, such a statement must be considered a statement against penal
interest and, therefore, be corroborated. Otherwise, argues the State, the corroboration
requirement will become a dead letter for any but the most minor criminal offenses.
We find the State's point to be well-taken. To be admissible under rule 803(24),
a statement against penal interest must meet a higher test for trustworthiness than is applied to
other statements against interest. The policy expressed by the rule would be defeated if the
corroboration requirement could be avoided by the simple expedient of labelling the statement one
against social interest. We hold that a statement against penal interest must be corroborated by
other circumstances to be admissible under rule 803(24), even though the statement might also be
considered one against the declarant's social interest.
Because there were no circumstances clearly indicating the trustworthiness of the
proffered statement against penal interest, the district court did not err by excluding it from
evidence. Point of error two is overruled.
The judgment of conviction is affirmed.
[Before Chief Justice Carroll, Justices Jones and Kidd]
Affirmed
Filed: September 23, 1992
[Publish]
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582 S.W.2d 354 (1979)
Sheila RODRIGUEZ, Appellant,
v.
CIVIL SERVICE COMMISSION, Respondent.
No. 40532.
Missouri Court of Appeals, Eastern District, Division 3.
May 15, 1979.
*355 John R. Igoe, Leonard P. Cervantes, St. Louis, for appellant.
Joseph R. Niemann, St. Louis, for respondent.
CRIST, Judge.
This appeal involves the dismissal of an employee of the City of St. Louis. The employee-appellant sought review of her discharge by the Civil Service Commission which upheld her dismissal because she was "unwilling or unable to perform" her work. The circuit court sustained the decision of the Civil Service Commission and this appeal followed. We affirm.
On January 18, 1975, while working in a typist-clerk position for the Community Development Agency, appellant sustained a work-related knee injury compensable under the Missouri Workmen's Compensation laws. For a period directly after her injury, appellant attended work irregularly until she used all but eight hours of her vacation time to receive pay for her absences. Thereafter, from March 3, 1975 to March 31, 1975, appellant was away from work without pay on a leave of absence. Appellant worked from March 31, 1975 to May 19, 1975 at which time she was again granted a leave of absence without pay until November 17, 1975 to enable her to have an operation on her knee.
On November 17, 1975, appellant's physician granted her a release and she returned to work. However, on the next day she left work early to take her son to an emergency dental appointment. At that time, her knee caused her so much pain that she did not return to work for the rest of the week. On November 24, 1975, the following Monday, appellant attempted to return to work but while enroute, suffered injury in an automobile accident. Thereafter, she was again under doctor supervision.
In December, 1975, upon the request of the Director of the Community Development Agency, appellant submitted two doctor's statements which recommended that appellant not return to work "for an undetermined time" and that she was not "sufficiently recovered." On January 12, 1976, the Director of the Community Development Agency terminated appellant's employment.
In April of 1975, appellant had filed a Workmen's Compensation claim for her knee injury. On October 5, 1976, a settlement was reached. The city paid the appellant temporary total disability for forty weeks as well as medical bills totaling $1,540.20 and a lump sum award of $5,800.00.
On appeal, appellant claims the trial court erred in affirming the discharge decision of the Civil Service Commission because the decision "denied appellant the free exercise of her rights under the Workmen's Compensation Statutes of the State of Missouri." The rights which appellant claims she is unable to "freely exercise" are those under § 287.190, RSMo Supp.1975 which guarantee her compensation for a maximum of forty weeks for a "healing period." Appellant argues that because the agency dismissed her before the forty week healing period had run, that she was discriminatorily discharged for exercising her rights under the Workmen's Compensation laws in violation of § 287.780, RSMo Supp. 1975. In essence, appellant maintains that § 287.190 creates in employees an absolute right to retain their jobs for forty weeks after a work-related injury so long as they are unable to return to work.
We find no merit in appellant's contention, Section 287.190 provides, in part:
In addition to the compensation in this section provided for all permanent partial disabilities, whether scheduled or unscheduled, the employer shall pay to the employee for a healing period, a period of not to exceed forty weeks of that compensation allowed for temporary total disability under Section 287.170. The healing period shall end at any time within *356 the forty weeks that the employee is able to return to and remain in any employment. The total healing period allowed for all injuries arising out of one accident shall be no more than forty weeks.
It does not attempt to guarantee injured employees jobs. Rather, the purpose of the section is to provide monetary compensation to an employee for a work-related injury. The only duty of an employer dictated under § 287.190 is a duty to compensate for the maximum of forty weeks, a duty which can terminate if, during the forty week period, "the employee is able to return to and remain in any employment." The use of the words "any employment" clearly demonstrates the legislature contemplated that an injured employee might resume working at some place other than the place injured, a possibility which could occur only if: (1) the employee quit; or (2) the employer discharged the employee. The latter occurred here.
Section 287.780 provides:
No employer or agent shall discharge or in any way discriminate against any employee for exercising any of his rights under this chapter. Any employee who has been discharged or discriminated against shall have a civil action for damages against his employer.
Under this statute a cause of action lies "only if an employee is discharged discriminatorily by reason of exercising his or her rights under the Workmen's Compensation Law." Mitchell v. St. Louis County, 575 S.W.2d 813, 815 (Mo.App.1978). Here, the appellant was not discharged for exercising her rights under § 287.190 in collecting pay during the healing period, but rather because she was "unwilling or unable" to work.
As such this case is indistinguishable from Mitchell in which appellant claimed because she was absent from work due to a work-related injury and then fired because of her inability to work, she had a cause of action under § 287.780. This court found that discrimination, the critical element of proof under § 287.780, was missing. In Mitchell, we held that the mere filing of a claim and subsequent discharge for absenteeism due to a work-related injury created no cause of action under § 287.780.
Here we have a very similar situation. The record is destitute of any evidence of a discriminatory discharge. As we explained earlier, the appellant's discharge during the forty week healing period is irrelevant to the issue of discrimination. The Community Development Agency legitimately discharged appellant for her inability and unwillingness to work which manifested itself in excessive absenteeism.
Judgment affirmed.
REINHARD, P. J., and GUNN, J., concur.
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83 A.2d 130 (1951)
STRATER
v.
STRATER.
Supreme Judicial Court of Maine.
August 24, 1951.
George Varney, Portsmouth, N. H., for plaintiff.
Philip G. Willard, Portland, for defendant.
*131 Before MURCHIE, C. J., and THAXTER, FELLOWS, MERRILL, NULTY and WILLIAMSON, JJ.
NULTY, Justice.
This case comes before us on appeal by the defendant from a decree of the sitting justice of the Superior Court in equity for York County. It appears from the record that the defendant, for cruel and abusive treatment because of the fault of the plaintiff, was granted a divorce at the January Term 1942 in the County of York. The record further shows that after long and protracted negotiations, participated in by themselves and their attorneys, the parties entered into an agreement with respect to the contents of the divorce decree concerning their property affairs. This agreement contained the following language: "It is hereby stipulated and agreed, by and between the parties, that the following may be incorporated in the Court's decree relative to all finances." Although the stipulation was in no way binding upon the court, the court adopted it by including in the decree of divorce the following provision: "It is further ordered and decreed that alimony and all property adjustments between the parties shall be in accordance with stipulations filed with the Clerk of Courts, which hereby are made and become part of this decree; * * *." (Italics ours.) By this order the rights of the parties were settled in accordance with the terms of the stipulation. They were settled, however, by the order which adopted the stipulation, not by the stipulation itself. The agreement did not even purport to settle the property affairs of the parties, but contemplated action by the court for that purpose, and gave the consent of the parties that such action by the court might be in accordance with its terms. Some time later the plaintiff became aware that the defendant maintained and claimed that she had certain rights by descent in and to the real estate owned by the plaintiff at the time of the divorce and soon found that he would not be able to convey the real estate because the defendant would not sign the deeds and, in addition, notified prospective purchasers through her attorney of her alleged claims to said real estate. Being unable to dispose of his real estate, the plaintiff instituted the instant bill in equity seeking to have the equity court order the defendant to sign a quit-claim deed releasing any claim or interest to the real estate which the plaintiff owned at the date of the de cree of divorce. Answer was filed by the defendant which in substance denied that the memorandum of agreement or stipulations subsequently incorporated into the divorce decree provided a complete settlement of the property rights to the exclusion of the defendant's statutory rights provided for in Section 9, Chapter 73, Revised Statutes 1930, now Section 62, Chapter 153, Revised Statutes 1944. In short, the defendant denies that the decree of the Court incorporating the memorandum of agreement was intended as a full and final settlement of the property affairs of the parties in so far as the real estate of the plaintiff was concerned.
The matter came on for hearing on bill, answer and proof, both oral and documentary. The sitting justice, after hearing, made certain findings and a decree was entered directing the defendant to release by appropriate deed or conveyance all her right, title and interest in and to any real estate owned by the plaintiff with one exception not pertinent to the decision of this case as of the date of said divorce decree.
We have repeatedly held, and citation of authority is almost unnecessary, that under the law of our State an equity appeal is heard anew on the record and that findings of fact by the sitting justice will be conclusive unless clearly wrong and the burden is on the appellant to prove it. Tarbell v. Cook, Me., 75 A.2d 800. There is credible evidence in the record from which the sitting justice could find that the plaintiff and defendant intended and hoped that the agreement between them exhausted property relations between them and this finding is fortified by the decree of the court below when it ordered that "all property adjustments shall be in accordance with stipulations filed with the Clerk of *132 Courts." In fact, it appears that the decree of divorce was predicated upon the stipulations between the plaintiff and the defendant. The terms of these stipulations became the terms of the decree of divorce so that thereafter the obligations of the parties as defined in the stipulations would be imposed upon them by the decree of divorce.
The defendant now, however, claims by her answer that because the decree and its provisions made no provision as a matter of law for obviating the provisions of what was then R.S.1930, Chapter 73, Section 9, the pertinent part of which read as follows: "* * * When a divorce is decreed to the wife for the fault of the husband for any other cause (than impotence), she shall be entitled to one-third, in common and undivided of all his real estate, except wild lands, which shall descend to her as if he were dead; * * *. The court may also decree to her reasonable alimony out of his estate, having regard to his ability; and to effect the purposes aforesaid, may order so much of his real estate, or the rents and profits thereof, as is necessary, to be assigned and set out to her for life; or instead of alimony, may decree a specific sum to be paid by him to her; * * *" the defendant became possessed of a one-third interest in common and undivided of the plaintiff's real estate because of the words in the statute above set forth "shall descend to her as if he were dead". The defendant also takes the position that her rights in the plaintiff's real estate were transferred to the defendant by operation of the statute without the necessity of any decree and that the decree of divorce could not effectively modify or take away such statutory rights except by specifically ordering the defendant to release the interest which descended to her by the operation of the statute herein quoted.
An examination of the agreement (called in the decree "stipulations") discloses that certain parcels of the real estate of the plaintiff were considered and one parcel the plaintiff agreed to convey to a trustee for the defendant in the form of a limited life estate together with a limited right of way for foot passage only over another parcel which was to be used by the defendant. These facts simply strengthen the claim of the plaintiff that all property adjustments between the parties shall be in accordance with stipulations (see divorce decree, supra) (italics ours). The divorce decreestanding alonemay have created in the defendant a record legal title to the real estatesee White v. Warren, 214 Mass. 204, 206, 100 N.E. 1103,but under the facts and circumstances appearing here it does not seem to this court that it was the intention of the parties and the court as shown by the decree of divorce that the defendant should acquire any interest in the real estate of the plaintiff. A decree settling the property affairs of the parties to a divorce is not invalid because the court has adopted their stipulations as to its contents. Even agreements for such purposes are valid if fairly and properly made. Coe v. Coe, 145 Me. ___, 71 A.2d 514. In the instant case the sitting justice found, and in his finding we concur, that although "there obtained superficial thinking and inexhaustive action in the preparation and rendition of the decree" the meaning of the court was clear. Such being the case and there being ample credible evidence to support the findings of the sitting justice, there are legal consequences flowing from the decree which in equity and good conscience must be clarified and corrected by this defendant to clear the record title of the real estate of the plaintiff. In other words, the claim of the defendant with respect to the real estate of the plaintiff creates at least a cloud on the record title of the plaintiff which must be clarified and corrected, as we have said above. The divorce decree gave the defendant certain benefits in lieu of alimony with, in our opinion, the intention of the plaintiff and the defendant and the court that such benefits should be exhaustive of all property adjustments between the plaintiff and defendant. The defendant has accepted and enjoyed the benefits of the decree. We said in Gerry v. Stimson, 60 Me. 186, 189: "It is well settled that courts of equity will order to be cancelled, *133 or set aside, or delivered up, deeds or other legal instruments, fraudulent, fictitious, and void, which are a cloud upon the title to real estate. But the same reason, which justifies the court to compel the cancellation of a deed, or a release of supposed rights acquired under it, will authorize the prevention of such fictitious and fraudulent titles coming into existence. It is better to prevent the creation of a fictitious or fraudulent title, than to compel its cancellation or its release after it had been created." The decree of the sitting justice below ordering the defendant to give full effect to the divorce decree issued by the York County Superior Court at the January Term A. D. 1942 by releasing by appropriate deed or conveyance all her right, title and interest in any real estate owned by the plaintiff with the one exception heretofore referred to as of the date of said divorce decree was correct and must stand.
Appeal dismissed. Decree below affirmed.
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582 S.W.2d 122 (1979)
James Edward WASHINGTON, Appellant,
v.
The STATE of Texas, Appellee.
No. 54593.
Court of Criminal Appeals of Texas, Panel No. 3.
June 13, 1979.
*123 Edward A. Stapleton, III, on appeal only, Lewisville, for appellant.
John E. Lawhon, County Atty. and Howard E. Watt, Asst. County Atty., Denton, Robert Huttash, State's Atty., Austin, for the State.
Before DALLY, W. C. DAVIS and CLINTON, JJ.
OPINION
CLINTON, Judge.
The offense is theft over $200.00. Punishment was assessed at 10 years. The controlling issue is the voluntariness of the confession introduced at trial.
This case presents an unusual fact situation involving a plea bargain. Appellant was originally charged in a two count indictment with burglary and theft. The case had proceeded as far as voir dire of the jury when plea negotiations were conducted in the trial judge's chambers. Appellant requested the opportunity to take a polygraph examination, but the prosecution would agree only if appellant would first plead guilty to the burglary. A bargain was struck which provided that a guilty plea would be entered, a "stipulation" would be signed,[1] and then a polygraph test would be given. If appellant passed the examination, then the State would join in a motion for new trial. Although the record is sketchy as to the exact events following the guilty plea, it appears that the polygraph test was given and a new trial was granted. Appellant was reindicted for theft, and the stipulation was introduced at that trial.
In a hearing on appellant's pretrial motion to bar admission of the stipulation at his trial for theft, another aspect of the burglary plea bargain was discussed. The prosecutor that negotiated the plea testified about the agreement as to the use of the stipulation:
"Q: And did you and Mr. Griffin have any agreements as to the use of that judicial stipulation in the event of a new trial?
A: Yes, sir. Mr. Griffin and I did have an agreement in the use to be made of the stipulation in the event that the defendant passed the polygraph and a new trial was granted.
Q: What was that?
A: And that agreement was that the state would not use that stipulation if the defendant passed the polygraph and received a new trial as a result of passing the polygraph."
It is appellant's contention that the stipulation was an involuntary confession because it was obtained by a promise of benefit. We agree that the stipulation was a confession, and that the circumstances in which it was obtained made it inadmissible as a matter of law. We need not consider whether *124 this confession was obtained in violation of appellant's constitutional rights, because state law prohibits its use at trial.
The primary case is Fisher v. State, 379 S.W.2d 900 (Tex.Cr.App.1964). That decision set out a four part test to be applied in such situations. Before a confession will be rendered inadmissible under this theory, the promise must: (1) be of some benefit to the defendant; (2) be positive; (3) be made or sanctioned by a person in authority; and, (4) be of such character as would be likely to influence the defendant to speak untruthfully. Fisher at 902. We will discuss each of these points separately.
The requirement that the promise be beneficial to the defendant is simple to apply. Appellant was promised that he would be given the opportunity to take the polygraph test with the chance of setting aside the guilty plea and the stipulation, and also the possibility of having all charges dropped.[2] The direct benefit promised was that which appellant requested: the opportunity to take a polygraph test. The potential benefit was possible discharge if he was found to be truthful during the examination.
The second requirement is that the promise be "positive" rather than equivocal. The record shows that the promise was positive that appellant would be allowed to take the polygraph as he desired. He was also given the unequivocal promise that if he passed the test, the State would join the motion for new trial and the stipulation would be vitiated.
The third step is that the promise be made or sanctioned by a person in authority. Here the promise was made by the prosecutor, a person "in authority." Further, the negotiations were conducted in the trial judge's chambers, apparently in his presence, and the promise was at least tacitly sanctioned by him.
Finally, the promise must be of such character "as would be likely to influence the defendant to speak untruthfully." Fisher, supra, at 902. Ascertaining the applicability of this part of the test is more difficult, but not especially so on the facts of the case before us. The question is whether the circumstances of the promise given made the defendant "inclined to admit a crime he had not committed ...." Fisher, supra, at 902.
The testimony of all the parties involved in the plea bargain showed that appellant had no intention of pleading guilty until he was assured that he would be allowed to take the polygraph as he had requested. He was also promised that if he told the truth on that examination, then any confession or "stipulation" he made in court would be disregarded, and his conviction would be set aside. Under those circumstances a person intending to tell the truth on the exam would have nothing to lose by confessing, but would have the possibility of the ultimate gain of having the charges dismissed. This case differs importantly from the usual plea bargain situation in which the defendant accepts a sure conviction with whatever accompanying punishment in exchange for a guilty plea. While we do not say that such a plea bargain would never come within the test of Fisher, we presume that a defendant would be much less likely to admit to a crime not performed when he is faced with a sure conviction, albeit a less serious conviction than the offense charged. Appellant, however, faced a situation in which a truthful polygraph examination would result in no worse of a position for himself than prior to the confession, but could potentially secure his release. Such circumstances would very likely amount to an irresistible pressure to sign a confession even though the defendant is innocent.
Involuntary confessions have been universally condemned as inherently unreliable and a violation of due process of law. The confession obtained in this case suffers from both defects, and its admission was prejudicial error. The process of plea bargaining *125 is probably a necessary part of our criminal justice system, but it should not be allowed at the heavy risk of enticing the innocent into confessing.
For these reasons the judgment is reversed and the cause is remanded.
DALLY and W. C. DAVIS, JJ., concur in result.
NOTES
[1] The "stipulation" signed by appellant was in part as follows:
"On July 14, 1975, I did then and there knowingly and intentionally, without the effective consent of Sam Ferris, the owner thereof, enter a building not then and there open to the public, with intent to commit theft, to-wit: with intent then and there to obtain property unlawfully from Sam Ferris, the owner of said property, and with intent to deprive the said owner of said property, as alleged in the indictment."
[2] Appellant's counsel on the burglary charge testified that his understanding of the plea bargain was that if appellant passed the polygraph, the charges would be dismissed after the motion for new trial was granted. Appellant testified that his understanding was that "if I passed the polygraph, it would be set aside, the conviction."
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179 F. Supp. 699 (1959)
AMERICAN AUTOMOBILE INSURANCE COMPANY, a body corporate
v.
MASTER BUILDING SUPPLY AND LUMBER COMPANY, a body corporate, William Murphy, Jr., Esther Bernstein, and Samuel Bernstein.
Civ. No. 11063.
United States District Court D. Maryland.
December 23, 1959.
*700 Frederick J. Green, Jr., Baltimore, Md., for plaintiff.
Sol C. Berenholtz and Charles B. Heyman, Baltimore, Md., for Master Building Supply and Lumber Co.
William Murphy, Jr., and W. Hamilton Whiteford and Jacob A. Gross, Baltimore, Md., for Esther Bernstein and Samuel Bernstein.
THOMSEN, Chief Judge.
In this action for a declaratory judgment the issues are:
1. Whether the "loading and unloading" provisions of an automobile liability policy issued by plaintiff (insurer) to defendant Master Building Supply and Lumber Co. (Master) covered the injuries alleged to have been sustained by defendant Esther Bernstein when some sheetrock, delivered by Master to the Bernstein home, fell and injured her.
2. Whether the "premises-operations" division of a general liability *701 policy issued by insurer to Master covered the alleged accident.
3. Whether insurer has waived or is estopped to raise the defense of non-coverage.
Facts
Master sells lumber, lumber products and building supplies from offices, warehouses and a storage yard at 3100 Cold Spring Lane, Baltimore, Maryland. It uses its trucks to deliver materials to building sites, houses and other buildings; its employees ordinarily leave the material wherever the customer tells them to leave it.
Two policies issued by insurer to Master were in force on June 25, 1958, the date of the accident:
1. An automobile policy, which covered liability for bodily injuries "caused by accident and arising out of the ownership, maintenance, or use of the automobile" and provided that "use of the automobile for the purposes stated includes the loading and unloading thereof." The purpose stated was commercial, and the truck which delivered the sheetrock to the Bernstein home was one of the trucks covered by the policy.
2. A general liability policy, which described in four "divisions" various "hazards" for which coverage might be obtained. The policy issued to Master, however, afforded coverage only for the hazard described as "Division 1. Premises Operations. The ownership, maintenance or use of premises, and all operations." On the "Declarations" sheet of the policy, in the box headed "Division 1. PremisesOperations", insurer's agent had typed:
"3100 W. Coldspring Lane, Balto., Md. And Elsewhere In The State Of Md. Building Material Dealers No Second-Hand MaterialsIncluding Local Managers".
An exclusion provided: "This policy does not apply: (a) under division 1 of the Definition of Hazards, * * * to the ownership, maintenance, operation, use, loading or unloading of * * * (2) automobiles if the accident occurs away from such premises or the ways immediately adjoining * * *."
Master purchased no coverage for the hazards defined as "Division 2Elevators" or "Division 3Independent Contractors" or "Division 4Products".[1]
On June 23, 1958, Mrs. Bernstein and Peter Gordon, a carpenter who was working at the Bernstein home, went to Master's office and ordered some merchandise, including nails, lumber and nine pieces of sheetrock, to be delivered to her house. On the morning of June 25 defendant Murphy, an employee of Master, *702 using a truck covered by the automobile policy, drove the material from Cold Spring Lane to the Bernstein home, a mile away, and parked the truck in the alley behind the house. He was told by Gordon to leave the nails and lumber in the yard, and by Mrs. Bernstein to bring the sheetrock into the cellar. Murphy lifted the first sheet from the truck, carried it into the cellar, and set it down with one edge on the cement floor and one edge leaning against the storage closet. He did not set it down or rest it from the time he removed it from the truck until he placed it in the basement. He followed this procedure with each piece of sheetrock. After the last piece was placed in the cellar Murphy obtained a receipt from Mrs. Bernstein, was paid by her, and left in the truck.
About four hours later, while Mrs. Bernstein was standing near the sheetrock, it fell upon her and injured her leg. There is no evidence in this case that the sheetrock had been touched by anyone in the meantime.
The same day, June 25, Mr. Bernstein notified Master of the accident, and a few days later the Bernsteins' lawyer wrote Master a letter making claim. On July 3 Master forwarded this letter to insurer's agent, who in turn notified insurer's claim office; they investigated the accident, took statements from Murphy and Master's president, and on July 17 got in touch with the Bernsteins' attorney.
On August 18 the Bernsteins sued Master and Murphy for damages in the Superior Court of Baltimore City, alleging the purchase of the sheetrock, its delivery to their home, that the stacking of the sheetrock was done in a negligent manner, that the sheetrock was left in an unstable and unsafe position, and that while Mrs. Bernstein was in the basement of her home and "in the act of passing this stack of sheet rock * * * because of its negligent and unsafe stacking, the sheet rock toppled and fell upon" her, breaking her legs and otherwise injuring her.
Copies of the declaration and writ of summons were served on Master and Murphy, requiring them to answer the action no later than September 16. On or about August 28 those papers were delivered to insurer for defense under the automobile policy.[2] On September 9 insurer's counsel wrote Master and Murphy that insurer "feels that this occurrence is not within the coverage afforded you by the aforementioned policy of insurance, but it is willing, nonetheless, to defend this suit on your behalf if you will, prior to Noon, Monday, September 15, 1958, return to me the enclosed Agreement properly executed by both of you." The agreement, a non-waiver agreement, was promptly executed. It provided that the defense and further investigation of the Bernsteins' action should be without prejudice to any right insurer might have to disclaim liability or coverage under the policy, and that either party might file an action for a declaratory judgment at any time.
In their letter returning the executed non-waiver agreement on October 13, counsel for Master and Murphy called attention to the general liability policy and stated that the execution of the agreement was without prejudice to such coverage as Master is entitled to under that policy in connection with the accident. This letter crossed a letter from insurer denying coverage under the general liability policy.
Thereafter, insurer's counsel entered his appearance for Master and Murphy in the Bernsteins' suit, which has not yet come to trial.
On December 3, 1958, insurer wrote Master and Murphy denying coverage under the automobile policy, and on December 10, filed the instant action for declaratory judgment in this court. On December 20, Master wrote insurer *703 claiming coverage under both policies, stating that the declaratory judgment is premature, and expressing its desire that insurer's counsel continue to defend the Bernstein suit.
Discussion
1. The automobile policy provides coverage for injuries caused by accident and arising out of the use of certain vehicles, or by extension, arising out of the loading or unloading of those vehicles. The policy contains no definition of "loading and unloading", and no Maryland decision construing those words has been cited or found. The decisions in other states are well summarized in Raffel v. Travelers Indemnity Co., 141 Conn. 389, 106 A.2d 716, 718, as follows:
"Two doctrines have been evolved concerning the construction to be given to the phrases `arising out of the * * * use' and `"loading and unloading"'. (citing cases) By the more narrow construction, referred to as the `coming to rest' doctrine, `unloading' has been held to embrace only the operation of taking the goods from the vehicle to a place of rest out of the vehicle. Only that which occurs in this initial process is covered. (citing cases)
"The majority of the courts have adopted a broader construction and have held that the phrases in question comprehend not only the immediate transfer of the goods from the truck but also the operation of moving them from the vehicle to the place where they are to be ultimately delivered. This is referred to as the `complete operation' doctrine. Any occurrence during, or arising out of, this process is covered. (citing cases) The rationale of the `complete operation' doctrine, which we hold is the more just and understandable of the two, is that the facts of each case must establish a causal relationship between the `use' and `unloading' of the vehicle and the injuries inflicted."
I agree with the conclusion stated in the last sentence quoted above, and believe that the "complete operation" rule would be applied by the Maryland courts in such a case as this.
Insurer contends, however, that even if the "complete operation" doctrine be adopted, the automobile policy would afford no coverage in this case because the accident did not occur during the unloading operation, but several hours after the truck had left the scene. Insurer relies particularly on Liberty Mutual Ins. Co. v. Hartford Acc. & Ind. Co., 7 Cir., 251 F.2d 761, where the accident occurred 29 hours after the unloading operation had been completed. The decision of the Seventh Circuit was controlled by an Illinois Appellate Court opinion, which although adopting the complete operation rule as against the coming to rest rule, apparently limited its application to accidents which occur during the operation. The Seventh Circuit felt that the Illinois courts would not hold that the policy covered an accident which occurred after the delivery had been completed, and declined to extend the rule. The key words "arising out of" were not discussed.[3]
On the other hand, a number of courts have noted that the words "arising out of" are broad, general and comprehensive, effecting broad coverage; e. g. Schmidt v. Utilities Ins. Co., 353 Mo. 213, 218, 182 S.W.2d 181, 183, 154 A.L.R. 1088, and Red Ball Motor Freight v. Employers Mut. Lia. Ins. Co., 5 Cir., 189 F.2d 374, 378. The Schmidt case was followed in Maryland Casualty Co. v. Dalton Coal & Material Co., D.C.W.D.Mo., 81 F. Supp. 895, affirmed as modified, 8 Cir., 184 F.2d 181.
Workmen's compensation cases have taught us that the words "arising out *704 of" have a very different meaning from the words "in the course of". In re McNicol's Case, 215 Mass. 497, 102 N.E. 697, L.R.A.1916A, 306; Weston-Dodson Co. v. Carl, 156 Md. 535, 537, 144 A. 708. If the draftsman of the policy had intended to limit the coverage to accidents which occur in the course of the unloading, he could easily have done so.
The Raffel case, quoted at length above, is directly in point. The Connecticut court noted that it was certainly within the contemplation of the insurer and the insured that the truck would be used for commercial purposes in connection with the insured store, and that in the normal course of making deliveries, the merchandise delivered was customarily placed where the purchaser could most conveniently get it and use it. The court said: "It is reasonable to assume that the operation of unloading did not end until the linoleum was placed where it could be used by its purchaser. If the driver, in carrying forward this mission, was negligent in leaving it where it could, and did, cause injury, that negligent act was a part of the operation of unloading the truck and had a direct causal relation with the truck and the unloading operation. Such an interpretation of the contract requires no strained construction and does no violence to the fair meaning of the terms used."
Insurer calls attention to the fact that in Raffel the linoleum was to be delivered, a portion used and the rest picked up by the insured and returned to the store. That, however, is not an important distinction; the unloading operation had been completed.
The Maryland rule, like the Connecticut rule, is that where the terms of an insurance policy are unambiguous they are to be accorded their natural and ordinary meaning, but where the terms are ambiguous they are to be construed most favorably to the insured. New England Mutual Life Ins. Co. v. Hurst, 174 Md. 596, 603, 199 A. 822.
Of course, the facts of the case must establish a causal relationship between the use and unloading of the vehicle and the injuries inflicted. Raffel v. Travelers Indemnity Co., supra; Lumbermens Mutual Casualty Co. v. Employer's Lia. Assurance Corp., 1 Cir., 252 F.2d 463. The Bernsteins may not be able to prove, in their State court suit, that any negligence on the part of Murphy in delivering the sheetrock was a proximate cause of her injury; but if they do prove that the injury was caused by the manner in which the sheetrock was set up in the basement, such proof will satisfy the causation requirement, and insurer will be obligated to pay the damages awarded up to the limits of its automobile policy. In the meantime, insurer is obligated to defend the State court action.
Since any such liability will arise out of the unloading of the vehicle away from Master's premises, it is specifically excluded from the coverage of "Division 1" of the general liability policy. This decision makes it unnecessary to decide whether the injury would be covered by Division 1 of that policy if it were held that the accident was caused by the delivery operation but did not arise out of the unloading of the truck.
Master and Murphy argue that insurer has "waived its right to deny liability and/or is estopped therefrom" by its "undertaking to investigate the matter, its assumption of the handling of the matter, its failure to promptly notify Master or Murphy that it questioned or intended to deny liability under said policies and by its other acts and conduct." This argument is without merit. Under Maryland law an insurer may waive forfeitures arising from some breach of condition. Royal Ins. Co. v. Drury, 150 Md. 211, 132 A. 635, 45 A.L. R. 582; Manufacturers Casualty Ins. Co. v. Roach, D.C.D.Md., 25 F. Supp. 852. But here, as in Bower & Kaufman v. Bothwell, 152 Md. 392, 136 A. 892, 52 A.L.R. 158, "it is not a forfeiture that is to be found waived, not a violation of *705 a condition or any irregularity; it is an inapplicability of the policy, so that the waiver argued for would be, in effect, an extension of the contract beyond its defined limits, or a new contract. Such an extension would, at least, we think, require an estoppel, if not a new consideration, to support it." 152 Md. at page 397, 136 A. at page 894.
In the later case of Prudential Ins. Co. of America v. Brookman, 167 Md. 616, 175 A. 838, after quoting from the Bower & Kaufman case, as above, the Maryland Court said: "And it is doubted whether an estoppel, strictly speaking, could suffice to create a new contract. `We readily agree with counsel for appellant that if the loss was not within the coverage of the policy contract, it cannot be brought within that coverage by invoking the principle of waiver or estoppel. Waiver or estoppel can only have a field of operation when the subject-matter is within the terms of the contract.' Home Ins. Co. of New York v. Campbell Motor Co., (1933) 227 Ala. 499, 150 So. 486, 489. `In other words, by invoking the doctrine of estoppel and waiver it is sought to bring into existence a contract not made by the parties, to create a liability contrary to the express provisions of the contract the parties did make.' Ruddock v. Detroit Life Ins. Co., 209 Mich. 638, at page 654, 177 N.W. 242, 248. (citing other cases) Whatever the description of the process, it must include the ordinary essentials of a contract, and among them, a meeting of the minds of the parties on the new undertaking, in this instance an undertaking to insure against disability occurring after the age of sixty as well as before it, if the insured should prove to be so old. And the evidence is not sufficient to show that the parties contemplated that undertaking." 167 Md. at pages 620-621, 175 A. at page 840.
In the instant case there was no new contract, no change of position by Master or Murphy and no other facts amounting to an estoppel. Non-waiver agreements are recognized and used extensively in Maryland, to the benefit of all concerned. Hardware Mutual Casualty Co. v. Mitnick, 180 Md. 604, 26 A.2d 393.
Counsel will prepare an appropriate judgment order giving effect to the conclusions set out above.
NOTES
[1] The "products" hazard was defined as follows:
"(1) Goods or products manufactured, sold, handled or distributed by the named insured or by others trading under his name, if the accident occurs after possession of such goods or products has been relinquished to others by the named insured or by others trading under his name and if such accident occurs away from premises owned, rented or controlled by the named insured or on premises for which the classification stated in division 1 of item 3 of the declarations excludes any part of the foregoing; provided, such goods or products shall be deemed to include any container thereof, other than a vehicle, but shall not include any vending machine or any property, other than such container, rented to or located for use of others but not sold;
"(2) operations, if the accident occurs after such operations have been completed or abandoned and occurs away from premises owned, rented or controlled by the named insured; provided, operations shall not be deemed incomplete because improperly or defectively performed or because further operations may be required pursuant to an agreement; provided further, the following shall not be deemed to be `operations' within the meaning of this paragraph: (a) pick-up or delivery, except from or onto a railroad car, (b) the maintenance of vehicles owned or used by or in behalf of the insured, (c) the existence of tools, uninstalled equipment and abandoned or unused materials and (d) operations for which the classification stated in division 1 of item 3 of the declarations specifically includes completed operations.
[2] The automobile policy would protect both Master and Murphy. The general liability policy would not protect Murphy and would protect Master in a smaller amount than the automobile policy.
[3] Insurer also cited American Casualty Co. v. Fisher, 1942, 195 Ga. 136, 23 S.E.2d 395, 144 A.L.R. 533, and General Accident Fire & Life Assur. Corp. v. Jarmuth, 1956, 150 N.Y.S.2d 836, but those opinions are not directly in point and are less persuasive than the opinions placing the principal emphasis on causation.
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582 S.W.2d 434 (1979)
Ex parte Jay J. ARMES, Appellant.
Nos. 60990, 60991.
Court of Criminal Appeals of Texas, Panel No. 1.
April 18, 1979.
Rehearing Denied July 3, 1979.
*436 Dick Stengel, El Paso, for appellant.
Steve W. Simmons, Dist. Atty. and William J. Ellis, Asst. Dist. Atty., El Paso, Robert Huttash, State's Atty., Austin, for the State.
Before ONION, P. J., and PHILLIPS and TOM G. DAVIS, JJ.
Rehearing En Banc Denied July 3, 1979.
OPINION
TOM G. DAVIS, Judge.
This is an appeal from an order denying the appellant's request for habeas corpus relief. Relief was sought from a summons directing the appellant to appear as a witness in California pursuant to an order entered under Art. 24.28, V.A.C.C.P.
Cause No. 60,990 (Cause No. 32,770-205 in the trial court) contains the record from the hearing in which the appellant was ordered to appear in California as a witness. This record contains no application for habeas corpus relief nor any order denying that relief. The only order of the trial court reflected by this record is an order for a summons directing Armes to appear in California.
In Armes v. State, Tex.Cr.App., 573 S.W.2d 7, this Court considered a purported appeal from a previous order for Armes to appear in California as a witness regarding this same matter. This Court held that there is no right to a direct appeal from a court order entered pursuant to Art. 24.28, supra, compelling the witness' attendance.
The current posture of the record in Cause No. 60,990 presents nothing more than a purported appeal from an order entered pursuant to Art. 24.28, supra. No appeal lies from such an order. Cause No. 60,990 is dismissed.
Cause No. 60,991 (Cause No. 32,923-205 in the trial court) contains an application for a writ of habeas corpus and an order denying the relief sought. The record further reflects that timely notice of appeal was given.
*437 In Armes v. State, supra, this Court also considered an appeal from the trial court's denial of habeas corpus relief. This Court, noting that the appellant was not in custody and under no restraint, held that the habeas corpus question was moot. In the present case, however, the appellant was ordered to post a $10,000 bond to ensure his appearance as a witness.
In Ex parte Trillo, 540 S.W.2d 728, this Court held that a person was under restraint for habeas corpus purposes when released on bond or bail. Thus, appellant is under restraint, and Cause No. 60,991 is properly before us.
The record reflects that on January 24, 1979, the State filed a "Petition to Secure Attendance of Witness." This petition alleged that all requisites under Art. 24.28, supra, had been complied with by the requesting state, and sought to have an order entered directing Armes to appear in San Diego County, California, on April 11, 1979, at 9:00 a. m.
Attached to the petition and incorporated by reference was a Certificate of the Superior Court of San Diego County, California, requesting the attendance of Armes to testify at a grand jury proceeding. The status of this court as a court of record and the authenticity of the judge's signature were sworn to by the clerk of the court in a separate certificate. The judge's certificate, in summary, stated that:
"1. An investigation into a certain murder was pending with the San Diego County Grand Jury;
"2. That Armes, who resides in El Paso County, Texas, is `a necessary and material witness' in that murder investigation;
"3. That Armes is a material and necessary witness for the reasons set out in an attached affidavit;
"4. That the proper payment for transportation and per diem for the three days which the witness' presence would be required is tendered;
"5. That Armes would be protected from arrest or service of process in California and the states through which he would travel;
"6. That the State of California requests Texas to take Armes into custody and be delivered to an officer of California to assure the appearance of the witness."
An attached affidavit executed by Richard Huffman, Chief Deputy District Attorney for San Diego County, set out in detail the factual basis for the Superior Court's finding that Armes was a material witness. According to this affidavit, Armes had been hired by a San Diego citizens committee to investigate the murder now being investigated by the grand jury. The affidavit further states that after conducting his investigation in California Armes made representations that he knew who the murderer was. This affidavit detailed previous attempts to secure this witness' attendance.
A tender of proper compensation accompanied the judge's certificate. After a hearing the trial court ordered Armes to appear as a witness in California, and Armes posted a bond to secure his attendance. Armes' application for habeas corpus relief was denied, which is now the basis of this appeal.
This case presents a question of first impression regarding the requisites necessary to compel a person in this state to appear as a witness in a criminal proceeding in a sister state. A brief discussion of the general procedure to be used, in addition to the specific grounds of error urged by the petitioner, is thus in order.
Article 24.28, Sec. 3, supra, sets out the procedure to be used when a sister state requests the compulsory attendance of a witness in a criminal matter. This statute provides for the following steps in the courts of this state. See, New York v. O'Neill, 359 U.S. 1, 79 S. Ct. 564, 3 L. Ed. 2d 585 (1959).
Upon the state's filing of a petition, the trial court in the county in which the witness is located sets a hearing on the Art. 24.28 request if:
1. It is shown that the demanding state has enacted a reciprocal act to Art. 24.28, supra; and
*438 2. A judge of a court of record in that demanding state certifies under seal
(a) that the witness sought is a material witness
(b) in a criminal prosecution or grand jury investigation
(c) and will be required for a specific number of days.
See, Art. 24.28, Sec. 3(a), supra. If these requisites are met, the trial court sets a time and place for the hearing and orders the witness to appear at the hearing.
After this hearing the trial court can enter an order directing the witness to appear in the requesting state only if it determines that:
1. The witness is material and necessary to the criminal proceeding or grand jury investigation; and
2. The witness will not be caused undue hardship if compelled to attend the proceeding in the sister state; and
3. The witness is protected from arrest and service of civil and criminal process in the demanding state and all states through which the witness must pass.
Art. 24.28, Sec. 3(b), supra.
Article 24.28, Sec. 3(d), imposes the sanctions for the failure of a witness to appear in the requesting state. A prerequisite for imposition of these sanctions is that the requesting state must have tendered compensation for the trip as required by Art. 35.27, V.A.C.C.P.
Appellant contends that the facts contained in the certificate from the requesting state standing alone are insufficient to support the trial court's determination that he is a material and necessary witness. As set out above, this finding is a prerequisite to ordering the witness to appear in the requesting state.
Article 24.28, Sec. 3(b), supra, provides that the judge's certificate from the requesting state is prima facie evidence of all the facts stated therein. The appellant testified at the hearing that he had no knowledge or information regarding the investigation in an effort to rebut this prima facie showing. Appellant correctly states that there are no cases in this jurisdiction on this issue, and cites decisions of sister states in support of his contention.
The Illinois enactment of the Uniform Act to Secure Attendance of Witnesses from Without the State was interpreted in In re Grothe, 59 Ill.App.2d 1, 208 N.E.2d 581 (Ill.App., 1965). In Grothe, the court stated that the determination of whether the witness was material and necessary was to be made by the local court rather than by the court of the requesting state. The court held that the local court must refuse the request when the facts set forth in the certificate are insufficient to support a finding that the witness is material and necessary and no additional evidence is offered. See, In re Stamler, 279 A.D. 908, 111 N.Y.S.2d 313 (Sup.Ct., 1952).
Other jurisdictions have come to the opposite conclusion in interpreting the same act, however. In re Cooper, 127 N.J.L. 312, 22 A.2d 532 (1942). In Cooper, the court observed that the question of materiality of the witness should be the decision of the requesting court as that question would turn on the law of that jurisdiction and the issues presented in that criminal proceeding. Thus, the court found that the assertion of materiality by the requesting state in the certificate was sufficient to support a finding in the local court that the witness was material and necessary. Accord, Epstein v. New York, 157 So. 2d 705 (Fla.Dist. Ct.App., 1963).
The purpose of Art. 24.28, supra, is to provide for an efficient means for our courts to compel the attendance of out-of-state witnesses in criminal matters. To achieve this purpose, the Legislature also provided the necessary reciprocal procedure for sister states to gain the attendance of witnesses from this state.
To require the requesting state to again litigate in our courts its judicial finding that the witness is material and necessary would not promote the purpose of this statute. As stated by the Supreme Court in O'Neill, "Comity among the states, an end *439 particularly to be cherished when the object is enforcement of internal criminal laws, is not to be defeated by a priori restrictive view of state power." 359 U.S. at 11-12, 79 S.Ct. at 571. Thus, this Court's interpretation of Art. 24.28, supra, should reflect the same deference to the judicial determinations made in sister states that we would expect to be given to judicial determinations made in the courts of this state.
We hold that the certificate from the requesting state setting out that the witness is material and necessary is sufficient to support the trial court's finding of that fact.
In holding that the trial court should accept the determination of the requesting state, we are mindful of our duty to ensure the citizens and inhabitants of this state due process of law and freedom from unfounded interruption to their lives. Other provisions of Art. 24.28, supra, are sufficient to discharge this obligation, however.
Article 24.28, Sec. 3(d), supra, provides that the requesting state must compensate the witness as set forth in Art. 35.27, supra. This protects the witness from financial hardship as a result of his compelled attendance.
Further, the requesting state must specify the exact number of days the witness' attendance will be required. A request for attendance that imposed an undue hardship on the witness because of excessive duration could be denied by the local court.
Finally, this procedure cannot be used as a subterfuge to compel the witness' presence for other purposes. The witness is protected against arrest and service of process during his attendance. See, Wright v. State, 500 P.2d 582 (Okl.Cr.App., 1972).
Appellant next contends that the trial court erred in finding that no undue hardship would be suffered if appellant were compelled to appear and testify before the San Diego County grand jury. Appellant maintains that his testimony and that of his treating physician showed that the trip would cause him undue hardship.
Dr. Bill Dickey testified that the appellant had been admitted to the hospital on January 21, 1979, and later released on January 27, 1979. Dr. Dickey stated that the appellant was still under his supervision and care on February 13, 1979, the date of the doctor's testimony. According to the doctor, appellant's medical problems required that he maintain a completely bland diet. Although the doctor stated that this food could only be obtained at a hospital or specially prepared at home, he did not elaborate on the types or requisite preparation of this food.
Dr. Dickey concluded that he would advise his patient against taking the trip to California on the basis of the harmful effect of a stressful situation and the dietary problems.
On cross-examination the doctor admitted that some of the symptoms complained of by the appellant were incapable of objective confirmation. Dr. Dickey also stated that the condition of the appellant would not prevent him from appearing at the local hearing, and further that by the middle of April the petitioner would be able to go to his office five days a week. Finally, the doctor stated that the most important consideration as to the effects of the travel would be the available food.
Appellant testified that the travel would cause him undue hardship because of the unavailability of food prepared as required for his diet.
Other jurisdictions have placed the burden of proving undue hardship on the witness seeking to avoid testifying in the requesting state. Terl v. Maryland, 237 So. 2d 830 (Fla.Dist.Ct.App., 1970). Cf. Epstein v. New York, supra. We agree with this rule. It is logically the witness' burden to come forward with evidence of any undue hardship, not the State's duty to negate the existence of undue hardship.
The trial court acts as the trier of fact in hearings under Art. 24.28, supra. As the trier of fact the trial court must pass on the credibility of the witnesses and determine *440 the weight to be given the evidence before it. See, Grant v. State, Tex.Cr.App., 566 S.W.2d 954; Reed v. State, Tex.Cr.App., 533 S.W.2d 35.
In the present case the testimony of the doctor was somewhat equivocal and failed to elaborate on why the foods necessary would not be available in California. We further note that the petitioner appeared at the hearing and the trial court had an opportunity to observe his condition. We find no error in the trial court's holding that the attendance of the appellant to testify would not cause him undue hardship.
Appellant finally contends that a finding of materiality was barred by a previous finding that he was not a material witness. Appellant maintains that either double jeopardy or res judicata would bar this subsequent finding. This contention requires a brief history of this litigation.
On May 25, 1978, the State filed a petition, Cause No. 78-3083, to secure the attendance of Armes as a witness in California regarding the same San Diego Grand Jury investigation involved here. Attached to this petition was a certificate dated May 19, 1978, from the Honorable Judge Franklin B. Orfield, Superior Court for San Diego County. A hearing was held in the 34th District Court of El Paso County on May 31, 1978. The court entered an order for summons stating that Armes was a material witness, his attendance to testify would not cause undue hardship, and Armes would be protected from arrest and service of process during this trip. A summons was issued ordering Armes to appear in San Diego, California, on June 14, 1978.
On June 8, 1978, Armes filed an application for writ of habeas corpus, Cause No. 32118-34. A hearing was held on June 9, 1978, and relief was denied.
Both the trial court's order for summons, Cause No. 78-3083, and the denial of habeas corpus relief, Cause No. 32118-34, were "appealed" to this Court. On October 18, 1978, this Court dismissed both purported appeals. Armes v. State, 573 S.W.2d 7.
On November 7, 1978, the State again filed a petition to secure the attendance of Armes as a witness in California (Cause No. 32564). This petition was filed in the 34th District Court. The record next shows a "First Amended Petition to Secure Attendance of Witness," Cause No. 32564-205, filed in the 205th District Court of El Paso County. Attached to this petition was a certificate from Judge Orfield, dated October 24, 1978, and including a clerk's certificate and the petition filed in California in order to obtain the certificate from Judge Orfield.
On December 14, 1978, the State filed a "Second Amended Petition" in Cause No. 32,564-205 with certificate from Judge Orfield dated December 5, 1978, and his clerk's certificate. The petition filed in California to obtain Judge Orfield's December 5th certificate was not attached.
A hearing was held in Cause No. 32,564-205 on January 17, 1979. The transcription of the court reporter's notes from that hearing reflects that Judge Orfield's December 5th certificate had originally included the petition filed in California to obtain his certificate. This portion of his certificate had been lost, however. At the conclusion of the hearing the trial court denied the State petition in Cause No. 32,564-205.
On January 25, 1978, a judgment of dismissal was entered in Cause No. 32,564-205 on the motion of the El Paso District Attorney. The reason for this dismissal was set out as:
"The Court, having read the pleadings, heard and examined the evidence, and heard the argument of counsel finds that the certificate fails to state any facts to show that Jay J. Armes is a material and necessary witness."
On January 24, 1978, the State had filed another petition to secure the attendance of this witness, Cause No. 32,770-205. Attached to this petition was a certificate dated January 18, 1979, from the Honorable Judge William A. Yale, Superior Court of San Diego County, a certificate from the clerk of Judge Yale's court, an affidavit from the grand jury foreman, and the petition *441 filed in California to obtain Judge Yale's certificate. The subsequent proceedings in Cause No. 32,770-205 and the application for a writ of habeas corpus, Cause No. 32,923-205, are the subject of the present view.
Appellant's reliance on double jeopardy is misplaced. Our laws forbid a person from being put twice in jeopardy for the same offense. See, Art. 1.10, V.A.C.C.P.; Tex.Const. Art. I, Sec. 14; U.S.Const., Amend. V. In the present proceeding, however, no criminal adjudication was involved. Appellant was not being tried for an offense. The possible outcome of this hearing did not include criminal sanctions.
Although later related proceedings might impose criminal sanctions for the failure to obey the court's order, the court's order for the witness to appear was not a criminal adjudication. We find no merit to appellant's double jeopardy claim.
Likewise, we find petitioner's claim of res judicata inapplicable here. First, were we to find res judicata applicable, it would work to the petitioner's detriment. As set out above, petitioner was adjudged a material witness in May of 1978. To apply res judicata would hold that the subsequent finding that petitioner was not a material witness was barred by the prior finding that he was.
Further, res judicata applies only where it is shown that the following elements exist: "identity of parties, issues, subject matter, relief sought and cause of action." Franklin v. Rainey, 556 S.W.2d 583 (Tex.Civ.App.Dallas, 1977, no writ), and cases cited therein. In the present case, each attempt to secure the witness' attendance requested that he appear on a different date. Thus, the specific relief sought in each of the three attempts to secure his attendance was different. Res judicata does not apply.
The purported appeal in Cause No. 60,990 is dismissed. The trial court's order denying relief in Cause No. 60,991 is affirmed.
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179 F. Supp. 812 (1959)
Bernard LITWINOWICZ
v.
WEYERHAEUSER STEAMSHIP COMPANY, Defendant and Third-Party Plaintiff,
Nacirema Operating Co., Inc., Third-Party Defendant.
Joseph MATYAS
v.
WEYERHAEUSER STEAMSHIP COMPANY, Defendant and Third-Party Plaintiff,
Nacirema Operating Co., Inc., Third-Party Defendant.
Civ. A. Nos. 21553, 21554.
United States District Court E. D. Pennsylvania.
December 21, 1959.
*813 *814 Freedman, Landy & Lorry, Milton M. Borowsky, Philadelphia, Pa., for plaintiffs.
Krusen, Evans & Shaw, T. E. Byrne, Jr., Philadelphia, Pa., for defendant Weyerhaeuser Steamship Co.
John B. Hannum, 3rd, Philadelphia, Pa., for Nacirema Operating Co., Inc., third-party defendant.
KRAFT, District Judge.
Plaintiffs, longshoremen, instituted separate actions against Weyerhaeuser Steamship Company to recover damages for personal injuries sustained while they were engaged in loading steel beams aboard defendant's vessel. Both complaints alleged negligence and unseaworthiness.
Weyerhaeuser, in both cases, impleaded and sought indemnity from plaintiffs' employer, Nacirema Operating Co., Inc., which had contracted to perform the stevedoring services.
Plaintiffs' actions against Weyerhaeuser were tried before a jury. Pursuant to stipulation, the third-party actions were tried to the court. Seven questions were submitted to the jury under Rule 49. On the basis of the jury's answers, and the court's findings in the third-party actions, judgment was entered for each plaintiff against Weyerhaeuser, and in favor of Weyerhaeuser against Nacirema.
The cases are now before us on Weyerhaeuser's motions to vacate and set aside the judgments, or, in the alternative, for a partial new trial; and on Nacirema's motions to amend the judgment, to amend the findings, to make additional findings, etc., under Rules 52 and 59.
The facts developed at the trial may be briefly stated. On June 18, 1956, the George S. Long, owned and operated by Weyerhaeuser, was docked at Pier 27 North, on the Delaware River, Philadelphia. Plaintiffs were members of a gang engaged in loading steel H-beams aboard the vessel through the No. 2 hatch. The beams were in a railroad gondola car on tracks on the pier beside the vessel. They were 10-inch beams, 30 feet long, and were arranged in 7 tiers, 12 beams to a tier. Each beam was nested into the one above and below.
Plaintiffs were engaged in the "break-out" operation and were working in the railroad car atop the beams. In that operation, one end of a draft of beams was raised to a height sufficient to permit wooden "chocks" to be placed under *815 the draft, one chock a few feet in from the upraised end of the draft and the other near the middle. The draft was then lowered onto the chocks, and the necessary slings placed around it to hoist it aboard the ship. In breaking-out the draft, the men used a "Baltimore dog", which was furnished by plaintiffs' employer. This device is shaped somewhat like an "L" with the lower lip at right angles to the vertical part of the "L". The "Baltimore dog" was attached to a hook at the end of the ship's cable which ran down from the head of the ship's boom. It was inserted under the beams to be broken-out, and one end of the draft was thus raised by the ship's power.
The accident happened as the first draft was being broken-out of the car. The draft consisted of six beams and was being taken from the middle tier. One of the men placed the "dog" in position, the draft was raised on signal and the plaintiffs placed the chocks under the beams. As the draft was being lowered upon the chocks, the dog "flew off" releasing the beams, which fanned out as they fell and pinned both plaintiffs against the inside of the railroad car.
There was expert testimony that the "Baltimore dog" was neither designed nor intended to lift six beams of such size and was thus being used for a purpose for which it was not intended. Moreover, there was testimony that the "dog" was in a defective, unsafe condition in that its horizontal lip was bent downward about 15° and its vertical shaft was bent out of line about 15°.
In its answers to the interrogatories, the jury found: (1) The "Baltimore break-out dog", in the condition in which it was at the time of the accident, was not a reasonably safe, suitable and proper appliance for the use to which it was then intended to be put; (2) that fact was a substantial factor in causing the plaintiffs' injuries; (3) Weyerhaeuser, under the circumstances which existed at the time of the accident, used reasonable care in keeping the vessel secured to the dock by its mooring lines; (4) plaintiffs used reasonable care under the circumstances which existed immediately before they were injured. The jury assessed the total damages of the plaintiff Litwinowicz in the amount of $65,000, and of the plaintiff Matyas in the amount of $75,000.
The jury's findings establish that the plaintiffs' injuries were the result of the unseaworthiness of the vessel and its appliances. Weyerhaeuser's principal contention is that since the plaintiffs were injured while they were in the gondola car on the pier, which is but an extension of the land, they were bound to pursue the remedies afforded by the local law. We do not concur in this view. The decisions, we think, hold that the wrong, arising as it did out of a maritime status or relation, is cognizable by the maritime law.
Plaintiffs rely both upon the general maritime law and upon the Admiralty Jurisdiction Extension Act, 46 U.S.C.A. § 740, which provides in pertinent part that:
"The admiralty and maritime jurisdiction of the United States shall extend to and include all cases of damage or injury, to person or property, caused by a vessel on navigable water, notwithstanding that such damage or injury be done or consummated on land."
Weyerhaeuser vigorously challenges the constitutionality of the Act. Since the issue before us may be disposed of on other grounds, we do not reach the question of constitutionality and refrain from any opinion thereon. Rescue Army v. Municipal Court of Los Angeles, 1947, 331 U.S. 549, 67 S. Ct. 1409, 91 L. Ed. 1666. It is to be noted, however, that the Act has been held constitutional on at least two occasions. United States v. Matson Navigation Co., 9 Cir., 1953, 201 F.2d 610; American Bridge Co. v. The Gloria O, D.C.E.D.N.Y.1951, 98 F. Supp. 71.
It has been settled law since Seas Shipping Co. v. Sieracki, 1946, 328 U.S. 85, 66 S. Ct. 872, 90 L. Ed. 1099, that *816 the shipowner's warranty of seaworthiness extends to longshoremen while on board ship performing work traditionally done by seamen. A review of the case law establishes, we think, that the warranty applies as well to longshoremen injured ashore under comparable conditions.
In O'Donnell v. Great Lakes Dredge & Dock Co., 1943, 318 U.S. 36, 63 S. Ct. 488, 490, 87 L. Ed. 596, the court held that a seaman injured ashore by the owner's negligence had an actionable claim under the Jones Act, 46 U.S.C.A. § 688. It interpreted the phrase, "in the course of his employment", as extending beyond his work on the ship, and supported the power of Congress to deal with transactions ashore, not only as part of its power to regulate interstate commerce, but under its power "to make laws which shall be necessary and proper to carry into execution powers vested by the Constitution in the government or any department of it, Article I, § 8, cl. 18, including the judicial power which, by Article III, § 2, extends `to all Cases of admiralty and maritime Jurisdiction.'" Left open was the question whether a longshoreman could sue his employer in the same circumstances.
That issue was raised three years later in Swanson v. Marra Bros., Inc., 1946, 328 U.S. 1, 66 S. Ct. 869, 90 L. Ed. 1045, a suit by a longshoreman against his employer under the Jones Act for injuries received ashore, where the plaintiff had sought and received state compensation benefits. Recovery was denied solely on the ground that Congress, by the Longshoremen's and Harbor Workers' Compensation Act, 33 U.S.C.A. § 901 et seq., has restricted the liability of the employer to compensation, but plaintiff's status as a seaman was recognized.
The precise question before us was presented in Strika v. Netherlands Ministry of Traffic, 2 Cir., 1950, 185 F.2d 555, certiorari denied 1951, 341 U.S. 904, 71 S. Ct. 614, 95 L. Ed. 1343. There a longshoreman sustained injuries on a pier when a pontoon being lifted onto the vessel by the ship's winches, booms and falls fell on him when one of the bridle rings slipped from the hook to which it had been attached. In sustaining a recovery against the shipowner, the court reviewed the O'Donnell and Swanson cases in some detail. Speaking of the plaintiff in Swanson, the court said (185 F.2d at page 557):
"The Court recognized that he was a `seaman' within the Act, having so held twice before; and it did not intimate that, had there been no Longshoremen's and Harbor Workers' Compensation Act, the same reasoning which had supported a `seaman's' recovery in (O'Donnell) would not have supported a longshoreman's."
In Strika, as here, the defendant argued that a breach of the obligation to furnish a seaworthy vessel is a tort and that the maritime law had no jurisdiction over such a breach occurring on land. The court's answer seems to us conclusive (185 F.2d at page 558):
"We should have found this a serious obstacle, were it not for O'Donnell v. Great Lakes Dredge & Dock Co., supra, and the ratio decidendi of Swanson v. Marra Brothers, Inc., supra; but those decisions appear to us to settle it that such a tort, arising as it does out of a maritime `status' or `relation', is cognizable by the maritime laws whether it arises on sea or on land. For it seems to us to follow, if Congress has power to impose liabilities in favor of seamen for lapses of care on shore, that Congress at least would have power to impose a similar liability when the lapse is in furnishing a seaworthy ship. It is true that Congress has not intervened as to seaworthiness; yet there is no more reason to circumscribe more narrowly the duty, which The Osceola, supra,[1]established as part of the maritime law, than the Constitution *817 circumscribes the power of Congress, for both in the end are based upon the same provisions.[2] Moreover, we find confirmation for this in the `obligation' of `maintenance and cure' of a seaman injured on shore, for that is concededly quite as entirely the creature of the maritime law as the `obligation' to furnish a seaworthy ship. For these reasons, although we have been unable to find a decision holding that a seaman, injured ashore by unseaworthy ship's gear, can recover, we have no doubt that he could; and, if a seaman can, we see no reason to question the ability of a longshoreman also to recover, for that follows from the reasoning of Seas Shipping Co. v. Sieracki, supra,[3] especially when it is read with the opinion in Swanson v. Marra Brothers, Inc., supra,[4] Public Law 695 of June 19, 1948, 46 U.S. C.A. 740, has now probably laid all such doubts, but we think that it was not necessary in order to support a recovery in this particular situation." (Emphasis supplied.)
The question has not been expressly adjudicated in our own Circuit. However, in Hagans v. Farrell Lines, Inc., 3 Cir., 1956, 237 F.2d 477, plaintiff longshoreman was on the pier assisting in the unloading of the vessel, when a draft of coca beans being lowered from the ship fell on him as the result of an unseaworthy condition of the winches on the vessel. Judgment for the plaintiff was affirmed on appeal. The questions considered on appeal did not include whether the warranty of seaworthiness extended to plaintiff, but it seems clear that the court assumed that it did.
The Strika case has been followed or cited with approval in several recent cases. Pope & Talbot, Inc. v. Cordray, 9 Cir., 1958, 258 F.2d 214, 216; Valerio v. American President Lines, D.C.S.D. N.Y.1952, 112 F. Supp. 202; Revel v. American Export Lines, Inc., D.C.E.D. Va.1958, 162 F. Supp. 279; Schoening v. 102 Jute Bags, D.C.E.D.Pa.1955, 132 F. Supp. 561.
The authorities relied upon by Weyerhaeuser are not, in our view, determinative of the issue.
We decide, therefore, that the shipowner's warranty of seaworthiness extended to the present plaintiffs, despite the fact that they were injured while participating ashore in the operation of loading ship's cargo.
Weyerhaeuser's next contention is that, assuming the applicability of the general maritime law, plaintiffs nevertheless were not individuals to whom the warranty of seaworthiness extends. The nub of the contention is that the plaintiffs were merely preparing the cargo for loading; that they were not doing the actual loading; that their function was comparable to that of a clerk handling shipping papers in an uptown office, or a checker directing traffic at the pier entrance.
This argument is devoid of merit. It is true, as defendant reminds us, that labels are not conclusive. United New York and New Jersey Sandy Hook Pilots Ass'n. v. Halecki, 1959, 358 U.S. 613, 617, 79 S. Ct. 517, 3 L. Ed. 2d 541. The fact remains, however, that plaintiffs were engaged in the work of loading, which is the work of the ship's service, performed until recent times by members of the crew. Seas Shipping Co. v. Sieracki, 1946, 328 U.S. 85, 96, 66 S. Ct. 872, 90 L. Ed. 1099. It is of no moment that the draft was raised and then lowered onto chocks before it began its upward and lateral movement into the ship. The term loading is not a word of art, and is not to be narrowly and hypertechnically interpreted. Plaintiffs' actions at the time of the accident were direct, necessary steps in the physical transfer of the steel from the railroad car into the *818 vessel, which constituted the work of loading.
Since the argument in this case, Weyerhaeuser has favored us with a memorandum prompted by a remark from the benchwhich purports to demonstrate "the fallacy of the rather widely held concept that the work which is today performed by longshoremen was formerly performed by members of the crew". We have read with great interest the many quotations from learned authorities upon this question presented by able counsel for our consideration. For present purposes, however, we must regard the question as no longer open. "Historically the work of loading and unloading is the work of the ship's service, performed until recent times by members of the crew": Seas Shipping Co. v. Sieracki, 328 U.S. 85, 96, 66 S. Ct. 872, 878. Again, referring to a "common core of policy" running through the cases, the Court said (328 U.S. at page 99, 66 S.Ct. at page 879):
"It is that for injuries incurred while working on board the ship in navigable waters the stevedore is entitled to the seaman's traditional and statutory protections, regardless of the fact that he is employed immediately by another than the owner. For these purposes he is, in short, a seaman because he is doing a seaman's work and incurring a seaman's hazards."
Finally, Weyerhaeuser urges that the judgment should be vacated for the additional reason that the defective appliance was not part of the vessel's equipment, but was furnished by Nacirema. We think defendant's position is unsound. The evidence establishes that the "Baltimore dog" was attached to and became a part of the ship's gear. It thus became an appliance appurtenant to the ship. Defendant, under the law could not, by contract or otherwise, delegate to Nacirema the defendant's duty to the plaintiffs to provide a seaworthy vessel and appurtenances. Alaska Steamship Co. v. Petterson, 1954, 347 U.S. 396, 74 S. Ct. 601, 98 L. Ed. 798.
Defendant attempts to distinguish Petterson on the ground that "the block which caused the longshoreman's injuries was a device commonly found aboard vessels, as part of the vessel's regular equipment." That the circumstance alluded to was not the determinative factor in the case, however, may be seen from the context in which the statement appears in the opinion of the Court of Appeals (9 Cir., 205 F.2d 478, 479): "It is not clear whether the block belonged to the ship or the Stevedoring Co., it being the type of equipment commonly found as part of the gear of both ships and stevedoring firms." See, also, the dissenting opinion at 347 U.S. 398, 74 S. Ct. 602.
The Petterson case was cited and followed in Rogers v. United States Lines, 1954, 347 U.S. 984, 74 S. Ct. 849, 98 L. Ed. 1120, and our own case, De Van v. Pennsylvania Railroad Company, D.C.E.D. Pa.1958, 167 F. Supp. 336.
Fredericks v. American Export Lines, 2 Cir., 1955, 227 F.2d 450, cited by defendant, is not in point. In that case plaintiff was injured when a skid or platform on which he was working gave way. The skid belonged to the stevedore, was located on the pier and, when in use, provided an extension of the floor to the upper level of the pier. As the opinion points out (at page 454): "No vessel was connected with the accident."
In each of the third-party actions (Weyerhaeuser v. Nacirema), the court made findings in substance as follows:
1. Weyerhaeuser and Nacirema entered into a written contract (Exhibit D-15), whereby Nacirema agreed to perform the stevedoring services required by Weyerhaeuser in the loading of the vessel.
2. Weyerhaeuser, in the circumstances which existed at the time of the accident, used reasonable care in keeping the vessel secured to the dock by its mooring lines.
3. The number and/or the arrangement of the steel beams in the railroad car did not subject the plaintiff to any *819 unreasonable risk of harm in the break-out of the beams.
4. The "Baltimore dog" furnished and used by Nacirema for the break-out of the steel beams on the day in question was, at and immediately before the time of the use of the "break-out dog", in a defective and unsafe condition in that its horizontal lip was bent downward about 15 degrees, and its vertical 12-inch shaft was bent out of line about 15 degrees.
5. The "Baltimore break-out dog" in the condition in which it was at the time of the accident, as heretofore found, was not a reasonably safe, suitable and proper appliance for the use to which it was then being put.
6. The break-out by Nacirema of six steel H-beams of 10-inch size, by the use of the defective "Baltimore break-out dog", was not an exercise of reasonable care by Nacirema under the circumstances, and in that respect Nacirema was negligent.
7. The injuries to Bernard Litwinowicz and to Joseph Matyas resulted from the use by Nacirema of a defective "Baltimore dog" in breaking-out the steel beams, and from the breaking-out by Nacirema with that defective "dog" of six steel H-beams of 10-inch size.
The court supplemented these findings with an additional finding, as follows:
The trial court finds that six steel H-beams of 10-inch size was a greater number of beams than could be safely and properly broken-out with a "Baltimore dog" that was not in defective condition.
The contract between Weyerhaeuser and Nacirema necessarily included an obligation on the latter's part to discharge the duties of its employment in a safe, proper and workmanlike manner. Ryan Stevedoring Co. v. Pan-Atlantic Steamship Corp., 1956, 350 U.S. 124, 76 S. Ct. 232, 100 L. Ed. 133; Weyerhaeuser Steamship Co. v. Nacirema Operating Co., 1958, 355 U.S. 563, 78 S. Ct. 438, 2 L. Ed. 2d 491. In Ryan supra, it was said (350 U.S. at pages 133-134, 76 S.Ct. at page 237):
"This obligation is not a quasi-contractual obligation implied in law or arising out of a noncontractual relationship. It is of the essence of petitioner's stevedoring contract. It is petitioner's warranty of workmanlike service that is comparable to a manufacturer's warranty of the soundness of its manufactured product. The shipowner's action is not changed from one for a breach of contract to one for a tort simply because recovery may turn upon the standard of the performance of petitioner's stevedoring service."
Our findings establish Nacirema's breach of its warranty of workmanlike service, and the resulting injuries to the plaintiffs. Weyerhaeuser, therefore, is entitled to indemnification for all damages it has sustained as a result of that breach. Crumady v. The Joachim Hendrik Fisser, 1959, 358 U.S. 423, 428, 79 S. Ct. 445, 3 L. Ed. 2d 413.
Nacirema contends, however, that since the alleged breach of warranty and the resulting injuries to plaintiffs occurred on shore, "Pennsylvania law must be used to interpret the contract so as to determine whether or not there was a breach of this contract with respect to this particular act, and if so, what consequences flow therefrom." We think this contention is unsound. Nacirema admits that a contract for stevedoring services is a maritime contract. The respective rights and duties of the parties, therefore, should be determined by federal, and not state, principles, in accordance with what seems to be the general rule. So much, we think, is implicit in the Ryan, Weyerhaeuser and Crumady cases, supra. The governing considerations are well stated in A/S J. Ludwig Mowinckels Rederi v. Commercial Stevedoring Co., 2 Cir., 1958, 256 F.2d 227, 229.
"The provision in Art. III, § 2, of the Constitution extending the judicial power of the United States to `all Cases of admiralty and maritime Jurisdiction', although silent as *820 to the substantive law to be applied, has resulted in the application of a large body of general (or federal) maritime law, much of which has been created by federal courts sitting in admiralty. Where states have sought to enter the field by statute their efforts usually have been thwarted as infringements of a field reserved to Congress and the federal courts by the Constitution and as interferences with the uniformity requirements of the maritime law (citing authorities). And in the field of maritime contracts generally, the cases are clear that in most situations federal, and not state, principles apply to determine the respective rights and duties of the parties. In fact the Supreme Court only recently discussed the implied promise of a stevedore to indemnify a shipowner for foreseeable damages resulting from the stevedore's breach of its implied warranty of workmanlike performance, Ryan Stevedoring Co. v. Pan-Atlantic Steam Ship Corp., 350 U.S. 124, 76 S. Ct. 232, 100 L. Ed. 133; Weyerhaeuser Steamship Co. v. Nacirema Operating Co., 355 U.S. 563, 78 S. Ct. 438, 2 L. Ed. 2d 491, and made no mention of state rules which either create or condition this liability. Obviously, therefore, the Court considered that these problems are governed solely by federal maritime principles."
Wilburn Boat Co. v. Fireman's Fund Ins. Co., 1955, 348 U.S. 310, 75 S. Ct. 368, 99 L. Ed. 337, greatly relied upon by Nacirema, is limited by its own peculiar facts, and decided only that there was no rule of federal origin or application defining the effect of warranties in marine insurance policies, and that in the absence of such rule, the court would give effect to a state statute.[5]
It may be added that even were the contract construed in accordance with Pennsylvania law, the result might well be the same as under the maritime law. While we find no Pennsylvania case directly in point, Builders Supply Company v. McCabe, 366 Pa. 322, 77 A.2d 368, 24 A.L.R. 2d 319, provides an excellent discussion and review of the cases on indemnity generally, and the distinction between indemnity and contribution. We emphasize to Nacirema that the question before us is one of indemnity, and not one of contribution between joint tort-feasors. Maio v. Fahs, 339 Pa. 180, 14 A.2d 105, and similar cases, are therefore not in point.
The jury found, in answer to question 2a, that Weyerhaeuser, in the circumstances which existed at the time of the accident, used reasonable care in keeping the vessel secured to the dock by its mooring lines. The court made a similar finding, as already noted, in the third-party actions.
Nacirema asks us to amend that finding to state that Weyerhaeuser did not, in the circumstances which existed at the time of the accident, use reasonable care in keeping the vessel secured to the dock by its mooring lines. Nacirema also asks to to make as an additional finding of fact the following: "The lack of reasonable care by Weyerhaeuser in keeping the vessel secured to the dock by its mooring lines was a substantial factor in causing plaintiffs' injuries."
The evidence on this point was in direct and irreconcilable conflict. Plaintiffs' witness Okavage, who operated the break-out winch at the time of the accident, testified that the vessel moved in toward and away from the pier a distance of 2 or 3 feet. Another witness for plaintiffs, Somensky, corroborated this, and also stated that, in addition, the ship moved 4 or 5 feet forward and backward. He stated that at the time of the accident, "The ship breasted in to the pier." A third witness, Collins, who was hatch tender at the time of the occurrence called by plaintiffs and later by defendant testified that before the accident "she was breasting in, about two feet and *821 out, in and away from the pier," but that there was no movement of the ship at the moment of the accident. The witness, Somensky, speaking of the mooring lines, stated: "Well, I seen them very slack, and then they would tighten up, and then slacken again."
Plaintiffs produced an expert witness who testified that, assuming the vessel moved as described by these witnesses, it was not properly secured to the dock. He stated, in answer to a hypothetical question, that there were not sufficient mooring lines out on the bow of the vessel. He stated that the action of the tides and the loading of the vessel, with consequent changes in the vessel's elevation in relation to the pier, would cause the mooring lines to slacken or to tighten, and that due care required inspection of the lines at intervals and the making of necessary adjustments. The witness testified that any movement of the vessel would necessarily be transmitted to the draft of beams causing the end of the draft not raised to bind against the adjoining tiers of beams in the car, and that as the draft was lowered onto the chocks it "could not necessarily fall as fast as the dog was lowered away, and that fractional part of a second that it hung up before it finally did go from its own weight is my opinion when that dog slipped out."
On the other hand, there was abundant testimony that the vessel was properly moored, and that there was no movement whatsoever at the time of the accident or at any other time. The master of the ship so testified, as did the pilot who brought the ship in and did the original mooring. The relief mate on duty at the time of the occurrence stated that he inspected the mooring lines and the mooring of the vessel and found them satisfactory; that there was no motion of the ship; that he probably adjusted the lines that evening, and the lines would be slacked because of the incoming tide. The officer of the Coast Guard who investigated the accident stated that he had received no complaints of improper mooring of the ship at the time of the occurrence. Plaintiff Matyas testified that he saw no movement of the ship at the time in question.
The evidence on this issue was voluminous and no purpose would be served by reviewing it in greater detail. Enough has been said to indicate that the question was one for the finders of fact, and their conclusion was clearly not opposed to the weight of the evidence.
In support of its motions for a new trial, Weyerhaeuser urges that the evidence convicted both plaintiffs of contributory negligence, and that the jury's answers to the contrary were against the weight of the evidence. Nacirema makes a similar contention, and requests that we make findings accordingly. Our review of the evidence persuades us that the contention is without merit.
It appears in the evidence that the beams were about centered lengthwise in the railroad car, leaving an open space of 6 or 7 feet between either end of the beams and the end of the car. Plaintiffs' witness Collins testified that if plaintiffs had gone down into either of these end spaces after placing their chocks under the draft, neither of them would have been struck by the falling beams. From this it is argued that plaintiffs, in the exercise of due care for their own safety, should have taken such precautions, and that their failure to do so constituted contributory negligence. Collins also testified, however, that plaintiffs had to be on "top of the steel" to place their chocks under the draft, and to put the "bridles" on it for hoisting it into the vessel after the steel was lowered onto the chocks. Moreover, Matyas testified, without contradiction, that he had to guide the draft as it came down onto the chocks "and then wrap the wire up". Asked by the court why he did not go down into the end of the car after placing his chock, Matyas stated: "* * * when I placed my chock just at that time, I just about straightened up to go to the side of the car when the hook (dog) slipped. I didn't have the chance to go." Several witnesses testified that it was the uniform practice to remain on top of the *822 beams during the operation because of the time element involved.
There was uncontradicted testimony, too, that both plaintiffs stepped to the side of the car after placing their chocks. The jury might well conclude that, in the existing circumstances, plaintiffs took every rational and practicable measure to insure their own safety, and fully complied with the duty of due care. The jury might reasonably find that plaintiffs could not have anticipated or foreseen that a defective "dog" would cast the beams on them, and could not therefore have realized the peril in their position. The risk reasonably to be perceived defines the duty to be obeyed. Dahlstrom v. Shrum, 368 Pa. 423, 425, 84 A.2d 289.
Finally, Weyerhaeuser contends that the amount of damages assessed by the jury in favor of the plaintiffs was excessive, and moves the court for a new trial in each case on that issue.
In the course of the oral argument, counsel for Weyerhaeuser stated that it would be "difficult" for him to ask us to say that the verdict in favor of Litwinowicz was so excessive as to shock our conscience. This verdict ($65,000) may, under the evidence, be liberal, but we do not find it excessive. The motion, in this case, will therefore be denied.
The verdict in favor of Matyas has been the subject of our serious consideration and concern. Matyas was struck as he was attempting to escape over the side of the freight car. The falling beams pinned his right leg against the side of the car, and three fingers were caught under the steel. Following the accident he was taken to a hospital, where it was found that he had sustained a fracture of the tibia and fibula in relation to the ankle joint. He was taken home after four days in the hospital.
Matyas was a patient at another hospital from July 2 until July 27, (1956), where he was attended by Dr. Friedenberg, who also saw him on several subsequent visits as an outpatient. Plaintiff was in a third hospital for about a month in 1957.
There can be no doubt, under the evidence, that plaintiff suffered severe and painful injuries as a result of the accident. His injured member was confined in a cast for many months. He was unable to get about except with the aid of crutches until December 1956, when he began to use a cane. However, the medical testimony, on both sides, indicates a strong propensity on this plaintiff's part to exaggerate his injuries, and a marked disinclination to cooperate in efforts looking towards his rehabilitation.
Plaintiff produced Dr. Friedenberg at the trial. He stated that plaintiff's fracture was fully healed in November 1956. He noted at that time, however, that "the patient has shown a very unsatisfactory response to therapy as far as rehabilitating him"; that the patient had been "very difficult to handle in his last two or three visits, as I am trying to make him more independent in walking but he seems to insist in depending upon his crutches."
Dr. Friedenberg last saw plaintiff on December 26, 1956, at which time plaintiff was somewhat improved, able to walk without crutches, but showed a "very poor" limp on the right side. A very complete examination showed a residual swelling of a mild degree referable to the right lower extremity, and a moderate restriction of ankle range in the nature of 10 to 15 degrees in "planta flexion". A note made by the witness at that time states:
"I feel that this patient is at the present time fully recovered from the effects of his fracture, but that he is suffering from the effects of overweight, poor muscle tone. I also think that he has not made any strong effort to condition himself to return to work. He continues to have a variety of complaints referable to both hips, the back, the upper extremities and shoulders which are not directly referable to his injury."
Defendant called Dr. Ornsteen, who stated that he had examined Matyas in June 1957, and October 1957, as a consultant in connection with treatment *823 which plaintiff was then undergoing, and that on these occasions he found an element of "conscious exaggeration" on plaintiff's part. Testifying as plaintiff's own witness, Dr. Ornsteen stated that his examinations of plaintiff disclosed a 50 per cent functional disability of the right lower limb. Questioned on cross-examination with respect to the connection between plaintiff's "allegations" and the pending litigation, Dr. Ornsteen testified that "because of his allegations being so bizarre and grossly exaggerated and not in keeping with the findings in respect of the time element from the date of the injury until I examined him, these to me indicated gross exaggeration. And when there is no need for acting that way any more there will be no more of that allegation."
Dr. Weldon, called by plaintiff, stated that he treated plaintiff from September 1957, until February 1959, at first in association with Dr. Orr and later alone. He said that on his first examination he found that the fracture of the ankle had resulted in a complication known as sympathetic muscular dystrophy, characterized by a lessening of the musculature of the leg, changes in the blood supply of that member and some degree of pain; that these complaints persisted from the time of the injury "to the time I saw him and when I last saw him." Dr. Weldon discovered from records that plaintiff had received treatment from other physicians, including Dr. De Palma, who had performed a series of nerve blocks in an effort to determine whether the blood supply to the extremity could be increased, thereby relieving the symptoms. The prior treatment had been unsuccessful, and Dr. Weldon ruled out surgery. Plaintiff was "carried on" tranquillizing agents, that had been prescribed earlier by Dr. Ornsteen. Dr. Weldon stated that it was felt that in association with plaintiff's illness there was a "pattern of exaggeration", and that the amount of pain was "rather exhorbitant". He testified that there is no program available at the present time to restore the proper circulation in plaintiff's limb. In the witness' opinion, the final result, insofar as the fracture itself was concerned, "is a very good one". He estimated that the permanent disability in plaintiff's right limb would be about 40 per cent, but stated that it is a matter of will on plaintiff's part to overcome "a certain element of this". He was of the opinion that plaintiff would have some difficulty in climbing, and that his main handicap would be a "matter of fatigue". Finally, Dr. Weldon testified: "It boils down to the fact that I believe he should make an effort to do something to go out and work, to do another form of work, and in so in so doing provide his own therapy. In other words, take his mind off his disability and thereby regain a modicum of use of the extremity".
On January 13, 1959, plaintiff was examined, at defendant's request, by Dr. M. A. Blaker, who testified as defendant's witness. After a recital of the history he had obtained, and a detailed description of his examination of plaintiff, Dr. Blaker stated that he had found nothing to indicate impairment of circulation in the right lower extremity, that plaintiff had equal and palpable pulses on both sides, and that, in his opinion, plaintiff was not suffering from a reflex sympathetic dystrophy at the time of his examination. Dr. Blaker stated that he was of the opinion that the "very extensive and diffuse and bizarre" complaints referable to the right foot and ankle were being exaggerated, since he could find no clinical evidence of dystrophy of the right lower extremity, or of other conditions described by the plaintiff. The witness expressed the opinion that plaintiff was able to work at the time of the examination, although he did not particularize the type of work.
Plaintiff testified that his legs start to shake under him when he walks any distance or even when he stands still, that he gets sharp pains in his leg, and that he has not noticed any improvement in his condition in the last year or so.
It appears that plaintiff was about forty years of age at the time of the accident. *824 His education included "around" two and a half years in high school, but he has engaged only in freight handling or longshore work. In the three last full years prior to the accident, his gross income averaged about $5,100 per year. Plaintiff has not worked since the accident, for the reason, he explained, that he "can't do any" work.
Whatever the degree of plaintiff's present disability, it is certainly a fair inference from all the testimony that it is the result, in large part, of his failure to cooperate in his own rehabilitation, and thus provide, to the extent possible, his own therapy. Plaintiff was under the duty, as are all plaintiffs, to make an honest and resolute attempt to mitigate the damages.
The jury's assessment of damages ($75,000) seems to us unwarranted under the evidence. During the trial, unable fully to control his emotions, Matyas, in full sight of the jury, gave vent to tears while testifying and on several other occasions, while medical testimony concerning his injuries was being heard. We are convinced that the amount of the verdict in his favor reflected the influence of the sympathy evoked by those tears and accounted for the fact that the award to him substantially exceeded the award to Litwinowicz who undoubtedly suffered much the more serious injuries. We conclude that this verdict is excessive, and that a new trial should be granted, unless the plaintiff, Matyas, files a remittitur of all sums in excess of $55,000. Accordingly, we enter the following
Order
Now, December 21, 1959, in Civil Action 21553, it is ordered that the post-trial motions of the defendant, Weyerhaeuser Steamship Company, and of the third-party defendant, Nacirema Operating Co., Inc., are denied.
In Civil Action 21554, it is ordered that the post-trial motions of the defendant, Weyerhaeuser Steamship Company and of the third-party defendant, Nacirema Operating Co., Inc., for a new trial will be granted unless the plaintiff, Joseph Matyas, on or before January 15, 1960, files a remittitur of all sums in excess of $55,000. The remaining post-trial motions of the said defendant and the said third-party defendant are denied.
NOTES
[1] 189 U.S. 158, 23 S. Ct. 483, 47 L. Ed. 760.
[2] Article III, Sec. 2.
[3] 328 U.S. 85, 66 S. Ct. 872, 90 L. Ed. 1099.
[4] 328 U.S. 1, 66 S. Ct. 869, 90 L. Ed. 1045.
[5] See the excellent comment on this case in A/S J. Ludwig, supra, 256 F.2d at page 230.
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83 A.2d 753 (1951)
DURNEY
v.
ST. FRANCIS HOSPITAL, Inc.
Civ. A. No. 160, May Term, 1947.
Superior Court of Delaware, New Castle.
August 8, 1951.
Thomas Herlihy, Jr., Wilmington, for the plaintiff.
Southerland, Berl & Potter and Vincent A. Theisen, Wilmington, for the defendant.
RICHARDS, P. J., sitting.
*754 RICHARDS, President Judge.
In order to pass upon the defendant's motion for summary judgment, it is necessary to consider three questions which are raised by the pleadings in this case.
First, is the defendant, St. Francis Hospital, Incorporated, organized, conducted *755 and maintained, as shown by the pleadings in this case, a charitable institution?
Second, is a corporation not organized for profit and with no capital stock, which conducts and maintains a hospital as a charitable institution, exempt from liability for the negligence of its agents or employees such as nurses, when such negligence results in injury to a patient in said hospital, if the hospital was not negligent in the selection and training of such agents or employees?
Third, if a corporation not organized for profit and with no capital stock, which conducts and maintains a hospital as a charitable institution, is exempt from liability for the negligence of his agents or employees, does the fact that a patient in said hospital pays for the treatment and service which he receives change the rule of liability and make the hospital liable for the negligence of its said agents or employees?
The objects and purposes for which the defendant was incorporated, as shown by Article 3 of its Certificate of Incorporation are, "the construction, furnishing and equipping, and the maintenance of a Hospital in the City of Wilmington, to provide surgical and medical services and care and nursing for persons in need of the same, and to do all things necessary or incidental to carrying out the above objects and purposes". Section 4 of said Certificate of Incorporation further sets forth that it is not organized for profit and no capital stock will be issued. The conditions of membership being "interest and zeal in the furtherance of the charitable work for which this corporation is organized and particularly active interest in the construction and maintenance of said Hospital".
It appears from the affidavits that defendant derives its funds from state appropriations, public and private contributions and amounts received from those who are able to pay for its benefits, all of which is applied in furtherance of its charitable purposes.
The hospital is open to all persons regardless of race, creed or financial ability, and the corporation has never been required to pay a franchise tax to the State, or a filing fee upon filing its annual report.
A satisfactory definition of a legal charity, or a charitable institution, which would cover all circumstances would be hard to give. In the case of Jackson v. Phillips, 14 Allen 539, 556, 96 Mass. 539, 556, Judge Gray after tracing the history of charities from the Statute of 43 Elizabeth states that a charity in a legal sense, may be more fully defined as, "a gift to be applied consistently with existing laws, for the benefit of an indefinite number of persons either by bringing their minds or hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves in life or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government".
It is true that the defendant receives compensation for its services from those who are able to pay, and the pleadings show that it received compensation from the plaintiff, but as already stated its certificate of incorporation states that it was not organized for profit and the conditions of membership are interest and zeal in the furtherance of charitable work.
Applying the definition of charities as quoted from the case of Jackson v. Phillips to the provisions of the defendant's certificate of incorporation and the supporting affidavits, it seems clear that the defendant is a charitable institution.
The question of whether a non-stock, non-profit, charitable corporation, which conducts and maintains a hospital by public and private contributions, and funds received from those who are able to pay, is liable for injury to a patient caused by the negligence of its agents and employees, such as nurses, has never been decided by the Court in this State.
It is a very important question and many decisions have been rendered upon it by the various courts throughout the country. These decisions are not only very conflicting but many of them are accompanied by dissenting opinions.
*756 As early as 1846, the English Court in the case of Feoffees of Heriot's Hospital v. Ross, 12 Clark & Fin. 507, 513, 8 English Reprint 1506, held that funds bequeathed for the founding and maintenance of a hospital were trust funds and could not be used for the payment of damages sustained by those who claimed to have been injured by the action of the trustees. The theory of the case being, that to give damages out of a trust fund would apply it to a purpose which the donor of the fund did not have in view, and divert it to a completely different purpose.
This trust fund theory had been previously adopted in the case of Duncan v. Findlater, 6 Clark & Fin. 894, 7 Eng. Reprint 934. It was rejected however, in Mersey Docks and Harbor Board Trustees v. Gibbs, L.R. 1 H.L. 93, 11 Eng. Reprint 1500 which was decided in 1866, and has not been recognized by the English Courts since that time.
The question first arose in this country in the case of McDonald v. Massachusetts General Hospital, 120 Mass. 432, 21 Am. Rep. 529, which was decided in 1876. The object for which the defendant was incorporated in that case was to provide a general hospital for sick and insane persons. It was not organized for profit, had no capital stock, and its funds were derived mainly from public and private charities. The Court held the defendant had no funds which could be charged with any judgment which the plaintiff might recover, except those which were held subject to the trust of maintaining the hospital, consequently he could not recover, citing the English case of Holliday v. St. Leonard's, 11 C.B. (N.S.) 192. The Court did hold, however, that it was the duty of the defendant to use due and reasonable care in the selection of its agents.
The principle was next laid down in the State of Maryland, in the case of Perry v. House of Refuge, 63 Md. 20, 52 Am.Rep. 495, in which the Court held that damages could not be recovered from a fund held in trust for charitable purposes. In this case the case of Feoffees of Heriot's Hospital v. Ross, supra, was cited. Both the Massachusetts and Maryland Courts apparently overlooked the fact that the English cases relied upon had been overruled and were not then considered as authority in that country.
Among the numerous other cases in this country which have held charitable institutions exempt from liability for the negligence of their employees and agents, on the ground, that the funds which they receive are held in trust for charitable purposes are:
Fire Ins. Patrol v. Boyd, 120 Pa. 624, 15 A. 553, 1 L.R.A. 417; Boeckel v. Orange Memorial Hospital, 108 N.J.L. 453, 158 A. 832, affirmed 110 N.J.L. 509, 166 A. 146; Brown v. St. Luke's Hospital Association, 85 Colo. 167, 274 P. 740; Emery v. Jewish Hospital Association, 193 Ky. 400, 236 S.W. 577; Gamble v. Vanderbilt University, 138 Tenn. 616, 200 S.W. 510, L.R.A.1918C, 875; Parks v. Northwestern University, 218 Ill. 381, 75 N.E. 991, 2 L.R.A.,N.S., 556; Hill v. President and Trustees of Tualatin Academy, 61 Or. 190, 121 P. 901; Mississippi Baptist Hospital v. Moore, 156 Miss. 676, 126 So. 465, 67 A.L.R. 1116; Union Pacific Railway Co. v. Artist, 8 Cir., 60 F. 365, 23 L.R.A. 581.
Many of the reported cases which recognize the trust fund theory hold the defendant exempt from liability for negligence on the ground that it is a public charity. Fire Ins. Patrol v. Boyd, supra; Boeckel v. Orange Memorial Hospital, supra; Taylor v. Protestant Hospital Ass'n, 85 Ohio St. 90, 96 N.E. 1089, 39 L.R.A.,N.S., 427.
Another line of cases take the position that one who accepts the benefits of a public charitable institution impliedly waives its liability for negligence. Powers v. Massachusetts Homopathic Hospital, 1 Cir., 1901, 109 F. 294, 65 L.R.A. 372; Cook v. John N. Norton Memorial Infirmary, 180 Ky. 331, 202 S.W. 874, L.R.A.1918E, 647; Thomas v. German General Benevolent Society, 168 Cal. 183, 141 P. 1186.
There are jurisdictions in which it has been held that those who are designated as strangers, including visitors, persons who are delivering articles to charitable institutions and many others in similar situations are entitled to recover from the institution *757 for the negligence of its agents and employees. Cohen v. General Hospital Soc. of Connecticut, 113 Conn. 188, 154 A. 435; Winona Technical Institute v. Stolte, 173 Ind. 39, 89 N.E. 393; Bougon v. Volunteers of America, La.App.1934, 151 So. 797; Marble v. Nicholas Senn Hospital Ass'n, 102 Neb. 343, 167 N.W. 208; Daniels v. Rahway Hospital, 160 A. 644, 10 N.J.Misc. 585; Cowans v. North Carolina Baptist Hospital, Inc., 197 N.C. 41, 147 S.E. 672.
In some states the courts have held that paying beneficiaries can recover from charitable institutions. Tucker v. Mobile Infirmary Ass'n, 191 Ala. 572, 68 So. 4, L.R.A.1915D, 1167; Nicholson v. Good Samaritan Hospital, 145 Fla. 360, 199 So. 344, 133 A.L.R. 809; Robertson v. Executive Committee of Baptist Convention, 55 Ga.App. 469, 190 S.E. 432; Henderson v. Twin Falls County, 56 Idaho 124, 50 P.2d 597, 101 A.L.R. 1151.
When the charitable institution is protected by insurance the courts of Colorado and Tennessee have held that it is liable for its negligence. McLeod v. St. Thomas Hospital, 170 Tenn. 423, 95 S.W.2d 917; O'Connor v. Boulder Colorado Sanitarium Ass'n, 105 Colo. 259, 96 P.2d 835, 133 A.L.R. 819.
The first decision in this country holding that a charitable institution was liable for the negligence of its employees on the same basis as a private corporation organized and operated for profit, was handed down by the Supreme Court of Rhode Island in the case of Glavin v. Rhode Island Hospital, 12 R.I. 411, 34 Am.Rep. 675. The facts of that case are very similar to those of the pending case. The Court reviewed the English cases above referred to and the Massachusetts case of McDonald v. Massachusetts General Hospital, supra. The manner in which it considered the question is expressed in these words: "It may be that some of the corporate property, the buildings and grounds for example, is subject to so strict a dedication that it cannot be diverted to the payment of damages. But, however, that may be, we understand that the defendant corporation is in the receipt of funds which are applicable generally to the use of the hospital, and following the decision in Mersey Docks v. Gibbs, we think a judgment in tort for damages against the corporation can be paid out of them. Indeed, we cannot see why these funds are not as applicable to the payment of damages for tort as to the payment of counsel for defending an action for such damages. Both payments are to be regarded as incident to the administration of the trust".
The principle laid down in the Glavin case above referred to, which was decided in 1879, has been recognized by numerous other decisions including, Tucker v. Mobile Infirmary Ass'n, 191 Ala. 572, 68 So. 4, L.R.A.1915D, 1167; Humphreys v. San Francisco Area Council, Boy Scouts of America, Cal.App.1942, 129 P.2d 118; Silva v. Providence Hospital, 1939, 14 Cal. 2d 762, 97 P.2d 798; Mulliner v. Evangelischer Diakonniessenverein of Minnesota Dist., 1920, 144 Minn. 322, 175 N.W. 699; Nicholson v. Good Samaritan Hospital, 1940, 145 Fla. 360, 199 So. 344, 133 A. L.R. 809; Dillon Rockaway Beach Hospital & Dispensary, 1940, 284 N.Y. 176, 30 N.E.2d 373; Sheehan v. North County Community Hospital, 1937, 273 N.Y. 163, 7 N.E.2d 28, 109 A.L.R. 1197; Turnage v. New Bern Consistory No. 3, 1939, 215 N.C. 798, 3 S.E.2d 8; Rickbeil v. Grafton Deaconess Hospital, 1949, 74 N.D. 525. 23 N.W.2d 247, 166 A.L.R. 99; Sisters of the Sorrowful Mother v. Zeidler, 1938, 183 Okl. 454, 82 P.2d 996; Brigham Young University v. Lillywhite, 10 Cir., 1941, 118 F.2d 836, 137 A.L.R. 598, certiorari denied 1941, 314 U.S. 638, 62 S. Ct. 73, 86 L. Ed. 512; President and Directors of Georgetown College v. Hughes, 1942, 76 U.S.App.D.C. 123, 130 F.2d 810; Foster v. Roman Catholic Diocese of Vermont, 1950, 116 Vt. 124, 70 A.2d 230.
In the recent case of Moore v. Moyle, 1950, 405 Ill. 555, 92 N.E.2d 81, the Supreme Court of Illinois held that a charitable institution is not exempt from liability for the tortious acts of its agents or servants, but that a judgment recovered against it could not be collected from its trust fund. Beyond that, the rule of respondeat superior was held to be in effect.
*758 Also the Court of Civil Appeals of the State of Texas, in the case of Medical & Surgical Memorial Hospital v. Cauthorn, 1949, 229 S.W.2d 932, held that a charitable corporation is liable for the negligence of its managing officers when a patient was injured by their failure to supply proper equipment.
In Harper on "The Law of Torts", at Section 294, is found the following comment: "The immunity of charitable corporations in tort is based upon very dubious grounds. It would seem that a sound social policy ought, in fact, to require such organizations to make just compensation for harm legally caused by their activities under the same circumstances as individuals before they carry on their charitable activities. The policy of the law requiring individuals to be just before generous seems equally applicable to charitable corporations. To require an injured individual to forego compensation for harm when he is otherwise entitled thereto, because the injury was committed by the servants of a charity, is to require him to make an unreasonable contribution to the charity, against his will, and a rule of law imposing such burdens cannot be regarded as socially desirable nor consistent with sound policy".
It is contended that the overwhelming weight of authority in this country is in favor of the exemption of charitable corporations from liability for the torts of their agents and employees. After reading many cases decided in the various states throughout the country, I am convinced that the contention is, at least, doubtful. The numerous distinctions made in the decisions certainly weaken their effect.
There is quite a difference between charitable institutions today and those which existed when they were first held to be exempt from tort liability. Those which existed at that time were small and the funds which they had were not large, when compared with many which we find today whose funds are provided for by foundations and in some instances are unlimited.
The argument made in some of the earlier cases, that the funds of the institution would soon become exhausted, or that persons would not make donations for charitable purposes if they were used to pay damages, does not apply with the same force as it did at that time.
There can be no doubt that the trend of the decisions today, and the views expressed in many of the law journals, is in favor of imposing full liability upon charitable corporations for the torts of their agents and employees.
I am convinced that the general principle which makes every person responsible for his own legally careless action, should apply with equal force to charitable corporations. The doctrine of respondeat superior also applies to charitable corporations and makes them responsible for the negligent acts of their agents and employees, when such acts are clearly incidental to the business of the corporation, to the same extent that individuals are. This is true whether the beneficiary pays for the service which he receives or not. It is unreasonable to hold that persons who do not pay for the service which they receive from a charitable corporation, cannot recover for injury resulting from the negligent acts of those for whose acts the corporation is responsible, when such acts are incidental to the business of the corporation.
I can see no difference whether the tortious act relied upon by the plaintiff was committed as alleged in the first count of the statement of claim, or whether it was a breach of the express contract as alleged in the second count.
As far as the facts before me disclose, the equipment used in the delivery room, also that used in the nursery, was furnished by the defendant. Likewise the nurses who assisted the doctor and took care of the children after their birth were provided by defendant.
If the burns which it is alleged the plaintiff received were caused by the negligence of the defendant in failing to provide proper equipment in the delivery room and nursery of its hospital, or if said burns which it is alleged the plaintiff received were caused by the negligence *759 of the agents or employees of the defendant, the defendant is liable for the injury resulting from said burns.
Whether the defendant was negligent by failing to provide proper equipment in the delivery room or nursery of its hospital, or whether the agents or employees of the defendant were negligent by failing to properly care for plaintiff, are questions of fact for the jury.
The motion for summary judgment is denied.
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582 S.W.2d 800 (1979)
Walter BELL, Jr., Appellant,
v.
The STATE of Texas, Appellee.
No. 57898.
Court of Criminal Appeals of Texas, En Banc.
January 24, 1979.
Rehearing Denied April 4, 1979.
*802 Jesse R. Funchess, Houston, for appellant.
Tom Hanna, Dist. Atty. and John R. DeWitt, Asst. Dist. Atty., Beaumont, for the State.
Before the court en banc.
Rehearing En Banc Denied April 4, 1979.
OPINION
TOM G. DAVIS, Judge.
Appeal is taken from a conviction for capital murder. V.T.C.A. Penal Code, Sec. 19.03(a)(2). The jury returned an affirmative finding to each special issue submitted under Art. 37.071(b), V.A.C.C.P., and accordingly the punishment was assessed at death.
The record reflects that the bodies of Fred and Irene Chisum were found in the bathtub of their home in Port Arthur on Friday, July 19, 1974. Irene Chisum had last been seen alive at about 6:40 p. m. the prior evening. Fred Chisum was last seen alive at about 8:45 p. m. the same evening.
The bodies of the Chisums were discovered after they failed to arrive at the business they owned and operated known as the "Appliance Service Center." The Chisums' service manager, Harry Creswell, sent John Brocks to their home about 11:45 a. m. on Friday, July 19, 1974, to check on them. He found the front door ajar and the interior of the home in disarray. He reported back to Creswell, who immediately notified the police and instructed Brocks to return to the Chisums' home and meet the police. Creswell's testimony also established that it was common knowledge among the service center's employees that the Chisums were known to keep the business' receipts at their home overnight. The record also reflects that the appellant had been employed at the Appliance Service Center for some seven weeks when his employment was terminated on July 5, 1974.
The investigating officers testified that the interior of the home bore signs of violence and that it appeared that the Chisums had been stabbed and strangled. Numerous items of physical evidence from the home as well as photographs of the scene were introduced into evidence.
On the same day the bodies of the Chisums were discovered, appellant attempted to cash a check drawn on the Chisums' account at the Sabine National Bank. The appellant first came under suspicion when the investigating officers began to check on recently fired employees from the Chisums' business. The investigating officers were advised by the Sabine National Bank that an individual, later identified as appellant, who attempted to cash a check drawn on the Chisums' account was wearing a green football jersey with the number "12" on it and that he was using an identification card bearing the name "Bobby Williams."
After the appellant's arrest, he executed a written consent to the search of his residence, where the police recovered numerous incriminating items, including the ends of an electrical extension cord, other pieces of which were found near the Chisums' bodies, and a plastic container of coins, which were shown to have been taken from the Chisums' residence. Both the football jersey and the identification card were also recovered from the appellant's residence.
*803 Appellant gave two written statements, both of which were admitted into evidence after a Jackson v. Denno[1] hearing. Both of the confessions admit the murder of the Chisums. The second written confession also implicates a co-defendant, Sheppard Watson, and admits the robbery and rape of Irene Chisum.[2] The written confessions *804 were consistent with numerous items of physical evidence found at the scene of the crime.
On Monday, July 21, 1974, the appellant volunteered to accompany the investigating officers to the Chisums' home and to point out the location of some checks which had been part of the day's business receipts that the officers had been searching for without success. When they arrived at the Chisums, appellant pointed out the location of the checks, which were found inside a book.
Officer Calise Blanchard then related a complete oral confession given by the appellant at the scene while he reenacted the entire crime.
The record further reflects that appellant's fingerprint was found at the scene. A pathologist testified that Irene Chisum died from asphyxiation due to strangulation. He also testified that he found evidence that Irene Chisum had engaged in sexual intercourse at some time soon before her death. A chemist from the Texas Department of Public Safety testified that human blood, type B, was found on various items of clothing and other pieces of physical evidence taken from the Chisums' residence. Type B human blood was also present on a pair of appellant's pants that the State contended the appellant had been wearing at the time of the crime.
The appellant offered evidence of an alibi and testimony that, although a high school graduate, he had been in a special education program in the Port Arthur Independent School District.
The sufficiency of the evidence is not challenged by the appellant. We note that the transcription of the court reporter's notes of appellant's trial, exclusive of the individual voir dire, comprises some 2,700 pages. We would also note that the State offered some 239 items of evidence and the defendant offered over 30 exhibits.
*805 The appellant initially contends that the trial court erred "in refusing to submit a charge to the jury during the competency hearing in regards to the question of the defendant's retardation ...."
The record reflects that a question of appellant's competency to stand trial having been presented to the trial court, a separate jury was impaneled and a trial of the appellant's present competency conducted. The jury found the appellant competent. Although appellant in his brief asserts that he objected to the court's charge at the competency trial, the record fails to disclose that such objection or requested charge was presented to the court at the competency trial. Nothing is presented for review. Arts. 36.14 and 36.15, V.A.C.C.P.
The appellant next contends that the trial court erred "in refusing to incorporate testimony on the issue of defendant's competency into the court records." There is no citation to the record or discussion in appellant's brief with respect to this contention. Our own examination of the record leads us to believe that appellant is complaining of the trial court's failure to transcribe certain testimony elicited at appellant's competency trial and have it read to the jury during the guilt-innocence stage of appellant's trial.
The record reflects that during the trial on guilt or innocence a defense witness, Dr. Ruilman, who had testified at the competency trial, was not present. There was discussion between appellant's counsel, the prosecutor, and the trial judge of whether his testimony from the competency trial could be transcribed and presented to the jury in lieu of having him return to testify. It appears that a written stipulation was entered wherein the appellant and the State stipulated that the testimony of Dr. Ruilman from the competency trial would be transcribed and presented to the jury. It does not appear, that this was ever done. The record does, however, reflect that immediately thereafter Dr. Ruilman appeared in person and testified as a defense witness. No error is shown.
Appellant next contends that the trial court erred "when a juror was stricken because he expressed some conscientious scruples against the death penalty."
The record reflects the following from the voir dire of Josephine Asbury upon examination by the prosecutor:
"Q. Would the fact that the death penalty would become mandatory if you made the appropriate answers to these questions and made a finding of guilt of Capital Murder, would the fact that the death penalty would then become mandatory have any effect in your general deliberation as to any fact issue in the case, either at the guilt stage or the punishment stage?
"A. Yes.
"Q. You say it would, I take it from the answer that you have some conscientious belief against the death penalty as a punishment for crime?
"A. Yes, sir.
"Q. Could youand I must ask you this questionit's our final question, Mrs. Asbury. Can you conceive of any situation in which you as a juror could render answers to the questions that would cause the death penalty to be inflicted? Could you conceive of any case where you could vote for a verdict that would result in the death penalty?
"A. What do you mean?
"Q. Well, could you conceive offor example, a fact situation, a murder bad enough or a situation horrible enough that you as a juror could make these answers knowing that the answers would result in the death penalty?
"A. No; I just don't believe in the death penalty."
After further examination by appellant's counsel, the following exchange took place between the trial court and the prospective juror:
"THE COURT: ... you would be asked certain other questions and you will know that if those questions are answered *806 one way the Court will have to impose the death penalty, and you will know that if the questions are asked [sic] another way a life sentence will have to be imposed. Now, will that have any effect on you in determining what the truth is with respect to the questions which are asked you?
"VENIREMAN ASBURY: I'm afraid it would."
At this point the trial court sustained the prosecutor's previously made challenge for cause.
It is clear from the examination of the prospective juror set out above that sustaining the State's challenge for cause did not violate the teaching of Witherspoon v. Illinois, 391 U.S. 510, 88 S. Ct. 1770, 20 L. Ed. 2d 776 (1968). Furthermore, it is clear that Asbury was disqualified because of her testimony that her opposition to the death penalty would affect her deliberation on the issue of the facts submitted at the punishment phase of the trial. See V.T.C.A. Penal Code, Sec. 12.31(b); Moore v. State, 542 S.W.2d 664 (Tex.Cr.App.), cert. denied, 434 U.S. 935, 97 S. Ct. 2666, 53 L. Ed. 2d 266 (1977); Burns v. State, 556 S.W.2d 270 (Tex.Cr.App.1977); Hughes v. State, 562 S.W.2d 857 (Tex.Cr.App.), cert. denied ___ U.S. ___, 99 S. Ct. 268, 58 L. Ed. 2d 250 (1978); Chambers v. State, 568 S.W.2d 313 (Tex.Cr.App.1978). No error is shown.
The appellant next contends that the trial court erred in ordering a blood sample be taken from the appellant during the course of the trial in order to determine his blood type.
During the course of the trial, the State sought to prove appellant's blood type by introduction of appellant's medical records from the United States Marine Corps. The appellant's objection to the admission of these records was sustained because they were not properly authenticated. The State then proposed that the court order a blood sample be taken at that time from the appellant to determine his blood type. The appellant strenuously objected on the grounds that such a test would violate his right of self-incrimination under the Fifth Amendment of the United States Constitution. The trial court overruled the objection and ordered the sample taken by a registered nurse outside the presence of the jury. The trial court ordered the court reporter to accompany the appellant, his counsel, and the nurse while the sample was taken in order to make a record of the transaction for this Court. Subsequently, testimony from a laboratory technician was admitted, again over appellant's objection that the evidence was obtained in violation of his rights under the Fifth Amendment of the United States Constitution, that appellant's blood type was O positive.
In Schmerber v. California, 384 U.S. 757, 86 S. Ct. 1826, 16 L. Ed. 2d 908 (1966), a case involving a conviction for driving while intoxicated, the United States Supreme Court specifically rejected the argument that withdrawal of a sample of a defendant's blood and receipt in evidence of a chemical analysis of the blood violated the self-incrimination clause of the Fifth Amendment. See also Breithaupt v. Abram, 352 U.S. 432, 77 S. Ct. 408, 1 L. Ed. 2d 448 (1957); Irvine v. California, 347 U.S. 128, 74 S. Ct. 381, 98 L. Ed. 561 (1954); and compare these with Rochin v. California, 342 U.S. 165, 72 S. Ct. 205, 96 L. Ed. 183 (1952).
In Olson v. State, 484 S.W.2d 756 (Tex.Cr. App.1972), this Court held that compelling a handwriting sample from a defendant does not constitute compelling an accused to "give evidence against himself" in violation of the Texas Constitutional provision on self-incrimination. The Court further held that compelling a blood test, if taken under conditions which comport with due process, likewise does not violate the state privilege against self-incrimination. This Court reasoned that such tests are non-testimonial in nature and thus the self-incrimination privilege is not implicated under such circumstances. The Court in Olson further noted that many types of physical evidence are compellable from an accused consistent with both the Fifth Amendment of the United States Constitution and Art. I, Sec. 10, of the Texas Constitution. A partial list of these types of physical evidence include *807 fingerprints, examination of the tongue, fingernail scrapings, footprints, requiring the accused to stand in a lineup, requiring the accused to raise his hand before the jury, a paraffin test, requiring the accused to put on clothes and speak before the jury.
Recently, in Escamilla v. State, 556 S.W.2d 796 (Tex.Cr.App.1977), this Court held that the taking of a blood sample was a search and seizure within the meaning of Art. I, Sec. 9, of the Texas Constitution, and thus the State was required to comply with the provisions of Art. 1.06 and Chapter 18, V.A.C.C.P. At the time of the Escamilla decision, it would have been impossible to obtain a valid warrant since blood was not one of the items for which a search warrant could issue under Art. 18.02, V.A.C.C.P. Since that time, Art. 18.02, supra, has been amended. The holding in Escamilla, supra, was recently reaffirmed in Smith v. State, 557 S.W.2d 299 (Tex.Cr.App.1977), where this Court made clear again that the holding in Escamilla was grounded on the search and seizure provisions of the Texas Constitution.
In the instant case, the only objection to the admission of the results of the blood typing test was as follows:
"MR. FUNCHESS: Your Honor, we would like to object to any testimony about the blood type or any other aspect about this particular sample being exhibited or reported in front of this jury inasmuch as I think that a prior witness has testified that any blood which might have been given to Mrs. Cutter was seized in violationwas seized without the consent of this defendant, over his objection and we have asserted that the particular sample was seized in violation of the Fifth Amendment of the Constitution and Article 1.02 of the Texas Code of Criminal Procedure and many, many other cases on that subject and we would like to object to this witness testifying as to any particular blood experimentation or report or sampling that she might have had occasion to do."
Under the holding of Schmerber v. California, supra, this objection was properly overruled. In White v. State, 521 S.W.2d 225 (Tex.Cr.App.1975), this Court reversed a conviction on the grounds of an illegal search and seizure of the defendant's car. The decision of this Court was "reversed" by the United States Supreme Court in Texas v. White, 423 U.S. 67, 96 S. Ct. 304, 46 L. Ed. 2d 209 (1975). In White v. State, 543 S.W.2d 366 (Tex.Cr.App.1976), on remand from the United States Supreme Court, it was urged that the conviction could still be held invalid under the provisions of Art. 1, Sec. 9, of the Texas Constitution. In Part III of the opinion, this Court stated:
"We do not reach this question. The appellant's sole reliance in the trial court was on cases construing the Fourth Amendment to the United States Constitution.... At no time during the trial of this case did the appellant urge that Article I, Sec. 9 of the Texas Constitution supported his motion to suppress. "It is fundamental that the grounds for reversal urged on appeal must comport with the objections made at trial. See e. g., Smith v. State, 513 S.W.2d 823, 830 (Tex.Cr.App.1974); Campbell v. State, 521 S.W.2d 636, 637 (Tex.Cr.App.1975). Otherwise nothing is presented for review. Smith v. State, supra; Campbell v. State, supra.
"This rule extends to allegations of constitutional error. Foreman v. State, 505 S.W.2d 564, 566 (Tex.Cr.App.1974)."
We are therefore compelled to hold that the trial court's overruling of appellant's objection to the introduction of evidence of the blood sample was proper under the teachings of Schmerber v. California, supra, and the question of the applicability of Art. I, Sec. 9, of the Texas Constitution, and Escamilla v. State, supra, is not before us. Appellant's contention is overruled.
The appellant next contends that the trial court erred "in refusing to order the district attorney and/or other law enforcement agencies to identify seventeen (17) sets of fingerprints allegedly found at the scene of the crime, none of which belong to the appellant." The appellant argues that the failure to compel the State to *808 identify the other fingerprints amounted to a suppression of evidence, citing Napue v. Illinois, 360 U.S. 264, 79 S. Ct. 1173, 3 L. Ed. 2d 1217 (1959), and Brady v. Maryland, 373 U.S. 88, 83 S. Ct. 1194, 10 L. Ed. 2d 215 (1963).
The record reflects that Officer Herbert F. Johnson of the identification section of the Port Arthur Police Department testified regarding the fingerprints found at the Chisums' home. Eighteen latent fingerprints were introduced into evidence. One of these, a thumbprint, was found to match the known thumbprint of the appellant. The officer testified that he was unable to identify the remaining seventeen latent prints. He testified that they had been compared against all known suspects in the case and that they could not be identified. He testified also that he attempted to obtain the fingerprints from the bodies of the two victims, but was unable to obtain sufficiently readable prints. We would also note that we have carefully reviewed the testimony of Officer Johnson and have failed to find where the appellant requested the "order" or motion for such an order referred to in appellant's ground of error. We would further note that his brief contains no references to where such a request can be found in the record.
It is clear from Officer Johnson's testimony that the existence of the unidentified fingerprints was fully disclosed to the jury and in fact the State offered the unidentified prints into evidence as State's exhibits. It also appears that they had been tendered to defense counsel. Officer Johnson carefully explained why he was unable to identify the prints and fully explained the identification procedures that were used. No suppression of evidence is shown. Appellant's contention is overruled.
Appellant next contends that the trial court erred in not allowing him "to mention the lack of fingerprint identification in the presence of the jury." The circumstances relating to the seventeen unidentified fingerprints have been fully explained in the previous ground of error. In his brief, appellant argues "that since the State was allowed to introduce into evidence the existence of fingerprints at the scene of the crime, appellant should have been allowed to pursue the examination of Officer Johnson in order to place before the jury the fact that no conclusive fingerprints of the appellant were found." In his brief, appellant makes no citation to where in the record he was not allowed to "pursue the examination of Officer Johnson." We have reviewed the cross-examination of Officer Johnson by appellant's counsel and find that appellant's contentions in his brief on appeal are not supported by the record. The record reflects that appellant's counsel was allowed wide latitude in cross-examining Officer Johnson and our review of the record fails to disclose any action on the part of the trial court such as appellant asserts in his brief. No error is shown.
Appellant next contends that the State failed to prove that his confessions were voluntarily made. It appears to be appellant's precise contention that, "As a matter of law appellant lacked the mental capacity to effectively waive his rights in making confessions and/or statements."
The record reflects that two written confessions were admitted into evidence as well as three "oral confessions" which led to "fruits of the crime." The trial court conducted extensive hearings outside the presence of the jury in order to determine the admissibility of the written and oral confessions. Findings of fact and conclusions of law were made and are filed in the record. The trial court found that the appellant was given all required warnings and that both the written and oral confessions were freely and voluntarily made. In his brief, appellant does not challenge any of these findings on either a factual or legal basis. His sole contention appears to be that as a matter of law the confessions are inadmissible because "appellant is mentally retarded and lacked the capacity to read and understand certain statements."
The record does not support appellant's conclusions. The record reflects that appellant, although a participant in the special education program in the Port Arthur Independent *809 School District, did receive a high school diploma. There was considerable disagreement among the various witnesses as to appellant's current IQ score, although all agreed that the appellant could properly be characterized as mildly retarded.
Dr. C.J. Ruilman, a psychiatrist called by the defense, was questioned on direct examination by appellant's counsel as to whether the appellant would "have some problem in conceptualizing things like `waiver' and `rights' and, you know, abstract concepts, waiver of rights and ...." The witness answered, "I should think Walter Bell would be able to get the general idea but would be somewhat deficient in conceiving of the ramifications of waivers of rights and questions of that sort. I think he would probably get the gist of it." On cross-examination, the witness was asked whether the appellant would have the ability to relate the incidents contained in the various confessions. The witness answered, "I would believe that Walter Bell could give an account such as this, but I do not believe that Walter Bell could put it in such neat and appropriate sentence structure ..." The witness also acknowledged that the appellant could certainly have understood the instructions that he could stop the interrogation at any time.
In Casias v. State, 452 S.W.2d 483 (Tex. Cr.App.1970), this Court stated:
"It has been said that there is a general agreement among courts that a confession of crime is not inadmissible merely because the accused, who is not insane, was of less than normal intelligence, Vasquez v. State, 163 Tex. Crim. 16, 288 S.W.2d 100, and mere illiteracy has not been considered as a form of mental subnormality. Berry v. State, 58 Tex. Crim. 291, 125 S.W. 580. In Vasquez, the confession was held to be admissible where the accused was shown to have been a `mentally deficient person between a moron and an imbecile' who had a `mental age of four years and seven months.'"
The Court also stated:
"Of course, if mental subnormality is so great that an accused is incapable of understanding the meaning and effect of his confession, then it would not be admissible. Grayson v. State, 40 Tex. Crim. 573, 51 S.W. 246."
In Grayson v. State, 438 S.W.2d 553 (Tex. Cr.App.1969), this Court held that whether a defendant had the mental competency or intelligence required to waive his right to remain silent and to have counsel present prior to the giving of the confession was for the court and the jury, and the testimony of a psychologist concerning the defendant's IQ of 51 was not conclusive and did not require a finding that the State failed to demonstrate a knowing and intelligent waiver of the right of self-incrimination. In Nash v. State, 477 S.W.2d 557 (Tex.Cr. App.1972), this Court, relying on Grayson v. State, supra, and Casias v. State, supra, held that a defendant with an IQ of 76 and an intelligence-emotional level of a 12-year-old was not as a matter of law incapable of waiving his rights. See also Encina v. State, 471 S.W.2d 384 (Tex.Cr.App.1971); Bizzarri v. State, 492 S.W.2d 944 (Tex.Cr. App.1973); Price v. State, 496 S.W.2d 103 (Tex.Cr.App.1973).
In this case, as in Brantley v. State, 522 S.W.2d 519 (Tex.Cr.App.1975), the appellant's contention that he is mentally incapable of knowingly and intelligently waiving his right to counsel or his right to remain silent is simply not borne out by the evidence.
Appellant next contends that "the court erred in refusing to dismiss the indictment against the appellant on the basis of the death penalty's unconstitutional and arbitrary application in violation of law." The appellant relies on the cases of Furman v. Georgia, 408 U.S. 238, 92 S. Ct. 2726, 33 L. Ed. 2d 346 (1972), and Jurek v. Texas, 428 U.S. 262, 96 S. Ct. 2950, 49 L. Ed. 2d 929 (1976). We find appellant's reliance on Jurek v. Texas, supra, to be misplaced since in Jurek the United States Supreme Court found that the Texas capital sentencing procedures, like those of Georgia and Florida, were not violative of the Eighth and Fourteenth Amendments to the United States Constitution. See Gholson and Ross *810 v. State, 542 S.W.2d 395 (Tex.Cr.App.1976), cert. denied, 432 U.S. 911, 97 S. Ct. 2960, 53 L. Ed. 2d 1084 (1977); Livingston v. State, 542 S.W.2d 655 (Tex.Cr.App.1976), cert. denied, 431 U.S. 933, 97 S. Ct. 2642, 53 L. Ed. 2d 250 (1977); Woodkins v. State, 542 S.W.2d 855 (Tex.Cr.App.1976), cert. denied, 431 U.S. 960, 97 S. Ct. 2688, 53 L. Ed. 2d 279 (1977); Granviel v. State, 552 S.W.2d 107 (Tex.Cr.App.), cert. denied, 431 U.S. 933, 97 S. Ct. 2642, 55 L. Ed. 2d 250 (1977). Appellant's contention is overruled.
Appellant next contends that the trial court erred in failing to find jury misconduct because the jury deliberated for only one hour before finding appellant guilty of capital murder.
In Garcia v. State, 435 S.W.2d 533 (Tex. Cr.App.1968), a non-capital case, a similar contention was advanced and it appeared that the jury deliberated for approximately 20 minutes before reaching their verdict. This Court stated:
"This Court as early as Turner v. State, 74 S.W. 777 (Cr.App.1903) said:
`The law has fixed no time in which jurors shall make up their mind as to what their verdict shall be. There is no reflection upon their conduct in any way other than the fact that they were not out considering their verdict exceeding five minutes. This is not misconduct on the part of the jury, and affords no ground setting the verdict aside.'
See also Ann. 91 A.L.R. 2d 1238."
See also 41 Tex.Jur.2d, New Trials, Sec. 76, at 193. No error is shown.
Appellant next contends that the trial court erred in denying his motion for a change of venue. The record reflects that appellant timely filed a motion for change of venue. See Art. 31.03, V.A.C.C.P. The State properly controverted the motion. See Art. 31.04, V.A.C.C.P. Compare Stapleton v. State, 565 S.W.2d 532 (Tex.Cr.App. 1978); Durrough v. State, 562 S.W.2d 488 (Tex.Cr.App.1978). The trial judge conducted an extensive hearing on appellant's motion for change of venue and denied the motion. Compare Henley v. State, 576 S.W.2d 66 (1978).
At the hearing on the change of venue question, appellant presented several witnesses employed by both the print and electronic news media in Jefferson County. All these witnesses testified that the news coverage of appellant's case had been about average for a case of this nature. Each testified that the news coverage had not been excessive or inflammatory. In addition, each was of the opinion that the appellant could receive a fair trial in Jefferson County. Numerous exhibits were introduced reflecting the various articles that had appeared in local newspapers and transcriptions of television and radio news broadcasts. The appellant specifically cites exhibits which indicate that the District Attorney had indicated that he would seek the death penalty in appellant's case, that the appellant would undergo a psychiatric examination, and that the appellant had made a confession to the murders. In addition, there are several photographs of the appellant while in custody, apparently being led to and from court. Appellant particularly complains that the photographs of him "displaying his race" and indicating that he was being defended by a lawyer formerly associated with the NAACP demonstrate prejudicial pretrial publicity.
An examination of the exhibits introduced at the hearing on the motion for change of venue indicates that all the information contained in the news reports was accurate and apparently placed there for the purpose of informing the public of current events. Adami v. State, 524 S.W.2d 693 (Tex.Cr.App.1975); Morris v. State, 488 S.W.2d 768 (Tex.Cr.App.1973); Taylor v. State, 420 S.W.2d 601 (Tex.Cr.App.1967). There is no showing that by reason of pretrial publicity there existed in the public mind a prejudice so great as to prevent appellant from receiving a fair and impartial trial. Morris v. State, supra; Taylor v. State, supra.
We must, however, remember that the question of whether a change of venue should be granted because of prejudicial publicity is one of constitutional dimension *811 and the test to be applied by the court is whether outside influences affecting the community's climate of opinion as to a defendant are so inherently suspect that the resulting probability of unfairness requires suitable procedural safeguards. Adami v. State, supra. In Irvin v. Dowd, 366 U.S. 717, 81 S. Ct. 1639, 6 L. Ed. 2d 751 (1961), eight of the twelve jurors at the defendant's state court trial thought that he was guilty before the trial began. The United States Supreme Court struck down defendant's conviction on the ground that pretrial publicity had resulted in a denial of due process. In Rideau v. Louisiana, 373 U.S. 723, 83 S. Ct. 1417, 10 L. Ed. 2d 663 (1963), a 20-minute TV film of the defendant's "confession" was broadcast several times on the local television stations. Again the conviction was struck down, the Supreme Court holding that under these facts prejudice must be presumed. In Estes v. Texas, 381 U.S. 532, 85 S. Ct. 1628, 14 L. Ed. 2d 543 (1965), the defendant's trial was conducted in a "circus atmosphere" due to the intrusion of press and TV equipment in the courtroom. Again the United States Supreme Court struck down the conviction, finding that under those facts prejudice must be presumed. In Shepard v. Maxwell, 384 U.S. 333, 86 S. Ct. 1507, 16 L. Ed. 2d 600 (1966), the Supreme Court found that the defendant's trial was infected with extremely inflammatory publicity and that the courthouse had been given over to the media in order to accommodate the public's appetite for carnival. Again the court found that prejudice must be presumed from those facts. We should, however, compare the foregoing United States Supreme Court cases with Beck v. Washington, 369 U.S. 541, 82 S. Ct. 955, 8 L. Ed. 2d 98 (1962), where the court found that pretrial publicity surrounding the trial of a former president of the Teamsters' Union was not so intensive or extensive as to raise a question as to the believability of the jurors' answers to the questions propounded to them on voir dire. Likewise, in Murphy v. Florida, 421 U.S. 794, 95 S. Ct. 2031, 44 L. Ed. 589 (1975), the Supreme Court held that prospective jurors' exposure to information about the defendant's prior crimes and news accounts of the crime for which he was charged did not presumptively deprive the jurors of impartiality nor deny the defendant due process.[3]
In the instant case, the trial court was presented with conflicting testimony with respect to the issue of whether the appellant could obtain a fair trial in the local community because of pretrial publicity. The appellant has simply failed to demonstrate that the trial court abused its discretion in declining to grant a change of venue. Ransonette v. State, 522 S.W.2d 509 (Tex.Cr.App.1975), cert. denied, 423 U.S. 941, 96 S. Ct. 350, 46 L. Ed. 2d 274 (1976); Freeman v. State, 556 S.W.2d 287 (Tex.Cr. App.1977), cert. denied, 434 U.S. 1088, 98 S. Ct. 1284, 55 L. Ed. 2d 794 (1978).
Appellant next contends that the trial court erred in hearing the appellant's motion to suppress his confession and the results of a lineup together outside the presence of the jury. The record reflects that appellant's counsel affirmatively agreed to this procedure. No error is shown.
Appellant next contends that the trial court erred in failing to grant his specially requested charge on whether the appellant had the mental capacity to consent to the search of his premises.
An examination of the court's charge reveals that the trial court instructed the jury as follows with respect to this issue:
*812 "You are instructed that under our law as applicable to this case any search of the premises of the accused without a search warrant, or voluntary consent of the defendant to search, written or oral, would not be lawful. Therefore, in this case should you fail to find from the evidence beyond a reasonable doubt, or if you have a reasonable doubt thereof, that consent to the search of the premises of the defendant was voluntarily and understandingly given either orally or in writing, or any combination thereof, then such search would be unlawful and you would wholly disregard the same, and any evidence obtained as a result thereof."
We find the instruction given by the trial court to be a correct statement of the law and no error is shown in refusing the defendant's specially requested charge on this issue.
The appellant next contends that the trial court erred in denying his specially requested charge regarding the voluntariness of the confession because he was mentally retarded "to the extent that he was incapable of knowingly, intelligently, and voluntarily making said confession."
An examination of the charge given reveals that the trial court fully instructed the jury on the law applicable to the admissibility of both the written and oral confessions made by the appellant. The trial court specifically charged the jury that as to each written confession:
"If you fail to find from the evidence beyond a reasonable doubt, or if you have a reasonable doubt thereof, that the same was freely and voluntarily, considering each of said exhibits separately, that prior to the time the defendant gave the alleged statement or statements or confession or confessions he was warned as aforesaid or that he did not knowingly, intelligently, and voluntarily waive said right prior to and during the making of said statement, then such statement would not be voluntary and in such case, you will wholly disregard said statement or confession and not consider it for any purpose ...."
The record further reflects that the court charged the jury in substantially the same manner with respect to the oral confession made by the appellant. We find the charge to the jury to be proper and that appellant's specially requested charge singling out the issue of mental retardation would have been an improper comment on the weight of the evidence.
The appellant next contends that the trial court erred in failing to submit his specially requested charge on circumstantial evidence. The confessions of the appellant constitute direct evidence of his guilt. Where such confessions are admitted into evidence, there is no requirement to charge on circumstantial evidence. See and compare Williams v. State, 566 S.W.2d 919 (Tex.Cr.App.1978), with Ridyolph v. State, 545 S.W.2d 784 (Tex.Cr. App.1977).
Appellant next contends that the trial court erred "in refusing to compel the prosecuting attorney to disclose certain oral statements allegedly made by the appellant while under arrest and in custody."
The appellant does not cite us to any portion of the record where the trial court ordered the discovery of appellant's oral confessions. Further, examination of the record discloses that at the time evidence of appellant's oral confessions came into evidence, no objections were made on this basis. Nothing is presented for review.
Appellant in his final ground of error contends that fundamental error is presented in the court's charge by the "inflammatory wording regarding specific intent to kill." In argument under this ground of error it appears, however, that the appellant is complaining that there was a comment on the weight of the evidence. No objection was voiced in the trial court. We have carefully examined the complained-of *813 section of the charge and find no fundamental error.[4]
The judgment is affirmed.
NOTES
[1] 378 U.S. 368, 84 S. Ct. 1774, 12 L. Ed. 2d 908 (1964). See Art. 3822, Sec. 6, V.A.C.C.P.
[2] Appellant's second written confession, omitting the warnings and signatures, reads in part as follows:
"My name is ... Walter Bell, Jr., and I am a Negro male, 20 years old. I live at 1310 E. 10th. rear, Port Arthur, Texas. I live alone at that address. At the present time I am a laborer at Local 853 on Thomas Blvd. in Port Arthur, Texas. I am also an amateur boxer.
"In the morning hours of July 20, 1974, I gave a statement to Calise Blanchard of the Jefferson County District Attorney's Office and I did not tell all of the truth in that statement and I would like to tell the truth in this statement and correct that statement that I made on July 20, 1974.
"On July 15, 1974, I was at Gilham Circle along with Sheppard Watson whom I call `hobo', and we were just talking and `hobo' said that he needed some money to go to the Jazz Festival in Houston on the 19th and 20th of July. We discussed going out to the house of Mr. and Mrs. Ferd [sic] Chisum and robbing the Chisums. I told `hobo' to meet me around the Soul Kitchen at 11:00 P.M. we left from the Soul Kitchen (this was Thursday night July 18, 1974) and went to my house to get my bag. I had some handcuffs that I had gotten in Fort Worth at a boxing tournament and some extension cord that was light brown. This cord is the kind that has two wires that run side by side and are more flat than round. Then I had cut the ends of the extension cords off at my house before Sheppard and I got over to my house on the night of the 18th of July. I also had my military separation papers in this bag. This bag is a small brown zipper bag with a Marine Corps emblem on the front of it. I also had a butter knife that I had sharpened and it was in the bag also.
"Sheppard Watson, `hobo', and I then walked from my house out to the Chisum house. When I was working at Appliance Service Center for Mr. Chisum, Johnny Brocks and I had taken Jerry Brocks out to Mr. Chisum's house so that Jerry could cut the grass. That is how I knew where Mr. and Mrs. Chisum lived. We walked real fast and I guess it took us about thirty minutes to get from my house to the Chisum house.
"I was wearing a grey T-shirt with VOTE written on the front of it and some plum colored pants (these pants are very light plum colored) and some black slip on shoes. I was also wearing a blue Levi jacket.
"`Hobo' was wearing a blue muscle T-shirt and black pants and a pair of black shoes.
"When we got to the Chisum house I knocked two times on the front door and Mr. Chisum came to the door and said `Who is it?', and I said, `it's me, Walter', and Mr. Chisum opened the front door and he said `you'll come on in' and Hobo and I then went into the house and into the living room. Mr. Chisum said, `What can I do for you Walter?' I told Mr. Chisum that I was there to ask him for my job again. Mr. Chisum had fired me from my job at Appliance Service Center on July 12, 1974, because Jerry Brocks had bent the door on one of the trucks on a call when I was with him. Mr. Chisum had fired Jerry and I both at this same time. I told Mr. Chisum (while at the house with `Hobo') that the damage to the truck was not my fault and that it was Jerry's fault and that I wanted to go back to work if it could be possible. Mr. Chisum told me `I'm sorry that it happened but people have told me that you and Jerry have been racing in the truck and had been f_____ around on the job and taking too much time.' I asked Mr. Chisum for some papers of mine that he had that I needed to get into school on a G.I. loan and he told me that they were at the store. He told me to come to the store Tuesday (meaning Tuesday July 23, 1974) and he would see what he could do to help me. He also asked me if I liked working on machines and if I liked fixing things and I told him yes I did. After we finished talking and we were ready to leave I opened my bag and pulled out the butter knife on Mr. Chisum and told him to sit down. He then sat down on the couch in the livingroom [sic] and I put the handcuffs on him. I had given Sheppard the butter knife to hold on Mr. Chisum while I put the handcuffs on him. I then called Mrs. Chisum into the livingroom since she had been in the back part of the house. Mrs. Chisum then came into the living room and sat down. I tied her legs and her hands and we told them to go into the bedroom in the front of the house where there are two twin beds. I brought Mr. Chisum into the bedroom in the front and Sheppard took Mrs. Chisum into the room where there is a couch and a typewriter and a desk. I then went and cut the telephone wire in the front bedroom. Mr. Chisum was trying to get out of the bedroom so I started wrestling with him and I beat him with my two fists and knocked him down while he was on the floor I stuck him two times with the butter knife in the chest area. At this time Mr. Chisum was handcuffed and his feet were tied together with the extension cord I had brought from my house (when I stabbed Mr. Chisum he had untied his feet). Mr. Chisum did not try to get up and run after I had stabbed him. While I was in the front bedroom with Mr. Chisum, Sheppard was in the little room with the couch, typewriter and desk f_____ Mrs. Chisum. He was f_____ her on the couch. When I had finished with Mr. Chisum, I went into the little room where Sheppard and Mrs. Chisum were and I f_____ Mrs. Chisum. Mrs. Chisum was tied up with electrical cord that I had brought from my house and only her hands were tied. Mrs. Chisum did not have any panties on but did have a blue housecoat and a brassier. I made Mrs. Chisum get up off of the couch and take off her housecoat and brassier. After I finished f_____ Mrs. Chisum I tied her back up. While I was f_____ Mrs. Chisum Sheppard was looking through the house and I could hear him pulling out drawers and opening doors and making noise and moving furniture. After ... Sheppard and I had tied Mrs. Chisum back up (her feet) I choked her with a towel. During the time that Sheppard and I f_____ Mrs. Chisum she had a towel in her mouth as a gag and she could not talk. After I choked her I brought her into the bathroom and Sheppard and I put her body in the bathtub. After we put Mrs. Chisum's body in the bathtub we then went into the front bedroom and dragged Mr. Chisum from that bedroom and down a short hall and into the bathroom and pushed his body into the bathtub.
"Sheppard and I then started looking around the house together. We looked everywhere in the house and I took a tape player and some tapes. These tapes were reel type tapes and not cartridge type tapes. I got three watches, two mens and a womans, and $11.00 from the wallet of Mr. Chisum's wallet and a little plastic box with some new coins that were a half dollar, a quarter, a nickel, a dime and a penney [sic]. Sheppard found some money with three checks in an envelope in the ice box in the kitchen. This was $391.00.
"I would like to add that after we had finished f_____ Mrs. Chisum, she wrote a check out to Bobby Williams at our command in the amount of $600.00 and signed the check. Sheppard and I had untied her hands at this time so that she could sign the check. Right after Mrs. Chisum had signed the check is when I choked her to death.
"I then went into the dining room and used the phone and called Flash Cab Co. and the lady there said there were no cabs there. I then called Jet cab and the lady asked me the address I was at and I told her 1020 El Paso. She asked again what the address was and I told her it was something like L-a-s P-a-s-o, and the man said he could not understand so I hung the phone up and left. Before we left the house Sheppard and I split the money up and I got $190.00 and Sheppard kept the rest of the money."
[3] See also Calley v. Callaway, 519 F.2d 184 (6th Cir. 1975) (en banc) (in the My Lai court-martial case, the Court of Appeals found the petitioner had not been deprived of a fair trial by prejudicial publicity); United States v. Haldeman, 181 U.S.App.D.C. 254, 559 F.2d 31 (1976) (en banc) (in a trial of one of the Watergate defendants, the Court of Appeals held that the trial court correctly refused requests for a change of venue or a continuance when the defendants failed to show any actual prejudice among the members of the jury); see also People v. Speck, 41 Ill. 2d 177, 242 N.E.2d 208 (1968), reversed as to death penalty only, 403 U.S. 946, 91 S. Ct. 2279, 29 L. Ed. 2d 855 (1971) (the Illinois Supreme Court found that there was no showing that any of the 12 jurors who sat on the jury was prejudiced).
[4] The complained-of portion of the court's charge reads as follows:
"Before you would be warranted in convicting the defendant of capital murder, you must find from the evidence beyond a reasonable doubt not only that on the occasion in question the defendant was engaged in the commission of the felony offense of robbery of Irene L. Chisum, as defined in this charge, but also that during the commission of the robbery the defendant beat the said Irene L. Chisum with his hands and fists, or choked and strangled her with his hands, or choked and strangled her with a piece of cloth, with the intention of thereby killing her. Unless you find from the evidence beyond a reasonable doubt that the defendant, on the occasion in question, specifically intended to kill Irene L. Chisum when he so beat, choked or strangled her, if he did so beat, choke or strangle her, you cannot convict him of the offense of capital murder."
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8 N.J. 88 (1951)
83 A.2d 889
IN THE MATTER OF THE ESTATE OF JOHN A. GILLIES, DECEASED.
GUARANTEE BANK AND TRUST COMPANY, GUARDIAN AD LITEM FOR NICHOLAS G. GILLAS, A MINOR, DEFENDANT-APPELLANT,
v.
MARTHA GILLIES, INDIVIDUALLY AND AS EXECUTRIX OF THE ESTATE OF JOHN A. GILLIES, DECEASED, PLAINTIFF-RESPONDENT.
The Supreme Court of New Jersey.
Argued October 1, 1951.
Decided October 29, 1951.
*90 Mr. Alfred C. Clapp argued the cause for appellant (Mr. Daniel J. Dowling on the brief; Messrs. Endicott, Dowling & Endicott, attorneys).
Mr. Harry R. Coulomb argued the cause for respondent (Mr. John Rauffenbart, attorney).
The opinion of the court was delivered by CASE, J.
The appeal is from a judgment of the Atlantic County Court, Probate Division, and was certified on our motion from the list of the Superior Court, Appellate Division. The judgment confirmed the order of the Surrogate of Atlantic County admitting to probate the last will and testament of John A. Gillies and issuing letters testamentary thereon to Martha Gillies, and determined that Nicholas G. Gillas is not entitled to any portion of and has no interest in the decedent's estate.
The controversy centers on the alleged adoption by the decedent of Nicholas G. Gillas under a decree of the Greek courts and the effect to be given to that decree in the distribution of the decedent's estate.
John A. Gillies and Martha Gillies were husband and wife, domiciled at Cologne, Atlantic County, New Jersey. Mr. Gillies' will, executed October 3, 1945, after giving $2,000 to his brother Nicholas, left everything to his wife, Martha Gillies. In the will was this paragraph:
*91 "It is my wish and I hope that my said wife will adopt one of my nephews, a son of either Demitrios A. Gillies, or George Gillies, my brothers now living in Corinth, Greece, or, if it be her desire, a son of each of my said brothers, provided, of course, that said child or children are minors at the time of my decease, and that he or they will immigrate to this country and provide or procure the necessary consent or consents to his or their adoption by my said wife, to the end that the parents of said child or children shall be divested of all legal rights and obligations due from them to the said child, or from the child to them, and provided further, that the said child or children so to be adopted, by order in such proceedings, be awarded and shall adopt the surname of Gillies as and for their family name or names."
Nicholas G. Gillas is a son of the testator's brother George Gillas, named in the will as George Gillies.
John A. Gillies died at Clearwater, Florida, January 5, 1947. His will was probated in Atlantic County, New Jersey, January 20, 1947, and letters testamentary were issued to Mrs. Gillies. On September 14, 1948, the Guarantee Bank and Trust Company as guardian ad litem of Nicholas G. Gillas filed its petition in the Atlantic County Surrogate's Court seeking to set aside the probate and grant of letters. An order was made calling upon Martha Gillies to show cause why the prayer of the petition should not be granted. It was later enlarged to include the prayer that Nicholas be declared entitled as though John A. Gillies had died without a will. After hearing the judgment under appeal was entered.
The contention of the appellant is that the decedent, by a decree of the Corinth Court of First Instance in the Kingdom of Greece, dated August 29, 1946, in a proceeding initiated by him on March 22, 1946, adopted Nicholas George Gillas (whom we shall call Nicholas), 16-year-old son of the brother George, a resident of Corinth; that under our statute, R.S. 9:3-9, an adopted child becomes entitled on the death of the adopting parent to the same rights of inheritance and distribution as if born in lawful wedlock; that R.S. 3:2-15, providing that a will, made when a testator had no issue living wherein any issue he might have is not provided for or *92 mentioned, shall be void and the testator be deemed to die intestate if, at his death, he leave a child or issue, applies to an adopted child equally with a natural child, and that inasmuch as Nicholas was not mentioned in the will but was later adopted the decedent must be deemed to have died intestate and his property to have passed to Nicholas in the same manner and to the same extent as though the latter had been born naturally after the execution of the will and had not been provided for or mentioned therein. A copy of the decree was admitted in evidence, together with what is called an "official" translation. Our only knowledge of the contents of the decree comes from that translation.
The decree is the backbone of appellant's case. Without it the case falls; with it appellant may or may not prevail, depending upon various elements. Objection was and is made to the technicalities of proof, but we think that the decree, for what it is, is sufficiently authenticated. The effect to be given to it remains to be determined. It should be noted, however, that no copy of the full record, exemplified or otherwise, was offered in proof. We leave unanswered the quaere whether a mere recital in a decree that A.B., at the institution of a proceeding, was "present through his attorney lawyer" and by his petition sought a proclamation of adoption, is everywhere conclusive by international comity of the proposition that A.B. actually brought the suit, regardless of the fact that he was then, theretofore had been, and thereafter remained, a domiciliary of another country and was not then or thereafter in the country where the petition was filed, the proceeding had and the decree rendered. (For a discussion of the right of a defendant to attack a foreign judgment in a suit thereon in this jurisdiction, see Matera v. Hauptmann, 13 N.J. Misc. 483 (Sup. Ct. Circ. 1935)). We have nothing but the decree itself, amplified by a declaration of consent, which we shall mention in detail, taken in New York. The declaration of consent may not be enlarged into a consent to jurisdiction.
*93 On its face the decree proclaimed that the decedent did, as alleged, adopt Nicholas; but there are internal indications which point toward, or at least are not inconsistent with, the contention of respondent that neither she nor the decedent sought or knowingly consented to a Greek decree of adoption. Although the decree does not include a transcript of the proceedings, it does, with some fullness, show the course of them. It begins by stating that the applicant "John Athanas. Gillas" was "present through his Attorney-lawyer Agath. Panaghiotides" and that by his petition addressed to the court he asked "that Nicholas G. Gillas be proclaimed his adoptive son, in accordance with provisions of Articles 1632 and following of the Civil Code in force." That petition is not before us, and we have no knowledge of its existence or of its form or substance except from the recitals of the decree. There is no recital that it was signed by the applicant in person and there is no recital or proof that M. Panaghiotides, the attorney who undertook to file the petition, was working under authority from our decedent. Mrs. Gillies testifies that she received and filed her husband's correspondence and that she never saw any letter or envelope bearing the name of Agath. Panaghiotides. Decedent assuredly was not there in person. That is important because it is only by the allegations imputed to the petition that Gillies is brought in as a party to the cause. The efficacy of the petition is greatly impaired in that the prayer is alleged to have been for the proclamation of adoption "in accordance with provisions of Articles 1632 and following of the Civil Code." Theodore Sakellariadas, a citizen of Greece and the secretary of the Greek General Consulate in New York City, testifying in behalf of the present appellant as an expert in Greek law, said that the designated statutory provisions had no relation to the law of adoption and that the pertinent article was number 1576. Inasmuch as the Kingdom of Greece has no common law, and is, according to the proofs, strictly a code state, we fail to understand how the petition, so providing and remaining unamended, could be made the basis for a *94 judgment not comprehended by code sections upon which it rests. The extent to which the decree became potentially a judgment against Mr. Gillies may be measured by the reach of the remedy here sought, namely, the transfer of a major portion of his estate contrary to the provisions of his will. The thought may be expressed in another way: if the court at Corinth had jurisdiction to decree upon Gillies the relationship of adoptive father, effective here, then it had the authority, exercised by the same decree, to determine the applicability of our laws concerning the distribution and inheritance of decedent's estate, since our adoption laws and our distribution and inheritance laws are to be read together, and on the question of comity the two may not be severed. (On the general construction of our statutes from which this statement of the law is deducible see In re Book, 90 N.J. Eq. 549 (E. & A. 1919) and In re Alter, 92 N.J. Eq. 415 (Prerog. 1921)).
The next recital in the decree is that "Decision No. 206/46 of the said court was issued ordering as per contents of same." What that decision directed we do not know as the numerals are not met with again. Possibly they are a misprint for "Decision 208/46" which we next find stated as the authority for obtaining a "declaration which ought to be made in the presence of the Greek Consul General in New York of the United States of North America, appointed by the latter and aforesaid decision of the court as an introducing official for the case under consideration, by the applicant and his wife to the effect that they consent to adopt Nicholas G. Gillas * * *." The decree recites further proceedings in the Greek courts, including the taking of testimony there; also the receipt of a copy of the declaration, already mentioned, the incidents of which we shall presently discuss, taken before the Greek Consul General in New York which, according to the recital, showed that "the adopting party John Ath. Gillas and his wife Martha consent to adopt as their child Nicholas * * *." The conclusion of the decree is that the petition is accepted and that proclamation is made that Nicholas *95 is an "adoptive child of the applicant John Ath. Gillas * * *," "the applicant and his attorney being both absent." We are impressed by the fact that although the petition is said to have asked for a proclamation that Nicholas be the adoptive son of John, and the decretal portion directs that Nicholas is proclaimed the adoptive son of John, the references to the New York proceedings and indeed, as we shall see, the New York proceedings themselves, are consistent with, and in fact call for, a consent by John and his wife Martha that they shall be the adopting parents, namely, both of them, a procedure which is wholly inconsistent with the main purpose and the direction of the Corinthian decree that Nicholas be declared the adoptive son of John only.
We pass to the office of the Greek Consul General in New York, where Mr. and Mrs. Gillies went on July 8, 1946. The secretary, Sakellariadas, gave his testimony in English; but the transcript does not disclose ready familiarity with the spoken language. Indeed, the judge was constrained to remark "It is difficult for us to understand you. There is nothing wrong. It would probably be difficult if we went to Greece for them to understand us." That interruption came, interestingly enough, at the point where the witness was relating that Mrs. Gillies did not understand Greek and that he had explained the contents of the paper to her in English. Perhaps the difficulty experienced by the court had also been experienced by Mrs. Gillies. The witness' explanation to Gillies was in both English and Greek. The odd thing is that, if the proceeding was one which Gillies had instituted and was prosecuting under the direction and advice of learned counsel, he, since he was of Greek origin and was familiar with the Greek language, should require either explanation or interpretation. The papers had been in Gillies' hands. He and Mrs. Gillies brought them to the consulate. The witness made the further statement that with those legal papers were personal letters from members of Mr. Gillies' family giving instructions. It is inferrible from the general proofs that the moving influence in the proceeding was not from Gillies at *96 all but from the Gillas family in Greece and that Mr. and Mrs. Gillies went to the consular office without comprehension on the part of either of them of the purport of the business.
Mr. and Mrs. Gillies signed two papers in the consulate. Both papers were written in Greek characters and were prepared there on that day while they waited. The first was addressed to "Honorable Consul General" and according to the translation stated as follows:
"Submitting to you the decision no. 208/1946 of the Court of First Instance of Corinthos, we are requesting you to accept us to make before you the declaration of consent ordered by the above decision, necessary to be done for the adaption of our nephew Nicholas George Gillias, residing in Greece."
It was signed as follows:
"Respectfully yours,
The Applicants
John Athan. Gillias
Martha John Gillias"
Omitting the blind reference to "decision no. 208/1946," there was nothing on the face of that paper which indicates that the objective was an adoption within and according to the laws of Greece or that the paper was not an incident to permissive immigration looking toward an adoption of Nicholas in this country after arrival here.
The second paper was a declaration of consent for adoption which was signed by Mr. Gillies and Mrs. Gillies as "declarants." It was signed also by the consul general and by the witness as "Judicial Secretary and Interpreter" and bore the seal of the consulate. It certified that in accordance with a named statute (referred to simply by number) Mr. and Mrs. Gillies appeared, produced a copy of Decision No. 208/46 of the Corinth Court of First Instance and "requested to make before us the declaration re their consent to adopt their nephew Nicholas George Gillias, actually a resident of Corinth, which declaration was made necessary to be done *97 by the appearing parties by the ordnance of the aforesaid decision. * * * Whereupon the above appearing parties John Ath. Gillias and Martha, wife of John Gillias, through her said interpreter, stated that they consent to adopt their nephew Nicholas George Gillias, a resident of Corinth of Greece, in accordance with the ordnance of the decision referred to above." Decision No. 208/46 is not before us. Again, as to this paper, there is nothing on its face inconsistent with the respondent's contention.
Neither the papers themselves nor copies of them were forwarded by the consulate to the court. The originals were retained at the consulate and are still there. Copies of both papers were handed to Mr. Gillies to be forwarded and presumably went from him to his relatives in Greece and from them to the court at Corinth. It is to be observed that the adoption consented to was to be by both husband and wife. The consent was not to an adoption by the husband alone. Yet the decree proclaimed an adoption by John only, and the law of Greece, according to Sakellariadas, testifying as an expert, requires that the adoption sought to be effected by the decree must be consented to.
It is further stated by the witness that when Gillies came to the consulate on July 8 he brought a copy of a Greek decree, done in Greek, which ordered the taking of that declaration. That could not, of course, have been a copy of the decree, not yet issued or entered, proclaiming adoption. It may have been Decision No. 208/46 which is not in evidence; whether so or not the proof imputes no information to Gillies of an adoption in Greece as against an assisted immigration looking toward a proposed adoption here. Gillies was not in Greece after his will was executed. It is not shown that he, by any instruction or by any authority, whether direct or not, caused the adoption proceeding to be instituted. Reliance is on the bare assertions and provisions of a decree which is dependent for its efficacy upon a petition which does not support the conclusion, upon incidents which do not appear within its findings, and upon declarations taken, not *98 in Greece, but in this country, the originals of which are here, not there, the particulars of which are more fully before us than they were before the Greek court, and the execution of which, essential by the Greek law to the authenticity of the decree, was under a confusion by the declarants as to what they were declaring and by the interpreter, and therefore by the consul general, as to what they sought to declare.
The respondent testified that her husband, knowing that he was suffering from a serious bodily ailment, very much desired, with her concurrence, that after his death she should have a son to depend upon and that it would be well to have one of his nephews come from Greece to this country and live with them or her for a time so that if he be found a likable, dependable and altogether desirable person he be adopted here, and that all that either of them attempted to do was to pursue such a course as that, under the stringent immigration laws then in force, Nicholas could be brought to this country for that purpose; that the "consents" which they signed were understood by them to be consents that if Nicholas was given admittance to this country they would adopt him after becoming satisfied that he was suitable for adoption. There is much to indicate that Mr. and Mrs. Gillies here and the Gillas family overseas, together with the Corinth court under the suggestion of the Gillas family in Greece, were working at cross-purposes.
Some of these indications are factually demonstrated, some are inferences from facts. It is clear that on October 3, 1945, when the decedent solemnly inserted in his will the provision regarding adoption, quoted above, five months before the petition was filed in Corinth seeking adoption by him alone, he had in mind an adoption by his wife. There is hardly room for doubt that on June 25, 1946, which was in the midst of the Greek court proceedings less than two weeks before the visit to the Greek Consulate in New York to sign "consents" the decedent was seeking from the Department of State at Washington, a direction for the admission of a "nephew" into this country with the objective of adopting *99 him here, as witness this letter addressed to Mr. Gillies at Cologne, New Jersey, by the Chief of the Visa Division, Secretary of State's Office, Washington, under date of July 19, 1946:
"Sir:
The Department is in receipt of your letter of June 24, 1946 by reference from the Immigration and Naturalization Service of the Department of Justice further regarding your desire to have your nephew immigrate into the United States from Greece for the purpose of adoption.
* * *
Your nephew should be advised to take up his case with the American Embassy at Athens which will advise him fully regarding the procedure to be followed in obtaining an immigration visa and will accord his case every possible consideration."
There is no suggestion that the nephew was other than Nicholas. It is quite incomprehensible that if Gillies was in the midst of a proceeding initiated by him in the court at Corinth for the actual and immediate adoption of Nicholas in Greece he would then be seeking information from the Secretary of State's Office as to the method of admitting him, as his nephew, to this country for the purpose of adoption here. The naturalization clerk at Atlantic County, acting also as special deputy county clerk, testified that in the fall of 1946 the date being recalled by relation to a letter dated October 11, 1946 Mr. and Mrs. Gillies came to see him for suggestions as to how they could get papers for the immigration from Greece of Nicholas, whom Gillies referred to as his nephew and not as his son. There is stronger and more specific testimony from relatives of Gillies whom the decedent and his wife visited in New York on the occasion of their call at the consular office on July 8, 1946, and again in November, about six weeks before the decedent's death. There is no indication that Gillies was informed of the making of the decree although it was signed and published more than four full months before he died.
On a consideration of all of the facts we have grave doubts of the jurisdiction of the court at Corinth to entertain the *100 suit and to render the decree. Caruso v. Caruso, 106 N.J. Eq. 130 (E. & A. 1929), is cited contra, but is not actually so, as a reading will readily disclose. However, we prefer to rest our decision upon a ground other than lack of jurisdiction in the court at Corinth. This for two reasons: partly because of the hesitancy all courts experience in finding adversely on jurisdiction in the courts of a friendly nation; but more largely because a substantial portion of the proofs which have influenced us point towards a fraud upon the foreign court, a phase of the case which was not set up in the court below and which, with some of the related incidents discussed above, has not been clearly developed here.
The foreign adoption has, nevertheless, another angle which prevents its enforcement here. It is in direct conflict with the public policy of this State in matters of adoption. R.S. 9:3-5 provides that a decree of adoption shall not be granted unless the child has been living continuously in the home of the petitioner or petitioners for not less than one year previous to the hearing of the petition; provided, however, that the court, if it finds that the best interests of the child so require, may in its discretion grant a decree of adoption after the child has so lived in the home for a minimum period of six months. Implicit within that statute is a public policy grounded in the protection of our institution of family life both for parents and for child, namely, that the considerable and solemn rights and obligations which follow upon adoption shall not be given or imposed without such a forecast of the personal contacts and impacts of parent and child as is to be had by a preliminary period of intimate living. The wisdom of that policy is manifested in this case. It is not shown that John Gillies ever saw Nicholas or that Nicholas ever saw John. It is certain that John's wife, Martha, respondent herein, never saw the youth. The young man is a Greek national and has never been in this country. If a letter written by him to the respondent may be interpreted as a fair reflection of his attitude, he is much more intent upon what the assumed relationship may mean to *101 him in money than upon any filial obligation of love, respect or allegiance toward the woman he claims as his foster mother; a state which, grounded in the entire lack of acquaintanceship and of common interests, is not surprising but is none the less a complete justification for the policy which our Legislature has recognized and established. If the appellant's case is well founded, this young man, now turning 21, would, upon enforcement of the decree here, receive most of the estate which without a doubt the decedent meant should go to the latter's wife. The advantages which our statutes give to an adopted child and which Nicholas seeks to obtain are correlative with the clear, solemn and purposeful assumption of the mutual relationship of parent and child preceded by such foreknowledge of personal attributes and reactions as come only by daily living under normal conditions in the same household. Those concomitants of adoption, vital in our jurisdiction, were totally absent in this case. Such force as is to be accorded the decree comes, not from the full faith and credit clause of our Federal Constitution, but from international law or comity. The weight of authority in this country is that a child adopted in a foreign state or country may take under local statutes of descent and distribution, if such foreign state or country had jurisdiction to fix his status with respect to his adoptive parents, but this rule of international comity is subject to the condition that the law, with regard to adoption, of the state in which the real and personal property is situated, does not differ essentially from the laws of the state in which the adoption was had, so that local public policy is not violated by recognizing and giving effect to the adoption proceedings of the foreign state or country. In re Finkenzeller, 105 N.J. Eq. 44 (Prerog. 1929), affirmed 107 N.J. Eq. 180 (E. & A. 1930). Cf. Ross v. Ross, 129 Mass. 243 (Sup. Jud. Ct. 1880). It is the proviso upon which the rule is conditioned that controls the present case. We find that our public policy would be violated by recognizing and giving effect to the adoption proceedings in the *102 court at Corinth, and that therefore those proceedings may not prevail here.
Respondent further argues that the paragraph of the will quoted supra contemplates the contingency of the adoption with sufficient clearness to take the case out of the contemplation of R.S. 3:2-15, a point which we find it unnecessary to consider; also that Mrs. Gillies committed no fraud upon the court in Atlantic County, with which we agree; and finally that the proceedings by way of attack upon the probate and the issue of letters were barred by the lapse of time, a contention which we have preferred to pass by in order to deal with the case on its merits.
The appellant's points are: first, that the will was voided under the statute by the adoption; second, that the proceedings below were timely; third, that even if the probate be not vacated, equitable relief should be afforded by giving the infant a portion equal to what he would have been entitled to if the decedent had died intestate; fourth, that the Greek decree is entitled to full faith and credit. We have determined all of these questions, either directly or by necessary implication.
The judgment below will be affirmed.
For affirmance Chief Justice VANDERBILT, and Justices CASE, OLIPHANT, WACHENFELD, BURLING and ACKERSON 6.
For reversal None.
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15 N.J. Super. 492 (1951)
83 A.2d 643
STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
v.
RAYMOND McKINLEY CHAFFMAN, DEFENDANT-APPELLANT.
Superior Court of New Jersey, Appellate Division.
Argued September 17, 1951.
Decided October 8, 1951.
*494 Before Judges McGEEHAN, JAYNE, and WM. J. BRENNAN, JR.
Mr. Leonard Tolkoff argued the cause for appellant (Mr. Edward F. Broderick, attorney).
Mr. John D. Collins, Morris County Prosecutor, argued the cause for respondent; Mr. Bertram M. Berla, on the brief.
The opinion of the court was delivered by McGEEHAN, S.J.A.D.
The defendant appeals from a judgment entered on April 11, 1951, in the Morris County Court, adjudging that, as of December 9, 1949, he was $485 in arrears on an order for the support of his wife, entered in that court on November 18, 1946, adjudging him guilty of criminal contempt for willfully refusing to comply with said order and committing him to the Morris County Jail for imprisonment for a period of 90 days, unless sooner discharged by the court.
On November 18, 1946, before the Court of Quarter Sessions of Morris County, the defendant pleaded not guilty to an indictment charging him with desertion and non-support of his wife, she being in destitute and necessitous circumstances, in violation of R.S. 2:121-2. At that time he consented to the entry of an order which required him to pay to the probation officer, as trustee for his wife, the sum of *495 $5 per week and provided for his release on probation upon his entering into a recognizance with himself as surety in the sum of $500. The defendant entered into this recognizance and was released on probation.
On February 21, 1951, a motion was made by the county prosecutor to adjudge the defendant in criminal contempt of court, and in the moving papers it was set forth that:
"2. On November 18, 1946, defendant consented to an order of this Court requiring defendant, Raymond McKinley Chaffman, to pay $5.00 per week to the Probation officer, for the support of his wife.
3. On February 7, 1947, by order of this Court defendant was ordered to pay $15.00 per week for the support of his wife.
4. * * * On November 7, 1947, defendant appeared before the Court and was released from custody and ordered to comply with said order of $15.00 per week and to pay $5.00 per week on arrears, which had accumulated to that date.
* * * * * * * *
7. Defendant has made no payments on account of said orders since November 26, 1947, and there is now due (after consider the order, as having been suspended, during the period of defendant's injury from November 28, 1947, to May 25, 1949) and owing upon said orders of November 18, 1946, and February 7, 1947, the sum of Eight Hundred and Ten Dollars, up to December 9, 1949. * * *"
An order to show cause issued which ordered the defendant to show cause "why he should not be adjudged in criminal contempt of this court for the failure and neglect of the defendant, Raymond McKinley Chaffman, to comply with orders of this court in the above entitled matter, which orders were dated November 18, 1946, February 7, 1947, and November 7, 1947, concerning payment of support monies to the chief probation officer of the County of Morris, for the support and maintenance of defendant's wife, Bessie Chaffman."
When the hearing opened, the attorney for defendant made application for the fixing of an early date for the trial of the indictment or, in the alternative, for dismissal of the indictment. From the record before us, it does not appear that the court took any action upon this application.
*496 On this appeal we are not concerned with the claimed violation of the order of February 7, 1947, or the order of November 7, 1947, because there was no proof that either order was binding on the defendant. At the hearing it was conceded that the defendant had paid $310 on account of the order of November 18, 1946, and that the total amount due as of December 9, 1949, was $410 if this order was suspended from November 28, 1947, to May 25, 1949, as stated in the motion papers. The defendant tendered to the court $105 as full payment of the arrears on the order for the periods charged, on his theory that a total of $410 became due during these periods and he had already paid $305 thereof (actually $310). The trial court refused the tender on the ground that the allegation made by the chief probation officer in the moving papers, that the order was considered as suspended during the period of the defendant's injury from November 28, 1947, to May 25, 1949, was without any force because the power to suspend the order rested in the court alone. The court then found that under the 1946 order the defendant was required to pay $5 per week during the whole period from November 18, 1946, to December 9, 1949, which amounted to $795; that he had paid $310 thereof, leaving a balance due as of December 9, 1949, of $485, and adjudged the defendant guilty of a criminal contempt because he was in arrears on the 1946 order in the amount of $485.
Reference must be made to the legislation involved. The Uniform Desertion and Non-Support Act (10 Uniform Laws Annotated) was adopted in New Jersey, with some change, by L. 1917, c. 61, and is now found in R.S. 2:121-2 to 2:121-7, inclusive. The defendant was indicted for violation of R.S. 2:121-2 and the 1946 support order was made pursuant to R.S. 2:121-4. Sections 2:121-2 to 5 provide:
"2:121-2. Any husband who shall desert or willfully neglect or refuse to provide for the support and maintenance of his wife, in destitute or necessitous circumstances, or a parent who shall desert or willfully neglect or refuse to provide for the support and maintenance of his or her minor child or children, in destitute or necessitous *497 circumstances, shall be guilty of a misdemeanor, and shall be punished by a fine not exceeding five hundred dollars ($500.00) or imprisonment with or without hard labor, as the court may direct, for a term not exceeding three years, or both. If a fine be imposed, the court may direct the same to be paid in whole or in part to the wife, or to the guardian, custodian or trustee of said minor child or children.
2:121-3. At any time after a sworn complaint shall have been made charging an offense under section 2:121-2 of this Title, and before the grand jury of such county shall have considered the complaint, upon petition of any party interested, and upon notice to the defendant, the county court, or the criminal judicial district court, or the juvenile and domestic relations court or any other court or magistrate having jurisdiction of the county wherein the complaint is made, may enter such temporary order as may seem just, providing for the support of the said wife or children, or both, pendente lite, and may punish a violation of such order as for contempt.
2:121-4. Before the trial, with the consent of the defendant, or at the trial, on entry of a plea of guilty, or after conviction, instead of imposing the penalty provided for by section 2:121-2 of this title, or in addition thereto, the court in its discretion, having regard to the circumstances and to the financial ability or earning capacity of the defendant, may make an order, which shall be subject to change by the court from time to time as circumstances may require, directing the defendant to pay a certain sum periodically to the wife, or to the guardian, or custodian of the minor child or children, or to an organization or individual approved by the court as trustee, and to release the defendant from custody on probation, upon his or her entering into a recognizance, with or without surety, in such sum as the court or a judge thereof in vacation may order and approve. The condition of the recognizance shall be such that if the defendant shall personally appear in court whenever ordered to do so, and shall further comply with the terms of the order, or of any modification thereof, such recognizance shall be void, otherwise in full force and effect.
2:121-5. If the court be satisfied by information and due proof under oath that the defendant has violated the terms of the order, it may forthwith proceed with the trial of the defendant under the original charge, or sentence the defendant under the original conviction or plea of guilty, or enforce the suspended sentence, as the case may be. In case of forfeiture of a recognizance, and the enforcement thereof by execution, the sum recovered may, in the discretion of the court, be paid in whole or part to the wife, or to the guardian, custodian or trustee of such minor child or children."
Even if the Morris County Court had power to hold the defendant in criminal contempt of court for a violation of *498 this 1946 order, the judgment entered is invalid. In any proceeding for contempt not committed in the actual presence of the court, the contemner must be fairly informed, in advance of the hearing, of the essential facts constituting the contempt charged (Rule 3:80-2), and no valid judgment can be entered which adjudges the contemner guilty of contempt for any violation not included in the contempt charged. The only contempt charged against this defendant was that he failed to make the required payments during the periods beginning November 18, 1946, and ending November 28, 1947, and beginning May 25, 1949, and ending December 9, 1949. Since the judgment under appeal found the defendant guilty of contempt for failure to make the required payments not only during the period charged, but also for failure to make them during the period beginning November 28, 1947, and ending May 25, 1949, the judgment is invalid.
The judgment is also invalid because a violation of a support order made under R.S. 2:121-3, or an order made after indictment and before trial or plea of guilty under R.S. 2:121-4, constitutes a civil contempt and not a criminal contempt. The main purpose of the statute (R.S. 2:121-2 to 7) is to provide for destitute wives and children of husbands who desert or neglect or refuse to support and maintain them. The entire fine imposed under R.S. 2:121-2 may be paid in whole or part to the wife or the trustee of the children. The entire penalty imposed in favor of the State may be suspended under R.S. 2:121-4, if the defendant gives guaranty that he will provide the support ordered by the court. From this, it appears that support orders made under this statute are made primarily in the interest of the wife or child. A proceeding for violation of such an order, if regarded as a contempt, is essentially one to coerce one party for the benefit of another party and is civil in nature. People v. Elbert, 287 Ill. 458 (Sup. Ct. 1919); cf. Nussbaum v. Hetzer, 1 N.J. 171 (1948). Contempt proceedings for violation of like orders of the Chancery Division, such as orders for alimony or for support and maintenance, are civil in nature. Strong *499 v. Strong, 138 N.J. Eq. 302 (E. & A. 1946); Lief v. Lief, 14 N.J. Misc. 27 (Ch. 1935).
In addition, the court should have acted upon defendant's application for the fixing of a date for an early trial. That such action should be taken is implicit in the provisions of R.S. 2:121-5. Contempt proceedings, civil in nature, are prosecuted pursuant to Rule 3:80-2, and the judgment which may be entered against the accused is limited by Rule 3:80-3 to commitment until the order is obeyed and performed and the fine (which shall not exceed $50) and costs, if any imposed, is fully paid. Cf. Nussbaum v. Hetzer, above.
The judgment is reversed.
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179 F.Supp. 336 (1959)
UNITED STATES of America for the use and benefit of ALLEN CONSTRUCTION CORP.
v.
Robert A. VERRIER, d/b/a Verrier Construction Co. and American Surety Company, Hartford Accident & Indemnity Company, Massachusetts Bonding & Insurance Company, Continental Casualty Co., New Amsterdam Casualty Company.
No. 1102 N.D.
United States District Court. D. Maine, N. D.
December 7, 1959.
*337 *338 *339 Lewis I. Naiman, Gardiner, Me., Francis E. Day, Bangor, Me., for plaintiff.
Robert D. Schwarz, Herbert H. Bennett, Portland, Me., for defendant.
GIGNOUX, District Judge.
This matter comes before the Court upon the defendants' motions for summary judgment in their favor upon the claim set forth in the complaint and upon the counterclaim set forth in the answer. Fed.R.Civ.P. 56, 28 U.S.C.A.
The principal action arises under the Miller Act, 40 U.S.C.A. §§ 270a-270d. It seeks recovery of the sum of $159,680.70, plus interest, alleged to be due the use plaintiff Allen Construction Corp. for labor and materials furnished pursuant to contract with the defendant Verrier and used in connection with the construction by Verrier for the United States Government of Special AAA Facilities at Loring Air Force Base, Limestone, Maine. The remaining defendants are the sureties on the payment bond furnished by Verrier to the United States as required by the Miller Act. The defendants counterclaim for $162,550 damages allegedly resulting from the breach by the use plaintiff of the contract upon which its suit is based. The defendants have moved for summary judgment in their favor upon the plaintiff's claim on the grounds that: (1) the use plaintiff is not a proper party plaintiff under Rule 17(a) of the Federal Rules of Civil Procedure because it assigned to First National Granite Bank of Augusta, as security for loans made or to be made by the Bank, all amounts due or to become due under the contract,[1] and (2) the use plaintiff is barred from bringing this action by Rule 13(a) of the Federal Rules of Civil Procedure because it failed to assert its present claim as a counterclaim to a claim for breach of the same contract which was filed by Verrier and allowed by the Referee in recent bankruptcy proceedings in this Court (In re Allen Construction Corp., D.C.Me., Bankruptcy No. 6-62 Inv.S.D.). The defendants have also moved for summary judgment in their favor upon their counterclaim on the ground that the use plaintiff received no discharge from the Bankruptcy Court and the allowance of Verrier's claim by the Referee constituted a valid judgment which cannot be collaterally attacked by the plaintiff in this proceeding.
I.
The defendants have first asserted in support of their motion for summary judgment upon the complaint that the use plaintiff is not a proper party plaintiff under Rule 17(a) of the Federal Rules of Civil Procedure because it has assigned to First National Granite Bank of Augusta all its rights to amounts due under its contract with Verrier. The assignment, which was accepted by Verrier at the time of its execution by the use plaintiff, is in the following form:
"April 12, 1956
"In consideration of one dollar and other valuable considerations paid to the undersigned by the First National Granite Bank of Augusta, the receipt of which is hereby acknowledged, Allen Construction Corp. by its president hereunto duly authorized does hereby assign to said First National Granite Bank of Augusta all amounts due or to become due to said Allen Construction Corp. on *340 its contract with Robert A. Verrier Construction Co. for construction work on Air Force facilities in Caswell and Limestone, Maine, as security for loans made, or to be made by said Bank to said Allen Construction Corp.
"Allen Construction Corp.
"By /s/ Guy R. Allen
_________________
"President"
Rule 17(a) provides:
"Rule 17. Parties Plaintiff and Defendant; Capacity
"(a) Real Party in Interest. Every action shall be prosecuted in the name of the real party in interest; but an executor, administrator, guardian, trustee of an express trust, a party with whom or in whose name a contract has been made for the benefit of another, or a party authorized by statute may sue in his own name without joining with him the party for whose benefit the action is brought; and when a statute of the United States so provides, an action for the use or benefit of another shall be brought in the name of the United States."
The defendants' contention is that because of the assignment, the Bank, and not Allen, is the "real party in interest" and under Rule 17(a) is the only party entitled to prosecute an action on the contract.
The true meaning of the "real party in interest" provision in Rule 17 (a) has been summarized by Professor Moore as follows: "An action shall be prosecuted in the name of the party who, by the substantive law, has the right sought to be enforced."[2] 3 Moore, Federal Practice § 17.07 (2d ed. 1948). See also 2 Barron & Holtzoff, Federal Practice and Procedure § 482 (1950). In an ordinary diversity case the law which would determine who has this substantive right is, of course, the law of the state in which the federal district court is sitting. 3 Moore § 17.07; See Sheehan v. Municipal Light & Power Co., 2 Cir., 1945, 151 F.2d 65, 70. And although jurisdiction in this case is conferred by the Miller Act and not by diversity of citizenship, the weight of authority supports the view that state law properly rules here, where the issue does not involve the interpretation or applicability of a federal statute and there is no supervening federal interest which dictates a need for federal uniformity. See Continental Casualty Co. v. Schaefer, 9 Cir., 173 F.2d 5, 7-8, certiorari denied, 1949, 337 U.S. 940, 69 S.Ct. 1517, 93 L.Ed. 1745; Macri v. United States, 338 U.S. 820, 70 S.Ct. 63, 94 L.Ed. 497; United States v. Rogers & Rogers, D.C. S.D.Cal.1958, 161 F.Supp. 132, 135; Hart & Wechsler, The Federal Courts and the Federal System 694-700 (1953). Hence this Court should decide this question as would the courts of the State of Maine, where this Court sits and all relevant events regarding the contract occurred.
It seems clear from the Maine cases that the assignor of a chose in action for collateral security retains an enforceable substantive right for the purposes of an action against the debtor when the right of action assigned is substantially in excess of the debt secured, at least when the assignee has expressly or impliedly consented to suit by the assignor in his own name. Simansky v. Clark, 1929, 128 Me. 280, 147 A. 205, 65 A.L.R. 1316; Rosenberg v. Cohen, 1928, 127 Me. 260, 143 A. 97.[3] In the latter *341 case the issue involved was whether or not a mortgagee, who had assigned the mortgage to a bank as collateral security for his own loan, could foreclose the mortgage and maintain a writ of entry in his own name. The Court summarized the Maine law as follows (127 Me. at page 263, 143 A. 98):
"It would appear, then, that a mortgagee who has assigned his mortgage and the note secured thereby to a third party as collateral, may maintain foreclosure proceedings and a writ of entry in his own name, provided that such proceedings are brought with the consent of his assignee, and that, even without such consent he may proceed in his own name if the pledged security is larger in amount than the note for which it is given as collateral, he then being clearly a party in interest * * *." (Emphasis supplied.)
In Simansky, this rule was reaffirmed and applied to permit recovery in a suit upon a promissory note brought in his own name by an indorsee, who had pledged and indorsed the note over to the bank as collateral security for a smaller note given by him to the bank. The record disclosed that the action had been brought with the knowledge and consent of the bank.
The application of the foregoing doctrine to the facts disclosed in the instant case compels the conclusion that the use plaintiff has an enforceable right under Maine law and is therefore a real party in interest within the meaning of Rule 17(a) for the purposes of this action. The assignment shows on its face that it was executed for collateral security only, the Bank acquiring no interest in the proceeds of the assigned contract except as security for its loans to the use plaintiff. The amount claimed by the use plaintiff in the present action is $159,680.70, which is approximately five times the amount claimed by the Bank in its companion action as the balance of the loans owed to it by the use plaintiff.[4] There is further abundant evidence in this record to show that the Bank has knowledge of and consents to the maintenance of this suit for the benefit of the use plaintiff in its own name.
It is accordingly the conclusion of this Court that the use plaintiff is a proper party plaintiff under Rule 17(a) and that the first ground assigned by the defendants in support of their motion for summary judgment upon the complaint is without merit.
II.
The defendants next argue in support of their motion for summary judgment upon the complaint that the use plaintiff is barred from bringing the instant action by Rule 13(a) of the Federal Rules of Civil Procedure because of the failure of the use plaintiff to assert its present claim as a counterclaim to the claim for breach of the same contract which was filed by Verrier in the recent bankruptcy proceedings. Rule 13(a) provides:
"Rule 13. Counterclaim and Cross-Claim
"(a) Compulsory Counterclaims. A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication *342 the presence of third parties of whom the court cannot acquire jurisdiction, except that such a claim need not be so stated if at the time the action was commenced the claim was the subject of another pending action."
The Bankruptcy Court records reveal that the use plaintiff was adjudicated an involuntary bankrupt on February 5, 1957 on petition of three creditors who had furnished materials to the bankrupt in connection with its performance of the Verrier contract.[5] Included in the bankruptcy schedules filed by the bankrupt on February 27, 1957 was a claim against Verrier in the amount of $150,000. The bankruptcy records also show that on March 15, 1957 Verrier filed a proof of claim against the bankrupt estate in the amount of $162,550 for breach of the present contract. This claim was allowed in full by the Referee by endorsement on the proof of claim. Neither the date of the allowance, nor whether notice and hearing were had thereon, appear from the records. The Court assumes, however, that in accordance with the usual practice of the Bankruptcy Court Verrier's claim was allowed, along with the other claims against the estate, at the final meeting of creditors on March 20, 1958.
In the meantime, on February 11, 1958, upon petition of the trustee, the Referee authorized the trustee to abandon the bankrupt's claim against Verrier. This order was entered, without notice or hearing, on the day after the trustee's petition was filed. The bankruptcy proceedings were formally closed on June 6, 1958. The bankrupt did not obtain a discharge of any of its debts. It did apply for a discharge on June 3, 1958, but its application was disallowed by the Referee because unseasonably filed. See 1 Collier on Bankruptcy para. 14.05 (14th ed. 1956). The final report of the trustee shows total receipts of $796.00, and the Referee's report shows that all of this was expended for administration, with no distribution to creditors. The latter report also reveals that the claims against the estate allowed by the Referee were in the total amount of $250,702.08. It is further apparent from the record that there was no active representation of the bankrupt by counsel until shortly before the proceedings were finally closed. In summary, an examination of the bankruptcy records indicates that the proceedings were handled in the summary fashion which unfortunately seems to be unavoidable and customary in a "no asset" case.
A mere reading of the foregoing record indicates the injustice which would result to the use plaintiff in this action if the defendants' present contention were to be accepted by this Court. Nor does the law require such a result.
There can be little doubt that if the prior proceedings had been of an ordinary civil nature, rather than in bankruptcy, Rule 13(a) would bar the plaintiff's claim, for it clearly arises out of the same "transaction or occurrence" as Verrier's prior claim in bankruptcy. However, the Federal Rules of Civil Procedure apply to proceedings in bankruptcy only insofar as they are not inconsistent with the Bankruptcy Act. General Order in Bankruptcy 37, 11 U.S.C.A. following Section 53. Thus, while as a general rule the Rules are to be followed in bankruptcy proceedings, they are not to be applied where there is a conflict between the Rules and the Act. It seems to this Court that this case presents such a conflict. Cf. In re Majestic Radio and Television Corp., 7 Cir., 1955, 227 F.2d 152, 157, certiorari denied Dwyer v. Franklin, 1956, 350 U.S. 995, 76 S.Ct. 545, 100 L.Ed. 860.
It is settled law that a trustee in bankruptcy may counterclaim in a bankruptcy proceeding. See, e. g., In re Farrell Publishing Corp., D.C.S.D.N.Y.1955, 130 F.Supp. 449; cf. In re Majestic Radio and Television Corp., supra. And *343 there may be sound reason, consistent with the Bankruptcy Act, for the application of Rule 13(a) to bar a subsequent suit by a trustee in bankruptcy upon a claim, within the scope of the Rule, which the trustee has failed to assert as a counterclaim against a claiming creditor in the bankruptcy proceedings. It does not follow, however, that the bankrupt himself should be similarly barred from suing upon a claim which, as in the instant proceedings, was abandoned by the trustee.
Under the Act the effect of the abandonment of a right of action by the trustee is to revest title thereto in the bankrupt personally. See 4 Collier on Bankruptcy, paras. 70.28 and 70.42 (14th ed. 1942). This Court searches in vain to find in the Bankruptcy Act a grant of jurisdiction to the bankruptcy court to hear and determine the bankrupt's then personal claim against the creditor after its abandonment by the trustee. The bankruptcy court has only the jurisdiction given it in the statute. See Wheeling Structural Steel Co. v. Morse, 4 Cir., 1932, 62 F.2d 37. Indeed, the bankruptcy court after the adjudication in bankruptcy[6] has no interest in the prosecution of a claim recovery on which will in no way redound to the benefit of the estate. Thus the bankrupt, unlike the trustee, cannot assert a personal claim as a counterclaim in the bankruptcy proceedings after his adjudication.
The application of Rule 13(a) to bar suit by the bankrupt upon a claim abandoned by the trustee would thus mean that the abandonment would operate as a nullification of the claim, instead of causing a reversion to the bankrupt, in all cases in which the claim involved was a right of action against a claiming creditor. Such an application of Rule 13(a) would be wholly inconsistent with the concept of revestment of title in the bankrupt following the abandonment by the trustee of claims which are considered burdensome to the estate. See 4 Collier on Bankruptcy para. 70.42. It would result in an unwarranted penalty upon the bankrupt by abrogating his claim for no reason. General Order 37 neither requires nor permits such an untoward result.[7]
The Court thus concludes that Rule 13(a) does not bar the plaintiff from bringing this action.
III.
The ground asserted by the defendants in support of their motion for summary judgment upon their counterclaim is similarly without merit. In substance, the defendants' argument is that the allowance of Verrier's claim by the Bankruptcy Court constituted a valid judgment which cannot be challenged in this proceeding. In support of this position, the defendants rely upon a number of general statements to the effect that the allowance or disallowance of a claim in bankruptcy is res judicata in a subsequent proceeding between the same parties or their privies. See, e. g., 3 Collier on Bankruptcy para. 57.14 (14th ed. 1956).
It is true that the orders of the bankruptcy court are judicial acts and should be given the same effect as the judicial acts of any other court. Lesser v. Gray, 1915, 236 U.S. 70, 35 S.Ct. 227, 59 L.Ed. 471; United States v. Coast Wineries, 9 Cir., 1942, 131 F.2d 643. Thus, on familiar principles, the allowance or disallowance of a claim by the bankruptcy court is res judicata as between the creditor and the trustee in the bankruptcy proceedings themselves and in subsequent proceedings with respect *344 to the bankrupt estate. In re Holzapfel's Sons, Inc., 7 Cir., 1957, 249 F.2d 861; Lewith v. Irving Trust Co., 2 Cir., 1933, 67 F.2d 855. It is equally clear that either a creditor or a bankrupt who has actively participated in a contest of a claim which was allowed or disallowed by the bankruptcy court is estopped to relitigate the issue of liability. United States v. Coast Wineries, supra; Larcon Company v. Wallingsford, D.C.W.D.Ark. 1955, 136 F.Supp. 602, affirmed, 8 Cir., 1956, 237 F.2d 904. But the foregoing does not support the defendants' contention in the present case that the mere allowance of an uncontested claim by the bankruptcy court is res judicata or estops the former bankrupt from defending a subsequent suit by the creditor.[8]
The error in the defendants' position here is disclosed by analysis of the nature of the jurisdiction of the bankruptcy court in allowing or disallowing claims against the estate. The jurisdictional grant is contained in Section 2, sub. a(2) of the Bankruptcy Act, 11 U.S.C.A. § 11, sub. a(2), which confers upon the bankruptcy court the power to "Allow claims, disallow claims, reconsider allowed or disallowed claims, and allow or disallow them against bankrupt estates." (Emphasis supplied.) Jurisdiction is thus limited by the Act to the estate in bankruptcy and embraces no more. Indeed, the Supreme Court has emphasized that "the filing of a claim in bankruptcy is not the institution of a plenary suit. It is a claim against assets in the hands of the bankruptcy court, not an action in personam." Meyer v. Fleming, 1946, 327 U.S. 161, 170, 66 S.Ct. 382, 387, 90 L.Ed. 595. See also Gardner v. New Jersey, 1947, 329 U.S. 565, 574, 67 S.Ct. 467, 91 L.Ed. 504; cf. Gratiot County State Bank v. Johnson, 1919, 249 U.S. 246, 39 S.Ct. 263, 63 L.Ed. 587 (adjudication in bankruptcy a judgment in rem).
It has been recognized in a number of cases that the allowance of a claim by the bankruptcy court does not result in a personal judgment against the bankrupt, but is, in effect, only a judgment for the purposes of the bankruptcy liquidation and is limited in its operation to the bankrupt estate. Thus, as far back as 1927, in the case of Massee & Felton Lumber Co. v. Benenson, D.C. S.D.N.Y.1927, 23 F.2d 107, the court was concerned with the effect of the allowance by a bankruptcy court of a claim against the estate of a bankrupt principal, which had not been contested by the bankrupt, in a subsequent suit by the creditor against the surety. The Court expressly recognized that it was bound by a Supreme Court decision holding that a judgment against a principal was prima facie evidence against the surety. It held, however, that the allowance of the claim was not such a judgment, saying (23 F.2d at pages 108-109):
"A claim filed against an estate in bankruptcy is in no sense a claim in personam against the bankrupt. It is in the nature of a petition to share in a fund held by the court for distribution. The allowance of the claim is a determination of the right to share in that fund for the amount allowed, but it is in no sense a determination that the bankrupt is personally liable for that amount. It may well be that, if the bankrupt or a creditor participates in a contest of the claim, the findings of the court basic to the allowance will be findings of fact binding thereafter as between the contesting parties. But if the bankrupt in no manner *345 participates in the proceedings despite a right so to do, if as in this case the allowance is made solely by the action of the trustee, its effect should be limited to proceedings thereafter brought by or against the trustee. For or against him such allowance or disallowance has been held to be res adjudicata."
Again, in the case of In re McChesney, D.C.S.D.Cal.1931, 58 F.2d 340, the court held that the allowance by the referee of a tax claim against a bankrupt estate was not such a judgment as would toll the running of the statute of limitations on the underlying tax claim against the bankrupt personally. The Court stated (58 F.2d at pages 340-341):
"While the allowance of a claim is in effect a judgment, it is only such for the purpose of the Bankruptcy Act (11 U.S.C.A.), and to the extent of the assets belonging to bankruptcy [sic] estate in which it is filed."
In the very recent case of Walley v. United States, 9 Cir., 1958, 259 F.2d 579, the court was presented with the same issue as that involved in McChesney. In holding that the statute of limitations was not suspended, the court noted (259 F.2d at page 581):
"We think the wording of the statute is clear and confines the operation of the allowance of a claim to the bankrupt estate in existence at the time of the institution of the bankruptcy proceedings."
See also Goldstein v. Pearson, D.C.Mun. App.1956, 121 A.2d 260; 3 Collier on Bankruptcy para. 57.14 n. 31.
Although the foregoing cases are concerned with problems other than the res judicata effect of the uncontested allowance of a claim by the bankruptcy court, the reasoning of the courts and the principles upon which their holdings are founded are directly in point. The limited effect which they give to the uncontested allowance of a claim in bankruptcy is also in accord with the principle stated in the Restatement of Judgments § 73, Comment c (1942) as to the scope of a judgment in rem:
"Although a valid judgment in rem is binding on all the world as to interests in the thing which is the subject of the action, it is not conclusive as to a fact upon which the judgment is based in any subsequent action not involving interests in the thing, except as to persons who have appeared and actually litigated the question of the existence of the fact."
The importance of these considerations has been recognized in an excellent discussion of the problem in Mussman and Riesenfeld, Jurisdiction in Bankruptcy, 13 Law & Contemp.Prob. 88, 92-3 (1948), in which the authors state:
"Special consideration must be given to the nature of the jurisdiction of the court in allowing or disallowing claims against the estate. The Supreme Court has recently emphasized that such adjudications are not of actions in personam but of claims against assets only.[9] This position can conceivably have important consequences with respect to the res judicata effects of such allowance or disallowance. Adjudications of "claims with respect to assets" are commonly called quasi in rem and have not the usual effect of giving rise to an action in debt or estoppel by verdict. For straight bankruptcy proceedings, it could consequently be argued with plausibility that the allowance or disallowance of a claim by the referee for the reason that he considers it as proved or not proved is not res judicata in a later suit by the creditor against the bankrupt. * * * As between the trustee and the creditor the issues which determine the allowance or disallowance should be res judicata, e. g., the preferential character of a transfer."
*346 This analysis is in harmony both with the purposes of the Bankruptcy Act and with the realities of bankruptcy administration. Unless there is an objection to a claim, the bankruptcy court may, and usually will, summarily allow it. See MacLaughlin, Bankruptcy 124 (1956); cf. Bankruptcy Act, § 57, sub. d, 11 U.S.C.A. § 93, sub. d. In a "no asset" case, as a rule no one is going to bother to make objection. Insofar as the bankrupt himself is concerned, it is true that section 7, sub. a(3) and (7) of the Act, 11 U.S.C.A. § 25, sub. a(3) and (7), imposes upon him the duty to report to the trustee concerning the correctness of all proofs of claim filed. But he does not have the right to object to the allowance of claims except in certain exceptional cases not here pertinent. See 3 Collier on Bankruptcy para. 57.17, at 218-9. In fact, since the bankrupt is insolvent, he is considered to have no interest in the distribution of the assets among his creditors. See 3 Collier on Bankruptcy para. 57.17, at 218. There is certainly nothing in the Act to alert him to the possibility that the proceedings will result in a personal judgment against him which will reach assets other than those included in the bankrupt estate. As well said in the Walley case (259 F.2d at page 582):
"* * * The bankrupt is on notice that his existing assets are in the estate in bankruptcy and are being subjected to payment of claims filed therein, and it is not within the contemplation of the act that he will thereby be informed that future assets he may acquire will be subjected to the payment of non-dischargeable claims proved in the bankruptcy proceeding." (Emphasis supplied.)
See also Mussman and Riesenfeld, supra at 93.
It is thus the conclusion of this Court that the allowance of the Verrier claim by the Bankruptcy Court in the instant proceedings only operated against the assets comprising the bankruptcy estate. Consequently, the defendants cannot rely upon the allowance of the claim as a conclusive adjudication of its validity in the present action.
The defendants' motion for summary judgment upon the complaint and the defendants' motion for summary judgment upon the counterclaim are denied.
NOTES
[1] There is also pending in this Court an action under the Miller Act by the Bank against these defendants for recovery of the sum of $32,891.09, plus interest, alleged to be due it as assignee for amounts loaned to Allen. (United States of America for the use and benefit of First National Granite Bank of Augusta v. Robert A. Verrier, et al., D.C.Me. Civil No. 1104 N.D.) By agreement, the two actions have been consolidated for trial.
[2] There may be some doubt as to whether the real party in interest provision in Rule 17(a) applies at all to cases such as the instant one, because the last clause of the Rule refers specifically to actions which must by statute be brought in the name of the United States. Even though the first clause of Rule 17(a) may not be directly applicable, however, it would seem that the use plaintiff must have the substantive right mentioned by Professor Moore. In deciding who has this substantive right, this Court sees no reason to depart from the criteria which would control were Rule 17(a) specifically to deal with use plaintiffs.
[3] It seems equally clear that the assignee also has an enforceable substantive right under Maine law. Rosenberg v. Cohen, supra 127 Me. at pages 261, 262, 143 A. 97. The assignee also has standing to sue under the Miller Act. United States for Benefit and on Behalf of Sherman v. Carter, 1956, 353 U.S. 210, 77 S.Ct. 793, 1 L.Ed.2d 776. For the protection of the debtor, upon motion under Rule 19(b), the assignee may be joined as a party plaintiff with the assignor. Cf. United States v. Conn, D.C.E.D.S.C.1956, 19 F.R.D. 274. The defendants here, however, would appear to be fully protected against a double recovery by the consolidation for trial of the instant action with the Bank's companion suit to enforce its security interest in the contract. See note 1, supra.
[4] See note 1, supra.
[5] Counsel for the petitioning creditors also appeared as counsel for Verrier in the bankruptcy proceedings and are counsel for the defendants in the present action.
[6] Prior to adjudication the bankrupt in an involuntary proceeding may of course counterclaim in order to defeat his adjudication. Harris v. Capehart-Farnsworth Corp., 8 Cir., 1955, 225 F.2d 268.
[7] The fact that the bankrupt might have obtained a discharge does not affect this analysis. Compare Cumberland Glass Mfg. Co. v. DeWitt, 1915, 237 U.S. 447, 35 S.Ct. 636, 59 L.Ed. 1042 with In re Empire Flooring, D.C.W.D.Pa.1930, 43 F. 2d 748.
[8] The general statement at 3 Collier on Bankruptcy para. 57.14 may not be intended to apply to the narrow issue presented in the instant case. See 3 Collier on Bankruptcy para. 57.14 n. 31. At least, as the author himself recognizes in some instances, the actual holdings of the cases cited in support of the statement do not reach this issue. In all but one of the few cases which involved subsequent actions against the bankrupt personally, the allowance of the claim by the bankruptcy court was actively contested. In that one, Blanks v. West Point Wholesale Grocery Co., 1932, 225 Ala. 74, 142 So. 49, it does not affirmatively appear whether or not the claim was contested.
[9] (court footnote.) The authors here cite Meyer v. Fleming, supra, and Gardner v. New Jersey, supra. Further footnotes by the authors are omitted.
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162 B.R. 535 (1993)
In re Ardrith BARNETT, Debtor.
Bankruptcy No. 93-50352-ABF.
United States Bankruptcy Court, W.D. Missouri.
December 14, 1993.
*536 Joel Pelofsky, Shughart, Thomson & Kilroy, Kansas City, MO, for debtor.
Robert B. Miner, Utz, Litvak, Summers, Powers & Manring, St. Joseph, MO, for Citizen's Bank & Trust.
Richard V. Fink, Kansas City, MO, for Chapter 12 Trustee.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
ARTHUR B. FEDERMAN, Bankruptcy Judge.
A. Introduction
This is a Chapter 12 case. Pending is confirmation of debtor's Plan, and the Objections to Confirmation filed by the Chapter 12 trustee and Citizen's Bank & Trust Co. ("Citizen's") In addition, Citizen's has filed a Motion for Relief from the Automatic Stay. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (L) over which this Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(a) and (b)(1). For the reasons set forth below, I order confirmation of debtor's proposed plan and deny the motion for relief from the automatic stay.
B. Findings
1. Debtor owns approximately 256.6 acres of real estate located in Livingston County, Missouri.
2. Citizen's holds three promissory notes, each secured by a deed of trust on such real estate. The balance on the first note, dated June 29, 1979, is $73,142.34. The balance on the second note, dated September 25, 1991, is $16,050.93. The balance on the third note, dated October 25, 1991, is $12,165.05. The total due as of November 19, 1993, with attorneys fees of $5,853.84, is $110,868.66.
3. Such obligations are secured by real estate with a value of $110,000 and a trailer with a value of $1,200.
4. Debtor, who is forty-seven years old, has lived on her farm for approximately twenty-seven years. She was divorced in 1989. For ten years prior to 1991, she was employed by the Missouri Department of Corrections. From the time she left the Department of Corrections until the filing of this case, she was unemployed. In 1992, the farm produced gross income of $13,691.00, of which $5,442.00 was from the sale of farm equipment and other personal property, and $1,540.00 was from custom work done for other farmers. That same year, she also received unemployment compensation of $8,050.00.
5. At the Court's urging, debtor obtained off-farm employment prior to the Confirmation Hearing. She now holds two jobs, and anticipates off-farm income of approximately $20,000 per year from such jobs.
6. Debtor's plan, as orally amended at the confirmation hearing, provides for Citizen's claims to be amortized over 20 years, at an interest rate of nine percent. Yearly payments are due on January 1 of each year beginning in 1995, with a default date of January 31. The obligation will balloon on July 1, 2008, which is the same date the balance of the first note was to be paid in full per its original terms. Debtor also proposes to pay $250.00 per month, on the first of each month, commencing January 1, 1994, such monthly payments to be applied to reduce the yearly payment due on January 1 of the following year. Debtor's plan, as modified, also provides that if any payment due Citizen's *537 is not made when due or, as to the yearly payment only, prior to the default date, Citizen's shall have the right to an Order lifting the automatic stay to exercise any and all rights available to it under Missouri law.
7. Debtor contends that her plan is confirmable based upon the income from her two jobs and her projected farm earnings. She projects 1994 income and expenses as follows:
Income Expenses
CRP $ 1,378.00 Taxes $ 720.00
Wood Sales 3,000.00 Citizen's 11,600.00
Mowing 1,600.00 FmHA 230.00
Hay Sales 4,000.00 Household 5,000.00
Cattle Sales 5,000.00 Utilities 1,200.00
Child Support 2,400.00 Insurance 400.00
Wages 20,000.00 Calves 3,500.00
Tax Refund 500.00 Income Tax & Social Security 6,000.00
___________
TOTAL $38,878.00 Equipment, 1,500.00
Feed, Seed, & Fertilizer 1,500.00
Trustee's fees 1,232.00
Cost of Admin. 2,000.00
__________
TOTAL $34,882.00
8. A confirmation hearing was held on November 19, 1993. Citizen's and the trustee contended at the hearing that the plan is not feasible. Citizen's also contended that the debtor is not eligible for Chapter 12 relief. No other objections were raised at the hearing.
9. The Code provides that "[o]nly a family farmer with regular income may be a debtor under Chapter 12." 11 U.S.C. § 109(f). In order for an individual to qualify as a "family farmer" she must have, among other things, received more than fifty percent of her gross income in the prior year from her farming operation. 11 U.S.C. § 101(18)(A). Schedule F, filed with debtor's 1992 tax returns, shows gross income from farming of $13,691.00 and income from other sources of $8,050.00. Included in farm income is $5,442.00 from the sale of farm equipment and other farm-related property and $1,540.00 from custom-hire farm work. Only if both of those items were excluded from farm income would debtor not qualify as a family farmer pursuant to 11 U.S.C. 101(18)(A). I find, however, that both such items do constitute farm income for these purposes. See, e.g. In re Armstrong, 812 F.2d 1024, 1027 (7th Cir.1987); In re Creviston, 157 B.R. 380 (Bankr.S.D.Ohio 1993). In so deciding, I consider the extent to which the income in question bears some relation to debtor's farming activity. In re Easton, 883 F.2d 630, 633 (8th Cir.1989). The income from both questioned items was available for use in the farming operation, and was reflected as farm income for tax purposes. There is no evidence that such income arose other than out of the farming operation, or was used for any purpose other than the farming operation. Therefore, I find that the debtor is eligible for Chapter 12.
10. Section 1225(a) imposes the following requirements for confirmation of a Chapter 12 plan:
§ 1225. Confirmation of Plan.
(a) Except as provided in subsection (b), the court shall confirm a plan if
(1) the plan complies with the provisions of this chapter and with the other applicable provisions of this title;
(2) any fee, charge, or amount required under chapter 123 of title 28, or by the plan, to be paid before confirmation, has been paid;
(3) the plan has been proposed in good faith and not by any means forbidden by law;
*538 (4) the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date;
(5) with respect to each allowed secured claim provided for by the plan
(A) the holder of such claim has accepted the plan;
(B)(i) the plan provides that the holder of such claim retain the lien securing such claim; and
(ii) the value, as of the effective date of the plan, of property to be distributed by the trustee or the debtor under the plan on account of such claim is not less than the allowed amount of such claim or
(C) the debtor surrenders the property securing such claim to such holder; and
(6) the debtor will be able to make all payments under the plan and to comply with the plan . . .
11 U.S.C. § 1225(a).
12. As to 11 U.S.C. § 1225(a)(6), the feasibility test, I find that the requirement of that subsection is met.
The bank and trustee raised four basic issues concerning feasibility. First, debtor assumed a $1,500.00 per year profit from a proposed cattle operation, but she may not have funds available with which to purchase any cattle. Second, debtor assumes an increase of $1,000.00 per year from the sale of timber which is present on a portion of her real estate. Third, debtor assumes an increase of $1,800.00 per year on the sale of hay, over the total received in 1992. Even if the bank and trustee are correct as to these three items, they total $4,300. As shown, the plan projects income which is $3,996.00 more than anticipated expenses. Certainly it is reasonable to conclude that at least $304.00 of the increase projected by debtor is attainable. Therefore, these factors alone do not demonstrate that the plan is not feasible.
A more significant issue as to feasibility concerns whether the debtor will be able to generate $20,000.00 per year from her off-farm income. That projection assumes the debtor will continue to work two jobs, in addition to her farm duties. There certainly is a possibility that debtor will not be able to keep up the pace she has set for herself. However, based on the modified plan, if she falters the bank will be able to immediately exercise all rights available to it. See, In re Grogg Farms, Inc., 91 B.R. 482 (Bankr. N.D.Ind.1988). And, in the meantime, the bank will be receiving payments from the debtor. Given the protections built into the debtor's plan, and given debtor's uncontradicted testimony that she intends to continue working throughout the course of the plan in order to make payments, I find that it is reasonably probable that debtor will be able to make all payments under the plan and to comply with the plan. In re Rape, 104 B.R. 741, 747 (W.D.N.C.1989); In re Rott, 94 B.R. 163, 169 (Bankr.D.N.D.1988).
13. The plan complies with the provisions of Chapter 12 and with the other applicable provisions of Title 11.
14. Any, fee, charge, or amount required under Chapter 123 of Title 28, or by the plan, to be paid before confirmation, has been paid;
15. The plan has been proposed in good faith and not by any means forbidden by law.
16. The value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under Chapter 7 of Title 11 on such date.
17. With respect to each allowed secured claim provided for by the plan, the plan provides that the holder of such claim retain the lien securing such claim and the value, as of the effective date of the plan, of property to be distributed by the trustee or the debtor under the plan on account of such claim is not less than the allowed amount of such claim.
18. The plan provides that all the debtor's projected disposable income to be received during the course of the plan, beginning *539 on the date that the first payment is due under the plan, will be applied to make payments under the plan.
19. The collateral securing the obligation due Citizen's is necessary to an effective reorganization of the debtor. Furthermore, since debtor's plan is confirmed, cause does not exist to grant relief from the automatic stay. Therefore, the motion of Citizen's for relief from the automatic stay should be denied. 11 U.S.C. § 362(d).
20. An Order consistent with these findings will be entered this date.
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162 B.R. 579 (1993)
In re Hubert Earl JENKINS and Jewell Deloress Jenkins, Debtors.
Bankruptcy No. 92-15305-8P7.
United States Bankruptcy Court, M.D. Florida, Tampa Division.
October 19, 1993.
Thomas Joel Chawk, Lakeland, FL, for debtors.
Stephen L. Meininger, Tampa, FL, Trustee.
Meininger & Meininger, P.A., Tampa, FL, for trustee.
ORDER ON OBJECTION TO CLAIM OF EXEMPTIONS
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing, with proper notice, upon an Objection to Claim of Exemption of Hubert Earl Jenkins and Jewell Deloress Jenkins (Debtors) in this converted Chapter 7 case. The Debtors' right to the exemptions claimed is challenged by Stephen L. Meininger (Trustee), the trustee in charge of administering the estate of the Debtors. The Objection to Claim of Exemption is based on the proposition urged by the Trustee that the total value of the personal property claimed as exempt exceeds the maximum allowed by Art. X, § 4 of the Florida Constitution. In opposition, the Debtors contend that the Trustee's Objection is untimely, and therefore this Court no longer has jurisdiction to consider the Objection and the claim of exemptions is automatically allowed, even though the values claimed might be in excess of the amount allowed by law. The facts relevant to the resolution of this controversy as they appear from the record are as follows:
The Debtors filed their Petition for Relief under Chapter 13 of the Bankruptcy Code on November 20, 1992. In connection with the Petition, the Debtors filed their Schedules, and in their Schedule C they claimed as exempt personal property valued by the Debtors at $3000.00. The § 341 meeting of creditors was concluded on December 22, 1992. The Chapter 13 standing trustee did not object to the claim of exemption set forth in the Debtors' Schedule C. The Debtors, having failed to obtain confirmation of their Chapter 13 Plan, filed a Notice of Voluntary Conversion on March 30, 1993. Stephen L. Meininger (Trustee) was appointed on April 9, 1993 pursuant to § 701 of the Bankruptcy Code. The § 341 meeting held after conversion and concluded on May 4, 1993. On May 21, 1993, the Trustee filed an Objection to Claim of Exemption, alleging that the Debtors are not entitled to claim the personal property as exempt in the amount of $3000.00, because the claim exceeds the $2000.00 amount allowed by Art. X, § 4 of the Florida Constitution.
On May 26, 1993, the Debtors filed a Response to the Objection, contending that the Trustee's Objection was untimely because it was not filed within thirty days of the conclusion of the meeting of creditors, as required by F.R.B.P. Rule 4003(b). Thus, according to the Debtors, they are entitled to the exemptions claimed, even though the exemption *580 they are claiming is admittedly not permitted under Florida law. See Taylor v. Freeland & Kronz, ___ U.S. ___, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992) and § 522(l) of the Bankruptcy Code.
The time-frame in which a party in interest must challenge a debtor's right to exemptions is governed by F.R.B.P. 4003(b) which provides in pertinent part:
Rule 4003(b). Objections to Claim of Exemptions.
The trustee or any creditor may file objections to the list of property claimed as exempt within 30 days of the conclusion of the meeting of creditors held pursuant to Rule 2003(a) or the filing of any amendment to the list or supplemental schedules unless, within such period, further time is granted by the court ... (emphasis supplied)
The difficulty in the literal application of this Rule is demonstrated by the fact pattern involved in this particular case, which presents the narrow issue of whether the § 341 meeting held pursuant to Chapter 13 or the § 341 meeting held after conversion to Chapter 7 triggers the 30-day time-frame in which a trustee must challenge the claim of exemptions of a debtor.
Chapter 13 is designed to assist individuals with regular income to adjust debts. Although § 1322(b)(8) permits the sale of assets, the Chapter is designed to enable the debtor to fund the Plan with the debtor's future income, and not by liquidation of the debtor's assets. Thus, in the context of a Chapter 13 case, the debtor's right to exemptions is only relevant in determining whether or not the debtor's Plan meets the requirement of § 1325(a)(4), which requires that creditors will receive more under the Plan proposed by the debtor than they would receive under Chapter 7. For this reason, as a general proposition, the debtor's right to exemptions claimed is academic in a Chapter 13 case, and the standing trustees in Chapter 13 cases seldom, if ever, pay any attention to claim of exemptions set forth in Schedule C. On the other hand, when the case is converted to Chapter 7, the issue of exemptions becomes of paramount importance, because to the extent exemptions are not allowed, the property in question will remain property of the debtor's estate and is available for liquidation by the Chapter 7 trustee.
F.R.B.P. 1019 is designed to deal with readjustment of time-frames upon conversion. It provides that upon conversion, the time to file claims governed by Rule 3002 is restarted, as is the time fixed by Rule 4004(a) to file complaints objecting to the discharge pursuant to § 727(a) and the time fixed by Rule 4007(c) which deals with filing a complaint pursuant to § 523(c). Although the Rule is silent regarding the rescheduling of a new § 341 meeting, the only sensible construction of § 348 and Rule 1019 admits no other result, except that a new time-frame is triggered by the conclusion of the meeting of creditors held after conversion. This is so because § 348 refers back to Rule 4004 and Rule 4007 which provide, of course, that complaints objecting to general discharge pursuant to § 727(a) and complaints pursuant to § 523(c) must be filed within 60 days following the date set for the meeting of creditors. This time-frame must relate to the new § 341 meeting, because if it refers to the original § 341 meeting, which could have been held possibly years later, the new time-frame provided by Rule 1019 would be totally meaningless and academic. Unfortunately, Rule 1019 makes no provision for restarting a new time-frame for filing objections to the Debtor's claim of exemptions when the case is converted from Chapter 13 to a Chapter 7.
If Rule 4003(b) is construed to mean that the 30-day time-frame is triggered by the § 341 meeting held in the Chapter 13 case, then the interim trustee in the Chapter 7 case is no longer in a position to challenge the debtor's claim of exemption, even when the interim trustee discovers during the § 341 meeting held after conversion facts which suggest that the debtor's claim of exemption is unsupported by facts or by law or both. This in turn creates an anomalous situation that the debtor is allowed to retain and immunize property merely because the Chapter 13 trustee did not file a timely objection to the claim of exemptions even if the claim is not supported by Florida law. See Taylor v. Freeland & Kronz, supra. The Supreme Court held in Taylor that the *581 failure to timely object to the claim of exemption is a final binding determination of the debtor's right to exemption even if it is clear that the claim of exemption had no basis in fact or law according to the Supreme Court. This is so because § 522(l) expressly provides that unless a party in interest objects, the claim of exemption is allowed.
This Court is unwilling to accept this proposition, and is satisfied that despite the fact that Rule 1019(2) fails to retrigger the time-frame within which an Objection to Claim of Exemption must be filed, the Chapter 7 trustee should have an opportunity to do so when the facts discovered warrants, provided that the trustee files the objection within thirty days of the conclusion of the § 341 meeting held after conversion.
No one disputes the fact that a debtor should be entitled to full enjoyment of properly allowable exemptions. It is also important to note that the overriding purpose of the Bankruptcy Code is to allow a debtor to have a "fresh start" by providing much needed relief from the pressure and discouragement of pre-existing debt. Lines v. Frederick, 400 U.S. 18, 91 S.Ct. 113, 27 L.Ed.2d 124 (1970). Nonetheless, it is equally true that the Code contemplates a fair quid pro quo to the creditors, who are entitled to share in the proceeds produced by the liquidation of the non-exempt assets by the trustee in the Chapter 7 case. The fresh start concept explained by Frederick should not permit a debtor to immunize from the estate property not exempted under applicable law. In view of the foregoing, this Court is satisfied that the Trustee's Objection to Claim of Exemptions is timely.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Trustee's Objection is sustained and the Claim of Exemptions is disallowed to the extent it exceeds the amount allowable in Article X, § 4 of the Florida Constitution. The Debtors shall select which property they claim as exempt within 15 days of the entry of this Order. The Trustee is directed to administer the excess as property of the estate.
DONE AND ORDERED.
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582 S.W.2d 170 (1979)
RELIANCE INSURANCE COMPANY, Appellant,
v.
KRONZER, ABRAHAM & WATKINS, Appellee.
No. 17381.
Court of Civil Appeals of Texas, Houston (1st Dist.).
April 5, 1979.
May 17, 1979.
Martin, Sperry & LeBoeuf; Edward J. Mahar, Houston, for appellant.
Kronzer, Abraham & Watkins, Dale Friend, James E. Robinson, Houston, for appellee.
*171 COLEMAN, Chief Justice.
The Reliance Insurance Company intervened in a lawsuit seeking recovery of damages for personal injuries to recover the amount of the worker's compensation benefits it had paid to the plaintiff as authorized by Article 8307, Section 6a, Texas Revised Civil Statutes Annotated. The damage suit was settled for a sum greatly in excess of the total amount of compensation and medical benefits paid by Reliance, and the judgment awarded Reliance the sum of $33,162.53 less 25% thereof which was awarded to Kronzer, Abraham & Watkins, as attorneys' fees. The Reliance Insurance Company appeals from that portion of the judgment awarding attorneys' fees on the ground that the amendment to Article 8307, Section 6a, supra, authorizing the trial court to award such attorneys' fees, was not in effect by reason of Article 8309, Section 3b, Texas Revised Civil Statutes Annotated, on the date that the worker's compensation claimant filed his claim for compensation.
Chester Gilson was injured on July 11, 1973. He filed notice of injury and claim for compensation with the Industrial Accident Board on August 3, 1973. Reliance Insurance Company made payments of compensation to Gilson between that date and September 1, 1973, the effective date of the amendment to Article 8307, Section 6a, supra, the total of such payments being $294.00.
The award of the Industrial Accident Board on Gilson's compensation claim was made by way of a compromise settlement agreement on October 25, 1974. Gilson filed a third party action for damages on October 17, 1974. Reliance Insurance Company intervened in that suit seeking recovery of the amount it had paid as compensation under the worker's compensation law. A compromise settlement agreement was entered into by all parties to the damage suit in which all claims were compromised and settled, with the exception of a dispute between the plaintiff's attorneys and Reliance. After a full hearing, the trial court entered a judgment approving the compromise settlement agreement and ordering that Reliance Insurance Company be paid its full subrogation interest out of the settlement, except for 25% of that amount, which was awarded by the court to the firm of Kronzer, Abraham & Watkins.
Senate Bill 283 enacted by the 63rd Legislature at its regular session provided for extensive revisions to Articles 8306, 8307, 8308, and 8309 of the Revised Civil Statutes of Texas, commonly known as the Texas Workmen's Compensation Act. Section 6a, of Article 8307, supra, was amended so as to permit an injured employee to proceed against a third person to recover damages for an injury, without first establishing his right to worker's compensation and without waiving his right to such compensation benefits. It continued the existing right of the compensation carrier to be subrogated to the rights of the injured employee, and to enforce in the name of the employee, or in its own name, the liability of a third person for the injury to the employee, and to reimburse itself out of any recovery in such a suit for the payments made to the employee including medical expenses, costs of recovering the judgment, and its attorney's fees expended to that end. A new provision was added providing that when the compensation claimant is represented by an attorney in such a suit for damages, and the carrier's interest is not actively represented by an attorney, the carrier shall pay such fee to the claimant's attorney not to exceed one-third of its subrogation recovery as might be agreed upon between the attorney and the association, or in the absence of such agreement, as allowed by the trial court.
By the same Senate Bill Section 3b, Article 8309, Revised Civil Statutes of Texas, 1925, was amended to read as follows:
(Sec. 3b.) No inchoate, vested, matured, existing or other rights, remedies, powers, duties or authority, either of any employee or legal beneficiary, or of the board, or of the association, or of any other person shall be in any way affected by any of the amendments herein made to the original law hereby amended, but all such rights, remedies, powers, duties, and authority shall remain and be in *172 force as under the original law just as if the amendments hereby adopted had never been made ...
In Texas Employers' Insurance Association v. Vineyard, 340 S.W.2d 106 (Tex.Civ. App.Dallas 1960, writ ref'd n.r.e.) the court in speaking of a bill enacted in 1957 amending Article 8306, supra, says:
In view of the above legislative expressions we think it too plain for argument that our Legislature intended that the 1957 amendment of Art. 8306, [Section] 11, V.A.C.S. should not affect any rights, vested or remedial, with respect to injuries which occurred prior to the enactment of the amendment.
The question of whether the attorneys who represented a deceased employee's beneficiaries, in a suit to establish liability and damages against a third person were entitled to be paid attorney's fees out of the amount set aside to the workmen's compensation insurer was presented in Simpson v. Texas Employers' Association, 519 S.W.2d 209 (Tex.Civ.App.Fort Worth 1975, writ ref'd n.r.e.). In this case, the accident occurred and the suit for damages was filed prior to September 1, 1973, the date on which the amendment to Article 8307, Section 6a, supra, became effective. The case was called for trial on September 10, 1973. The action of the trial court in denying attorney's fees was affirmed on the ground that the amendment creating the right to attorney's fees out of the subrogation recovery was not retroactive and that "Texas Employers' subrogation interest, in its total amount, wasas of the time of the settlement of the suit at common law, and long prior theretoinchoate, vested, and substantive" and thus could not be affected by the amendment Section 6a, supra, because of the language of Section 3b, supra.
Section 6a as it existed prior to the amendment was discussed by the Supreme Court of Texas in Fort Worth's Lloyds v. Haygood, 151 Tex. 149, 246 S.W.2d 865 (1952), and the court held that where compensation has been paid to an injured employee, and he later files suit against the third party tortfeasor, the first money paid to or recovered by the employee belongs to the compensation carrier. The court also recognized that where the insurance company brings suit and recovers a sum less than that paid by the insurance company to the employee together with the reasonable cost of enforcing the liability, the employee is entitled to nothing. The court further stated that where the employee chooses to receive compensation from his employer's compensation carrier he "bring[s] into play the law which subrogates the compensation carrier to the employee's rights against the third party tort-feasor."
In discussing the language of Section 6a, the Supreme Court noted that there is language in the article indicating that the right of subrogation arises when compensation is claimed by the injured employee, but held that a consideration of the article as a whole makes it clear that the right does not mature until the insurer has paid or assumed to pay compensation. Texas Employers' Insurance Association v. Brandon, 126 Tex. 636, 89 S.W.2d 982 (1936).
The Supreme Court again recognized the rule that when a claimant elects to proceed under the workmen's compensation statute and qualifies for award thereunder, the cause of action of the compensation carrier does not accrue against the third party until the amount of the award made by the Industrial Accident Board is paid by the carrier or until the claimant obtains a final judgment in a court of competent jurisdiction against such insurance carrier. When either of these events occurs the cause of action matures against the third party and the statute of limitations begins to run. Campbell v. Sonford Chemical Company, 486 S.W.2d 932 (Tex.1972).
It is not necessary that compensation has been paid or assumed to be paid for a right to subrogation to exist. However, this right will not mature until such payment or assumption has occurred. As a result, under the former law, the court held that where an event occurred causing injury to an employee under circumstances giving rise to a possible cause of action against a third party, and the employee settled his *173 claim against such third party before proceeding with his claim for compensation insurance, he destroyed the insurance carrier's right to subrogation and, therefore, his right to recover compensation was lost. Warneke v. Argonaut Insurance Company, 407 S.W.2d 834 (Tex.Civ.App.El Paso 1966, writ ref'd n.r.e.).
Prior to the 1973 amendment to Section 6a it contained no provision which could be construed as burdening the insurance carrier with any part of the compensation claimant's attorneys' fees. On the contrary, the insurance company was entitled to recover its expenses incident to recoupment including a reasonable attorneys' fees. Dover v. Casualty Reciprocal Exchange, 410 S.W.2d 306 (Tex.Civ.App.Amarillo, 1966, no writ hist.).
Before the enactment of the 1973 amendment, the Reliance Insurance Company had an inchoate or contingent right to recover from negligent third parties all sums that they might be liable to pay to Chester Gilson as workmen's compensation payments together with the reasonable fees required to enforce the liability of such third parties. This right had accrued because of the payments of workmen's compensation benefits to Gilson prior to September 1, 1973. This right clearly came within the provision of Article 8309, Section 3b supra, providing that "no inchoate, vested, matured, existing or other rights .. shall be in any way affected by any of the amendments herein made ..." The trial court was not authorized to charge the insurance company's portion of the damage award with the attorney's fee.
The judgment of the trial court is reformed to eliminate the provision awarding attorneys' fees, and as reformed is affirmed.
WALLACE and PEDEN, JJ., also sitting.
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844 F.Supp. 1372 (1993)
George S. SEFCIK, Plaintiff,
v.
OCEAN PRIDE ALASKA, INC., Defendant.
No. A92-397 Civil (JAV).
United States District Court, D. Alaska.
December 8, 1993.
Robert J. Jurasek, Law Office of William G. Azar, Anchorage, AK, for plaintiff.
P. Joseph Bersch III, LeGros Buchanan & Paul, Anchorage, AK, for defendant.
MEMORANDUM AND ORDER
VON DER HEYDT, District Judge.
I. INTRODUCTION.
This cause comes before the court on motion to reinstate maintenance and cure, filed November 3, 1993 (Docket No. 70), by plaintiff George Sefcik. For the reasons stated below, plaintiff's motion is granted regarding the reinstatement of maintenance and cure, *1373 and denied as to a punitive damages award and costs and attorney's fees.
II. BACKGROUND.
Plaintiff was employed by defendant Ocean Pride of Alaska. While working aboard defendant's vessel, plaintiff alleges he manifested bilateral carpal tunnel syndrome, reflex sympathetic dystrophy and tendinitis. Plaintiff subsequently underwent surgery on one arm in June, 1992 and the other arm in September, 1992. Defendant paid maintenance and cure until it determined to cease making payments as of October 18, 1993. Plaintiff filed a motion for shortened time seeking reinstatement of his maintenance and cure payments. By agreement of the parties, the payments were reinstated until such time as the court considered plaintiff's motion for reinstatement pursuant to a normal briefing schedule.
III. DISCUSSION.
Plaintiff seeks reinstatement of his maintenance and cure payments, alleging that he has not achieved maximum cure. Plaintiff further seeks punitive damages and costs and attorney's fees. Defendant submits that questions of fact exist on the issue whether plaintiff has achieved maximum cure. Defendant incorrectly characterizes plaintiff's motion as one for summary judgment. An injured seaman seeking reinstatement of maintenance and cure payments which were terminated by his employer cannot be considered in the same procedural posture as a party seeking summary judgment. The court agrees with plaintiff's argument regarding this issue.
In Johnson v. Marlin Drilling Co., 893 F.2d 77, 79 (5th Cir.1990), the court stated that payments for maintenance and cure may be terminated when it is determined that a seaman has reached maximum cure. The court also stated that the decision to terminate must be unequivocal. Id. Maximum cure is reached when it is medically determined that further improvement in a plaintiff's health is not reasonably possible. Vella v. Ford Motor Co., 421 U.S. 1, 5, 95 S.Ct. 1381, 1384, 43 L.Ed.2d 682 (1975). The employer should consider all available medical evaluations whether the claimant is fit for duty in deciding to terminate maintenance and cure payments. Tullos v. Resource Drilling, Inc., 750 F.2d 380 (5th Cir.1985). A vessel owner must only pay for curative, as opposed to palliative, medical treatment. Stanovich v. Jurlin, 227 F.2d 245, 246 (9th Cir.1955).
At the time defendant decided to terminate plaintiff's maintenance and cure, it had before it the following statements of various physicians. Dr. Lipke, who performed plaintiff's operations, stated in deposition that plaintiff's hand surgery treatment was complete and that plaintiff should return to work. Dr. Lipke also stated in the same deposition that plaintiff should receive a psychiatric evaluation. Dr. McCarthy conducted the psychiatric evaluation. He originally treated plaintiff when plaintiff chose to continue treatment with Dr. Cassell. Dr. Cassell, one of plaintiff's current treating physicians, diagnosed plaintiff on March 1, 1993 as suffering from a general anxiety disorder secondary to the injury to his hands.
Dr. Cassell further recommended that plaintiff seek biofeedback treatment from Dr. Kappes. Dr. Kappes currently works with plaintiff on Galvanic Skin Response Training. On August 11, 1993 Dr. Kappes stated during deposition that he considered the biofeedback treatment palliative, and not curative.
Dr. Rothrock conducted an independent medical exam of plaintiff on October 11, 1993. Dr. Rothrock opines that plaintiff's psychiatric illness is a pre-existing personality disorder and recommends no further treatment for plaintiff for this disorder.
Based on the conclusions cited above of Drs. Rothrock and Kappes, defendant concluded that plaintiff was no longer eligible for maintenance and cure payments, and terminated the payments as of October 18, 1993. However, based on the record presently before the court, it does not appear that it is unequivocal that plaintiff has reached maximum cure. The court agrees with defendant that questions of fact remain regarding plaintiff's cure status. However, those questions of fact did not arise after the time plaintiff filed his motion to reinstate maintenance and *1374 cure. The questions were present at the time defendant determined to terminate the payments. Further, defendant's decision to terminate apparently discounted the testimony of Dr. Cassell who stated in deposition that treatment of plaintiff's general anxiety disorder was secondary to treatment of his hands. That statement could not be deemed an unequivocal endorsement that plaintiff attained maximum cure. At the least, such a statement is ambiguous regarding plaintiff's cure status. Any ambiguities whether maximum cure has been reached are to be resolved in favor of the seaman. Kratzer v. Capital Marine Supply, Inc., 490 F.Supp. 222 (M.D.La.1980), affirmed 645 F.2d 477 (5th Cir.1981).
In support of plaintiff's motion to reinstate maintenance and cure, he attached letters from his treating physicians which indicate that plaintiff has not reached maximum cure. Dr. Cassell stated that plaintiff's condition will deteriorate if he does not continue his treatment. Defendant suggests that Dr. Cassell did not specifically link plaintiff's current treatment with plaintiff's employment on defendant's vessel. Dr. Kappes stated that plaintiff needs additional biofeedback training. Defendant contends that Dr. Kappes does not counter his previous testimony that plaintiff's treatment is palliative. Dr. Rothrock's evaluation counters the statements made by plaintiff's treating physicians. Because there is a disagreement as to whether additional psychological/psychiatric treatment is necessary for plaintiff, defendant is directed to continue maintenance payments until the issue is resolved at trial. Further, the court notes that plaintiff clearly did not file a motion for summary judgment. The court will not consider plaintiff's motion for reinstatement of maintenance and cure as one for summary judgment.
Plaintiff's request for punitive damages is denied for the reason the plaintiff's maintenance and cure payments were promptly reinstated by defendant. Further, at this time it does not appear that defendant's actions were conducted in bad faith. Because an award of costs and attorney's fees can only be made when it has been determined that the failure to provide maintenance and cure was arbitrary, recalcitrant or unreasonable, plaintiff's request for costs and attorney's fees is denied. Kopczynski v. The Jacqueline, 742 F.2d 555, 559 (9th Cir. 1984).
IV. ORDER.
Accordingly, IT IS ORDERED THAT plaintiff's motion to reinstate maintenance and cure payments is granted in part and denied in part as outlined above.
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83 A.2d 230 (1951)
LINCOLN LOAN SERVICE, Inc. OF TAKOMA PARK
v.
MOTOR CREDIT CO., Inc.
No. 1099.
Municipal Court of Appeals for the District of Columbia.
Argued July 24, 1951.
Decided August 29, 1951.
Ralph R. Sachs, Washington, D. C., for appellant.
Joseph Luria, Washington, D. C., with whom William R. Lichtenberg, Washington, D. C., was on the brief, for appellee.
Before CAYTON, Chief Judge, and HOOD and CLAGETT, Associate Judges.
HOOD, Associate Judge.
Lincoln Loan Service, Inc., of Takoma Park, hereafter called Lincoln, obtained a judgment against Dallas S. and Ruby Akers and issued a garnishment against their property and credits in the hands of Motor Credit Company, Inc., hereafter called Motor Credit. Motor Credit answered the garnishment in the following manner: "no. We have taken possession of automobile of defendants upon which we hold a conditional sales contract the terms of which have been breached by the defendants. The value of this automobile is less than the amount due us on the contract."
Lincoln filed a traverse to the answer, denying that Motor Credit had no property or credits of the Akers. Trial was had on the traverse.
The controversy between the parties stemmed from the sale of a used automobile by Greenway Used Cars, hereafter called Greenway, to Dallas Akers. A document entitled Bill of Sale indicated the sale by Greenway to Akers for a cash payment of $335 and a balance to be paid in fifteen payments of $65.88 each. A conditional bill of sale was executed by Greenway reciting receipt of $335 and balance of $988.20. Attached to it was a promissory note signed by Akers for $988.20 payable in monthly instalments of $65.88. The conditional sale contract was assigned by Greenway to Motor Credit and the note endorsed to Motor Credit by Greenway without recourse. Greenway received $739.20 from Motor Credit. The record does not show what monthly payments, if any, were made by Akers, but the car was repossessed by Motor Credit for default in payment and sold for $875.
Lincoln contends here, as it did below, that the terms of the conditional sale contract *231 were usurious, that in effect Motor Credit was an original party to the contract, that Lincoln as a judgment creditor of Akers has the right to recover from Motor Credit any amount Akers would be entitled to recover because of the usurious transaction. To prove usury Lincoln offered testimony tending to show that Greenway's policy was to sell cars for one price, whether cash or on time; that the cash price of this car was $995 which was reduced to $660 by the down payment of $335, that a charge of $328 was made for financing the unpaid balance of $660, and that such financing charge was simply a cloak for a usurious loan. On the other hand, there was testimony that Greenway's policy was to have two prices, a smaller one for a cash sale and a larger one for a time sale; that while the cash price for this car was $995, the time price was that stated in the conditional sale contract.
The trial court found that there were two prices, cash and time, and denied recovery. We think the evidence supported this finding and on such finding there could be no recovery. In District of Columbia v. Hamilton National Bank, D.C. Mun.App., 76 A.2d 60, 67, we approved the trial court's ruling that "the sale at a Time Price to the original purchaser, under a conditional sale agreement providing for monthly installments and including charges for insurance, financing and other related services for the privilege of buying on time rather than by cash, is not violative of the usury statute." That ruling is decisive here. Undoubtedly some suspicious circumstances were developed by the testimony but the burden of proving usury rests on the one alleging it, and on this record we cannot hold as a matter of law that the trial court was in error in holding that Lincoln failed to carry its burden.
The question is raised here by Motor Credit that only borrowers or parties in privity with them can raise the question of usury and that Lincoln is not such a party. In view of the finding of no usury we see no occasion for passing on the question.
Affirmed.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/1522797/
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156 B.R. 873 (1993)
In re ALCOM AMERICA CORPORATION, Debtor.
Bankruptcy No. 84-00138.
United States Bankruptcy Court, District of Columbia.
July 26, 1993.
*874 *875 Stephen B. Sale, Fehrenbacher, Sale, Quinn & Deese, P.C., Washington, DC, for debtor.
Harvey M. Katz, Leach & English, Washington, DC, for trustee.
*876 DECISION GRANTING ARAB BANKING CORPORATION SUMMARY JUDGMENT AGAINST THE TRUSTEE AND THE DEBTOR AND PARTIALLY VACATING PROVISIONAL DECISION
S. MARTIN TEEL, Jr., Bankruptcy Judge.
This decision holds that neither the trustee, Daniel E. Leach, nor the debtor-intervenor, Alcom America Corporation, have alleged any facts which, if proven, would preclude granting summary judgment in favor of Arab Banking Corporation ("ABC" or "the bank") on the basis of the court's provisional decision entered April 16, 1993. Therefore, summary judgment will be entered in favor of the bank. However, the debtor has called into question the factual basis for one of the court's findings in the provisional decision, and accordingly, that finding will be vacated.
In the provisional decision, on the facts as alleged by the parties, the court issued a three-fold holding.
First, the court held that under the Uniform Commercial Code ("UCC") the bank had a valid security interest in the ethanol owned by the debtor.[1] The security interest was based on three different security agreements (of which the finding as to one must be amended):
Two of the agreements gave ABC a security interest in the debtor's contract rights under a contract with its ethanol supplier, the Fondo de Ordenacion y Regulacion de Producciones y Precios Agrarios ("FORPPA"), an agency of the Spanish government. The court determined that the ethanol constituted proceeds of the contract rights exercised by the debtor so that the bank's security interest continued in the proceeds.
The remaining security agreement gave the bank a security interest directly in the debtor's inventory. Because the ethanol was inventory, ABC was found to have a security interest in the ethanol. As is explained below, the court vacates its finding with respect to this security interest. However, the debtor has supplied yet another security agreement giving ABC a security interest directly in inventory. The court holds that this security agreement is valid and enforceable so that, after all, the bank did have a security interest directly in the ethanol as inventory of the debtor. This holding is also explained below.
Second, the court held that on the petition date the debtor no longer had rights in the ethanol because the ethanol at issue had been disposed of by sale before the petition was filed. Therefore, the ethanol never became property of the estate under 11 U.S.C. § 541, and there was no basis for contempt for violating the automatic stay provisions found in 11 U.S.C. §§ 362(a)(3)(4).
Finally, the court held that in taking post-petition steps to enforce its claim against A.E. Staley Co. ("Staley"), the buyer of the ethanol, ABC did not act to collect a claim against the debtor or against property of the debtor in violation of § 362(a)(6).
For these reasons, the court was inclined to grant summary judgment in ABC's favor. However, the bank had not moved for summary judgment so the trustee and the debtor were allowed to submit evidence demonstrating the existence of a genuine issue of material fact. Both the trustee and the debtor have responded with new allegations to which the bank has replied. This decision addresses those allegations.
I
At the outset, what this case involves must be made clear. It is a motion brought by the trustee against ABC for contempt for violating the automatic stay. The motion is based on the trustee's allegations *877 that the bank sold ethanol belonging to the debtor after the petition was filed. It is not an action to avoid any of the bank's interests. After a year-long investigation and careful review of the facts discovered, the trustee elected to proceed by a motion for contempt and having made that election is bound by it.
II
Because this is a contempt motion for violating the automatic stay, the trustee's appeal to equity must be rejected. At the heart of the appeal is the notion that ABC should not be allowed to keep the proceeds of the sale of the ethanol because the bank (allegedly) concealed the sale from the debtor. But this presupposes that the debtor had rights in the collateral on the petition date for only then would ABC's acts in selling the ethanol be contemptuous of the automatic stay. The conduct complained of in the trustee's appeal is more properly directed at tolling the statute of limitations for avoidance actions. It might or might not have justified such tolling but simply fails to provide any basis for a finding of contempt for violating the automatic stay. Hence, it is irrelevant here because an avoidance action must be brought as an adversary proceeding. F.R.Bankr.P. 7001.
III
The debtor alleges facts designed to show that a security interest did not exist in the ethanol at issue. First, the debtor avers that the first security agreement, dated August 9, 1983, was in fact executed on December 20, 1983. According to the debtor, the second security agreement was not executed until September 28, 1983, but the ethanol at issue was derived from a shipment delivered in early September 1983. Second, the debtor alleges that the third security agreement, dated January 9, 1984, was induced by fraud. The debtor points to a fourth security agreement dated January 5, 1984, but dismisses it because it was executed without authority. Therefore, the debtor reasons, a valid security interest never existed in the ethanol at issue.
With respect to the first set of allegations, assuming those allegations are true, the court rejects the debtor's arguments because (1) the September 28, 1983 security agreement would reach the ethanol at issue; (2) the documents executed before the ethanol was delivered in early September 1983 were sufficient to constitute a binding security agreement; and (3) once signed, the security agreement dated August 9, 1983, would relate back to that date. With respect to the second set of allegations, the court rejects those related to the authority to execute the fourth security agreement because they are conclusory, unsupported by any specific facts or explanation, and directly contradicted by the evidence in the record. The court further finds that it is of no moment whether the third security agreement was induced by fraud.
A
The security agreement dated September 28, 1983, would reach ethanol delivered in early September. In Maxl Sales Co. v. Critiques, Inc., 796 F.2d 1293 (10th Cir. 1986), the issue was whether a security agreement covering "proceeds . . . arising under a certain Consignment Agreement executed by and between the parties," id. at 1295, reached the goods consigned, id. at 1297-98. The issue turned on whether the collateral was adequately described under UCC § 9-110. The court first noted that the security agreement incorporated the consignment agreement which "contained language concerning `certain items of furniture, household goods, etc.'" to be delivered under the consignment agreement. Based on that observation, the court held that "taken as a whole" the security agreement created, "as between the parties," an enforceable security interest in the consigned goods. 796 F.2d at 1298.
In this case, the security agreement reached "all [the debtor's] right, title and interest in the following contracts (and all proceeds therof [sic])." Among the contracts listed in the security agreement was the debtor's contract with FORPPA. The *878 FORPPA contract described its subject matter as ethanol. This description was also contained in the security agreement. The parties' intent cannot be mistaken: the bank was to be secured by the ethanol that was the fruit of the FORPPA contract which, when the security agreement was signed, was no longer a new contract but had matured into the ethanol. In accord with Maxl Sales Co. the court holds that as between the parties the September 28, 1983 security agreement was sufficient to create an enforceable security interest in the ethanol previously delivered pursuant to the FORPPA contract.
In this respect, the court distinguishes those cases which state that "[u]nder the [UCC] one cannot take an interest in proceeds without also taking an interest in the underlying collateral from which such proceeds are generated." In re Softalk Publishing Co., 64 B.R. 523, 526 (9th Cir. BAP 1986), aff'd, 856 F.2d 1328 (9th Cir.1988); accord In re Radice Corp., 88 B.R. 422, 425 (Bankr.S.D.Fla.1988). These cases involved questions of perfection, and not whether a security interest existed in the first instance. Because they were made in a different context, statements to the above effect have no bearing on whether an enforceable security interest existed as between the immediate parties to a security agreement.
B
Even if the September 28, 1983 documents were treated as an ineffective security agreement, the documents executed before the ethanol was delivered are sufficient to constitute a binding security agreement. These documents consist of a facility letter from ABC to the debtor and a corporate resolution by the debtor's board of directors.
The facility letter, dated August 9, 1983, sets forth the overall financing arrangement between the parties. (ABC's Mem. Supp.Opp'n Trustee's Mot.Summ.J., Ex. 3, Docket Entry ("DE") 341.) As one of the conditions to its implementation, it states "Alcom will assign all rights and benefits of the contract with Forpa to us [the bank]." It further required a resolution by the debtor authorizing the formal acceptance of the facility letter and the signing of a duplicate copy of the letter indicating acceptance. At its end, directly below the legend "Accepted:" the facility letter contains the signatures of the debtor's principals, Joseph O. Jacobson, Douglas D. Sutter, and William B. Rowles.
The corporate resolution is set forth in the minutes of an August 18, 1983 meeting of the debtor's board of directors. (Debtor's Supp'l Stmt.Facts & Evid., Ex. 1A, DE 384.) The resolution indicates that the financing facility "is accepted, approved and ratified on the terms and conditions specified in the [facility letter]."
For a non-possessory security interest to be enforceable, inter alia, the debtor must sign a written security agreement containing a description of the collateral. UCC § 9-203(1)(a). "Security agreement means an agreement which creates or provides for a security interest." UCC § 9-105(1)(l). "Agreement means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance. . . ." UCC § 1-201(3).
In determining whether a binding security agreement exists, the focus is on the dual purposes underlying the requirement of a signed, written security agreement. The first purpose is evidentiary, "to prevent disputes as to precisely which items of property are covered by a secured interest." In re Numeric Corp., 485 F.2d 1328, 1331 (1st Cir.1973) (citing UCC § 9-203 cmt. 3; other citation omitted). Second, the requirement serves as a statute of frauds, "preventing the enforcement of claims based on wholly oral representations." Id. (citing UCC § 9-203 cmt. 5). To satisfy these policies, all that is required is "[a] writing or writings, regardless of label, which adequately describes the collateral, carries the signature of the debtor, and establishes that in fact a security interest was agreed upon." Id. (citations omitted).
*879 With respect to the language required by UCC 9-105(1)(l) to give rise to a security interest, no language of grant is required. In re Amex-Protein Dev. Corp., 504 F.2d 1056, 1058 (9th Cir.1974). Focusing on the definition of "provide for," as contrasted with that of "create," the court in Amex-Protein held that "the requirement of [UCC 9-105(1)(l)] may be satisfied not only when a security interest is caused to be or brought into existence, but also when provision or stipulation is made therefor." Id.
In In re Numeric Corp., the court found an enforceable security agreement by reading together a directors' corporate resolution and a financing statement purporting to cover a never executed written security agreement. The court determined that the financing statement fulfilled the evidentiary function as it itemized the property covered by the security agreement, while the corporate resolution satisfied the statute of frauds as it showed that an agreement to give a security interest in fact existed. 485 F.2d at 1332. The court considered the effect of the failure of the parties to execute a formal security agreement despite their intent to do so, but concluded that "the formal document would only have memorialized an agreement which had already been made and was established by preceding writings." Id.
In In re Owensboro Canning Co., 82 B.R. 450 (W.D.Ky.1988), the court held that a letter agreement between the parties was sufficient to amount to a written security agreement. In reaching its holding the court rejected the argument that because the letter was labeled a "letter of intent" and stated that the parties "conceptually agree" to its provisions, the debtor had no present intent to give a security interest so that the letter was only "an agreement to agree." Id. at 454, 455 n. 4. The court noted that once the debtor's principal signed the letter indicating the debtor's acceptance of its provisions, the security interest "became operative." Id. at 455 n. 4.
In accord with Numeric Corp. and Owensboro Canning, the court believes that the facility letter, which was signed by the debtor's principals, coupled with the corporate resolution provided for an enforceable security interest. Both documents indicated acceptance of the facility letter's conditions, thereby satisfying the statute of frauds, while the facility letter fulfilled the evidentiary purpose by identifying the collateral. The court's conclusion is buttressed by the fact that the parties did in fact follow through with the financing arrangement established in the facility letter. (It is further evidenced by the execution of the allegedly back-dated security agreement, which was signed by the debtor.)
C
In these circumstances, where the parties clearly intended to provide for a security interest as of August 1983, the formal security agreement (allegedly) executed in December 1983 but back-dated to August 9, 1983, should relate back to August 9, 1983. The court believes this result is correct as between the parties to the security agreement because it reflects their intent, manifested in back-dating the formal security agreement, to memorialize their August 1983 agreement to provide for a security interest. Cf. Owensboro Canning Co., 82 B.R. at 456.
D
The debtor has supplied a copy of a security agreement dated January 5, 1984, executed by Jacobson, which gives ABC a security interest in the debtor's inventory. (Debtor's Supp'l Stmt.Facts & Evid., Ex. 1C, DE 384.) This security agreement is identical to the security agreement dated January 9, 1984, executed by Rowles. (ABC's Mem.Supp.Opp'n Trustee's Mot. Summ.J., Ex. 5, at 49, DE 341.) In the provisional decision, the court relied on the January 9, 1984 security agreement in finding a valid security interest in the debtor's inventory.
The court rejects the debtor's allegation, made in its pleadings, that when Jacobson signed the January 5, 1984 security agreement, he lacked authority to do so because he had been removed as an officer and *880 employee of the debtor. (Debtor's Supp'l Stmt.Facts & Evid., ¶ 2, DE 384.) This allegation is supported by no evidence other than Rowles's conclusory assertions and directly contradicted by the debtor's corporate minutes and previous affidavits submitted by Rowles on the debtor's behalf. No reasonable fact-finder could rely on this statement; therefore it must be rejected. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).
Specifically, the evidence the debtor cites is paragraph 15 of the affidavit of Rowles, the debtor's chief executive officer, in which Rowles avers that "Mr. Jacobson was not ALCOM's President, or an authorized official or employee of ALCOM, when he signed the security agreement on January 2, [sic] 1984." (Debtor's Supp'l Stmt. Facts & Evid., Ex. 1 ¶ 15, DE 384.) Rowles cites no underlying evidence to support his averment, nor does he explain the conclusion drawn. Absent any recounting of specific facts or explanation, Rowles's conclusory statement cannot stand. Mack v. Great Atlantic & Pacific Tea Co., 871 F.2d 179, 181 (1st Cir.1989); Maldonado v. Ramirez, 757 F.2d 48, 51 (3d Cir.1985); Galindo v. Precision Am. Corp., 754 F.2d 1212, 1221-23 (5th Cir.1985); Posey v. Skyline Corp., 702 F.2d 102, 106 (7th Cir.), cert. denied, 464 U.S. 960, 104 S.Ct. 392, 78 L.Ed.2d 336 (1983). Nor can it stand in the face of Rowles's own sworn statements to the contrary. Babrocky v. Jewel Food Co., 773 F.2d 857, 861-62 (7th Cir.1985). "The broader principle is that a party is entitled to summary judgment if his opponent cannot produce materials of evidentiary quality demonstrating the existence of a triable issue." Lovejoy Elec., Inc. v. O'Berto, 873 F.2d 1001, 1005 (7th Cir.1989) (citations omitted).
1
The issues here are whether Jacobson was an official or employee of the debtor and if so whether he had authority to execute the security agreement. Both issues are mixed questions of law and fact, and accordingly, Rowles's answer in the negative is an ultimate conclusion of law and fact as to both issues. It is made baldly without indicating its basis by way of documentation or explanation. Before being properly considered for summary judgment purposes, such a statement must be supported by specific facts and explanation delineating the conclusion drawn. Galindo, 754 F.2d at 1221-23; Posey, 702 F.2d at 106. Further, the statement, without more, would be inadmissible at trial and therefore ought not be considered here. Garside v. Osco Drug, Inc., 895 F.2d 46, 49 (1st Cir.1990).
In this respect, it must be pointed out that Jacobson was previously an officer and director of the debtor who could not be eliminated unilaterally by Rowles, but only by the debtor's board of directors. There is, however, no evidence to support board action removing Jacobson as an officer and director or limiting his authority to bind the debtor. Nor is there any evidence that, before the January 9, 1984 board of directors meeting, Jacobson was no longer an officer or that he lacked authority to execute a security agreement. Accordingly, Rowles's statement is not entitled to be accorded any weight.
2
The court next takes pains to demonstrate that Rowles's statement is not only conclusory but also contradicted by his own or prior corporate statements. Before proceeding, it is worth noting that Rowles's statement is ambiguous. It can be interpreted to mean that Jacobson was not an official or employee of the debtor when he signed the security agreement or, alternatively, that he was an official and employee but was not authorized by the debtor to execute the agreement. (Such ambiguities can be avoided if an assertion in an affidavit is supported by specific facts and explanation.)
Either interpretation is contradicted by Rowles's prior affidavits and other evidence submitted by the debtor. In his prior affidavit in support of summary judgment, Rowles stated:
¶ 17. Arab Bank was aware that Joseph Jacobson could not authorize transfer of Alcom's alcohol and proceeds in an *881 amount greater than $2,000 except in conjunction with another ALCOM officer. This action was taken at a meeting of ALCOM's Board of Directors on January 5, [sic[2]] 1984, attended by Dwight Weatherhead, a loan officer of Arab Bank assigned to the ALCOM account. ¶ 18. Any act by Joseph Jacobson after January 5, 1984, purporting to transfer ALCOM property or funds was not authorized by ALCOM.
(Debtor's Supp'l Mem.Supp.Summ.J., Ex. A ¶¶ 17-18, DE 351 (emphasis added).) By the reference to "another ALCOM officer," Rowles indicates that Jacobson was an officer himself. Moreover, the statement that Jacobson could not authorize transfers greater than $2000 implies that he had authority to transfer less than that amount. This is inconsistent with Jacobson not being at least an employee of the debtor.
As far as the January 5, 1984 security agreement is concerned, Rowles's statement in the prior affidavit is that Jacobson's authority was limited only after January 5, 1984. Therefore, on January 5, 1984, Jacobson had the ability to execute the security agreement.[3]
In addition, Rowles has stated that "[o]n January 9, 1984, the Board of Directors of ALCOM America Corporation adopted a resolution limiting the authority of ALCOM employee Joseph O. Jacobson to transactions valued at $2,000 or less." (Debtor Supp'l Br. on UCC §§ 7-502 & 7-504, Ex. 1 ¶ 2, DE 359 (emphasis added).) The debtor echoed this assertion in its brief. (Id. at 2 ¶ 1.) Rowles's assertion indicates two things. First, it shows Jacobson was an employee during the relevant time frame. Second, Jacobson had authority to execute transactions greater than $2000 before January 9, 1984, or otherwise there would be no need to limit his authority.
Consistent with the notion that Jacobson had authority to bind the debtor in early January, the debtor asserted in support of a motion to strike, "It is undisputed that Jacobson had primary responsibility for warehouse withdrawals [of ethanol] before January 9, 1984." (Debtor Mem.Supp.Mot. Strike, at 2 ¶ 3, DE 365.) In support of this motion, the debtor includes Jacobson's affidavit in which he states that he became the debtor's president at a board meeting on December 20, 1983. (Id. Ex. A ¶ 2(b).) That Jacobson was the debtor's president is further supported by the debtor's petition in bankruptcy, executed by Rowles on March 16, 1984, in which the debtor lists Jacobson as its president. (Debtor's Pet., Stmt.Fin.Affairs ¶ 21 & attachment, DE 1.)
The corporate minutes dated January 9, 1984 indicate that Jacobson was a corporate official and director at that time and immediately before then:
[Preamble] . . . Attending the meeting were Directors . . . Joseph O. Jacobson. . . . RESOLVED, THAT Mr. Joseph O. Jacobson shall be reelected to the Board of Directors of ALCOM. . . .
2. . . . Mr. Rowles further indicated that the scheme of individual responsibilities was formulated with an emphasis upon "checks and balances" which Mr. Kaldawy had indicated was necessary for all Officers and Directors of the Corporation. Thus, he viewed the appointment of Mr. Rozansky as Treasurer as important to separate the Office from the Office of President which is currently held by Mr. Jacobson as a check and balance. . . .
4. . . . RESOLVED further that Mr. Jacobson shall be replaced as Treasurer by Mr. Wilbert Rozansky.
(Debtor's Supp'l Stmt.Facts & Evid., Ex. 1B preamble, ¶¶ 2, 4, DE 384 (emphasis added).) These excerpts indicate that Jacobson was a director and also that as of the January 9, 1984 meeting, he held the president and treasurer positions.
*882 In his affidavit containing the statement at issue, Rowles makes no attempt to reconcile his assertion there with his earlier assertions or with the more concrete evidence already before the court. Nor does he allege any facts to support his conclusions. Accordingly, the court cannot help but conclude that Rowles's statement "is `little more than [a] bald assertion, entirely lacking in any recounting of specific facts,' which [the court] may properly reject as creating only a `sham' issue." Diliberti v. United States, 817 F.2d 1259, 1263 (7th Cir.1987) (quoting Babrocky, 773 F.2d at 861).
3
Because there is no reason to question Jacobson's authority to enter into the January 5, 1984 security agreement, that agreement is held enforceable for the same reasons the January 9, 1984 security agreement was held enforceable in the court's provisional decision. See In re Alcom Am. Corp., 154 B.R. 97, 108 (Bankr.D.D.C.1993).
E
However, the facts alleged concerning the execution of the January 9, 1984 security agreement require partial vacation of the provisional decision. That decision held that the January 9, 1984 security agreement was valid. But the security agreement may have fallen afoul of the two-signature requirement established at the January 9, 1984 board meeting. This possibility gives rise to a genuine issue of material fact as to the validity of the January 9, 1984 security agreement. Accordingly, the court vacates its earlier holding that the January 9, 1984 security agreement was valid and enforceable.[4]
The instant decision holds that the January 5, 1984 security agreement is valid and enforceable as it was executed before the two-signature requirement was established. Therefore, in January 1984 when the bank took steps to enforce its security interest in the ethanol, it had three binding security agreements in effect, respectively dated August 9, 1983, September 28, 1983, and January 5, 1984.
F
Whether Rowles's signature on the January 9, 1984 security agreement was induced by fraud is of no moment. That security agreement is no longer the basis for finding a security interest directly in the ethanol. Now, such a security interest is based on the January 5, 1984 security agreement executed by Jacobson. (No allegations have been made that Jacobson's signature was induced by fraud.)
IV
The debtor also alleges that the ethanol was not identified to the contract within the meaning of UCC § 2-501[5] until *883 the buyer Staley received documents verifying the quality of the ethanol. Because UCC § 2-401(1)[6] broadly states that title cannot pass under a contract for sale before identification of the goods to the contract, the debtor reasons, title did not pass to A.E. Staley, the buyer of the ethanol at issue here, on the ethanol's delivery to the carrier but only on Staley's receipt of the documents.
In making this argument, the debtor fails to appreciate the proper relationship between the UCC identification and title provisions. Identification of goods to the contract establishes when the buyer obtains a special property and an insurable interest in the goods. UCC § 2-501(1). This is important for the buyer's protection when the goods have yet to be delivered for it allows the buyer to obtain insurance, see UCC § 2-501, and, in some circumstances, to recover the identified goods, see UCC § 2-502 (recovery from insolvent seller); UCC § 2-711(2)(a) (recovery from defaulting or repudiating seller); UCC § 2-716(3) (replevin of goods if cannot cover); see also UCC § 2-402 (buyer's rights to recover identified goods trump those of seller's general unsecured creditors). Identification also establishes the earliest point at which title to the goods can pass to the buyer. First Nat'l Bank of Elkhart County v. Smoker, 153 Ind. App. 71, 286 N.E.2d 203, 212 (1972), reh'g denied, 153 Ind.App. 71, 287 N.E.2d 788; see UCC § 2-401(1). However, on delivery of the goods, identification ceases to have significance as a concept (except in the case of a sale on approval, see UCC § 2-327(1)(a)). At this time the buyer does not have just a "special property" and "an insurable interest" in the goods but actual title to the goods themselves. "Identification refers to when the goods are still in the possession of the seller." Smoker, 286 N.E.2d at 212. After the seller completes its performance with respect to delivery, thereby relinquishing possession of the goods, the goods must necessarily be identified to the contract (unless the contract calls for a sale on approval). Id.; cf. Young v. Golden State Bank, 560 P.2d 855, 858 (Colo.Ct.App.1977).
The debtor misconstrues the language in UCC § 2-401(1) as prohibiting the passage of title in any event before identification. The relevant language states that "[t]itle to goods cannot pass under a contract for sale prior to their identification to the contract." UCC § 2-401(1) (emphasis added). This language limits the ability of the parties to pass title "under a contract for sale" or, in other words, to pass title by agreement in the contract itself. Its intended focus is on the *884 passage of title to future goods. See UCC § 2-401 cmt. 2. The language, however, does not purport to limit the passage of title through physical delivery of the goods under § 2-401(2) or through their constructive delivery under § 2-401(3).[7] Read in this manner, § 2-401 does not contradict itself. Identification is the earliest that title can pass, and shipment or delivery is the latest. Such an uncontradictory reading should control. E.g., United States v. Gordon, 961 F.2d 426, 431 (3d Cir.1992); Love v. Thomas, 858 F.2d 1347, 1354 (9th Cir.1988), cert. denied, 490 U.S. 1035, 109 S.Ct. 1932, 104 L.Ed.2d 403 (1989). Thus, while the language at issue limits the parties' ability to agree to the passage of title under a contract for sale, it has no effect on the passage of title in accordance with the rules laid out in subsections (2) and (3) of § 2-401.
Any attempt to delay identification until after title passes under UCC § 2-401 is of no effect. Smoker, 286 N.E.2d at 212. Title passes on delivery regardless of when identification is to occur: "Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest." UCC § 2-401(1). This provision cannot be altered by agreement of the parties, custom and usage, or course of dealing. Smoker, 287 N.E.2d at 789-90. In short, the parties cannot "delay the passage of title by the simple expedient of agreeing that the goods are not yet identified to the contract when, in fact, they have already been delivered to the buyer." Smoker, 286 N.E.2d at 212.
V
The court has considered the other points raised by the debtor. These points concern matters addressed in the provisional decision and are rejected for the reasons stated in that decision.
However, further explanation is necessary to clear up one point regarding the disposition of the debtor's contract rights under the FORPPA contract and the disposition of the collateral. The debtor urges that the FORPPA contract was never disposed of or foreclosed upon, but rejected by the trustee in bankruptcy. This reveals a misunderstanding of the provisional decision. Under the FORPPA contract the debtor had the rights to obtain multiple parcels of ethanol from FORPPA in multiple shipments. A disposition of contract rights occurred each time the debtor exercised its rights and obtained a parcel. It is for this reason the court held the ethanol to be proceeds of the debtor's contract rights. Because its security interest continued in the ethanol as proceeds, ABC was entitled to enforce its Article 9 remedies against the ethanol, without proceeding against the FORPPA contract rights, on default by the debtor. Nothing in Article 9 required ABC first to foreclose on the FORPPA contract before exercising its rights against the ethanol. See UCC § 9-504 (on default secured party may dispose of "any or all of the collateral").
CONCLUSION
Based on the foregoing and the court's provisional decision, summary judgment will be granted in favor of ABC, and, accordingly, the trustee's motion for contempt will be denied. A separate order to that effect will be entered.
NOTES
[1] The relevant sections of the UCC can be found in subtitle I of title 28 of the District of Columbia Code Annotated or in Book 62½ of McKinney's Consolidated Laws of New York Annotated as well as the most recent edition of the Uniform Commercial Code in the Uniform Laws Annotated series. Because the relevant provisions in both jurisdictions are identical in all material respects, the court will cite only to the "UCC."
[2] The January 5, 1984 date for the meeting of the debtor's board appears to be in error. The minutes of the meeting where the board took the action described by Rowles are dated January 9, 1984. (Debtor's Supp'l Stmt.Facts & Evid., Ex. 1B, DE 384.)
[3] See footnote 2.
[4] A comparison of the minutes of the January 9, 1984 board meeting and the security agreement of that same date suggests that the security agreement was executed after the board meeting. Therefore, the corporate resolution adopting the two-signature requirement arguably had divested Rowles of authority to unilaterally bind the debtor. If this is the case, Rowles's act in signing the security agreement is mystifying. It could be interpreted as validating the earlier security agreement and manifesting the debtor's intent to be bound by its terms, especially since the January 9, 1984 security agreement is identical to the earlier one signed by Jacobson. Alternatively, Rowles's signature, along with Jacobson's, could be read together to satisfy the two-signature requirement established at the January 9, 1984 board meeting. Under this reading, the January 5 and January 9, 1984 security agreements together constitute a binding security agreement. Another reading is that Rowles's signature by itself was sufficient to bind the debtor. The corporate minutes indicate that the two-signature requirement could be waived with the concurrence of the debtor's president, vice-president, and treasurer. (Debtor's Supp'l Stmt. Facts & Evid., Ex. 1B ¶ 3, DE 384.) As all three of those officers were present at the board meeting, Rowles may very well have been authorized to single-handedly bind the debtor. Finally, Rowles's signature could have been of no effect at all. The court leaves the issues raised here unanswered as it finds a total of three other security agreements already valid and in effect in January 1984 when ABC exercised its rights against the ethanol under UCC § 9-504.
[5] UCC § 2-501 provides in the relevant part concerning agreements regarding identification as follows:
(1) The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are non-conforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. . . .
[6] UCC § 2-401, as set forth in the D.C.Code Ann., provides in relevant part:
(1) Title to goods cannot pass under a contract for sale prior to their identification to the contract (section 28:2-501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this subtitle. Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest. Subject to these provisions and to the provisions of the article on secured transactions (article 9), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties.
(2) Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading
(a) if the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but
(b) if the contract requires delivery at destination, title passes on tender there.
(3) Unless otherwise explicitly agreed where delivery is to be made without moving the goods,
(a) if the seller is to deliver a document of title, title passes at the time when and the place where he delivers such documents; or
(b) if the goods are at the time of contracting already identified and no documents are to be delivered, title passes at the time and place of contracting.
[7] See text of § 2-401 in footnote 5.
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167 Pa. Commw. 521 (1994)
648 A.2d 1255
Edmund OLSZEWSKI, Petitioner,
v.
WORKMEN'S COMPENSATION APPEAL BOARD (ROYAL CHEVROLET AND AMERICAN FIRE AND CASUALTY), Respondents.
Commonwealth Court of Pennsylvania.
Submitted April 29, 1994.
Decided September 20, 1994.
Reargument Denied November 22, 1994.
*523 Daniel K. Bricmont, for petitioner.
Robert J. Grimm, for respondent.
Before SMITH and FRIEDMAN, JJ., and NARICK, Senior Judge.
SMITH, Judge.
Edmund J. Olszewski (Claimant) petitions for review of the September 30, 1993 order of the Workmen's Compensation Appeal Board (Board) which affirmed the referee's decision dismissing his claim petition against Royal Chevrolet (Employer) pursuant to the Workers' Compensation Act (Act), Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §§ 1 1031. The issues presented are whether the Board erred as a matter of law in failing to find that Claimant was acting within the course and scope of employment when he sustained injuries in an accident while driving a vehicle provided to him by Employer, and in failing to find that Claimant's injury was sustained on Employer's premises.[1]
The referee found that Employer, Royal Chevrolet, employed Claimant as a salesman and allowed him to use one of Employer's cars for business or personal use as a supplemental employee benefit. On April 11, 1989, Claimant was driving to work in the car when he was hit from behind by a school *524 bus. The accident occurred on Jefferson Avenue, a public road, immediately in front of Employer's place of business six minutes before Claimant was due to report to work. Claimant filed a claim petition for workers' compensation benefits alleging that he was injured in the course of his employment. The referee bifurcated the issues, and held a hearing only with respect to whether Claimant was in the course and scope of employment when the accident occurred. The referee concluded as a matter of law that Claimant's use of Employer's automobile was for personal, not business reasons and Claimant did not sustain an injury in the course and scope of his employment with Employer. The Board affirmed the referee's decision.[2]
Claimant argues that he was acting within the course and scope of his employment at the time of the accident because he was operating a vehicle which was provided by Employer as part of his employment contract and in furtherance of Employer's business interests. A claimant has the burden to prove that an injury arose in the course of employment and was related thereto. Krawchuk v. Philadelphia Elec. Co., 497 Pa. 115, 439 A.2d 627 (1981). This Court has held that an injury will be considered in the course of a claimant's employment in two situations: where the employee is injured while actually engaged in the furtherance of the employer's business or affairs; or where the employee is injured on the premises of the employer even though not actually engaged in the furtherance of the employer's business or affairs, but only if the nature of his or her employment requires the employee's presence. Pypers v. Worker's Compensation Appeal Board (Baker), 105 Pa.Commonwealth Ct. 448, 524 A.2d 1046 (1987).
*525 Whether an employee is acting within the course and scope of his or her employment at the time of injury is a question of law to be determined on the basis of the referee's findings of fact and is reviewable by this Court. Empire Kosher Poultry v. Workmen's Compensation Appeal Board (Zafran), 154 Pa.Commonwealth Ct. 276, 623 A.2d 887 (1993), appeal denied, 536 Pa. 648, 639 A.2d 34 (1994). This Court has also held that injuries sustained by an employee traveling to or from his or her place of work do not occur in the course of employment and are not compensable under the Act. William F. Rittner Co. v. Workmen's Compensation Appeal Board (Rittner), 76 Pa.Commonwealth Ct. 596, 464 A.2d 675 (1983). However, this "going and coming" rule has four exceptions: 1) claimant's employment contract includes transportation to and from work; 2) claimant has no fixed place of work; 3) claimant is on a special assignment for the employer; or 4) special circumstances are such that claimant was furthering the business of the employer. Empire Kosher Poultry.
Since Claimant was on his way to work when the accident occurred, the "going and coming" rule applies; therefore, to be eligible for workers' compensation benefits, Claimant must meet one of the exceptions outlined in Empire Kosher Poultry. Claimant indicated he "believed" that he had a written contract and that this contract provided for transportation. However, Claimant neither produced the contract nor unequivocal testimony that such provision did in fact exist, thus he did not meet his burden to prove that the first exception is applicable. Furthermore, the Board did not err when it concluded that the second and third exceptions are inapplicable where the record contains no evidence which would indicate that Claimant had no fixed place of work or was on a special mission for Employer.[3]
*526 As to the fourth exception, a case quite analogous to the matter sub judice is Hastings v. Pennsylvania Nat'l Mut. Casualty Ins. Co., 407 Pa. Super. 282, 595 A.2d 1150 (1991), appeal denied, 530 Pa. 645, 607 A.2d 255 (1992), where a car salesman sustained injuries in an accident while driving home in a vehicle provided by his employer. In Hastings, the Superior Court held that use of an employer's vehicle for employer advertising purposes and for the personal use of the employee is insufficient in and of itself to bring a claimant's activities within the scope of employment and within the exception to the "going and coming rule." The Superior Court relied on Hall v. Midland Ins. Co., 320 Pa. Super. 281, 467 A.2d 324 (1983), which involved injuries sustained by an insurance salesman in an accident while driving home from work in a vehicle provided by the employer. In Hall, the court determined that despite the fact that the vehicle was owned by the employer and was provided to the claimant for business and personal use, the evidence could not support the conclusion that the salesman's injuries had occurred during the course of his employment.[4]
Claimant next argues that the Board erred as a matter of law in failing to find that his injury was sustained on Employer's premises within the meaning of the Act where his *527 accident occurred immediately in front of Employer's place of business and while he was preparing to turn into Employer's parking lot. Claimant contends that an employer's premises within the meaning of the Act includes a reasonable means of access for the situs of the employer's business, and may also cover a public road used or maintained by the employer for the operation of its business, citing Epler v. N. Am. Rockwell Corp., 482 Pa. 391, 393 A.2d 1163 (1978), and Hesselman v. Somerset Community Hosp., 203 Pa. Super. 313, 201 A.2d 302 (1964). Claimant also contends that the critical factor is not the employer's title to or control of the area, but the fact that the area was used by employees in the performance of assigned tasks, Interstate United Corp. v. Workmen's Compensation Appeal Board, 56 Pa.Commonwealth Ct. 385, 424 A.2d 1015 (1981); and that an employer's premises may include property even where title to that property is vested in a third party. Schofield v. Workmen's Compensation Appeal Board, 39 Pa.Commonwealth Ct. 282, 395 A.2d 328 (1978).
Courts have consistently required something more than the mere existence of a nearby or adjacent public road before extending an employer's premises to include it. The real question is whether the site of the accident was an integral part of the employer's premises. Epler. Each case which Claimant cited is distinguishable from the case sub judice in that the road on which the accident occurred was either located between buildings or other property which the employer owned; the employer maintained or had title to or control over it; or the employer required its employees to use it in their assigned tasks.
In Hesselman, the claimant slipped and fell as he was reaching for the knob of a door leading from a public alley to the employer's laundry building, where the alley was located between the employer's buildings, was cared for and maintained by the employer, and the claimant was required to use it as a means of access to the laundry building. In Epler, the claimant was killed after leaving work when he was hit by a car as he crossed a public street to reach a parking lot, where *528 the lot was provided by the employer and the parking spaces were designated by the employer. In Interstate United Corp., the claimant, a cafeteria worker, was injured on the steps of a footbridge which connected the plant from which her employer leased its cafeteria to a public street. The plant owned and controlled the footbridge. In Schofield, the claimant was injured when a train collided with his car while he was driving over a railroad right-of-way on the employer's plant facilities, which was the principal means of access to the employer's property.
A close scrutiny of the record and application of the law demonstrate that Claimant has failed to show a nexus between Employer's premises and the public road on which his accident occurred; thus it cannot be deemed part of Employer's premises under the Act. Claimant has therefore failed to prove that the injuries he sustained occurred within the course and scope of his employment. Accordingly, the order of the Board is affirmed.
ORDER
AND NOW, this 20th day of September, 1994, the order of the Workmen's Compensation Appeal Board is affirmed.
FRIEDMAN, Judge, dissenting.
I respectfully dissent. Because Edmund Olszewski (Claimant) presented uncontroverted, unequivocal testimony that he had an employment contract providing for his use of a company vehicle as transportation to and from work, thereby placing Claimant under the first exception to the "coming and going" rule, I believe that Claimant's injury occurred within the course and scope of his employment.
In reaching a contrary result, the majority maintains that Claimant did not meet his burden of proof because Claimant did not produce a written contract nor provide unequivocal testimony that there was a provision in his contract for transportation to and from work. (Majority Op. at 525.) I admit that this would be an easier case if Claimant either had *529 offered a written employment contract into evidence or had testified with more conviction regarding the contract's form. However, I do not believe these failings are necessarily fatal, and they should not automatically preclude Claimant from prevailing here. Indeed, after considering Claimant's uncontroverted testimony concerning his employment contract in its entirety,[1] I am convinced that he has satisfied the first exception to the "going and coming" rule.
In assessing the sufficiency of Claimant's testimony, the majority failed to consider Claimant's uncontroverted testimony in its entirety, focusing instead on only one word and, as a result, misrepresenting Claimant's testimony. The majority states: "Claimant indicated he `believed' that he had a written contract and that this contract provided for transportation." (Majority Op. at 525) (emphasis added). However, as a summation of Claimant's testimony, this statement is defective.
Claimant testified that he "believed" that there was a written contract. Claimant then asserted positively that there was an employment contract which included a provision for transportation to and from work. Claimant's testimony, in context, is as follows:
A. As a condition of employment part of the compensation package was to drive a brand new vehicle [provided by Employer].
*530 (R.R. at 8a-9a.)[2]
Q. Were you driving the car that was provided to you by Royal Chevrolet [at the time of the accident]?
A. Yes, I was.
Q. Did other salesmen also drive cars from Royal?
A. Every salesman there drove a car.
Q. And you have a written employment contract?
A. I believe I do, yeah.
Q. And is that part of the provisions of the contract?
A. Yes ma'm, it is.
(R.R. at 9a-10a) (emphasis added).[3]
The first exception to the "coming and going" rule does not require that the employment contract be written.[4] Indeed, in *531 Hastings v. Pennsylvania National Mutual Casualty Ins. Co., 407 Pa. Super. 282, 595 A.2d 1150 (1991), appeal denied sub nom, Pennsylvania National Mutual Casualty Ins. Co. v. Ford, 530 Pa. 645, 607 A.2d 255 (1992), cited by the majority[5] and relied upon by the Board, the Superior Court assumed that the employment contract of a car salesperson was oral because no allegations had been made to the contrary and because no document purporting to be an employment contract had been produced. However, despite the fact that the contract was not in written form, the court, in Hastings, determined that the car dealership might still have been contractually obligated to provide the car to its salesperson, thereby placing the sales employee within the course and scope of his employment when injured.
Here, Claimant's uncertainty as to whether his employment contract had been put into writing does not make his testimony equivocal with regard to the contract's existence. Claimant maintained unequivocally that there was an employment contract with a provision for transportation to and from work. Once a claimant has established that transportation to and from work is one of the terms of his employment contract, the claimant has met his burden to prove that he is entitled to benefits under The Pennsylvania Workmen's Compensation Act.[6]Empire Kosher Poultry v. Workmen's Compensation Appeal Board (Zafran), 154 Pa.Commonwealth Ct. 276, 623 A.2d 887 (1993), appeal denied, 536 Pa. 648, 639 A.2d 34 (1994). However, in spite of his testimony, Claimant did not prevail before the referee.
*532 Where, as here, the party with the burden of proof is the only party to present evidence before the referee, and yet that party does not prevail, we must first examine the record to determine whether that party, as a matter of law, has met his burden. Kirkwood v. Unemployment Compensation Board of Review, 106 Pa.Commonwealth Ct. 92, 525 A.2d 841 (1987). As stated, I believe that Claimant, through his uncontroverted, unequivocal testimony, has presented sufficient competent evidence that, if believed, would support a finding that Claimant had an employment contract that provided transportation to and from work and, thus, was injured within the course and scope of his employment.
Although the referee made no specific credibility determination, a fair reading of the referee's opinion indicates that the referee considered and accepted Claimant's testimony but determined from that testimony that Claimant was not injured in the course and scope of employment because (1) the provision of a company car for transportation to and from work was merely a supplemental employee benefit rather than a contract provision and (2) Claimant was not using the vehicle for business purposes when he was injured. In this, the referee erred.
Whether or not Claimant's driving of a supplied vehicle was a supplemental benefit of employment does not affect its status as a contract provision requiring that Claimant drive that vehicle at all times, including to and from work. Indeed, one would expect to find employee benefits defined in an employment contract. Moreover, contrary to the view espoused by the referee, Claimant does not have to prove that his injury occurred while in furtherance of the employer's business. William F. Rittner Co. v. Workmen's Compensation Appeal Board (Rittner), 76 Pa.Commonwealth Ct. 596, 464 A.2d 675 (1983).[7]
*533 Where the party with the burden of proof is the only party to present evidence, and that party, though credible, does not prevail before the referee because of an error of law, we will reverse. Kirkwood. I believe that that is what occurred here and, accordingly, I would reverse and remand for further proceedings on the remaining issues.[8]
NOTES
[1] This case was re-assigned to the opinion writer on July 12, 1994.
[2] When the burdened party is the only party to present evidence and does not prevail before the agency, this Court's scope of review is limited to determining whether the agency erred as a matter of law or capriciously disregarded competent evidence. Russell v. Workmen's Compensation Appeal Board (Volkswagen of America), 121 Pa.Commonwealth Ct. 436, 550 A.2d 1364 (1988). Claimant was the only party to present evidence.
[3] Claimant cites Susman v. Kaufmann's Dep't Store, 182 Pa. Super. 467, 128 A.2d 173 (1956), to support his argument that he was acting within the course and scope of his employment; however, Susman is factually distinguishable in that the claimant was hired by the employer as a special messenger and deliverer during a strike at the employer's store and the transportation which the employer provided was an integral part of the employment agreement.
[4] This Court is not persuaded by Claimant's arguments that Hastings and Hall are distinguishable where the claimant in Hastings reimbursed his employer twenty-five dollars per week for the use of the vehicle, and where in Hall, there was no provision for transportation in the employment contract. The reimbursement in Hastings was not a determinative factor in the court's analysis of the case. Moreover, Hall was likewise analyzed under both the first and fourth exceptions to the "going and coming" rule; and the court's analysis of the fourth exception is on point.
Nor is this Court persuaded by Claimant's argument that like Hastings, the matter sub judice should be remanded for further proceedings, or alternatively for specific findings as to whether transportation to and from work was provided as part of Claimant's employment contract. The court in Hastings remanded the matter because it determined that summary judgment was inappropriate where there was a genuine issue of material fact as to whether the employer was contractually obligated to provide the car and where the record contained no evidence on that issue. In the present case, Claimant had ample opportunity to present evidence regarding his employment contract at the referee's hearing.
[1] I disagree with the majority's assertion that "Claimant had ample opportunity to present evidence regarding his employment contract at the referee's hearing." (Majority Op. at 526, n. 4.) In fact, I believe that it is particularly important to view all of Claimant's existing testimony because his opportunity to present this evidence was curtailed prematurely. The record indicates that while Claimant's counsel was eliciting testimony from Claimant about the terms and conditions of the contract, the referee interrupted the examination and stated:
We'll assume that the automobile is owned, primarily maintained by the employer and that this claimant received the automobile as a supplemental benefit for his job to (a) help him sell automobiles and help the employer and (b), for his own personal use. Okay?
(R.R. at 18a-19a.) Claimant's counsel acquiesced and ended her examination. Thus, the referee prevented Claimant from providing additional testimony on the employment contract issue.
[2] The arrangement required Claimant "to keep the car clean and presentable at all times" in order to help Employer sell automobiles. (R.R. at 18a-19a.) As Claimant further testified:
Q. Mr. Olszewski, when you were driving the car, were there any specific rules or regulations that you had to adhere to?
A. Yeah, I put the gas in the car and I had to keep the car clean and presentable at all times.
Q. Who paid the insurance and all the maintenance on the car?
A. The dealership.
(R.R. at 18a.)
[3] Opposing counsel never even addressed the employment contract issue during cross-examination of Claimant. In fact, Employer did not present any testimony or evidence in this case.
In light of Claimant's testimony set forth here, I am at a loss to understand that portion of the Board's decision that states:
Although Claimant testified that a written employment contract was entered into between him and Defendant, he did not provide any testimony or evidence that there was a specific provision for Defendant to provide transportation to and from work.
(R.R. at A-9.) Quite the contrary, Claimant's testimony clearly shows that his employment contract contained a provision requiring that salespersons drive cars (a means of transportation) provided by Employer.
[4] The "coming and going" rule states that injuries received by an employee while travelling to and from work are not compensable. Peer v. Workmen's Compensation Appeal Board (B & W Construction), 94 Pa.Commonwealth Ct. 540, 503 A.2d 1096 (1986). However, injuries sustained by an employee while coming and going to work are compensable if one of the following exceptions applies:
(1) the employment contract included transportation to and from work;
(2) the claimant has no fixed place of work;
(3) the claimant is on special assignment for the employer; or
(4) special circumstances are such that the claimant was furthering the business of the employer.
SEPTA v. Workmen's Compensation Appeal Board (Scott), 136 Pa.Commonwealth Ct. 98, 101, 582 A.2d 421, 422 (1990) appeal denied, 527 Pa. 658, 593 A.2d 428 (1991) (emphasis added).
[5] The majority cites Hastings in regard to the fourth exception to the "coming and going" rule." I would not reach this issue.
[6] Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §§ 1-1031.
[7] Even if Claimant had to prove that he was using the company car in furtherance of Employer's business, I believe that Claimant met that burden. The testimony reveals that Claimant was required to keep the car clean and presentable in order to promote customer interest and help Employer sell automobiles. (R.R. at 18a-19a.) Thus, whenever Claimant drove the car, it was in furtherance of Employer's business.
[8] Having reached this result, I would not address Claimant's second argument; i.e., that his injury occurred within the course and scope of employment because he was injured on the premises of Employer.
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156 B.R. 677 (1993)
In re Barney R. WEINHARDT and Velma E. Weinhardt Debtors.
COMERICA BANK, N.A. Plaintiff,
v.
Barney R. WEINHARDT Defendant.
Bankruptcy No. 90-03015-8P7, Adv. No. 90-355.
United States Bankruptcy Court, M.D. Florida.
April 20, 1993.
*678 Michael C. Markham, Clearwater, FL, for plaintiff.
William Pontrello, Clearwater, FL, for defendant.
ORDER ON PLAINTIFF'S RENEWED MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the matter under consideration is the Renewed Motion for Summary Judgment filed by Comerica Bank, N.A. (Bank). The original Motion for Summary Judgment filed by the Bank was denied by this Court because this Court concluded that there were genuine issues of material fact which prevented the resolution of this controversy as a matter in law. 142 B.R. 984. The present Motion is filed by the Bank in the above captioned adversary proceeding in which the Bank seeks a determination that the debt due and owing by Barney R. Weinhardt (Debtor) to the Bank shall be declared to be nondischargeable by virtue of § 523(a)(2)(A) of the Bankruptcy Code. The Debtor did not file an affidavit in opposition of the Bank's Motion and relies solely on his general denials set forth in his Answer. The record reveals the following undisputed facts.
The Debtor obtained three loans from the Bank. In connection with these transactions the Debtor executed three promissory notes, the first originally dated August 7, 1989, and renewed November 6, 1989, in the amount of $25,000.00; the second originally dated May 26, 1989, and renewed August 24, 1989, and November 22, 1989, in the amount of $45,000.00, the third originally dated June 30, 1989, was *679 renewed on September 28, 1989, and again on December 27, 1989. It is without dispute that none of these loans were repaid and the Debtor is still indebted to the Bank in the amount of $130,000.00. In connection with these loans, the Defendant executed sworn statements, in which he stated that the loans were to be used for working capital for his commercial painting business. It is without dispute that the Defendant did not use the money to run a painting business, as a matter of fact there is no evidence in the record that he ever owned and operated a commercial painting business. Further, it appears that the Debtor was charged with fraud from a federally issued bank in connection with these loans. On October 1, 1991, he plead guilty to the charge and was sentenced to twelve months of imprisonment. These are the relevant facts which are indeed without dispute and which, according to the Bank, warrant a determination as a matter of law that the debt owed by the Debtor to the Bank is a nondischargeable debt by virtue of § 523(a)(2)(A).
To grant a Summary Judgment motion in favor of the moving party, the moving party is entitled to rely on "those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any." Celotex Corporation v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986). The moving party is not required to file affidavits in support of the Motion. Once it appears from the record that there are no genuine issues of material facts, the burden shifts to the opposing party to establish that genuine issues of material facts in fact exist. Unlike the plaintiff, the defendant must come forth and "go beyond the pleadings and, by . . . affidavits, or by the depositions, answers to interrogatories, and admissions in the file, designate specific facts showing that there are in fact genuine issues of material facts" in order to defeat a motion for summary judgment. At the hearing on the original Motion on November 25, 1992, the Defendant urged that his general denial set forth his answer to the Complaint was sufficient to show a genuine issues of material facts existed. However, in light of Celotex, and Fed.R.Civ.P. 56 as adopted by F.R.B.P. 7056, it is clear that the Defendant can not simply rely on a general denial set forth in the Answer to defeat a motion for summary judgment.
This Court is unwilling to accept the proposition that a mere paper denial set forth in an answer is sufficient to establish that there are indeed genuine issues of material facts. Based on the foregoing, this Court is satisfied that no issue of material facts exist and therefore, it is appropriate to resolve the matter under consideration if the Movant's claim for relief is supported by the summary judgment applicable here.
The Bank contends that the facts set forth above are sufficient to sustain the Bank's claim of nondischargeability as a matter of law pursuant to § 523(a)(2)(A), which provides, in pertinent part, as follows:
"(a) A discharge under section 727, 1141, 1228[a] 12228(b), or 1328(b) or this title does not discharge an individual debtor from any debt
. . . . .
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition."
In order to sustain a claim for nondischargeability, the burden of proof is no longer the clear and convincing standard, but a mere preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991). In order to prevail on this claim, the Bank must establish that the Debtor made false representations with the purpose and intent to deceive the creditor, the creditor relied on such representations and as a result the creditor sustained a loss. In re Hunter, 780 F.2d 1577 (11th Cir.1986). It is well established that the Debtor must be guilty of a positive fraud involving moral turpitude and not implied fraud. In the absence *680 of explicit representations concerning a material fact which is false, no viable claim of nondischargeability can be recognized under § 523(a)(2)(A). In re Hunter, supra.
Ordinarily, a promise of the borrower that the funds borrowed will be used for a specific purpose would not be material especially in the case of an unsecured loan. This is not the case, however, when it appears for the record that the Debtor never intended to use the funds for the purpose stated in this instance as working capital in a non-existing business but to use the funds for a gambling spree in Las Vegas. One can hardly assume that if he had told the Bank the real intended use of the borrowed funds, the Bank never would have agreed to make the loan.
It is evident from the foregoing and it is without dispute that the Debtor made an express, false, and material representation to the Bank, and that the Bank, in relying on these representations, sustained a loss. Therefore, the Plaintiff has satisfied the requirements to sustain a claim of nondischargeability. Therefore, this Court is satisfied that the Motion for Summary Judgment should be granted.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment is hereby granted. The debt owed by the Debtor in the amount of $130,000.00 is hereby declared to nondischargeable pursuant to § 523(a)(2)(A) of the Bankruptcy Code.
DONE AND ORDERED.
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436 Pa. Super. 618 (1994)
648 A.2d 793
Tildon J. SIDES and Karen S. Sides, Husband and Wife; Geary W. Huntsberger and Rosemary C. Huntsberger, His Wife; and Robert B. Fowler and Ruth L. Fowler, Husband and Wife, Appellants,
v.
George CLELAND and Alice Cleland, Husband and Wife, Appellees.
Superior Court of Pennsylvania.
Argued June 22, 1994.
Filed August 11, 1994.
Reargument Denied October 24, 1994.
*620 Bruce F. Bratton, Harrisburg, for appellants.
James L. Goldsmith, Harrisburg, for appellees.
Before OLSZEWSKI, POPOVICH and JOHNSON, JJ.
OLSZEWSKI, Judge:
All of the litigants to this dispute live on Hill Island in the Susquehanna River. The island houses few permanent residents, is largely recreational, and has gained a reputation for the occupants' somewhat riotous behavior.[1] Vacationers and residents alike ride motorcycles and all-terrain vehicles over the mountainous land. When George and Alice Cleland purchased their riverfront property in 1983, their tract was undeveloped; the foliage provided a place for the Cleland family to discover the wonders of nature. Only one thing prevented the property from remaining in its pristine state: a recorded plan established a right-of-way over the Clelands' property. It is the scope of this right-of-way that is at issue in this suit.
The plan describes the right-of-way as a "logging trail," but also refers to it as a "30 foot trail," which is expressly designated for the "common use of the residents of Hill Island." When the Clelands bought the property, the trail was covered by forestation and used by no one. This did not *621 last long, however, as the Clelands, in order to appreciate nature's full beauty, cleared part of the trail as a footpath. Several years later, in 1990, the Clelands granted one of the plaintiffs, Geary Huntsberger, the right to clear a path wide enough for vehicles to pass; he wanted to drill a well on his property and found that the trail would provide the most direct route by which he could transport his equipment.[2] What Cleland saw as a favor, however, led to the industrialization of the trail. Although it is still described by many of the islanders as "basically a dirt road," the inhabitants poured shale and other rock debris over the road to prepare it for vehicular use.
The once idyllic condition of the trail traversing the Clelands' property quickly became symbolic of man's excesses: the neighbors and their vacationers drive their motorcycles at dangerous speeds across the Clelands' property. Young children (one was seven years old) ride cycles there. Inhabitants throw beer parties and permit their guests to ride the trail after drinking. All of this was too much for Mr. Cleland. He feared for his family's safety and was annoyed by the use of the trail at all hours of the day and night. He undertook a concerted effort to stop the abuses being wrought upon his land by erecting a fence across the right of way. He did not lock the fence, but erected it to keep the cyclists from travelling at dangerous speeds. He later felled a large tree across the trail and refused to remove it.
Cleland's efforts were not accepted by the neighbors. They claimed that they had a right to use the designated trail for any purpose they saw fit. One of the neighbors (it is unclear from the record exactly who) removed the fence and Geary Huntsberger corralled a group of inhabitants to vindicate their right to use the trail he wanted to forcibly remove the Clelands' felled tree. Knowing that his vigilantism would not be met without resistance, he asked one of his gang to *622 videotape the confrontation and two of his band to arm themselves with chainsaws. When the group arrived at the Clelands' property, Cleland perched himself in the tree. "Bring on the chainsaws!" Huntsberger cried. The sawyers began to cut around the tree, but after noticing Cleland's resolve, stopped when it was clear that he would not budge.[3] Cleland's resistance, however, did nothing to deter this lawsuit.
Cleland's neighbors, the Sides, and several other Hill Island inhabitants brought this suit in equity. They sought an injunction prohibiting the Clelands from interfering with their use of the trail. The Clelands countersued asking that use of the trail be limited to ingress and egress by abutting property owners and for compensation for damages caused by plaintiffs' trespasses. Mr. Cleland also claimed that he was assaulted by Mr. Huntsberger during the confrontation over the felled tree. After hearing two days of testimony, viewing the videotape, and actually visiting the trail to evaluate its present condition, the Honorable Sebastian Natale found the facts as we described them and concluded that the trail's current use is unreasonable. He therefore decreed that although Hill Island's residents had a right to use the trail, it would be "restricted to daylight walking [and] vehicles travelling no more than ten miles per hour," and that plaintiffs were enjoined from doing any further damage to the land. Judge Natale also held that Mr. Huntsberger assaulted Mr. Cleland, but that Mr. Cleland suffered no compensable damage.
We begin by noting that where a deed incorporates a plan which makes specific reference to a right of way, an easement is implied over that property. Reed v. Reese, 473 Pa. 321, 374 A.2d 665 (1976); Potis v. Coon, 344 Pa.Super. 443, 496 A.2d 1188 (1985); see also, McAndrews v. Spencer, 447 Pa. 268, 290 A.2d 258 (1972) (easement implied over road which *623 bounded property where recorded plan incorporated road, even though road was never dedicated for public use). There is thus no question, and no one argues to the contrary, that the plan creates a private right in each of Hill Island's residents to to use the trail on the Clelands' property. The Clelands' deed specifically refers to the plan which adopts the trail as one for the "common use" of the residents of Hill Island. Appellants, plaintiffs below, complain that Judge Natale erred in enjoining them from further developing the trail and limiting its use to daylight walking and slow moving vehicles. Their biggest gripe is that Judge Natale's restrictions were based on his view of how the trail is used today instead of what the grantor contemplated when the trail was created. We disagree.
Our review of the plan and the deeds in this case leads to the inescapable conclusion that the plan is ambiguous with regard to the trail's contemplated purpose. The plan refers to the trail as a "logging trail," but also refers to it as a "30 foot trail," which is held for the "common use" of the residents. We quite agree that the term "common use" contemplates something more than logging, since the island was developed as a residential and recreational community. We must thus determine why the trail was created in the first place, and reference to the plan alone offers little conclusive help. As was stated in Lease v. Doll, 485 Pa. 615, 403 A.2d 558 (1979), the circumstances attendant to the easement's creation are important when defining the easement's purpose:
In ascertaining the scope of an easement created by express grant, the intention of the parties to the grant must be advanced. "Such intention [of the parties] is determined by a fair interpretation and construction of the grant and may be shown by the words employed construed with reference to the attending circumstances known to the parties at the time the grant was made." Moreover, when the terms of an express grant of an easement are general, ambiguous, and not defined by reference to the circumstances known to the grantee at the time of the grant, the express easement is to *624 be construed in favor of the grantee, and the easement may be used in any manner that is reasonable.
Id. at 621, 403 A.2d at 562-563 (quoting Merrill v. Mfgrs. Light and Heat Co., 409 Pa. 68, 73, 185 A.2d 573, 575 (1962)) (other citations omitted).[4]
Here, the trial court made reasonable efforts to determine the intent of the parties when the easement was created. It reviewed the maps, heard testimony from the parties with regard to the customary use of the trail, and actually viewed the trail in its current state. Although there was scant evidence with respect to the actual grant of the residents' trail, plaintiffs presented a land surveyor, Charles Cook, who surveyed the property in 1991. He stated that when he surveyed the property, he saw what he considered "just a dirt road" which "looked more like what I would consider a logging trail." N.T. 4/8/92 at 78. Nearly every person who testified, moreover, simply characterized the trail as "basically a dirt road." Geary Huntsberger, the Clelands' grantor and owner of the property when the original plan was filed, claimed that he did not even know that a trail existed until sometime in 1982, two years after the original plan was filed. Thus, we can hardly question the veracity of the Clelands' claim that the trail was undeveloped when they purchased their tract.
This testimony makes it abundantly clear that the "trail" reserved for the common use of Hill Island residents in the 1980 plan is nothing more than "a track made by passage through the wilderness." Webster's New Collegiate Dictionary (9th Ed., 1984) (defining "trail"). As such, the grantees the plaintiffs and Hill Island's residents are entitled to use the trail in every manner consistent with a wilderness trail: they may walk on it and enjoy the natural setting of the *625 island, they may use it reasonably to carry supplies from one person's tract to another's, or, if they so desire, use it in conjunction with their logging pursuits. It is not, therefore, a highway or a gathering place. Nor is it an amusement park where thrill seekers can drive all-terrain vehicles at potentially dangerous speeds at any time during the day and night. The trial court's prohibitions on plaintiffs' use of the trail that they do no further damage to the Cleland's land, that they not drive vehicles over ten miles per hour, and that they walk on it only during the daylight hours implements the intent behind the trail's creation by allowing the residents to use the trail and by preserving so much of its natural state that is consistent with that use. Judge Natale's decree gives plaintiffs everything to which they are entitled (use of the trail) and protects the Clelands' right to insist that the trail will be used reasonably.
Furthermore, we reject plaintiffs' contentions that the trial court focused on the current use of the trail to impose restrictions on its use. The trial court heard testimony from plaintiffs and everyone seemed to agree that the trail was "just a dirt road," and has been a dirt road from time immemorial. Geary Huntsberger testified that the trail, as it exists today, is "pretty well the same as when the first Indian walked down the trail." N.T., 4/8/92, at 110. Thus, when Judge Natale viewed the trail in 1994, he viewed the same trail, with minor exceptions, that was preserved in the 1980 plan. We have no reason to believe that Huntsberger's grantor contemplated preserving the trail for anything other than logging and reasonable recreational uses.[5] Again, Judge Natale's decree is consistent with this contemplation.
*626 Finally, we disagree with Geary Huntsberger's claim that the evidence was insufficient to prove that he assaulted Mr. Cleland. An assault occurs when an actor intends to cause an imminent apprehension of a harmful or offensive bodily contact. Restatement (Second), of Torts, § 21. When a person approaches another with two associates wielding chainsaws, screams "Bring on the chainsaws!," to which the sawyers respond by dismembering the tree in which the person sits, a factfinder could reasonably conclude that an assault has occurred. Frankly, we are at a loss to understand how a factfinder could arrive at any other conclusion.
Judge Natale's decree is affirmed in all respects.
POPOVICH, J., concurs in the result.
NOTES
[1] One of the plaintiffs, Tildon "Butch" Sides, acknowledged that this reputation has earned the island the cognomen "The Land of Beer and Honey."
[2] No one in this case argues that the right-of-way, which essentially runs parallel to the island's beach, is necessary for ingress and egress to other properties from the beach. It appears that using the right-of-way makes it easier for the adjoining property owners to reach their fellow islanders' property without having to navigate the river.
[3] The videotape was admitted into evidence at the trial, and we are urged to view it. Much to our chagrin, however, it has not been certified as part of the record on appeal. As a result, we reconstruct the scene from the trial court's findings of fact and evidence at trial, which surely does not capture the confrontation's true drama.
[4] We must note that since the trail was created by reference to Hill Island's recorded plan and not described in the residents' deeds the right to use the trail is characterized as an implied easement, not an easement by express grant. Potis, supra at 344 Pa.Super. at 448-49, 496 A.2d at 1191-1192. We cite Lease only for the proposition that when a court interprets language which creates a right-of-way (such as the wording of Hill Island's plan), ambiguous language must be interpreted in light of the grantor's intentions.
[5] We understand that when a grantor reserves a right-of-way for the public that he envisions certain evolutionary advances which might affect its use. Thus, although we cannot expect that many Indians rode all-terrain vehicles over the trail, such use might be appropriate in 1994. Judge Natale's decree acknowledges this and permits vehicular traffic on the trail. He has merely defined what "reasonable" use of the trail encompasses under the circumstances. We have absolutely no reason to question the judge's perception.
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904 S.W.2d 60 (1995)
In re the MARRIAGE OF ECK.
William F. ECK, Petitioner-Respondent,
v.
Elizabeth A. ECK, Respondent-Appellant.
No. 19791.
Missouri Court of Appeals, Southern District, Division Two.
July 26, 1995.
*61 William B. Gillespie, Clayton, for respondent-appellant.
Martin Mazzei, Mazzei and Broshot, Steelville, for petitioner-respondent.
SHRUM, Chief Judge.
William F. Eck (Husband) brought a dissolution of marriage case against Elizabeth Ann Eck (Wife). Wife filed a cross-claim in which she asked for maintenance, attorney fees, division of marital property, court costs, and restoration of her former name. At trial, Wife withdrew her request for attorney fees but testified in support of her other cross-claim requests. By its judgment, the trial court: (1) dissolved the marriage; (2) restored Wife's former name; (3) ordered Husband to pay court costs; (4) declared that neither party had requested maintenance, and, therefore, "both parties have waived their rights to maintenance"; and (5) divided real and personal property without declaring its status as marital or nonmarital.
In her brief, Wife contends that the trial court erred in failing to designate property as either separate or marital property (Point I) and in the division of that property (Point II). She also claims that the trial court erred when it denied maintenance based upon a finding that Wife waived her right to claim maintenance (Point III).
Wife's first point, failure to designate the property, has merit. What was said in In re Marriage of Steele, 844 S.W.2d 104 (Mo.App.1992), governs this case.
"Section 452.330, RSMo Supp.1990, controls the division of property in a dissolution proceeding. It mandates a two-step process by the trial court: (1) the court must set aside to each spouse his or her separate property, and (2) divide the remaining marital property. In re Marriage of Miller, 806 S.W.2d 516, 517 (Mo.App.1991). The trial court must make specific findings as to whether each asset or class of assets is marital property subject to division or nonmarital property belonging to a spouse individually. Id.
"As Miller notes, 806 S.W.2d at 517, there may be instances where it is not error for a trial court to fail to expressly designate the parties' marital property, but this is not such a case. Until a decision is made as to whether certain property is separate, this court can not adequately determine whether a just division of marital property occurred."
844 S.W.2d at 104-05[1, 2]. See Schulte v. Schulte, 892 S.W.2d 393[1] (Mo.App.1995).
As was the case in Steele, we cannot determine what should have been designated as separate property. The evidence regarding real estate purchased during the marriage, source of funds for that property, history of ownership of three horses, and history of ownership of other personal property was largely based on the parties' oral testimony. "Credibility of witnesses is largely vested in the discretion of the trial judge." Steele, 844 S.W.2d at 105. Rule 73.01(c)(2). Without findings as to marital or nonmarital status of the property, from the record as it exists we cannot know what resolution the trial court made of credibility. Because of the court's failure to designate the property as marital or nonmarital and then divide, we reverse and remand for that purpose.[1]
Wife's third point, which claims the trial court erred when it found that Wife *62 waived maintenance, also has merit. Although a trial court's decision regarding maintenance is presumed correct, Theilen v. Theilen, 847 S.W.2d 116, 123[15] (Mo.App.1992), a judgment on maintenance will be disturbed on appeal where it is improper under Murphy v. Carron, 536 S.W.2d 30, 32[1] (Mo. banc 1976), i.e., where it is unsupported by substantial evidence, is against the weight of the evidence, erroneously declares the law, or misapplies the law. See Whitworth v. Whitworth, 878 S.W.2d 479, 481-82 (Mo.App.1994).
Based on the record before us, there is insufficient evidence to support the trial court's determination that Wife waived her claim to maintenance. Not only did Wife request maintenance via her pleading, she twice testified at trial that she wanted maintenance awarded to her. In her direct examination Wife was asked, "Do you want [your husband ... to pay to support you so much a month]?" Wife replied, "Yes, I do." Likewise, during cross-examination, Wife was asked, "[I]s that [need of money to buy a house] your reason for asserting a claim of maintenance ...?" Her answer was, "Yes, sir." Nowhere in this record do we find testimony, pleadings, representations by counsel, or other evidence that Wife was abandoning or waiving her claim to maintenance. Because the record fails to establish that Wife waived her claim to maintenance, we cannot speculate how the trial court would have resolved conflicting evidence had it decided the Wife's maintenance claim on its merits. Thus, we reverse and remand for the trial court to consider Wife's request for maintenance after it has adjudicated the status of property, i.e., marital or nonmarital, and divided it. See In re Marriage of Johnson, 856 S.W.2d 921, 927[11] (Mo.App.1993).
Because no error is assigned in this appeal regarding the remaining provisions of the dissolution judgment, those provisions are affirmed.
PREWITT, P.J., and PARRISH, J., concur.
NOTES
[1] Until designation of property as marital or nonmarital is made, we cannot decide the question presented by Point II, i.e., whether the division by the trial court is "just after considering all relevant factors...." § 452.330.1, RSMo 1994. See Steele, 844 S.W.2d at 105. On remand, a more orderly, prepared presentation of evidence by the litigants would no doubt aid the trial court in performing its duty.
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844 F. Supp. 190 (1994)
Timothy W. GRIGGS and Catherine H. Griggs, Individually and as Parents and Natural Guardians of Zachary Griggs, a Minor, Plaintiffs,
v.
BIC CORPORATION, Defendant.
Civ. A. No. 1:CV-90-2125.
United States District Court, M.D. Pennsylvania.
March 1, 1994.
*191 *192 *193 Richard B. Swartz, Caldwell & Kearns, Richard C. Angino, Joseph M. Melillo, Angino & Rovner, P.C., Harrisburg, PA, for plaintiffs.
Bradley Davis Miller, David E. Turner, Bingaman, Hess, Coblentz & Bell, Reading, PA, Harwood Lloyd, Michael B. Oropollo, Harwood Lloyd, East Brunswick, NJ, for defendant.
MEMORANDUM
CALDWELL, District Judge.
We are considering Plaintiffs' motion for a new trial under Fed.R.Civ.P. 59 and Defendant's motion for sanctions under Fed. R.Civ.P. 11. We exercise jurisdiction over this case according to 28 U.S.C. § 1332.
I. Facts and Procedural History
On October 11, 1985, a fire in the apartment of Timothy and Catherine Griggs caused extensive damage and injured their then-11-month old son, Zachary. The parties agree that Zachary's stepbrother, Kenneth Hempstead, then almost four-years-old, started the fire. Plaintiffs claim that Kenneth played with a butane lighter he found in his stepfather's pocket. Further, they argue that the lighter was manufactured by Defendant, BIC Corporation ("BIC") and that it was defectively designed.[1]
Before trial, Defendant offered several motions in limine and Plaintiffs offered one. We declined to rule on Plaintiffs' motion, indicating rather that we would consider objections to particular evidence as they arose.[2] The case went to trial on October 25, 1993. After hearing considerable evidence, the jury returned a verdict in favor of Defendant on October 29, 1993, finding that Plaintiffs had not proved by a preponderance of the evidence that Kenneth had used a BIC lighter to ignite the fire in question. On November 4, 1993, Plaintiffs filed the current motion for a new trial. That motion is now ripe for disposition. On November 24, 1993, Defendant filed a motion for sanctions according to Fed.R.Civ.P. 11. That motion, too, is fully briefed.
II. Law and Discussion
Plaintiffs' motion relies principally upon four grounds: (1) that the Court committed error in admitting certain defense testimony, (2) that the great weight of the evidence was against the verdict, and (3) that the Court committed error in not allowing Plaintiffs to elicit opinions from their witnesses, and (4) that the Court committed error in not allowing Plaintiffs to question their experts about other fires alleged to have been ignited with BIC lighters. We will consider these grounds seriatim.
A. Admission of Defense Testimony
Plaintiffs argue that the Court erroneously admitted testimony elicited solely for the purpose of portraying Mr. and Mrs. Griggs in a negative light.
As a threshold matter, we note that in almost all instances cited by Plaintiffs, there was no timely objection made to the testimony. Fed.R.Evid. 103 mandates
(a) Effect of erroneous ruling. Error may not be predicated upon a ruling which *194 admits or excludes evidence, unless a substantial right of the party is affected, and
(1) Objection. In case the ruling is one admitting evidence, a timely objection or motion to strike appears of record, stating the specific ground of objection, if the specific ground was not apparent from the context; or
* * * * * *
(d) Plain error. Nothing in this rule precludes taking notice of plain errors affecting substantial rights although they were not brought to the attention of the court.
Plaintiffs argue that their in limine motion sought to exclude evidence offered only to cast aspersions on their characters. As noted, however, we declined to rule on the motion, deferring decisions until the evidence was offered in context. See, supra, n. 2. As such, the motion in limine did not serve as a proper objection because there was no ruling. Bruno v. W.B. Saunders Co., 882 F.2d 760, 767-68 (3d Cir.1989). Plaintiffs were required to offer their objections as they became appropriate at trial. Thus, to the extent this argument is premised upon testimony to which Plaintiffs failed to object, and because there was no plain error, we find the objections waived. Fed.R.Evid. 103.
Plaintiffs first argue that it was error to admit evidence that Mr. and Mrs. Griggs used matches on occasions before the fire, that Kenneth had played with matches before the fire, and that the Griggs were careless prior to the fire at issue.
Plaintiffs offer no citation to the record for their contention regarding testimony as to their use of matches before they moved to the home on Berryhill Street in Harrisburg, Pennsylvania, in which the fire occurred. They do, however, point to testimony regarding their alleged use of matches at the Berryhill home just prior to the fire. Louise Russell, a neighbor of the Griggs when they lived on Berryhill Street, testified that she babysat for the Griggs children in August, September, and October, 1985, just before the October 11, 1985, fire.
Q And on all those occasions were you inside their house babysitting?
A Yes.
Q Do you know if Mr. and Mrs. Griggs were smokers at that time?
A Yes.
Q Did you observe them smoking?
A Yes.
Q Did you observe what they used to light their cigarettes?
A Yes.
Q What was that?
A Matches.
Q And when you would babysit over the course of August and September and October, up until October 10, did you see anything inside the apartment of the Griggs that they used to light their cigarettes?
A Yes.
Q Okay, what did you see?
A Matches.
Q Where did you see those?
A They were just laying around.
Q Did you ever see any Bic lighters in their apartment?
A No.
Q Are you a smoker yourself?
A No.
Q When was the last time before the fire that you were inside the Griggs home?
A Maybe a week before.
Q And was that the time that you went over to babysit?
A Yes.
Q While you were there did you notice whether or not there were matches present?
A Yes.
Q Where did you see the matches on that occasion?
A They were laying in the front room.
Transcript at 394-96. Another neighbor, Debra Arnold, testified as follows:
Q Did you have occasion to observe Tim and Cathy Griggs smoking?
A Yes.
Q Where were they when you observed them?
*195 A On the front porch and in the back yard.
Q How often over the course of the two or three months prior to this fire did you observe them smoking outside the front or back?
A Just about everyday.
Q During that period of time did you notice what they used to light their cigarettes?
A Matches and a lighter.
Transcript at 402-03.
In her direct testimony, Mrs. Griggs had indicated that she had removed all matches from the house after finding Kenneth with some neighborhood boys who were playing with matches. See Transcript at 359. Plaintiffs characterize the Russell and Arnold testimony, and other similar evidence, as inadmissible evidence of prior bad acts to show conformity therewith, in violation of Fed. R.Evid. 404(b).
We note first that Plaintiffs failed to object to either the Russell or the Arnold testimony. Thus, any objection other than plain error was waived. Further, the evidence was offered in Defendant's case-in-chief and was clearly for the purposes of contradicting and impeaching Mrs. Griggs' testimony on a material issue namely, whether there were matches in the Griggs residence. There was no error in this regard.
Plaintiffs also take exception to testimony that Kenneth had started fires on occasions prior to the fire. We presume this to refer to the testimony of Ms. Russell and of Ms. Arnold.[3] Ms. Russell testified as follows:
Q Are you aware of any prior incidents in which Kenny; that is, Kenneth Hempstead had burned anything or started any fires?
A Yes.
Q Okay, could you tell the jury what you know of the prior instance?
A Well, I had come over to Cathy's house one day, and she had said that Kenny set the couch on fire.
Q Did you actually see him do it?
A No.
Transcript at 396. Ms. Arnold testified as follows:
Q From the time that the Griggs moved into 1428 [Berryhill Street] and prior to October 10 when this fire occurred, did you have occasion to observe Kenneth Hempstead with matches or other fire starting materials?
A Yes.
Q Will you describe to the jury what you had observed?
A Well, I he wasn't supervised well at all, and he'd be out back, and I'd look out back and have to keep an eye on him somewhat because I knew that he wasn't being watched the way he should have been.
MR. ANGINO: Your Honor, could she answer the question, please.
A And
BY MR. TURNER:
Q Just direct your response
A I saw him on the back porch there. The porch is about like a cement block wide, sitting there with matches, playing with them.
Transcript at 401-02. Again, Plaintiffs failed to object. Finding no plain error, we conclude that Plaintiffs waived any objection they might have had. Fed.R.Evid. 103.
Finally, Plaintiffs contend that certain defense testimony was offered only to depict them as careless, in violation of Fed.R.Evid. 404. They primarily point to the testimony of their landlady at the Berryhill residence, Elizabeth Khan. Defense counsel questioned Ms. Khan regarding a number of issues, including the condition of the Griggs residence.
Q Would you tell me what the condition of the apartment was when Mr. and Mrs. Griggs moved in?
*196 MR. ANGINO: Your Honor
THE COURT: I'll sustain the objection.
* * * * * *
Q During your inspections to the property what did you observe with regard to maintenance?
MR. ANGINO: Your Honor, objection.
THE COURT: Sustained.
BY MR. TURNER:
Q Did you observe any problems with regard to fire or smoke safety equipment at the apartment?
A Yes. On one occasion we had seen that the smoke detector in that apartment had been disconnected.
Transcript at 409-10. Each time Plaintiffs objected, we sustained the objection. Thus, we can perceive no error. Further, with regard to the testimony about the smoke detector, Plaintiffs failed to offer an objection; as such, any objection is now waived.
Ms. Khan also testified that she served an eviction notice to the Griggs in August, 1985. Plaintiffs objected. See Transcript at 411. We did not rule on the record, but spoke to counsel at sidebar and advised defense counsel to limit his question to the issue of the smoke detector, rather than the more general issue of the condition of the apartment. Thereafter, Defendant asked the following question:
Q Mrs. Khan, was the fact that the smoke detector had been disconnected a grounds for your giving the eviction notice and your intention to terminate the lease?
A Yes it was. It was in violation of City code.
Transcript at 411. There were no further objections to this line of questioning. We find no error; Plaintiffs objected to testimony about the eviction notice and we sustained the objection in part and limited the testimony.
Plaintiffs also point to another portion of Ms. Khan's testimony.
Q During your visits to the premises did you ever observe any child-resistant or child safety type devises such as caps on electrical outlets or locks on cabinet doors?
MR. ANGINO: Objection, Your Honor.
THE COURT: Sustained.
Transcript at 413. Plaintiffs maintain that, despite the objection having been sustained, the jury heard the question and undoubtedly presumed the answer would have been detrimental to Plaintiffs' case. We disagree. We sustained the objection as soon as it was made; further, if Plaintiffs had a concern that too much of the objectionable question had been heard by the jury, they should have requested that we strike the question from the record and direct the jurors to ignore it. No such request was made.
Finally, Plaintiffs object to Defendant's questioning Ms. Khan about an occasion when she found the Griggs children unsupervised.
Q Did you have occasion during your visits to the premise[s] to observe whether the children were supervised, were there or not there?
MR. ANGINO: Objection.
THE COURT: Overruled. I'll allow that question.
A There was at least one occasion, and I do not recall the date. I know it was sometime during the summer prior to her having the newborn where we had my husband and I had come to the apartment to collect rent and we had knocked on the door.
We heard the baby in there crying. Nobody came. We waited around for approximately ten, fifteen minutes, at which time they had finally come from one of the properties across the street and came to the house, and the two children were in the apartment alone.
Transcript at 413-14. Again, Plaintiffs argue that this evidence should not have been admitted because of the "prior acts" prohibition of Fed.R.Evid. 404(b). That rule mandates as follows:
(b) Other crimes, wrongs, or acts. Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible *197 for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident, provided that upon request by the accused, the prosecution in a criminal case shall provide reasonable notice in advance of trial, or during trial if the court excuses pretrial notice on good cause shown, of the general nature of any such evidence it intends to introduce at trial.
In essence, Rule 404(b) requires exclusion of evidence of a past act if the only reason for its proffer is that it tends to suggest that the actor acted in a similar way in a material situation. The evidence may, however, be offered for some other reason, including those enunciated in the rule.
A hypothetical is helpful. Assume P brings suit against D, alleging that D became intoxicated, negligently drove his automobile, and struck P as he was walking on a sidewalk. If P offers testimony from a tavern owner that he saw D drink to the point of inebriation two weeks earlier; and the only purpose of the testimony is to suggest that, having done it once, D was more likely to have been intoxicated on the night of the accident; the evidence must be excluded according to Rule 404(b). However, if D argues that he did not know that drinking large quantities of alcohol causes intoxication, P may introduce the tavern owner's testimony to prove that D had knowledge of the effect of alcohol.
The exception to the general principal of Rule 404(b) is that evidence of habit may be introduced to prove that a party's conduct was in conformity with the habit on a material occasion. Fed.R.Evid. 406.
A habit ... is the person's regular practice of meeting a particular kind of situation with a specific type of conduct, such as the habit of going down a particular stairway two stairs at a time, ...
Fed.R.Evid. 406 advisory committee note, quoting Edward W. Cleary, McCormick on Evidence § 162 (1972). Returning to the hypothetical, if the tavern owner testified that D invariably stopped by the tavern on his way home from work, and invariably drank to excess, the testimony would be admissible to prove that D was intoxicated on the night of the accident.
Having established the legal framework for the admission of character evidence, we turn to the disputed testimony. In essence, Ms. Khan testified that, on one occasion prior to the fire, she and her husband had discovered that the Griggs children were unattended for as long as 15 minutes. Defendant, of course, argues that the testimony was properly admitted.
Moreover, lack of parental supervision was relevant to the issue of causation. Plaintiffs raised this issue through their own testimony that Kenneth Hempstead had set fires with lighters and matches prior to the subject incident, and through their expert, Dr. [John] Kreifeldt, when he testified that approximately 600,000 children could have readily operated the lighter that the Griggs' [sic] claimed it was feasible for BIC to manufacture and market in 1985.
Brief in Opposition at 18. If we could ignore Fed.R.Evid. 404, this argument would be entirely reasonable. Had the jury reached the question of whether the BIC lighter was defectively designed, one issue it would have had to consider was whether BIC had a duty to guard against ignition by a child given substantial time to explore the lighter's ignition mechanism. The jury could have concluded that BIC's duty was to guard against a child who had only a few moments to examine the lighter; thus, evidence that Mr. and Mrs. Griggs had left Kenneth unsupervised for long periods might have broken the causal chain between any design defect and the Griggs fire. However, we cannot ignore Rule 404. In this case, Ms. Khan testified that she observed poor parental supervision on one occasion prior to the fire. To offer such testimony to raise an inference that the Griggs left Kenneth alone for a protracted period on the morning of the fire is to do precisely that which Rule 404(b) forbids.[4]
*198 Defendant suggests that the testimony was proper to impeach the testimony of Mr. and Mrs. Griggs. There are, of course, a number of ways to impeach the testimony of a witness, including offering contradictory testimony. However, our review of the testimony of both Mr. and Mrs. Griggs indicates that neither suggested in any way that their children were carefully supervised. Further, even if they had so testified, Fed.R.Evid. 608(b) rejects the use of extrinsic evidence to attack the credibility of a witness.[5] Another appropriate method of impeaching a witness is to offer evidence of the witness' reputation for truthfulness in the community. Fed. R.Evid. 608(a). The challenged testimony was not of this variety.
We must, then, agree with Plaintiffs that it was error for us to overrule their objection to Ms. Khan's testimony about the prior incident of parental absence. That determination, of course, requires an examination of the effect of the error on the trial.
Fed.R.Evid. 103(a) explains that an evidentiary ruling may only be reversible error if it affects a "substantial right" of the party. In the Third Circuit, the test for harmless error requires a court to inquire whether it is "highly probable" that the error did not affect a party's substantial rights. McQueeney v. Wilmington Trust Co., 779 F.2d 916, 924-28 (3d Cir.1985); see also, Lippay v. Christos, 996 F.2d 1490, 1500 (3d Cir.1993); Advanced Medical, Inc. v. Arden Medical Systems, Inc., 955 F.2d 188, 199 (3d Cir.1992) (referring to the "highly probable" test as "rigorous"). In gauging the appropriate standard for determining when it is "highly probable" that evidence did not affect substantial rights, we take guidance from Government of the Virgin Islands v. Toto, 529 F.2d 278 (3d Cir.1976), the criminal case that set the "highly probable" standard in this circuit and that McQueeney followed in setting the civil standard.
[A]n appellate court realistically has three options in choosing a standard for reviewing trial error. The reviewing court might affirm if it believes: (a) that it is more probable than not that the error did not affect the judgment, (b) that it is highly probable that the error did not contribute to the judgment, or (c) that it is almost certain that the error did not taint the judgment.
529 F.2d at 284 (emphasis original). The Third Circuit chose the second option. Because the first, and least rigorous, standard is essentially a preponderance of the evidence standard and the third, and most rigorous, standard is akin to a clear and convincing standard; we presume that the appropriate standard requires something more than a preponderance but less than clear and convincing evidence.
Certainly, the credibility of Mr. and Mrs. Griggs played an important role in the jury's verdict. Both testified that the only ignition sources in the home on the morning of the fire were BIC lighters. Therefore, for the jury to find, as it did, that the Plaintiffs failed to prove that the fire was started with a BIC lighter, it would have had to find the Griggs unworthy of credibility. Further, we note that the jury focused on the question of product identification and never reached the issue of causation.
Because of the ultimate resolution of the case, we regard as particularly important evidence on two issues: whether the fire began with matches and whether Mr. and Mrs. Griggs' testimony was credible.
*199 Aside from the testimony already cited, there was additional testimony that supported BIC's match-ignition theory. Ms. Russell, the neighbor who said she had seen matches in the Griggs home, also testified that she saw Kenneth being interviewed by a fire fighter while the fire was being extinguished.
Q Did you hear either the fireman or Kenny say anything at that time?
A The fireman had asked Kenny how did he start the fire, and he said with matches, and he was striking his hand. (Indicating)
Q He made a movement with both hands one over the other in a striking motion?
A Right, he was making a motion. (Indicating)
Transcript at 399.
Chief Michael Bownaze, of the Harrisburg Fire Department, testified that he believed the fire was started with either matches or a lighter. Transcript at 70. He further testified that he searched the scene and could find no remnants of a lighter. Transcript at 68-70.
Trooper John Lotwick, a Pennsylvania State Police fire marshal, testified that he interviewed Kenneth 13 days after the fire and that the boy told him he had started the fire with a lighter, although he did not describe it. Transcript at 56.
On the other hand, Kenneth himself testified that he used a lighter. Transcript at 212-13.[6] He indicated that he took the lighter from his father's pants pocket, went into his bedroom, and attempted to light several cheese puffs while they were resting on a pair of pants. He testified that he "lit it and they caught the whole place on fire." Transcript at 212. On cross-examination, Defendant asked Kenneth to repeat his version three times and the boy's testimony remained consistent.[7]
There were several witnesses whose testimony challenged the Griggs' credibility. A social worker from the Francis Scott Key Medical Center in Baltimore, where Zachary Griggs was taken after being burned in the fire, testified from her notes of an interview with Mr. and Mrs. Griggs the day of the fire.
A The parents state that they were at home with Zachary when the fire occurred. Mrs. Griggs had gotten up earlier to fix breakfast for the three-and-a-half-year-old son and then gone back to sleep. Apparently this son, Kenny, began to play with matches and lit Zachary's mattress on fire.
Transcript at 578. A social worker for Dauphin County Children and Youth Services testified that she spoke with Mr. and Mrs. Griggs five years after the fire. She read from notes she made at the time of the visit.
A According to Mr. and Mrs. Griggs Kenny was accused of setting the fire. Neither Mr. nor Mrs. Griggs feel that he did actually do it.
Q Is that information what was told to you by the Griggses?
A To the best of my knowledge, yes.
Transcript at 425. The notes of the social worker, Deborah Balmer, were admitted into evidence without objection. Finally, Defendant questioned Mr. Griggs about his earlier assertion that the fire began in faulty wiring.
Q One other thing. At one point in time you made statements that you were going to sue the owner of the house for faulty wiring. Correct?
MR. ANGINO: Your Honor, that's totally irrelevant. There's no question of faulty wiring. I object.
THE COURT: Overruled. I'm going to allow the testimony.
*200 A I didn't say I was suing anybody, but I said about faulty wiring, yes.
BY MR. OROPOLLO:
Q Well, that was Let's see.
A This is long after the fire that I made this statement.
Transcript at 385. Mr. Griggs testified that he spoke to a lawyer about a possible claim against the landlord, although he briefly suggested that while the alleged faulty wiring was related to the fire, it was not the cause. Transcript at 386.
Having reviewed the testimony, we must ask if it is "highly probable" that the erroneous admission of Ms. Khan's testimony that the Griggs children were unsupervised on one occasion did not contribute to the judgment.[8] It is impossible, of course, for us to surmise what affected the jury's determination. However, having reviewed the entire transcript, we do not conclude that the error sufficiently tainted the verdict to warrant a new trial. There was considerable testimony that went directly to the questions of whether Mr. and Mrs. Griggs were credible and whether the ignition source was a BIC lighter. The Khan testimony was directed toward causation (i.e., whether BIC could have guarded against a fire given a child with substantial time to explore the lighter) and only incidentally impugned Mr. and Mrs. Griggs' characters. We find it highly likely that the jury focused on the more direct testimony.
B. Weight of the Evidence
Plaintiffs contend that the overwhelming weight of the evidence was against the verdict and that we should therefore grant a new trial.
We begin with an initial observation. Plaintiffs include with their motion four affidavits, sworn to after the trial, by Mr. and Mrs. Griggs and two of their neighbors. The affidavits suggest that Louise Russell was an "enemy" of the Griggs because they had accused her of stealing money from them and that, therefore, her testimony was biased. Plaintiffs offer no explanation for their failure to offer testimony of any such antipathy at trial.
It is appropriate to consider new evidence in the context of a motion for a new trial only where the evidence was discovered following trial and was not discovered earlier even though counsel acted with due diligence. See Treadwell v. Kennedy, No. 88-2958, 1991 WL 255609 at *4, 1991 U.S.App. LEXIS 28733 at *10 (7th Cir. Dec. 2, 1991). In the instant case, the evidence of hostility between the Griggs family and Ms. Russell clearly existed before trial and was known to Mr. and Mrs. Griggs, both of whom testified at trial. Had Plaintiffs wished to discredit Ms. Russell's testimony, the appropriate opportunity was in rebuttal, not in a motion for a new trial. Further, the "new evidence" merely seeks to suggest bias on the part of a witness; it does not affect directly a material issue in the case. As such, we will not consider those affidavits.
A challenge to the sufficiency of the evidence bears a heavy burden. In a diversity-jurisdiction case such as this, we apply the federal standard for examining the sufficiency of the evidence. Kinnel v. Mid-Atlantic Mausoleums, Inc., 850 F.2d 958, 961 (3d Cir.1988). We must view the evidence in the light most favorable to the verdict winner and ask if it was minimally sufficient to support the verdict. Rotondo v. Keene Corp., 956 F.2d 436, 438 (3d Cir.1992).
In a preceding section of this memorandum, we reviewed at some length the evidence regarding the possibility that the fire at issue was attributable to a BIC lighter. Viewing the evidence in the light most favorable to Defendant, we find that the evidence was sufficient to support a defense verdict on the issue of product identification.[9]
*201 C. Plaintiffs' Experts' Opinions
Plaintiffs argue that we sustained an objection that prevented them from questioning their fire expert on a key issue. That witness was Trooper Lotwick, the Pennsylvania State Police fire marshal. Plaintiffs qualified Trooper Lotwick as an expert in the causes and origins of fires. He testified that he interviewed Kenneth Hempstead 13 days after the fire and the boy told him he had used a lighter to start the fire. The testimony in question went as follows:
Q And did you believe him, that he used a lighter?
A Yes.
MR. TURNER: Objection.
THE COURT: We'll ask the jury to disregard the officer's belief. Strike that testimony.
MR. TURNER: Thank you, Your Honor.
BY MR. ANGINO:
Q Officer, from your investigations of these child play fires where you've basically talked to children of different ages, have you learned the art of whether or not the child is at least to you telling the truth or not?
MR. TURNER: Objection, Your Honor.
THE COURT: Objection sustained.
MR. TURNER: Thank you, Your Honor.
MR. ANGINO: Your Honor, I then have no further questions.
Transcript at 48-49.[10] There was no error in excluding the testimony. Trooper Lotwick was qualified as an expert in fire origin, not in child interviewing. See Transcript at 38-44. Indeed, most of his testimony with regard to his credentials centered on training to examine the physical remnants of fire scenes. He never indicated that he had attained expertise in interviewing children and assessing their credibility. As such, we determined under Fed.R.Evid. 702 that he was not qualified to offer an opinion about Kenneth's credibility. Further, it is generally inappropriate for a witness to judge the credibility of another witness. See United States v. Daileda, 229 F. Supp. 148, 153 (M.D.Pa. 1964) (Nealon, J.) (noting that credibility determinations are within the province of the jury); United States v. Scop, 846 F.2d 135, 142-43 (2d Cir.1988) (noting that Fed.R.Evid. 705 does not overcome unfairly prejudicial effect on jury). Plaintiffs now claim that Trooper Lotwick was qualified to testify to the child's credibility because interviewing children is part of his investigative work. Had he so testified at trial, he might have overcome the lack of qualification; he would not have overcome the general proscription against witnesses judging one another's credibility. There was no error.
D. Plaintiffs' Examination of Their Experts With Regard to Other BIC Fires
Plaintiff argues that we erred in precluding their questioning their expert witnesses about Consumer Product Safety Commission ("CPSC") reports of other fires started with BIC lighters. Plaintiffs offer only a single paragraph to explain their argument and offer just one reference to the record; *202 without their guidance, we can only speculate about the nature of their contention.
The witness on the stand at the portions of the transcripts Plaintiffs have cited was their expert Langston Bate, Jr. Plaintiffs sought to have Mr. Bate testify about certain CPSC reports of lighter fires and whether they were provided to manufacturers, like BIC, before the date of the Griggs fire. See Transcript at 313-340. There was only one defense objection that we sustained, and that was to Plaintiffs' counsel questioning Mr. Bates about the details of each incident recorded in the CPSC reports. We allowed Plaintiffs to question him generally about whether those reports put BIC on notice of a large number of child-play fires involving BIC lighters, but limited the testimony in the interests of trial efficiency. See Fed.R.Evid. 403. We can find no error. Plaintiffs were allowed to establish the point they sought to establish.
E. Defendant's Rule 11 Motion
Defendant seeks sanctions under Fed.R.Civ.P. 11 against Plaintiffs' counsel. That rule holds that any court document signed by an attorney carries with it his assurance that
after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law.
The court, upon finding a Rule 11 violation, may assess sanctions against the attorney at fault. The standard is an objective one; whether a reasonable attorney would have acted in a particular way. Chambers v. NASCO Inc., 501 U.S. 32, 111 S. Ct. 2123, 115 L. Ed. 2d 27 (1991); Bradgate Associates v. Fellows, Read & Associates, 999 F.2d 745 (3d Cir.1993).
Defendant's theory in bringing the motion is that Plaintiffs misrepresented the record in their motion for a new trial and improperly offered the four affidavits that we referred to earlier. We agree that, in certain respects, Plaintiffs' arguments misconstrued the record. We do not, however, find evidence that any such confusion was deliberate. Further, the four affidavits, while inappropriately filed, do not warrant a sanction. And, of course, our long discourse regarding Mrs. Khan's testimony makes clear that Plaintiffs' motion, as a whole, was not baseless. We will deny Defendant's motion.
NOTES
[1] The complaint asserted causes of action for both negligence and strict liability according to Restatement (Second) of Torts § 402A. On Defendant's motion for summary judgment, we entered judgment on both counts against Plaintiffs. See Griggs v. BIC Corp., 786 F. Supp. 1203 (M.D.Pa.1992) (Caldwell, J.). On appeal, the United States Court of Appeals for the Third Circuit affirmed the judgment as to strict liability but reversed and remanded as to negligence. See Griggs v. BIC Corporation, 981 F.2d 1429 (3d Cir.1992).
[2] See, e.g., Transcript at 407:
MR. ANGINO: Your Honor, we have filed a motion in limine with respect to this particular witness.
THE COURT: I'll rule on the testimony as the question is raised.
[3] As we discuss Plaintiffs' arguments, we note that Plaintiffs' brief does not clearly set forth their arguments and make appropriate reference to the record. As such, it is difficult to be sure precisely to what testimony they refer. See, e.g. Brief in Support at 6.
[4] Defendant's argument would be valid if the testimony were that Mrs. Khan saw the children by themselves on the morning of the fire. Had this been the testimony, Rule 404(b) would not have been implicated.
[5] We do not follow the logic of Defendant's argument that:
Plaintiffs' reliance on Rule 608(b) which prohibits proof by extrinsic evidence of past conduct of a witness for the purpose of attacking his or her credibility, is unfounded. Rule 608(b) is inapplicable in determining the admissibility of evidence introduced to impeach a witness's testimony as to a material issue.
Brief in Opposition at 16, citing Lamborn v. Dittmer, 873 F.2d 522, 527-28 (2d Cir.1989). We do not read Lamborn to support Defendant's proposition. Lamborn noted that it is proper to admit extrinsic evidence on a material fact which, in that case, was whether a witness knew about the fraudulent execution of loan documents. Id. at 528. The corollary in this case would be if Ms. Khan had visited the Griggs home the morning of the fire and seen the children unattended. The fact that the children were unsupervised on some occasion before the fire does not fairly raise an inference that Kenneth was unattended on the day of the fire.
[6] Defendant objected that Kenneth was incompetent to testify because he was younger than four years old at the time of the fire and more than eight years had passed by the time of the trial. After a short hearing outside the hearing of the jury, we found Kenneth competent to testify. Transcript at 209. We determined that the issues of the child's age at the time of the fire and the considerable passage of time were for the jury to consider in weighing Kenneth's testimony.
[7] Ironically, Defendant describes the fact that Kenneth remained consistent as evidence of coaching. Of course, had Kenneth been inconsistent, Defendant would argue that his testimony was not credible.
[8] In doing so, we recall that the neighbor, Ms. Arnold, also testified to seeing Kenneth unsupervised (and playing with matches). The jurors heard this testimony without objection.
[9] In their argument regarding sufficiency of the evidence, Plaintiffs reiterate an argument we find puzzling:
Plaintiffs have also asked that BIC be compelled to produce its factual investigation file. A decision on Plaintiffs' motion is still pending. Plaintiffs believe that the full investigation file will demonstrate that the overwhelming factual evidence supports Plaintiffs' conclusions, and that BIC could obtain the result it wanted only by being very selective in its choice of defense witnesses and, in particular, omitting those with the most direct knowledge of Plaintiffs' smoking habits, such as Sharon and Randolph Saunders, and by calling those individuals with open hostility towards the Plaintiffs, such as Louise Russell. While BIC may be entitled to present its defense in this way, Plaintiffs believe that the interests of justice are served by adding the weight of the factual investigation file to the weight of the evidence produced at trial, and thereby demonstrating that the vast weight of the evidence supports their position.
Brief in Support at 15 n. 3. We denied the motion to compel by order of December 22, 1993. Plaintiffs' statement suggests a misunderstanding of the procedural posture of the case. Plaintiffs had a long discovery period in which to seek evidence to build a record that would favor their claims. To seek to build that record post-trial is simply inappropriate.
[10] Plaintiffs assert that we likewise precluded them from questioning Chief Bownaze of the Harrisburg Fire Department about the veracity of Kenneth's claim. We have read the transcript of his testimony in its entirety and find no reference at all to whether Chief Bownaze believed Kenneth's version of events. Thus, we will consider only the quoted portion of Trooper Lotwick's testimony, although our analysis would be the same.
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812 S.W.2d 502 (1991)
Malcolm T. BROWN, Appellant,
v.
COMMONWEALTH of Kentucky, Appellee.
No. 89-SC-177-MR.
Supreme Court of Kentucky.
July 3, 1991.
Brad Coffman, Ralph W. Beck, Coffman & Beck, Bowling Green, for appellant.
*503 Frederic J. Cowan, Atty. Gen., Gregory C. Fuchs, Asst. Atty. Gen., Frankfort, for appellee.
STEPHENS, Chief Justice.
Appellant was convicted by a Warren County jury of first degree rape and incest, both of which result from instances involving his daughter, then age ten. He received a life term of imprisonment for the rape conviction and a ten year term of imprisonment for the incest conviction, to run concurrently. Appellant appeals his conviction as a matter of right.
The appellant presents nine assignments of error, three of which we hold reversible error. The appellant's conviction is reversed and remanded for a new trial.
The first ground for reversal is based upon the introduction into evidence of appellant's prior felony conviction for purposes of impeachment. The Commonwealth revealed at a bench conference following appellant's direct testimony, its intention to introduce evidence of appellant's 1966 conviction for storehouse breaking. The Commonwealth argued that credibility was relevant to the case at bar, and that appellant had attacked the prosecutrix's honesty, thereby putting "acts of theft in issue." Defense counsel responded by objecting to the introduction of the prior felony conviction based on its remoteness and prejudicial effect. Appellant argued that the twenty-two year old conviction for which he received a probated sentence should be excluded because the prejudicial effect would far outweigh any probative value.
The record shows that the trial court considered all of the arguments put forth and ruled that evidence of the prior conviction was admissible. In Commonwealth v. Richardson, Ky., 674 S.W.2d 515, 518 (1984), we held that the trial court must consider the "nearness or remoteness of the prior conviction, or such other factors as the court may deem pertinent, when assessing whether such evidence would be unduly prejudicial." Id. Therefore, the current test for admissibility of prior felony convictions is the probative value of the evidence versus its prejudicial effect. Richardson, supra, at 518.
Although we do not have any definite rules regarding the "age" of the conviction as applied to admissibility, we may however, look to the Federal Rules of Evidence for guidance. The Federal Rule regarding prior convictions includes a presumption against the admissibility of remote convictions, which are defined as more than ten years old. FRE 609.
This court has upheld the admissibility of a thirteen year old conviction, but we have also held a seventeen year old conviction inadmissible as too remote to bear on credibility. Scruggs v. Commonwealth, Ky., 566 S.W.2d 405 (1978), cert. denied 439 U.S. 928, 99 S. Ct. 314, 58 L. Ed. 2d 321 (1978). Hunter v. Commonwealth, Ky., 560 S.W.2d 808 (1977). We disagree with the lower court's ruling and hold that it was reversible error to admit the twenty-two year old conviction as extremely prejudicial to the appellant.
The appellant further alleges error in reference to this issue because the appellant was permitted to testify as to the nature of the prior conviction in violation of Richardson, supra, at 518. "Identification of the prior offense, or offenses, before the jury, by either the prosecution or defense, is prohibited." Id. (emphasis added). We find reversible error at the threshold level of admissibility, hence, in the case at bar, the appellant's pendant argument becomes moot.
The second reversible error in this case is testimony regarding "Child Sexual Abuse Accommodation Syndrome." (hereinafter Syndrome) Ms. McCreary, the assigned social worker, testified as to the victim's behavior. During direct examination, the Commonwealth questioned Ms. McCreary whether the victim's behavior was "consistent with abuse." The defense counsel timely objected at the origin of the Commonwealth's questioning and presented a motion for a new trial. Defense counsel's continuing objection was overruled and the motion for a new trial was denied.
*504 The Commonwealth argues that this testimony was proper because Ms. McCreary did not set out the five specific factors present in victims suffering from the Syndrome. See Lantrip v. Commonwealth, Ky., 713 S.W.2d 816, 817 (1986). Ms. McCreary's testimony was necessary, according to the Commonwealth, in order to explain the prosecutrix's various deviant behaviors.
This Court held in Bussey v. Commonwealth, Ky., 697 S.W.2d 139, 141 (1985), that the trial court erred in allowing evidence of the Syndrome into evidence because it was not established as a "generally accepted medical concept." In the cases following Bussey, this court has consistently held that the admission of evidence of the Syndrome or symptoms thereof is reversible error. See Lantrip, supra, at 817; Hester v. Commonwealth, Ky., 734 S.W.2d 457, 458 (1987). The testimony at issue is very similar to the testimony in Hester, wherein we reversed. Supra, at 457-58.
In the case at bar, as in Hester, the social worker testified as to the components of the Syndrome but did not label the theory. In accordance with our previous Opinions, we hold that the trial court erred in admitting Ms. McCreary's expert testimony regarding Child Sexual Abuse Accommodation Syndrome. Furthermore, in an effort to clear any inconsistencies, we overrule Onwan v. Commonwealth, Ct.App., 728 S.W.2d 536 (1987), to the extent that it conflicts with this Opinion.
The final basis for reversal in this case is the testimony of Dr. Georgia Tye, the emergency room physician who examined the victim. Dr. Tye conducted a rape examination following an interview with the victim. Defense counsel objected to Dr. Tye's testimony asserting that she was not a treating physician but was nevertheless basing her expert opinion on case history obtained from the victim. The trial court did not determine whether Dr. Tye was a treating physician.
The majority of Dr. Tye's testimony consisted of her physical findings. She focused on a healed cervical tear and certain abrasions discovered through her examination of the victim. The doctor diagrammed the cervical tear for the jury and noted that this type of injury is usually restricted to women who have given birth.
The doctor further testified as to the approximate age of the cervical tear based on the case history. Defense counsel renewed his objection to this testimony. The trial court overruled the objection and permitted Dr. Tye's testimony. Although she did not state specifically what caused the tear, she did testify that the injury would be more likely in a ten year old as opposed to a fourteen year old. The inference, of course, is that the injury is consistent with the offense charged: sexual abuse that occurred when the victim was ten years old.
Much of the focus seems to be on whether Dr. Tye acted as a "treating" or "testifying" physician. We will not determine that issue because the content of Dr. Tye's testimony amounted to reversible error regardless of the above classification.[1]
Dr. Tye's testimony must be evaluated in terms of its probative value versus its prejudicial effect. The doctor's testimony as to the age of the scar tissue based on the history amounts to opinion testimony as to the ultimate issue. Although Kentucky's rule on this point is not steadfast, there are instances where the testimony is inadmissible as embracing an ultimate fact. See R. Lawson, Kentucky Evidence Law Handbook, § 6.20, (2d ed. 1984 & Supp.1989). The prejudicial effect of the doctor's testimony was elevated further by the fact that the appellant was prevented by the rape shield law from proving otherwise. KRS 510.145. The trial court committed reversible error by allowing Dr. Tye to testify as to an ultimate fact.
*505 The remainder of appellant's arguments are without merit and will not be discussed. Appellant's conviction is reversed and remanded to Warren Circuit Court for further proceedings consistent with this Opinion.
COMBS, LAMBERT and LEIBSON, JJ., concur.
SPAIN, J., files a separate opinion, concurring in part and dissenting in part.
WINTERSHEIMER, J., files a dissenting opinion.
SPAIN, Justice, concurring in part and dissenting in part.
While I join with the majority in reversing for a new trial with regard to the admission for impeachment purposes of the twenty-two-year-old prior felony conviction and with regard to the admission of testimony regarding the "Child Sexual Abuse Accommodation Syndrome," I disagree with the holding that it was error to admit the testimony of Dr. Georgia Tye. I am of the opinion that, as a medical expert, Dr. Tye was properly permitted to testify regarding her physical examination of the victim and her opinion as to the age of scar tissue, based upon her expertise and the case history related by the patient at the time of the physical examination in the emergency room.
WINTERSHEIMER, Justice, dissenting.
I would respectfully dissent from that part of the majority opinion which reverses the conviction.
It would appear that the majority establishes a new rule by judicial mandate that any conviction more than 10 years old is inadmissible because of remoteness. I believe that such an automatic fixed rule is in contradiction to the philosophy expressed in Commonwealth v. Richardson, Ky., 674 S.W.2d 515 (1984). Richardson, supra, provided a balanced approach to the definition of remoteness when it noted that other pertinent factors in addition to time may be considered. The circumstances of each case should determine the application of prior convictions in regard to a remoteness consideration. The status of Scruggs v. Commonwealth, Ky., 566 S.W.2d 405 (1978) and Hunter v. Commonwealth, Ky., 560 S.W.2d 808 (1977) seem to be unclear. If the court wishes to establish a new definite time standard then such a rule should be promulgated in a prospective fashion.
The trial judge did not commit reversible error in admitting testimony of factors which would be consistent with abuse. In this case, Brown seeks to explain the behavior of the victim as that of a disturbed child or a born liar. There was no reversible error in permitting evidence to the contrary whether it was in anticipation or in response to such a theory. Onwan v. Commonwealth, supra, presents a common sense approach to this difficult subject.
The trial judge did not commit reversible error in permitting the medical witness to consider the case history relative to her medical findings. The doctor examined the prosecuting witness in the emergency room and noted a significant but old healed cervical tear. The expression of these facts involved medical testimony only and do not go to the ultimate issue which is always reserved to the jury.
I would affirm the conviction in all respects.
NOTES
[1] In Drumm v. Commonwealth, Ky., 783 S.W.2d 380 (1990), this court joined the Federal Rules and demoted the importance of the distinction between treating and testifying physicians in the context of hearsay. Id at 384-85. See FRE 803(4). Statements by a patient are admissible so long as the physician (treating or testifying) relied on them in forming his opinion. Drumm, supra, at 384.
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22 Cal. App. 2d 252 (1937)
EVA J. KNIGHT, a Minor, etc., et al., Appellants,
v.
WILLIAM L. FITCH et al., Respondents.
Civ. No. 11320.
California Court of Appeals. Second Appellate District, Division One.
August 4, 1937.
Nadia Williams for Appellants.
W. I. Gilbert for Respondents.
The Court.
The two minor appellants were awarded damages for personal injuries sustained by them as the result of an automobile accident which was caused by the wilful misconduct of the defendants. Since this appeal is prosecuted by the minor plaintiffs on the issue of damages only, upon the ground that the award is inadequate to compensate them for the injuries sustained, we deem it unnecessary to incorporate in this opinion a detailed statement as to the manner in which the accident occurred and will, therefore, confine ourselves to those facts relating to the injuries for which the awards were given.
It was adduced by evidence at the trial, which took place a little more than six months after the accident occurred, that Eva J. Knight, a minor of the age of 15 years, received a cut on the right eye and a cut on the right corner of the upper lip, both cuts requiring suturing, and that she lost four upper teeth and two lower teeth. The attending physician testified that X-rays were taken of her mouth and that these indicated the absence of the teeth and "one very definite fracture line across the alveolar process; ... that the teeth were broken out, ... breaking the jaw"; that she was a high-strung girl, "quite nervous and jittery", and that he rendered a bill for services in the sum of $150. It was also shown that before the accident she was "all right ... always in good spirits", but that subsequent thereto she had lost weight, and was somewhat nervous, was easily irritated and cried "at the least little emotion". The evidence also showed that Lucille Talbott, aged 15 years, received a contusion and abrasion of her left knee, bruises on the shoulder and arm, and a minor abrasion on the forehead; prior to the accident her health was "all right" and subsequent *254 thereto she became nervous and upset. Her mother testified that "she sits down and tears up her handkerchief and chews her fingernails ... doesn't sleep at night".
Upon conclusion of the trial the court gave judgment to plaintiff Eva J. Knight for $950 and to plaintiff Lucille Talbott for $387. Thereafter they made a motion for a new trial on the ground that the evidence was insufficient to justify the judgment and that the award damages was inadequate, which motion was by the court denied. Appellants gave notice of appeal from this order, therefore the propriety of the court's action in refusing a new trial is properly reviewable on appeal from the judgment under section 956, Code of Civil Procedure. (Lambert v. Kamp, 101 Cal. App. 388, 390 [281 P. 690].) But in their briefs they submit "that the judgment in favor of plaintiffs be corrected and modified awarding an amount which will adequately compensate the plaintiffs for the injuries suffered, without subjecting them to further delay and expense of a new trial". (Italics added.) Because we believe the evidence and findings amply support it and that the judgment should therefore be sustained, this point becomes immaterial.
[1] The determination of the amount of damages to be awarded as compensation for personal injuries is a matter within the province of the jury and will not be interfered with unless an abuse of discretion clearly appears. The same rule applies to a case, as here, where the trial judge sits as the trier of facts without a jury. "It is difficult to determine just what state of facts will warrant a trial court in setting aside the verdict of a jury on the ground that the award is inadequate or what record will justify an appellate court in reversing a judgment on that ground. ... From the very necessity and uncertainties of the situation, a jury is accorded a wide latitude and an elastic discretion in assessing damages as compensation for personal injuries. We know of no equitable or accurate means of measuring the damages under such circumstances, except to rely upon the sound judgment of the jurors. Under the facts of this case (one in which $3,000 in damages was awarded for serious and possibly permanent injuries, i.e., fractured vertebra causing a lateral curvature of the spine), we are unable to say as a matter of law that the judgment is inadequate or that the award is so grossly insufficient as to lack support of the evidence and *255 require a reversal on that account." (Phillips v. Lyon, 109 Cal. App. 264, 268-270 [292 P. 711, 713].)
[2] It is only when the verdict is so small as to indicate passion or prejudice or other improper influence or considerations that the court will interfere. (Montgomery Light & Traction Co. v. King, 187 Ala. 619 [65 So. 998, Ann. Cas. 1916B, 449, L.R.A. 1915F, 492].) To warrant a reversal for insufficient damages, the evidence must clearly show that the jury could not have fairly returned the verdict. (5 Cor. Jur., sec. 658.)
[3] It is shown by the evidence in the instant case that the injuries sustained by appellants were minor in character with the possible exception of loss of teeth by appellant Knight; as to her we are unable to say as a matter of law that the judgment for $950 lacks support of the evidence or is inadequate to compensate her for such loss. Neither do we believe that the judgment for $387 in favor of appellant Talbott is inadequate to compensate her, in view of the slight injuries she sustained by reason of the accident in question.
[4] Respondents raise the point that appellants' failure to comply with section 650, Code of Civil Procedure, precludes this court from hearing this appeal upon its merits. Appellants attempt to justify such apparent failure by a statement in their reply brief to the effect that the transcript on appeal in this case was prepared in accordance with section 953a, Code of Civil Procedure, to which respondents had objected on the ground that all the testimony of the case must be presented under that section even though the appeal was from only a portion of the judgment; that months were consumed in motion to dismiss and presentation of points and authorities before it was held by the trial court that the procedure taken by appellants was erroneous and that the matter must be presented on a bill of exceptions; that respondents refused to stipulate to the filing of a bill of exceptions and appellants moved the trial court under section 473, Code of Civil Procedure, to be relieved from the mistake in procedure, and it was only upon the hearing of said motion and authorities submitted to the trial court that the bill of exceptions was finally engrossed. We are unable to see in what respect respondents have been prejudiced by the delay. Suffice to say, because of the silence of the record as to just what steps were taken before the bill *256 of exceptions was finally settled, we have deemed it advisable, in this instance, to decide the appeal upon its merits.
The judgment is affirmed. The appeal from the order denying the motion for a new trial is dismissed.
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156 B.R. 83 (1993)
In re David L. FERRATO, Jr. and Holly M. Ferrato, Debtors.
Ronald VINCIULLA, Plaintiff,
v.
David L. FERRATO, Jr. and Holly M. Ferrato, Defendants.
In re David L. FERRATO and Donna L. Ferrato, Debtors,
Ronald VINCIULLA, Plaintiff,
v.
David L. FERRATO and Donna L. Ferrato, Defendants.
Bankruptcy Nos. 91-2239-BKC-3P7 and 91-2240-BKC-3P7, Adv. Nos. 91-1289 and 91-1290.
United States Bankruptcy Court, M.D. Florida, Jacksonville Division.
June 29, 1993.
*84 Anne Payne, Jacksonville, FL, for plaintiff.
Albert H. Mickler, Jacksonville, FL, for defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
These proceedings are before the Court on complaints objecting to discharge filed pursuant to § 727(a)(2) and (4). The Court held a trial on November 18, 1992, and on March 9, 1993. At the conclusion of plaintiff's case, the Court dismissed defendant, Holly Ferrato, as a party defendant and the trial proceeded as to the other defendants. *85 Upon the evidence presented, the following findings of fact and conclusions of law are entered:
Findings of Fact
Defendants bought a lawn mower service and repair business from plaintiff in November 1987. According to the sales contract, the purchase price for the business was $140,000.00 plus value of inventory not to exceed $75,000.00. The terms required $70,000.00 in cash and the remainder to be evidenced by a promissory note for $90,000.00. The defendants each signed this agreement individually.
The promissory note was signed on February 1, 1988. To secure the note, plaintiff took a security interest in the office equipment, the tools and the work equipment of the business. Plaintiff did not receive a security interest in the inventory of the business.
In March 1988, defendants, David Ferrato, Sr., and David Ferrato, Jr., entered into a partnership agreement. The contribution of each defendant to the partnership was the $140,000.00 purchase price plus $23,848.20 for inventory. The partnership then commenced business as Lyons Mower and Saw Center in Deland, Florida.
In an unrelated transaction in February 1989, defendants purchased a similar business in Deltona, Florida. Defendants ran the Deltona business through a corporation, Ferrato Enterprises, Inc. The Deltona store utilized Lyons Mower and Saw Center as its trade name. Defendant, David Ferrato, Sr., was the president of Ferrato Enterprises, Inc. Defendant, Donna Ferrato, did the day-to-day bookkeeping for the corporation. Defendant, David Ferrato, Jr., was a full-time employee drawing a regular salary.
Defendants owned the real estate on which the Deltona store was located. Defendants valued the property at $130,000.00 in Schedule B of their petitions. The corporation paid rent to the defendants for the use of the property.
Defendants funded the partnership and the corporation with personal funds even though the businesses consistently lost money. Defendants deposited $54,000.00 into the Deland partnership and $45,000.00 into the corporation. Defendants testified that these transactions were loans to the businesses to be repaid when the businesses had sufficient funds. Defendants did not evidence these transactions with promissory notes or list the loans in their schedules as accounts receivables. Defendants were not able to explain why these cash infusions were loans rather than equity investments in their businesses.
Defendants subsequently defaulted on the $90,000.00 note. Plaintiff secured a state court judgment in January 1991, allowing him to repossess the collateral. Plaintiff repossessed the office equipment, tools, and work equipment but not the inventory.
Prior to the litigation, defendants transferred inventory between their two businesses utilizing account number 9 for transfers to the Deltona store from the Deland store and account number 14 for transfers from the Deltona store to the Deland store. After plaintiff foreclosed, defendants transferred some of the remaining Deland inventory to their Deltona corporation. Defendant, Donna Ferrato, testified that the corporation owed the Deland partnership, as a result of these transactions, $5,000.00 to $6,000.00 at the time the Deland store closed. She also testified that this amount was still owed at the time defendants filed the bankruptcy cases.
Soon after plaintiff foreclosed on the Deland store and had begun a proceeding in state court for a deficiency judgment, defendant, David Ferrato, Sr., sold his 500 shares of stock in Ferrato Enterprises, Inc., to his father-in-law, John Truskaskas, for $500.00. Ferrato, Sr., was the sole shareholder of Ferrato Enterprises, Inc. The sale of stock to defendant's father-in-law was not recorded. At the same time, Ferrato Enterprises, Inc., issued 500 new shares of stock to defendant's father-in-law for an additional $500.00. The funds received from these sales were deposited in the bank account for Ferrato Enterprises, Inc.
*86 Subsequent to purchasing the stock, Truskaskas loaned the corporation $10,000.00.
According to defendants' records both at the time defendants received the loan from Truskaskas and at the time of the stock transaction, Ferrato Enterprises, Inc., was insolvent.
On May 2, 1991, while plaintiff's deficiency suit was pending in state court, defendants filed for chapter 7 protection.
Conclusions of Law
Plaintiff argues that defendants should be denied their discharges pursuant to § 727(a)(2) for transferring inventory from the Deland store to the Deltona corporation and for transferring the stock of the Deltona corporation to Truskaskas within one year of filing for bankruptcy protection. Section 727(a)(2) states in pertinent part as follows:
(a) The court shall grant the debtor a discharge, unless
(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
(A) property of the debtor, within one year before the date of the filing of the petition;
This Court has previously held that in order to deny defendant's discharge for making a fraudulent transfer an objecting party must show:
1) [that] a transfer occurred
2) that the property transferred was property of the debtor
3) that the transfer was within one year of the petition, and
4) that at the time of the transfer, the debtor possessed the requisite intent to hinder delay or defraud a creditor.
In re More, 138 B.R. 102 (Bankr.M.D.Fla. 1992).
Defendants acknowledge that the transfers of inventory and stock occurred within one year of their filing for bankruptcy protection. Defendants argue that the property transferred had little or no value and that this nullifies any inference that defendants possessed the requisite fraudulent intent.
The intent to hinder, delay or defraud must be actual intent and not constructive intent. Id. Actual intent may be discovered from all the circumstances of a case and in the context of a fraudulent transfer, the Court has relied on certain "badges of fraud" as indicators of such intent. These indicators include:
(1) the lack or adequacy of consideration;
(2) the family, friendship or close association between the parties;
(3) the retention of possession, benefit or use of the property in question;
(4) the financial condition of the party sought to be charged both before and after the transaction in question;
(5) the existence or cumulative effect of a pattern or series of transactions or course of conduct after incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditor; and
(6) the general chronology of the events and transactions under inquiry.
Id. at 105.
The Court does not agree with defendants' contention that the stock sold to John Truskaskas was without value. When Ferrato, Sr., sold the stock, the Deltona store had at least $5,000.00 worth of inventory from the Deland store in its inventory. In addition, defendants had listed the Deltona business and real estate for sale for $199,999.00. Deducting the value of the real estate, defendants were marketing the business for $69,999.00 while selling its stock for $1000.00. The $1,000.00 received from John Truskaskas for defendant's 500 shares of stock and the 500 newly issued shares was deposited into the Ferrato Enterprises, Inc., account even though defendant, Ferrato, Sr., owned 500 of the 1000 shares sold. Defendants were unable to provide an explanation for the sales price of the stock or the deposit of the funds into the corporation. The Court finds that the consideration received for the stock was inadequate.
*87 The remaining five factors indicating fraudulent intent are present in the stock sale from defendant, Ferrato, Sr., to his father-in-law. Plaintiff has established all the elements necessary to establish that defendant, Ferrato, Sr., made a fraudulent transfer of stock within one year of filing for bankruptcy protection.
The six "badges of fraud" are also present in the inventory transfers from the Deland store to the Deltona corporation.
Even though plaintiff has shown defendants' fraudulent intent in transferring the inventory, he has failed to prove that the inventory transferred was property of the debtors as required to deny defendants' discharge for making a fraudulent transfer. Because defendants, Ferrato, Sr., and Ferrato, Jr., formed a partnership to run the Deland store, their interest in the inventory transferred cannot be said to be property of the debtors. Consequently, the inventory transfer is not sufficient to deny discharges to defendants, Ferrato, Sr., and Ferrato, Jr.
However, Donna Ferrato still possessed an interest in the Deland inventory because she was a party to the purchase and sale agreement for the Deland business, but she was not a party to the partnership agreement. There was no evidence of a transfer of her interest in inventory into the partnership thus, her portion of the inventory transferred from the Deland store to the corporation was property of the debtor.
Plaintiff has established all the elements required to show that Donna Ferrato participated in a fraudulent transfer within one year of filing for bankruptcy protection.
727(a)(4)
Plaintiff argues that defendants should be denied a discharge pursuant to § 727(a)(4) for failing to disclose their interest in the partnership and for failing to disclose the inventory transfer. Section 727(a)(4) states in pertinent part as follows:
(a) The court shall grant the debtor a discharge, unless
(4) the debtor knowingly and fraudulently, in or in connection with the case
(A) made a false oath or account.
To deny a debtor a discharge pursuant to § 727(a)(4), plaintiff must show that defendant made a false oath that was fraudulent and material. Swicegood v. Ginn, 924 F.2d 230 (11th Cir.1991). The Court has determined that defendants possessed fraudulent intent in transferring the stock and the inventory. Thus plaintiff only needs to show that defendants omissions in their financial statements and schedules were material.
Defendants argue that the effect of the transfers on their creditors was of little consequence because the property was reachable through either the partnership or the corporation. Additionally, throughout the trial, defendants professed a failure to understand accounting procedures, business transactions and the distinction between individual ownership, partnership and corporate ownership. However, when questioned about their failure to report the inventory transfer, defendants responded that they did not need to disclose this information since they did not own the corporation at the time they filed for chapter 7 protection.
Even though defendants, Ferrato, Sr., and Ferrato, Jr., did not transfer property of the debtor, neither disclosed his interest in the Deland partnership in the schedules of personal property.
It is apparent that defendants intentionally failed to disclose their interest in the Deland partnership and the transfer of Donna Ferrato's interest in the inventory. It is also clear that defendants' argument that the assets were valueless and the failure to disclose them did not harm creditors is without merit. In re Chalik, 748 F.2d 616 (11th Cir.1984). In Chalik the Eleventh Circuit held that a false statement concerning worthless assets is material and precludes discharge.
Defendant, Donna Ferrato's, failure to disclose the inventory transfer and the failure of Ferrato, Sr., and Ferrato, Jr., to list *88 their partnership interests constitute a false oath sufficient to deny their discharges. Additionally, the circumstances surrounding the transfers and defendants' business arrangements indicate their intention to shield partnership assets from creditors.
Accordingly, all defendants except Holly M. Ferrato will be denied a discharge. A separate judgment consistent with these findings of facts and conclusions of law will be entered.
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83 A.2d 871 (1951)
UNITED STATES
v.
LAFFAL et al.
No. 1080.
Municipal Court of Appeals for the District of Columbia.
Argued October 3, 1951.
Decided October 23, 1951.
Emory W. Reisinger II, Asst. U. S. Atty., Washington, D. C., with whom George Morris Fay, U. S. Atty., Washington, D. C., was on the brief, for appellant.
Joseph M. Howard, Asst. U. S. Atty., Washington, D. C., also entered an appearance for appellant.
J. E. Bindeman, Washington, D. C., for appellees.
Before CAYTON, Chief Judge, and HOOD and CLAGETT, Associate Judges.
HOOD, Associate Judge.
An information was filed against appellees charging them with keeping a disorderly house.[1] They moved that their arrest be quashed.[2] The court granted the motion and dismissed the information. The Government has appealed.
The motion to quash the arrest was directed at alleged deficiencies in the affidavits on which the warrant of arrest was issued. Appellees urge that the affidavits, made by two members of the police force, did not establish probable cause that the offense of keeping a disorderly house had been committed. The affidavits set forth that the premises, a restaurant at which beer and light wines were sold, were on *872 three consecutive days frequented by known prostitutes who met men there, left with them and returned unescorted after short intervals; that drunken men and women were permitted to remain on the premises; that loud and profane language was used and obscene acts committed there. Our Code does not define disorderly house and we must resort to the common-law definition. At common law the term disorderly house had a very broad definition[3] and we think the facts set forth in the affidavits establish probable cause for believing the offense was being committed.
The next point urged by appellees, which seems to have been the main point urged below, is that the only reference in the affidavits to appellee Laffal, the sole person named in the warrant, is that he was president of the corporation which operated the restaurant, and that there was no showing that Laffal was present at the premises when the alleged incidents occurred or had knowledge of them, and therefore there was no showing of any criminal responsibility on his part. While it is the general rule that an officer of a corporation is not criminally liable for acts of the corporation performed through other officers or agents not acting under his direction or with his permission,[4] nevertheless there "is ample authority in support of the principle that the directing heads of a corporation which is engaged in an unlawful business may be held criminally liable for the acts of subordinates done in the normal course of business, regardless of whether or not these directing heads personally supervised the particular acts done or were personally present at the time and place of the commission of these acts."[5] Here there was reason to believe that the corporation was conducting its business, i. e., operating its restaurant, in such a manner as to constitute the offense of keeping a disorderly house. The president of a corporation is generally its chief executive officer and it is a fair inference that he is acquainted with the conduct of the business of the corporation. If the corporation in the conduct of its business was keeping a disorderly house, there was probable cause to believe that its president knew of it and either procured it to be done, or permitted it to be done, or did nothing to prevent it.[6] We are not concerned here with whether the offense had in fact been committed or whether Laffal is guilty thereof.[7] We are concerned only with probable cause and in our opinion the affidavits showed probable cause.
Even if the affidavits supporting the warrant of arrest were defective, it was still error to dismiss the information. The warrant was issued and the arrest made prior to filing the information.[8] When appellees moved to quash the arrest, a verified information was pending against them. No contention is made here, and apparently none below, that the information was defective. Appellees state that the trial judge dismissed the information because "it was apparent that the prosecution was based on the same affidavits which he had already held to be insufficient," but the trial court had no right to assume, if it did, that in proving its case the Government would offer no evidence other than that contained in the affidavits.
"* * * a false arrest does not necessarily deprive the court of jurisdiction of the proceeding in which it was made." *873 Albrecht v. United States, 273 U.S. 1, 8, 47 S.Ct. 250, 252, 71 L.Ed. 505. In Davenport v. District of Columbia, D.C.Mun.App., 61 A.2d 486, we referred to the well-settled rule that a court will not inquire into the manner in which an accused is brought before it.[9] In Commonwealth v. Gorman, 288 Mass. 294, 192 N.E. 618, 621, 96 A.L.R. 977, the court said: "* * * we think it is the law, that where a defendant is physically before the court upon a complaint or indictment, either because he is held in custody after an arrest or because he has appeared in person after giving bail, the invalidity of his original arrest is immaterial, even though seasonably raised."
There is even less in the record to justify the court's action with respect to the appellee Miles. She was not named in the warrant of arrest and the record does not show when or under what circumstances she was arrested. The record contains nothing to even indicate that her arrest was illegal.
Reversed and remanded.
NOTES
[1] "Any person convicted of keeping a bawdy or disorderly house shall be punished by a fine not exceeding five hundred dollars or imprisonment not exceeding one year, or both." Code 1940, § 22-2722.
[2] The statement of proceedings indicates that appellees also made a motion to dismiss the information but the only motion set out in the record is the motion to quash arrest.
[3] 27 C.J.S., Disorderly Houses, § 1; 17 Am.Jur. Disorderly Houses, § 2; Wharton's Criminal Law (12th ed.), § 1722. See also United States v. Gray, Fed. Cas.No.15,251, 2 Cranch C.C. 675; United States v. Elder, Fed.Cas.No.15,039, 4 Cranch C.C. 507.
[4] 13 Am.Jur. Corporations § 1100.
[5] Carolene Products Co. v. United States, 4 Cir., 140 F.2d 61, 66, affirmed 323 U.S. 18, 65 S.Ct. 1, 89 L.Ed. 15. See also People v. Detroit White Lead Works, 82 Mich. 471, 46 N.W. 735, 9 L.R.A. 722; State v. McBride, 215 Minn. 123, 9 N.W.2d 416; People v. Cooper, 200 App.Div. 413, 193 N.Y.Supp. 16. Cf. Ledbetter v. State, 20 Ala.App. 626, 104 So. 777.
[6] Cf. De Forest v. United States, 11 App. D.C. 458.
[7] United States v. Basiliko, D.C.Mun.App., 35 A.2d 185.
[8] There is no indication in the record that any evidence was seized or obtained incident to the arrest.
[9] See also Sheehan v. Huff, 78 U.S.App.D. C. 391, 142 F.2d 81, certiorari denied, 322 U.S. 764, 64 S.Ct. 1287, 88 L.Ed. 1591.
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83 A.2d 584 (1951)
THOMAS
v.
CAPITAL TRANSIT CO.
RITZ CAB CO.
v.
CAPITAL TRANSIT CO.
Nos. 1107, 1108.
Municipal Court of Appeals for the District of Columbia.
Argued September 5, 1951.
Decided October 3, 1951.
Rehearing Denied October 26, 1951.
Nathan L. Silberberg, Washington, D. C., for appellants.
George D. Horning, Jr., Washington, D. C., with whom Frank Roberson, Washington, D. C., was on the brief, for appellee.
Before CAYTON, Chief Judge, and HOOD and CLAGETT, Associate Judges.
CAYTON, Chief Judge.
Alvin L. Thomas, a taxicab driver, sued Capital Transit Company for personal injuries sustained in a collision between his cab and defendant's streetcar. Ritz Cab Company also filed suit for damages to the taxicab. The charge was that the streetcar was operated negligently and in violation of law. The transit company filed answers denying negligence, the two cases were consolidated and tried by jury, and at the close of all the evidence the trial court directed a verdict for defendant. Plaintiffs appeal.
Plaintiffs' evidence was in substance that the cab was going north on Third Street, N. W., and entered the intersection of Pennsylvania Avenue on a green light at a speed of about 20 miles an hour. When *585 within the intersection, the streetcar shot across his path. The cab driver applied his brakes and swerved to the left, but the front of the cab was struck by the streetcar. Defendant did not deny that its car entered the intersection against a red light; its defense was that the accident was unavoidable because the motorman had suddenly and without warning lost consciousness prior to the collision.
The motorman testified that he was on a trip from the Navy Yard to Colorado Avenue; that the trip was in every way normal and routine until he got to the Peace Monument which the tracks circle just before entering Pennsylvania Avenue in a westerly direction. He said he remembered coming around Peace Monument but remembered nothing else until after the accident. He said that he had no recollection of anything that happened after reaching Peace Monument and traveling to Third Street (a distance stipulated to be 820 feet). He said his memory ceased and he was in a complete blank or "blackout" until after the accident. The first thing he could remember was sitting on the step of the streetcar. He said, "I can't describe how I felt, but I just I couldn't I couldn't see." He was taken to a hospital in an ambulance and said his first period of any clear recollection or perception was when he was in the hospital. He testified that up until the time he lost consciousness he had absolutely no feeling of physical disability or warning that anything unusual was about to happen to him. He could recall no other time in his life when he lost consciousness or fainted, and testified that so far as he knew the general state of his health the day of the accident was good.
Also called to testify were three passengers on the streetcar. As was to be expected, the details of their testimony did not dovetail in every particular, but they did in general support the motorman's testimony that he had lost consciousness before reaching Third Street. One of the passengers said he heard a woman call out and that he looked up and saw the operator slumped over the controls, and that this happened just a few feet past Peace Monument. Another passenger said she heard a woman scream and looked up and saw the operator slump over, and after that she saw the taxicab approaching and then the crash occurred. A third passenger said that he heard a woman scream when the streetcar had "almost" reached Third Street, obviously before the crash. This witness said he ran forward, found the motorman slumped backward, shook him and tried to get his right foot off the power pedal, but his foot was "frozen" to the pedal. He managed to free the foot from the pedal, mashed his own foot down on the emergency brake, "threw everything out of control," and the car finally stopped. By that time the streetcar had struck the plaintiff's cab as well as another cab. A lady passenger came forward and wiped blood off the motorman's face where it had struck the dash in front of him, and he was placed on the streetcar step where he remained in a dazed condition, unable to do more than mutter incoherently, until he was taken by ambulance to the hospital.
The question is whether the evidence recited was of such a nature as to require submission to the jury. We think the answer has been given in Cohen v. Petty, 62 App.D.C. 187, 65 F.2d 820, 821, where on strikingly similar facts the trial court directed a verdict for defendant and on appeal it was held that such ruling "was in all respects correct." The only real difference between that case and this is that there it was an operator of a private automobile who fainted. In an opinion by Judge Groner, the court said: "It is undoubtedly the law that one who is suddenly stricken by an illness, which he had no reason to anticipate, while driving an automobile, which renders it impossible for him to control the car, is not chargeable with negligence. Armstrong v. Cook, 250 Mich. 180, 229 N.W. 433; Slattery v. Haley, Dom.Law Rep., 1923 (3), p. 156." The opinion went on to point out that the positive evidence was that the driver did not know and had no reason to think he would be subject to an attack of fainting or unconsciousness and hence no negligence could be charged to him. We have no *586 doubt that that decision governs this case. Here as there the positive testimony was that without any previous warning the operator fainted and lost control of his senses and that the collision followed. In addition to the cases cited in Cohen v. Petty, later cases in other jurisdictions have taken the same view. Weldon Tool Co. v. Kelley, 81 Ohio App. 427, 76 N.E.2d 629; Thayer v. Thayer, 286 Mich. 273, 282 N.W. 145; LaVigne v. LaVigne, 176 Or. 634, 158 P.2d 557. Directly in point is Beiner v. Nassau Electric R. Co., 191 App.Div. 371, 181 N.Y.S. 628, 629. There the motorman of a streetcar became ill and "fell senseless on the floor of his car," and the uncontrolled car ran on and caused damage. This was called an "act of God," and the carrier was freed of liability.
With these precedents to guide us and viewing the evidence in a light most favorable to plaintiffs, we must hold that there was no substantial evidence from which the jury could have found that the motorman's "blackout" occurred so short a time before the collision that some act of the motorman rather than his "blackout" was the proximate cause of the accident. Three witnesses supported the motorman's testimony, or tended to support it in some or all particulars, and pieced out the complete story of how the accident happened. No witness said that the motorman did not faint and none said that such fainting did not precede the crash by an appreciable period of time.
We now consider three separate arguments for reversal advanced by appellants. First, they say that they were entitled to go to the jury on the question of whether defendant company was negligent in permitting the motorman to take his car on this particular trip. The motorman revealed on cross-examination that he had asked permission of one of the clerks to take the afternoon off and was refused. But his testimony was that he did not recall saying anything about not feeling well; he merely asked if he could get off if the clerk had any extra men available for duty. This, standing alone, was far too vague a theory on which to predicate liability.
The same is true of appellants' claim that during his cross-examination the motorman was shown to have been mistaken or forgetful as to certain periods of sick leave he had taken in the past. They were too remote in nature and time to permit the jury to speculate that they had any reasonable connection with his fainting on the day of the accident.
Likewise we can give no weight to appellants' contention that an emergency or "deadman" switch on the streetcar was not operating properly. It was explained that a motorman was to keep his left foot on such switch and that it would go into operation when his left foot was removed from it. The meager evidence on that point is susceptible of the interpretation that the switch did not operate because, having stiffened when he lost consciousness, the motorman's left foot was frozen to it just as his right foot was frozen to the power pedal. There was no direct evidence as to any defect in the switch or how or why it failed to operate, if it did fail. Moreover, we note that though this matter was gone into by appellants' counsel by interrogatories in advance of trial, he brought forth nothing of a substantial nature at the trial, and the matter was allowed to rest in the cloudy form we have mentioned.
Finally appellants say, with neither argument nor citation to support the statement, that defendant should have produced the testimony of the physician who treated the motorman after the accident. In effect they contend that an inference is to be drawn against the defendant because of its failure to produce such medical testimony. The record in the Cohen v. Petty case, supra, reveals that the same thing happened there: defendent did not produce the doctor who treated him after the crash. Plaintiff, in his brief on appeal, made a point of that fact; but the court apparently gave it no weight and did not discuss the contention in its opinion.
Looking at the evidence as a whole, we think we must rule as was done in the Cohen case that, "Even if plaintiff's own evidence tended more strongly than it does to imply some act of negligence, it would be *587 insufficient to sustain a verdict and judgment upon proof such as the defendant offered here of undisputed facts, for in such a case the inference must yield to uncontradicted evidence of actual events."
Affirmed.
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156 B.R. 14 (1993)
In re SHARON STEEL CORPORATION, Sharon Specialty Steel, Inc., and Monessen, Inc., Debtors.
SHARON STEEL CORPORATION, Sharon Specialty Steel, Inc., and Monessen, Inc., Appellants,
v.
SKW METALS AND ALLOYS, INC.; Affival, Inc.; Citibank, N.A., as agent for the Lenders; The Official Committee of Unsecured Creditors; and U.S. Trustee, Appellees.
Civ. A. No. 93-488.
United States District Court, W.D. Pennsylvania.
June 22, 1993.
Paul M. Singer, Pittsburgh, PA, for debtors/appellants.
Herbert P. Minkel, Jr., New York City, co-counsel for debtors/appellants.
John F. Donogher, Buffalo, NY, for appellees SKW & Affival.
William H. Schorling, Pittsburgh, PA, for appellee Citibank.
Philip E. Beard, Pittsburgh, PA, for appellee Unsecured Creditors.
Joseph M. Fornari, Jr., trustee, Pittsburgh, PA.
MEMORANDUM OPINION
BLOCH, District Judge.
Presently before the Court is an appeal filed by Sharon Steel Corporation, Sharon Specialty Steel, Inc., and Monessen, Inc. (collectively "debtors") from a bankruptcy court order dated February 10, 1993. In reviewing this bankruptcy court order, this Court may set aside findings of fact if they are clearly erroneous. In re *15 Morrissey, 717 F.2d 100, 104 (3d Cir.1983). All questions of law are subject to plenary review. Brown v. Pennsylvania State Employees Credit Union, 851 F.2d 81, 84 (3d Cir.1988).
The instant appeal is related to a similar appeal filed at Civil Action No. 93-297. In that case, this Court affirmed Bankruptcy Judge Warren Bentz' authorization of the debtors' employment of Price Waterhouse as accountant and financial adviser despite the fact that Price Waterhouse is a creditor of the estate. In the instant case, debtors have appealed Bankruptcy Judge Fitzgerald's denial of a similar application to employ Reed, Smith, Shaw & McClay (Reed Smith) as co-counsel.[1]
A complete reiteration of the legal standard which is applicable to the instant question is not necessary. This Court adopts the opinion previously filed at Civil Action No. 93-297 for purposes of the instant appeal. (A copy of that Memorandum Opinion is attached).[*] It is enough to say that this Court rejects the per se rule and, instead, adopts the flexible approach outlined by the Third Circuit in In re BH & P, Inc., 949 F.2d 1300 (3d Cir.1991). See also In re Martin, 817 F.2d 175, 181 (1st Cir.1987).
It is apparent from the record that Judge Fitzgerald felt obligated to apply the strict per se rule advanced by the United States Trustee, rather than the flexible approach adopted by this Court and applied previously by Judge Bentz in the same case. During the hearing on the instant application, Judge Fitzgerald stated:
[M]y obligation is to construe the statute. I don't see anything in the legislative history that gives me an opportunity to get around that disinterested standard and with all due respect to the First Circuit [in In re Martin, supra,] even though I like that opinion, I'm not quite sure how they got there. . . .
And, I think the First Circuit opinion has a great deal of merit, by I am not sure that it is true to the statute. And, I don't think that's my job. . . . It seems to me that my obligation is to construe the statute, I don't see a way around the disinterested requirement.
(Tr. of hearing (1/14/93) (hereinafter "tr.") at 22). Judge Fitzgerald conceded that her decision to deny the application "has nothing to do with the performance [of Reed Smith] whatsoever. It simply has to do with an issue concerning, how do I get around the disinterestedness requirement which despite case law, I think is a mandatory requirement. . . ." Id. at 27-28. See also id. at 46.
However, the facts of the instant case mimic the facts in the Price Waterhouse case, which had a contrary result. Although Reed Smith is a creditor, thereby being defined as an "interested person" under 11 U.S.C. § 101(14)(A), Reed Smith is an unsecured creditor enjoying no preferred status. Further, Reed Smith has stated that it will not participate as an unsecured creditor in debtors' Chapter 11 case nor will it vote on its claim in connection with the confirmation of any plan of reorganization. Also, the Official Committee of Unsecured Creditors has voted unanimously to support the retention of Reed Smith, citing Reed Smith's "significant knowledge and experience of debtors' affairs," and the "significant" cost of bringing in another firm. (Tr. at 43-44). Counsel for Affival, Inc., an unsecured creditor in the amount of $330,000, originally objected to the retention of Reed Smith. (See tr. at 39-43). However, after hearing the evidence, Affival, Inc., withdrew its objection, stating:
[W]ith respect to the need to hold down expenses, the facts and circumstances of this case and the real waste of assets to the extent there are any assets to waste, if we were to pursue in our objection and successfully obtain an order of this court denying the debtors' application for Reed Smith . . . I think the debtors' thoughts *16 with respect to expenses are well taken and we withdraw our objection at this juncture.
(Tr. at 81).[2]
In fact, the only objection to the application at this point is that of the United States Trustee, an objection based exclusively on an abstract reading of the law.
Judge Fitzgerald did find, as a matter of fact, that "the services of local counsel would assist the debtors in the handling of this case and the testimony established that many of the local large firms capable of handling cases of this size already are involved in this bankruptcy as attorneys for creditors or parties in interest." (Order at ¶ 7). Further, during the hearing, Judge Fitzgerald conceded that "I think the debtor would need local counsel. I did not mean my remarks to suggest that I think that New York counsel ought to have to travel in for the many, many hundreds of, you know, miscellaneous matters that can be handled by local counsel." (Tr. at 54).
In rendering her decision on the application, Judge Fitzgerald noted that "the appointment of Reed Smith Shaw & McClay as special counsel will eliminate the possibility of derailing reorganization because the expertise and knowledge of pre-petition counsel in the areas of their prior service will be maintained." (Order at ¶ 11). Moreover, Judge Fitzgerald found that the debtors' limited retention of Reed Smith as special and local counsel "pursuant to 327(e) is in the best interest of the estates [and] will result in significant cost savings to the estates." Id. at ¶ 9.
Therefore, it is apparent from the record and Judge Fitzgerald's Order that the only reason preventing the bankruptcy court from authorizing debtors' retention of Reed Smith as co-counsel was Reed Smith's unsecured creditor status, a status which Reed Smith refused to waive. As discussed fully in the Opinion at Civil Action No. 93-297, such reasoning is inconsistent with Third Circuit law as interpreted and applied by this Court and the law applicable to the instant bankruptcy proceedings, as evidenced by Judge Bentz' previous decision, which was affirmed by this Court.
Therefore, Judge Fitzgerald's Order of February 10, 1993, will be vacated and this case will be remanded to the bankruptcy court for a determination of Reed Smith's qualifications to serve as co-counsel under a flexible case-specific analysis.
NOTES
[1] Judge Bentz recused himself from this application decision. Judge Fitzgerald heard evidence on this application and made the decision which is the subject of today's appeal.
[*] [Editor's Note: The Memorandum Opinion appears at 154 B.R. 53 and was deleted for purposes of publication.]
[2] In denying the application, Judge Fitzgerald relied, in part, on the fact that "one objector cautioned that investigation into Reed Smith Shaw & McClay's pre-petition advice to and representation of the debtors may be undertaken and may require Reed Smith's employees and partners to appear as witnesses and/or otherwise may establish a conflict of interest with the debtor." (February 10, 1993 Order at ¶ 6). However, it was Affival, Inc., who posed this concern, a concern which was obviously allayed by testimonial evidence, since Affival, Inc., subsequently withdrew its objection.
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83 A.2d 117 (1951)
LEASURE et al.
v.
BEEBE et al.
Civ. A. No. 246.
Court of Chancery of Delaware, New Castle.
August 27, 1951.
Abraham Hoffman, Wilmington, for complainants.
H. Albert Young, Atty. Gen., and Louis J. Finger, Deputy Atty. Gen., for defendants.
*118 BRAMHALL, Vice Chancellor.
Plaintiffs filed their complaint in this Court, alleging that on November 20, 1950, the State Board of Education requested the Board of School Trustees of Glasgow School District No. 56 to hold a referendum election in that district to determine whether or not that district should consolidate with the Newark Special School District. Following this request, the Glasgow Board posted notices to the effect that said referendum election would be held on February 17, 1951. At said election the vote was 74 for consolidation and 69 against consolidation, or a majority of 5 votes for consolidation. However, 13 votes cast were challenged, 10 of which were based upon the contention of the challengers that the voters were not residents of the school district and therefore not entitled to vote. Defendants admitted the averments of the complaint with the exception that they denied that the 10 voters so challenged did not reside in the school district and that the State Board of Education arbitrarily and unlawfully declared that the qualified voters of the Glasgow District had voted in favor of the consolidation of the two school districts.
Plaintiffs have requested the Court to determine: first, that the action of the State Board of Education was arbitrary and unlawful; secondly, that the procedure followed by the State Board of Education and the two school districts was highly irregular and not in compliance with pertinent statutes; thirdly, that the defendants are estopped from denying the boundaries of the school district as furnished to the Glasgow Board of Trustees by the State Board of Education; and, lastly, that all of the 10 voters challenged were non-residents of the school district and therefore not entitled to vote at said election.
Defendants have requested the Court to determine: first, that the challenged voters were residents of the Glasgow District and therefore entitled to vote; secondly, that the action of the State Board of Education was in conformity with the Statute and not arbitrary and unlawful; thirdly, that this court does not have the power to review a determination made by the State Board of Education that such consolidation was practical and desirable; and, lastly, that this court cannot invalidate such an election in the absence of fraud or gross unfairness.
Were the 10 challenged voters properly entitled to vote at this school election?
The challenged voters all resided on farms which were either a part of the school district, or contiguous thereto. These farms will be known as, first, the Laws farm; secondly, the Alrichs farm; and, thirdly, the Jarman farm.
In substantiation of plaintiffs' contention, it was shown that sometime prior to the *119 election a description purporting to show the boundaries of the school district was given to certain members of the Board of School Trustees. It was contended by plaintiffs that these farms were not included in this description and that therefore the residents thereon should not have been permitted to vote.
Plaintiffs called as witnesses two members of the Glasgow Board of School Trustees. Their testimony, in substance, was that the farms in question were not included within the boundaries of the school district as these boundaries were furnished to the school district by the State Board of Education. The witness Brooks admitted, however, that a Mr. Brown, who at the time resided on the Alrichs farm, was at one time a member of the Board of School Trustees of the Glasgow School District.
Plaintiffs called Dr. George R. Miller, Jr., Superintendent of Public Instruction and Secretary of the State Board of Education. Dr. Miller testified that, upon request, his secretary furnished to certain of the trustees of the Glasgow School District a description of the boundaries of the district as obtained from certain old records of the Levy Court of New Castle County and interpreted by Raymond Robertson, who is connected with the New Castle County Board of Assessment and who is considered an authority on boundary lines in the state, particularly in New Castle County. Dr. Miller testified that other than this description no other description was furnished. He further stated that he wrote Mr. Laws, calling his attention to the fact that this description of the district did not apparently include Mr. Laws' farm. Mr. Laws protested and furnished Dr. Miller information to the effect that the Laws property had been transferred in 1880 by the Levy Court of New Castle County to the Glasgow School District. Dr. Miller further stated that this information was in his possession at the time the election returns from the Glasgow District were submitted to the State Board of Education and that, in turn, this information was given by him to the Attorney General when the Attorney General was requested to advise the State Board of Education relative to the protest against the validity of this election.
Plaintiffs also introduced in evidence a Pomery and Beers Geographical Atlas of the State of Delaware, dated 1868, containing a map purporting to set out the boundaries of this district in conformity with plaintiffs' contention.
On behalf of defendants, certain minutes of the Levy Court of New Castle County showing the transfer of a farm then owned by one R. T. Cann, consisting of 200 acres, to District No. 56 (Glasgow School District), were received in evidence. A brief of the title to this farm offered by the defendants indicated that it was the same farm as that now known as the Laws farm. Mr. Laws testified that he had resided on that farm for 45 years; that Allibone Cann, son of Richard T. Cann, was at that time the owner. Mr. Laws further stated that while living on that farm he had been a member of the Board of School Trustees of the Glasgow District for a period of 20 years, and that during that time, all the children living on that farm attended school in that district.
It is admitted by the defendants that the Jarman farm was not in any event within the boundaries of the Glasgow School District.
Defendants also offered in evidence a map found in the map files of the Wilmington Institute Free Library, purporting to be from the original survey of one Samuel N. Ray and one Jacob Price, dated 1849, and showing the boundaries of this school district. On this map is found the following: "The boundaries of the school district are laid down and they are traced upon the drafts of individuals residing in the different districts, and it is believed that they will be found to place the different farm buildings in their different districts".
Apparently, according to this map, both the Laws and the Alrichs farms were included within the boundaries of the school district. It is contended by plaintiffs that the partial chains of titles offered by defendants to substantiate their contention that the farms included within the district were the farms known as the Laws farm *120 and the Alrichs farm, do not necessarily prove that they were the same farms. It is true that in some instances there is a difference in names. However, the briefs of title seem to correspond, in this respect, with the two maps. For example, in one map the name is shown on the property in question as "W. Alrichs" and on the other as "Mrs. Alrichs". The brief of title shows that under the will of Wessel Alrichs, deceased, probated in 1850, he devised his estate to his widow, Mary Ann Alrichs, for life. It also shows the chain of title down to the present owner, Hugh R. Finger, et al. An examination of the two maps shows the residence to be in relatively the same position. No convincing testimony is offered to refute this evidence.
Every reasonable presumption will be indulged in favor of the validity of an election. The ballots received and counted by duly authorized officers are presumed to be legal. This presumption carries with it the further presumption that these voters were legally qualified. 18 Am. Jur. 374; Webb v. Bowden, 124 Ark. 244, 187 S.W. 461. The court is of the opinion that the evidence in this case does not overcome these presumptions, and this election should not be set aside on that ground.
Was the action of the State Board of Education arbitrary or unlawful?
Ch. 375, 47 Laws of Delaware 1949, p. 809, the statute under which State Board of Education proceeded in the instigation of the referendum election for the consolidation of the two school districts, is as follows:
"The State Board of Education may, when, in the Board's judgment, it is practicable and desirable, consolidate two or more school districts or a school district and a special school district, or two special school districts which are contiguous, provided that before doing so they post notice of the proposed change four weeks prior thereto on the front door of the school house or school houses and in at least ten other prominent and conspicuous places in the district or districts concerned. At the expiration of the time aforesaid the question of consolidation shall be submitted by referendum to the voters of the district or districts affected. The notice of the referendum shall distinctly state that in case the consolidation is effected, the bonds of both districts, if any, shall be assumed by the consolidated district and paid according to the original authorization, which was accomplished by the referendums in the respective districts before the bonds were issued, and that the rate of tax for current expenses in the consolidated district shall not be in excess of the highest rate that was levied in either of the districts to be consolidated without a new referendum to authorize such taxation. Said referendum vote shall be held within ten days of the expiration of such notice and shall be conducted by the Boards of School Trustees in said Districts and/or Boards of Education of the said Special School Districts. At said election any person shall be entitled to vote who would be entitled to vote at a regular school election of said school districts if held at that time.
"The question shall be determined by a majority vote in each district affected and the result shall be immediately certified to the State Board of Education."
It will be noted that this statute provides that when, "in the Board's judgment", it desires to consolidate two or more school districts, before doing so "they" must post notice of the proposed change four weeks prior thereto as provided by the statute. The statute further provides that the election shall be held within ten days of the expiration of such notice and shall be conducted by the boards of the districts involved. It further provides that the result of such election in any district shall be immediately certified to the State Board of Education.
The Court is of the opinion that the evidence in this case fails to show that the action of the State Board of Education was either arbitrary, unlawful or capricious. In the light of later developments, it would, of course, have been better if the election had been postponed until the State Board of Education had proceeded, in accordance with law, to determine definitely the boundaries of the Glasgow School District. *121 However, there is no evidence that its attitude in this respect, was unlawful or arbitrary. In many of the school districts of this state and elsewhere, even including some in the more populous centers, due, in part, to the disappearance of boundary lines and, in some instances, of county records, there has been a great deal of confusion relative to boundaries. Because of this confusion, it is, at times, necessary to refer to old records or documents or to obtain oral testimony from competent persons as to the boundaries of the districts and as to what has been considered the boundaries for a great many years. To clear up this confusion the Legislature of this State passed an Act, approved April 18, 1945, and known as Chapter 197, Vol. 45 Laws of Delaware 1944-45, authorizing and directing the State Board of Education to examine the available records of the boundaries of the several school districts of the state outside of the City of Wilmington and in case of doubt "after examination of said records, and/or after due hearing of the party or parties whose property or properties may be involved, shall have power to fix and establish such boundary or boundaries and to make and preserve a record of its decisions in a special book to be kept for that purpose and to file a copy of such record with the County Assessor of the county wherein the property or properties involved may be located".
The Act provided for an examination of the records. Due to the difficulty, in many instances, in finding these old records, presumably the State Board of Education would consider it advisable to give the parties interested notice and to take their testimony if they desired to be heard. It is reasonable, therefore, to assume that the State Board of Education, before proceeding under this Act to establish the boundaries of a school district, would want to be certain that it would have before it all of the evidence available. The information relative to the transfer of the Laws property by the Levy Court of New Castle County was not presented to the State Board of Education until at or about the time the election was held. At least there was not sufficient time before the election to comply with the Act. Can it be said that the failure of the State Board of Education, under such circumstances, to ascertain the boundaries of the Glasgow School District in accordance with this Act was such a violation of its duties as to warrant this court in invalidating the election held thereunder? The court does not so determine. In fact, in the case of the Laws farm, at least, where the children from that farm for over forty years attended the Glasgow School and where Mr. Laws was a member of the board of school trustees of that district for twenty years, the board of school trustees, having acquiesced for so long a period of time in accepting this farm as a part of the district, would be now estopped from claiming that the residents of the farms in question are not included in the district. Jones v. Camp, 34 Vt. 384; Pine River Township School District No. 1 v. Pine River Township Union School Dist., 81 Mich. 339, 45 N.W. 993; Greenfield School District v. Hannaford Special School Dist., 20 N.D. 393, 127 N.W. 499; Warren Township Rural School District Board of Education v. Warren School District Board of Education, 121 Ohio St. 213, 167 N.E. 872.
The Court therefore concludes that the election held on February 17, 1951, was a valid election and should not be set aside.
An order will be entered on notice.
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134 A.2d 587 (1957)
William E. SNYDER, Appellant,
v.
Agnes E. SNYDER, Appellee.
No. 2013.
Municipal Court of Appeals for the District of Columbia.
Argued July 15, 1957.
Decided September 20, 1957.
Rex K. Nelson, Washington, D. C., with whom Eugene X. Murphy, Washington, D. C., was on the brief, for appellant.
Francis J. Racioppi, Washington, D. C., entered an appearance for appellee, but filed no brief.
Before ROVER, Chief Judge, and HOOD and QUINN, Associate Judges.
QUINN, Associate Judge.
This was an uncontested action for an absolute divorce on the ground of desertion. Plaintiff, a serviceman, testified that while he was stationed in Japan he received orders transferring him to Texas. He communicated with his wife, who was apparently living here at that time with their four children, and asked her to join him in Texas but she refused. After his transfer, he returned to Washington on leave in a further attempt to persuade her to change her decision but was unsuccessful. Defendant's mother then testified that she was present during certain conversations between the parties and stated that
"* * * at one time I heard Mr. Snyder ask Mrs. Snyder to go to Texas and live there, and she told him no, that she thought it was best not to on account of the children."
Plaintiff's attorney offered as a witness one of the children who supposedly had also *588 heard this conversation. The trial judge declined to hear him, stating that the evidence was sufficient, and indicated that he was prepared to sign an order granting the divorce.
Before signing, however, the judge began questioning plaintiff again and elicited the fact that he had been a resident of the District of Columbia before he was drafted, that he presently claimed the District as his residence, but that the permanent address which he listed on his service records was the same address in Washington at which his wife was then living. The trial judge apparently felt that this fact was inconsistent with either the claim of desertion or the claim of local residence. He orally stated this theory to counsel as follows:
"* * * this man said that he gave his address, his permanent address is where his wife lives. Now, how can he say that his permanent address is where his wife lives, in one breath, and turn around and say that it's not my permanent residence because my wife has deserted me and I don't want anything to do with her and I want a divorce from her?"
and again
"I just can't see that this fellow is entitled to any divorce on the ground of desertion when he says the District of Columbia is his residence and the address that he gives as his residence is his wife's address.
"I am going to dismiss it."
However, the court subsequently filed the following written judgment:
"This cause having been heard on the issues framed therein, the Court finds as a fact that the parties herein were married January 9, 1942; that plaintiff was a resident of this District for more than one year prior to the filing of this action; that plaintiff was a member of the Armed Forces of the United States; that as such he was transferred to a military post in Texas on or about June 1, 1953; that he requested defendant to accompany him to said post but defendant stated that it was best not to do so on account of the children of the parties and she did not go to said post with plaintiff; that plaintiff maintained a residence with defendant during the times he alleged she deserted him. The Court concludes as a matter of law, that the defendant could legally refuse to accompany defendant [sic] to new quarters, if it was not for the best interests of the children of the parties so to do; that the burden was on plaintiff to prove by the preponderance of the evidence that he had a proper place in Texas for the defendant and the children of the parties to live; that the burden was on plaintiff to corroborate his testimony that plaintiff [sic] deserted him.
"It appearing to the Court that there was only a qualified refusal of defendant to accompany plaintiff to new quarters and that plaintiff has not sustained the said burden of proof, it is by the Court * * *
"Ordered, that the complaint * * * be * * * dismissed."
A motion to vacate judgment and grant a new trial was denied and this appeal followed.
While the court's holding is not entirely clear, it appears to us that the dismissal was based on the conclusion that plaintiff had failed to sustain his burden of proof in two respects: (1) he did not offer corroboration of the "desertion," nor (2) did he present evidence as part of his case in chief of the suitability of the quarters in Texas. The first ground, that as a matter of law corroboration was required, was erroneous.[1]
*589 What effect this error of law had on the trial judge's decision is difficult to determine for it is not clear what he meant by his statement that the "desertion" was not corroborated. The "desertion" relied on by plaintiff here was the refusal of his wife to accompany him to a new residence. The general rule is that the husband has the right to choose the place where the family will live; and if the husband acts reasonably, the unjustified failure or refusal of the wife to follow him is desertion, which, if it persists for the statutory period of two years,[2] is grounds for divorce.[3] Desertion, then, is composed of several elements, and we are therefore unable to reconcile the court's holding that there was no corroboration of plaintiff's testimony that defendant "deserted" him with the express finding that at least one of the elements occurred, i.e., that defendant refused to go to Texas with plaintiff. Further, we note that plaintiff's testimony that he had not cohabited with his wife after her refusal to follow him was corroborated by the testimony of his mother-in-law. Our consideration of the case is thus narrowed to the remaining question, namely, whether defendant's refusal was justified, or more particularly, whether plaintiff had prepared suitable quarters for his family as its new home.
The trial judge held that the burden was on plaintiff to introduce evidence on this point. Since plaintiff presented no evidence on this phase of the case, we are not here concerned with corroboration of testimony, but with a total absence of it. Plaintiff's position is that this issue, if it is one, is in the nature of an affirmative defense which he has no obligation to meet as a part of his case in chief. The cases are not precise as to the extent of the burden on the husband in this situation, but there is authority requiring him to show suitability of the proffered home, and no presumption can be indulged to that effect in his favor.[4] There is also precedent to the contrary.[5] An eminent writer in the field suggests that
"* * * a husband seeking a divorce on the ground of desertion or abandonment of this type would have the general burden of making out at least a prima facie case and explaining away any apparent justification for the wife's conduct, even though his suit is uncontested. * * *"[6] (Emphasis supplied.)
We agree with this statement.[7]
Applying this rule to the instant case, we believe that it was incumbent upon plaintiff to introduce some evidence on this point after his mother-in-law's testimony was received, had he been required to do so, because, although it was of dubious evidentiary value, it did raise an inference of possible justification for defendant's conduct. The trial judge, however, after hearing the initial testimony, definitely indicated that he was satisfied with it, and it was only after the written final judgment was filed that the issue was actually raised. In these circumstances, we believe that plaintiff should have been given an opportunity to produce satisfactory rebuttal evidence, if he had any, and that the interests of fairness will best be served by the award of a new trial.
It is so ordered.
NOTES
[1] Schroeder v. Schroeder, D.C.Mun.App.1957, 133 A.2d 470.
[2] Code 1951, § 16-403.
[3] See the annotation at 29 A.L.R.2d 476.
[4] Alves v. Alves, 1932, 126 Cal.App. 260, 14 P.2d 578.
[5] Knapp v. Knapp, 1943, 152 Pa.Super. 412, 33 A.2d 88. This case was contested.
[6] 1 Nelson on Divorce and Annulment, § 4.09 (2d ed. 1945).
[7] Cf. Geer v. Geer, D.C.Mun.App.1957, 134 A.2d 110: "* * * Condonation is a defense and ordinarily one is not bound to meet a defense until it is raised. However, the present case was uncontested, and had there been any evidence raising an inference of condonation, it would have been necessary for the wife to satisfactorily rebut it. * * *"
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134 A.2d 341 (1957)
James E. DAWN, Jr., Appellant,
v.
STERN EQUIPMENT CO., Inc., a corporation, Appellee.
No. 1970.
Municipal Court of Appeals District of Columbia.
Submitted May 27, 1957.
Decided August 16, 1957.
*342 Hallock P. Long and Carleton M. Long, Washington, D. C., for appellant.
Charles B. Sullivan, Jr., Washington, D. C., for appellee.
Before ROVER, Chief Judge, and HOOD and QUINN, Associate Judges.
HOOD, Associate Judge.
Appellee sued for the value of goods sold and delivered, and after trial by jury obtained judgment for $2,500. Appellant advances three reasons why the judgment should be reversed.
Appellant first says the claim was barred by the statute of limitations. The goods restaurant equipment were delivered over a period of time without an agreed price, the understanding being that when all equipment was delivered a bill would be submitted. When the bill was submitted the parties violently disagreed as to its reasonableness. Appellant testified that the date of the last delivery was not within three years of the bringing of the action, but the jury found otherwise. Nevertheless appellant says the statute is a bar because the last entry in appellee's record or account sheet was dated more than three years prior to suit. He argues that the statute of limitations begins to run on an account stated from the time it is stated. This argument is based on the erroneous assumption that appellee's record sheet was an account stated. An account stated "presupposes an absolute acknowledgment or admission of a certain sum due, or an adjustment of accounts between the parties, the striking of a balance, and an assent, express or implied, to the correctness of the balance." Falcone v. Paradiso, 60 App.D.C. 348, 350, 54 F.2d 715, 717. There was no such acknowledgment or assent here. Indeed appellant did not see the record sheet until months after it was made and even then he disputed its correctness. Since the parties agreed that submission of a bill was to be deferred until appellant had received all items, we hold that the statute did not begin to run until date of last delivery which, as we have said, the jury found was within the three-year period.
Appellant also argues that limitations should bar the action because of an amendment to the complaint changing it from one on a note to one for the value of the goods. He says the amendment stated a new cause of action. It is clear, however, that the claims under both the original complaint and the amended one were based on the same transaction, namely, the sale of the goods. The original complaint was drawn on the theory that appellant had executed a promissory note for the value of the goods and that such note had been lost. The fact was that no such note had been executed. We think the amendment *343 was proper and that it related back to the date of the original complaint.[1]
Appellant's second contention is that appellee corporation had no standing to recover on the claim in suit. This contention is based on the fact that the suit was originally brought in the name of Abram E. Stern, Inc., a corporation. It developed at trial that this corporation was no longer in existence and that the goods probably had been sold by its successor, Stern Equipment Company, a Delaware corporation, which in turn had been succeeded by Stern Equipment Company, a District of Columbia corporation. With consent of appellant, the District of Columbia corporation was substituted as party plaintiff. Appellant's contention is that the substituted plaintiff did not establish its right to sue for the value of goods which admittedly it did not sell. Although the succession of the new corporation to the assets of the old one was not as clearly shown as should have been, Mr. Stern, who was president and sole stockholder of both corporations, testified that the new corporation took over all the assets of the old one and that there was an uninterrupted continuation of the same business. In the absence of any testimony to the contrary, we think there was sufficient proof of the right of the substituted plaintiff to maintain the action.
Appellant's final argument is that an action for the value of goods cannot be maintained when the goods were sold at an agreed price. This argument is based on the incorrect assumption that there was an account stated between the parties. We have previously pointed out that there was no account stated and no agreement as to prices.
Affirmed.
NOTES
[1] Municipal Court rule 15(c), based on Federal Rule of Civil Procedure 15(c), 28 U.S.C.A. This rule is given liberal application. 3 Moore's Federal Practice § 15.15; Barron and Holtzoff, Federal Practice and Procedure § 448.
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83 A.2d 67 (1951)
STATE
v.
FOWLER.
C. Q. No. 626.
Supreme Court of Rhode Island.
August 10, 1951.
William E. Powers, Atty. Gen., Raymond J. Pettine, Sp. Counsel, Providence, for the State.
Aram A. Arabian, John J. McGrane, Providence, Hayden C. Covington, Brooklyn, N. Y., for defendant.
CONDON, Justice.
This is a criminal complaint which charges the defendant with making a public address to a religious meeting in Slater Park, a public park in the city of Pawtucket in violation of section 11 of chapter 149 of the ordinances of that city. After trial and conviction in the district court the defendant appealed to the superior court and claimed a jury trial.
When the case was called for trial in the superior court and before a jury was impaneled defendant, by leave of court, moved to quash the complaint on the grounds that the ordinance abridged and denied the rights of free assembly, free speech, and free worship guaranteed by the first and fourteenth amendments to the constitution of the United States and by the constitution of this state. The trial justice declined to rule on the motion because he deemed the constitutional questions thus raised to be of such doubt and importance that they should be certified to this court for our determination pursuant to general laws 1938, chapter 545, § 6, as amended by public laws 1940, chap. 941, sec. 2.
Under that statute the superior court is authorized to certify only the questions raised and not the cause itself. United States Trust Co. v. Tax Assessors of City of Newport, 47 R.I. 420, 133 A. 802. The *68 trial justice accordingly entered a formal order certifying the following specific questions:
"Is Section 11 of Chapter 149 of the ordinances of the City of Pawtucket, approved April 17, 1916, on its face and as construed and applied unconstitutional because it abridges the rights of the defendant to Freedom of Speech, Freedom of Association, and Freedom of Worship, contrary to the First and Fourteenth Amendments to the United States Constitution.
"Is Section 11 of Chapter 149 of the ordinances of the City of Pawtucket, approved April 17, 1916, contrary to the provisions of Article I of the Constitution of the State of Rhode Island, with particular reference to Sections 3, 10, and 21."
Since only those questions and not the case are before us we must pass upon the constitutionality of the ordinance without reference to the circumstances out of which the case arose and was originally heard in the district court.
On its face the ordinance, which is hereinafter set out in full in the appendix, prescribes in a series of sixteen sections certain conditions under which any person may lawfully avail himself of the privilege of using the parks belonging to and maintained by the city. One of such conditions is contained in section 11 which defendant is charged with violating. That section reads as follows:
"No person shall address any political or religious meeting in any public park; but this section shall not be construed to prohibit any political or religious club or society from visiting any public park in a body, provided that no public address shall be made under the auspices of such club or society in such park." The prohibition therein is not directed at any particular religious group, but is general and applies without question to all such groups and to all political groups as well.
The ordinance as a whole represents an exercise of the power which the city council has over the management and control of municipal property. Apparently in the exercise of that power the city council decided that the city's parks would more certainly serve the purpose of their establishment as areas of rest and recreation if they were not allowed to become forums for either religious or political controversy. This ordinance is not a legislative act of recent origin nor is it specially directed at the activities of the sect which the defendant represents. Rather it is a municipal regulation of long standing as is evidenced by the date of its approval, April 17, 1916, and hence it antedates by many years the recent prominence of that sect in federal litigation.
We are satisfied that the ordinance was designed not to interfere with freedom of assembly, nor to fetter freedom of speech or prohibit religious worship, but solely to guard the city's parks from being used for activities that reasonably could lead to annoyance and disorder and to that extent defeat the ends for which the city had established the parks as public areas of rest and recreation. The prohibitions contained in the ordinance including section 11 are quite definitely directed to that end. Out of its experience in conducting the prudential affairs of the city, the city council evidently was convinced that public addresses to religious or political groups in the parks would not be consistent with the purpose for which the parks were being maintained at public expense. Viewed in that light the ordinance appears to be a reasonable police regulation, and as such the people of Pawtucket have long acquiesced in its validity. It is attacked here, for the first time as far as we are aware, thirty-five years after its approval.
The defendant claims that he has a constitutional right to speak in any public park. He concedes that the city may reasonably regulate that right but that it cannot wholly prohibit its exercise. In other words, he asserts not only the right of free speech but also the privilege of a free forum in which to exercise that right. And he contends that he is supported in such view by the highest judicial authority. He relies on a number of recent cases decided by the supreme court of the United States where various kinds of municipal ordinances or administrative practices were *69 held violative of the rights guaranteed by the first amendment to the constitution of the United States and made applicable to the states by the fourteenth amendment. Many of those cases do not involve an ordinance which conditions the lawful use of a municipally owned park upon compliance with certain definite regulations that are not discriminatory. However, some of them do involve such an ordinance or the opinions refer to the right to use such a park. The most important of those cases and the ones upon which defendant appears to rely most strongly are Hague v. Committee for Industrial Organization, 307 U.S. 496, 59 S.Ct. 954, 83 L.Ed. 1423; Schneider v. State, 308 U.S. 147, 60 S.Ct. 146, 84 L.Ed. 155; Jamison v. Texas, 318 U.S. 413, 63 S.Ct. 669, 87 L.Ed. 869; Saia v. New York, 334 U.S. 558, 68 S.Ct. 1148, 92 L.Ed. 1574; Niemotko v. Maryland, 340 U.S. 268, 71 S.Ct. 325, 328, and Kunz v. New York, 340 U.S. 290, 71 S.Ct. 312, 328.
The defendant in his brief has quoted in part from and appears to lay particular stress upon the language of Mr. Justice Roberts announcing the decision of the court in Hague v. Committee for Industrial Organization, supra, 307 U.S. at page 515, 59 S.Ct. at page 964, as follows: "Wherever the title of streets and parks may rest, they have immemorially been held in trust for the use of the public and, time out of mind, have been used for purposes of assembly, communicating thoughts between citizens, and discussing public questions. Such use of the streets and public places has, from ancient times, been a part of the privileges, immunities, rights, and liberties of citizens."
Apparently the learned justice was only speaking for himself and two of his associates. Moreover, we are at a loss to know what was intended by that declaration especially since it was made in essaying a distinction between the case then before the court and Davis v. Massachusetts, 167 U.S. 43, 17 S.Ct. 731, 42 L.Ed. 71, which upheld the conviction of Davis for preaching on Boston Common in violation of an ordinance like the one in the case at bar. Singularly enough that case was not overruled in the Hague case and as far as we are aware has not been overruled, although the court has had occasion to refer to it in several later cases.
In the circumstances Hague v. Committee for Industrial Organization, supra, can hardly be considered decisive of the case before us. Incidentally in the later case of Saia v. New York, 334 U.S. 558, 68 S.Ct. 1148, 92 L.Ed. 1574, which involved the use of a "loud speaker" in a public park, Mr. Justice Jackson dissented and made the following observation concerning the quotation from Mr. Justice Roberts' opinion in the Hague case: "The case of Hague v. C.I.O., 307 U.S. 496, 59 S.Ct. 954, 83 L.Ed. 1423, cannot properly be quoted in this connection, for no opinion therein was adhered to by a majority of the Court. The quotation in the Court's opinion today had the support of only two Justices, with a possible third. The failure of six or seven Justices to subscribe to those views would seem to fatally impair the standing of that quotation as an authority." 334 U.S. 558, 568, 68 S.Ct. 1148, 1154, Footnote 1. If notwithstanding such criticism, the previously-quoted language of Mr. Justice Roberts in the Hague case, supra, is to be deemed as binding authority impliedly overruling Davis v. Massachusetts, supra, a great service to state courts would be performed if the supreme court itself would make that overruling clear and definite so that courts would have no reason to be misled in the future. We cannot safely rely upon some other court's interpretation of the language and effect of that case. So long as the Davis case stands without being specifically overruled by the supreme court itself, it is difficult for us to say that an ordinance substantially the same as the one involved in the Davis case is nevertheless unconstitutional beyond a reasonable doubt.
The defendant, however, points to Saia v. New York and Niemotko v. State of Maryland, supra, decided since the Hague case, as clear instances where the supreme court has definitely included *70 public parks, as well as highways, within the orbit of its decisions protecting the freedoms of the first amendment from local abridgment or denial. In each of those cases it is true that the locus of the forbidden act was a public park but there the similarity to the case at bar ends. In the Niemotko case there was no ordinance of general application involved but rather an act of arbitrary discrimination by an administrative official. Indeed at the very outset of its opinion in that case the court observed that there was no ordinance regulating the use of the park in question.
As far as the Saia case is concerned the ordinance there prohibited the use of a "loud speaker" device which casts its sound directly upon streets and public places. A public park was only incidentally involved because the defendant set up his "loud speaker" in such a place. He was arrested for using a "loud speaker" in defiance of the ordinance, not for making a public address in the park. The ordinance in question apparently was not invoked by the city to prohibit public addresses to a religious meeting in the park. The court in a five-to-four decision held that the city could not ban the use of a loud speaker in the manner provided in that ordinance because such use was comprehended within the constitutional guarantee of freedom of speech under the first amendment. It was upon that question that the court split. We do not think that point of decision is relevant to the particular controversy in the case at bar. Moreover the authority of the Saia case would seem to be questionable in view of the decision in Kovacs v. Cooper, 336 U.S. 77, 69 S.Ct. 448, 455, 93 L.Ed. 513.
In the Kovacs case the court upheld an ordinance which prohibited the use of "loud speakers" on the streets and public places of Trenton, New Jersey. Mr. Justice Frankfurter and Mr. Justice Jackson who had dissented in the Saia case concurred in the decision and commented adversely on the Saia decision. The former said it would be "to start with an unreality" to rest the Kovacs decision on that case, and the latter expressly said that Kovacs repudiated Saia. Three justices who had concurred in the Saia decision dissented in the Kovacs case and also stated that the decision repudiated the holding in the Saia case. Later in Niemotko v. State of Maryland, supra, Mr. Justice Frankfurter concurring in a separate opinion said: "In Kovacs v. Cooper, 336 U.S. 77, 69 S.Ct. 448, 449, 93 L.Ed. 513, part of the Court construed the ordinance as allowing conviction for operation of any sound truck emitting `loud and raucous' noises, and part construed the ordinance to ban all sound trucks. The limits of the decision of the Court upholding the ordinance are therefore not clear, but the result in any event does not leave the Saia decision intact." [340 U.S. 268, 71 S.Ct. 332.] And perhaps Breard v. Alexandria, 341 U.S. 622, 71 S.Ct. 920, is a further indication of a more restrained approach to the solution of conflicts over local limitations on those freedoms. One of the dissenting justices therein goes so far as to say that such decision overrules certain prior cases in which the court declared invalid certain municipal ordinances as violative of liberty of speech, press and religion. In any event explicit clarification would seem to be necessary if the trial courts are to be given a clear guide for deciding in those cases that legislative enactments are beyond reasonable doubt in conflict with the constitution of the United States.
We are of the opinion that the other cases cited by the defendant afford no stronger support to his contention than those above mentioned and, therefore, we need not discuss them here. Moreover we are convinced that the case at bar is clearly ruled by Davis v. Massachusetts, 167 U.S. 43, 17 S.C.t 731, 42 L.Ed. 71. The justice of the district court expressly relied upon that case in finding the defendant guilty. Perhaps a brief discussion of its background should be made here because it is obviously a decision that the supreme court of the United States has been reluctant to disturb in spite of language in a number of more recent opinions which might seem to be inconsistent therewith. In our opinion it is a case more nearly on all fours with the one at bar than any of the cases relied upon by the defendant.
*71 Davis contended that he had a constitutional right guaranteed by the fourteenth amendment to the constitution of the United States to preach the gospel on Boston Common notwithstanding an ordinance which expressly forbade the making of a public address upon any public grounds except by permission of the mayor. The supreme judicial court of Massachusetts in upholding his conviction unanimously held that the ordinance was constitutional. Commonwealth v. Davis, 162 Mass. 510, 39 N.E. 113, 26 L.R.A. 712. That court held that the constitutionality of the ordinance was not open to doubt and that it was a fallacy to assume that it was "directed against free speech generally * * * whereas in fact it is directed toward the modes in which Boston Common may be used." It is interesting to note that this opinion was rendered by Mr. Justice Holmes.
In a concurring opinion in Kovacs v. Cooper, 336 U.S. 77, 95, 69 S.Ct. 448, 458, 93 L.Ed. 513, Mr. Justice Frankfurter said: "The ideas now governing the constitutional protection of freedom of speech derive essentially from the opinions of Mr. Justice Holmes. * * * Accordingly, Mr. Justice Holmes was far more ready to find legislative invasion where free inquiry was involved than in the debatable area of economics." Few will deny the accuracy of this estimate of Mr. Justice Holmes' judicial disposition and his basic influence in promoting this branch of the law to its present state of development. Apparently, however, he was far from ready, despite his solicitude for these precious freedoms, to deprive a municipality of its power to control the use of its own property.
After Mr. Justice Holmes had been elevated to and had served on the federal supreme court for eight years he apparently continued to be of the opinion that state laws should not be hurriedly overthrown as violative of the bill of rights or the fourteenth amendment. Speaking for a unanimous court in Noble State Bank v. Haskell, 219 U.S. 104, 110, 31 S.Ct. 186, 187, 55 L.Ed. 112, he said that "we must be cautious about pressing the broad words of the Fourteenth Amendment to a drily logical extreme. Many laws which it would be vain to ask the court to overthrow could be shown, easily enough, to transgress a scholastic interpretation of one or another of the great guarantees in the Bill of Rights. They more or less limit the liberty of the individual or they diminish property to a certain extent. We have few scientifically certain criteria of legislation, and as it often is difficult to mark the line where what is called the police power of the States is limited by the Constitution of the United States, judges should be slow to read into the latter a nolumus mutare as against the law-making power."
When Commonwealth v. Davis, supra, was appealed by Davis to the supreme court of the United States he contended that the local law under which he was convicted was contrary to the fourteenth amendment to the constitution of the United States. There Mr. Justice White, speaking for a unanimous court, rejected such contention saying: "The Fourteenth Amendment to the Constitution of the United States does not destroy the power of the States to enact police regulations as to the subjects within their control * * * and does not have the effect of creating a particular and personal right in the citizen to use public property in defiance of the constitution and laws of the State." [167 U.S. 43, 17 S.Ct. 731, 733.] And he concluded with the following words, so apposite in our opinion to the case at bar: "The plaintiff in error cannot avail himself of the right granted by the State and yet obtain exemption from the lawful regulations to which this right on his part was subjected by law." Unless the Davis case is no longer the law the ordinance in question here is valid and binding upon the defendant.
Before concluding our consideration of this contention perhaps some reference should be made to defendant's argument that a religious address may be permitted in a public park without contravening the concept of separation of church and state as expounded in the recent case of Illinois ex rel. McCollum v. Board *72 of Education, Etc., 333 U.S. 203, 68 S.Ct. 461, 92 L.Ed. 249. Defendant has pressed this point at considerable length in his brief and in his oral argument. This appears to be an act of supererogation, as the state is not claiming that the ordinance is valid on the strength of the McCollum case, but frankly concedes that the parks may be used for certain religious purposes. We quote the following from page 19 of its brief: "There is nothing in this ordinance, which would prohibit religious services of any kind from being held in the public parks of the City. There is nothing in this ordinance which prohibits or restricts any individual from offering prayer or singing hymns or conducting a religious ritual in the public parks. It is only an address on such an occasion that is prohibited by this ordinance." We are therefore not called upon to decide whether the constitutional doctrine of the McCollum case which denies the use of a public school for a period of religious instruction nevertheless permits the use of public parks for religious services.
Defendant has also contended that section 11 violates the rights guaranteed by sections 3, 10 and 21 of article I of the constitution of this state. Although defendant did not point out those sections specifically in his motion to quash, as he should have done, the trial justice in his order of certification assumes that they are the sections relied upon. We have no hesitancy in saying that insofar as those sections secure the freedoms of assembly, of religion, and of speech, section 11 of the ordinance here in question does not in any true sense violate them.
This court has not given to those guarantees the wide sweep which the federal supreme court in the last decade or two has given to similar guarantees in the first amendment to the federal constitution. Of course we are in complete accord that such rights must be vigilantly guarded not only from direct but also from indirect attacks. Insidious no less than open assaults upon them must be sternly resisted if they are not to be lost by erosion. But we are also aware that true liberty of any kind cannot exist without public order. Preservation of the balance between liberty on the one hand and authority and order on the other has ever been a difficult task for the courts and no less difficult for those immediately charged with the duty of maintaining public order. It should be our constant concern while safeguarding the first not to go so far as to make unduly difficult or perhaps impossible the discharge of the other.
In such frame of reference we have considered the questions propounded here. As far as our state constitution is concerned we see nothing contrary thereto in this ordinance. As to the federal constitution we follow the law as declared by the United States supreme court. It has unequivocally declared in Davis v. Massachusetts, supra, that an ordinance like the one in the case at bar does not violate that constitution. In no later decision do we find that the supreme court has definitely overruled that case and decided to the contrary. We, therefore, hold on the authority of that case that the ordinance in question does not violate the federal constitution.
Accordingly we answer in the negative each question set out in the order of certification, and the papers in the case are ordered sent back to the superior court for further proceedings.
BAKER, J., dissenting.
I am unable to agree with the majority opinion because in my judgment section 11 of chapter 149 of the ordinances of the city of Pawtucket enacted August 17, 1916 is clearly prohibitory and not in any sense merely regulatory in respect to the right of free speech in a public park in that city. The section does not even contain, for what it may be worth, a provision that a license may be issued by a municipal authority permitting the making of an address in any manner, at any time, or in any place. It may be that other sections of the chapter are regulatory in nature, but they in no way refer to or have any connection with section 11, which is the only portion of the chapter material to the questions before us. *73 Since section 11 is plainly distinct and separable from the rest of the chapter the validity of that section should rest upon its own language without reference to other clearly unrelated provisions of said chapter.
Also in my opinion Davis v. Massachusetts, 167 U.S. 43, 17 S.Ct. 731, 42 L.Ed. 71, upon which the majority of the court relies, cannot properly be held to govern the instant case. While it is true that the above-cited case has never been specifically overruled by the supreme court of the United States, nevertheless in my judgment that court, in later decisions where it referred to the Davis case, has so weakened its effect as an authority that I am unable to accept it as controlling here. Among such decisions are Hague v. Committee for Industrial Organization, 307 U.S. 496, 59 S.Ct. 954, 83 L.Ed. 1423, Jamison v. Texas, 318 U.S. 413, 63 S.Ct. 669, 87 L.Ed. 869, Saia v. New York, 334 U.S. 558, 68 S.Ct. 1148, 92 L.Ed. 1574, and Niemotko v. Maryland, 340 U.S. 268, 71 S.Ct. 325, 328. See also Milwaukee County v. Carter, 258 Wis. 139, 45 N.W.2d 90, a recent opinion of a state court of last resort. Several of these cases involve the right of free speech in public parks. The general principles of law applicable to the right of freedom of speech and assembly under the first and fourteenth amendments of the constitution of the United States, as set out in such cases and in others, are in substance inconsistent with and contrary to the holding in the Davis case.
In addition it may be noted that in Commonwealth v. Gilfedder, 321 Mass. 335 73 N.E.2d 241, the supreme court of that state, in a case involving the right to make an address on Boston Common contrary to an ordinance of that city and certain rules of the board of park commissioners, held such ordinance and rules to be in conflict with the rights of freedom of speech, of the press, and of assembly guaranteed by the first amendment to the constitution of the United States. At page 342 of 321 Mass. at page 245 of 73 N.Ed. the court makes the following comment: "We confess to difficulty in reconciling the present decision with the decisions in the Davis cases. Nevertheless, we feel compelled to the result now reached by the broad sweep of principles set forth in great amplitude in more recent decisions of the Supreme Court of the United States."
For the reasons stated it is my opinion that section 11 of chapter 149 of the ordinances of the city of Pawtucket is contrary to the pertinent provisions of the first and fourteenth amendments to the United States constitution. I therefore answer in the affirmative the first question certified to us by the trial justice.
In view of the fact that I have construed section 11 of the ordinance to be invalid under the federal constitution, and further as the defendant in his motion to quash did not specifically point out the particular sections of the constitution of this state which he alleges are violated by section 11, as our well-established practice requires, I am of the opinion that is is unnecessary for me to answer the second question certified by the trial justice.
CAPOTOSTO, J., concurs in the dissenting opinion of Mr. Justice Baker.
APPENDIX
"Chapter 149.
Approved August 17, 1916.
An Ordinance Providing Rules And Regulations For Public Parks In The City Of Pawtucket.
It is ordained by the City Council of the City of Pawtucket as follows:
Section 1. No person is allowed to land or take passengers on any boat from the banks of the pond. Any person entering or leaving a boat must do so at the landing provided therefor.
Sec. 2. No person is allowed to occupy the tennis court for more than one hour if other patrons of the Park are waiting to play. While playing on the tennis court patrons must wear shoes without heels or spikes.
Sec. 3. No person is allowed to use profane language in the Park and Ladies and Children must not be annoyed or molested by anyone.
*74 Sec. 4. Slater Park shall be open to the public from sunrise until eleven o'clock afternoon from April first to November first, and from sunrise until ten o'clock afternoon from November first to April first in each and every year; and no person shall enter or be within the limits of said park except between said hours without permission from the Commissioners or Superintendent of Parks.
Sec. 5. No person shall take, pluck, injure, destroy, cut, mark or deface any flower, root, plant, shrub, tree, building, fence, monument or other property in any park. No person shall throw a stone or other missile in any park.
Sec. 6. No person shall ride or drive within any park at a rate of speed exceeding ten miles per hour. No person shall ride or drive any animal, bicycle or other vehicle except upon the driveways; nor ride or drive any animal, bicycle or vehicle upon other than the right hand side of the driveways, except to cross such driveway or to turn out for some obstruction, or for some animal, bicycle or other vehicle going in the same direction.
Sec. 7. Automobiles, or other vehicles, must not be driven faster than ten miles per hour within the limits of the Park.
Sec. 8. No person shall drive any heavy team, nor any swill or residuum cart, nor any team or carriage for the purpose of business, into any park, without permission from the Commissioners or Superintendent of Parks.
Sec. 9. All vehicles while within the limits of the Park must conform strictly to law regarding lights to be carried.
Sec. 10. No person shall bathe or fish in, nor go into, nor send any animal into, any of the waters of any park, nor disturb any of the fish, birds, water fowl or animals in any park, nor throw or place any article or thing in said waters; provided however, that fishing in any such waters from boats owned by the City of Pawtucket may be allowed by the park commissioners at such times and under such regulations and upon payment of such fees as said commissioners may from time to time prescribe and determine.
Sec. 11. No person shall address any political or religious meeting in any public park; but this section shall not be construed to prohibit any political or religious club or society from visiting any public park in a body, provided that no public address shall be made under the auspices of such club or society in such park.
Sec. 12. No person, being the owner or having the charge or custody of any dog, cat, fowl, goat, swine or neat cattle, shall allow such dog, cat, fowl, goat, swine or neat cattle to enter any public park or to remain therein.
Sec. 13. No person, except in the employ of the commissioners or superintendent of parks, shall light, build or make any fire in any park, square or public grounds.
Sec. 14. No automobile, or other vehicle, shall be permitted to remain stationary in any part of said park for a longer period than ten minutes, except in such locations as shall be assigned for such purpose by the park commission; and any person in charge of such automobile or other vehicle shall at any time, upon the direction of any officer, immediately remove such automobile or other vehicle to such location as such officer shall direct.
Sec. 15. Any person violating any of the provisions of this ordinance shall be fined not exceeding twenty dollars, or be imprisoned for a term not exceeding ten days for each offense.
Sec. 16. This ordinance shall take effect upon its passage."
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156 B.R. 664 (1993)
In re Perry Gerard LADNER and Jeannine Marie Ladner, Debtors.
Bankruptcy No. 93-15633 CEM.
United States Bankruptcy Court, D. Colorado.
July 15, 1993.
Robert E. Cole, Colorado Springs, CO, for debtors.
*665 ORDER ON MOTION TO PRESENT TESTIMONY OF PERRY GERARD LADNER BY DEPOSITION OR FOR OTHER RELIEF
CHARLES E. MATHESON, Chief Judge.
One of the joint Debtors in this case, Perry Gerard Ladner, filed his "Motion to Present Testimony of Perry Gerard Ladner by Deposition or For Other Relief." Mr. Ladner seeks to be excused from appearing at the meeting of creditors called pursuant to 11 U.S.C. § 341 on the grounds that he is in the U.S. Army and at the present time has been ordered to do military duty in Somalia. He seeks to answer questions by written interrogatories instead.
Pursuant to 11 U.S.C. § 341, upon the entry of an order for relief, the United States Trustee is required to convene and preside over a meeting of the creditors in the case. The Rules specify that the meeting must be held not less than 20 nor more than 40 days after the order for relief is entered. Fed.R.B.P. 2003(a). Those time constraints cannot be enlarged or reduced by the Court. Fed.R.B.P. 9006(b)(3) and (c)(2).
Debtors in bankruptcy, particularly those in Chapter 7 cases, have few responsibilities imposed on them by the Bankruptcy Code as a condition to the grant of the significant benefit to be enjoyed by the entry of an order of discharge. One of those responsibilities, and, indeed, one of the most important, is that they "shall appear and submit to examination under oath at the meeting of creditors under section 341(a)" of the Code. 11 U.S.C. § 343 (emphasis added.)
One of the primary purposes of the section 341 meeting is to give not only the trustee, but the creditors, the opportunity to appear and examine the debtor concerning the debtor's assets, liabilities and financial affairs. 11 U.S.C. § 343. Such an examination may provide information leading to the recovery of assets for the estate, or potential grounds to challenge the discharge of the debtor, or other information pertinent to the administration of the debtor's estate. Conversely, the debtor's examination may alleviate concerns that creditors may have about the debtor's entitlement to the benefits of a discharge. Either way, the debtor's attendance at the 341 meeting serves to promote the administration of a bankruptcy case and helps to minimize public concerns about the bankruptcy process.
The Code, on its face, is both unequivocal and mandatory"the Debtor shall appear. . . ." 11 U.S.C. § 343. This Court should obey the clear language of the legislative enactment. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989); In re Hart, 923 F.2d 1410 (10th Cir.1991); In re Ginco, 105 B.R. 620 (D.Colo.1988). This is true for the requirements of section 343 as well. In re Martin, 12 B.R. 319 (Bankr.S.D.Ala.1981); In re Rust, 1 B.R. 656 (Bankr.M.D.Tenn.1979). While there are courts which both acknowledge the unequivocal language of the Code and excuse the Debtor's appearance, e.g., In re Vilt, 56 B.R. 723 (Bankr.N.D.Ill.1986); In re Stewart, 14 B.R. 959 (Bankr.N.D.Ohio 1981), those courts do so only in the most exceptional of circumstances such as hospitalization or incarceration. In re Chandler, 66 B.R. 334, 336 (N.D.Ga.1986). The Court concludes that the Debtor's motion to be excused from attendance at the section 341 meeting of creditors must be DENIED.
In the alternative, the Debtor requests that this Court enter an order continuing the 341 meeting until such time as he will be available to attend. He premises this request on the provisions of the Soldiers' and Sailors' Civil Relief Act, 50 App. U.S.C. § 521, which state:
At any stage thereof any action or proceeding in which a person in military service is involved, either as plaintiff or defendant, during the period of such service or written sixty days thereafter may, in the discretion of the Court . . . be stayed as provided in this Act . . .
The person affected stands before this Court in the role of a "debtor." He is, in the classic sense, neither a "plaintiff" nor a "defendant." However, the niceties of labelling *666 ought not to deprive the Debtor of the benefits obviously to be afforded by this legislation.
The Supreme Court has held that the Soldiers' and Sailors' Civil Relief Act should be liberally construed so as to "protect those who have been obliged to drop their own affairs to take up the burdens of the nation." Boone v. Lightner, 319 U.S. 561, 575, 63 S.Ct. 1223, 1231, 87 L.Ed. 1587 (1943). It has also been held that the phrase referencing the appearance of the individual as "either plaintiff or defendant" should not be strictly construed but should apply to those who are "petitioners, respondents, movants or intervenors." Shire v. Superior Court In and For Greenlee County, 63 Ariz. 420, 162 P.2d 909 (Ariz. 1945). Further,
[t]he intention of Congress and the purpose of the statute require a liberal interpretation of the word defendant. Under such circumstances, we are not bound to apply the word in its narrow, formal sense. It is obvious that Congress was concerned, in the enactment of this legislation, with the protection of persons in military service. The use of the words "either as plaintiff or defendant" was intended to expand, rather than to limit, the scope of the protection afforded by the Act. Many other words are customarily used to describe parties to litigation, as for example, petitioner, respondent, appellant, appellee, libelant, complainant, intervenor. It is not reasonable to assume that Congress intended to limit the benefit of the Soldiers' and Sailors' Civil Relief Act to persons who chance to fall within two of these various designations; or make their exemption depend upon the fortuitous circumstances that one name, or the other was used in enacting legislation concerning a particular court or a particular proceeding. This conclusion is supported, moreover, by the fact that the Act speaks of "any action or proceeding." Proceeding is a word of broader meaning than action, especially when it is used, disjunctively, with action. And, customarily, words describing participants in proceedings are less formal than those used to describe participants in actions. In re Adoption of a Minor, 136 F.2d 790, 78 U.S.App.D.C. 48 (App.D.C.1943) (citations omitted).
In the same spirit this Court must conclude that a "debtor" in a bankruptcy proceeding falls within the protection intended to be afforded by the Act. Thus, the Debtor here is entitled to an order staying his otherwise required appearance at the scheduled 341 hearing. To do otherwise would put the debtor at risk of having his bankruptcy case dismissed or his discharge denied unless those orders would be otherwise stayed by reason of the statutory stay afforded by 50 App.U.S.C. § 510.
For the reasons stated herein, it is
ORDERED, that the meeting of creditors scheduled herein pursuant to 11 U.S.C. § 341 for the Debtor, Perry Gerard Ladner, shall be stayed until such time as his military duties will reasonably allow him to be present; and it is
FURTHER ORDERED, that said Perry Gerard Ladner shall advise the Trustee in this case, within thirty (30) days following the termination of his military service or his ability to appear for examination as required by 11 U.S.C. § 341, whichever first occurs; and it is
FURTHER ORDERED, that the time for filing claims in this case against this Debtor, for filing objections to exemptions claimed by this Debtor, and the time for the filing of complaints pursuant to 11 U.S.C. §§ 523(c) or 727 against this Debtor, shall all be continued to run from the date of said Debtor's first appearance at the meeting of creditors, as fully and to the same extent as if said first appearance coincides with the first date set for said appearance; and it is
FURTHER ORDERED, that no order of discharge as to this Debtor shall enter herein until after the expiration of at least sixty (60) days from and after said Debtor's first appearance for examination pursuant to 11 U.S.C. § 341.
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15 N.J. Super. 210 (1951)
83 A.2d 233
BOROUGH OF LINCOLN PARK, AND BOARD OF HEALTH OF LINCOLN PARK, PLAINTIFFS-RESPONDENTS,
v.
HERMAN CULLARI, DEFENDANT-APPELLANT.
Superior Court of New Jersey, Appellate Division.
Argued August 6, 1951.
Decided August 31, 1951.
*212 Before Judges LEYDEN, DANIEL J. BRENNAN and SCHETTINO.
Mr. Charles M. Grosman argued the cause for appellant.
Mr. David Young, 3rd, argued the cause for respondents.
The opinion of the court was delivered by LEYDEN, J.S.C.
Defendant appeals from the judgment of conviction of violating section 2 of an ordinance of the Board of Health of the Borough of Lincoln Park entitled "An Ordinance to regulate, control and prohibit the keeping of pigs within the limits of the Borough of Lincoln Park, Morris County, New Jersey," in that he kept and maintained pigs in said borough without first having procured a permit therefor.
The ordinance divides the municipality into districts which may be classified as (1) residential, wherein the keeping of pigs is prohibited; and (2) farming, wherein not more than seven pigs may be kept, raised or maintained, provided a permit therefor is obtained from the local board of health.
The pertinent sections of the ordinance are as follows:
"Section 2. * * *
No person shall have, keep, raise or maintain any pig or pigs within the said described limits of the Borough of Lincoln Park, without first having procured from the Board of Health of the Borough of Lincoln Park a permit for that purpose. Such permit shall allow the holder thereof to have, keep, raise or maintain on the premises mentioned in such permit, not more than seven (7) pigs.
Section 6. It shall be unlawful for any person owning, keeping, or having the management or control of the premises within the Borough of Lincoln Park, to knowingly permit a violation of any of the provisions of this ordinance upon said premises."
The ordinance under review was adopted December 21, 1943. The defendant manages a farm of approximately 120 acres located in the farm district upon which, since 1929, from 25 to 40 pigs have been kept.
The defendant applied for a permit to keep more than seven pigs and was refused. He was convicted in the municipal *213 court and on appeal in the Morris County Court after a trial de novo.
The defendant insists the ordinance, in so far as it limits the number of pigs to seven, is unconstitutional and void in that it violates the equal protection clause of the 14th Amendment of the United States Constitution, and the due process of law provisions of the Federal and State Constitutions. He argues that the ordinance does not take into account the area of the land owned and the number of pigs permitted, and therefore he is denied equal protection since he may now keep only seven pigs on the farm and a neighbor owning a small plot may keep the same number, and for like reason he asserts that the ordinance is an arbitrary and unreasonable exercise of police power.
The ordinance in question does not, in our opinion, offend the equal protection clause of the 14th Amendment.
Our Supreme Court in an opinion delivered by Mr. Justice Heher has thus defined the clause in question:
"The equal protection clause means that the right of all persons must rest upon the same rule under similar circumstances, * * *. It is essential that the classification itself be reasonable and not arbitrary, and be based upon material and substantial distinctions and differences reasonably related to the subject matter of the legislation or considerations of policy, and that there be uniformity within the class. The equal protection of the laws means that no person or class of persons shall be denied the protection of the laws enjoyed by other persons or classes of persons under similar conditions and circumstances, in their lives, liberty, and property, and in the pursuit of happiness, both as respects privileges conferred and burdens imposed." Washington National Ins. Co. v. Board of Review, 1 N.J. 545, at 553 (1949).
The Legislature has a wide discretion as to classification and the distinction may be a narrow one if reasonably related to the object of the legislation. The Legislature has delegated the power to regulate, control or prohibit the keeping or slaughtering of animals to local boards of health to be exercised by ordinance, rules and regulations. R.S. 26:3-31. There is no indication of illegal discrimination in the exercise of that power here. By the ordinance all persons within the *214 described district are placed upon an equal footing. The fact that the defendant manages a large tract of land is not pertinent. Wogish v. Board of Health, Moonachie, 114 N.J.L. 261 (E. & A. 1935). The equal protection clause imposes no obligation upon the Legislature or local board of health to regulate or control the keeping of animals on a graduated scale or in accordance with the land owned. Defendant's argument rests upon the assumption that area is the rational standard appropriate to this situation, and suggests hypothetical situations to accentuate his claim. But this assumption is invalid. Piggeries present health problems. To strike a balance in the light of existing circumstances, the board permitted a maximum of seven pigs in the farm district, presumably to meet the average probable needs of the occupant, and by that limitation sought to prohibit commercialized piggeries. The objective is not unreasonable and in view thereof the area of the realty held cannot be said to be the indispensable quantitative measure which must underlie the regulation. Cf. Ring v. North Arlington, 136 N.J.L. 494 (Sup. Ct. 1948); affirmed 1 N.J. 24 (1948). We cannot say that a limitation of seven pigs, without regard to the area of the land, is constitutionally inappropriate. Rather it appears to be reasonably calculated to achieve the stated purpose. Marginal inequities do not in themselves vitiate the ordinance. Wherever a line is drawn, situations immediately beyond the line appear to be indistinguishable from situations within it. But this is an inevitable consequence of the drawing of any line, and does not, in itself, constitute a valid criticism of a line which, on the over-all scene, cannot otherwise be said to be arbitrary.
The question of the reasonableness of the ordinance has been adjudicated adversely to the defendant's contention. Brown v. Klein, 133 N.J.L. 533 (Sup. Ct. 1946). A similar ordinance limiting the keeping of pigs to not more than ten was held to be a reasonable exercise of the police power. Wogish v. Board of Health, Moonachie, supra. We so find here.
*215 The right of private property must yield to the common good, and when interfered with or restrained the assumed injury to the individual is presumed to be off-set by the benefit accruing to him as one of the public at large. Earruso v. Board of Health, East Hanover, 120 N.J.L. 463 (Sup. Ct. 1938). No general standard of regulation and control concerning the keeping of animals, applicable to all municipalities, can be laid down. Local conditions, circumstances and needs vary widely. Regulations and controls which would be considered reasonable in one community might well be unreasonable in another. The decision is left to the broad legislative discretion of the local boards of health, limited, of course, by the reasonable exercise of the power conferred. Board of Health of Weehawken Twp. v. N.Y. Central R. Co., 4 N.J. 293 (1950). The ordinance is not unreasonable because it may interfere or put an additional burden upon the defendant. Schwarz Bros. v. Board of Health, 83 N.J.L. 81 (Sup. Ct. 1912).
The judgment is affirmed, with costs.
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83 A.2d 600 (1951)
BARRE CITY HOSPITAL
v.
TOWN OF ST. JOHNSBURY.
No. 1782.
Supreme Court of Vermont.
October 2, 1951.
*602 Finn, Monti & Davis and H. William Scott all of Barre, for plaintiff.
Arthur L. Graves and Frederick G. Mehlman, St. Johnsbury, for defendant.
Before SHERBURNE, C. J., and JEFFORDS, CLEARY, ADAMS and BLACKMER, JJ.
JEFFORDS, Justice.
This is an action of contract in which the plaintiff seeks to recover for the relief and support of one Idella Allen under and by force of V.S.1947, §§ 7112 and 7114. The case was tried by the court with a resulting judgment for the plantiff and it is here on exceptions of the defendant.
The material facts as found by the court are as follows: "1. That Idella Allen was admitted to plaintiff hospital on May 25, 1949, and remained there until her discharge on June 7, 1949. 2. That the plaintiff gave notice to defendant, as required by § 7112, Vermont Statutes, Revision of 1947, as amended; that the condition for which Idella Allen was treated at plaintiff hospital had existed for some time prior to her admittance; that she had been previously treated for the same condition at certain hospitals in Burlington; that I find that the condition for which she was treated while at plaintiff hospital was such as to bring it under §§ 7112, 7113. That the said Idella Allen at the time of her admittance was making her home in the town of St. Johnsbury.
The defendant has briefed exceptions to the admission of certain evidence and to certain of the findings. These exceptions are not here available to the defendant as all of the evidence admitted, whether properly or improperly, was merged in the court's findings and the failure to except to the findings waives the exceptions to the admission of the evidence and such exceptions cannot cure the failure to except to the findings based thereon. Town of Randolph v. City of Barre, 116 Vt. 557, 559, 80 A.2d 537. True it is that case was one from a county court sitting without a jury while the present one is from a municipal court so sitting but it is shown in the Randolph case that the same rule should apply in each court. It is also true that in the present case it is stated in the bill of exceptions that the defendant was allowed an exception to each finding. Since no particular finding was pointed out, and no particular fault is indicated, the exception is too general to be available. Turner v. Bragg, 113 Vt. 393, 401 35 A.2d 356; Campbell v. Ryan, 112 Vt. 238, 240, 22 A.2d 502; Bemis v. Aldrich, 102 Vt. 277, 278, 147 A. 693.
In considering the exception to the judgment the only question before us is whether the judgment is supported by the facts found. Duchaine v. Zaetz, 114 Vt. 274, 276, 44 A.2d 165, and cases cited.
V.S.1947, § 7112 which is the only statute here material reads as follows: "If a transient person dies, is injured, suddenly taken sick, lame, or is otherwise disabled and confined to any house or hospital in a town, and is in need of relief, the person at whose house or hospital he is shall be at the expense of relieving and supporting such person, until notice of the situation of such person is given to the overseer of the poor of the town, or, in case such transient person is confined in a hospital in a town other than the town from which he came to enter such hospital, until such notice is given to the overseer of the latter town, after which the overseer of the town so notified shall provide for the support of such person."
The defendant says that three essential facts necessary to the right of recovery under *603 the statute do not appear in the findings. It lists these facts as (1) That the alleged transient was in need of relief; (2) The town from which she came prior to admission to the plaintiff hospital and (3) That such transient suddenly became sick, or lame or disabled.
We must assume in favor of the judgment that the trial court inferred such facts from the other facts certified as it ought to have done, or might fairly have done. Longchamp v. Conti, 115 Vt. 492, 493, 66 A.2d 1; Labor v. Carpenter, 102 Vt. 418, 422, 148 A. 867. We will assume in support of the judgment that the trial court inferred from the facts found any fact fairly inferable therefrom and necessary to support the judgment. Siwooganock Guaranty Sav. Bank v. Cushman, 109 Vt. 221, 245, 195 A. 260. Doubtful findings are to be so read as to support the judgment, if they reasonably may be. City of Montpelier v. Town of Calais, 114 Vt. 5, 8, 39 A.2d 350.
With the above rules in mind we will test the claimed deficiencies in the findings above noted.
The defendant intimates in its brief that in spite of what was said in the opinion in the case of St. Albans Hospital v. City of St. Albans, 107 Vt. 59, 176 A. 302, 303, as to the meaning of the words "in need of relief" in P.L. 3926 now, as far as material on this question, V. S.1947, § 7112, that such words mean financial relief. We said in that case "No question of financial ability arises under P.L. 3926, until suit is brought by one town against another." We adhere to that statement and hold, as indicated in the St. Albans case, that the above quoted words mean in need of medical relief or relief of that nature. We will assume from finding number 2 that the trial court inferred that at the time Idella was confined in the plaintiff hospital, and there treated, she was "in need of relief" within the meaning of the statute as herein set forth.
It is found that Idella at the time of her admittance to the plaintiff hospital was making her home in the town of St. Johnsbury. We will assume in support of the judgment that the trial court inferred that she "came" from the defendant town to enter the hospital within the meaning and requirements of that statute.
It is contended that because of the finding that the condition for which Idella was treated had existed for some time prior to her admittance to the plaintiff hospital and of treatments for this condition at other hospitals that she was not suddenly taken sick, lame or disabled within the requirements of the statute. It cites the St. Albans case, supra, in support of its claim that the statute was designed to take care only of urgent situations involving transients. That case does not support this claim. It is therein stated in the last sentence on page 61 of 107 Vt., on page 303 of 176 A.: "It seems clear that by P.L. 3926, the Legislature, with a most * * * philanthropic purpose, intended to so provide that every person transient in the foregoing sense, whether rich or poor, whether a resident or nonresident of the town wherein he became sick, lame, or disabled, should be assured of care and treatment, promptly administered." And again on page 63 of 107 Vt., on page 304 of 176 A.: "When we keep in mind the obvious purpose of the statute as hereinbefore stated and the urgency usually involved in such cases" etc. The opinion in that case was written by the late Chief Justice Powers. It is to be noted that he does not stress "suddenly" but omits it in the above quoted statement from 107 Vt. page 61, 176 A. 302. It is also shown from the quotation supra from 107 Vt. page 63, 176 A. 302 that a case need not be urgent to come within the statute. Moreover the word "suddenly" does not qualify the words "otherwise disabled." Again we will assume in support of the judgment that the lower court inferred that Idella was "disabled" within the meaning of the statute at the time she was admitted to the hospital. For the reasons above stated, the claim of the defendant in respect to the finding in question is not sustained.
Judgment affirmed.
SHERBURNE, C. J., sat at the hearing of this case, but by reason of illness did not take part in the decision.
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844 F.Supp. 1178 (1992)
NATIONAL RIFLE ASSOCIATION, Plaintiff,
v.
The HANDGUN CONTROL FEDERATION, et al., Defendants.
No. 1:90CV0791.
United States District Court, N.D. Ohio, E.D.
September 2, 1992.
*1179 Simor L. Moskowitz; and John F. King, Hofelich & King, Cleveland, OH, for plaintiff.
Tom C. Buford and Raymond Scott Ling, Weston, Hurd, Fallon, Paisley & Howley, Cleveland, OH, for defendants.
MEMORANDUM AND ORDER
WHITE, District Judge.
This action arises out of the Copyright Act of 1976, 17 U.S.C. § 101, et seq. The plaintiff, National Rifle Association of America (NRA), is engaged in lobbying activities to support the right of law-abiding citizens to keep and bear firearms while the defendant, Handgun Control Federation of Ohio (HCF), engages in lobbying activities to enact laws to restrict possession, ownership and transfer of firearms. In furtherance of its purpose, the NRA disseminates information to its members in the form of magazines, newsletters, pamphlets, media advertisements and other types of publications. In February, *1180 1988 the plaintiff compiled, organized and arranged information concerning Ohio legislators which was included in a May 5, 1989 five-page newsletter, three pages of which consisted of information concerning members of the Ohio General Assembly, listing each member by name, district, home town and telephone number. Another newsletter was published on June 7, 1989 which contained a refinement of the list of members of the Ohio General Assembly. On July 27, 1989 the NRA applied for an received copyright registration of the newsletters. Plaintiff alleges that the defendants copied the plaintiff's compilation of information concerning the members of the Ohio General Assembly and published it in a newsletter entitled "Lobbying Alert" in violation and infringement of the plaintiff's exclusive copyright rights in their newsletters, and in particular, the lists of the members of the Ohio General Assembly. The parties have filed cross motions for summary judgment.
It is a fundamental rule of law that ideas and facts cannot be copyrighted. Feist Publications v. Rural Telephone Service Co. Inc, 499 U.S. 340, 111 S.Ct. 1282, 1287, 113 L.Ed.2d 358 (1991). But compilations of facts may be protected. 17 U.S.C. § 103. To copyright a compilation the following three criteria must be satisfied: (1) collection and assembly of pre-existing material, facts or data; (2) selection, coordination or arrangement of those materials; and (3) the creation, by virtue of the particular selection, coordination, or arrangement, of an original work of authorship. Feist Publications v. Rural Telephone Service Co. Inc, 499 U.S. at 355, 111 S.Ct. at 1293. Originality is most important in determining whether fact based works deserve copyright protection. Id. 499 U.S. at 346, 111 S.Ct. at 1288. The Court must focus on the manner in which the collected facts have been selected, coordinated and arranged to decide whether originality exists. Id. 499 U.S. at 359, 111 S.Ct. at 1294. The Court stated:
[T]he originality requirement is not particularly stringent. A compiler may settle upon a selection or arrangement that others have used; novelty is not required. Originality requires only that the author make the selection or arrangement independently (i.e., without copying that selection or arrangement from another work), and that it display some minimal level of creativity. Presumably, the vast majority of compilations will pass this test, but not all will. There remains a narrow category of works in which the creative spark is utterly lacking or so trivial as to be virtually non-existent.
Id. 499 U.S. at 358-59, 111 S.Ct. at 1294. Also the author of the compilation cannot keep others from using the facts that he has gathered. The facts may be freely copied. Copyright protects only the aspects that owe their origins to the compiler, i.e., the selection, coordination and arrangement of the facts. Id. 499 U.S. at 359, 111 S.Ct. at 1295. The facts do not have to be presented in an innovative or surprising way but the selection and arrangement cannot be so mechanical or routine as to require no creativity at all. Id. 499 U.S. at 361, 111 S.Ct. at 1296.
In his declaration attached to the NRA's cross motion for summary judgment, Charles H. Cunningham, states that he put together a newsletter to NRA members concerning pending Ohio gun control legislation. Information concerning Ohio state legislators was accumulated using "numerous sources." Specific items and information from these sources were compiled in a format which he devised. He took information included in several existing lists and re-arranged them in ascending numerical order in accordance with their district designations. He also cross-indexed several lists, selecting various information and coordinated and arranged it in an original manner by juxtaposing horizontally, next to each legislator's name, his or her district number, home city, Columbus phone number and local district phone number. In addition to the list he composed a paragraph of text urging recipients of the newsletter to contact the offices of the representatives, marked with an asterisk and listed in boldface type.
The Court finds that plaintiff's selection and arrangement of the Ohio Representatives to be mechanical and routine. Exhibits before the Court show similar methods of preparing such a list. These exhibits contain *1181 a list of committees with names of its members underneath. Plaintiff merely took all the names, placed them in order by district number and put an asterisk by the names of those on the Judicial and Criminal Justice Committees. Defendant Axelrod testified that it is common for lists to indicate the committee handling certain legislation and to specify the members of the committee. Furthermore, there are only a few ways to communicate this type of information in a manner most effective to lobbying organizations. Plaintiff's instructions to contact the persons whose names are marked with an asterisk shows no originality. That type of instruction is contained in most lobbying newsletters urging action by the members of the organization.
Even if plaintiff's material was copyrightable the defense of fair use would bar any recovery of damages. The fair use defense, found in 17 U.S.C. § 107, states:
Notwithstanding the provisions of section 106, the fair use of a copyrighted work, including such use by reproduction in copies or phono records or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright.
The statute further provides criteria for deciding whether the use doctrine applies.
"In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include
(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work."
Plaintiff contends that the first criteria is satisfied in its favor because HCF's use of the list was commercial in that it constituted an unfair exploitation of an original work of authorship and the proprietary rights and privileges that belong to the copyright owner and HCF's competitor, the NRA. The facts in this case show that the list was not used for a commercial motive. HCF is a nonprofit corporation and use of the list did not result in remuneration. NRA's argument that a commercial use was involved because use of the list exploited the NRA's proprietary rights and privileges is without merit. The fair use doctrine allows use without consent because consent would unlikely be given to a class of material that should be more freely disseminated. Proprietary rights and privileges would block fair use of any material.
In MCA v. Wilson, 677 F.2d 180, 182 (2nd Cir.1981), the court stated that, as to the nature of the copyrighted work, the court can consider whether it "represented a substantial investment of time and labor made in anticipation of a financial return" as well as whether the work was creative, imaginative and original. There is no indication that the NRA compiled the list for the purposes of a financial return.
The effect of the use upon the potential market for or value of the copyrighted work is another factor to consider. 17 U.S.C. § 107(4). The United States Supreme Court held in Sony Corp. v. Universal City Studios, 464 U.S. 417, 451, 104 S.Ct. 774, 793, 78 L.Ed.2d 574 (1984),
[A]lthough every commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright, noncommercial uses are a different matter. A challenge to a noncommercial use of a copyrighted work requires proof either that the particular use is harmful, or that if it should become widespread, it would adversely affect the potential market for the copyrighted work.... What is necessary is a showing by a preponderance of the evidence that some meaningful likelihood of future harm exists. If the intended use is for commercial gain, that likelihood may be presumed. But if it is for a noncommercial purpose, the likelihood must be demonstrated.
*1182 There is no doubt that the list was not used for commercial purposes. Therefore the NRA must demonstrate that the use was harmful or that if it became widespread, it would adversely affect the potential market for the copyrighted work. There are no facts proving that HCF's use of the list was harmful. HCF sent the list to less than 200 people. Because of the nature of the list, there is little likelihood that the potential market for the copyrighted work would be effected. HCF received no financial gain from the one time marketing of its newsletter. Also there is no market for this type of list. It is public information published by the state legislature and various groups.
Accordingly, plaintiff's motion for summary judgment is denied. Defendant's motion for summary judgment is granted.
IT IS SO ORDERED.
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812 S.W.2d 217 (1991)
Jose
v.
BALLESTEROS, M.D., Plaintiff-Appellant,
v.
Randy JOHNSON, M.D., and Cardiology and Critical Care Consultants, Inc., Defendants-Respondents.
Nos. 57969, 58016.
Missouri Court of Appeals, Eastern District, Division Three.
June 28, 1991.
*219 David L. Campbell, Robert H. Wendt, Campbell & Campbell, St. Louis, for plaintiff-appellant.
Curtis C. Calloway, Eric Paulsrud, Lewis, Rice & Fingersh, St. Louis, for defendants-respondents.
CRANE, Judge.
Plaintiff Jose Ballesteros, M.D., appeals from the judgment of the circuit court denying his claim for an equitable accounting and granting injunctive relief in favor of his former employer and its sole shareholder to enforce a covenant not to compete. Defendants appeal from an order awarding plaintiff discovery sanctions in the amount of $2,500. We affirm the judgment of the trial court and reverse the order awarding sanctions.
Defendant Randy Johnson, M.D., is the sole shareholder of defendant Cardiology and Critical Care Consultants, Inc. [the Practice], a cardiology practice he began with another physician in 1984. Johnson first met with plaintiff in March, 1988 to discuss the possibility of plaintiff working for the Practice. Another physician, Dr. Frank Gafford, had been employed by the Practice since October, 1986. Gafford was paid a percentage of his billings. Johnson and plaintiff agreed to an arrangement whereby plaintiff was to be paid a percentage of his billings with a minimum guarantee of $8,000 per month for the first six months.
Plaintiff commenced practicing cardiology with Johnson on July 1, 1988. No written contract existed between the parties at that time. The parties continued to negotiate the terms of plaintiff's employment and several drafts of the contract were proposed by both parties.
Plaintiff needed $15,000 for the down payment on the purchase of a home which was scheduled to close on October 15, 1988. Johnson offered to have the Practice borrow the $15,000 from its bank and the Practice would in turn lend the $15,000 to plaintiff. The bank required proof that plaintiff had an agreement with minimum advancements guaranteed and a method of compensation agreed to in writing before it would lend the $15,000 to the Practice for the purpose of lending it to plaintiff. Additionally, plaintiff's mortgage lender required a letter containing the same information. The Practice's accountant would not provide that letter in the absence of a written agreement. Johnson informed plaintiff that the Practice would be unable to lend him the money unless he signed a written employment contract. A final version of the employment contract was signed by plaintiff on October 14, 1988.
The contract contained the following covenant not to compete:
Ballesteros shall not, during the term of his Agreement and within a period of one *220 (1) year after he is no longer employed by Johnson or the Practice: (1) service any patient of Johnson or the Practice (including the patients brought into the Practice by Ballesteros) as a medical physician in his individual capacity, as a member of a group of medical physicians; or (2) engage in general cardiology and critical care, cardiology and critical care consulting, heart catheterizations, echocardiography, Holter monitoring, electrocardiogram interpretations, or exercise stress testing, at or within the following described hospitals: Incarnate Word, Alexian Brothers Lutheran, Deaconess and Alexian Brothers Health Center, St. Anthony's, St. Elizabeth (Granite City, Illinois), St. Louis University Hospitals and any future hospitals where Johnson or the Practice may have admitting privileges at the time of termination of this Agreement; provided, however, the above referenced covenant not to compete shall not be applicable in the event Ballesteros is no longer employed by Johnson or the Practice due to: (a) default by Johnson or the Practice; or (b) his own disability.
Plaintiff was affiliated with Johnson and the Practice from July 1, 1988 until June, 1989. During this affiliation, plaintiff received compensation of $296,090.96, as well as other benefits. Beginning in March, 1989 plaintiff and Gafford began requesting an ownership interest in the Practice. In June plaintiff and Gafford informed Johnson that they would leave the Practice unless each was given a one-third interest in it. Johnson refused. Plaintiff and Gafford immediately formed their own cardiology practice under the name of Cardiology Consultants of St. Louis County, P.C., with offices located at the St. Anthony's Hospital complex and in Manchester, Missouri.
Plaintiff filed suit seeking an equitable accounting and injunctive relief barring enforcement of the covenant not to compete. Defendants answered and counterclaimed seeking temporary and permanent injunctive relief enforcing the covenant. A temporary restraining order was issued on June 29, 1989 restraining plaintiff from servicing any patient as set forth in the covenant not to compete, with the hearing on the preliminary and permanent injunction scheduled for August 7, 1989. As subsequently modified, the temporary restraining order provided in part:
IT IS FURTHER ORDERED that, until the said hearing, Defendant [sic] absolutely desist and refrain from soliciting the service of any patient of Johnson or the Practice ... or from engaging in general cardiology and critical care ... at or within the following described hospitals:....
The trial court entered its Findings of Fact, Conclusions of Law and Order which denied plaintiff's request for an equitable accounting and granted permanent injunctive relief.
Plaintiff's Appeal
For his first point plaintiff contends that the trial court erred in denying an equitable accounting of all monies received by the Practice for services billed by plaintiff. We disagree.
Four elements are required to establish equitable jurisdiction for an accounting: the need of discovery, the complicated nature of the accounts, the existence of a fiduciary or trust relationship and the inadequacy of legal remedies. Zickel v. Knell, 357 Mo. 678, 210 S.W.2d 59, 62 (1948); Kalberloh v. Stewart, 378 S.W.2d 820, 824 (Mo.App.1964). It is within the discretion of the trial court to determine whether the facts establish equitable jurisdiction. Wilson v. Hoover, 342 Mo. 1182, 119 S.W.2d 768, 772 (1938); 1A C.J.S. Accounting § 15, p. 13 (1985). The trial court's exercise of discretion will be overturned only for an abuse thereof. In re $29,000.00 in U.S. Currency, 682 S.W.2d 68, 75 (Mo.App.1984); 1A C.J.S. Accounting § 57, p. 52. There was no abuse of discretion. The trial court found:
8. Since Joy Johnson has calculated reimbursements in good faith and there is no evidence that any substantial or intentional errors have been made in calculating Dr. Ballesteros' reimbursements, *221 his claim for an equitable accounting will be denied. Mrs. Johnson has provided an accounting of Dr. Ballesteros' reimbursements during the trial of this matter and Ballesteros and his accountant have already been provided an opportunity to inspect and copy all corporate documents which relate to patient billings and reimbursements to him. Under these circumstances, the Court concludes that it would be inequitable to order an accounting, which would likely be time-consuming and costly. There is no need for any further discovery or accounting to Dr. Ballesteros, who the Court concludes has been fairly and adequately compensated. Moreover, Ballesteros' claim for an accounting is premised upon an interpretation of the Agreement that requires reimbursement to him within forty-five (45) days of the month in which services were rendered, an interpretation which this Court has rejected.
The record supports the decision of the trial court. Joy Johnson, the bookkeeper for the Practice, testified for more than a full day and identified the worksheets on which she calculated all amounts paid to plaintiff as well as the underlying documents. Her worksheets and a sample of the underlying documents were admitted into evidence. Plaintiff and his accountant were given access to all underlying documents including "Day Sheets" and patient files. The trial court did not abuse its discretion in finding that there was no need for further discovery and in denying the request for an equitable accounting. Point one is denied.
For his second point plaintiff contends that the trial court erred in not quashing the temporary restraining order. A temporary restraining order maintains the status of the parties until the merits of their claim are resolved. St. Louis County v. Village of Peerless Park, 726 S.W.2d 405, 410 (Mo.App.1987). It does not purport to pass upon the merits of a controversy or dispose of any issue. Zaegel v. Zaegel, 697 S.W.2d 223, 225 (Mo.App.1985). The temporary restraining order terminated upon entry of the permanent injunction. Once a permanent injunction is granted, the issue of whether the temporary restraining order should have been quashed is no longer a live issue. Peerless Park, 726 S.W.2d at 410. The validity or invalidity of the temporary restraining order does not affect the validity of the permanent injunction. Point two is denied.
For his third point plaintiff argues that the trial court erred in granting a permanent injunction. He claims that the covenant not to compete was procured by fraud and duress, that it did not serve any legitimate business interest of defendants, and that defendants are barred from obtaining equitable relief by the "clean hands" maxim because of their material breaches of the contract.
We review the issuance of an injunction under the standard of Murphy v. Carron and will uphold the injunction unless there is no substantial evidence to support it, unless it is against the weight of the evidence, or unless it erroneously declares or applies the law. Champion Sports Center, Inc. v. Peters, 763 S.W.2d 367, 369 (Mo.App.1989). We give due regard to the trial court's opportunity to judge the credibility of the witnesses in making its findings on the evidence. Mid-States Paint and Chemical Co. v. Herr, 746 S.W.2d 613, 615 (Mo.App.1988).
Plaintiff claims he signed the covenant as a result of fraudulent misrepresentations made to him by Johnson 1) that the Practice's accountant required that the contract between Johnson and plaintiff be signed before he would issue a letter verifying his compensation to plaintiff's home mortgage lender; 2) that he would not enforce the covenant not to compete; and 3) that he would immediately execute an amendment to the agreement.
One of the essential elements of fraud is a false material representation. Huttegger v. Davis, 599 S.W.2d 506, 511 (Mo. banc 1980). Although plaintiff claims otherwise, the Practice's accountant testified that he said he could not write the letter in the absence of a signed contract.
*222 This was sufficient evidence to establish that Johnson's representation of the same was not false. It is also clear that, in rejecting the claim of fraud, the trial court chose not to believe plaintiff's testimony that Johnson told him he would not enforce the covenant and would execute an amendment to the agreement in light of Johnson's testimony about the importance he placed on obtaining a covenant not to compete. We defer to the trial court's assessment of the credibility of these witnesses.
Plaintiff further claims that he was coerced into entering into the covenant by means of duress because the Practice would not loan him $15,000 to use as a down payment on his new home unless he signed the contract. Both parties agree that duress is established where a person is "subjected to pressure which overcomes his will and coerces him to comply with demands to which he would not yield if acting as a free agent." United Telephone Company of Missouri v. Horn, 610 S.W.2d 701, 705 (Mo.App.1980). The trial court did not err in concluding that plaintiff had not proven coercion or duress. The agreement was signed after five months of negotiations. Plaintiff was represented by counsel. Plaintiff's immediate need for the $15,000 loan and a new house was self-imposed. The Practice was under no independent obligation to lend him the $15,000 and was free to require a signed employment agreement as a condition of making that loan.
Plaintiff also claims that defendants are precluded from enforcing the covenant not to compete by their own material breaches of the employment agreement, arguing that defendants never made any attempt to pay plaintiff in accordance with the method set forth in paragraph 5 of the contract. That paragraph provided that payments would be made to plaintiff within 45 days of the end of each month. There was evidence that on a few occasions payments were late because of cash flow problems and difficulty with a new computerized billing system.
"[T]he question of whether an employer is precluded from enforcing a covenant not to compete as a result of its own breach is `largely an issue of fact for the trial court.'" Adrian N. Baker & Co. v. DeMartino, 733 S.W.2d 14, 17 (Mo.App.1987) (quoting Forms Mfg. Inc. v. Edwards, 705 S.W.2d 67, 69 (Mo.App.1985)). There is substantial evidence to support the trial court's finding that defendants did not materially breach the employment agreement. The Practice's bookkeeper testified at length concerning payments made to plaintiff. The trial court found that she calculated these payments in good faith at all times. The fact that a few payments were made shortly after they were due does not constitute a material breach of the contract.
Moreover, plaintiff is estopped to deny enforcement of the covenant by his acceptance of substantial benefits under the employment contract. Over the course of 15 months, plaintiff accepted compensation and other reimbursements totalling over $300,000. A person who accepts benefits under a contract will not be allowed to affirm a contract in part by accepting its benefits and disaffirm it in part by avoiding some of its obligations. Long v. Huffman, 557 S.W.2d 911, 915-916 (Mo.App. 1977).
Finally, plaintiff's contention that defendant materially breached the agreement by turning off plaintiff's beeper and car phone, removing him from "call" duty, and taking other similar actions is without merit. Most of these actions were not covered by the agreement and all of these actions were taken as a result of plaintiff's termination of his association with defendants.
Plaintiff's final argument under this point is that the permanent injunction serves no legitimate business interest of defendant and violates public policy. Covenants not to compete are enforceable if they serve a legitimate business interest and are reasonably limited in time and space. Osage Glass, Inc. v. Donovan, 693 S.W.2d 71, 74 (Mo. banc 1985). Covenants not to compete are enforceable against physicians. Willman v. Beheler, 499 S.W.2d *223 770, 777 (Mo.1973); Long, 557 S.W.2d at 915.
Plaintiff does not debate the reasonableness of the covenant in terms of time or geography. Rather, he claims that its enforcement is unnecessary for the protection of Johnson's legitimate business interests. The evidence, however, was directly to the contrary. Johnson had established and developed his practice for several years before he associated with plaintiff, who had never been in private practice. Johnson desired to expand his practice at St. Anthony's Hospital. He specifically hired plaintiff to establish a patient base there, as Johnson spent most of his time at St. Louis University Medical Center. Prior to his association with Johnson, plaintiff had no patient or referral base. The covenant clearly was necessary to protect Johnson's legitimate business interest in his practice.
Plaintiff also contends that enforcement of the covenant would violate public policy as contained in § 334.100 RSMo (Supp. 1989) which provides, in pertinent part:
2. The board may cause a complaint to be filed ... for any one or any combination of the following causes:
* * * * * *
(4) ... unethical conduct ... in the performance of the functions or duties of any profession licensed or regulated under this chapter, including, but not limited to, the following:
* * * * * *
(b) Attempting, directly or indirectly, by way of intimidation, coercion or deception, to obtain or retain a patient or discourage the use of a second opinion or consultation;
* * * * * *
(j) Terminating the medical care of a patient without adequate notice or without making other arrangements for the continued care of the patient;
* * * * * *
(5) Any conduct or practice which is or might be harmful or dangerous to the mental or physical health of a patient or the public;....
Plaintiff cites no legal authority for his proposition that this statute prohibits covenants not to compete between physicians but argues only that it is a statutory expression of public policy which supercedes the holding in Willman. In Willman the Missouri Supreme Court held that covenants between physicians were not against public policy even though enforcement would deprive a particular community of a particular physician's services. 499 S.W.2d at 777. Section 334.100 is a statutory provision setting forth the grounds for denial, revocation or suspension of a medical license. A physician's voluntary agreement to not practice at specific hospitals or to refrain from soliciting particular classes of patients does not constitute the unethical medical conduct set forth in the statute for which a medical license may be denied or revoked. Plaintiff was not barred from treating any patient who chose to seek his services. Plaintiff was enjoined for one year from soliciting previous patients and from delivering cardiology services at specified hospitals. Point three is denied.
Defendants' Cross Appeal
Defendants contend that the trial court abused its discretion and erred in imposing sanctions of $2,500 for failure to produce defendant Randy Johnson and witness Joy Johnson, as managing agent for the Practice, for their depositions. Plaintiff filed a notice of hearing and a motion to compel discovery and for sanctions on July 28, 1989. Plaintiff also made an oral motion for an expedited hearing on the motion for sanctions. The oral motion was sustained. The hearing was scheduled for 3:00 p.m. that day. The record establishes that a delivery service delivered the motion for sanctions and notice of hearing to the reception desk of the law firm of defendants' counsel at 2:21 p.m.[1] The circuit court *224 entered its order sustaining the motion for sanctions at 3:50 p.m. Defendants' counsel filed an affidavit that he did not personally receive the notice until 4:00 p.m. He did not appear at the hearing.
Defendants first contend that they did not receive reasonable notice of the hearing. Rule 61.01 provides for the award of sanctions for failure to make discovery. The trial court has discretion to impose sanctions for failure to comply with discovery procedures. Roach v. Consolidated Forwarding Co., 665 S.W.2d 675, 682 (Mo.App.1984). All provisions of this rule condition sanctions "upon motion and reasonable notice to the other parties." Reasonable notice must provide "an `[o]pportunity for a litigant to present his views as to the matters instantly before the court which may affect his rights.'" State ex rel. Murphy v. Aronson, 330 S.W.2d 140, 145 (Mo.App.1959). Delivery of notice of a hearing to a law firm receptionist thirty-nine minutes before it is scheduled to begin does not provide an opportunity for a litigant to appear and does not constitute "reasonable notice" under Rule 61.01.
Defendants next contend that the order granting sanctions fails for lack of evidentiary support. Rule 61.01(f) authorizes imposition of the sanctions listed under Rule 61.01(d) for a party's failure to attend his own deposition. Rule 61.01(d)(4) provides that the court may make "An order requiring the party failing to obey the order or the attorney advising him or both to pay the reasonable expenses, including attorney's fees, caused by the failure [to provide discovery]." Plaintiff's motion for sanctions was unverified. There is nothing in the record that suggests that plaintiff offered any evidence to establish what expenses were incurred or that any expenses were caused by the failure of defendant Randy Johnson and the defendant Practice by Joy Johnson to appear for their depositions. A motion does not prove itself and the burden is on the moving party to prove its allegations. Johnson v. St. Mary's Health Center, 738 S.W.2d 534, 536 (Mo.App.1987). There was no proof of expenses to support the amount of the award.
Defendants further contend that plaintiff failed to comply with Local Rule 33.5 of the 22nd Judicial Circuit which provides:
The Court will not hear oral argument nor take under submission any motion... for sanctions to enforce discovery, unless there is filed with the Court, together with the notice of hearing, a certification signed by the attorney for the party calling for the hearing which states that he has attempted to discuss the matter with opposing counsel in a good faith effort to resolve the disputed issues.
The record does not indicate that any certificate of attempt was filed, nor does the motion for sanctions contain any recitation that the parties had attempted to resolve the dispute in good faith. Properly adopted rules of court are "binding on the court and its officers as well as on the parties and their counsel, and ordinarily it is the duty of the court to enforce them." Bank v. Pfeil, 537 S.W.2d 680, 681 (Mo. App.1976) quoting from 21 C.J.S. Courts § 176. Failure of the court to enforce this rule contributed to the unreasonableness of the notice. For all of the above reasons, the order awarding sanctions is reversed.
The judgment of the trial court is affirmed. The order awarding sanctions is reversed.
REINHARD, P.J., and STEPHEN, J., concur.
NOTES
[1] This time was established by an exhibit and was relied on by both parties in their pleadings and affidavits relating to the motion to reconsider and vacate sanctions. In the original notice, plaintiff's attorney had certified that he had personally served defendants' attorney at 1:30 p.m. on July 28.
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138 Conn. 227 (1951)
JOHN M. PETERSON
v.
MARGARET BRAY ET AL.
Supreme Court of Connecticut.
Argued June 12, 1951.
Decided August 14, 1951.
BROWN, C. J., JENNINGS, INGLIS and O'SULLIVAN, JS.[1]
*228 Frederick L. Comley, with whom was Huntley Stone, for the appellants (defendants).
Leo Nevas, with whom, on the brief, were Morris Robinson and Howard Benedict, for the appellee (plaintiff).
JENNINGS, J.
This was a suit for specific performance of an alleged agreement to convey lot 18 in Sasqua Hills development in East Norwalk to the plaintiff. The defendants, Margret (also spelled Margaret) Bray and Christina Till are sisters. During most of the time covered by these transactions, Christina was detained in Germany because of the war and Margret managed the property as her agent. When Christina returned in 1946 she went to live with her sister.
The following facts are not disputed. On January *229 14, 1936, Margret deeded lot 18 to Christina by warranty deed. Margret constructed a stone house on the lot which has been known as the "Bray Stone House." Christina had advanced $2000 toward the purchase price of the lot in 1935 and $500 toward the cost of the foundation. Margret was having financial difficulties and she had title put in the name of her sister for her own convenience and to avoid creditors. Except in 1937, when Margret leased the property as attorney for Christina, she has leased it as her own and has had exclusive control, management and supervision of it. Christina authorized Margret to lease the premises and to give options for its purchase.
The plaintiff leased the property from Margret on August 21, 1943, for one year from October 1, 1943. It was described as "her stone residence and grounds at Sasqua Hills, East Norwalk, Connecticut." The lease contained a renewal and a first refusal clause. It was renewed October 1, 1944. On February 20, 1945, Margret wrote, signed and delivered a letter to the plaintiff which read as follows: "This is to notify you that I have received an offer for the purchase of the property you have leased from me and are now occupying. In accordance with the terms of your lease I am hereby giving you the three days notice provided therein, the time of which expires Friday night, February 23, 1945. The offer I have received and will accept is $20.000." The plaintiff called Margret and agreed to purchase the property at the price offered. On February 21, the plaintiff first learned that the property stood in the name of Christina. When he told this to Margret, she told him not to be concerned, because an attorney had power to sell and she would make all the necessary arrangements. Pursuant to this conversation, the plaintiff wrote Margret as follows: "I will take the property in accordance with the option as outlined *230 in the lease at the price you have been offered and pay 10% of the purchase price (to be placed in escrow) on the delivery of a contract in the usual form, and the balance on the delivery of a clear and marketable deed which will be delivered in 60 or 90 days as you prefer, but not later than July 1st, 1945." The attorney who held the power to sell refused to exercise it because he did not know whether Christina was alive. She finally returned in October, 1946. In May, 1946, Margret had demanded $27,000 of the plaintiff as the price of the house. The plaintiff refused to buy at this price and brought this suit by writ filed November 27, 1946. He has had funds with which to purchase the property available at all times since February 20, 1945. Margret and Christina have failed and refused to convey it to him at the agreed price.
The defendants are entitled to have added to the finding the fact that the plaintiff claimed no land north of the stone wall which marked the northerly boundary of the property.
On these facts the court concluded that Christina was a mere "dummy," that Margret was the equitable and real owner of the lot in question and that she "was fully authorized to bind Christina Till as well as herself to a lease and a sale of the premises." It also concluded that "Bray's stone house at Sasqua Hills designated the property known as Lot No. 18."
The defendants first claim that there was no sufficient memorandum to satisfy the Statute of Frauds. The letter offering the property to the plaintiff, his lease, his occupation of the property, the fact that the house on lot 18 was known as the Bray Stone House, and the admission in the answer of the full description thereof in the first paragraph of the complaint, in combination, adequately describe the property. "The description is sufficiently definite whenever it is reasonably certain *231 from the contract itself, or can be made certain through reference to record, contract, map or fact, by resort to extraneous evidence thereof, whether oral or written." McMahon v. Plumb, 88 Conn. 547, 552, 92 A. 113. A question about the north boundary will be discussed later.
The defendants next claim that Margret was not the equitable and real owner and that since judgment was on the first count, which alleged this fact, it could not be supported. It is unnecessary to analyze their arguments in detail. It is not disputed that the whole title, by whatever name called, was in both defendants. The judgment found the "issues," that is, the issues on both counts, for the plaintiff. Practice Book § 189. The "defendants," that is, Christina and Margret, were ordered to convey. The rights as between the latter do not require further exploration. This conclusion also disposes of the defendants' claim that the two counts are inconsistent because the first describes Margret as the equitable owner and the second as the agent of Christina. Both are parties defendant and, as stated above, such rights as both have to the property add up to the whole title.
The final claim of law of the defendants is that Margret was never authorized by Christina to execute a contract of sale of the premises. The short answer to this appears in the findings, not attacked, that Christina authorized Margret "to mortgage" the premises "and generally to do anything with respect thereto that the principal could," and also "to lease the said premises and to give options for the purchase of the same." This claim of the defendants is without merit.
The examination of the evidence made necessary by the attacks on the finding establishes beyond question that it was the claim of all the parties that the north boundary of the lot was marked by a stone wall.
*232 The location of the stone wall on the map used by the witnesses is less certain. The two lines, one of which marks the north boundary, inclose a triangular piece of land bounding 5 feet on the west (the highway) and 46.06 feet on the east. While the finding by the trial court that the wall is on the more northerly of the two lines on the map might be technically supported, the plaintiff, under the judgment, would be getting more land than he claimed, if, as seems almost certain, the stone wall is on the more southerly line. It is no injustice to the plaintiff to require him to accept a modified form of relief. See Pomeroy, Specific Performance (3d Ed.) § 41, citing Willard v. Tayloe, 8 Wall. (75 U. S.) 557, 565, 19 L. Ed. 501. This is an equitable action and, in the interests of justice, the case is remanded for the sole purpose of fixing the northerly boundary of the land ordered conveyed as the stone wall, in accordance with the claims of all parties.
There is error, the judgment is set aside and the case is remanded with direction to render judgment as on file except that the northerly boundary of the land ordered conveyed should be described as the stone wall running easterly from the highway.
No costs will be taxed in this court to any party.
In this opinion the other judges concurred.
NOTES
[1] By agreement of counsel the case was argued before and decided by four judges.
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812 S.W.2d 679 (1991)
306 Ark. 186
Billy J. WAWAK and Earlene Wawak, His Wife, Appellants,
v.
AFFILIATED FOOD STORES, INC., Appellee.
No. 90-296.
Supreme Court of Arkansas.
July 1, 1991.
John Biscoe Bingham, No. Little Rock, for appellants.
David E. Smith, Benton, for appellee.
HAYS, Justice.
By this appeal we must decide which of two conflicting claims to security interests in the inventory of a supermarket is subordinate under Article 9 of the Uniform Commercial Code.
*680 Appellants Billy J. Wawak and Earlene Wawak began operating the Oak Grove Supermarket in 1978. The Wawaks acquired their stock from appellee Affiliated Food Stores, Inc., which secured its account with them by a security agreement and U.C.C. financing statement covering the inventory of the supermarket.
In 1986 the Wawaks made arrangements to sell the supermarket to Robert S. Davis, operating under the names Bob's Thriftway and Bob's Supermarket of Arkansas. Davis and the Wawaks signed an agreement under which Davis began operating the supermarket on January 28,1986, while the documents of sale were being prepared.
Davis made immediate arrangements with Affiliated Food Stores to purchase inventory for the Oak Grove supermarket and executed a security agreement and financing statement with Affiliated covering the inventory of the supermarket. The financing statement and security agreement were properly recorded on February 6, 1986.
In April Davis and the Wawaks completed their transaction and Davis executed a security agreement and financing statement covering the inventory to secure the indebtedness due the Wawaks. These instruments were properly recorded on April 8, 1986.
After some eighteen months Davis declared bankruptcy and on January 15, 1988, the Wawaks took possession of the supermarket and inventory from the trustee in bankruptcy. The Wawaks sought a declaratory judgment that their security interest was prior and superior to the security interest of Affiliated Food Stores, Inc. The circuit court ruled that the security interest of Affiliated Food Stores, Inc., was prior to that of the Wawaks and they have appealed. Since we agree with the trial court that the security interest of Affiliated was prior to that of Wawak, we affirm the judgment.
Appellants maintain that under Ark.Code Ann. § 4-9-203(1) (1987) a security interest does not attach until the debtor has "rights in the collateral". They contend that Davis had no rights in the inventory of the supermarket, the collateral, until April 7, 1986, when the sale was completed. Prior to April 7, they submit that Davis was merely a "manager" or "bailee," citing several authorities interpreting "rights in the collateral" under § 4-9-203: Uniform Commercial Code, 3d Ed., § 22-6 (1988); B. Clark, The Law of Secured Transactions Under the Uniform Commercial Code § 2.4 (1980); D. Baker, A Lawyer's Guide to Secured Transactions § 2.4 at 85 (1983).
But those treatises are largely general, and relate to different situations, situations in which goods are owned by third parties, with mere possession by a debtor proving insufficient to establish rights in the collateral. In contrast, it can hardly be disputed that Davis had more than naked possession. He was effectively the buyer in possession of a going concern, fully empowered to convey title to the collateral to purchasers in the ordinary course of business. Ark.Code Ann. § 4-9-307 (1987). The profits, as well as the losses, were his from and after January 28, when he took possession and began operating the supermarket. Moreover, the final sale documents reflect that the sale to Davis became "effective as of January 27, 1986." The fact that the sale was still in process on February 7, 1986, does not mean he was without rights in the collateral within the context of § 4-9-203.
While the code does not define "rights in the collateral," and this court has not had occasion to construe the term, other states have done so, compatibly with the result we reach. See e.g., First Securty Bank of Idaho, N.A. v. Woolf, 111 Idaho 680, 726 P.2d 792 (1986):
Possession of the collateral, accompanied by a contingent right of ownership, has been held sufficient for a security interest to attach. Amfax Mortgage Corp. v. Arizona Mall of Tempe, [127 Ariz. 70] 618 P.2d 240 (Ariz.App. 1980). An interest greater than naked possession has been deemed a sufficient right in the collateral to satisfy the requirements of statutes similar to I.C. Sec. 28-9-203(1)(c). See Morton Booth Co. v. *681 Tiara Furniture, Inc., 564 P.2d 210 (Okla.1977); Evans Products Co. v. Jorgensen, [245 Or. 362] 421 P.2d 978 [3 U.C.C. Rep. Serv. (West) 1099] (Or.1966).
Appellants urge that in Exchange Bank and Trust Co. v. Glenn's Marine, Inc., 265 Ark. 508, 579 S.W.2d 358 (1979), we recognized that possession alone, without ownership, was not a sufficient interest to allow a secured party of the debtor to attach the collateral in question, stressing that we looked to the actual agreement between the third party and the debtor to determine who had title to the collateral. But that case has only a passing likeness to the case at bar. There the issue was narrowed to the limited question of when title passes in a sale on approval, and we were not considering the question of a debtor's rights in collateral being sufficient to sustain a security agreement under § 4-9-203.
Another factor militates for affirmance. Ark.Code Ann. § 4-9-303(1) (1987) provides that when all the applicable steps to perfect a security interest are taken before the interest attaches, it is perfected at the time it attaches. T. Quinn, Uniform Code Commentary and Law Digest, § 9-303[B] (1978) has this comment:
Perfection [the completion of all security agreement steps, plus filing] under § 4-9-303 does not require a particular sequence of events. Thus, a security interest was perfected even though the financing statement was filed prior to the time the security interest attached. In re Rivet, 299 F. Supp. 374 (E.D.Mich. 1969).
Here, even if we could agree that Davis's rights in the collateral did not mature until April 7 when the sale was concluded, the Wawaks' security interest was not perfected until April 8 when their documents were filed, whereas under § 4-9-303(2) the security interest of Affiliated Food was perfected on April 7 at the instant Davis's rights in the collateral attached.
Finally, appellants propose in the alternative that these competing interests be prorated according to the equities. But appellants have cited no authority, nor have we found any, that considers such a remedy when, as here, the collateral is inventory. For a discussion of the limited situations where such a remedy might be applicable, see B. Clark, The Law of Secured Transactions § 3.09[5] (1988).
AFFIRMED.
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812 S.W.2d 480 (1991)
306 Ark. 209
Judy L. BLACK, Appellant,
v.
Charles R. BLACK, III, Appellee.
No. 91-8.
Supreme Court of Arkansas.
July 1, 1991.
Bill Penix, Jonesboro, for appellant.
David Laser, Jonesboro, for appellee.
BROWN, Justice.
This case comes to us on the sole question of whether the chancellor actually referred to the Arkansas Family Support Chart in making his decision on child support, as required, and sufficiently rebutted *481 the presumption that the support chart is correct.
The facts in this case are not in issue. Appellant Judy L. Black and appellee Charles R. Black, III, were divorced on June 10, 1986. At the time they had four minor children. As part of the property settlement, the appellant received approximately $280,000 in cash and an interest in the appellee's pension fund. At the time of the decree the appellant was not working. The chancellor, in his decree, ordered the appellee to pay $500 a month for each minor child as child support. He further ordered a $1,000 alimony payment to the appellant for one year only.
On October 3, 1989, the appellant filed a petition to modify the decree due to material changes in circumstances involving the needs of the children and the appellee's ability to pay. In her petition she referred to the fact that two of her four children had reached their majority, and child support was, as a consequence, no longer being paid on their behalf. Total child support each month for the remaining two minor children was, therefore, $1,000.
At the trial it developed that the appellee was indeed earning more income. Whereas in 1986 his income had been about $186,500, his income tax return in 1989 reflected earnings of about $276,500, and in addition to that he received between $18,000 to $20,000 a year in non-taxable income. Accordingly, his annual income had increased over $100,000. It further developed at the trial that all four children still lived with the appellant, and no child was working. The appellant was employed and earned about $800 a month. Of the $280,000 cash settlement, she had some $12,000 remaining. Since the divorce, she had bought a larger home, new furniture totaling approximately $10,000, jewelry worth about $4,500, and a car for her oldest daughter requiring monthly payments. She testified her monthly expenses were $4,000 to $4,500. The appellee had made gifts to his four ciiildren in varying amounts for college or for commencement of careers, which were revocable.
The chancellor, in his letter opinion dated August 1, 1990, referred to the change in the appellee's income, the status of the four children, the financial condition of the appellant, and the appellee's gifts to the four children at some length. After doing so, he determined that an increase of $250 per month for the two remaining minor children for a total monthly child support payment of $1,500 was appropriate. On September 6, 1990, the chancellor ordered the increased payment, and incorporated his letter opinion by reference into his order. In both his letter opinion and the order, he made mention of the child support chart. In his letter opinion he said that the court "may consider" the child support chart with a number of other factors to determine change of circumstances. The chancellor then added: "It should be noted at this point that the child support chart is not mandatory and the court may disregard it in making any change or refusing to make any change." He cited Ross v. Ross, 29 Ark.App. 64, 776 S.W.2d 834 (1989), as authority for these propositions. In his order, he further stated:
For the reasons set forth in the letter dated August 1, 1990, attached hereto and incorporated herein by reference, the support chart is not mandatory and is not followed in the specific amount of increased support awarded by this court.
The controlling law on what is required to determine child support was made clear by Act 948 of 1989, now codified in part as Ark.Code Ann. § 9-12-312(a)(2) (1991):
(a)(2) In determining a reasonable amount of support, initially or upon review to be paid by the non-custodial parent, the court shall refer to the most recent revision of the family support chart. It shall be a rebuttable presumption for the award of child support that the amount contained in the family support chart is the correct amount of child support to be awarded. Only upon a written finding or specific finding on the record that the application of the support chart would be unjust or inappropriate, as determined under established criteria *482 set forth in the support chart, shall the presumption be rebutted.
Also, by Per Curiam order dated February 5, 1990, we emphasized that the child support chart created a rebuttable presumption of the amount that was appropriate, and we listed factors to be considered by the court in arriving at the amount of support:
In adopting this per curiam, the Court creates a rebuttable presumption that the amount of child support calculated pursuant to the most recent revision of the Family Support Chart is the amount of child support to be awarded in any judicial proceeding for dissolution of marriage, separation, or child support.
It shall be sufficient in a particular case to rebut the presumption that the amount of child support calculated pursuant to the Family Support chart is correct, if the court enters in the case a written finding or specific finding on the record that the amount so calculated, after consideration of all relevant factors, is unjust or inappropriate.
Relevant factors to be considered by the court in determining appropriate amounts of child support shall include:
1. Food;
2. Shelter and utilities;
3. Clothing;
4. Medical expenses;
5. Educational expenses;
6. Dental expenses;
7. Child Care;
8. Accustomed standard of living;
9. Recreation;
10. Insurance;
11. Transportation expenses; and
12. Other income or assets available to support the child from whatever source.
Additional factors may warrant adjustments to the child support obligations and shall include: 1. The procurement and/or maintenance of life insurance, health insurance, dental insurance for the children's benefit;
2. The provision or payment of necessary medical dental, optical, psychological or counseling expenses of the children (e.g. orthopedic shoes, glasses, braces, etc.);
3. The creation or maintenance of a trust fund for the children;
4. The provision or payment of special education needs or expenses of the child;
5. The provision or payment of day care for a child; and
6. The extraordinary time spent with the non-custodial parent, or shared or joint custody arrangements.
In re Guidelines for Child Support Enforcement, 301 Ark. 627, 784 S.W.2d 589 (1990).
In his letter opinion the chancellor stated that the child support chart is not mandatory. That is essentially correct. We have previously held, as has the Arkansas Court of Appeals, that there may be other matters in addition to the child support chart that have a strong bearing in determining the amount of support. See Thurston v. Pinkstaff, 292 Ark. 385, 730 S.W.2d 239 (1987); Ross v. Ross, 29 Ark. App. 64, 776 S.W.2d 834 (1989). The factors listed in our Per Curiam order are examples of such other matters.
The case of Ross v. Ross, though, does not hold that a chancellor may disregard the child support chart completely. Nor is the matter of referencing the chart discretionary with the chancery court in light of Act 948 of 1989 and our February 5, 1990 Per Curiam order. Reference to the chart is mandatory, and the chart itself establishes a rebuttable presumption of the appropriate amount which can only be explained away by written findings stating why the chart amount is unjust or inappropriate.
We are mindful that the chart did not contemplate monthly income as high as that of the appellee. But using the chart as a guide, an amount could have been extrapolated. In this regard we point to a recent case where we held that it was sufficient for a chancery court to use figures on the existing support chart to project monthly support amounts appropriate *483 for a party with monthly income exceeding the chart amounts. See Scroggins v. Scroggins, 302 Ark. 362, 790 S.W.2d 157 (1990). In Scroggins, after projecting such an amount, the chancery court explained in written detail, after consideration of all relevant factors under our Per Curiam order, why that amount should not be followed, We held that that was the appropriate procedure.
Here, the chancellor's letter opinion gives a detailed explanation for his decision to modify the child support. He discusses specific changes in circumstances in 1989, the year of the petition to modify, as compared to 1986, the year of the divorce, and concludes that the support must be increased. But other than mentioning in his letter opinion that the child support chart may be considered and disregarded, there is nothing to confirm that he indeed referred to the chart in making his decision, projected a support chart amount premised on the appellee's monthly income, and presumed that amount to be correct. Nor can we confirm that he weighed the factors set out in our Per Curiam order and because of those factors determined that the amount extrapolated from the support chart would be unjust or inappropriate. Certainly, the chancellor's written findings are not couched in those terms. His order does say that he declined to follow the chart, but, again, that does not confirm that he ascertained the chart amount and found it to be unjust or inappropriate.
We are, therefore, unable to determine in the case before us whether the chancellor followed the correct procedure. Certainly, there is no family support chart amount set out in his letter opinion or order. Moreover, his letter and order are not informative on whether all relevant factors were considered, though clearly some were.
We have the power to decide chancery cases de novo on the record before us, but in appropriate cases we also have the authority to remand such cases for further action. See Schuh v. Roberson, 302 Ark. 305, 788 S.W.2d 740 (1990); Lynch v. Brunner, 294 Ark. 515, 745 S.W.2d 115 (1988). This case requires a remand. We leave it to the discretion of the chancellor to decide whether a more detailed and explanatory opinion will suffice to meet the requirements of our Per Curiam order and Ark.Code Ann. § 9-12-312(a)(2), or whether further proof from the parties is necessary on the applicable factors and other relevant matters.
CORBIN, J., dissents.
CORBIN, Justice, dissenting.
I dissent. The majority seems to be rigidly linked to the family support chart. It requires strict adherence to a recitation by the chancellor that the court has sifted through the relevant factors announced in our Per Curiam of February 5,1990, one by one to determine the appropriate amounts of child support. The majority admits it is essentially correct that the support chart is not mandatory. The majority does hold that a reference to the chart is mandatory. I have no difficulty in reading and understanding that the chancellor did "reference the chart" when he stated in his order that he declined to follow the chart. I would affirm.
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812 S.W.2d 162 (1991)
Daryle G. CREECH, Appellant,
v.
COMMONWEALTH of Kentucky, Appellee.
No. 89-CA-2347-MR.
Court of Appeals of Kentucky.
March 22, 1991.
Discretionary Review Denied by Supreme Court August 21, 1991.
*163 Mark Alan Posnansky, Appellate Public Advocate, Louisville, for appellant.
Frederic J. Cowan, Atty. Gen., Valerie L. Salven, Asst. Atty. Gen., Frankfort, for appellee.
Before HOWERTON, CLAYTON and McDONALD, JJ.
HOWERTON, Judge.
Daryle Creech moved to suppress evidence obtained in the seizure of cocaine, and when the trial court denied the motion, Creech entered a conditional plea. RCr 8.09. He was sentenced to two years in prison. The only issue we must determine is whether the stop of Creech's pick-up truck violated his constitutional rights to be free from unreasonable search and seizure. U.S. Const.Amend. IV; Ky. Const. § 10. Clearly, if the vehicle were stopped on the basis of articulable suspicion of criminal activity, then there was no violation by the introduction of evidence seized in plain view. We find no violation and affirm.
Creech and a male companion were seated in Creech's truck in the parking lot of the Kit Kat Club in Covington in the early morning hours of May 5, 1989. The motor was not running and the vehicle was dark. Officer Jim Kim was on patrol in the area and observed the vehicle at about 2:45 a.m. He testified that the vehicle was in the extreme corner of the lot and that the two occupants were hunched over, facing each other. Kim testified that he had to drive around the lot in order to enter, and that as he did so, the vehicle started to leave, but Creech stopped in response to Officer Kim's flagging him down. On the basis of evidence found in a search of the truck, Creech was indicted for possession of a narcotic controlled substance, KRS 218A.140(2).
In order for the stop of Creech's vehicle to have been proper, and thus for a search to have been permissible, the officers must have had an articulable and reasonable suspicion of criminal activity. Martin v. Commonwealth, Ky., 592 S.W.2d 134, 139 (1979); Reid v. Georgia, 448 U.S. 438, 440, 100 S. Ct. 2752, 2754, 65 L. Ed. 2d 890 (1980). In Delaware v. Prouse, 440 U.S. 648, 99 S. Ct. 1391, 59 L. Ed. 2d 660 (1979), discretionary spot checks of vehicles were not permissible under the Fourth Amendment merely to enforce traffic and vehicle safety regulations and promote public safety. 440 U.S. at 659, 99 S.Ct. at 1399. There, the Court held that "except in those situations in which there is at least articulable and reasonable suspicion that a motorist is unlicensed or that an automobile is not registered, or that either the vehicle or an occupant is otherwise subject to seizure for violation of law, stopping an automobile and detaining the driver in order to check his driver's license and the registration of the automobile are unreasonable under the Fourth Amendment." 440 U.S. at 663, 99 S.Ct. at 1401. However, in Adams v. Williams, 407 U.S. 143, 92 S. Ct. 1921, 32 L. Ed. 2d 612 (1972), the Supreme Court approved a brief stop to determine a person's identification or to maintain the status quo momentarily while obtaining more information but that case still retained the requirement that the individual must be suspicious to warrant such a stop. 407 U.S. at 146, 92 S.Ct. at 1923.
Thus, a random stop of a motorist merely to check for proper licensing and regulation would be violative of the Fourth and Fourteenth Amendments to the U.S. Constitution. The Commonwealth cited the case of Commonwealth v. Hagan, Ky., 464 S.W.2d 261 (1971), as authority for such a random stop. That case reads in pertinent part, "We know of no reason why a peace officer should not be permitted to stop any vehicle on the highway at any time for any reasonable purpose." Id. at 263. The operative words here would be "reasonable purpose." Prouse would appear to say *164 then that a random stop merely to check for licensing and registration is not reasonable. There must also be some articulable suspicion that the motorist is unlicensed or that the vehicle or an occupant is subject to seizure for violation of some law. 440 U.S. at 663, 99 S.Ct. at 1401.
In the present case, Officer Kim gave the following account of the behavior which made him suspicious:
They were facing, appeared to be facing each other and they were sort of hunched towards each other and it was after hours and as I stated, they were parked in the extreme corner of the parking lot as if to be set aside from everything else and my intentions at the time was [sic] just to check for ownership of the vehicle and proper papers as far as driving and so forth.
He had earlier testified that "[i]t was a suspicious situation that we had to more or less check out." Kim also stated that "[w]e more or less flagged them down and at that point just basically to secure the vehicle, make sure that it was proper ownership and so forth, I asked Mr. Creech for a driver's license."
It appears that the conduct of Creech and his companion raised the suspicions of the officer, and asking to see Creech's license was in furtherance of either dispelling or confirming the suspicions and of maintaining the status quo while obtaining more information. Cf. Adams, supra, 407 U.S. at 146, 92 S.Ct. at 1923. It would be reasonable to suspect, considering the totality of the circumstances, that Creech and his companion could have been involved with a stolen vehicle or certainly could have been engaging in some criminal activity at the time and place Kim observed them.
When Kim approached the truck and asked to see Creech's license, Creech appeared to have some difficulty complying. Kim shone a flashlight on Creech's wallet and then flashed it over on the other passenger to see what his hands were doing. In the process, the light illuminated a bent spoon with white residue on the floor of the truck near the passenger side. After seeing the spoon, Kim also shone the light above and saw a syringe above Creech's sun visor. Kim then told Creech and his companion to get out of the truck, and Kim and Officer Marmora searched the vehicle, turning up more white powder, syringes, and other drug paraphernalia. Following his arrest at the scene, Creech was subjected to a pat-down which turned up additional white powder.
We agree with the trial court that Officer Kim had a reasonable suspicion to stop Creech's truck, based on the conduct he observed. The stop met the criteria set forth in Prouse, supra. Having found that the stop was permissible, then clearly the evidence obtained as a result would be admissible. The spoon, white residue, and syringe were then within plain view, Coolidge v. New Hampshire, 403 U.S. 443, 446, 91 S. Ct. 2022, 2038, 29 L. Ed. 2d 564 (1971), and subject to seizure, and they provided probable cause for further search and arrest. U.S. v. Ross, 456 U.S. 798, 102 S. Ct. 2157, 72 L. Ed. 2d 572 (1982).
The denial of the motion to suppress and the judgment are affirmed.
All concur.
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156 B.R. 858 (1993)
In re Clesson PARKER, Jr., Debtor.
SEARS, ROEBUCK & COMPANY, Plaintiff,
v.
Clesson PARKER, Jr., Defendant.
Bankruptcy No. 91-07510, Adv. No. 92-9006.
United States Bankruptcy Court, N.D. Florida, Tallahassee Division.
June 22, 1993.
*859 *860 James Donohue, Tallahassee, FL, for plaintiff.
Marc E. Taps, Tallahassee, FL, for debtor, defendant.
Bill Miller, Tallahassee, FL, trustee.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
LEWIS M. KILLIAN, Jr., Bankruptcy Judge.
THIS CAUSE came on before the Court upon the Plaintiff's Complaint to Determine Dischargeability of Debt. Plaintiff asserts the Defendant willfully and maliciously injured Plaintiff, and/or the property of Plaintiff, and therefore the debt should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(6). Based upon the stipulated facts and memoranda of law submitted by both parties, the Court determines that the Plaintiff has not proven by a preponderance of the evidence that the Defendant's actions constitute a willful and malicious conversion of the secured property, and therefore, Plaintiff's claim shall not be excepted from discharge.
FINDINGS OF FACT
The stipulated facts are the only evidence upon which the Court bases its determination. The parties stipulate that the Defendant purchased a ladder from the Plaintiff on June 15, 1990 for $160.38. Defendant also purchased a miter saw and saw blade from Plaintiff on January 13, 1990 for $331.53. A copy of the sales slip from Plaintiff to the Defendant for the purchase of the ladder, Exhibit A, indicates the Plaintiff's properly perfected security interest in the ladder, by virtue of the Defendant's execution of the sale slip. A copy of the sales slip from Plaintiff to the Defendant for the purchase of the miter saw and saw blade, Exhibit B, indicates the Plaintiff's properly perfected security interest in the miter saw and saw blade, by virtue of the Defendant's execution of the sales slip. Subsequent to the purchase of the property, Defendant sold the ladder, miter saw and blade, and later filed a voluntary Petition for relief under Chapter 7 of the Bankruptcy Code on October 24, 1991.
CONCLUSIONS OF LAW
Both parties assert that the burden is on the Plaintiff to prove by clear and convincing evidence that a particular obligation of the debtor is within the scope of § 523 exceptions to discharge. This is incorrect in light of the Supreme Court decision, Grogan v. Garner, 498 U.S. 279, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991), in which the Court held that the elements for § 523(a) exceptions to discharge need only be proven by a preponderance of the evidence.
Exception from discharge under § 523(a)(6) has been interpreted to cover only deliberate and intentional wrongful acts which involve specific intent to injure. In re Gierman, 106 B.R. 733 (Bankr. M.D.Fla.1989). The conversion of property must be both willful and malicious. The 11th Circuit Court of Appeals defines willful as intentional and voluntary. Chrysler Credit Corp. v. Rebhan, 842 F.2d 1257, 1263 (11th Cir.1988). The debtor must exercise meaningful control rather than accidental conduct.
A malicious act is one done willfully, wrongfully, and without just cause, and which produces injury. In re Thomas, 116 B.R. 287, 290 (Bankr.M.D.Fla.1990). Malicious intent may be found where the debtor's conduct manifests an actual intent to injure the creditor. In re Posta, 866 F.2d 364, 367 (10th Cir.1989). However, because of the difficulty in proving actual intent to harm, the malice element may be established by a finding of implied or constructive malice. Rebhan, 842 F.2d at 1263. Constructive or implied malice may *861 be found if the nature of the act itself implies a sufficient degree of malice. In re Ikner, 883 F.2d 986, 991 (11th Cir.1989).
Evidence that the debtor had knowledge of the creditor's rights when the debtor acted is another method which may prove malicious intent. Posta, 866 F.2d at 367. The Posta court found that the lack of experience in the business and the failure to both read and understand the relevant security agreement may be sufficient to demonstrate a lack of knowledge by the debtor. Id. A debtor may not claim innocence and lack of willfulness or malice when the debtor knows that the security agreement expressly prohibits the sale of collateral and knows or should have known that the sale would destroy the creditor's security interest. Thomas, 116 B.R. at 290. However, intentional conduct which violates the security agreement is wrongful, but is not by itself malicious unless the debtor knew it was injurious to the creditor. In re Phillips, 882 F.2d 302, 305 (8th Cir.1989); Posta, 866 F.2d at 367.
The Thomas court also stated that even in the absence of specific intent to injure the creditor, a debtor's intentional, unauthorized sale of the collateral that causes harm may be characterized as willful and malicious conduct. 116 B.R. at 290. See also, In re Ogden, 119 B.R. 277, 279 (Bankr.M.D.Fla.1990). However, a finding of malicious behavior based solely upon willful or intentional conduct would render the word "malicious" meaningless under § 523(a)(6) because almost any intentional act would come within the exception to discharge. Posta, 866 F.2d at 367. This result is contrary to Congressional intent in light of the use of both "willful" and "malicious" in the statute. Canons of statutory construction suggest that every word used by Congress should be given effect. United States v. Menasche, 348 U.S. 528, 538-39, 75 S. Ct. 513, 519-20, 99 L. Ed. 615, 624 (1955).
The stipulated facts demonstrate that the Defendant sold the property and did not accidentally or involuntarily surrender ownership. This voluntary behavior satisfies the willful element of § 523(a)(6). However, the stipulated facts are totally lacking in any showing of the Defendant's actual intent to maliciously injure the Plaintiff or the Plaintiff's property. While the malice element may constructively or impliedly be found in the nature of the act itself, the Defendant's sale of the items, by itself, is not an act which implies a sufficient degree of malice. The Plaintiff's apparent contention that the mere sale of the property is presumptively malicious would be contrary to the statute as written, and Congress' intent.
The stipulated facts in this case also fail to demonstrate that the Defendant had sufficient knowledge to act maliciously when the Defendant sold the secured property. The stipulated facts offer no admission by the Defendant of having read and understood the security agreement, nor is the security agreement or any of its terms even before the court. Neither is there evidence that the Defendant has the requisite business experience nor is anything other than an unsophisticated consumer. There is no evidence the Defendant knew that the sale of the collateral was prohibited, that the property was subject to the creditor's security interest, or that the sale would destroy that interest. Finally, it is not asserted that the Defendant failed to pay the existing liens upon sale of the property, or what payments, if any, have been made for the items, and the actual balance due.
Based on the preceding, the preponderance of the evidence standard has not been met, and the Plaintiff's claim shall not be excepted from discharge.
A separate final judgment will be entered in accordance herewith.
DONE AND ORDERED.
FINAL JUDGMENT
In accordance with the Findings of Fact and Conclusions of Law entered this date in the above styled cause, it is
HEREBY ORDERED AND ADJUDGED that Final Judgment be and same is hereby entered in favor of Defendant Clesson Parker, *862 Jr., and the claim of Plaintiff Sears, Roebuck & Company be and same is hereby not excepted from discharge pursuant to 11 U.S.C. § 523(a)(6).
DONE AND ORDERED.
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904 S.W.2d 3 (1995)
Nancy Jo DODSON, Respondent,
v.
Charles Keith DODSON, Appellant.
No. WD 49686.
Missouri Court of Appeals, Western District.
May 9, 1995.
Motion for Rehearing and/or Transfer Denied June 27, 1995.
Application to Transfer Denied September 19, 1995.
*4 Roy W. Brown, Bruce B. Brown, Kearney, for appellant.
David D. Lodwick, Excelsior, for respondent.
Before BRECKENRIDGE, P.J., and ELLIS and LAURA DENVIR STITH, JJ.
Motion for Rehearing and/or Transfer to Supreme Court Denied June 27, 1995.
LAURA DENVIR STITH, Judge.
Respondent-appellant Charles Keith Dodson appeals from a decree of dissolution of marriage from his wife Nancy Jo Dodson, alleging that the trial court erroneously considered solely the evidence that he had engaged in marital misconduct, in the form of extramarital affairs, in deciding how to divide the marital property. Mr. Dodson alleges that the evidence of extramarital affairs was insufficient to support the trial court's decision to award both a mobile home and lot and the family home to his wife Nancy.
I. FACTUAL AND PROCEDURAL BACKGROUND
The parties were married on May 25, 1967, and separated for the purposes of this dissolution on April 25, 1991. Mrs. Dodson filed a Petition for Dissolution on May 1, 1991, requesting a dissolution of marriage, appropriate distribution of marital property including retirement funds, maintenance and support for herself, and attorney fees and costs. Mr. Dodson answered and filed a Cross-Petition.
In the course of the dissolution proceedings, Mrs. Dodson served Interrogatories on Mr. Dodson. Mr. Dodson refused to answer Interrogatories Nos. 20, 21, 22, and 26, which requested information regarding his extramarital affairs. Instead, he invoked his constitutional right to remain silent, stating:
I refuse to answer for the reason that I desire to take advantage of my constitutional rights under the Fifth Amendment, but not limited thereto, and I invoke all of my constitutional rights under Amendments 1 through 10 of the United States Constitution and the applicable constitutional privileges under the Constitution of the State of Missouri, Article 1, Section 19.
At the trial of the dissolution action on April 2, 1992, Mrs. Dodson presented evidence of Mr. Dodson's involvement in at least seven extramarital affairs. During these affairs *5 he would often move in with the women, leaving Mrs. Dodson to care for their child and house. Mrs. Dodson would receive harassing phone calls from certain of these women, during which the women would tell Mrs. Dodson that Mr. Dodson had spent the night with them, describing what he was wearing as proof. On one occasion, the woman Mr. Dodson was involved with became pregnant and had his child. Another time the entire family went into hiding to flee a scorned women who became upset when Mr. Dodson tried to break off the affair.
Mr. Dodson's final extramarital affair began in November of 1988. Mrs. Dodson presented evidence that Mr. Dodson provided his girlfriend with $8,525.00 to purchase a house that she lived in and that was titled in her name. Evidence was also presented that Mr. Dodson made monthly payments on the house and also spent considerable funds on items such as an air conditioner, furnace, television, etc.
In addition to the above evidence of extramarital affairs, both Mrs. Dodson and the Dodson's daughter testified about numerous episodes of physical and psychological abuse of Mrs. Dodson by Mr. Dodson. They testified that, on one occasion, he repeatedly hit Mrs. Dodson in the face. As Mrs. Dodson described the incident:
[H]e would even stand on my feet to hold me up so that he could hit me better because he would hold me up in an upright position so the could hit me again and knock me down. He picked me up one time and threw me in the air and I landed in the back of the truck. Hehe was just crazy. I don't really know what happened to him. He just went berserk.
Another time Mr. Dodson dragged Mrs. Dodson across the floor by her hair, leaving carpet burns all over her body. On yet another occasion Mr. Dodson locked Mrs. Dodson in a dog house.
Finally, Mrs. Dodson and her daughter testified that on two separate occasions, Mr. Dodson put a loaded pistol in Mrs. Dodson's mouth and threatened to kill her. One of these events took place in the presence of the Dodson's daughter.
The trial court ruled that Mr. Dodson could not testify during the trial regarding the alleged extramarital affairs because he had refused to answer the interrogatories directed toward those affairs. The parties do not contest that this ruling was within the court's discretion under the law. See Sparks v. Sparks, 768 S.W.2d 563, 567 (Mo.App.), cert. denied, 493 U.S. 957, 110 S. Ct. 372, 107 L. Ed. 2d 358 (1989).
After hearing the above evidence, the trial court rendered its initial decree dissolving the marriage and dividing the marital property. In its decree the trial court further stated its belief that, because Mr. Dodson had refused to answer the interrogatories, the court was "without discretion to grant affirmative relief in favor of Respondent [Mr. Dodson], as to marital property division." The determination that marital property could not be awarded to Mr. Dodson was apparently based on the rule that "[w]here a party takes the Fifth Amendment in a dissolution action and thereby conceals pertinent information, the party is not entitled to affirmative relief when timely objection is made." Dodson v. Dodson, 855 S.W.2d 383, 385 (Mo.App.1993), citing, Sparks, 768 S.W.2d at 565.
Despite this rule, the trial court did determine to award Mr. Dodson those items of personal property which Mrs. Dodson consented to giving him. Mrs. Dodson apparently consented to the award of substantial property to Mr. Dodson, for the court awarded Mr. Dodson three pickups, a Harley Davidson motorcycle, two outboard motors, a trailer, and miscellaneous tools and equipment. No value was assigned to this personal property.
The trial court awarded Mrs. Dodson the family home valued at $75,000 to $90,000 with outstanding debts in the amount of $21,739.33, a mobile home and lot valued at $12,000 producing rental income of $200.00 per month, a one/fourth interest in Mr. Dodson's retirement fund which will pay at least $1,200.00 per month at age 65, and the amount of $5,862.00 (one-half of back rent collected by Mr. Dodson on the mobile home and one-half of the amount spent by Mr. Dodson on a residence lived in by Mr. Dodson's *6 long-time girlfriend). Mrs. Dodson was denied maintenance and attorney's fees.
Mr. Dodson appealed, contending it was error for the trial court to hold as a matter of law that it did not have discretion to award marital property to Mr. Dodson. In Dodson v. Dodson, 855 S.W.2d 383 (Mo.App.1993), another division of this Court held that the trial court had erred in finding that Mr. Dodson's invocation of his right to remain silent precluded the court from awarding Mr. Dodson any property. We found that this is not the type of "affirmative relief" prohibited by the invocation of the right to remain silent. We remanded "for the trial court to exercise its discretion and divide the marital property." Id. at 385. This Court added that, upon remand, the trial court "has great flexibility and far reaching power in dividing marital property", and that, in fashioning its remedy:
[T]he court is entitled to believe that the respondent's answers [to Mrs. Dodson's Interrogatories] would reflect serious and egregious misconduct that is not only immoral, but also illegal. Accordingly, the court is entitled to consider a disproportionate distribution of marital property on the basis of the testimony presented and also on the basis of the questions asked that the respondent refused to answer.
Id. (emphasis added).
On remand, the trial court issued a six page decree. The decree was very similar to the initial decree, but added the following two paragraphs:
The Court finds the Respondent guilty of marital misconduct during the marriage.
The Court finds that Respondent's answers to questions relating to marital misconduct, although refused on the basis they would tend to incriminate him, would reflect serious and egregious misconduct that is not only immoral but also illegal.
The decree then set out the marital property in detail and divided it in the same manner as it had been divided initially. As he had done in the initial decree, the trial court again denied maintenance and attorney's fees to Mrs. Dodson based on its finding that she is capable of supporting herself through appropriate employment.
Mr. Dodson timely filed a Motion for New Trial or Request for Reconsideration. The trial court denied Mr. Dodson's motion and he timely filed this appeal.
II. THE DIVISION OF MARITAL PROPERTY
A. Standard of Review
In an action for dissolution of marriage, the findings and conclusions of the trial court are to be affirmed "unless there is no substantial evidence to support it, unless it is against the weight of the evidence, unless it erroneously declares the law, or unless it erroneously applies the law." Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). In addition, when review involves the division of marital property "the trial court is vested with considerable discretion in dividing marital property and an appellate court will interfere only if the division is so heavily and unduly weighted in favor of one party as to amount to an abuse of discretion." Dardick v. Dardick, 670 S.W.2d 865, 869 (Mo. banc 1984).
B. Husband's Contentions That Proper Statutory Factors Were Not Considered in Dividing Marital Property
When dividing marital property, the trial court is not required to make "an equal division of property," but must make "a fair and equitable division of the marital property in light of the circumstances attending each individual case." Dardick, 670 S.W.2d at 869. The factors to be considered by the trial court in dividing marital property are set forth in section 452.330.1, RSMo 1986,[1] as follows:
[T]he court shall set apart to each spouse his nonmarital property and divide the marital property in such proportions as the court deems just after considering all relevant factors including:
(1) The economic circumstances of each spouse at the time the division of property is to become effective ...;
*7 (2) The contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as a homemaker;
(3) The value of the nonmarital property set apart to each spouse;
(4) The conduct of the parties during the marriage; and
(5) Custodial arrangements for minor children.
Mr. Dodson claims that the trial court erroneously based its decision solely on a single aspect of factor (4), the "conduct of the parties during the marriage." In support, Mr. Dodson cites to the portion of the decree in which the trial court stated:
The Court finds that Respondent's answers to questions relating to marital misconduct, although refused on the basis they would tend to incriminate him, would reflect serious and egregious misconduct that is not only immoral but also illegal.
Based on this sentence of the decree, Mr. Dodson suggests that the trial court based its award solely on the inference of marital misconduct which arose from his refusal to answer his wife's interrogatories inquiring about his extramarital affairs. Mr. Dodson suggests this is exactly what this Court held to be improper on the initial appeal of this case.
Mr. Dodson further argues that, if the relevant statutory factors noted above were properly considered, it is clear that the distribution of marital property was inequitable. He says that there was no evidence that his extramarital affairs imposed any significant financial depletion on the marital estate or other undue hardship, and that "numerous extramarital affairs, particularly in a marriage of long duration and wherein there are subsequent reconciliations, should not deprive one of any equitable distribution of the marital property." Mr. Dodson contends the remaining property was "roughly equally" divided and suggests that the two homes also be equally divided.
C. The Trial Court Considered All Evidence of Marital Misconduct and All Relevant Statutory Factors in Dividing the Marital Property.
Mr. Dodson interprets the trial court's decree too narrowly. As Mr. Dodson notes, the trial court's decree did separately refer to Mr. Dodson's failure to answer the interrogatories, stating:
The Court finds that Respondent's answers to questions relating to marital misconduct, although refused on the basis they would tend to incriminate him, would reflect serious and egregious misconduct that is not only immoral but also illegal.
However, the decree nowhere indicates that the court's division of marital property is based on this finding alone. To the contrary, the decree contains a specific additional finding that "the Respondent [was] guilty of marital misconduct during the marriage." This finding, contained in a separate paragraph from that dealing with Mr. Dodson's failure to answer interrogatories, appears to be based on the considerable affirmative evidence of marital misconduct adduced by Mrs. Dodson, without regard to the inference which arose from Mr. Dodson's failure to answer interrogatories.
It is true, as Mr. Dodson notes, that the trial court did not specifically set out in the decree the specific instances of marital misconduct which it found, but it was not required to do so. A trial court is only required to make specific fact findings in its decree if requested by the party and only "on such controverted fact issues as have been specified by counsel." Rule 73.01(a)(3); Air Evac EMS v. Goodman, 883 S.W.2d 71, 73 (Mo.App.1994). Mr. Dodson does not contend that he requested findings of fact under this Rule. Therefore, we will presume that the trial court's findings as to any factual issues not specifically addressed in the decree were found in accordance with the division of property reached by the trial court. Rule 73.01(a)(3).
We further find that evidence was presented at trial as to only three of the five potentially relevant statutory factors[2], and that, in *8 light of this evidence, the trial court acted well within its discretion in dividing the marital property in the manner it did.
As noted above, the first statutory factor is "the economic circumstances of each spouse at the time of the division of property." There was evidence that, at the time of the division, Mrs. Dodson was capable of working and supporting herself. There was also evidence that, while Mr. Dodson had earned $36,000.00 per year during the marriage, he was on a disability leave at the time of decree. This factor might thus support a decision to award little or no maintenance to Mrs. Dodson. And, indeed, the decree states in relevant part as follows:
The Court finds that Petitioner has sufficient property to provide for her reasonable needs and is capable of supporting herself through appropriate employment. Therefore, maintenance is denied to Petitioner and is deemed non-modifiable.
The trial court similarly refused to award Mrs. Dodson attorney's fees. For the same reason, it can be inferred that this factor played a role in the court's decision to award Mrs. Dodson only a one/fourth interest in Mr. Dodson's retirement fund. See Rule 73.01(a)(3).[3]
Consideration of the second statutory factor, the contribution of the parties to the acquisition of the marital property, including Mrs. Dodson's contribution as homemaker, also supports the trial court's decree. The evidence showed that Mrs. Dodson worked during the marriage and often was primarily responsible for supporting the family. There was evidence that while Mr. Dodson earned $3,000.00 per month during some of their marriage, none of this was given to Mrs. Dodson. Mrs. Dodson also cared for the family while Mr. Dodson was away on trips or living with the women with whom he engaged in extramarital affairs. Mrs. Dodson assumed primary responsibility for building the family home. There was evidence that Mr. Dodson was away on trips for 97 of the 130 days that it took to build the home.
Finally, there can be no question that the record was replete with evidence as to the fourth statutory factor, the conduct of the parties during the marriage. Gustin v. Gustin, 861 S.W.2d 639 (Mo.App.1993), explained the important role marital misconduct plays in the division of property. While noting that "there should not be an inordinate focus upon a particular incident or even a series of incidents, particularly in a marriage of long duration," the court stated:
We believe the conduct factor becomes important when the conduct of one party to the marriage is such that it throws upon the other party marital burdens beyond the norms to be expected in the marital relationship.
Id., quoting, Burtscher v. Burtscher, 563 S.W.2d 526, 527-28 (Mo.App.1978). Gustin went on to state that:
[I]t is misconduct which upsets the balance in a marriage which requires that each spouse contribute equally. It is only when misconduct of one spouse changes the balance so that the other must assume a greater share of the partnership load that it is appropriate that such misconduct can affect the distribution of property.
Id.
There was substantial evidence that the conduct of Mr. Dodson placed marital burdens on Mrs. Dodson beyond the norms to be expected in the marital relationship. Mrs. Dodson presented evidence of Mr. Dodson's involvement in at least seven extramarital affairs. One of Mr. Dodson's infidelities resulted in the birth of a child and, on one occasion, the entire family went into hiding to flee a scorned women who became upset when Mr. Dodson tried to break off the affair. Mr. Dodson's final extramarital affair began in November of 1988. Evidence was presented that Mr. Dodson made the down payment and monthly payments on the house that his lover was living in, and also spent considerable funds on items such as an air conditioner, furnace, television, etc.
*9 Both Mrs. Dodson and her daughter also testified about numerous episodes when Mr. Dodson would abuse Mrs. Dodson, including one occasion when he dragged Mrs. Dodson across the floor by her hair; two instances in which he put a loaded pistol in her mouth and threatened to kill her (once in the presence of the child); and one instance in which he locked Mrs. Dodson in a dog house.
Based upon this evidence and the relevant statutory factors, this Court determines that the trial court could in its discretion consider marital misconduct a very important factor in dividing the marital property. While the equities of each case must be weighed individually, the Missouri courts have upheld similar distributions of marital property considering, among other factors, the marital misconduct of one of the parties. See, e.g., Fuqua v. Fuqua, 765 S.W.2d 640 (Mo.App.1989) (upholding 76% distribution to the wife based on husband's alleged misconduct including at least one incident of adultery and several instances of physical abuse); Gray v. Gray, 654 S.W.2d 309 (Mo.App.1983) (upholding 74% distribution to wife based on marital misconduct); D.L.L. v. M.O.L., 574 S.W.2d 481 (Mo.App.1978) (upholding 67% distribution to wife based on husband's misconduct of drinking and infidelity which had "placed an unfair share of the marital load on the wife and, when equated with the prevailing concept of marriage as a partnership, entitled the wife to a greater share of the partnership assets, i.e., the marital property.").
The cases which Mr. Dodson cites in support of his contention that his marital misconduct should not deprive him of a larger distribution of property are distinguishable. Mr. Dodson cites to Binkley v. Binkley, 725 S.W.2d 910 (Mo.App.1987), in which the court reversed the division of marital property on the grounds that the trial court had not fully considered the statutory mandate of section 452.330. The court based its holding on the trial court's failure to mention factors other than conduct in its decree, on the trial court's verbatim adoption of the wife's decree, and because of earlier comments by the trial court that it would divide the property in half "unless somebody has been guilty of some substantial fault," thereby indicating that the trial court would disregard the other statutorily mandated factors. Id. at 911-12. By contrast, the court in this case did consider all relevant statutory factors and evidence in dividing the marital property, and there is no indication in the record that it adopted Mrs. Dodson's proposed order.
The other cases cited by Mr. Dodson are also distinguishable because they involved limited instances of marital misconduct, as compared to this case which involved numerous extramarital affairs and physical abuse. See Gustin v. Gustin, 861 S.W.2d 639 (Mo.App.1993) (one limited instance in which the wife chopped through a door to the family home after she returned home to find the house locked and the husband's girlfriend's car in the driveway); Kuester v. Kuester, 633 S.W.2d 281 (Mo.App.1982) (upholding an equal distribution of marital property where the marital misconduct occurred after the wife developed mental problems, ceased showing affection, and moved out of the bedroom); Burtscher v. Burtscher, 563 S.W.2d 526 (Mo.App.1978) (one extramarital affair near or after the time the parties separated at the end of a 24 year marriage).
Mr. Dodson suggests that he too engaged in only minor marital misconduct, stating that "excluding the Platt affair, [the misconduct] is basically limited to several extramarital affairs with a presumption of a birth of a child and perhaps some terminated pregnancies and that the trial court has inordinately focused on this misconduct." We disagree that this misconduct can be considered minor or that there is any indication that it was given inordinate weight below. We further note that Mr. Dodson's summary of the evidence conveniently overlooks the instances noted above when the family had to hide from Mr. Dodson's rejected paramour, as well as the evidence that at times Mr. Dodson would leave his family to fend for themselves while he pursued his affairs.
Mr. Dodson also fails to mention the spousal abuse discussed above. Counsel for defendant suggests on appeal that we should give little weight to this evidence of abuse, and actually goes so far as to state in his reply brief that:
*10 As to the allegations of "numerous occasions" of abuse, there appears to be little objective evidence to support her allegations, only twice seeking medical attention from her doctor.
We suggest to counsel that two occasions of seeking medical attention from one's doctor are two occasions too many, that the abuse in this case is exceedingly egregious, and that it would have supported a far less generous award of property to Mr. Dodson than he received.
We nonetheless find that the trial court acted within its discretion in making the award of numerous items of personal property to Mr. Dodson, in awarding the real property and other substantial personal property to Mrs. Dodson, and in reaching the other determinations in its decree. For these reasons, the judgment is affirmed.
All concur.
NOTES
[1] All statutory references are to RSMo 1986 unless otherwise stated.
[2] Factors 3 and 5 are not applicable in that there was no evidence presented as to nonmarital property and the only child had reached maturity.
[3] It should also be noted that the trial court did not "roughly equally" divide the remaining marital property in that it only awarded Mrs. Dodson a one/fourth interest in the retirement fund, an important source of future income.
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01-03-2023
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10-30-2013
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