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414 A.2d 465 (1980)
CITY OF PROVIDENCE By and Through its WATER SUPPLY BOARD
v.
PUBLIC UTILITIES COMMISSION et al.
No. 78-301-M.P.
Supreme Court of Rhode Island.
April 29, 1980.
William J. McGair, Providence, for petitioner.
John R. McDermott, Asst. Atty. Gen., Providence, for respondents.
OPINION
DORIS, Justice.
The city of Providence petitioned this court for a writ of certiorari to review a report and order dated August 3, 1978, of the Public Utilities Commission (the commission) regarding an increase in the water rates charged by the Providence Water Supply Board (the board). We issued the writ and heard arguments on two matters:
1. Whether the commission has jurisdiction to oversee the rate-making authority of the board, and
*466 2. whether the commission erred in not authorizing a return on the board's investment in capital facilities.
Because we find that the commission has no jurisdiction over the board's rate-making determinations, we do not reach the second issue.
This matter arose from a hearing before the commission at which the board sought approval for an increase in its wholesale and retail water rates. Counsel for the board objected to the hearings and moved for a dismissal on the ground that the commission had no jurisdiction to oversee the board's determination of the water rates. Counsel argued that historically the board had a statutory right to determine its water rates and that the Legislature, by passing a special law in 1967, reaffirmed this right. The commission, relying on two opinions of the attorney general, ruled that the board was a public utility subject to the jurisdiction of the commission and denied the motion to dismiss. In doing so the commission erred.
The uncertainty surrounding the jurisdictional issue arises from the conflict between two acts passed by the Legislature in 1967. In one act, P.L. 1967, ch. 156, § 2, the Legislature amended the definition of a public utility to include any association that delivered or furnished water, except that the definition did not include "any public waterworks and water service owned and furnished by any city, [or] town, * * * unless any such city, [or] town, * * * sells water, on a wholesale or retail basis, outside the territorial limits of such city or town * * *." Id. The Legislature also passed P.L. 1967, ch. 162, § 1, which amended the act that had established the board.[1] by providing "that in case the city of Providence * * * elects to sell water directly to water users or consumers, the water supply board of the city of Providence * * shall have the right to determine the rate at which said water shall be sold." Id. Chapter 162 further provided that "[a]ll acts and parts of acts inconsistent with section 1 of this act are hereby repealed." Id. § 3. The House of Representatives passed chapter 162 on May 12, 1967, and passed chapter 156 on May 18, 1967. The Senate passed both acts on May 18, 1967. The governor approved chapter 156 on May 24, 1967, and chapter 162 on May 26, 1967. Assuming that the term "public utility," as defined by chapter 156, included the Providence Water Supply Board, the issue now confronting us is whether chapter 162 reinvested the board with the authority to determine its water rates. We believe that it did.
To the extent that chapter 156 and chapter 162 confer on two government agencies the responsibility for determining the rate at which the city of Providence may sell its water, they are repugnant to each other. Although this court does not favor repeals by implication, Providence Electric Co. v. Donatelli Building Co., 116 R.I. 340, 344, 356 A.2d 483, 486 (1976), when two acts are irreconcilably repugnant, we will imply a repeal and give effect to the more recently passed act. Berthiaume v. School Committee of Woonsocket, R.I., 397 A.2d 889, 893 (1979). This is particularly true when the more recently enacted law is "more comprehensive and specific than" the older law. Opinion to the Governor, 78 R.I. 144, 149-50, 80 A.2d 165, 168 (1951); see also G.L. 1956 (1970 Reenactment) § 43-3-26.
In the present case we find that chapters 156 and 162 are irreconcilably repugnant the board and the commission cannot both have the final authority to determine the city's water rates. Because chapter 162 became effective subsequent to chapter 156 and because its provisions are more specific than those of chapter 156, it is our opinion that any inconsistency between the chapters must be resolved by giving preference to chapter 162. Accordingly, we hold that the provisions of chapter 156 that brought within the jurisdiction of the commission those public waterworks that sell water beyond their territorial limits have been implicitly repealed, as they apply to Providence and its Water Supply Board, by chapter *467 162. To hold otherwise would require us to construe chapter 162 as having no effect and serving no useful purpose. We will not attribute to the Legislature an intent to pass such an act. Berthiaume v. School Committee of Woonsocket, R.I., 397 A.2d at 892; Berberian v. Berberian, 109 R.I. 273, 276, 284 A.2d 72, 74 (1971).
The petition for certiorari is granted, the report and order of the Public Utilities Commission is quashed, and the papers are remanded to the Public Utilities Commission with our decision endorsed thereon.
NOTES
[1] The Providence Water Supply Board was established by Chapter 1278 of the Public Laws of 1915, and has been amended several times prior to 1967.
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227 S.W.2d 813 (1950)
HUTSON
v.
STATE.
No. 24709.
Court of Criminal Appeals of Texas.
March 15, 1950.
Oscar B. Jones, Longview, for appellant.
R. L. Whitehead, Cr. Dist. Atty., Longview, Paul Painter, Asst. Cr. Dist. Atty., Longview, George P. Blackburn, State's Atty., of Austin, for the State.
WOODLEY, Judge.
Appellant was prosecuted for violation of Art. 567b, Vernon's Ann.P.C., sometimes referred to as the "Hot Check Law," the complaint and information alleging that appellant "unlawfully and with intent to defraud" did give a check in the sum of $3.15 in payment for "service of the value of $3.15 theretofore received" by appellant.
Upon a trial before the court, a jury being waived, appellant was found guilty and his punishment was assessed at a fine of $50.
Appellant filed a motion to quash the complaint and information, which motion was overruled.
It is appellant's contention that the service alleged to have been fraudulently secured was not sufficiently described so as to be identified and distinguished from other "service," of like kind, or to show the amount of such service alleged to have been fraudulently secured.
Appellant cites the cases of White v. State, 149 Tex. Crim. 218, 193 S.W.2d 218; Trigg v. State, 117 Tex. Crim. 536, 34 S.W.2d 878; Howk v. State, 138 Tex. Crim. 275, 135 S.W.2d 719; Luce v. State, 88 Tex.Cr. R. 46, 224 S.W. 1095; and Perry v. State, 141 Tex. Crim. 291, 148 S.W.2d 412, as supporting his contention.
In each of the cases cited, the gist of the offense was the fraudulent acquisition of property, and the question before the court was as to the sufficiency of the description of the property alleged to have been so acquired.
The charge against appellant was evidently drawn under Section 2 of Art. 567b, Vernon's Ann.P.C., and does not attempt to charge that any service was secured fraudulently by the giving of the check.
The gist of the offense under Sec. 2 of Art. 567b, as charged, is the giving of a check with intent to defraud in payment of a pre-existing debt.
Under such charge, it is not essential that the service or goods for which the debt was theretofore incurred be described with the certainty required in a charge of the fraudulent acquisition of service or property.
The motion to quash was therefore properly overruled.
The evidence, however, is not sufficient to sustain the conviction.
There is no evidence tending to show that the check was given with intent to defraud. Nor is it shown that the service had been "theretofore received" by appellant, as charged in the complaint and information.
*814 It is not shown that appellant obtained possession of property, or receipt, or that he was granted further credit by the giving of the check. It is merely shown that he gave the check "in payment of such amount for cleaning and pressing services," and that the check was not paid, the account at the bank being closed.
The mere giving of a "hot check" in payment of a pre-existing debt is not sufficient, there must be some character of proof otherwise that the check was given with intent to defraud. See Colin v. State, 145 Tex. Crim. 371, 168 S.W.2d 500.
For insufficiency of the proof, the judgment is reversed and the cause remanded.
Opinion approved by the Court.
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227 S.W.2d 1006 (1950)
STATE
v.
BLACK.
No. 41581.
Supreme Court of Missouri, Division No. 2.
March 13, 1950.
*1007 Roy Hamlin, Hannibal, for appellant.
J. E. Taylor, Attorney General, Lawrence L. Bradley, Assistant Attorney General, for respondent.
TIPTON, Judge.
In the circuit court of Marion County, Missouri, the appellant was convicted of manslaughter for killing his daughter Geneva Lorene Black, and his punishment was assessed at imprisonment in the county jail for one year. From this judgment he has duly appealed.
His first assignment of error is that the trial court erred in overruling his motion to quash the indictment returned by the grand jury against him. In his motion he contends that the indictment is so vague, verbose and conflicting that no accused could prepare a defense nor anticipate for what he was being put in jeopardy. The indictment states that the appellant "on or about the 25th day of January, one thousand nine hundred forty seven, * * * with force and arms, * * * did make an assault, * * * with his hands and fists * * * in and upon the head and body * * * did strike, knock, hit, beat and wound, giving to the said Geneva Lorene Black, * * * one mortal blow, bruise, contusion, laceration and wound, of which said mortal blow * * * and wound the said Geneva Lorene Black, on the 26th day of January, one thousand nine hundred forty seven at the Township of Mason, County of Marion and State of Missouri, did die."
We are of the opinion that this indictment clearly informed the appellant that he was accused of killing Geneva by striking and beating her upon the head and body with his hands and fists and that as a result of said striking and beating she died. It is not subject to appellant's charge that it was merely "a `shot gun' accusation in the hope of having something develop upon which appellant could be convicted." Since the indictment omits the elements of first and second degree murder, it sufficiently charges the crime of manslaughter. State v. Holliday, 353 Mo. 397, 182 S.W.2d 553.
Appellant contends that the trial court erred in overruling his motion to suppress his evidence, his wife's evidence, his daughter's evidence and his son's evidence, taken at the coroner's inquest in reference to the death of Geneva. These four people were duly subpoenaed to appear before the coroner's jury. The appellant was duly sworn and testified that his name was Marvel Black and he was the father of deceased. Then the prosecuting attorney of Marion County asked him the following questions:
"Q. Mr. Black, I do not know what this inquest will bring out. There is a possibility that you may not want to testify. I want to advise you now that you are not *1008 required to testify if you think that it will jeopardize you in any way. You have a constitutional right not to do so. In view of this right, do you want to tell us what you know about this situation? A. Yes, sir. It is just like I told you yesterday * * *
"Q. You made a voluntary statement to officer Blackburn and me yesterday? A. Yes. I believe that was his name."
On the motion to suppress the appellant testified that he went only to the fourth grade in school, that he did not know what was meant by his constitutional rights in regard to testifying at the coroner's inquest, and that he did not have an attorney. The record of the testimony at the inquest showed that neither the appellant nor his wife was warned that her testimony could be used against appellant, nor was there any warning given the two children of appellant.
The court ruled on each of these four witnesses separately. He held that regardless of whether Mrs. Black and the children had been warned of any constitutional rights, their testimony could not be admitted as evidence against the appellant but could be used for impeachment purposes in their cross-examination in the event they were put on the witness stand by the appellant. The trial court ruled that appellant had been sufficiently warned in very clear, understandable language of his constitutional rights.
We agree with the trial court that appellant had been warned in clear, understandable language of his constitutional rights. We think his answers to the questions set out above indicate that he understood the warning and the court properly overruled that part of the motion to suppress the testimony of the appellant.
There is some ambiguity in the record as to whether the testimony of the appellant was used by the state in its evidence in chief or used only for impeachment purposes in cross-examination. Under the law, if it was not given voluntarily, then it would be inadmissible either in chief or in cross-examination. State v. Burnett, Mo.Sup., 206 S.W.2d 345, and cases cited therein. But we are of the opinion that appellant voluntarily testified at the coroner's inquest and he therefore waived his constitutional rights for the reason that he understood the warning given by the prosecuting attorney at the inquest. State v. McDaniel, 336 Mo. 656, 80 S.W.2d 185.
However, there is nothing in the record to show that the appellant was warned that his wife could not testify against him. Section 4081, R.S.Mo., 1939, Mo.R.S.A., provides that no person on trial or examination, nor wife or husband of such person, shall be required to testify. Under the circumstances in this case the appellant did not voluntarily waive his legal rights when his wife testified at the coroner's inquest, and her testimony given there should not have been used in her cross-examination at the trial, even if used only to impeach her. State v. Burnett, supra. But we have carefully searched appellant's motion for a new trial and fail to find any assignment of error that would preserve this question for our review.
Appellant's next two assignments of error go into the sufficiency of the evidence to sustain a verdict finding the appellant guilty of manslaughter. The evidence most favorable to the state is as follows: The deceased was a little over sixteen years old and was employed as a domestic in the home of Mr. and Mrs. John Miller in Hannibal, Missouri. In the afternoon of January 25, 1947, the mother of the deceased called her by telephone at the Miller home and requested her to come home, which she did for a short while. Upon arriving home she was questioned by her parents about $15.00 she had obtained from a Mr. Hemme by device of a note purportedly written by her mother requesting a loan of $15.00. After some questioning she finally admitted that she had written the note and got the money. Appellant then told her if that was the way she was going to act for her to get her clothes and come home. No corporal punishment was administered to her at this time.
After the deceased returned to the Miller home, Mrs. Miller heard her crying in her bedroom. A little later Mrs. Miller saw *1009 her in the bathroom vomiting and she continued to vomit off and on for some time. Mrs. Miller and her husband went in a car to appellant's home and informed the Blacks of the deceased's illness. The appellant stated he would go after her and said, "I will go down and give her a good beating like I did one of my other girls, that is what she needs." As he left with the Millers he said to his wife, "If I'm not back in a few minutes you can come to the police station after me." The group then drove back to the Miller home and on arriving found the deceased in the bathroom vomiting. Appellant told deceased to get up and get her clothes. After an interval deceased went to her bedroom and Mrs. Miller helped her pack. Appellant and deceased left in a taxi. The driver of the taxi testified that deceased said nothing on the way home but was whimpering like she had been crying. He heard the appellant say to her, "You think you feel bad now, wait until I get you home." When they got to the Black home, deceased got out of the taxi unassisted and she and appellant went into the house.
Appellant immediately asked deceased what she had done with the $15.00 and she refused to answer. When she refused to answer, according to appellant, he slapped her with his open hand four or five times. Deceased went to bed and appellant heard her vomiting during the night. He told her to get up and get a pan, and not to vomit on the clean floors. He stated that one time during the night he heard her fall or stumble into a chair in the kitchen.
Appellant testified that the Black family arose about 5:00 the next morning but deceased stayed in bed. While the rest of the family was at breakfast deceased was heard to go outside toward the outdoor toilet. She did not return in a reasonable length of time so appellant picked up a switch about the size of a lead pencil and went out to see about her. He found her lying face down on a concrete side walk. She was dressed in a nightgown, house coat and slippers. He told her to get up and she did with his help. Just as she got to the doorway, he struck her several times about the buttocks and legs with the switch. She went into the house and went to bed. He then went to work at the cement plant. The other children later went to Sunday school. When they returned they went into deceased's bedroom to show her their Sunday school papers. After leaving the room they told their mother that she looked "funny." When the mother went in the room she found her eyes rolled back in her head.
Dr. W. P. Birney, the family doctor, was called and he arrived about 1:00 P.M. Sunday. He found that she was dead. He removed her clothing and examined her head and body. He found that there were several bruises on her face and her lips were swollen and bruised; there was a bruise at the corner of her eye, a whitish place on the side of her nose, the pupils of her eyes were widely dilated, there was blood in her nose and an ugly looking bruise on the point of her chin that looked as "if the chin came into violent contact with the side walk or some granitoid surface." He refused to sign the death certificate without an autopsy. He and Dr. Lucke performed one the next day and they found a brain hemorrhage resulting in a blood clot at the base of the brain. It was his opinion that she came to her death as a result of a brain hemorrhage. He further testified that a blow from a hand could have caused the injury, but "if you restrict that to the open hand, I would say it would be very unlikely." However, Dr. Lucke testified that a blow on the face administered by the hand or fist could have caused a hemorrhage of the brain. Both doctors testified that it would take about 12 hours for a blood clot to form.
There was testimony that the deceased was taken to the hospital the previous summer for acute appendicitis but no surgery was performed; that at about that time and at subsequent times she was subject to severe vomiting spells; and that she had suffered from dizzy spells.
"Courts do not, and should not, constitute themselves the arbiters of the household. There the authority of the parents, within the limits we shall presently define, is supreme, and from their judgment there is no appeal. But these domestic tribunals *1010 have limits of their jurisdiction, beyond which they may not go with impunity. The welfare of the child is the principle ground on which the parental right to chastise him is founded, and, where the punishment inflicted is so excessive and cruel as to show beyond a reasonable doubt that the parent was not acting in good faith for the benefit of the child, but to satisfy his own evil passion, he no longer is to be considered as a judge administering the law of the household, but as a malefactor guilty of an unlawful assault on a helpless person entrusted to his care and protection. Thus, to main the child or endanger his life or health, or to severely beat him with an improper and dangerous instrument, though no permanent injury be given, or to subject him to unusual forms of physical torture, or to whip him with such excessive severity as implies the absence of a due appreciation of parental duty, are acts which in themselves bespeak evil intent, and a parent guilty of such excess will not be heard to say that he thought he was acting for the benefit of the child. The existence of criminal intent will be presumed to have prompted the commission of the excessive act, whether it resulted in permanent injury or disfigurement, or in temporarily subjecting its victim to merciless physical pain." State v. Koonse, 123 Mo.App. 655, loc. cit. 663, 101 S.W. 139, loc. cit. 141.
A parent has the right to administer proper and reasonable chastisement to his child without being guilty of assault and battery, but if he administers unreasonable chastisement his act becomes unlawful. It is not the infliction of the punishment but the excess which constitutes the offense, and what this excess shall be is not a conclusion of law but a question of fact for the determination of the jury. And in making the determination of whether the punishment is moderate or excessive it must necessarily depend upon the age, sex, condition and disposition of the child with all the surrounding circumstances.
The corpus delicti consists of death of a human being and the criminal agency of another as the means thereof, and it may be proven by circumstantial evidence. State v. Bennett, Mo.Sup., 87 S.W.2d 159; State v. Lyle, 353 Mo. 386, 182 S.W.2d 530. Death of deceased is admitted in this case. The bruises on this girl's face, nose and chin would constitute assault and battery. The testimony of Dr. Lucke shows that these bruises could have been caused by the open hand or fist and that such blows could have caused the brain hemorrhage. It was this hemorrhage that caused deceased's death. Dr. Birney stated that the brain hemorrhage could have been caused by a blow from the hand but that it was very unlikely to have been caused by the open hand. There is at least circumstantial evidence from which the jury could have drawn its conclusion that deceased had been hit with the open hand or fist and even that her chin came in contact with the wall of the room, causing the injury would on her chin. When we consider her age, the fact that she weighed only 108 pounds, her sickness at the time and her previous sickness, and that she was a female, we hold there was ample evidence that the jury could say the punishment was excessive.
Since there was evidence to show that the punishment was excessive, then the punishment constituted assault and battery. Therefore, the corpus delicti was proven.
"If one commits an unlawful assault and battery upon another without malice and death results, the assailant is guilty of manslaughter, although death was not intended and the assault was not of a character likely to result fatally." State v. Frazier, 339 Mo. 966, 98 S.W.2d 707, loc. cit. 713.
The appellant admitted the slapping of the deceased upon her face, which we have already stated would justify the jury in finding the punishment was not corrective but excessive and, therefore, unlawful. We hold the evidence is sufficient for the jury to find that the defendant was guilty of culpable negligence in punishing the deceased and the evidence sufficient to find appellant guilty of manslaughter.
Appellant next contends that the court erred in permitting improper cross-examination of his wife, Vennie Mae Black.
*1011 On cross-examination the wife was asked if she was afraid of her husband or if she ever told anyone she was afraid of her husband. She was asked: "Do you recall, Mrs. Black, about December 11th last year, before Christmas, that you went to the hospital with a broken arm?" "Do you remember going to Dr. Birney's office December 11th, 1946, with a black eye and the same strained arm?"
Appellant objected to these questions as being highly improper, that he did not go into the subject on direct examination and that this witness was a privileged witness under the laws of this state.
The prosecuting attorney stated that this witness was asked in her direct examination "how her husband had treated her and these children and she said `fine' and we have a right to show he didn't."
The trial court stated that "in view of the examination of this witness by Mr. Hamlin, the objection is overruled."
On direct examination this witness was not asked how appellant treated her. The testimony on this point is as follows:
"Q. Has he been kind and affectionate to these children? A. Yes, sir, he has all his life.
"Q. Was he kind and affectionate to Geneva [the deceased]? A. Yes, sir, he loves his children.
"Q. Did he love her? A. Yes, sir, he did."
The above testimony clearly shows that this witness was not asked on direct examination how appellant treated her.
Section 4081, R.S.Mo., 1939, Mo.R.S.A., provides "* * * that no person on trial or examination, nor wife or husband of such person, shall be required to testify, but any such person may, at the option of the defendant, testify in his behalf, or on behalf of a co-defendant, and shall be liable to cross-examination, as to any matter referred to in his examination in chief, and may be contradicted and impeached as any other witness in the case * * *." (Italics ours.)
We think the record clearly shows that this wife was cross-examined on a subject not brought out in her examination in chief and under this section such examination is clearly erroneous. She was not asked on direct examination how appellant treated her. Such questions were limited to how he treated their children.
We think this cross-examination was very prejudicial to the appellant. The average jury would get the impression that appellant was in the habit of beating the females in his family. If he did black the witness' eye, break her arm or strain it, he would be guilty of assault and battery upon his wife. He was on trial for excessive punishment of his deceased child. Therefore, under this record, we think the error is prejudicial and that the appellant did not have a fair trial.
The judgment of the trial court is reversed and remanded for a new trial.
All concur.
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32 B.R. 690 (1983)
In re Freddie Richard KITTLE, Eula Mae Kittle, Debtors.
Christopher J. REDMOND, Trustee, Plaintiff,
v.
KOCH OIL CO. and Farmers Home Administration, Defendants.
Bankruptcy No. 82-10680, Adv. No. 83-0317.
United States Bankruptcy Court, D. Kansas.
September 9, 1983.
Emily B. Metzger, Asst. U.S. Atty., Wichita, Kan., for creditor.
Christopher J. Redmond, Redmond, Redmond, O'Brien & Nazar, Wichita, Kan., trustee.
MEMORANDUM OF DECISION
JAMES A. PUSATERI, Bankruptcy Judge.
In this chapter 7 proceeding the Court must determine the rights of the trustee and a creditor purchasing land at a foreclosure sale to future royalty interest from a producing, non-exempt oil and gas lease.
The trustee in this proceeding is Christopher J. Redmond of Redmond, Redmond, O'Brien & Nazar, Wichita, Kansas. The creditor, Farmers Home Administration, is represented by Emily B. Metzger, Assistant United States Attorney, District of Kansas at Wichita.
The issue presented for determination is:
At a foreclosure sale, did Farmers Home purchase a royalty interest in a producing oil and gas lease as part of the real estate sold, or was the royalty interest a personal property interest that was not sold at foreclosure and is still property of the estate.
*691 The parties have submitted a stipulation and briefs and the Court is ready to rule.
FINDINGS OF FACT
The parties have stipulated to the following facts:
1. The debtors filed bankruptcy under chapter 7 of the United States Bankruptcy Act on May 18, 1982.
2. The debtors owned the following nonexempt real property:
The Northwest Quarter of Section 16, Township 23 South, Range 13 West of the 6th P.M. of Stafford County, Kansas.
3. The Travelers Indemnity Company held a first mortgage on the above described real property and the Farmers Home Administration held a second mortgage.
4. Prior to filing bankruptcy, the debtors had leased the mineral interests in the above described real property to Koch Oil Company and at the time of filing bankruptcy, the debtors retained a 1/8th royalty interest. Oil and gas was in production on the real property at the time of filing bankruptcy and the debtors were receiving royalty payments.
5. The Travelers Indemnity Company obtained relief from stay and foreclosed upon the real property in Stafford County, Kansas. The Journal Entry of Judgment did not specifically mention mineral interests.
6. The Notice of Sheriff's sale did not specifically mention any mineral interests.
7. The Farmers Home Administration purchased the real property at the foreclosure sale on January 7, 1983. The certificate of purchase issued by the Sheriff of Stafford County, Kansas did not specifically mention any mineral interests.
8. Oil is still being produced by Koch Oil Company on their lease known as the "Aiken Lease # 0818." Koch Oil Company is currently paying over the debtors' 1/8th royalty interest to the trustee who is depositing said funds in an interest bearing account and keeping the funds separate and distinct from other estate funds until the resolution of the instant controversy between the Farmers Home Administration and the trustee.
The parties have not presented the lease with Koch Oil.
CONCLUSIONS OF LAW
The trustee argues that an oil and gas lease creates a personal property right for the lessee, and a royalty interest in proceeds from the oil and gas lease. In In re Sellens, 7 Kan. App. 2d 48, 637 P.2d 483, review denied, 230 Kan. 818 (1982), however, the Kansas Court of Appeals held a lessor's right to unaccrued royalties under a producing oil and gas lease is an interest in real estate. The court stated:
Neither is an oil and gas lease a usual contract. It is signed by only one party, the lessor. It is a grant with conditions. One of the conditions is a reservation to the lessor of a share in the production. . . . The lessor's rights to royalty do not originate with the lease. The lessor reserves his rights to royalty out of the grant. His rights arise from his ownership of the real estate rather than the lease and are therefore interests in real estate until the oil and gas are captured. It follows then that future royalty (unaccrued royalty) is a part of the real estate of the lessor; it is uncaptured and of an undetermined amount or location.
7 Kan.App. at 51, 637 P.2d 483. A landowner's retained 1/8 royalty is a real property interest because it is "born of and is a part of the land itself. . . ." B. Clark, The Law of Secured Transactions Under the Uniform Commercial Code ¶ 13.2[1] (1980), quoting Cruse v. Marston, 112 Colo. 291, 148 P.2d 1004, 1006 (1944).
The trustee cites a number of cases that broadly state a lessor's royalty interest is a personal property interest. Most of these cases were correctly distinguished in In Re Sellens because each case was discussing the nature of the lessor's royalty interest after the oil and gas is severed. See In Re Sellens, 7 Kan.App.2d at 50, 637 P.2d 483, distinguishing: Waechter v. Amoco Prod. Corp., 217 Kan. 489, 537 P.2d 228 (1975); *692 Shepard v. John Hancock Mut. Life Ins. Co., 189 Kan. 125, 368 P.2d 19 (1962); Strait v. Fuller, 184 Kan. 120, 334 P.2d 385 (1959); Froelich v. United Royalty Co., 178 Kan. 503, 290 P.2d 93 (1955); Lathrop v. Eyestone, 170 Kan. 419, 227 P.2d 136 (1951); Holland v. Shaffer, 162 Kan. 474, 178 P.2d 235 (1947); Riffel v. Dieter, 159 Kan. 628, 157 P.2d 831 (1945); Kumberg v. Kumberg, 5 Kan. App. 2d 640, 623 P.2d 510 (1981). Other cases cited by the trustee are distinguishable on the same ground. See Magnusson v. Colorado Oil & Gas Corp., 183 Kan. 568, 331 P.2d 577 (1958); Burden v. Gypsy Oil, 141 Kan. 147, 40 P.2d 463 (1935). As the Court in In Re Sellens stated:
The common thread in [these] . . . cases defines royalty as the lessor's rights to share in production of oil and gas at severance. Clearly, severed oil and gas is personalty. . . . The confusion, if any, arises from the court's failure to specifically define the lessor's interest in future production under an oil and gas lease.
In Re Sellens, 7 Kan.App.2d at 50, 637 P.2d 483. These cases all discuss production royalties paid, rather than a share in production to be paid in the future.
The case of Tegarden v. Beers, 175 Kan. 610, 265 P.2d 845 (1954) is distinguished (as it was in In Re Sellens) because the royalty interest arose out of a post-nuptial agreement, and not out of a lease. In addition, the court in Tegarden v. Beers stated:
We are nowise concerned here with the covenants of an oil and gas lease but only with a contract which pertains to a division of the oil and gas on such lease after it has been produced.
175 Kan. at 615, 265 P.2d 845 (emphasis added).
In Rathbun v. Williams, 154 Kan. 601, 121 P.2d 243 (1942), the court referred to a lessor's royalty interest as a personal property interest but this reference was based on G.S. 1935 79-330 (now K.S.A. § 79-330) which deems royalty interests and oil and gas leases as personal property for state taxation purposes. Accord Federal Land Bank of Wichita v. Board of County Commissioners of Kiowa County, 368 U.S. 146, 82 S. Ct. 282, 7 L. Ed. 2d 199 (1961). We are not here dealing with tax issues and it should also be noted that under some circumstances, royalty interests are treated as real property for state taxation purposes. See G.S. 1935 79-420 (now K.S.A. § 79-420). See also Ingram v. Ingram, 214 Kan. 415, 420-21, 521 P.2d 254 (1974).
Furthermore, the law in Kansas does not appear to uniformly hold that an oil and gas lease creates a personal property right for the lessee as the trustee alleges. In Ingram v. Ingram, 214 Kan. 415, 521 P.2d 254 (1974), the Kansas Supreme Court reviewed in depth the nature of oil and gas leasehold interests. The court noted that some of its own past decisions had stated categorically in general language that oil and gas leasehold interests were personal property interests. 214 Kan. at 418-19, 521 P.2d 254. The court noted that various Kansas statutes specifically treat oil and gas leaseholds as real property interests. K.S.A. § 60-601 (treated as real property for purposes of venue); K.S.A. § 60-1001 (treated as real property for purposes of ejectment); K.S.A. § 60-2401 (treated as real property for purposes of satisfaction of judgment). Furthermore, K.S.A. § 55-210 provides:
. . . All other liens and mortgages on leaseholds for oil and gas purposes shall be enforced and foreclosed in the same manner as may be provided by law for enforcing liens and mortgages against real estate. After sale of the property there shall be no redemption. . . .
Citing these statutes, the court in Ingram v. Ingram held that a mortgage of an oil and gas leasehold was a real property transaction, taken and perfected under real property law, and not controlled by the Uniform Commercial Code.
Recently, the Supreme Court has had occasion to once again review this muddied area of law. In Utica Nat'l. Bank & Trust Co. v. Marney, 233 Kan. 432, 661 P.2d 1246 (1983), the court held that a judgment creditor does not automatically obtain a lien on an oil and gas leasehold interest as the creditor would with other real property, under K.S.A. § 60-2202 (Supp.1982), because *693 K.S.A. § 60-2202 does not specifically include oil and gas leaseholds as real property.
Thus, "an oil and gas lease is a hybrid property interest." Ingram v. Ingram, 214 Kan. at 420, 521 P.2d 254. Nevertheless, the following conclusions can be drawn from the Kansas cases. First, a lessee's leasehold interest in an oil and gas lease is treated as a real property interest and governed by real property laws: (a) when a creditor acquires, perfects, enforces or forecloses a mortgage on the lessee's leasehold interest (Ingram v. Ingram; K.S.A. § 55-210); (b) for the purposes of venue (K.S.A. § 60-1001); (c) for the purpose of satisfaction of judgment (K.S.A. § 60-2401). Second, a lessee's leasehold interest in an oil and gas lease is treated as a personal property interest and governed by personal property law when: (a) a creditor with no previous interest in the leasehold seeks to obtain a judgment lien on the judgment debtor/lessee's leasehold interest (Utica Nat'l. Bank & Trust Co. v. Marney, supra); K.S.A. § 60-2202); (b) certain taxes are involved (see K.S.A. § 79-420). Third, a lessor's right to share in royalties from severed oil and gas is a personal property right (In Re Sellens). Fourth, a lessor's future, unaccrued royalty interest in an oil and gas lease is a real property interest governed by the law of real property (In Re Sellens).
The trustee concedes in his brief that a mortgage of land includes everything constituting realty on, beneath and above the surface of the land. Because the debtor/lessor's future, unencumbered royalty interest in the oil and gas lease was a real property interest, it was part of FmHA's mortgage, was foreclosed upon and conveyed to FmHA as part of the real property. FmHA seeks only the post-redemption period royalties, alleging the trustee "has no right to future royalties payable after expiration of the applicable redemption period." (FmHA's brief at pg. 8). The Court agrees and accordingly, the trustee's complaint for turnover of royalties accruing after foreclosure sale and any applicable redemption period is denied.
The foregoing constitutes Findings of Fact and Conclusions of Law under Bankruptcy Rule 752 and Rule 52(a) of the Federal Rules of Civil Procedure.
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227 S.W.2d 675 (1950)
HILTON
v.
THOMPSON.
No. 41350.
Supreme Court of Missouri, Division No. 1.
March 13, 1950.
*676 *677 *678 Thomas J. Cole, Oliver L. Salter, St. Louis, Lyman J. Bishop, Belton, for appellant.
Everett Hullverson, St. Louis, Edward V. Sweeney, Monett, for respondent.
ASCHEMEYER, Commissioner.
This is an action under the Federal Employers' Liability Act, 45 U.S.C.A. § 51 et seq., to recover damages for personal injuries. Plaintiff recovered a judgment for $37,000.00 and defendant has taken this appeal.
Since it is conceded that the evidence was sufficient to make a submissible case on appellant's liability, there is no reason to state the evidence in detail. Respondent was employed by appellant as a member of a bridge and building crew. He was injured at 10 A.M. on April 24, 1946, while assisting in the repair of a bridge on appellant's Springfield branch about six miles south of Springfield, Missouri. The crew was engaged in replacing wooden stringers on the bridge. In order to remove the old ones, the east rail of the track, with ties attached, had been jacked up several inches. While the bridge was in this condition, trains could not operate over it.
A foreman was in charge of and directed the repair crew. The equipment used included a motor car and a derrick or crane car. The derrick car was equipped with a boom and a hand operated winch or windlass. The motor car was attached to the derrick car. A stringer, 8" x 16" x 24', weighing between 1200 and 1300 pounds, had been obtained at a pile several hundred feet south of the bridge. It was secured by a hook on the end of a cable from the windlass and was suspended in mid-air about sixteen to twenty inches from the east side of the derrick car. Nothing was used to counterbalance the weight of the suspended stringer. The derrick car was then pulled back to the bridge by the motor car. Respondent and two other men rode on the derrick car, respondent being on the northeast corner.
The foreman was operating the motor car. They came on to the bridge at a speed estimated to be from three to six miles per hour. When they were a short distance out on the bridge, the derrick car became derailed, toppled to the east, and all three men were thrown off and fell to a public road which ran underneath the bridge. Respondent fell about fifteen feet, landing on his haunches and partly on his back. According to the evidence favorable to respondent, the foreman directed him to ride on the derrick car. In stopping the motor car, the foreman caused the derrick car to jerk and jolt, become overbalanced, and to be derailed. This was the first time the motor car had been used to move the derrick car which was usually pushed by the men. They were hurrying to replace the stringers so they would not delay a train which was due about 10:30 A.M.
Appellant assigns error in connection with Instruction No. 2 given in behalf of respondent, which reads as follows: "The Court further instructs you that if you find from the evidence that, in the performance of his duties, plaintiff was directed and required by defendant's foreman to assist in the moving of certain boards by means of a motor car and derrick car and that, in compliance with such directions, plaintiff was on said derrick car; that suspended from the crane of said car was the board mentioned in evidence; that the same was unsecured and suspended over the side of said derrick car; that the defendant failed to counterbalance or weigh down the derrick car so as to prevent its tipping or unbalancing and that the defendant, through the foreman, thereafter caused the said derrick car to be moved by motor car, and in coming to a stop at and on the bridge mentioned in evidence, said car was caused to jerk and jolt and to become unbalanced and to be derailed, and that by reason of all of the aforesaid, the defendant did thereby fail to exercise ordinary care to furnish plaintiff with a reasonably safe place in which to work and was negligent, and that *679 the said derrick car tipped over and became derailed and plaintiff was thrown therefrom and injured as a direct result of such negligence of the defendant, in whole or in part, then the Court instructs you that the plaintiff is entitled to recover and your verdict should be in favor of the plaintiff, Turner Hilton, and against the defendant."
Appellant's first complaint is that the instruction should have required the jury to find a specific cause, such as the sudden application of the brakes by the foreman, for the jerking and jolting of the car which caused it to become derailed. The cases cited by appellant do not sustain this contention. For example, Brainard v. Missouri Pac. R. Co., 319 Mo. 890, 5 S.W.2d 15, holds only that where a petition charges as negligence the conjunction of a hump in the track and excessive speed of a car, and the evidence was presented upon this theory, it was error to instruct the jury that defendant might be held liable upon a finding of excessive speed alone. In the case at bar, the petition alleged various acts of negligence, one of which was, in substance, that the appellant moved the derrick car by means of the motor car "and did jerk, jar and jolt the said car so that the same would be likely to become unbalanced and to become derailed." The instruction required the jury to find, among other things, that appellant, through his foreman, caused the derrick car to jerk and jolt and to become unbalanced and derailed. Concededly, the foreman was operating the motor car and controlled the movement of the derrick car. The instruction required the jury to find the substantive and essential facts which combined and concurred to cause the derrick car to become unbalanced and derailed. If the jury believed from the evidence that the derrick car became derailed from some cause not hypothesized in the instruction, it could not have found for respondent. It is not necessary that an instruction require the jury to find evidentiary facts. It is only necessary for an instruction to require the jury to find the substantive facts which are essential to recovery. Henderson v. Dolas, Mo.Sup., 217 S.W.2d 554, 557; Vrooman v. Hill, 347 Mo. 341, 147 S.W.2d 602; Acme Harvesting Machinery Company v. Gasperson, 168 Mo.App. 558, 153 S.W. 1069.
Appellant's next complaint is that the instruction improperly imposed upon him the duty of furnishing respondent a reasonably safe place in which to work; that such a duty does not exist in connection with construction work; and that a recovery could not be based upon a failure to discharge this duty if the accident was caused by the rail which was necessarily raised in the course of repairing the bridge. Pritchard v. Thompson, 348 Mo. 832, 156 S.W.2d 652 and Stone v. Missouri Pac. R. Co., Mo.Sup., 293 S.W. 367, undoubtedly hold that, under the facts presented, the employer was under no duty to exercise ordinary care to furnish an employee a reasonably safe place in which to work, but they have no application here. In Kelso v. W. A. Ross Construction Company, 337 Mo. 202, 85 S.W.2d 527, 535, cited by appellant, where an employee on a construction project, who was directing the unloading of trucks, was injured by the backing of a truck, this Court stated: "In construction work where conditions are constantly changing, the duty of providing a safe place of work cannot be imposed to the same extent as in the case of work done in a more permanent location because, under these conditions, it is impossible to keep the place of work, the actual physical location in which the work is done, as safe as a place in a completed structure." But the Court also held that under such circumstances, the duty of providing a safe method of carrying on the work increases and "* * * the employer's duty is not merely safety of the place of work of his employee, but also his safety in his place of work; in short, a safe environment as well as a safe place." The instruction is so phrased that the jury could not have found that appellant failed to furnish respondent a reasonably safe place in which to work without finding that such failure resulted from the method of work employed by the foreman and the manner in which he used and operated the cars involved.
*680 The instruction here did not permit the jury to find for respondent because the east rail across the bridge had been raised. It is phrased in the conjunctive and required the jury to find the concurrence of all of the facts stated. The jury could not find that appellant had failed to exercise ordinary care to furnish respondent with a reasonably safe place in which to work without finding the existence of all the other facts set out in the instruction. Under the facts presented in the instruction, a finding that appellant failed to exercise ordinary care to furnish a reasonably safe place in which to work was not essential to a recovery by respondent. Respondent assumed an unnecessary burden of which appellant may not complain. Henderson v. Dolas, supra; Lindquist v. Kansas City Public Service Company, 350 Mo. 905, 169 S.W.2d 366, 368 and cases there cited.
Finally, in his reply brief, appellant suggests that the instruction does not require a finding that the negligence of appellant caused the derailment and that such negligence was the proximate cause of the accident. The instruction sets out clearly the facts which the jury was required to find, including the substantive facts relating to the derailment, and requires a finding of negligence and "that the said derrick car tipped over and became derailed and plaintiff was thrown therefrom and injured as a direct result of such negligence of the defendant." There is no merit in this contention. We hold that the giving of this instruction did not constitute reversible error.
Appellant assigns error in the giving of Instruction No. 13 on damages because (1) it does not direct the jury to diminish the damages if respondent is guilty of contributory negligence and (2) it allowed the jury to assess double damages. Instruction No. 11, given the jury at appellant's request, instructed the jury that respondent's contributory negligence would diminish the damages otherwise to be awarded him in proportion to the negligence attributable to him. Appellant argues that Instruction No. 13 constituted misdirection which was not cured by Instruction No. 11. Appellant concedes that in McIntyre v. St. Louis & S. F. R. Co., 286 Mo. 234, 227 S.W. 1047 and Hampton v. Wabash R. Co., 356 Mo. 999, 204 S.W.2d 708, 709, where the same contention was made, this Court held that the omission in the damage instruction of a direction concerning the mitigating effect of contributory negligence was nondirection, and since another instruction properly instructed on the effect of contributory negligence on the award of damages in a Federal Employers' Liability Act case, the instructions, taken as a whole, properly declared the law. Appellant argues, however, that the decision in McIntyre v. St. Louis & S. F. R. Co., supra, is no longer good law because the Federal Employers' Liability Act was amended on August 11, 1939, 45 U.S.C.A. § 54, so as to remove the doctrine of assumption of risk as a defense in bar. It is not clear why this amendment of the Federal Act is supposed to have this effect. Certainly, at the time the McIntyre case was decided, contributory negligence could only be considered in diminution of damages, 45 U.S.C.A. § 53, and this was perfectly obvious to the Court at that time. The same contention was presented to this Court in Counts v. Thompson, Mo.Sup., 222 S.W.2d 487, 493. We there held that the McIntyre case should be followed, particularly since the plaintiff's instruction authorizing full damages was qualified by the requirement "if you find the issues in favor of the plaintiff under the evidence and other instructions given." In this case the Court gave Instruction No. 10, at appellant's request, which told the jury "that the instructions are to be considered together, as constituting one whole set of instructions and your verdict must not be based on only one or more of the instructions, without consideration by you of all of the instructions." It is well settled that instructions must be considered together and not in isolation, and if, taken as a whole, they correctly declare the law, there is no reversible error. This rule of law was emphasized to the jury by Instruction No. 10 and McIntyre v. St. Louis & S. F. R. Co., *681 supra, and Hampton v. Wabash R. Co., supra, are controlling and should be followed.
The contention that Instruction No. 13 permits the assessment of double damages for permanent injuries is also ruled against appellant. A similar, if not identical, instruction was before this Court in Meierotto v. Thompson, 356 Mo. 32, 201 S.W.2d 161. We held then, and now hold again, that such an instruction does not constitute reversible error where the evidence justifies the finding that plaintiff sustained a permanent injury.
Appellant assigns error in the giving of Instruction No. 1 on the ground that it is an abstract statement of the law which could only confuse the jury. The instruction tells the jury that the case is governed by the Federal Employers' Liability Act and then states that under the provisions of this Act a "railroad while engaged in commerce between any of the several states shall be liable in damages to any person suffering injuries while he is employed by such carrier in such commerce resulting, in whole or in part, from the negligence of any of the officers, agents, or employees of such carrier." There is no complaint that this instruction does not correctly state the law. It does not direct a verdict. It was followed immediately by Instruction No. 2 submitting respondent's theory of recovery in which all of the essential facts were set out and the law was correctly applied to such facts. Under the circumstances, we do not believe the jury could have been confused or misled by it. We hold that the giving of this instruction was not reversible error. McGrew v. Missouri Pac. Ry. Co., 109 Mo. 582, 19 S.W. 53; Coats v. Old, 237 Mo.App. 353, 167 S.W.2d 652, 654.
Appellant complains of error in the refusal of an instruction directing the jury to include nothing in the verdict for Federal, State, or City taxes since such taxes could not be assessed upon the amount of any verdict awarded respondent. Appellant cites no authority to support the giving of such instruction. The instruction was properly refused. The jury was properly instructed on the factors to be considered in fixing the amount of respondent's damages and it would not have been proper to inject into the case an extraneous issue regarding the tax exempt status of the damages which might be awarded.
Appellant assigns error in the refusal of the trial court to permit cross examination of respondent and his wife on the subject of respondent's failure to file a claim for a disability pension under the provisions of the Railroad Retirement Act, 45 U.S.C.A. Sec. 228b(a) 4. Appellant's contention is this: If respondent is totally and permanently disabled, as he claims, he is entitled to receive a pension under the provisions of this act. He did not apply for a pension and his failure to do so is an admission against interest tending to prove that he is not disabled to the extent he claims. Of course, respondent's eligibility for a pension under the Federal Act was a collateral matter not germane to the action on trial. His right to a pension could not have been determined by the trial court without a careful examination of the Railroad Retirement Act and the decisions construing and applying it. We do not believe that the trial court could properly be charged with this duty in order to determine the competency of evidence designed to show that respondent did not apply for such pension when he was eligible for it.
The authorities cited by appellant do not sustain his contention that respondent's failure to apply for a pension constitutes an admission against his interest. On the contrary, in Reiling v. Russell, 345 Mo. 517, 134 S.W.2d 33, which appellant cites, this Court held that it was error to admit evidence of plaintiff's failure to file a claim for Workmen's Compensation after his employer had discontinued the payment of benefits under the Workmen's Compensation Act, Mo.R.S.A. § 3689 et seq. This was an action to recover damages against a third person for injuries sustained in an automobile accident. In holding that the evidence that no claim was filed did not constitute an admission that his disability had ceased, this Court was fully cognizant of the employer's right of subrogation to the extent of any benefits *682 paid under the Workmen's Compensation Act. It is well settled that the scope and extent of cross-examination of a witness in a civil case is discretionary with the trial court and this is particularly so with regard to collateral matters. Hungate v. Hudson, 353 Mo. 944, 185 S.W.2d 646, 157 A.L.R. 598; Orr v. Shell Oil Co., 352 Mo. 288, 177 S.W.2d 608. We hold that the trial court did not abuse his discretion in excluding cross-examination of respondent with respect to his failure to apply for a pension. The fact, as appellant argues, that he would be entitled to off-set against respondent any contributions made by him under the Railroad Retirement Act, if respondent in fact received a pension, is of no significance since respondent was not paid a pension under this act.
Counsel for appellant frankly admits that he was most persistent in his attempts to elicit from respondent that he was entitled to a pension, that he was not applied for one, and the reasons for his failure to do so. A number of references to these matters were made by counsel for appellant in the hearing of the jury. As a matter of fact, at one point in the trial, counsel elicited from respondent the fact that he had not applied for a pension and that he knew there was a pension plan in existence. Under these circumstances there was no error in the giving of Instruction No. 4 to the effect that any award of damages to respondent could not be reduced "on account of any pension plaintiff may be entitled to receive." We rule this assignment of error against appellant.
Appellant's next assignment of error is that the Court improperly sustained objections to appellant's offers of proof in connection with the cross-examination of respondent and another witness (Morgan) wherein appellant sought to show that payments which were made to them were voluntary and without regard to appellant's liability to either of them. Appellant argues that such evidence was competent to refute an inference of liability which might otherwise arise from the fact that certain payments had been made to the respondent and to Morgan, both of whom had claims against appellant arising out of the accident of April 24, 1946. Counsel for appellant elicited on cross-examination the fact that appellant had made certain payments to respondent and to Morgan. No reference had been made to this matter in the direct examination of either respondent or Morgan. Neither of them volunteered the information. Appellant, for reasons best known to him, inquired on cross-examination as to payments. Under these circumstances and in view of the discretion of the trial court with respect to the scope of cross-examination, we hold that the trial court did not abuse its discretion in refusing to permit appellant to pursue the subject further by attempting to show a custom to make such payments voluntarily, without regard to liability, and sustaining objections to appellant's offers of proof.
Appellant next contends that certain portions of the argument of respondent's counsel were improper appeals to the passions and prejudices of the jury and constitute reversible error. The first objection concerns a reference to the "Missouri Pacific empire" which occurred in the following connection: "I ask for no sympathyI want none. I am not entitled to any for him, any more than they are entitled to any for the Missouri Pacific empire. If he lives fifteen years it is reasonably certain he will * * * Mr. Cole: I object to the statement `empire' Your Honor, and ask that he withdraw it. The Court: You may withdraw that. Mr. Hullverson: I will withdraw it."
The objection of appellant's counsel to this statement was sustained and the remark was withdrawn. Counsel asked for no other relief from the trial court. In view of these circumstances we do not believe that just complaint can be made by appellant or that the matter is sufficiently preserved for review. Dodd v. Missouri-Kansas-Texas R.Co., 353 Mo. 799, 184 S.W.2d 454, 458; Bulkley v. Thompson, Mo.App., 211 S.W.2d 83, 91.
Next, appellant complains of the following portions of the argument of *683 respondent's counsel: "Gentlemen, let's clear up one point right now. He criticizes this man for bringing his action before a St. Louis jury. Is there something wrong with a St. Louis jury? Are you stupid, are you greedy or are you dishonest? Can't you see whether a person tells the truth? Is there something wrong with you? Under the law, gentlemen, and my friend cannot contradict it, a man has a right to bring his suit wherever he wants to bring it, and it was an easy place for them. These records and things were in the city of St. Louis. The Missouri Pacific Hospital Association is right here. They shouldn't crab about it. When I was a boy I lived in a little country town, DeSoto, Missouri. My Daddy was switchman for the Missouri Pacific Railroad Company, and I know the awe and wonderment which everyone in that town used to feel about the great Missouri Pacific Railroad. They were the town, just like the St. Joe Lead is the town in those lead mining districts. They were majesty, itself. No one dared to disrupt any of their plans.
"Mr. Cole: I object to that argument as an appeal to prejudice. I have not indicated to this jury you didn't have a right to bring the suit here. I have not contested that. I didn't file a motion at the time you brought it here. It is here. I say you have a rightyou could bring it in Colorado or Texas.
"Mr. Hullverson: We have a right to explain why we brought it here. How do you know what conditions existed at Aurora or Mt. Vernon.
"Mr. Cole: I object to that as an appeal to prejudice, implying the people down there are crooked or dishonest.
"The Court: Objection overruled.
"Mr. Hullverson: We have a right to answer. There ought to be a good reason. Maybe we couldn't get justice there.
"Mr. Cole: I object to that, Your Honor, as an appeal to prejudice.
"The Court: Objection overruled.
"Mr. Hullverson: I have a right to argue.
"Mr. Cole: Same objection.
"Mr. Hullverson: His was an appeal to prejudice. He wanted to make you think because he lived there the people would flock in and say he was a faker and thief because he has sued the mighty Missouri Pacific. Well, if he was a thief and faker and false claimant, the Missouri Pacific could operate their train right down here with all the witnesses that are there just as well as their employees. If he was a faker they would have had them all right here. It would have been very easy to show you he was a faker and a crook."
We have no doubt that this portion of respondent's argument was in response to the following argument of appellant's counsel: "You know, gentlemen of the jury, that the only reason in the world that this case is here before you twelve men is because Mr. Hilton and Mr. Myres and Mr. Sweeney decided that Mr. Hilton could get more from some jury who never saw him than he could get before a jury of people who had seen him for years. Even when he lived at Crane, Missouri, until four years age, he was only sixteen miles from that court house at Mt. Vernon. Now he lives seven or eight miles. He has lived in that same county for the last ten years. It is a small county. They know all about you. They know whether he was sick before. They know Dr. Kerr, the great doctor traveling over the country. He said he only did it six times in Mr. Myres' cases. They know whether he is a good doctor or not, and more important is the fact that those neighbors and friends and relatives would be on that jury down there. They know Mr. Hilton's condition before this accident ever occurred. That is just good common sense. He is here because he feels that a jury of strangers would be better to him than a jury of people who had known him all his life, known him and his family all their lives. In other words, who is trying to put anything over in this law suit? Why is this case here after it laid there for a year or more down there at Mt. Vernon, Missouri, the county seat? One of the doctors they consulted who they didn't bring was Dr. Glover, across the street from that court house. Why didn't they try it down there *684 a long time ago without bothering a St. Louis jury about a Lawrence County matter? Why wasn't it tried down there?"
Finally, appellant complains of the following reference to doctors who testified for appellant: "They bring these gentlemenyes, they are the Missouri Pacific Employees Hospital and they always testify for the Missouri Pacific, just like they did in this case." No objection was made to this argument at the time and appellant is not now in a position to urge error in this respect. Miller v. Mutual Life Insurance Co. of New York, Mo.App. 79 S.W.2d 750, 758; Dodd v. Missouri-Kansas-Texas R. Co., supra.
While we do not approve of all of the argument of respondent's counsel, it is quite apparent from the entire record that the case was tried hard and argued vigorously by both sides. Much of respondent's argument to which objection is made was obviously in answer to the argument of appellant and was in the nature of retaliation. After careful consideration of all of the arguments made, we do not believe that the argument of respondent's counsel was of such a character as to justify a retrial of the case. Griffith v. Gardner, 358 Mo. 859, 217 S.W.2d 519, 530, 531 and cases there cited; Miller v. Mutual Life Insurance Co. of New York, supra. The trial court is allowed wide discretion in determining the propriety of arguments. Griffith v. Gardner, supra. We hold that the trial court did not abuse its discretion in holding that the argument of respondent's counsel was not prejudicial to appellant.
On appellant's contention that the verdict is excessive, we cannot weigh the evidence concerning the nature and extent of respondent's injuries and the resulting disability and losses sustained by him. While the evidence is conflicting on these issues, we must consider only the evidence and the inferences most favorable to respondent.
Respondent was fifty-four years old at the time of the trial. Prior to the accident he had been in good health with the exception of an attack of malaria in 1929 which disabled him for ten months, a slight stroke in 1940 which paralyzed his left side for about forty-five minutes, and an injury to his shoulder in 1939 for which he was hospitalized in 1940. He had recovered from these conditions but stated he may have limped a little and had slight back aches occasionally.
Immediately after the accident, he was taken to the Baptist Hospital at Springfield where he remained seventeen days. He was then taken to the Missouri Pacific Hospital in St. Louis where he remained until June 12, 1946. He returned to this hospital periodically until February, 1947. He was in a cast about forty-eight days. After he returned home, he was in bed most of the time for three or four months. He was on crutches for five or six months and since then has used a cane to relieve the pressure on his back and leg.
He was in pain while in the hospital and has constant pain in his back and right leg down to the ankle. He cannot bend over. He takes hot baths two or three nights a week to relieve his pain and to get sleep. He is nervous and does not sleep much, and his wife rubs him with alcohol and ointments. He has tried to work but cannot and has earned no money since the accident. Prior to the accident his average monthly earnings were about $226.00. Appellant argues that, on respondent's testimony that he earned $1.05 an hour, his monthly earnings would be considerably less than $226.00 a month, but there is no evidence showing the number of hours in the standard work week.
Dr. Frank T. Kerr, who admitted he was not an X-ray expert but who felt he was able to interpret X-ray pictures, testified: X-rays showed that respondent had three comminuted fractures of the superior-inferior rami of the right public bone with moderate separation of the bones. He had a compression of the intervertebral discs of the interspaces of the fourth and fifth lumbar and the fifth and first sacral vertebrae. There was a compression fracture of the first lumbar vertebra. Between the fouth and fifth lumbar vertebrae and the fifth lumbar and the first sacral vertebra *685 there was a narrowing in the normal spacing and a haziness in the X-ray indicated damage to the disc with an extravasation or oozing of blood into the tissues. A fall and blow such as respondent sustained would cause this type of injury. The narrowing of the space was due to destruction of the disc. X-rays also showed arthritis of the spine with spur formations. This was not caused by the injury. Injury to the back breaks down the adhesions between the spurs and the musculature and ligamentous portion of the body, causing an inflammatory reaction around the area. This would cause pain and a spasticity of the muscles. "I would say a 52 year old man with this much arthritis, it would certainly make it very difficult for him; I don't see how he could do any manual labor, as he has been describing here." Arthritis is never cured but it often becomes quiescent. Manual labor would cause considerable pain. "Q. In your opinion can this man do any labor work in the future? A. I don't believe sonot in my opinion." As to the permanency of respondent's injuries he stated: "He has, of course, this primary fracture of the pelvis; that is permanent; he has good union in this pelvis, the films all show good union of the pelvis; it is a little off, but it is a good union; he will always have a limp due to this slight mal-alignment; that is permanent, and would, of course, affect him to a certain degree in his earning capacity and his ability to move about. The big injury, as I see it, are these areas of disc disintegration, intervertebral disc disintegration between the vertebrae; that is a permanent injury that has no cure. We will have to qualify that and say the orthopedic surgeons have been trying to cure that condition for a number of years, and I am sure everyone of you have heard they go down in the leg, take out a piece of bone, put it in the back and make it stiff, but they are finding that causes more pain than they had without it, and they are backing off of that operation a certain amount, so you are damned if you do and damned if you don't; by that I mean it is permanent, and he might with such stabilization of his vertebrae be able to get some measure of relief from pain, due to the fact it was held still, but he would still be incapacitated for physical labor, because he couldn't bend his back with a stabilizing operation."
On cross-examination he stated that the X-ray report at St. Vincent's Hospital in Monett did not mention an injury to any intervertebral disc. He also stated: "Q. Do you mean to tell the jury that the destruction you see in that intervertebral space could have been occasioned by the accident. A. That is my opinion."
Dr. Maurice B. Roche, an orthopedic surgeon, gave the following testimony: Upon physical examination of respondent, his posture was poor; he walked with a limp on the left side; he stood with his right knee flexed; there was local tenderness over the lumbo-sacral joint; and his lower back was rigid. On bending forward he complained of pain in his right thigh, and there was limitation of motion in bending backward. On straight leg raising, he was unable to lift his right leg and could lift the left one only slightly. These conditions indicated weakness of the muscles of the lower back. The right ankle jerk was diminished indicating some disturbance in enervation of the muscle or nerve supply. X-ray examination showed a fracture of both the ascending and descending rami of the pubis on the right side of the pelvis. There was a marked narrowing of the intervertebral disc space between lumbar five and sacral one. There was considerable osteoarthritic spurring of the entire lumbar spine and some shortening of the vertical dimension of the body of the first lumbar vertebra. This was the result of the application of force. It was a compression type fracture of the lumbar vertebra. The arthritis was not caused by the injury. Injury to the spine may aggravate the process and cause pain. The narrowing of the intervertebral space between the fourth and fifth lumbar and the fifth lumbar and the first sacral indicates some change in the intervertebral discs which could result from a fall such as respondent sustained. Such a condition could very well cause pain. There is limitation of motion in the back because of *686 the injury. In the lumbo-sacral level there is a subluxation or displacement and overriding of the posterior joints which restricts motion and may cause pain. He stated further: "Q. Would your opinion be that would cause him pain, working with that kind of a back? A. I should think so, depending on the type of work he would do. Q. I mean hard manual labor? A. I think any type of physical exertion, looking at his X-ray plates, it is reasonable to suppose he would have pain." He stated there would be no improvement in the bone changes and cartilaginous disc will not reconstruct. He made no diagnosis of ruptured intervertebral disc but it is highly possible that respondent has a nerve root irritation, because he has diminished ankle jerk on the right side.
While the appellant's medical evidence tended to show that respondent had not sustained a compression fracture of any vertebrae, that there was no injury to any of the intervertebral discs and that he had made a good recovery which would permit him to resume work, the weight of the evidence and the credibility of the witnesses was for the jury. Respondent's evidence was sufficient to sustain a finding that he was permanently incapacitated for manual labor.
There is no precise or objective standard to determine the monetary value of the damages sustained by respondent. Each case must be considered upon its own peculiar facts, giving some consideration to the decline in the purchasing power of money and having regard to a reasonable uniformity of awards.
Van Campen v. St. Louis-San Francisco Ry. Co., 358 Mo. 655, 216 S.W.2d 443, 449; Joice v. Missouri-Kansas-Texas R. Co., 354 Mo. 439, 189 S.W.2d 568, 577, 161 A. L.R. 383; Young v. Terminal R. R. Ass'n of St. Louis, Mo.Sup., 192 S.W.2d 402, 409. Considering only the evidence most favorable to respondent, the verdict is excessive in comparison with other verdicts which have been sustained on appeal in cases involving injuries which are somewhat similar. We think the verdict is excessive by $7,000.00. Van Campen v. St. Louis-San Francisco Ry. Co., supra; Tatum v. Gulf, M. & O. R. Co., Mo.Sup., 223 S.W.2d 418; Zichler v. St. Louis Public Service Co., 332 Mo. 902, 59 S.W.2d 654; Carpenter v. Wabash R. Co., 335 Mo. 130, 71 S.W.2d 1071; Holtz v. Daniel Hamm Drayage Co., 357 Mo. 538, 209 S.W.2d 883; Williamson v. Wabash R. Co., 355 Mo. 248, 196 S.W.2d 129.
If respondent will, within ten days from the date of filing this opinion, enter here a remittitur of $7,000.00, the judgment for $30,000.00, as of the date of the original judgment will be affirmed; otherwise, the judgment will be reversed and the cause remanded because of an excessive verdict.
VAN OSDOL and LOZIER, CC., concur.
PER CURIAM.
The foregoing opinion by ASCHEMEYER, C., is adopted as the opinion of the court.
All concur.
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173 N.J. Super. 509 (1980)
414 A.2d 614
THEODORE HENRY RITTER, COURT-APPOINTED RECEIVER FOR BENJAMIN BOYMANN AND ROSALINE BOYMANN, T/A LEVENSON'S MARKET, PLAINTIFF,
v.
GEORGE P. CASTELLINI, SHERIFF OF CUMBERLAND COUNTY, DEFENDANT.
Superior Court of New Jersey, Law Division Cumberland County.
Decided March 18, 1980.
*511 Isaac I. Serata for plaintiff and Theodore H. Ritter, plaintiff pro se.
Glenn R. Gronlund for defendant (Horn, Kaplan, Goldberg & Gorny, attorneys).
MILLER, J.S.C.
This is a motion for summary judgment by defendant sheriff. The question presented is whether a sheriff may be held liable for the theft and destruction of property upon which he has levied pursuant to a writ of attachment.
Plaintiff is the court-appointed receiver for Benjamin Boymann and Rosaline Boymann, trading as Levenson's Market, defendants in a suit filed by the Farmers and Merchants National Bank of Bridgeton. On December 27, 1976 the bank obtained a writ of attachment against all of the Boymanns' property after they defaulted on a demand note. Cumberland County Sheriff's officers duly served the writ and levied on the building and contents of Levenson's Market by taking an inventory of the goods and equipment. The officers then padlocked the store and took possession of the keys until sometime after the receiver was appointed on February 28, 1977.
On February 25, 1977, three days before the appointment of the receiver, a Sheriff's Department officer discovered evidence of a forced entry at the store and reported same to his superiors. The Bridgeton Police Department, notified later that evening, found that a padlock and hasp had been pried off the rear door of the building and an inner window pried of with a wide-bladed *512 instrument. Further investigation by detectives and the Sheriff's Department revealed that a meat slicer, cigarettes, candy and other inventoried items were missing. The premises were re-secured on March 3, 1977 by a member of the Sheriff's Department by placing a new lock on the rear door. No further inventory was made with respect to the missing items.
Plaintiff contends that the theft or loss of these items was due to the negligence of the Sheriff's Department. He notes that the Sheriff's Department did not re-secure the premises immediately after the reported entry but instead waited seven days before installing a new lock on the rear door, during which time other items may have been removed. In addition, plaintiff contends that during the time the property was in the actual or constructive possession of the sheriff, the building and a portion of its contents were destroyed when water pipes burst after utilities for the building were shut off for nonpayment of utility bills. Plaintiff alleges that the Sheriff's Department was negligent in (1) initially securing the building and windows; (2) failing to protect the building and contents from water damage due to the burst water pipes, and (3) failing to take reasonable measures to secure the building and contents from loss by theft between February 25 and March 3, 1977.
Defendant cites 80 C.J.S. Sheriffs and Constables § 78, as authority for the rule that a sheriff is not liable for property which is lost, destroyed or damaged while in his care and custody unless a showing is made of his neglect. Defendant asserts that the sheriff properly secured the premises and exercised reasonable care with respect to the property and therefore was not negligent. Plaintiff argues otherwise.
At the outset, then, a factual question is raised which would appear to preclude summary judgment for defendant.
Since the sheriff is a public employee, however, the nature and scope of his duty of care with respect to attached property must be determined in light of the provisions of the New Jersey Tort Claims Act, N.J.S.A. 59:1-1 et seq. While public employees *513 are immune from liability for injuries resulting from the exercise of judgment or discretion vested in them, the Tort Claims Act specifically provides:
Nothing in this section shall exonerate a public employee for negligence arising out of his acts or omissions in carry [sic] out his ministerial functions. [N.J.S.A. 59:3-2.]
As sheriff, defendant is an agent of the law and is a ministerial officer of the court. See 70 Am.Jur.2d, Sheriffs, Police and Constables, § 21 at 146. His duties are defined by statute and court rule in New Jersey. Pursuant to statute, attached personal property must remain in the safekeeping of the attaching officer to answer and abide the judgment of the court. N.J.S.A. 2A:26-12. There is no statute requiring the attaching officer to assume custody of attached real property, however. While the court may order the sheriff to take possession of attached real estate, to collect the rents, issues and profits thereof, and to manage the same, see R. 4:60-17(a), it is not required to do so. In the absence of such an order the sheriff must, as he did here, levy on attached real property within 30 days from the date of the writ of attachment by endorsing upon the writ a description of the property and serving a certified copy upon any person in possession. R. 4:60-7(g). In addition, the sheriff must make an inventory of all real property attached and an appraisement of all personal property attached and file this with the court within five days of the levy. R. 4:60-8.
When the sheriff padlocked the property and took the keys he acted within his statutory duty to provide for the safekeeping of the personal property inside the store. N.J.S.A. 2A:26-12. However, he also took either actual or constructive possession of the building as well, although he was not specifically ordered to do so.
The question is whether these protective measures were ministerial or discretionary acts under the Tort Claims Act. A ministerial act is one which public officials are required to *514 perform upon a given state of facts in a prescribed manner, in obedience to the mandate of legal authority and without regard to their own judgment or opinion concerning the propriety or impropriety of the act to be performed. Case v. Daniel C. McGuire, Inc., 53 N.J. Super. 494 (Ch.Div. 1959). Clearly, the sheriff's duty with respect to the personal property inside the store is to provide for its safekeeping. While the sheriff has a certain amount of discretion in determining exactly how to perform this function, the duty is still essentially ministerial. See Fitzgerald v. Palmer, 47 N.J. 106, 109 (1966). No high-level policy decisions are involved in determining how to secure a building to protect the property inside, nor is there activity of a legislative or judicial nature involved.
While there are no cases on point in New Jersey on the Tort Claims Act implications of attachment by a sheriff, interpretation of the act's provisions may be sought in the law of other jurisdictions. See N.J.S.A. 59:3-2 (1972 comment). The comment makes specific reference to 28 U.S.C.A. § 2680(c), which exempts the Federal Government from, among other things, "any claim arising in respect of ... the detention of any goods or merchandise by any officer of customs or excise or any other law enforcement officer." (Emphasis supplied). 28 U.S.C.A. § 2680(c). This section was recently construed by the Ninth Circuit to except only those claims asserting injury as a result of the fact of the detention itself where the propriety of the detention is at issue. A-Mark Inc. v. U.S. Secret Service Dept., 593 F.2d 849 (1978). Where a claim is for injury asserted to result from the negligent handling of property in the course of detention, there is no federal tort immunity. Id. at 850.
The conclusion is inescapable that it [Congress] did not choose to bestow upon all such agencies general absolution from carelessness in handling property belonging to others. [Citing Alliance Assurance Co. v. U.S., 252 F.2d 529 (2 Cir.1958); Id. at 850]
*515 Following the reasoning in the A-Mark and Alliance cases, the sheriff in the case at bar is liable for negligence in the care and preservation of the store and its contents. Reliance need not be placed on federal cases alone, however. While there is a lack of significant New Jersey case law on the subject of a sheriff's duty of care toward property in his constructive possession, one early case held that a sheriff remains liable for property in his hands when a sheriff's sale is restrained by injunction. Receivers of Morris Canal v. Biddle, 4 N.J. Eq. 222 (Ch. 1842).
The general rule in other jurisdictions with respect to the degree of care to be exercised by sheriffs in the keeping of property levied on under execution process is that:
A sheriff is in a position analogous to that of a bailee for hire and is bound to exercise that degree of care in the keeping of property under levy which men in general exercise in their own concerns ... (citation omitted.)
In any action based on negligence the burden of proving want of due care on the part of the defendant rests, or course on the plaintiff; but proof of loss or injury establishes a sufficient prima facie case against a bailee to put him on his defense. [citation omitted]. And where, in an action against a Sheriff for the negligent keeping of property levied on, it is proved, or admitted, that the property has been damaged, destroyed or stolen, it becomes the duty of the Sheriff to go forward with the proof to show, if he can, that proper care in the keeping of property was, in fact exercised by him ... [State v. Clark, 2 Terry 246, 41 Del. 246, 20 A.2d 127 (Del.Sup.Ct. 1941)]
Thus, where a sheriff executed on a vessel pursuant to a writ of attachment he was held to have the duty to care for and preserve it in a manner commensurate with the dangers involved, having regard for the nature and situation of the property and the reasonably foreseeable happenings or contingencies which he could have prevented by the exercise of reasonable care. Capper v. Callahan, 39 Wash.2d 882, 239 P.2d 541 (Wash. Sup.Ct. 1952) (weather conditions in January were such that sheriff should reasonably have foreseen that pipes containing water might freeze and burst and should have guarded against *516 such a contingency by draining the pipes). And see Garren v. Butigan, 96 Idaho 906, 539 P.2d 259 (Sup.Ct. 1975) (sheriff held liable to buyer for theft of machines left in unlocked showroom following execution sale); Southern Finance Co. v. Glaze, 117 Ga. App. 249, 160 So.2d 268 (Ct.App. 1968) (where personal property is levied on the expense of keeping it is a part of court costs to be collected out of proceeds of sale should the levy be sustained); Mickelson v. Williams, 50 Wash.2d 402, 312 P.2d 656 (Wash.Sup.Ct. 1957) (sheriff should have appointed keeper for engine seized pursuant to writ of attachment instead of leaving property unattended); Claremont Gas Light Co. v. Wooster, 91 N.H. 439, 21 A.2d 171 (N.H.Sup.Ct. 1941) (sheriff has duty to protect attached personal property from damage or loss by act of trespasser); Standard Wine Co. v. Chipman, 135 Mich. 273, 97 N.W. 679 (Sup.Ct. 1903); (sheriff has duty to preserve whiskey levied on by writ of attachment from being tampered with or diluted); and Depew v. Solomonowitz, 48 App.Div. 512, 62 N.Y.S. 916 (App.Div. 1900) (sheriff's duty toward goods in retail store levied on by writ of attachment is that of a bailee for hire). See, also, 70 Am.Jur.2d, Sheriffs, Police and Constables, § 71, and 80 C.J.S. Sheriffs and Constables § 78.
For the purposes of this summary judgment motion defendant admits that certain items of personal property in the store in question were found to be missing after the break-in was discovered. No mention is made of the items allegedly destroyed by water damage, however. Plaintiff has made out at least a prima facie case of breach of duty sufficient to preclude summary judgment in defendant's favor. A duty of care having been established under the reasoning of the cited cases, it remains for the trier of fact to determine whether the sheriff breached that duty under the facts and circumstances of this particular case.
Defendant's motion for summary judgment is denied.
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32 B.R. 140 (1983)
In re Ira Laurence HUNTER, etc., Debtor.
THOMSON McKINNON SECURITIES, INC., Plaintiff,
v.
Ira Laurence HUNTER a/k/a Ira L. Hunter a/k/a I. Laurence Hunter, and James B. McCracken, trustee, Defendants.
Bankruptcy No. 82-01928-BKC-JAG, Adv. No. 83-0548-BKC-JAG-A.
United States Bankruptcy Court, S.D. Florida.
July 25, 1983.
Robert F. O'Malley, Jr., Miami, Fla., for Thomson McKinnon Securities Inc.
Bruce J. Benenfeld, North Miami Beach, Fla., for Ira Hunter.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
JOSEPH A. GASSEN, Bankruptcy Judge.
INTRODUCTION
This adversary proceeding came on for trial before the Court, sitting without a jury, at Fort Lauderdale, Florida on July 11, 1983. The Court has carefully considered the evidence presented at the trial as well as the argument of counsel for the parties. Based thereon, the Court enters the following findings of fact and conclusions of law.
FINDINGS OF FACT
The Court, having considered the pleadings and evidence, makes the following findings of fact:
1. On October 5, 1982, Ira Laurence Hunter a/k/a Ira L. Hunter a/k/a I. Laurence Hunter ("Hunter") filed a voluntary petition under Chapter 7 of the Bankruptcy Code and on October 8, 1982, James B. McCracken was appointed trustee in the case.
2. On February 3, 1983 Plaintiff, Thomson McKinnon Securities Inc. ("Thomson McKinnon"), filed a complaint to determine the dischargeability of debts of Hunter to Thomson McKinnon in that related adversary proceeding brought before this Court *141 under Adversary No. 83-0105-BKC-JAG-A. Thomson McKinnon alleged that as a result of the fraud, misapporpriation, embezzlement and/or larceny of Hunter, it was entitled to a determination of the non-dischargeability of the claims held by it against Hunter, including that certain claim arising from the fraudulent removal of funds from the account of a Ronaldo Schacher totaling $124,390.17. Thomson McKinnon further alleged that in addition to the specific claims described, Thomson McKinnon sought that such other claims be determined to be nondischargeable to the extent that Thomson McKinnon may be held liable for any other claims or liabilities resulting from the fraud, misappropriation, embezzlement and/or larceny of Hunter for which Thomson McKinnon sustains a direct loss. The Court entered an order granting partial summary judgment in favor of Thomson McKinnon against Hunter with respect to the liability of Hunter to Thomson McKinnon for Hunter's wrongful and fraudulent withdrawal of money held in certain margin accounts, including the account of Ronaldo Schacher maintained at Thomson McKinnon. The order granting partial summary judgment further provided that the trial of the remaining issues in the case would be set after that certain adversary proceeding brought by Edwin Schweig against Hunter was tried or finally resolved.
3. On February 7, 1983, Ronaldo Schacher and Evelin Schacher filed a lawsuit against Thomson McKinnon in the United States District Court for the Southern District of Florida under Case No. 83-0307-Civ-WMH (District Lawsuit). The complaint filed in the District Lawsuit alleged nine causes of action based on misrepresentations and omissions, scheme to defraud and course of conduct operating as a fraud and deceit, margin violations, breach of fiduciary duty, negligence, common law fraud and conversion arising from the dealings between Ronaldo Schacher and Evelin Schacher and Hunter, who was employed as branch manager of Thomson McKinnon.
4. On June 13, 1983, Thomson McKinnon filed a complaint for relief from stay in the within adversary proceeding to permit it to join Hunter as a third party defendant in the District Lawsuit on the basis that the joinder of Hunter will reduce, if not eliminate, the issues to be tried by this Court relating to the nondischargeability of the claims held by Thomson McKinnon against Hunter based on Hunter's transactions with Ronaldo Schacher.
CONCLUSIONS OF LAW
1. The Bankruptcy Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1471(c) and (e) and the Rule for the Administration of the Bankruptcy System adopted by the United States District Court for the Southern District of Florida by the order of the District Court dated December 22, 1982 under No. 82-26-Misc.-Civ.
2. The automatic stay imposed under 11 U.S.C. § 362(a) operates as a stay of the commencement or continuation of any suit against Hunter, including any action to implead Hunter as a third party defendant in the District Lawsuit.
3. Pursuant to 11 U.S.C. § 362(d) the Court may terminate, annul, modify or condition the automatic stay for a cause. 11 U.S.C. § 362(d)(1).
4. Whether to modify the stay and permit actions involving a debtor to proceed in another forum is a matter of discretion exercised by the Bankruptcy Court. In re Harris, 7 B.R. 284 (D.S.D.Fla.1980).
5. In considering the facts and circumstances of this case, the Court exercises its discretion to permit Thomson McKinnon to implead Hunter as a third party defendant in the District Lawsuit.
6. The Court recognizes that by permitting Thomson McKinnon to implead Hunter as a third party defendant, additional attorney's fees and costs will be incurred by Hunter. On the other hand, if Hunter is not joined as a third party defendant in the District Lawsuit, there exists the potential duplication of effort and expense which would be incurred by Thomson McKinnon in relitigating those issues in this Court. *142 The difficult decision the Court must make in this case is to decide who should bear the burden attendant in such inconvenience, expense and effort.
7. The Court is persuaded that in this case it should follow the procedure suggested by the United States District Court for the Southern District of Florida in the case of In re Harris, supra, which decision affirms in part, and reverses in part, the decision of the United States Bankruptcy Court for the Southern District of Florida reported in 4 B.R. 506.
8. By permitting Thomson McKinnon to implead Hunter as a third party defendant in the District Lawsuit, the Court will avoid the potential duplication of effort and therefore will save considerable time, effort and expense by awaiting the outcome of the District Lawsuit and reviewing the facts established therein. Upon completion of the District Lawsuit, this Court can then review the judgments and/or other records of those proceedings. The record of the District Lawsuit should include findings of fact by the District Court or the answers by a jury to special interrogatories on the issues of fraud, breach of fiduciary duty and conversion which are relevant to the determination of the dischargeability of those obligations owed by Hunter to Thomson McKinnon. If upon reviewing the record, this Court finds that the relevant issues with regard to dischargeability have been fully addressed by the findings of fact or special interrogatories, it will then enter a determination of dischargeability. If the record from the District Court does not sufficiently address the issues presented to this Court, then this Court will take such further evidence as it may require.
9. Based on the foregoing, the Court grants the relief requested in the complaint to modify stay to permit Thomson McKinnon to join Hunter as a third party defendant in the District Lawsuit and shall reserve jurisdiction to determine the nondischargeability of the claims brought by Thomson McKinnon against Hunter upon completion of the trial therein.
10. A separate judgment incorporating the above findings and conclusions shall be entered pursuant to Bankruptcy Rule 921.
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288 Md. 119 (1980)
414 A.2d 1261
MARYLAND NATIONAL BANK
v.
JOHN A. WATHEN
[No. 127, September Term, 1979.]
Court of Appeals of Maryland.
Decided June 24, 1980.
*120 The cause was argued before MURPHY, C.J., and SMITH, ELDRIDGE, COLE, DAVIDSON and RODOWSKY, JJ.
Allan P. Feigelson for appellant.
Mark J. Davis, with whom were Albert J. Matricciani, Jr., and Ann DeNovo on the brief, for appellee.
COLE, J., delivered the opinion of the Court.
In this case we are asked to decide whether a secured party, who, after default by the debtors, repossesses the collateral and conducts the sale thereof, is barred from suing for a deficiency because he failed to notify the debtor of the sale.
The facts are not in dispute. Roger Lee Wathen purchased an automobile; the Maryland National Bank extended credit and took a security interest therein. Roger, his wife, Cynthia, and his father, John were all listed as debtors on the Note and Security Agreement and all three signed as debtors. On the line opposite Roger's name appears the notation "Box #2." On the next line, opposite Cynthia's name appear the words "Faulkner, Maryland 20632." There is no address opposite John's name. After default and repossession, the Bank sent to Roger at Box #2, Faulkner, Maryland 20632 written notice of the proposed sale of the collateral. No notice was sent to John and John had no actual knowledge of the sale until service of the Bank's declaration and motion for summary judgment claiming a deficiency resulted from the public sale of the automobile. John, in response, filed his own motion for summary *121 judgment contending he had not been notified of the sale. The Circuit Court for Charles County granted John's motion and the Bank noted an appeal to the Court of Special Appeals. We granted certiorari prior to consideration by that court.
The Bank, while conceding that John was a debtor entitled to notice, contends that its failure to notify John was an oversight. It contends that the absolute denial of a deficiency judgment amounts to an arbitrary release of the debtor and is a result not contemplated by the Uniform Commercial Code. It urges this Court to follow those courts which allow the secured party a deficiency judgment only to the extent of the difference between the fair market value of the collateral and the obligations secured, if the secured party can overcome a rebuttable presumption that the value of the collateral is equal to the obligation secured. Such holding by this Court, the Bank contends, would reduce the deficiency only to the extent of the debtor's actual damages thereby penalizing the secured party for failing to obtain the fair market value. Contrary to the Bank, John contends that the trial court was correct in ruling that failure to notify the debtor of the proposed sale is an absolute bar to a suit for a deficiency judgment.[1]
We have not addressed this precise question before and thus we shall begin our analysis by examining certain sections of the Maryland Code (1975), included in the Commercial Law Article (U.C.C.). Section 9-504 of the U.C.C. is entitled "Secured party's right to dispose of collateral after default; effect of disposition." In pertinent part, § 9-504 (3) provides:
Disposition of the collateral may be by public or *122 private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms but every aspect of the disposition including the method, manner, time, place, and terms must be commercially reasonable. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor. ... [emphasis added.]
Initially we note that an automobile does not come within the exceptions set forth in subsection (3); it is not perishable, subject to a speedy decline in value, nor "of a type customarily sold on a recognized market." A recognized market has been described as a "stock market or a commodity market, where sales involve many items so similar that individual differences are nonexistent or immaterial, where haggling and competitive bidding are not primary factors in each sale and where the prices paid in actual sales of comparable property are currently available by quotation." Norton v. National Bank of Commerce of Pine Bluff, 240 Ark. 143, 398 S.W.2d 538, 540 (1966). There is no recognized market for used cars. The price of the same model used car will vary according to its condition or the whim of the purchaser. We conclude then that § 9-504 (3) requires reasonable notification of the time and place of any proposed sale and further that the requirement that the sale be commercially reasonable does not afford the debtor sufficient assurance that full value will be given for the collateral.
Our conclusion is undergirded by the interrelation of the provisions of the code which were apparently drafted so that the debtor is afforded a reasonable opportunity to protect his *123 interests. Section 9-506[2] of the U.C.C. expressly bestows upon the debtor the opportunity to redeem the collateral by tendering payment of the balance due. It is manifest that the debtor without notice of the sale can be effectively prevented from exercising his right of redemption. Furthermore even if the debtor is not in a position to redeem, if he has notice, he may still be able to refinance and must therefore be capable of arranging for potential creditors to inspect the collateral. Alternatively, a debtor with notice may be able to procure interested buyers to drive up the level of competitive bidding. At the very least, notice provides the opportunity to attend the sale to insure that it is commercially reasonable. To permit recovery of a deficiency judgment absent notice would effectively nullify these important debtor's rights and permit "a continuation of the evil which the Commercial Code sought to correct.... It was the secret disposition of collateral by chattel mortgage owners and others which ... the Code sought to correct." Skeels v. Universal C.I.T. Credit Corp., 222 F. Supp. 696 (W.D. Pa. 1963), modified on other grounds, 335 F.2d 846 (3d Cir.1964). We see no need to undermine the protection which these provisions were intended to afford.
Our conclusion is reinforced by the juxtaposition of the interests of the debtor with the ease with which the secured party may comply with the notice requirements. Section 9-504 (3) requires only reasonable notification; there is not even the requirement that such notification be in writing particularly where the debtor has actual knowledge of the proposed sale. Crest Inv. Trust v. Alatzas, 264 Md. 571, 287 A.2d 261 (1972). All the creditor need do to protect his own *124 interests is obey the uncomplicated mandate of the law send reasonable notice. We do not believe that conditioning his right to a deficiency judgment upon such a simple procedure does violence to the spirit of commercial reasonableness.[3]
At oral argument, the Bank suggested that the debtor's exclusive remedy (to recover from the secured party any loss caused by a failure to comply with the U.C.C.'s post-default procedures) was in § 9-507.[4] We do not agree. Section 9-507 is not structured as a defense to a deficiency judgment but as an affirmative remedy for damages already sustained. These damages (presumably the difference between fair market value and the sale price) do not in any way serve to relieve the debtor's loss of his ability to redeem or refinance the collateral or drive up its sale price. The words "exclusive remedy" do not appear in § 9-507 and in light of § 1-103 of the Commercial Law Article may not permissibly be read to be included in the meaning of § 9-507. Section 1-103[5]*125 provides that unless displaced by the particular provisions of the U.C.C., prior law shall supplement the provisions therein. Universal v. Congressional, 246 Md. 380, 228 A.2d 463 (1967). According to courts and text writers who have examined the question, the principle was firmly established under the Uniform Conditional Sales Act (not enacted in Maryland) that the right to a deficiency judgment depended upon precise compliance with statutory notice requirements. Camden National Bank v. St. Clair, 309 A.2d 329 (Me. 1973); Leasco Data Processing Equipment Corp. v. Atlas Shirt Co., 66 Misc. 2d 1089, 323 N.Y.S.2d 13 (Civ. Ct. 1971); 2G. Gilmore, Secured Interests in Personal Property § 44.9.4, at 1261 (1965); J. White and R. Summers, Handbook of the Law Under the Uniform Commercial Code § 26-15, at 1000 (1972); Sachs and Belgrad, Liability of the Guarantor of Secured Indebtedness After Default and Repossession Under the Uniform Commercial Code: A Walk on the Wild Side by the Secured Party, 5 U. Balt. L. Rev. 153 (1976). The same construction was generally given to other state statutes requiring resale of repossessed property. See e.g., Atlas Thrift Co. v. Horan, 27 Cal. App. 3d 999, 104 Cal. Rptr. 315 (1972); Annot., 59 A.L.R. 3d 401, 406 (1974); Annot., 49 A.L.R. 2d 15, 82 (1956). The drafters of the Uniform Commercial Code were certainly familiar with this settled rule of law and as one court concluded:
If the authors of the U.C.C. proposed to overthrow the firmly established and generally accepted construction of the older statute denying recovery for a deficiency where there was not precise compliance with the notice requirement, they surely would have manifested that intent in clear and unambiguous language. In fact there is not the slightest intimation of any such purpose to be found in the U.C.C. The conclusion is inescapable that the prior interpretation continues to be applicable under the U.C.C. and that the failure of this plaintiff to follow the quite modest notice requirements of 9-504 (3) defeats absolutely the claim here asserted. [Leasco Data Processing *126 Equipment Corp. v. Atlas Shirt Co., supra 323 N.Y.S.2d at 15-16 (citation omitted).]
Accord, Camden National Bank v. St. Clair, supra; 2G. Gilmore, supra at 1263-64.[6]
While we have not before addressed the requirement of notice in a factual context similar to this case, we have in our prior decisions regarding the required notice in other types of sales indicated an abiding concern for its strict observance. See Fleisher Co. v. Grice, 245 Md. 248, 226 A.2d 153 (1967) (foreclosure on real property); Litteral v. Houser, 221 Md. 403, 158 A.2d 75 (1960) (redemption of corporate stock); Byrd v. Day, 138 Md. 442, 114 A. 485 (1921) (tax sale). We now underscore our concern by holding that compliance with the notice provision of § 9-504 (3) is a condition precedent to recovery of a deficiency judgment.
Judgment affirmed; appellant to pay the costs.
NOTES
[1] The contentions of the parties highlight the sharp division among the courts which have decided this issue. For courts which impose an absolute bar when notice is not sent see Skeels v. Universal C.I.T. Credit Corp., 222 F. Supp. 696 (W.D. Pa. 1963), modified on other grounds, 335 F.2d 846 (3d Cir.1964); Randolph v. Franklin Investment Co., 398 A.2d 340 (D.C. 1979); Leasco Data Processing Equipment Corp. v. Atlas Shirt Co., 66 Misc. 2d 1089, 323 N.Y.S.2d 13 (Civ. Ct. 1971). For courts rejecting the absolute bar see Weaver v. O'Meara Motor Co., 452 P.2d 87 (Alas. 1969); Norton v. National Bank of Commerce of Pine Bluff, 240 Ark. 143, 398 S.W.2d 538 (1966).
[2] Maryland Code (1975), § 9-506 of the Commercial Law Article provides:
At any time before the secured party has disposed of collateral or entered into a contract for its disposition under § 9-504 or before the obligation has been discharged under § 9-505 (2) the debtor or any other secured party may unless otherwise agreed in writing after default redeem the collateral by tendering fulfillment of all obligations secured by the collateral as well as the expenses reasonably incurred by the secured party in retaking, holding and preparing the collateral for disposition, in arranging for the sale, and to the extent provided in the agreement and not prohibited by law, his reasonable attorneys' fees and legal expenses.
[3] Another factor which has been given consideration is the positioning of the provisions. One court taking note that it is § 9-504 which gives the secured party a right to a deficiency judgment as well as requires notice of the sale concluded that: "[T]he natural inference that the right depends upon compliance is forcefully underlined by the joining of the provisions in one section." Leasco Data Processing Equipment Corp. v. Atlas Shirt Co., supra note 1, 323 N.Y.S.2d at 16.
[4] Maryland Code (1975) § 9-507 of the Commercial Law Article provides in part:
If it is established that the secured party is not proceeding in accordance with the provisions of this subtitle disposition may be ordered or restrained on appropriate terms and conditions. If the disposition has occurred the debtor or any person entitled to notification or whose security interest has been made known to the secured party prior to the disposition has a right to recover from the secured party any loss caused by a failure to comply with the provisions of this subtitle. If the collateral is consumer goods, the debtor has a right to recover in any event an amount not less than the credit service charge plus 10 percent of the principal amount of the debt or the time price differential plus ten percent of the cash price.
[5] Maryland Code (1975) § 1-103 of the Commercial Law Article provides in part:
Unless displaced by the particular provisions of Titles 1 through 10 of this article, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions, except that....
[6] The realities of the commercial marketplace have also had some influence upon the decisions of some courts to bar deficiency judgments where notice has not been given. It has been pointed out that a secured creditor does not necessarily have an incentive to achieve the highest possible resale price. See Randolph v. Franklin Investment Co., supra, note 1.
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227 S.W.2d 597 (1950)
UTZ et al.
v.
MICHAEL et al.
No. 9855.
Court of Civil Appeals of Texas, Austin.
February 22, 1950.
Rehearing Denied March 15, 1950.
*598 Power, McDonald & Mell, of Tyler, Looney, Clark & Moorhead, of Austin, for appellants.
Hart, Brown & Sparks, of Austin, for appellees.
GRAY, Justice.
This is an appeal from a judgment overruling appellants' pleas of privilege.
The suit is the result of a collision of a truck and a Chrysler Coupe. The accident occurred in Travis County on Highway 81, just south of Walnut Creek and about eight miles north from the City of Austin. At this point the highway runs north and south and there is a hill or incline extending some distance from the south to the creek. The truck was traveling north and the Chrysler south. Appellant Elvyn E. Utz was the driver of the truck and was accompanied by William Utz and Nolan Higginbotham. The Chrysler was driven by Frank H. Michael, the husband of Marian Clark Michael, and the son of Carl H. and Maude E. Michael, all appellees. Frank H. Michael was instantly killed and was unaccompanied. The three occupants of the truck were not injured, and they were the only eyewitnesses to the accident.
Appellants are residents of Smith County, Texas, and appellees are non-residents of the state.
Appellees seek to hold venue of this cause in Travis County, under exception 9 of Article 1995, Vernon's Ann.Civ.St., as to Elvyn E. Utz, because he was the driver of the truck, and as to Mrs. J. E. Utz as a partner with Elvyn E. Utz or as his employer.
A non-jury trial was had on appellants' pleas of privilege and the same were overruled.
On the morning of November 23, 1947, the truck left Tyler with a load of rose bushes sold and to be delivered to Solo Serve Nursery in San Antonio. These rose bushes were so delivered on the morning of November 24, and were paid for by check. On the return trip, and between San Antonio and Austin, Elvyn E. Utz purchased a load of cedar posts which were loaded on the truck and the journey to Tyler continued. At about 9 o'clock p.m., on November 24, the accident occurred. The truck turned over, the top of the Chrysler coupe was sheared off and there was damage to its left side. Both the truck and the Chrysler came to rest on the west side *599 of the highway, the right wheels of the Chrysler were some two or three feet off the paved portion of the highway and there were skid marks behind it. The truck turned over on its left side and came to rest north of the Chrysler, partly on and partly off the paved portion of the highway. The posts were scattered but were mostly between the two vehicles.
Pictures taken by the highway patrolman who investigated the accident and which were taken before the truck and the Chrysler were moved, were introduced in evidence. These pictures show the position of the two vehicles on the ground, and cedar posts, damage to the Chrysler, and such injuries to the truck as were visible. Other pictures showing other physical conditions at the scene of the accident were before the court.
The occupants of the truck testified, substantially to the same effect, that the truck was being driven at about thirty-five miles per hour; that the Chrysler as it approached the truck from the north was traveling on the east side of the highway; that the driver of the truck (appellant Elvyn E. Utz) turned the truck first to his right, but because of obstructions near the highway could not proceed farther, turned back to his left, at which time the Chrysler turned right, the truck then turned left and the Chrysler struck the truck near the rear wheels, on its left side, at which time the left wheels of the Chrysler were on or to the east of the center line of the highway.
Mrs. Gladys Bryan testified she and her husband operated a business on Highway 81 at about four-tenths of a mile south from Walnut Creek. On the night the accident occurred she and her husband were standing in front of their place of business and saw a truck loaded with cedar posts pass going north. The posts were piled rather high and were leaning to the left or west. After being qualified to testify as to the speed of the truck, she estimated the truck was traveling at between 55 and 60 miles per hour. It was swerving back and forth across the highway and was gaining speed as it went down the hill. As she turned around to go in the house she heard a crash and a horn blowing. This was the only truck that passed from the time she saw it until she heard the crash.
Edward Gault lived near the scene of the accident, and said he heard brakes or tires "squealing", heard a crash and then an automobile horn honking. He went to the scene of the accident and found the truck and the Chrysler in the positions above related.
The highway patrolman who investigated the accident and who reached the scene about ten or fifteen minutes after it occurred, expressed the opinion that the point of contact of the truck and Chrysler was about at the point where the Chrysler was when he got there, that is there were two wheels of the Chrysler on the west shoulder of the highway.
Though the judgment of the trial court does not find the facts, we must sustain the judgment if there is evidence to support it. From the evidence, we think the court could find, as he undoubtedly did, that the collision occurred west of the center line of the highway.
It is well established that the driving of a motor vehicle in the wrong traffic lane and there striking another vehicle is an affirmative act of negligence within the meaning of exception 9 of Article 1995, supra. Hill v. Connors, Tex.Civ.App., 219 S.W.2d 587. This being a violation of the law of the road, Vernon's Ann.P.C. Art. 801, it is an affirmative act of negligence and is a trespass within the meaning of said exception. Schuller v. Fears, Tex.Civ.App., 67 S.W.2d 343.
The business arrangement between appellants was testified to by them and Leo Utz, a son of Mrs. J. E. Utz and brother of Elvyn E. Utz. Such testimony is to the effect that Elvyn E. Utz plants wild rose bushes on land leased by him. These bushes are later budded, inspected by an inspector for the State Department of Agriculture, and afterwards the bushes are dug up, graded and "heeled" (put in bundles, then arranged in rows, and the roots covered with dirt). At such time the bushes were divided equallyeach party's bushes placed in separate heels. Mr. Utz paid for the budding, paid the inspection fee, *600 furnished one-half the fertilizer, one-half of the gasoline used by the tractor, and paid one-half the expense of heeling. Mrs. Utz testified she and her son grew roses on the halves, that she had them advertised, that "* * * just according to what the orders are, we just send them out. Sometimes we have big sales and ship them out." She further said she did business in the name of Fairview Nursery, and is the same person as "J. E. Utz, Proprietor of Fairview Nursery," which appears on the stationery of the nursery. That Elvyn E. Utz has no interest in Fairview Nursery.
In the fall of 1947 a representative from Solo Serve Nursery went to Tyler and purchased the rose bushes delivered to it on November 24. He made this purchase from, or through, Elvyn E. Utz, but said he was dealing with Fairview Nursery, "because that is the way he does business in the name of Fairview Nursery and his bills are on the stationery of Fairview Nursery." Mrs. Utz testified the rose bushes were inspected for Fairview Nursery. The invoice for the rose bushes delivered to the Solo Serve Nursery was on the stationery of Fairview Nursery, the check given in payment for them was made payable to Fairview Nursery, Tyler, Texas, and was endorsed "Fairview Nursery, J. E. Utz." There was at least one other check issued by Solo Serve Nursery, payable to Fairview Nursery, Tyler, Texas, and endorsed "Fairview Nursery. J. E. Utz." Solo Serve Nursery dealt with Elvyn E. Utz in each instance.
The truck involved in the accident was registered in the name of J. E. Utz and the certificate of title shows its owner to be J. E. Utz. There was also introduced in evidence a power of attorney executed by J. E. Utz authorizing Elvyn E. Utz to sell the truck.
Appellants introduced evidence to show that Elvyn E. Utz was known as Jack Elvyn Utz and as J. E. Utz.
We think the evidence presented an issue of fact for the trial court to determine who the owner of the truck was and, also, whether or not Elvyn E. Utz was acting as the agent or employee of Mrs. J. E. Utz, or whether he was acting as a partner, or acting individually, in delivering the rose bushes to Solo Serve Nursery. As to these issues there was both direct and circumstantial evidence before the trial court, and, in reaching this conclusion, he could consider both. Houston Natural Gas Co. v. Kluck, 139 Tex. 491, 163 S.W.2d 618.
We think the trial court was justified in concluding from the evidence before him that (1) a trespass was committed by Elvyn E. Utz in Travis County, (2) that when he committed such trespass he was either an employee of, or a partner with, Mrs. J. E. Utz, and (3) was then engaged in the furtherance of the business of the partnership or of his employer. For these reasons the trial court's judgment overruling the pleas of privilege was proper. Brown Express v. Arnold, 138 Tex. 70, 157 S.W.2d 138; Dorsey v. Springfield Fire & Marine Ins. Co., Tex.Civ.App., 187 S.W.2d 91.
Appellants complain that appellees' controverting plea is not sufficient for the reason that the affidavit thereto was made by appellees' attorney. The affidavit stated: "* * * that he is cognizant of the matters of fact set out in the above and foregoing first amended controverting plea, that he is duly authorized to make this affidavit, that the foregoing first amended controverting plea and every statement and allegation contained therein, including the allegations of plaintiffs' first amended original petition, are true and correct."
We think the affidavit is not subject to the exceptions urged against it. Evans v. Jeffrey, Tex.Civ.App., 181 S.W.2d 709. Under the peculiar facts of this case, appellees being non-residents of the state, there being no eyewitnesses to the accident, except appellant Elvyn E. Utz and the parties with him at the time, one of whom was his brother and the other at least a recent employee, we think the attorney the proper party to make the affidaviteven though the affidavit on its face speaks for itself. It is in this kind of situation that Rule 14, Texas Rules of Civil Procedure has a necessary and proper application.
We have examined all points urged by appellants, and we find no error presented. The judgment of the trial court is affirmed.
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32 B.R. 885 (1983)
In the Matter of Sharon Arlene REINSTEIN and Howard Stephen Reinstein, Debtors.
The PEOPLE OF the STATE OF NEW YORK, Plaintiff,
v.
Sharon Arlene REINSTEIN and Howard Stephen Reinstein, Debtors-Defendants.
Bankruptcy No. 180-04025-16, Adv. No. 180-0831.
United States Bankruptcy Court, E.D. New York.
September 12, 1983.
*886 Robert Abrams, Atty. Gen. of N.Y., New York City, for plaintiff, Anthony R. Wannick, and Martin Finkelhor, New York City, of counsel.
Sharon Arlene Reinstein and Howard Stephen Reinstein, pro se.
MANUEL J. PRICE, Bankruptcy Judge.
This is an action by the State of New York (the "plaintiff") against Howard and Sharon Reinstein (the "debtors" or "the defendants") to have a debt allegedly owed the State declared non-dischargeable pursuant to section 523(a)(2)(A) of the Bankruptcy Reform Act of 1978 (the Code), 11 U.S.C. § 523(a)(2)(A).
The debtors filed a petition for relief under Chapter 7 of the Code, 11 U.S.C. § 101 et seq., on July 14, 1980. On August 4, 1980, an order was signed by this court calling a meeting of creditors pursuant to section 341 for August 20, 1980. By that order, October 3, 1980, was fixed as the last day for filing a complaint to determine the dischargeability of a debt pursuant to section 523 of the Code.
On October 1, 1980, the plaintiff filed a complaint objecting to the dischargeability of a debt owed to the State of New York in the amount of $62,390. It was served on the defendants on October 16, 1980 and on October 31, 1981, they filed a "Motion in Opposition and Answer to Complaint" pro se. On January 15, 1981, an amended complaint was served on the defendants which gave them credit for a payment in the amount of $22,000, leaving a balance of $40,390.
These are the facts which were adduced at the trial:
Over a period of about three years, from early 1976 to late 1978, the debtors collected substantial amounts of money as unemployment insurance payments from the New York State Department of Labor. When certain suspicious circumstances came to the attention of agents within the Department, they commenced an investigation of the basis for the payments received by, first, Howard, and, later, Sharon Reinstein. Plaintiff's Exhibit 13, pp. 2 and 6. When the investigation was concluded, the unemployment insurance investigator in charge of the case met with a United States Postal Inspector in order to review his findings. The postal inspector then submitted the matter to the United States Attorney for the Eastern District of New York, after which a warrant was issued for the arrest of the defendants. They were arrested on December 21, 1978, in their home in Dix Hills, New York, and charged with violating sections 1341 and 1342 of title 18, U.S.C., id. at p. 9; Plaintiff's Exhibit 1.
The complaint charges that:
"[f]rom on or about the 1st day of January, 1976 to the date of this complaint, both dates being approximate and inclusive, within the Eastern District of New York, the defendants JOHN DOE a/k/a `Steven Howard'; `Alexander Sales'; `Chaz Wallach'; Steven Tartaglia'; `Howard Reinstein'; `Robert Valentine'; `Stephen Baker'; and `Allan Hornstein', and JANE DOE, a/k/a `Rose Valentine'; `Arleen Sales'; `Sharon Baker'; `Sharon Reinstein' and `Caron Hornstein' did knowingly and wilfully devise a scheme and artifice to defraud the New York State Unemployment Insurance Fund and for the purpose of executing such scheme and artifice to defraud, the defendants JOHN DOE and JANE DOE did knowingly cause to be delivered by mail numerous New York State Unemployment checks according to the directions thereon.
"It was a part of the scheme and artifice to defraud that the defendants would appear at various local unemployment offices of the New York State Department *887 of Labor, on numerous occasions, and cause numerous applications to be filed under various fictitious names.
"It was further a part of the scheme and artifice to defraud that the defendants would cause numerous unemployment checks to be made payable to the various fictitious names mentioned above and then mailed to them, under those names, at various addresses within the Eastern District of New York.
"It was further a part of the scheme and artifice to defraud that the defendants would either deposit the aforesaid checks in bank accounts maintained by them in the fictitious names or present them for encashment."
The debtors each waived indictment, Plaintiff's Exhibits 2 and 3, and on April 10, 1979, Sharon Reinstein pleaded guilty before then United States District Judge George C. Pratt to one count of the many counts with which she had been charged (Plaintiff's Exhibit 2). On May 31, 1979, Judge Pratt suspended imposition of sentence and placed her on probation for two years. Plaintiff's Exhibit 4. On June 5, 1979, Howard Reinstein also pleaded guilty before Judge Pratt to one of the many counts with which he had been charged. Plaintiff's Exhibit 3.
After he entered his guilty plea, but before he was sentenced, the house in which he and his family lived in Dix Hills was sold and $22,000 of the proceeds from the sale were paid to a representative of the Unemployment Insurance Division of the New York State Department of Labor. Title to this house was held by a corporation known as S.J.A. Equity Corp., which was wholly owned by Howard Reinstein's father. See Tr., 10/6/82, p. 54.
On September 11, 1979, Judge Pratt suspended imposition of sentence on Howard Reinstein and placed him on probation for three years. Plaintiff's Exhibit 5.
On July 14, 1980, the debtors filed their joint petition for relief under Chapter 7. Among the debts they listed in their Schedule A-3 was a "disputed" debt to the New York State Department of Labor for $62,390.
The Attorney General contends that the Reinsteins owe $40,390 (the amount of the overpayment less the $22,000 repaid) to the State of New York jointly and severally as a result of the debt that arose to the State from the scheme by which they received unemployment compensation payments to which they were not entitled. The State further insists that, under 11 U.S.C. § 523(a)(2)(A), this debt is non-dischargeable. The Reinsteins concede that they have received unemployment checks to which they were not entitled but they advance several defenses to this action. Their principal defense is that the payment of $22,000 made by Howard Reinstein to the New York State Department of Labor in September, 1979, was accepted by the Department as payment in full. Alternately, they maintain that, never having received persuasive verification of the amounts the State contends they owe, they do not accept the State's figures. Moreover, they insist that it is improper to hold them jointly liable for the payments received and argue that instead each of them should be liable for only those unemployment checks which they actually received.
Section 523(a)(2)(A) provides in pertinent part:
"(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt
"(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by
"(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition . . . "
This section is recognized as being a "successor" to section 17(a)(2) of the Bankruptcy Act of 1898, former title 11 U.S.C. § 35(a)(2) (repealed in 1978), Hennessy Cadillac, Inc. v. Green (In re Green), 5 B.R. 247, 249, 2 C.B.C.2d 905 (Bkrtcy.N.D.Ga.1980). "Modified only slightly" from its predecessor, S.Rep. No. 989, 95th Cong., 2d Sess. 78, reported in, [1978] U.S.Code Cong. & Admin.News *888 5787, 5864, cases construing section 17(a)(2) are "entirely applicable" to section 523(a)(2)(A) of the Code, Waterbury Community Federal Credit Union v. Magnusson (In re Magnusson), 14 B.R. 662, 667, 8 B.C.D. 708 (Bkrtcy.N.D.N.Y.1981).
The effect of this section is to deny a discharge for specific debts incurred by the debtor before bankruptcy. Ordinarily, an individual debtor under Chapter 7 of the Code is entitled to a discharge as provided in section 727 of the Code.
It is well established that, although § 523 has no provision allocating the burden of proof for actions brought under it, the creditor must establish that a debt is nondischargeable. See, e.g., National Bank of North America v. Newmark (In re Newmark), 20 B.R. 842, 852 (Bkrtcy.E.D. N.Y.1982), and cases cited therein. It is equally well established that the standard of proof is "clear and convincing evidence." Id.
The Supreme Court, in interpreting the former Act, explained the kind of fraud that must be proven:
". . . positive fraud, or fraud in fact, involving moral turpitude or intentional wrong, as does embezzlement; and not implied fraud, or fraud in law, which may exist without the imputation of bad faith or immorality. Such a construction of the statute is consonant with . . . the intention of Congress in enacting a general law by which the honest citizen may be relieved from the burden of hopeless insolvency."
Neal v. Clark, 95 U.S. 704, 709, 24 L. Ed. 586 (1887).
What in fact constitutes the fraud contemplated by § 523(a) has been "developed by case law." In re Mower, 1 B.C.D. 378, 380 (Bkrtcy.E.D.Va.1974). Specifically, fraudulently obtaining unemployment insurance benefits has been held to be within the ambit of the statute, Arizona Department of Economic Security v. Kaliff (In re Kaliff), 2 B.R. 465, 5 B.C.D. 1187 (Bkrtcy.D. Ariz.1979) (17(a)).
The next question is whether the Reinsteins engaged in the fraud as contemplated by § 523(a)(2)(A) so that their discharge of the State's debt must be denied.
During the course of a long trial the State introduced evidence in an attempt to prove, first, that unemployment checks were received fraudulently, and second, the exact amount of the checks received. Three pieces of evidence introduced during the trial were most persuasive in establishing that the Reinsteins did defraud the Department of Labor: the two transcripts of the guilty pleas entered before Judge Pratt in the Eastern District of New York, and a confession of judgment signed by Howard Reinstein. Plaintiff's Exhibit 2 is the transcript of Sharon Reinstein's appearance before Judge Pratt on April 10, 1979, at which time, assisted by counsel, she pleaded guilty to violating 18 U.S.C. § 1341, admitting that "as part of a scheme and artifice to defraud the New York State Department of Labor, obtaining money from the said department by means of false and fraudulent pretenses" she received through the mails a check made out to Sharon Baker by representing herself to be Sharon Baker when in fact she "well knew her name was not Sharon Baker." Plaintiff's Exhibit 2, pp. 13-14. See also Plaintiff's Exhibit 2, p. 21. Subsequently, on June 5, 1979, Howard Reinstein, assisted by counsel, pleaded guilty to violating 18 U.S.C. § 1341 and admitted that "as part of a scheme and artifice to defraud the New York State Department of Labor by obtaining money from said Department by means of false and fraudulent pretenses" he received a check made out to Alexander Sales when he knew he was not Alexander Sales. Plaintiff's Exhibit 3, pp. 12-13.
Mr. Reinstein clearly understood the implications of his pleading guilty. The record before Judge Pratt convinces me that he has defrauded the State. The following are excerpts from the transcript of his guilty plea:
"THE COURT: Mr. Reinstein, have you received a copy of the information?
"THE DEFENDANT: Yes, I have.
*889 "THE COURT: Have you consulted with your attorney on it?
"THE DEFENDANT: Yes, I have.
"THE COURT: Are you satisfied with the representation that he has given you in this matter?
"THE DEFENDANT: Yes, I am.
"THE COURT: Have you been advised and do you understand that if you wanted to go to trial, you have certain rights, including the right to a speedy and public trial by jury, with the assistance of counsel?
"THE DEFENDANT: Yes.
* * * * * *
"THE COURT: Do you also understand that you have the right to plead not guilty to this charge?
"THE DEFENDANT: Yes.
* * * * * *
"THE COURT: Mr. Smith [the Assistant United States Attorney], do you represent that if we were to go to trial in this case you would have evidence which would make out a prima facie case against the defendant?
"MR. SMITH: I do.
"THE COURT: Do you believe you would be able to prove the defendant's guilt beyond a reasonable doubt?
"MR. SMITH: Yes.
"Your Honor, if I may, I would like to make certain statements to be perfectly clear on the record.
"This plea is being accepted today in full satisfaction of any and all federal charges which might arise in the Eastern District of New York from Mr. Reinstein's fraudulent use of the United States mails, starting in January 1976 and going to December 1978, in the following names, Stephen Howard, Alexander Sales, Charles Wallach, Stephen Tartaglia, Howard Reinstein, Robert Valentine, Stephen Baker and Alexander Hornstein. They are referred to in the plea agreement before your Honor, and those are the matters to which he has admitted his culpability, and I want to make sure on the record this does not cover anything else that he has not disclosed or participated in.
"THE COURT: Now, what Mr. Smith has said, he has given us a time period, and your dealings in the Eastern District of New York, and he also said that is part of the plea agreement.
"THE DEFENDANT: Yes, sir.
"THE COURT: In other words, the participation that has been disclosed thus far covers or includes all checks in that time period which relates to the New York State Department of Labor and also as to the names which Mr. Smith itemized here.
"MR. MILONE [Reinstein's attorney]: Yes, sir.
"THE COURT: That is also your understanding, Mr. Reinstein?
"THE DEFENDANT: Yes.
"THE COURT: Mr. Reinstein, have you discussed your plea of guilty fully with your attorney?
"THE DEFENDANT: Yes, I have.
* * * * * *
"THE COURT: What you're charged with, Mr. Reinstein, is a specific crime which is mail fraud under United States Code, Title 18, Section 1341, which charges that in substance you had a scheme and artifice to defraud the New York State Department of Labor by misrepresenting yourself as Alexander Sales, and as part of that scheme there was delivered to you a check in the name of Alexander Sales.
"For you to be guilty of this crime, it would have to be so that at roughly the time indicated in the information, that is March 27th of 1977, you had such a scheme with respect to the New York State Department of Labor.
"You had represented to the Labor Department to be Alexander Sales, and there was delivered by mail a letter containing a check to Alexander Sales, that you received the checks, and at that time you were aware, obviously, that you were not Alexander Sales, and essentially accepted that check as part of the overall *890 scheme to defraud the Labor Department.
"Those are the basic elements that have to be present if you are to be guilty of this crime.
"It would also have to be the case that at the time you were in full command of your faculties, and you knew what you were doing.
"Now, did you actually do what you are charged with?
"THE DEFENDANT: Yes.
"THE COURT: Did anyone force you to do it?
"THE DEFENDANT: No.
"THE COURT: Did you intend to do it?
"THE DEFENDANT: Yes.
"THE COURT: Did you do it knowingly and wilfully?
"THE DEFENDANT: Yes.
"THE COURT: Were you aware of what you were doing at the time?
"THE DEFENDANT: Yes.
"THE COURT: Now, would you tell me in your own words what was going on here so that I can better understand it?
"THE DEFENDANT: Your Honor, may I discuss that with my attorney before answering?
"THE COURT: Yes, certainly, take any time you need.
(Discussion off the record.)
"THE DEFENDANT: Your Honor, I made application to receive Unemployment checks, and I did in fact receive them, periodically.
"THE COURT: I take it there was a particular application in the name of Alexander Sales?
"THE DEFENDANT: Yes, there was.
"THE COURT: And you submitted that application?
"THE DEFENDANT: I appeared in the particular place and submitted that application, yes.
"THE COURT: And did you receive more than one check for Alexander Sales?
"THE DEFENDANT: Yes, I did.
"THE COURT: And you cashed the checks?
"THE DEFENDANT: Yes.
"THE COURT: I gather from what was mentioned as to the names and so forth, that you submitted other applications under a variety of names?
"THE DEFENDANT: Yes your Honor.
"THE COURT: Have you been threatened or forced by anyone into entering a plea of guilty?
"THE DEFENDANT: No."
Plaintiff's Exhibit 3, pp. 9, 10, 13-15, 16-19.
The third extremely convincing piece of evidence submitted by the State and marked as Plaintiff's Exhibit 10 is an "AFFIDAVIT OF CONFESSION OF JUDGMENT" signed by Howard Reinstein on August 22, 1979 at the request of Burton Landesman, an attorney in the Unemployment Insurance Division of the Department of Labor. Tr., 9/23/81, pp. 10-11. In this Confession of Judgment, Reinstein signed the following:
"That he . . . hereby confesses judgment in this action, in favor of The Industrial Commissioner of the State of New York . . . for the sum of $40,115.00, and authorizes that judgment be entered therefor against him accordingly.
"The Confession of Judgment, . . . is for a debt justly due to the plaintiff arising from the following facts:
"Overpayments of Unemployment Insurance Benefits paid to the judgment debtor by the judgment creditor in [sic] amount of $4,425 and under the following aliases used by him in the following amounts: Stephen Howard, $5,800., Stephen Baker, $1,610, Alex. Sales, $6,730., Steven Tartaglia, $7,885, Robert Valentine, $3,220, Allan Hornstein, $4,140 and Chaz Wallach, $6,305, all of which he was not entitled to."
Mr. Reinstein claims that:
"I strongly objected to signing it because on the facts that after repeatedly requesting . . . I asked the document substantiation of any figures that were on there and the only response I got was that I better sign it or else they're going to proceed with all the Grand Jury threats and with all the other charges." *891 Tr., 10/6/82, p. 11. See also Tr., 10/6/82, p. 40.
The fact remains, however, that at the time of signing this Confession of Judgment (which was not acted upon by the State, Tr., 9/25/81, p. 15), Reinstein was represented by counsel who, in fact, notarized his signature on the document. Plaintiff's Exhibit 10.
Although Reinstein testified in his own behalf during the trial of this matter, he never introduced any evidence rebutting the proof that he fraudulently received unemployment insurance benefits in his own name and in the various names listed in the Confession of Judgment, nor did he deny fraudulently receiving payments under those names. I am convinced therefore that in fact he did receive checks to which he was not entitled. See also Plaintiff's Exhibit 7 (containing an envelope addressed to Steven Tartaglia and an envelope addressed to Stephen Baker taken from the Reinsteins' home) and Exhibit 9 (containing a photocopy of a New York State Department of Labor claim booklet for Howard Reinstein, a check for a joint checking account of Stephen Baker and Sharon Baker, a savings bankbook for a joint account of Sharon and Stephen Baker, a savings bankbook for a joint account of Alexander and Arleen Sales, a savings bankbook for a joint account of Caron and Alan Hornstein, a bill for a mail and telephone listing made out to Alexander Sales and another person, two checks signed by Steven Tartaglia, and an envelope addressed to Steven Tartaglia, all taken from the Reinstein home on the day of their arrest.) See Tr., 9/21/81, pp. 39-40. See also Plaintiff's Exhibit 6, a transcript of an examination under oath of Howard Reinstein on June 29, 1979, conducted by representatives of the Unemployment Insurance Division of the Department of Labor, at which time he admitted to filing unemployment insurance claims under the names Steven Howard (p. 28), Alexander Sales (p. 29), Charles Wallach [sic] (p. 29), Steven Tartaglia (p. 30), Robert Valentine (p. 30), Allan Hornstein (p. 31), and further admitted that the companies he filed the claims on were fictitious and were used for the purpose of filing unemployment insurance claims (pp. 31 and 36).
The evidence summarized thus far does not prove fraudulent conduct by Mrs. Reinstein except with respect to checks received by her drawn to the order of Sharon Baker. Other evidence, however, proves her fraudulent conduct. Michael Ford, a United States Postal Inspector, Tr., 9/21/81, p. 4, testified that on December 21, 1978, he and other postal inspectors arrested the Reinsteins at their residence at Dix Hills, New York. After the arrest, Mr. Ford accompanied her to the Brooklyn Post Office, Tr., 9/21/81, p. 33. There, according to Mr. Ford:
"Mrs. Reinstein stated that she had certified for unemployment insurance under the names Rose Valentine, Arleen Sales, Sharon Baker, Sharon Reinstein and Caron Hornstein. She also stated that she had personally picked up mail at 50 Glen Street, Glen Cove, New York, 1250 Suffolk Avenue, Brentwood, New York, 20 Jerusalem Avenue, Hicksville, New York, 95 Searing Avenue, Mineola, New York and 137 North Franklin Street, Hempstead, New York."
Tr., 9/21/81, p. 34. See also id. at p. 35. These addresses were those to which unemployment insurance checks were mailed pursuant to the applications under the aliases Mrs. Reinstein admitted to using. See Plaintiff's Exhibit 13, pp. 12-13. That Mrs. Reinstein had received unemployment insurance checks under those names is corroborated to some extent by certain evidence gathered at her home on the day of her arrest. Mr. Ford claimed that at the time he arrested the Reinsteins, "[t]here were a number of documents in the house that were in open view which were seized at the time of the arrest." Tr., 9/21/81, p. 31. These documents, admitted into evidence as Plaintiff's Exhibit 7, include a note that, together with directions to do sewing chores directed to "Sharon," contains the following:
"Sign for checks under the name of Sharon Howard in Huntingtonbe carefulif you think they recognize youyou *892 worked for HSR Publishing Co., Inc. 159 West 33rd St. N.Y. 10001 Suite 1010 you earned $250 per week and you started on July 31, 1978 and got layed off on this Friday December 15, 1978."
In addition, after the arrest a search warrant was obtained to search the Reinstein residence and the search, conducted on the day of the arrest, yielded other incriminating papers. Tr., 9/21/81, p. 38. Photocopies of the material parts of those papers were admitted into evidence as Plaintiff's Exhibit 8. They include a check imprinted with the names Stephen Baker and Sharon Baker, a "Transaction" card imprinted with the name Sharon Baker, a Hicksville Public Library card imprinted with the name Sharon Baker and the address 20 Jerusalem Avenue, Hicksville, N.Y. 11801, a Social Security card belonging to "Sharon Baker," a savings bankbook showing a joint account in the names of Sharon and Stephen Baker, unemployment insurance claim booklets in the names of Sharon Baker, Rose Valentine, and Arleen Sales, a savings account booklet in the names of Alexander and Arleen Sales, and a savings account booklet in the names of Caron Hornstein and Alan Hornstein. See also Tr., 9/21/81, pp. 39-40. Other evidence against Mrs. Reinstein was supplied by a handwriting expert whose testimony was introduced by the State and who testified that the endorsements of unemployment checks drawn to the order of Sharon Reinstein, Sharon Baker, Rose Valentine, and Caron Hornstein were made by Mrs. Reinstein. See Tr., 3/22/82, p. 56; Tr., 4/21/82, pp. 81, 85, 94. See infra, pp. 897-898. Moreover, Mrs. Reinstein was receiving many of these checks at the same time: the checks for Rose Valentine introduced into evidence are dated June 19, 1978, to December 4, 1978; the checks to Caron Hornstein are dated February 1, 1978, to October 20, 1978; the checks to Arlene Sales are dated August 3, 1977, to April 25, 1978, and October 26, 1978 to November 3, 1978. All this clearly proves that Mrs. Reinstein received these checks fraudulently.
More particularly, there is no question that the checks Mrs. Reinstein received under her own name were wrongfully received. When Howard Reinstein was examined by representatives of the Unemployment Insurance Division of the New York State Department of Labor, he testified as follows:
"Q Did Sharon Reinstein ever perform services for 8319 Corporation?
"A I don't remember.
"Q I show you an LO 12, Wage Verification, similar to what you looked at before, 20 weeks of employment, $4,000, February, 1975 thru February, 1976, signed by executive vice president, Steven Tartaglia, which you said you used.
"A I signed that.
"Q She performed services for the corporation?
"A According to that, yes.
"Q What did she do for the corporation? You are showing wages for an unemployment insurance claim which indicates that work was performed for a corporation. What did she do?
"A She didn't do anything. That was the beginning of our"
Plaintiff's Exhibit 6, pp. 15-16.
This corporation was the one under which Mrs. Reinstein claimed unemployment insurance benefits in her own name.
In his testimony in this case, Mr. Reinstein did not in any way contradict this earlier statement of his. Mrs. Reinstein chose not to testify and thus did not present any evidence to rebut the State's proof that she fraudulently received these benefits. Consequently, I am convinced that the benefits she received under her own name were fraudulently received.
THE MAJOR DEFENSE
Although the Reinsteins do not contest the State's contention that they fraudulently received unemployment insurance benefits, they maintain that no money is owed to the State because they have settled in full the claim the State has against them. They contend that Michael Landesman, an attorney in the Office of the Deputy Industrial Commissioner for the New York State Labor Department, negotiated this settlement. *893 The alleged settlement occurred between the time Mr. Reinstein pleaded guilty to mail fraud on June 10, 1979, and the date of his sentencing, on September 11, 1979. Tr., 10/6/82, p. 12. On August 30, 1979, between those two dates, the house in which Mr. Reinstein and his family lived was sold and most of the proceeds of that sale which were not used to satisfy the mortgage or to pay back taxes, namely, $22,000, were paid to the State. The title to this house was held in the name of a corporation of which Mr. Reinstein's father was the president and sole shareholder.
At trial, Howard Reinstein insisted that "this was a payment in settlement for any and all monies that may have been owed to the State of New York for any overpayments that I had received." Tr., 10/6/82, p. 43. Although at times during the trial, when Mrs. Reinstein was not present in the courtroom, he insisted the payment was made to settle any claims the State had against him arising out of his unemployment insurance fraud, see id., p. 74, at other times he contended that the payment was to cover the obligations of both debtors. In their Post-Trial Memorandum of Law, for example, the debtors state that "[t]he `Debtors' defendants have paid their obligation in full to The People of the State of New York in a settlement reached on August 30, 1979 in the sum of $22,000.00." P. 1. See also pp. 6, 7, 9 and Tr., 10/30/81, p. 14.
In support of their position, the Reinsteins introduced into evidence, as Defendants' Exhibit E, a receipt, dated September 12, 1979, from the Unemployment Insurance Division of the New York State Department of Labor which acknowledged that $22,000 was received from Howard Reinstein of 7 Norman Court, Dix Hills, New York as "overpayment of claim under the following program: U.I. only." This receipt does not indicate that it was a full payment or that it was accepted as a settlement by the Labor Department for the monies owed. The debtors nevertheless insist that it was received in settlement of the State's claim against them. Reinstein attempted to buttress this contention by testifying that he was not motivated to make a partial payment in the hope of obtaining a lighter sentence. He testified:
"Judge Pratt made a statement very clearly aton June 10th when I appeared before him which is prior to the sale of the house, that regardless of what I did and in the way of making restitution, whether I did or didn't or whether it was 2,000 or 20,000, that regardless, he was going to make his determination as to my sentencing on whatever facts in evidence he had before him."
Tr., 10/6/82, p. 66.
At the same time, Mr. Reinstein admits that Judge Pratt was aware of attempts by the State to obtain repayment from Mr. Reinstein. He testified:
"Judge Pratt reserved making a decision on sentencing because the state had requested that sentencing would be adjourned so that they would have an opportunity to get whatever money they could in repayment. The judge granted the state or put it off until September to give them that opportunity."
Tr., 10/6/82, p. 12.
He further testified that the following occurred at the time of the title closing:
"[W]e started to talk about what I would offer as a settlement to New York State . . . [W]e went back and forth and we settled on 22,000.
* * * * * *
"[F]inally, I said 22,000 is all I'm going to do. I'll take my chances, if you don't want to accept thatbecause certain monies were needed to pay the moving truck to get my family out . . . Mr. Landesman said Okay, he'll accept 22,000.
* * * * * *
"I said, I would like to have a document in writing that says this $22,000 is being accepted, that you are accepting it for the State and that you're notgoing to pursue [sic] criminal action and they won't pursue . . . [sic] looking for additional money and Mr. Landesman said that he would not put anything in writing and *894 that I would just have to take his word for it. But, that he assured me if I . . . if he walked out without any money or that money was less than he wanted to accept, that he was going to immediately ask the State to proceed with criminal action against me."
Tr., 10/6/82, pp. 70-72.
Curiously, Mr. Reinstein's position during this adversary proceeding conflicts with an earlier representation made under penalty of perjury. On the "Statement of Financial Affairs for Debtor Not Engaged in Business," appended to the joint petition of the debtors filed on July 14, 1980, the debtors answered question 8b as follows:
"b. Have you made any assignment of your property for the benefit of your creditors, or any general settlement with your creditors, within one year immediately preceding the filing of the original petition herein?
"[Answer:] YES . . . ALL REMAINING PROCEEDS FROM THE SALE OF PROPERTY LOCATED IN DIX HILLS, N.Y. WAS GIVEN TO THE DEPT. OF LABOR IN SEPT. 79 TO REDUCE THE AMOUNT OF OVERPAYMENT I RECEIVED IN ERROR. TOTAL GIVEN: $22,000.00 WHICH WAS MY FATHER'S CONTRIBUTION TO KEEP ME FREE. THE PROPERTY BELONGED TO MY FATHER FOR MANY YEARS PRIOR TO MY INCURRING DEBTS." (Emphasis mine)
The statement of affairs was signed by the debtors.
Here, then, Mr. Reinstein is not claiming that his motive in paying the $22,000 was to settle the State's debt but rather that it was to keep himself out of jail. Moreover, he is not claiming that the money was to expunge the debt but rather that it was to reduce itprecisely the position of the plaintiff herein.
Michael Landesman, the person with whom the settlement was purportedly arranged, contradicts Reinstein's contention that the $22,000 payment was in settlement of the State's claim. He testified that he never indicated he was accepting the $22,000 payment as a settlement, Tr., 9/23/81, p. 101, and instead maintained "I . . . made it clear to [M. Reiss] [attorney for the sellers] and I assume to you because you were present, that I did not have authority to agree to these things on behalf of the Department of Labor." Id.
During the trial, the following exchange took place:
"THE COURT: Were you ever told by anyone on behalf of Mr. Reinstein that the $22,000 that you received was to be in full settlement of any and all claims that the department, the Unemployment Insurance Department had against Mr. and Mrs. Reinstein? Was that ever said to you in any manner, shape or form?
"THE WITNESS [Mr. Landesman]: Definitely not, your Honor. I certainly would not have signed that document if anyone had said anything about a full settlement because I have consistently maintained my position in the 12 years that I have worked for the Labor Department that I have no authority to make a settlement."
Tr., 9/25/81, pp. 28-29.
Mr. Landesman further insisted:
"I didn't have authority to agree to accept anything in settlement because that question has come up time and again and it has been reviewed by everybody in our department. Our department does not have authority to settle cases. We don't know with whom the authority resides, if anyone, but I did have authority to say yes or no as to whether I was going to put my signature on this piece of paper obviously."
Tr., 9/23/81, p. 102.
I have observed the demeanor of the witnesses, and I believe Mr. Landesman. Not only do I unquestionably find him to be more credible than Mr. Reinstein, but I find that the surrounding circumstances do not support Mr. Reinstein's story. The record clearly shows that he is much more sophisticated than many people, and yet he would have this court believe that he, an experienced businessman, entered into a settlement *895 without obtaining a receipt stating that his payment was accepted in full settlement of all claims which the Unemployment Insurance Division had against him and his wife. I believe that he paid the $22,000 to the State in the hope of obtaining a lighter sentence from Judge Pratt and possibly avoiding further criminal prosecution and I also believe that, while he would have liked to have had a settlement with the State, no State agent agreed to it.
THE AMOUNT DUE
Having determined that Sharon and Howard Reinstein fraudulently received unemployment insurance checks, and having determined that they have no viable defense to any part of the debt over $22,000, the next question is how much each debtor owes the State. The first step in this determination is to ascertain how much money each debtor received.
The State relied primarily on three types of evidence to establish the precise amounts received by the Reinsteins. First, it relied on the Confession of Judgment signed by Howard Reinstein. Although Mr. Reinstein repeatedly protested during the course of the trial that he had signed the Confession of Judgment under duress and had never been given any verification of the figures thereon, see, e.g., Tr., 10/6/82, pp. 11, 40, he failed to produce any evidence to rebut it. Secondly, the State relied on the testimony of a handwriting expert, Felix Klein, who identified endorsements on unemployment insurance checks as being those of either Mr. or Mrs. Reinstein. Although Mr. Klein was perhaps not the most convincing expert the State could have presented, I conclude that, taking his testimony in the context of all the other evidence presented at the trial, it is reliable. Third, the State relied on records of the Department of Labor for the amounts received by the Reinsteins. In many instances, these records, in the form of computer printouts, suggest higher payments to them than are reflected in the checks. To the extent these records do show higher payments than are proven by other evidence, I do not find them to be controlling.
I will begin by finding the amount of the checks received by each of the debtors.
CHECKS RECEIVED BY HOWARD REINSTEIN
a. Howard Reinstein
The State introduced as evidence the following checks made out to H. Reinstein, bearing the social security number under which Howard Reinstein had applied for unemployment insurance benefits (Plaintiff's Exhibit 7):
32 checks at $115. = $3,680
1 check at 190. = 190
1 check at 230. = 230
1 check at 325. = 325
______
$4,425
Plaintiff's Exhibit 40. In his Confession of Judgment (Plaintiff's Exhibit 10), Reinstein confessed to having wrongfully received $4,425 under his own name. I conclude that he did wrongfully receive $4,425 under his own name.
b. Steven Tartaglia
Plaintiff introduced the following checks drawn to the order of S. Tartaglia, which bore the same social security number, XXX-XX-XXXX, as that of the "Steven Tartaglia" who had registered for unemployment insurance benefits (see Plaintiff's Exhibit 21):
39 checks at $ 95 = $3,705
6 checks at 190 = 1,140
______
$4,845
Plaintiff also introduced into evidence one check, number 08529508, made out to "S Tartoylia," which bears the same social security number as all of the checks made out to "S Tartaglia." It is endorsed "S. Tartoylia" and below that, "S. Tartaglia."
Felix Klein, the State's handwriting expert, testified that all of these checks were endorsed by Howard Reinstein. Tr., 4/21/82, p. 68. Reinstein admitted in the Confession of Judgment that he wrongfully received $7,885 under the name Stephen Tartaglia, Plaintiff's Exhibit 10, which is the amount State records show "Stephen Tartaglia" to have received. Plaintiff's Exhibit 13, Plaintiff's Exhibit 21.
*896 Because he admitted having received $7,885, I conclude he received that figure.
c. Chaz Wallach
The State submitted as Plaintiff's Exhibit 47 the following checks drawn to the order of C Wallach, all of which were endorsed C B Wallach:
1 check at $ 95 = $95
6 checks at 100 = 600
7 checks at 115 = 805
9 checks at 120 = 1,080
6 checks at 190 = 1,140
1 check at 195 = 195
8 checks at 200 = 1,600
1 check at 240 240
______
Total $5,755
Parenthetically, the State contended in its post-trial memorandum that it had submitted seven checks for $190 and a total of forty checks, (p. 6), but in fact there were only six checks for $190. Indeed, the record makes it clear that only thirty-nine checks drawn to C. Wallach were introduced into evidence. Tr., 4/21/83, p. 76.
Mr. Klein identified all of the C Wallach checks introduced into evidence as having been endorsed by Howard Reinstein. Tr., 4/21/82, p. 77. Reinstein admitted to having wrongfully received $6,305 under the name of Chaz Wallach in his Confession of Judgment, Plaintiff's Exhibit 10, which is the amount State records show him to have received. Plaintiff's Exhibit 13, Plaintiff's Exhibit 22.
Because Howard Reinstein admitted to having received $6,305 as Chaz Wallach, I find he received $6,305.
d. Stephen Howard
Plaintiff introduced into evidence as Plaintiff's Exhibit 44 the following checks drawn to the order of S. Howard, which were all endorsed S Howard:
14 checks at $ 95 = $1,330
25 checks at 100 = 2,500
11 checks at 125 = 1,375
3 checks at 115 = 345
______
Total $5,550
While the plaintiff contended in its post-trial memorandum that it had submitted 14 checks for $95, 25 checks for $100, and 25 checks for $125, all drawn to the order of Stephen Howard, an examination of Plaintiff's Exhibit 44 shows that it did not.
Mr. Klein identified all the checks submitted as having been endorsed by Howard Reinstein. Tr., 4/21/82, p. 61. Reinstein confessed to having wrongfully received $5,800 in checks drawn to the order of Stephen Howard. State records show "Stephen Howard" to have received $5,800. Plaintiff's Exhibit 13, Plaintiff's Exhibit 18. Because Howard Reinstein admitted to having received $5,800 as Stephen Howard, I conclude that is the amount he received.
e. Robert Valentine
The following checks drawn to the order of and bearing the Social Security number of "Robert Valentine," XXX-XX-XXXX, were introduced into evidence as Plaintiff's Exhibit 38:
1 check at $230 = $230
26 checks at 115 = 2,990
______
Total $3,220
All but two of the checks, numbers 22381587 and 23374283, were endorsed by "R Valentine." These unendorsed checks, dated May 24, 1978, and June 21, 1978, cleared Citibank as did all the other checks made to the order of R. Valentine. In addition, their "week ending" dates are seven days after and seven days before the dates on the other checks admitted and so they fill in an apparent gap in the R. Valentine checks.
Mr. Klein testified that all these checks that were endorsed were endorsed by Howard Reinstein, Tr., 3/22/82, pp. 28-29. Reinstein admitted in his Confession of Judgment to having wrongfully received $3,220 from the State.
I believe that the unendorsed checks were received and cashed by Reinstein, and I conclude that he received $3,220 under the name "Robert Valentine."
*897 f. Allan Hornstein
The State introduced into evidence as Plaintiff's Exhibit 46 thirty-six checks for $115, for a total of $4,140, each drawn to the order of A. Hornstein and bearing the social security number, XXX-XX-XXXX, under which Allan Hornstein registered for unemployment insurance benefits. Plaintiff's Exhibit 46. All of these checks are endorsed by "A Hornstein" except check number 71356527, dated May 2, 1978, which bears no endorsement. All of the checks but one, number 68826568, dated March 8, 1978, bear stamps which indicate they cleared Citibank or First National City Bank. The check bearing no endorsement cleared Citibank. The date of this unendorsed check caused it to fill in what would otherwise be an unexplained gap in the checks.
Mr. Klein testified that all the endorsements were those of Howard Reinstein. Tr., 4/21/82, pp. 71, 75. He admitted to having wrongfully received $4,140 from the State under the name of Allan Hornstein in the Confession of Judgment. Given all the circumstances, I believe the unendorsed check was received and negotiated by Reinstein and I therefore believe he received a total of $4,140 under the name of "Allan Hornstein."
g. Stephen Baker
The State introduced as Plaintiff's Exhibit 39 fourteen checks drawn to the order of S. Baker at $115 each for a total of $1,610. These checks bore the social security number under which "Stephen Baker" had applied for unemployment insurance. Plaintiff's Exhibit 16. Thirteen of the checks were endorsed S. Baker and one, number 20604795, was endorsed Stephen Baker.
Although Mr. Klein, the State's handwriting expert, initially testified that all of the checks had been endorsed by Howard Reinstein, see, e.g., Tr., 3/22/82, pp. 54, 60, he later changed his testimony to admit that he had been mistaken and that three of the checks, numbers 69945449, 21269218, and 20756594, had in fact been endorsed by Sharon Reinstein.
Even though Sharon Reinstein, posing as Sharon Baker, see infra pp. 897-898, apparently endorsed these checks, it seems likely that they were received by Howard Reinstein, who had fraudulently applied for them, and then given to his wife who subsequently endorsed them. He admitted to having received $1,610 as Stephen Baker in the Confession of Judgment that he signed, Plaintiff's Exhibit 10, and I conclude that he received that amount, which is the total of the Stephen Baker checks.
h. Alexander Sales
The plaintiff introduced as Plaintiff's Exhibit 42 the following checks payable to A Sales, endorsed by "A Sales," bearing the social security number under which "Alexander Sales" applied for unemployment insurance benefits, Plaintiff's Exhibit 15:
17 checks at $ 95 = $1,615
8 checks at 100 = 800
9 checks at 115 = 1,035
3 checks at 190 = 570
4 checks at 200 = 800
11 checks at 120 = 1,320
1 check at 230 = 230
1 check at 240 = 240
______
Total $6,610
Reinstein admitted to having wrongfully received $6,730 in unemployment insurance benefits under the name of "Alexander Sales" in the Confession of Judgment he signed. Plaintiff's Exhibit 10. Mr. Klein testified that the endorsements on these checks were by Howard Reinstein. Tr., 4/21/82, pp. 43-46.
Because he admitted to having received $6,730 as Alexander Sales, I conclude that is the amount Reinstein received under this name.
CHECKS RECEIVED BY SHARON REINSTEIN
a. Sharon Baker
The plaintiff introduced as Plaintiff's Exhibit 12 the following checks made payable to S. Baker: *898
26 checks at $100 = $2,600
13 checks at 95 = 1,235
______
Total $3,835
See Tr., 9/23/81, pp. 30-32. Two of the checks are endorsed S. Baker; all the others are endorsed Sharon Baker. Tr., 9/23/81, p. 32. Mr. Klein identified the endorsements as having been made by Sharon Reinstein. Tr., 3/22/82, p. 56. I conclude therefore that she received $3,835 as "Sharon Baker."
b. Rose Valentine
The plaintiff introduced as Plaintiff's Exhibit 49 the following checks payable to the order of R. Valentine, bearing the social security number under which Rose Valentine applied for unemployment insurance benefits (see Plaintiff's Exhibit 25):
11 checks at $120 = $1320
12 checks at 115 = 1380
1 check at 230 = 230
_____
Total $2930
All of these checks are endorsed "R Valentine" except one, number 23747478. Mr. Klein testified that the endorsed checks had been signed by Sharon Reinstein. Tr., 4/21/82, p. 85. That check, like all the others, bears a Citibank stamp. It completes what would otherwise be a gap in the series of checks.
I therefore conclude that Sharon Reinstein received $2,930 as "Rose Valentine."
c. Sharon Reinstein
The plaintiff introduced the following unemployment insurance benefit checks made payable to the order of S A Reinstein:
15 checks at $190 = $2,850
24 checks at 95 = 2,280
______
Total $5,130
Plaintiff's Exhibit 50. Each of these checks, except one, number 60035279, is endorsed "Sharon Reinstein," and that one is endorsed "S. Reinstein." Mr. Klein testified that all the endorsements are those of Sharon Reinstein and I therefore am convinced that Mrs. Reinstein received $5,130 in her own name.
d. Caron Hornstein
The plaintiff introduced the following checks made payable to the order of C Hornstein:
1 check at $460 = $ 460
35 checks at 115 = 4,025
______
Total $4,485
Plaintiff's Exhibit 48. All of these checks are endorsed C Hornstein except check number 71268263, which bears no endorsement. This check bears a clearance stamp from Citibank; all the other C Hornstein checks have either "Citibank" or "First National City Bank" stamps.
Mr. Klein concluded that those C Hornstein checks that were endorsed were signed by Sharon Reinstein. Tr., 4/21/81, p. 81. Given all the evidence, I believe Mrs. Reinstein received $4,485 under the name Caron Hornstein.
e. Arlene Sales
The plaintiff submitted as Plaintiff's Exhibit 43 the following unemployment benefit checks payable to the order of A. Sales and bearing the social security number that Labor Department records indicate as that of "Arlene Sales" (see Plaintiff's Exhibit 27):
2 checks at $200 = $ 400
4 checks at 125 = 500
27 checks at 100 = 2,700
8 checks at 95 = 760
______
Total $4,360
Parenthetically, the State in its post-trial memorandum maintains that thirty-three checks totaling $4,360 were submitted instead of forty-one checks totaling $4,360 (ss p. 11). The State is incorrect.
Each of the checks submitted is endorsed "A Sales." Although Mrs. Reinstein admitted to having received checks under the name Arlene Sales, see Tr., 9/21/81, p. 34, Mr. Klein testified that she did not endorse them, Tr., 4/21/82, p. 39, but rather that the checks were endorsed by Mr. Reinstein. Tr., 4/21/82, pp. 42-43, 44, 46.
*899 John Sansone, an employee of the Chemical Bank at its Astoria, N.Y., branch, Tr., 4/21/82, pp. 3-4, testified that "Alexander Sales" maintained a checking account, number XXX-XXXXXX, at the Astoria branch of the bank. Tr., 4/21/82, pp. 4, 13. He further testified that the "Arlene Sales" checks admitted into evidence went through the Chemical Bank because they bear the bank's stamp. Tr., 4/21/82, p. 17. Indeed, several of the checks, specifically numbers 18340705, 21030442, 21311336, 68102359, 68425774, XXXXXXXXX, 69463520, 16576813, 74096032, and 74240265, bear the account number of Alexander Sales' Astoria account. See Tr., 4/21/82, p. 18. They total $1,245. Alexander Sales, of course, is a name under which Reinstein collected unemployment insurance benefits. See supra, p. 897. Nevertheless, I believe that Mrs. Reinstein should be charged with having received these checks primarily because she admitted to having received checks under the name Arlene Sales at the address shown on the checks. See Tr., 9/21/81, p. 34. Moreover, it is hardly likely that Reinstein could have been the person who applied for unemployment insurance benefits under the name "Arlene Sales." Given all the facts, I conclude that, as Arlene Sales, Mrs. Reinstein received unemployment benefit checks totaling $4,360.
Conclusion
To summarize the above, I believe that Howard Reinstein fraudulently received unemployment insurance benefit checks in the following names and amounts:
Howard Reinstein $4,425
Steven Tartaglia 7,885
Chaz Wallach 6,305
Steven Howard 5,800
Robert Valentine 3,220
Allan Hornstein 4,140
Steven Baker 1,610
Alexander Sales 6,730
_______
Total $40,115
I believe Sharon Reinstein fraudulently received unemployment insurance benefits in the following names in the following amounts:
Sharon Baker $3,835
Rose Valentine 2,930
Sharon Reinstein 5,130
Caron Hornstein 4,485
Arlene Sales 4,360
_______
Total $20,740
Although the State contends that the debtors are jointly and severally liable for these debts, the plaintiff has produced not one shred of legal authority for this proposition and no convincing evidence. Consequently, I find that the debtors are each liable only for the amount as found by me above.
However, each amount must be reduced by credit for the payments already made on the debts. As explained above, Reinstein paid $22,000 to New York State which he maintains was in full payment for his debt and his wife's. See supra p. 893. I reject his claim that this payment was in settlement of both debts but, since there is no other evidence as to how it should be apportioned between the debtors, I will apportion it between them pro rata.
Applying this apportionment, I find that the total owed by the Reinsteins is $60,855 and so Howard Reinstein, owing $40,115, owes .66 of the total, and Sharon Reinstein, owing $20,740, owes .34 of the total. Thus, he should be credited with .66 of the $22,000 payment, or $14,520, and she should be credited with .34 of the payment, or $7,480. Reducing the $40,115 received by Mr. Reinstein by the $14,520 which he repaid the State leaves him owing a debt of $25,595. Reducing the $20,740 received by Mrs. Reinstein by the $7,480 she repaid the State leaves her owing a debt of $13,260.
I find that both of these debts are nondischargeable pursuant to section 523(a)(2)(A) of the Code, 11 U.S.C. § 523(a)(2)(A), and judgment is granted in favor of the State of New York against Howard Reinstein in the sum of $25,595 and against Sharon Reinstein in the sum of $13,260.
Submit judgment in accordance herewith.
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227 S.W.2d 579 (1950)
SMITH et ux.
v.
RIO GRANDE NAT. LIFE INS. CO.
No. 15102.
Court of Civil Appeals of Texas, Fort Worth.
February 10, 1950.
Rehearing Denied March 10, 1950.
J. O. Hughes and A. D. Solsbery, both of Fort Worth, attorneys for appellants.
Bryan, Stone, Wade & Agerton, and G. W. Parker, Jr., all of Fort Worth, attorneys for appellee.
McDONALD, Chief Justice.
This is a suit on a policy of life insurance. The plaintiff, the beneficiary named in the policy, appeals from a judgment denying him a recovery. The trial was to the court without a jury.
*580 The insured was a boy twelve years of age, the beneficiary was his grandfather. They, as well as the soliciting agent of the insurance company, a Mrs. Dolman, all lived in Fort Worth. The written application for the insurance was taken by the agent on August 1, 1947, and the required initial premium was paid in advance. The application was accepted by appellee, the insurance company, and it mailed a written policy to its local office in Fort Worth. The policy was received in the Fort Worth office on August 9th, which fell on Saturday. The policy was dated August 11th. On August 11th, again on August 13th, and again on August 14th, Mrs. Dolman attempted to deliver the policy at the home of the grandparents, who had instructed her to deliver the policy at their home, but on each occasion she found no one at home. On August 15th the insured was injured in an automobile accident and died the same day. It is stipulated that the policy has at all times been in the possession of appellee, its agents or attorneys.
The suit is defended on the ground that the policy never went into effect because it was not delivered. The policy contains a paragraph reading as follows: "This policy shall not take effect if the Insured die before the date hereof, or if on such date the insured be not in sound health, but in either event the premiums paid hereon, if any, shall be returned; neither shall this Policy take effect until the manual delivery of this Policy and the payment of the first premium thereon."
The application contains a somewhat similar provision, but since it was not attached to nor made a part of the insurance policy it did not become a part of the insurance contract. First Texas Prudential Ins. Co. v. Pedigo, Tex.Com.App., 50 S.W.2d 1091.
It is admitted by appellee that the insured was in good health from August 1st to August 15th. According to the admissions made by appellee in open court, the policy was mailed to the local office in Fort Worth "for delivery to plaintiffs," and Mrs. Dolman "held the policy in her possession as custodian for Rio Grande Life Insurance Company to deliver to plaintiffs at a later date," to quote in part from such admissions.
The first portion of the quoted policy provision is to the effect that the policy will not take effect unless the insured is alive and in sound health on the date of the policy. The policy was dated August 11th, and it is admitted that he was alive and in sound health on that day. Under the last portion of the quoted provision the policy will not take effect until the first premium is paid. It is admitted that the first premium was paid in advance. The defense to the suit is thus necessarily based on the portion reading, "neither shall this Policy take effect until the manual delivery of this Policy * * *".
"In the absence of an express stipulation of the parties or of a provision in the application for a policy of insurance requiring the delivery of the policy, the contract of insurance may be consummated without the actual delivery of the policy, ordinarily, by the acceptance of the application and notification of the insured." 29 Am.Jur. 163.
But, unless it is waived, delivery is essential "where the parties agree and where the application or policy provides that the contract of insurance shall not be complete until delivery of the policy." 29 Am.Jur. 164.
The courts have held in many cases that the provision for actual delivery of the policy is one that may be waived by the insurance company or may be satisfied by something less than manual delivery of the policy into the hands of the applicant. In the latter situations the courts have usually said that there was constructive delivery. A common instance is where the insurance company mails the policy direct to the applicant. For citations of numerous cases and comments on them, involving the problem of what amounts to a delivery or an actual delivery of a policy within the express provision of a policy, see the annotations in 53 A.L.R. 492 and 145 A.L.R. 1434.
As will be observed from the cited annotations, the problem has arisen in *581 a number of cases where the home office of the company sent the policy to a local agent for delivery to the insured. Our study of the decisions leads us to the same conclusions that are expressed as follows in the annotation in 145 A.L.R. 1434, 1447: "A great number of cases deal with the question whether a transmission of an insurance policy to the agent of the insurer amounts to a delivery to the applicant. It may be stated as a general rule, supported by the great majority of cases, that such a transmission is a constructive delivery to the applicant, within a clause in the policy requiring a delivery, or an actual delivery, in order to effect insurance, where it was the agent's duty to deliver the policy unconditionally. It should be remembered, however, that the decisions of the courts upon like, or even the same, circumstances are by no means harmonious, and that for this reason any general rule as to what, other than a manual transmission of the policy, amounts to a `delivery,' or an `actual delivery,' within the terms of an express provision requiring such a delivery, is not to be taken as without exception."
Somewhat similar views are expressed in the opinion in Denton v. Kansas City Life Ins. Co., Tex.Civ.App., 231 S.W. 436, and the rule announced in the quoted annotation seems also to be recognized in Fidelity Mut. Life Ass'n v. Harris, 94 Tex. 25, 57 S.W. 635, 86 Am. St. Rep. 813. There are expressions in the last cited case which might indicate that the court was of opinion that a provision like that found in the present policy could not postpone the effective date of a policy until the time of delivery, but there are later cases by our Supreme Court which recognize the validity and effectiveness of the delivery clauses. For examples, see Wright v. Federal Life Ins. Co., Tex.Com.App., 248 S.W. 325; American Nat. Ins. Co. v. Lawson, 133 Tex. 146, 127 S.W.2d 294, and cases cited therein.
Appellants suggest that a recovery ought to be allowed on the ground that appellee was negligent in failing to deliver the policy. The trial court found, from sufficient evidence we think, that there was no negligence. Furthermore, the theory of negligence as a ground of recovery has to be ruled out under the pronouncements contained in Brownwood Benevolent Ass'n v. Maness, Tex.Civ.App., 30 S.W.2d 1114, writ refused; and Protective Mut. Ben. Ass'n v. McCuistion, 129 Tex. 245, 103 S.W.2d 138. In the last cited case it is said that delay or negligence in delivery of the policy cannot be made to control the question of whether or not at the time of the insured's death there existed a contract of insurance.
It is plain that the courts in many instances have been reluctant to give effect to policy provisions like the one now under consideration. But as the Supreme Court declared in Hatch v. Turner, 145 Tex. 17, 193 S.W.2d 668, the parties to an insurance contract may make it in any form they desire, unless prohibited by some statute or rule of public policy, and the fact that conditions are harsh does not affect the rule, because no one is compelled to deal with insurers on the basis of such conditions. The court said in Denton v. Kansas City Life Ins. Co., Tex.Civ.App., 231 S.W. 436, supra, referring to the delivery provision in the policy, that "this was a part of the contract. It was an agreement the parties could lawfully make, and should be enforced. To hold otherwise would be for the court to make a contract for the parties."
We do not consider it controlling that the insured was stipulated to have been in good health from August 1st to August 15th. The policy provided that it would not take effect if the insured should die before the date of the policy or if he should not then be in sound health, but it also provided, in a separate clause, that the policy should not take effect until manually delivered.
The controlling facts in Pruitt v. Great Southern Life Ins. Co., 202 La. 527, 12 So. 2d 261, 145 A.L.R. 1427, are somewhat like those in the case before us. The first premium was paid in advance. The application was accepted by the insurance company and a policy was written. The policy *582 was sent by mail to the local agent for delivery. The local agent received it on December 30, 1939, but he did not go to the home of the insured to deliver it until January 4, 1940. Finding that the insured had died on January 1, 1940, from gunshot wounds accidentally received on that day, the agent retained the policy and returned it to the company. It was held that the policy never became effective. The court in its opinion discussed at length the question which confronts us. In the cited case it was shown in evidence that the local agent was instructed by the company to ascertain the condition of the insured's health and not to turn the policy over to him if he had been in ill health since the date of the application. The court held that there had not been such a transmission of the policy to the agent for unconditional delivery to the insured as would amount to a constructive delivery of the policy.
In the case before us it perhaps must be said that the evidence fails to show what Mrs. Dolman's instructions were with reference to delivery or ascertainment of information before making delivery. As we see it, the case is thus brought within the rule declared in New York Life Ins. Co. v. Mason, 151 Ark. 135, 235 S.W. 422, 19 A.L.R. 618, where it was said that the burden rested upon the plaintiff to show that delivery of the policy was made by the mailing of the policy unconditionally to the local agent for delivery to the insured. There, too, the insured died of gunshot wounds after the policy was received by the local agent but before it was handed to the insured. The beneficiary was denied a recovery.
We shall not try to harmonize all of the decisions, because we do not believe it can be done. The Texas cases, at least the more recent ones, clearly recognize the validity of the provisions which make delivery a condition precedent, and we do not see how words could be clearer or plainer than those contained in the present policy, to-wit, "neither shall this Policy take effect until the manual delivery of this Policy * * *". The parties agreed upon this provision, and we cannot disregard it unless we writ for the parties a contract which they did not write for themselves.
The judgment of the trial court is affirmed.
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227 S.W.2d 952 (1950)
GEORGE et al.
v.
SMITH.
No. 4-9118.
Supreme Court of Arkansas.
March 20, 1950.
Wilson & Wilson, Enid, Okl, Claude Duty, Rogers, for appellants.
Eli Leflar, Rogers, for appellee.
GRIFFIN SMITH, Chief Justice.
Effectiveness of the attempt of Peter M. Smith to make a will is the subject of controversy. The document expressed the mutual or reciprocal purposes of two bachelor brothers who, living together, had much in common. They were joint owners of real and personal property, shown in the inventory to be worth slightly more than $10,000.[1] After providing that each should take in succession to the other, the concluding paragraph of the will reads, "If both of the makers * * * should pass away, all of our * * * property shall go to our brother, William I. Smith". The writing was in Peter's hand, dated January 1, 1941. Three weeks later a Notary Public certified that its execution had been acknowledged. Peter died in May, 1948, followed by James in August. William died in February, 1949. Another brother, Henry P., and a sister, Mary George, are now living.
The jointly-signed document was offered for probate September 2, 1948, as the will *953 of Peter M. Smith, but in the petition there is the statement that James died testate. The appeal is from the Court's holding that Peter's property passed under his holographic will.[2]
Appellants' assignments are three-fold: (a) Joint wills are permissible only when authorized by statute, and Arkansas has none; (b) in jurisdictions where joint, mutual, or reciprocal wills are recognized, they are not effective unless each testator is bound; (c) where joint wills may be probated as the valid act of one of the parties, the uniform requirement is that the instrument must be so drawn that it will stand the test as the testamentary expressions of either; or, if one's act is to be avoided, there must be ground for a judicial finding that the wishes of the testator whose signature is disregarded, should, as to the context, be treated as surplusage.[3]
An early case dealing with joint wills was written by Judge Eakin in 1879. Hershy v. Clark, 35 Ark. 17, 37 Am.Rep. 1. Validity of a contract between Abram and Aaron Clark, unmarried brothers, was involved. They had agreed that upon the death of one, the survivor should hold the common property the two had owned, to the exclusion of all others. Upon the death, intestate, of one of the brothers, his heirs claimed what the apportionable share of their dead relative would have been, as against the heirs of the other brother, who died intestate some time after the first brother had passed away.[4] In commenting on this contract the Court said: "It professes to convey nothing in presenti, and cannot stand as a conveyance; nor can it be upheld as a mutual covenant. It is unreasonable and against public policy that one should be allowed, by an irrevocable contract, not only to denude himself of all control of all his property * * * which he may at the time possess, but also all he may afterward acquire. Such a contract would not be enforced either in law or equity. It is obvious, too, that the brothers did not intend their obligations to have that force during their lives. * * * It was revocable at pleasure by either."
Nancy Clark was the mother of Abram and Aaron; Sarah Clark was Nancy's unmarried daughter. In 1860 Sarah and Nancy executed a writing intended as their joint will. It was duly witnessed; and it directed disposal of certain property once owned by Abram and Aaron, but provided that the bequests and devises, in respect of use and enjoyment, should be postponed until the death of both. A reservation was that the survivor would have sole control, management, and disposal of all the property during her lifetimethe balance, undisposed of at the death of the survivor, "being all that was subject to the provisions of the will".
In commenting on the agreement between Abram and Aaron, the Court said: "Whether, if properly proven, it might not have operated, on the contingency of the death of one of them, as his separate will, is a question which does not arise, and upon which we intimate no opinion. No effort was made to prove or sustain it as the will of Abram, with regard to his share of the joint property".
As to the document executed by Nancy and Sarah, it was held that the effort to make a joint will was nugatory; [for, said the Court] "There can be no such thing as a joint will, to take effect on the death of *954 the survivor. A will must take effect at the death of the testator, and not at a time still in the future".[5]
Judge Hart, Cole v. Shelton, 169 Ark. 695, 276 S.W. 993, 43 A.L.R. 1008, said of the first Hershy-Clark case that, in following the common law, the Court had definitely disapproved joint wills where postponement of the benefits was the object. See, also, the opinion of Mr. Justice Robins in Stewart v. Tucker, 208 Ark. 612, at page 616, 188 S.W.2d 125.
The case of Nye v. Bradford, 144 Tex. 618, 193 S.W.2d 165, is extensively annotated in the 169th A.L.R., beginning at page nine. It is there said that the great weight of modern authority is to the effect that an instrument will not be denied probate as a will on the ground that it was executed by two or more persons purporting to sign as testators, or because it contains bequests which are reciprocal, and was executed pursuant to a contract, provided its effect is not dependent upon the death of the survivor in order to be the will of the first one to die.[6]
Following the quotation from A.L.R., copied in the margin here as the Sixth footnote, the Hershy-Clark opinion is cited in support of the rule that it is essential to the validity of a will jointly executed by two or more testators "that [it] be effective upon the death of one of the testators so far as it relates to the property of that one"; nor is such a will rendered invalid as the separate will of the first testator who dies if, included in the document, there is a provision that the property is to be divided upon the death of the surviving testator, "where it appears that the paramount intent of the testator was that the instrument could be offered for probate on the death of one of the testators as his will, notwithstanding the division of the property would await the death of the other testator."
Joint or mutual wills form the subject of a note in 61 Harvard Law Review, p. 675. Mutual wills, it is said, are the separate testamentary dispositions of the parties, and have always been recognized as valid. And [says the text-writer] although the early cases were to the contrary, it is now settled that joint instruments will be upheld. It was at one time thought that one co-testator could not revoke a joint will without the consent of the other, [because, as it was believed] "this disability was a fatal denial of the essentially ambulatory character of a will. However, all modern decisions treat a joint will which contains separate dispositions as revocable by either co-testator as to his property, and admit it to probate upon the death of each testator as his separate testamentary disposition".
Continuing the discussion, the Review writer says: "Another objection to the validity of the will was that the instrument did not take effect on the death of the one first dying, and therefore could not in any case be his will, and might be invalid as to the survivor also. Even the more modern decisions have held invalid a joint will which does not become effective until the *955 death of the survivor, whether it bequeaths his separate property or property owned by them in common. * * *."[7]
It will be conceded the cases lean to the rule that if one co-testator is not bound, the other is not. An exception [not wholly in point here] is In re Cole's Will, 171 N.C. 74, 87 S.E. 962, where a holographic will was written by the husband and signed by his wife. It was admitted to probate as the husband's will in spite of the want of formality that would have bound the wife. Some of the cases give effect to the presumption that neither testator would have executed the instrument but for the reciprocal promise of the other. See Burkhart v. Rogers, 134 Okl. 219, 273 P. 246. The Oklahoma Court cited in reliance Martin v. Helms, 319 Ill. 281, 149 N.E. 770, 773. In that case the Court spoke of "the peculiar circumstances" attending execution of the will. In Burkhart v. Rogers Mr. Justice Hefner said it was the intention of the husband and wife whose joint will was being construed that the instrument should be effective as to both "and give the survivor the estate of the one dying first." [134 Okl. 219, 273 P. 249.]
Our own cases have not established such a barrier, and we are loath to do so unless failure in the particular case would be inequitable through imposition of hardships. Law writers call attention to a dying soldier's fitful writing, "All to Mother", and mention it as one of the shortest known wills. But the last wish preceding death, the purpose, the intent, were dramatically clear, and no formulary was permitted to circumvent the wish.
So, here, Peter and James were not concerned with niceties of the law. Neither knew that when James signed, and when he later acknowledged Peter's writing, that the absence of witnesses would prevent the document from being probated as the will of James. For these reasons we are not willing to say as a matter of law that Peter died intestate. We leave to those who would speculate the task of formulating an answer to the question, "Was Peter's conduct in respect of volition dependent upon the signature of his brother?" The circumstances are unusual, but the justice is clear.
From our own decisions, and from an examination of what other Courts have said, and from comments by text-writers, the conclusion comes that we have not ruled against joint wills per se. They may be upheld if enjoyment of the property is not postponed "to the death of the survivor".
In the case at bar there remains to be determined whether inclusion of such phrases as those containing "contract", and "agreement", and expressions favoring William, were dominant or incidentalwhether the presence of these terms directs the answer that their importance was such that but for the intent their use would suggest the document would not have been executed. We are not called upon to decide whether an enforcible contract was made.
That the writing was intended as a will there can be little doubt. Use of "inherit", and "come into possession", seem synonymous in the provision that "if either of us should pass away by death the other shall inherit and come into possession of all of his property and holdings".
There is also this provision: "If both of the makers of this will should pass away, all of our holdings" shall go to William.[8]
It is not improbablein fact, words justify the inferencethat the brothers visualized a common disaster, or concurring death. In dealing reciprocally with each other, the words were, "if either of us should pass away by death".
The survivor's duty to William "while he retains an honest, kind, loving, and agreeable disposition" was the expression of a wish only. Fulfillment, therefore, was discretionary. At most, neither Peter nor James intended to impose upon the other more than a moral obligation to look after William during William's good behavior.
Considering the will from all of its angles, we feel that when the instrument was drawn Peter intended, irrespective of *956 other considerations, that James should receive the property. We are unwilling to defeat that plan through the imposition of a technical construction not necessary from a legal standpoint, and a construction that did not occur to either of the participants.
Affirmed.
HOLT and GEORGE ROSE SMITH, JJ., dissent.
LEFLAR, J., not participating.
HOLT, Justice (dissenting).
We have no statute in this State permitting joint wills. We have specifically held such wills invalid in at least two cases presently referred to.
The will above is as follows: "Rogers, Benton County, Arkansas, January 1st A.D. 1941. This Joint combined contract and will entered into this 1st day of January A.D. 1941, By and Between Peter M. Smith and James T. Smith have jointly Agreed while we are of Sound Minds to write this agreement and will. It is therefore agreed that if either of us should pass away by death the other one shall inherit and come into possession of all of his property and holdings wheresoever found in this State or any other. Such as real estate, Personal property, bank stocks, bank deposits, security holdings, notes, bonds, mortgages, and it is agreed that we or either of us is to support our brother William I. Smith as long as we are financially able to do so and as long as he has an honest, kind, loving, agreeable disposition.
"All doctor bills and funeral and burial expenses to be paid by the one that gets the others property.
"If both of the makers of this will should pass away, all of our holdings and property shall go to our brother, William I. Smith. Makers: (s) Peter M. Smith. (s) James T. Smith. Witnesses: Sworn and subscribed to before me, a Notary Public for the above named County and State, this January 22nd, 1941. (s) R. W. Owens, Notary Public. My commission expires March 23rd, 1941."
It is undisputed that at the time this will was made, and also at the death of Peter, Peter and James Smith owned all the property involved as tenants in common. On its face, the will shows that it was a joint will and was so intended to be by Peter and James. They called it "this Joint combined contract and will." They both signed it as such and as I construe it, each thereby agreed and contracted with the other, to pay the debts of the one first to die, look after their brother William, and on the death of the survivor of the two (Peter and James) all of their jointly owned property to go to their brother William, in case they, Peter and James, predeceased him.
The early case of Hershy v. Clark, Ex., et al., 35 Ark. 17, 37 Am.Rep. 1, should control here. It was there held (Headnote 1): "A mutual obligation in writing between two tenants in common of personal and real property, that at the death of either the survivor shall have all his interest in the common property which he then has, or may have at the time of his death, conveys nothing in presenti, and can not stand as a conveyance, nor be upheld as a mutual covenant. It is revocable at the pleasure of either, and can have no binding force during their joint lives."
In the body of the opinion, it was said: "On the eleventh of May, 1850, both brothers, being then residents of Popo county, entered into a mutual obligation in writing under seal. After reciting that they had, mutually and by their joint labor and energy, acquired what property they, and each of them, then held and possessed, they thereby agreed, between themselves, that the survivor of them should have, hold and possess, all the interest of both parties in the property, real and personal, which they then owned, to the exclusion of all other persons whatever. * * * The instrument executed between the brothers conveyed nothing in presenti. The intention of it is expressly declared to be that the survivor should have all the interest of both parties in the property. * * * There can be no such thing as a joint will, to take effect on the death of the survivor. A will must take *957 effect at the death of the testator, and not at a time still in the future."
In the case of Cole v. Shelton, 169 Ark. 695, 276 S.W. 993, 43 A.L.R. 1008, Judge Hart, speaking for the court, reaffirmed the holding in Hershy v. Clark in this language:
"We do not think the principles of law there decided are controlling under the facts in the case at bar. In that case, Abram and Aaron Clark, brothers, had by their joint industry acquired a large amount of personal and real estate, which they held as tenants in common. The brothers entered into a mutual obligation in writing in which each conveyed to the survivor all of his interest in their joint property. Abram died first, and Aaron took charge of their joint property as owner. He made a will giving to his mother and his sister, Sarah, all of his real estate in two counties. His mother and his sister, Sarah, took possession of the property under his will after his death. Subsequently they executed a joint will in which they devised the property they had received under the will of Aaron Clark to various persons.
"The court held that the joint instrument between Abram and Aaron Clark and the joint will of Nancy and Sarah Clark should both have been disregarded. Following the common law, the court held that there could be no such thing as a joint will to take effect on the death of the survivor. In each instance, the persons attempting to execute the joint will were the owners of the property intended to be devised as tenants in common, and intended that the will devising their joint property should take effect upon the death of the survivor. Such an instrument cannot be proved as the separate will of either of the supposed testators, because it disposes of their joint property, and because it implies an agreement between them, which is inconsistent with its revocability, and therefore prevents its operation as a will."
In Frazier et al. v. Patterson et al., 243 Ill. 80, 90 N.E. 216, 217, 27 L.R.A., N.S., 508, 17 Ann.Cas. 1003, the Supreme Court of Illinois thus defines a joint will: "A will that is both joint and mutual is one executed jointly by two or more persons, the provisions of which are reciprocal, and which shows on its face that the devises are made one in consideration of the other."
In 43 A.L.R. 1010, the annotator, in a note following the reported Cole v. Shelton case above, says: "The reported case (Cole v. Shelton, [169 Ark. 695, 276 S.W. 993, 43 A.L.R.] 1008) is from a jurisdiction which follows the rule that a joint will which is to take effect only on the death of both testators is invalid," and in 58 Am. Jur., page 462, paragraph 683, the author says: "The policy of the law is generally against the validity of a joint will executed on the condition expressed in it that it is not to be effective as a will, or is not to be probated, until the death of the testator last surviving. Such a will cannot be probated as the will of either testator. Whether the operation of the will is postponed until the death of the survivor in express terms or by necessary implication is immaterial; in either case the will is void and should be refused probate altogether. Effort should not be made to give effect to the instrument as the separate will of the first of the testators to die, during the life of the survivor, where such would result in defeating the intention of the deceased testator."
Both of the above Arkansas cases are cited in support of the text.
To uphold this contract and will would, it seems to me, in effect, overrule our holding in Hershy v. Clark above, which was, as indicated, reaffirmed in Cole v. Shelton as late as October 1925.
I respectfully submit that the judgment should be reversed.
GEORGE ROSE SMITH, Justice, (dissenting).
The cases directly in point hold that when two people execute a joint will by which each leaves his property to the other, the instrument must be valid as to both or it will be valid as to neither. Martin v. Helms, 319 Ill. 281, 149 N.E. 770; Burkhart v. Rogers, 134 Okl. 219, 273 P. 246. In re Cole's Will, 171 N.C. 74, 87 S.E. 962, cited by the majority, is readily distinguishable, for there the testators' bequests were not *958 to each other but were made jointly to a charitable institution. I think the case at bar illustrates the wisdom of the rule adopted in other jurisdictions. Had James Smith been the first to die, Peter would have found that he was not entitled to his brother's estate by virtue of the joint will. It seems clear that each brother signed this instrument upon the assumption that the survivor would receive the other's property, and hence if that expectation fails as to one it must fail as to the other. Under the majority's interpretation James had all to gain and nothing to lose, while Peter stood to lose everything and gain nothing. As I cannot believe that Peter would have joined in the instrument had he been aware of its inequality I think we should follow the unanimous trend of authority elsewhere and hold this will invalid as to both testators.
NOTES
[1] The joint valuation is inferred because the inventory lists Peter's half as slightly in excess of $5,000.
[2] There is no contention that the Court erred in holding that the will, as to James, was void for want of formality. Other than signatures the writing was in Peter's hand, hence as to James it was not holographic.
[3] "This joint combined contract and will * * * by and between Peter M. Smith and James T. Smith have jointly agreed * * * to write this agreement and will. It is therefore agreed that if either of us should pass away by death the other one shall inherit and come into possession of all of his property and holdings, * * * and it is agreed that we or either of us is to support our brother, William I. Smith, as long as we are financially able to do so and as long as he has an honest, kind, loving, agreeable disposition. * * * If both of the makers of this will should pass away, all of our holdings * * * shall go to our brother, William I. Smith".
[4] See Steinhauser v. Order of St. Benedict, 8 Cir., 194 F. 289, at page 298.
[5] Ten years later the Hershy-Clark controversy was again before the Court in another form. The opinion was written by Special Judge Geo. P. Smoote, of Prescott, who was appointed by Gov. J. P. Eagle June 9, 1889. See Clark v. Hershy, 52 Ark. 473, 12 S.W. 1077.
[6] At page 17 of the 169 A.L.R. citation it is said: "Both the common law and ecclesiastical courts of England declared joint wills invalid when they first came into litigation. Such was also the rule of the earlier decisions of the courts of this country where the will was not only joint in execution, but joint in substance in the respect that legacies and devises were bequeathed to various persons from a joint fund which derived from the separate property of the testators. The view was that such a will, being joint in substance, is necessarily in the nature of a compact between the testators and lacks the quality of revocability which is inherent in a will, so that it is invalid both in whole and in part and not admissible to probate as a joint will or as the separate will of either testator. Also, reference was made to the practical difficulties of the settlement of the separate estates of the decedents under such an instrument. But such is no longer the law in England. Moreover, the American decisions in support of such view have been directly overruled or limited so strictly as to be overruled in effect".
[7] See Atkins, Wills, §§ 69, 70; 1 Page, Wills, § 104, 3d Ed.
[8] Italics supplied.
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489 Pa. 285 (1980)
414 A.2d 70
COMMONWEALTH of Pennsylvania
v.
Stanley BROWN, Appellant.
Supreme Court of Pennsylvania.
Argued October 19, 1979.
Decided April 30, 1980.
*286 *287 *288 *289 *290 *291 Michael A. Seidman, Philadelphia, for appellant.
Robert B. Lawler, Chief, Appeals Div., Asst. Dist. Atty., Thomas J. McGarrigle, Asst. Dist. Atty., for appellee.
Before EAGEN, C.J., and O'BRIEN, ROBERTS, NIX, MANDERINO, LARSEN and FLAHERTY, JJ.
OPINION
NIX, Justice.
On April 5, 1976, appellant, Stanley Brown, was charged with murder and a number of other related offenses in the fatal shooting and robbery of Carmen Falanga, an insurance *292 agent, who was at the time in question collecting debits in the 2400 block of West Sergeant Street, Philadelphia. After a trial by jury he was convicted of possessing instruments of crime, robbery, criminal conspiracy and murder in the second degree, thereafter post-trial motions were denied and sentences were imposed. Appellant is now attempting to overturn the judgment of sentence on direct appeal, being represented by counsel other than the one who represented him below.
-Scope of Review-
The first question we must consider is the scope of review that is to be given in this case. In this instance, trial counsel filed post-trial motions of the boiler plate variety, specifically setting forth only a challenge to the sufficiency of the evidence.[1] Of the four issues raised in this appeal, only two of them were briefed and passed upon by the post-verdict motions court. These issues related to the admissibility of the testimony concerning an earlier robbery appellant had allegedly participated in on the same day as the Falanga robbery-killing and alleged prosecutorial misconduct during the summation to the jury. The third issue which relates to the relevance of the testimony presented by Calvin Lesster was not raised in the post-verdict proceedings and not considered by the post-verdict motions court.[2]
In Commonwealth v. Blair, 460 Pa. 31, 331 A.2d 213 (1975) this Court stated "[h]enceforth, issues not presented in compliance with the rule [Pa.R.Crim.P. 1123(a)] will not be considered by our trial and appellate courts." In Blair we interpreted rule 1123(a) as requiring post-verdict complaints to be specifically set forth in the written motion as a *293 condition for consideration by the post-verdict court and appellate tribunals. Commonwealth v. Waters, 477 Pa. 430, 384 A.2d 234 (1978). In Commonwealth v. Gravely, 486 Pa. 194, 404 A.2d 1296 (1979), we ruled that sixty days after the filing of that opinion (July 6, 1979) "only those issues included in post-verdict motions will be considered preserved for appellate review." Id., 486 Pa. at 198, 404 A.2d at 1298. This mandate was extended to apply to any post-trial motions filed at the time of the Gravely decision "but which may still be supplemented after sixty days from this date." Id., 486 Pa. at 199, 404 A.2d at 1298. Since the post-verdict motions were denied and the judgment of sentence was imposed prior to our decision in Gravely, we will treat the two issues which were briefed and passed upon by the post-verdict motions court as preserved for review. See Commonwealth v. Slaughter, 482 Pa. 538, 394 A.2d 453 (1978); Commonwealth v. Hitson, 482 Pa. 404, 393 A.2d 1169 (1978); Commonwealth v. Jones, 478 Pa. 172, 386 A.2d 495 (1978); Commonwealth v. Pugh, 476 Pa. 445, 383 A.2d 183 (1978); Commonwealth v. Perillo, 474 Pa. 63, 376 A.2d 635 (1977); Commonwealth v. Grace, 473 Pa. 542, 375 A.2d 721 (1977).
As to the third issue which was not raised at any point during the post-verdict motion stage, appellant argues that the Blair bar should not be applied where the trial court failed to comply with section (c)(3) of rule 1123. Rule 1123(c)(3) provides:
Upon the finding of guilt, the trial judge shall advise the defendant on the record:
that only the grounds contained in such motions may be raised on appeal.
The Commonwealth does not contest the trial court's failure to instruct appellant on the record in accordance with section (c)(3) of the rule and our review of the colloquy at the time of the entry of the verdict confirms this omission. The trial court did instruct appellant that further review was dependent upon the filing of post-verdict motions within seven days, but made no mention of the fact that the *294 grounds contained in those post-verdict motions determined the scope of that review.
In Commonwealth v. Cathey, 477 Pa. 446, 384 A.2d 589 (1978), explained the significance of section (c)(3) of rule 1123 as follows:
The right to appeal is a personal right which a defendant may relinquish only through a knowing, intelligent and voluntary waiver. Fay v. Noia, 372 U.S. 391, 83 S. Ct. 822, 9 L. Ed. 2d 837 (1963); Commonwealth v. Jones, 447 Pa. 228, 286 A.2d 892 (1971); Commonwealth ex rel. Robinson v. Myers, 427 Pa. 104, 107, 233 A.2d 220, 221-222 (1967); ABA Project on Standards Relating to Criminal Appeals § 2.2(b) (Approved Draft, 1970). To assure that any waiver of this right is knowing and intelligent, this Court has promulgated Pa.R.Crim.P. 1123(c) and 1405(b) [ now 1405(c) ] which ensure that defendants are informed not only that they have a right to appeal, but also that any issue they wish to raise on appeal must be raised first in post-verdict motions.
Id., 477 Pa. at 449-50, 384 A.2d at 590.
This same reasoning was followed by the Court in Commonwealth v. Marrero, 478 Pa. 97, 101, 385 A.2d 1331, 1333-34 (1978), wherein we stated:
However, we need not predicate our holding today on a determination as to whether or not the Grace [Commonwealth v. Grace, 473 Pa. 542, 375 A.2d 721 (1977)] rationale is here applicable. As the appellant properly noted, Rule 1123(c)(3) requires that following the verdict of the jury the trial judge has the obligation to advise the defendant on the record that only the grounds contained in the written post-trial motions may be raised on appeal. Appellant argues that the failure of the trial court to comply with Rule 1123(c)(3) should in itself preclude a finding by the court en banc that counsel's failure to properly prepare post-trial motions constitutes a waiver of issues. We find this argument to be persuasive. Since the record fails to reflect the admonition required by Rule 1123(c)(3) upon the receipt of the verdict, we hold that appellant's *295 failure to file adequate post-trial motions will not be deemed a knowing and intelligent waiver of his right of appeal. (Footnote and citations omitted).[3]
In view of the foregoing, we will consider the merits of each of the first three complaints raised herein by appellant.
-Merits-
Appellant's assignments of error can best be understood after brief summary of the testimony offered in this case. On April 2, 1976, appellant, Stanley Brown, and his accomplice, Harvey Tabron, agreed to obtain money by robbing an insurance agent working in the neighborhood. Appellant armed himself with a manriki (a two and one half foot chain used as a weapon in the martial arts) and Tabron was armed with a .22 caliber handgun. At approximately 12 noon, John Gallen, an employee of the Department of Housing and Urban Development, was inspecting houses in the 2800 block of Bonsall Street in the City of Philadelphia. Laboring under the mistaken belief that Mr. Gallen was an insurance agent, appellant and Tabron approached him and demanded money. They took from him a camera, two boxes of film, pictures, $16.00 in currency and a wristwatch. They then proceeded to West Sergeant Street.
At approximately 1 p.m. on the same day, the decedent, Carmen Falanga, an insurance agent, was collecting debits in the 2400 block of West Sergeant Street. As Mr. Falanga was entering his automobile, appellant grabbed him by the neck with the manriki and pushed him towards Tabron who had a gun drawn. The decedent began to struggle with appellant and drew a gun. The victim fired a shot at Tabron whereupon Tabron returned the fire, striking and killing the decedent.
*296 Appellant complains that the testimony relating to the robbery of John Gallen was improperly introduced at his trial. He argues that this testimony was not only irrelevant but also highly prejudicial.
"`It is a fundamental precept of the common law that the prosecution may not introduce evidence of the defendant's prior criminal conduct as substantive evidence of his guilt of the present charge. It has been succinctly stated that the purpose of this rule is to prevent the conviction of an accused for one crime by the use of evidence that he has committed other unrelated crimes, and to preclude the inference that because he has committed other crimes he was more likely to commit the crime for which he is being tried. The presumed effect of such evidence is to predispose the minds of the jurors to believe the accused guilty, and thus effectually to strip him of the presumption of innocence' . . . ."
Commonwealth v. Spruill, 480 Pa. 601, 606, 391 A.2d 1048, 1049-50 (1978) quoting Commonwealth v. Terry, 462 Pa. 595, 599-600, 342 A.2d 92, 94-95 (1975). See also Commonwealth v. Clark, 453 Pa. 449, 309 A.2d 589 (1973).
However, where the evidence is relevant, the mere fact that testimony of another crime may be prejudicial will not prevent its introduction into evidence. Commonwealth v. Lasch, 464 Pa. 573, 347 A.2d 690 (1973). Thus, evidence of other crimes has been admitted where that evidence tends to prove motive or intent, Commonwealth v. Terry, 462 Pa. 595, 600, 342 A.2d 92 (1975), absence of mistake or accident, Commonwealth v. Peterson, 453 Pa. 187, 197-8, 307 A.2d 264, 269 (1973), common scheme, plan or design (embracing commission of two or more crimes so related to each other that proof of one tends to prove the others) Commonwealth v. Wable, 382 Pa. 80, 82, 114 A.2d 334, 336-337 (1955), and to establish the identity of the person charged with the commission of the crime on trial, Commonwealth v. Rose, 483 Pa. 382, 396 A.2d 1221, 1230 (1979). Although it is the prejudicial nature of this evidence that prevents it from being harmless error, Commonwealth v. Spruill, supra ["evidence *297 of prior criminal activity . . . is probably only equalled by a confession in its prejudicial impact upon a jury," 480 Pa. at 606, 391 A.2d at 1050-51], when introduced in a trial, its relevancy to the proceeding in question determines its competency.
In the instant case, the relevancy of the robbery of John Gallen was readily apparent. The two crimes were committed within a period of approximately one hour and within a few blocks of each other. The appellant was armed in both instances with the same relatively unique weapon. In both instances, the manner of the attacks upon the respective victims was similar. The proceeds of the earlier robbery, i. e., the camera, was found at the scene of the crime in question. Finally, the same individuals participated in both crimes and both instances resulted from the same criminal design. Under these facts, a challenge to the relevancy of the testimony relating to the initial robbery is obviously without substance. Here, there were several "legitimate [bases] for the introduction of the evidence other than a mere attempt to establish the accused's predisposition to commit the crime charged." Commonwealth v. Spruill, 480 Pa. at 606, 391 A.2d at 1050.
Appellant would next have us find prosecutorial misconduct from statements made by the prosecutor during the course of his closing speech to the jury. The primary guideline in assessing a claim of error of this nature is to determine whether the unavoidable effect of the contested comments was to prejudice the jury, forming in their minds fixed bias and hostility towards the accused so as to hinder an objective weighing of the evidence and impede the rendering of a true verdict. Commonwealth v. McNeal, 456 Pa. 394, 319 A.2d 669 (1974); Commonwealth v. Van Cliff, 483 Pa. 576, 397 A.2d 1173 (1979). In making such a judgment, we must not lose sight of the fact that the trial is an adversary proceeding, Code of Professional Responsibility, Canon 7, E.C. 7-19 7-39, and the prosecution, like the defense, must be accorded reasonable latitude in fairly presenting its version of the case to the jury. Commonwealth *298 v. Cronin, 464 Pa. 138, 346 A.2d 59 (1975). Nevertheless, we do require that the contentions advanced must be confined to the evidence and the legitimate inferences to be drawn therefrom. Commonwealth v. Revty, 448 Pa. 512, 295 A.2d 300 (1972). Deliberate attempts to destroy the objectivity and impartiality of the finder of fact so as to cause the verdict to be a product of the emotion rather than reflective judgment will not be tolerated. Commonwealth v. Story, 476 Pa. 391, 383 A.2d 155 (1978). The verdict must flow from the respective strengths and weaknesses of the evidence presented and not represent a response to inflammatory pleas for either leniency or vengeance. Commonwealth v. Starks, 479 Pa. 51, 387 A.2d 829 (1978).
Where an improper remark is made by the prosecutor, the ultimate test as to whether a reversal of the judgment of sentence is required must depend upon a finding of the reasonable impact of the statement on the jury's factfinding function. Where the remarks are of a nature that would seriously threaten the jury's objectivity and is likely to deprive an accused of a fair trial, curative instructions are inadequate and a trial before another jury is required. Commonwealth v. Williams, 470 Pa. 172, 179 n. 4, 368 A.2d 249, 252 n. 4 (1977). Cf., Commonwealth v. Singletary, 478 Pa. 610, 387 A.2d 656 (1978); Commonwealth v. Garrison, 459 Pa. 664, 669, 331 A.2d 186 (1975); Commonwealth v. DuVal, 453 Pa. 205, 218, 307 A.2d 229 (1973). With these general principles in mind, we will turn to the specific statements that are under attack in this appeal.
The prosecuting attorney began his closing statement as follows:
Prosecutor: Good morning, Ladies and Gentlemen of the jury: Before I start my remarks to you I think it would be noteworthy to note that alongside our system of justice it is the type of system that we have a person is presumed innocent until he is proven guilty.
Alongside of that system is a system called the adversary system: that is, one side takes one view and the other takes another. Each trial starts from an adversary position.
*299 In this case, Ladies and Gentlemen of the jury, you would not be here if the defendant stood up before the Bar of the Court and said "I am guilty." You would not be here if his attorney stood up in his stead and said "My client is guilty." We start with that basic premise, Ladies and Gentlemen of the jury.
I would say that also [defense counsel] has been an Assistant District Attorney, every client that he has ever represented has stood
Defense Counsel: Objection, Your Honor.
The Court: Noted on the record.
Prosecutor: He stood before twelve people such as yourself and made the same kind of an appeal
Defense Counsel: Objection, Your Honor.
The Court: Noted on the record.
Appellant observes that this argument was factually in error because trial counsel had never served as an Assistant District Attorney. Moreover, appellant urges that this misstatement of fact may have confused the jury as to defense counsel's role in this particular case. Appellant charges in his brief: "This comment could only serve to have the jury believe that [defense counsel] engages in some type of game when it comes to representing clients in criminal matters." There is nothing in this record to show that this was a deliberate misstatement of fact. Concededly, the comment was gratuitous and of no particular relevance to this lawsuit and was, therefore, ill advised. However, we do not believe that it could have reasonably produced the effect that appellant now seeks to attribute to it. The fact that an attorney at one point in his career has served in the office of the prosecutor does not impugn his integrity or question his sincerity where he is subsequently acting in the capacity of an attorney for the defendant.[4]
*300 The other portion of the closing statement which has come under attack appears in the record as follows:
Prosecutor: . . . Harvey Tabron is facing a mandatory sentence of life imprisonment mandatory that means no choice. What is his interest? And I think, Ladies and Gentlemen of the jury, if you look at the facts of this particular case, Stanley Brown provided you with the answer "We are good friends. He was there along with me. I don't know why he would say I helped him rob two people, and in the second robbery killed another."
I will tell you why because it is the truth. For no other reason can you get out of Harvey Tabron walking before you, and taking the stand under oath, and destroying any hope for appeal. He testified "I did it." He not only testified here he did it, but he testified at a prior hearing, a habeas corpus proceeding, where he said "I did it. Stanley Brown helped me." The defense tells you it looks beyond that. The defense tells you "he was beaten." He told you on direct examination "Question: Were you beaten? Answer: Not exactly. Question: Were you threatened? Answer: Not exactly. Question: Did you in fact shoot Carmen Falanga? Answer: Yes. Question: Did Stanley Brown help you? Answer: Yes. Question: Whose idea was it to rob the insurance man? Answer: Stanley Brown."
* * * * * *
Stanley Brown tells you "I don't know why he said I did it. I was at a party."
The defense then tells you, Ladies and Gentlemen, there was a party going on but who does it present? It presents a Mr. Hill, who try as hard as I might to pin him down as to time or to location we could not get an answer out of him. He was so wound up and so oriented to give us a story a rehearsed kind of story he didn't want to differentiate. But the defense tells you that "We produced the defendant and his friend."
*301 The defendant told you what he already told you before "I am not guilty until you say I am."
If you look at everything he said what did he say? He made an attempt, after twelve members of the community, listening to the same evidence and facts, said "Harvey Tabron, you are guilty"
Defense Counsel: Objection, Your Honor, ask for a mistrial.
The Court: We will take it up later and
Defense Counsel: Highly irregular to tell the jury the "No argument at this point."
Prosecutor: But the defendant, Stanley Brown comes before you and tells you "They were wrong. He was not there, just like I was not there." What does he say to support that? I ask you the same question "Where are the other people?"
Appellant charges that the prosecutor misstated the legal position of the witness, Tabron, in an effort to bolster his credibility before the jury. He points to the fact that an individual who has been convicted of a crime and who has testified against a co-conspirator may still have appellate rights. Appellant is correct in his assertion that the witness, Tabron, may conceivably have appellate remedies still available to him. The essence of this argument is that the prosecution used a misstatement of fact to give this evidence unwarranted credence. Although the prosecutor's statement was technically inaccurate, in that it did not exclude all possibilities, there is no showing that there was a deliberate intent to mislead. Moreover, the effect of this argument was no more than to highlight the fact that the witness's statement was against his own penal interest. This in fact was the case.[5] Since the defense had vigorously *302 attacked the credibility of this witness, the argument was not only relevant but appropriate.[6]
The next objection to be considered is the relevance of the testimony of Calvin Lesster. Mr. Lesster identified a chain that was found at the scene of the killing as a manriki, a device that is utilized by the Japanese to disarm and apprehend individuals. After establishing his proficiency in the use of this particular weapon, Mr. Lesster attempted to demonstrate to the jury how a manriki is used. The demonstration was cut short by the court who stated, "Stop it. Now, cut this charade and this nonsense out. I don't know if he is proficient or not. Suppose it hit [sic] somebody here. I don't want anymore of this nonsense going on . . . . If you want to ask him about demonstration, he can demonstrate without putting anybody's life in danger here." Appellant *303 argues that the testimony was irrelevant and prejudicial and requires the granting of a new trial.
Evidence which tends to establish a material fact in the case or which tends to make a fact at issue more or less probable, is relevant. Commonwealth v. Scott, 480 Pa. 50, 54, 389 A.2d 79 (1978).
Any analysis of the admissibility of a particular type of evidence must start with a threshold inquiry as to its relevance and probative value. Commonwealth v. Jones, 459 Pa. 62, 66, 327 A.2d 10, 13 (1974); Commonwealth v. McCusker, 448 Pa. 382, 388, 292 A.2d 286, 289 (1972). We have cited with approval the test for relevance propounded by two leading evidentiary authorities, Wigmore and McCormick, Commonwealth v. Jones, supra; Commonwealth v. Lippert, 454 Pa. 381, 384, 311 A.2d 586, 587 (1973); Commonwealth v. McCusker, supra. Wigmore defines relevance in the terms of two axioms, "None but facts having rational probative value are admissible," and, "All facts having rational probative value are admissible, unless some specific rule forbids." 1 Wigmore, Evidence § 9-10 at 289-95 (3rd Ed. 1940). McCormick suggests the following for determining relevance, ". . . [d]oes the evidence offered render the desired inference more probable than it would be without the evidence? . . . Relevant evidence then, is evidence that in some degree advances the inquiry, and thus has probative value, it is prima facie admissible." McCormick, Evidence § 185 at 437-38 (2nd Ed. 1972).
Commonwealth v. Walzack, 468 Pa. 210, 218, 360 A.2d 914, 918 (1976).
Applying these principles to the facts of the case at hand, it is apparent that Mr. Lesster's testimony was relevant. Evidence had been introduced at trial that a long chain had been found near the body of the deceased. The testimony of the witness, Lesster, described not only the purpose for which this chain is normally used, but also corroborates the testimony of Tabron as to its use in this particular case. Furthermore, any prejudice that may have been engendered *304 by the introduction of this evidence was immediately cured by the trial court's wise decision to prevent a further demonstration of the use of this object. We therefore conclude that the testimony was relevant and that any undue prejudice which may have been inspired by this evidence was prevented by the prompt action of the court.
The final claim to be considered is that trial counsel was ineffective for failing to file a pre-trial motion to suppress the identification testimony. Specifically, appellant charges that trial counsel should have made an effort pre-trial to exclude the identification testimony of Tyrone Parks, Bruce Ballard and Tanya Harmon. These witnesses testified at trial that they had observed the defendant wearing a salt and pepper colored jacket in the immediate vicinity of the killing, shortly before the incident. They further testified that after hearing shots, they ran to their doors and saw the decedent lying in the street and a man in a salt and pepper colored jacket running from the scene.
Appellant argues that trial counsel should have filed a motion to suppress "because his cross examination cast substantial doubt on their identifications." This argument is based on excerpts from the cross examination which might suggest that they merely assumed that the individual they saw fleeing from the scene was the appellant because he was wearing the same coat they had observed previously.
A fair reading of the entire record reveals that each of the three eyewitnesses observed appellant's face while he was in the immediate vicinity minutes before the murder. After hearing the shots, they immediately looked out of their doors and saw defendant in flight. While not observing appellant's full face, Parks and Ballard drew their conclusions from the clothes worn by the fleeing man. In view of the proximity of time and space between the point where the witnesses had originally observed the defendant and the time they saw the individual fleeing from the scene it cannot be said, as appellant attempts to suggest, that this identification was pure conjecture. The witness, Harmon, observed the side of appellant's face as he was leaving the scene and, *305 because of previous and subsequent confrontations, was certain that the individual fleeing was the appellant. The mere fact that the defense counsel's cross examination may have provided some basis for the jury to question the validity of the identification by these witnesses, did not provide a basis for suggesting that there was any reason why this testimony was inadmissible and, therefore, subject to a motion to suppress.
The record is devoid of any instance of improper conduct on behalf of the police in obtaining this identification testimony. An officer from the police graphics art unit testified that on the day of the murder, he drew a sketch of the appellant based solely upon the description provided by Parks and later modified this sketch based on Ballard's description. He testified that he did not provide any information to either witness. Another detective testified that he drove Parks and Harmon to the Detention Center where they individually identified appellant during separate lineups. That officer testified that he did not inform either witness that appellant would appear in the lineup nor did he have any other conversations with them concerning their identification. Interestingly, the appellant in this appeal does not challenge the lineup identifications but rather hints at the possibility of suggestiveness from a statement made during the course of the cross examination of Tyrone Parks.
Question: (By defense counsel). When you came out of your house and you say the man in the grey coat running, you never saw his face, did you?
Answer: No, I did not.
Question: So you don't know whether or not this man was the same man that was standing at 24th and Huntingdon, or whether or not he was the same man that was on the same street when you were walking to the store?
Answer: No.
Question: Your answer is no, is that correct?
Answer: Yes. But when I got a description, I knew.
*306 Question: You mean that somebody gave you a description?
Answer: That's right, somebody gave me a description.
It is upon this vague reference to the possibility of hearsay information that the appellant presently predicates his claim of a suggestive identification. It is to be noted that at no point in the record is any further explanation given as to the source of this hearsay information. Moreover, the record is uncontradicted that the information was not received from police sources.
There is no evidence of impropriety on the part of the government in this case. It is more likely that this statement of Parks referred to some information that may have been transmitted to him when he was standing in the presence of neighbors at the scene after the shooting. While this complaint may go to the weight to be given to his conclusion that the man fleeing was in fact the person he had seen earlier, it certainly does not provide a basis for suppression.
Most importantly, it is clear from the evidence that each of these witnesses had an ample opportunity to observe the defendant prior to the shooting. Their ability from this observation to describe the appellant was confirmed by the description given to police officials by them and the fact that the two of them had no difficulty in selecting the appellant in separate lineups. Thus, the only avenue available for the attack by the defense was the validity of their respective judgment that the person they saw fleeing after the shooting was in fact the person who they had seen earlier and identified as being the appellant. This area was fully explored by artful cross examination conducted by trial counsel. Further, judgment as to the weight of this testimony was properly left to the jury. We, therefore, can find no basis for a claim of ineffective assistance on the part of defense counsel for failing to attempt to exclude testimony where there was no meritorious or even arguable claim that would support such a motion. See Commonwealth v. Musi, 486 Pa. 102, 112, 404 A.2d 378, 383 (1979) (and cases cited therein).
*307 Having examined all of appellant's contentions and finding them to be without merit, we affirm the judgment of sentence.
LARSEN, J., concurred in the result.
ROBERTS, J., filed a dissenting opinion.
MANDERINO, J., did not participate in the decision of this case.
ROBERTS, Justice, dissenting.
I would grant a new trial on the ground that the testimony of witness Calvin Lesster was only marginally relevant and highly prejudicial. At trial, Lesster attempted to demonstrate how to use a manriki, a martial arts weapon. The manriki was not the murder weapon, but was found near the victim's body. The trial judge, cognizant of the inflammatory nature of the testimony, interrupted the demonstration. The following colloquy ensued:
"THE WITNESS: It is used to strangle, to strike it in such a way (indicating)
THE COURT: Stop it. Now, cut this charade and this nonsense out. I don't know if he is proficient or not. Suppose it hits somebody here. I don't want any more of this nonsense going on. Stop any inflammatory type of demonstration here, immediately.
MR. KING: Your Honor
THE COURT: If you want to ask him about demonstration, he can demonstrate without putting anybody's life in danger here.
MR. KING: Your Honor, if Mr. Lesster put anyone's life in danger, I would apologize to that, or for that. It was in the process of demonstrating for the benefit of the ladies and gentlemen of this particular jury, an item that was found near the body of the deceased.
.....
THE COURT: It was found alongside of the body of the deceased, and there was no evidence that it was used on *308 him at all. Now, let's not make it any more inflammatory. You are getting on the borderline now. Does he know anything about this case? Ask him more questions, I don't want to tell you how to run your case, but go ahead.
MR. KING: Your Honor, it is my intention that Mr. Lesster has been qualified as an expert. Other than by the means of a hypothetical question, Mr. Lesster did not participate in the investigation or apprehension of any of the defendants in this case. Therefore, in the true sense of the word, no, he does not know about the facts of this particular case.
BY MR. KING: Q. Sir, what would be the effect of the use of the Manriki in a strangling kind of a fashion, as far as it immobilizing an opponent?
A. Well, it would cut off his air.
Q. By cutting off his air
A. By pulling his Adams Apple and strangling him, so would cut off his air, which means that he would have no strength to fight back with.
Q. This particular weapon, sir (indicating) assuming for the sake of this hypothetical question, if a victim was approximately six foot two inches tall, approximately 260 pounds in weight, what would be the effect of using this particular device by a smaller person upon
MR. SANTAGUIDA: Objection, Your Honor.
THE COURT: Objection sustained . . ."
(N.T. 11/3/76, pp. 185-188)
Unlike the majority, I fail to see how the remarks of the trial judge "cured" the prejudicial effect of the aborted demonstration. Rather, this colloquy only served to further "inflam[e] the minds and passions of the jurors," Commonwealth v. Batty, 482 Pa. 173, 177, 393 A.2d 435, 437 (1978); Commonwealth v. Martinez, 475 Pa. 331, 380 A.2d 747 (1977) (plurality opinion). Counsel therefore had no reasonable basis for not preserving his objection in post-verdict motions. Appellant should be awarded a new trial.
NOTES
[1] On appeal, appellant has wisely abandoned his attack upon the sufficiency of the evidence to support the verdicts entered below. Our review of the record confirms the learned trial court's decision on this question.
[2] The final complaint is a charge that trial counsel was ineffective for failing to file a pre-trial motion to suppress the identification testimony. Since this is a pure claim of ineffective assistance, the scope of review of this contention is clear. Commonwealth ex rel. Washington v. Maroney, 427 Pa. 599, 235 A.2d 349 (1967).
[3] Since the question of the relevance of Calvin Lesster's testimony was not considered by the post-trial court, the normal procedure would be to remand the question to the court below for consideration and disposition. See Commonwealth v. Marrero, supra. Here, the issue has been clearly drawn and, in view of the other questions that are properly presented for resolution, sound jurisprudence and a consideration for judicial economy would dictate that we reach and resolve the merits of the issue at this juncture.
[4] There is also an intimation by appellant that these statements may have been designed to undermine the appellant's presumption of innocence. We reject such an implication. Although inartful, it is clear that counsel for the prosecution was merely attempting to demonstrate the adversary nature of the proceeding.
[5] Although the possibility of further appellate relief for Tabron was remotely possible and this possibility rendered counsel's statement inaccurate, nevertheless, his admission of guilt in these proceedings would always be available for use against him in any future attempt to assert innocence.
[6] Defense counsel's summation clearly called into question the credibility of Tabron:
[Defense counsel:] . . . Harvey Tabron yes, he made the statement that he committed this crime. . . . .
Let's get back to Harvey. The Court is going to tell you several things about Harvey . . . he will tell you he is known Number One, as a convicted felon because he has been convicted of a crime; Number Two, is what they call an "accomplice" because he is saying he is an accomplice of Mr. Brown's. . . . [D]idn't he tell us he would say anything to get out of his predicament? . . If somebody said to him "Harvey, you will walk out of those bars, but you have to put any one of us involved in this crime" do you think he would?
[Harvey Tabron] pleads not guilty and goes to trial and is convicted. Now he has a was convicted of Second Degree Murder that is life imprisonment and besides that, convicted of robbery. . . The Judge could say "life is enough." Give him life and the sentences on the robbery and gun charges running with the life sentence, which means he hopes in twenty years he will get out. Now, he figures "Oh, if they give me consecutive sentences, I will never get out. What do I have to do to see some daylight?" March him in and he testifies against Stanley Brown.
The defense was the first to bring up the subject of Tabron's conviction and sentencing. By arguing to the jury the effect of his conviction and sentence, the defense cannot complain when the Commonwealth sought to answer the defense allegations in its closing address. Commonwealth v. Stoltzfus, 462 Pa. 43, 61-62, 337 A.2d 873 (1975). It is clear that the prosecution may, in its closing address, attempt to meet the pleas and arguments made by defense counsel in his summation. See Commonwealth v. Van Cliff, 483 Pa. 576, 584-85, 397 A.2d 1173, 1177 (1979) (citing cases).
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227 S.W.2d 545 (1950)
ELLISON
v.
STATE.
No. 24641.
Court of Criminal Appeals of Texas.
February 15, 1950.
Rehearing Denied March 22, 1950.
*547 Burks & McNeil, Lubbock, for appellant.
George P. Blackburn, State's Atty., of Austin, for the State.
GRAVES, Judge.
Appellant was charged as a second offender of a violation of the liquor laws of Lubbock County, and upon his conviction was assessed a penalty of a fine of $1,000.00 and six months' confinement in jail, and he appeals.
The testimony shows that certain peace officers, in possession of a search warrant, entered Cabin No. 10 at Camp Dixie or Dixie Courts, in Lubbock County, to search for intoxicating liquors. They knocked on the door of such cabin and appellant appeared thereat. They served the search warrant and engaged him in conversation while searching the cabin. They found therein twenty-two 12-ounce cans of beer in the shower. They then searched the automobile mentioned in the search warrant and found twenty-one cases of beer in the turtleback thereof, the car being parked about six feet from the front of the cabin and appellant producing the key thereto. While this search was going on, appellant told the officers that his car had broken down about four o'clock in the afternoon and he had caused it to be pulled into or near the cabin. When asked what he was going to do with this beer, he told an officer that he had brought it to the American Legion, and when questioned as to what Legion Post, he said that he had brought it up for a party that they were going to throw on the farm, he and some other fellows. There was no denial of such testimony, and we have stated a sufficient amount thereof in order to understand the appellant's contention herein.
Appellant was charged in the complaint with the above-outlined offense, as well as the further allegation that he had previously been convicted of a like offense. The verdict of the jury merely stated that "we, the jury, find the defendant guilty, and assess his punishment at a fine of $1000.00 and confinement in the county jail for a period of six months."
Appellant relies upon the line of cases which hold that where an accused is charged with an offense that can be broken down into degrees, it is necessary for the jury to find, and the verdict to show, of what degree of such offense they so found. We are cited to many cases which hold that where an offense is capable of being found in more than one degree, the verdict should designate of which degree thereof the accused is convicted. We quote from 42 Tex. Jur. p. 470, sec. 368, as follows:
"Where an indictment or information contains but one count charging a single offense a general verdict of `guilty' or `guilty as charged' is sufficient, unless the offense is divided into degrees and the case is one in which the verdict must also specify the degree on which a conviction is based.
"The verdict need not specifically name the offense except in those circumstances when it would otherwise be uncertain."
We are cited to the case of Cagle v. State, 147 Tex. Crim. 140, 179 S.W.2d 545, which, in our opinion, is not in point herein. In that case the indictment contained two counts, the first charging a present felony; the second count thereof charging a previous conviction of a felony of like character. The jury found a verdict of guilt of the second count and said nothing relative to the charge on the instant felony. In other words, they merely found the accused guilty of the older felony which was attempted to be used only for the purpose of the enhancement of the penalty. Obviously, the jury failed to pass on a material matter in such cause.
We think the doctrine laid down in the case of Sigler v. State, 143 Tex.C.R. 220, 157 S.W.2d 903, 905, supports the State's position herein. We quote from that case as follows: "24 Corpus Juris Secundum, Criminal Law, § 1958, p. 1143, *548 says: `However statutes authorizing a more severe penalty to be inflicted on one who is a persistent offender do not create an offense, nor inflict additional punishment for the prior offense, nor do they authorize a conviction on a charge of being an habitual criminal; they merely prescribe punishment for the subsequent offense which is to be more severe, because the offender's persistence in the perpetration of crime evinces a depravity which merits greater punishment."
The second count or allegation merely relates to an effort to enhance the punishment herein and no more. No facts relative to such prior convictions were gone into, and no weight was given relative to the same, except in the event of a conviction for the present charge; and then there could only be taken into consideration appellant's persistency as evidenced by his having been convicted of such prior alleged transaction of a similar offense, which is controlled by the judgment therein.
Appellant seems to fear that is the event of a further charge against him for a violation of like character, that such anticipated pleadings might contain the previous allegation of this presently used prior violation. An answer thereto seems to be that such anticipated accusation has not yet arisen, it not being shown herein that the matter relied upon for an enhancement herein will ever be used for such purpose in the future. He can only cross that bridge if it is ever reached.
Appellant again complains because of certain claimed irregularities relative to the date of the alleged offense in the prior conviction. Such complaint may have had some weight in the trial of the earlier case, but in this trial, the judgment of the court, the kind of offense, and the identity of the accused, are the controlling elements, and the prior conviction cannot be otherwise tried herein.
It is contended that appellant is not identified as the same person who was convicted in the prior case. We think this contention is not borne out by the testimony of Mr. Horton, a Deputy Sheriff, who testified as follows:
"On the 9th day of December, 1948, I was Deputy Sheriff at that time. On December 9, 1948, I had occasion to see Clarence Ellison. I saw him down on this old Slaton
"There is a person in the court room that I call Clarence Ellison. I know Clarence Ellison. I see him in the court room. He is sitting behind Mr. Burks there. He is the defendant there.
"I was Deputy Sheriff here. On or about the 9th day of December, 1948, I was Deputy Sheriff. I was Deputy Sheriff here on or about October 9, 1948.
"The instrument that you now hand me is a County Court complaint. My signature is on there. It is dated October 9, 1948. I signed it on October 9, 1948. I complained in there in that complaint against Clarence Ellison. The offense charged was possession of an alcoholic beverage for the purpose of sale, to-wit, Beer. The number of that case that I filed was No. 12578. That is the number of the case in which I filed a complaint against this Defendant. The Defendant, Clarence Ellison, as recited in the complaint I signed and the man that I arrested under the authority of that complaint is the same man that is here sitting at the table today. He is the same man. The man named Clarence Ellison that I testified that I arrested under the authority of this complaint, in Cause No. 12578, is the same man that is on trial today, Clarence Ellison.
"I saw the Defendant on October the 9th. I saw him over here at our office in the jail.
* * * * * *
"I was not in Court when this case was tried that I refer to."
Appellant further complains because it is contended that when arrested herein, he gave an exculpatory statement to the officers relative to the possession of such beer, and that it, therefore, became the duty of the State to disprove such statement. The facts seem to indicate that appellant gave two reasons why he possessed *549 this beer: the first one being that he had the same for the American Legion, and when questioned further, he later said that he and some others intended to "throw a party." We are in doubt as to which statement is worthy of disproof, if either. Appellant's change of purposes can hardly be called an exculpatory statement, nor would it show a failure to possess such liquor for the purpose of sale. Appellant did not see fit to enlighten the jury as to what his purpose was at this trial, nor to whom such beer was being taken; and we do not think the State erred in attempting to dispose of such changing destination for this large quantity of liquor. Appellant had a right to show for what purpose such possession was had, and in the event of a failure to do so, the prima facie presumption prevails of a purpose of sale.
A complaint is also made because in Paragraph 1 of the court's charge an evident clerical error occurred therein when the trial court was charging the jury on the burden of proof; he therein told the jury that the State must prove to their satisfaction beyond a reasonable doubt certain matters relative to the possession of beer, and its purpose, etc., and continued as follows: "and unless the State has assumed this burden and proven to your satisfaction, beyond a reasonable doubt, such facts, it will be your duty, as jurors, to resolve that doubt in favor of the defendant and say by your verdict `not guilty'." Evidently, the word desired to be used was possibly "discharged" but the charge itself is replete with directions to the jury requiring the State to prove its case beyond a reasonable doubt, and instructions to acquit should it fail to do so.
It is further contended that the verdict herein is vague and indefinite and is not responsive to the court's charge because the same makes no mention of what charge they base such verdict. They do say, "we, the jury, find the defendant guilty, and assess his punishment at a fine of $1000.00, and confinement in the County Jail for a period of six months." This punishment would fall within the period fixed by law either as a first offender, or a second offender, and would be legal under either, and under the doctrine of only one offense being charged; and the prior offense being only a method of determining the punishment, we think such verdict was sufficient.
Finding no error in the record, the judgment will be affirmed.
On Motion for Rehearing
WOODLEY, Judge.
We have again examined the record in the light of appellant's motion for rehearing, and remain convinced that the questions discussed were properly disposed of in the original opinion.
The State proved the previous conviction alleged by introducing the information and the judgment on a plea of guilty.
For the purpose of showing that appellant and the person so convicted were one and the same, the deputy sheriff, Horton, was called who testified that he signed the complaint and made the arrest and that appellant was the person charged in said former case.
There was no error in the court's permitting the witness to identify the complaint and to testify as to the case number and the character of offense therein charged. The complaint was not a necessary part of the State's proof of the former conviction. It was used only in connection with the identification of appellant as the person so previously convicted.
Appellant first told the officer that he had brought the beer to the American Legion, and then said that he had "brought it up for a party that they were going to throw on the farm, he and some other fellows." The officer testified that appellant first said that he brought the beer to the Legion and that "then he changed his story to this party out there." Unless appellant's explanation be construed to mean that he did not possess the beer for the purpose of sale, it did not constitute an affirmative defense.
If it be so construed, then such defense was adequately submitted by the *550 court's instruction to the jury to acquit if the beer was possessed for any purpose save and except the purpose of sale.
The case having been properly disposed of on original submission, the motion for rehearing is overruled.
Opinion approved by the Court.
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534 A.2d 679 (1987)
MOLASSES POND LAKE ASSOCIATION
v.
SOIL AND WATER CONSERVATION COMMISSION.
Supreme Judicial Court of Maine.
Argued November 17, 1987.
Decided December 22, 1987.
*680 Michele M. Lataille, Wayne P. Libhart (orally), Ellsworth, for plaintiff.
James E. Tierney, Atty. Gen., Jeffrey Frankel (orally), Asst. Atty. Gen., Augusta, for defendant.
Before NICHOLS, ROBERTS, WATHEN, GLASSMAN, SCOLNIK and CLIFFORD, JJ.
WATHEN, Justice.
Plaintiff Molasses Pond Lake Association (the Association), the owner of a dam on Molasses Pond, appeals from an order of the Superior Court (Hancock County) affirming in part and vacating in part an order of the Soil and Water Conservation Commission (the Commission). On appeal, the Association raises numerous objections to the order of the Commission. In addition, the Commission by way of cross-appeal challenges the action of the Superior Court in vacating that part of its order requiring certain structural modifications to the dam. We conclude that plaintiff's appeal presents no issue of merit and on the cross-appeal we find that the Superior Court did not err. We affirm the judgment of the Superior Court.
In response to a petition signed by twenty-three lakefront owners on Molasses Pond in Eastbrook, the Commission held hearings to establish a proper water level on the lake. The petition alleged that the Association's failure to maintain its dam was causing extensive shore erosion. The Commission's Executive Director presided over the hearings. After hearing, the Commission issued an order setting a maximum water level for the lake and directing that specific structural modifications be made to the dam so that it would be capable of regulating water levels in accordance with the terms of the Commission's order. The Association appealed the Commission's order to the Superior Court.[1] The Superior Court ruled that the Commission lacked statutory authority to require dam modifications, but otherwise affirmed the order. From this decision, both parties appeal.
No extended discussion of the issues raised by the Association on appeal is required. The determination by the Commission that the petition initiating the review proceedings was complete, is properly deferred to by this Court. See Bar Harbor Banking and Trust Company v. Superintendent of the Bureau of Consumer Protection, 471 A.2d 292, 296 (Me.1984); Kelley v. Halperin, 390 A.2d 1078, 1080 (Me. 1978). The record does not support the allegation that the Association was prejudiced by the Assistant Attorney General's behavior during the proceedings. See Hale v. Petit, 438 A.2d 226, 231-232 (Me.1981). The Commission's designation of its Executive Director to preside over the hearings is expressly authorized by statute. 12 M.R. S.A. § 52 (1974); see 5 M.R.S.A. § 9062(1) (1979). Furthermore, as there is no evidence *681 establishing that the Association's property was rendered "substantially useless" by the Commission's order, there has been no unconstitutional taking. See Seven Islands Land Co. v. Maine Land Use Regulation Commission, 450 A.2d 475, 482 (Me.1982). Finally, we are persuaded that the record adequately supports the findings of fact made by the Commission. 5 M.R.S.A. § 11007(4)(C)(5) (1979); Seven Islands Land Co., 450 A.2d at 479-80.[2]
Turning to the cross-appeal, it is axiomatic that State agencies may exercise only that power which is conferred upon them by law. "The source of that authority must be found in the empowering statute, which grants not only the expressly delegated powers, but also incidental powers necessary to the full exercise of those invested." State v. Fin & Feather Club, 316 A.2d 351, 355 (Me.1974). Moreover, as the agency responsible for enforcing the relevant statute, an agency's construction of the enabling statute is entitled to great deference by this Court. Bar Harbor Banking and Trust Company, 471 A.2d at 296; Kelley, 390 A.2d at 1080. We agree with the Superior Court, however, that 12 M.R.S.A. § 304(4) (Pamph.1974-80) does not authorize the Commission to order structural modifications to a dam.[3]
In addition to establishing water levels, 12 M.R.S.A. § 304(4) (Pamph.1974-80) provides that the Commission
[s]hall, insofar as practicable, require the maintenance of a stable water level, but shall include provision for variations in water level to permit sufficient draw down of such body of water to accommodate precipitation and runoff of surface water and to otherwise permit seasonal or other necessary fluctuations in water level ....
Although the statute permits provision for variations in water level, it contains no express authorization to order alterations to a dam. No such authority can reasonably be inferred from the power to establish water levels because an adequate enforcement mechanism is provided under 12 M.R.S.A. § 306 (Pamph.1974-80).[4]See Fin & Feather Club, 316 A.2d at 355. The Superior Court committed no error.
The entry is:
Judgment of the Superior Court affirmed.
All concurring.
NOTES
[1] Initially the Commission brought an action for injunctive relief against the Association. Subsequently, the Association filed a complaint seeking a review of the Commission order and that complaint was filed as a counterclaim by order of court. Ultimately the Commission's action was dismissed and only the Association's complaint for judicial review remained.
[2] The Association includes additional constitutional and procedural issues in its appeal. We decline to address those questions, however, because they were not raised at the Commission hearing or before the Superior Court. See Your Home, Inc. v. Town of Windham, 528 A.2d 468, 471 (Me.1987).
[3] The hearing was held pursuant to the former Neglected Dams Law 12 M.R.S.A. § 301 et seq. (Pamph.1974-80).
[4] Section 306 provides as follows:
Enforcement
The commission, a dam owner, or any littoral proprietor may commence an action to enjoin the violation of any provision of this chapter. The commission may enforce the order by any other appropriate remedy.
The violation of any order of the commission shall be punishable by a fine of not less than $20 and not more than $100. Each day of violation shall be considered a separate offense.
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227 S.W.2d 154 (1950)
LOCAL NO. 802 et al.
v.
ASIMOS et al.
No. 4-9061.
Supreme Court of Arkansas.
February 20, 1950.
Rehearing Denied March 20, 1950.
George F. Edwardes, Texarkana, for appellants.
Shaver, Stewart & Jones, Texarkana, for appellees.
McFADDIN, Justice.
The Miller Chancery Court, on petition of appellees, permanently enjoined appellants from picketing appellees' restaurant; and this appeal seeks a dissolution of the injunction.
Appellees Asimos and Scott are partners, operating the Jefferson Coffee Shop in Texarkana, Arkansas. It is located at the corner *155 of Front Street and State Line Avenue, with an entrance on each street. Thirty-four persons are employed in the Coffee Shop, which is open twenty-four hours of each day. The business is entirely intra-state, and no question of inter-state commerce arises in this case. Appellant, Local No. 802 of the Hotel and Restaurant Employees and Bartenders Union, (an affiliate of the American Federation of Labor) is a Union for waitresses of any and all restaurants in Texarkana, ArkansasTexas. In addition to the Local No. 802, other appellants include the officers of the said local. For convenience, we will hereinafter refer to the appellees as "Jefferson" or "Coffee Shop", and to the appellants, either individually or collectively, as the "Union".
In 1927 Jefferson had a contract with either the present Union or some predecessor local; and again in 1942 Jefferson bargained with the Union. The failure to continue the bargaining in each instance seems to have been due to the inability of the Union to hold its members. A few weeks prior to May 3, 1949, an officer of the Union asked Jefferson to sign a contract with the Union as the bargaining agent of Jefferson's employees. Only one Jefferson employee was a member in good standing of the Union. Six or eight other employees, in months or years previous, either had joined, or signed application cards to join, but had abandoned the affiliation.
Jefferson discussed the Union request with some of its employees and was told that few of them had any desire to make the Union the bargaining agent. The employees were satisfied with their working conditions. Jefferson conveyed this information to the Union and was advised that "* * * if Jefferson did not recognize the Union, the Jefferson employees would be called out". The Union official reported Jefferson's attitude to a regular meeting of Local No. 802, and it was voted to call a strike of Jefferson's employees and to establish a picket line in front of the Coffee Shop, in order to enforce collective bargaining by Jefferson with the Union.
At 1:00 a. m., May 3, 1949 the Union established a picket line on the sidewalk in front of the Jefferson Coffee Shop. There were two pickets: one girl walked slowly in front of each of the doors of the Coffee Shop; and each girl carried a placard reading: "Jefferson Coffee Shop Refuses to Bargain with Employees' Local 802". As soon as the picketing commenced, three or four employees of Jefferson left their work. Several employees refused to return to work, either because they were frightened by the assembled crowd, or because they had relatives in some Union and were reluctant to cross the picket line.
About thirty minutes after the picket line had been established, a man named Murphy entered the Coffee Shop as a patron, and, after being served with food, went out on the sidewalk, where a group of twenty-five or thirty people had assembled. Murphy gives this version: A man named Pruitt made the remark, "Anybody who goes in there and eats is a dirty scab."; that after other words of like import, Murphy struck Pruitt, and a fight ensued; and that officers quickly took both men in custody. Pruitt gives this version: He was employed as floor manager at Chaylors Night Club and had an argument with Murphy at that place earlier in the evening; that when Murphy saw Pruitt at the Coffee Shop, they renewed their previous quarrel, which was in no wise connected with the picketing. Although Murphy denied ever having seen Pruitt before the Coffee Shop difficulty, he did admit having been to Chaylors Night Club about two months prior to the Coffee Shop encounter; and Murphy's pugilistic instinct and willingness to engage in an affray is reflected by the following question and answer on cross-examination:
"Q. Mr. Witness, what are you smiling about? A. Mr. Lawyer, I was thinking about how I would like to punch you in the nose."
In addition to the facts previously detailed, the evidence further showed (1) that the Murphy-Pruitt fight was the sole act of violence occurring during the entire time of the picketing; (2) that at several times a crowdactuated by curiosity and estimated from twenty-five to a hundred gathered on the sidewalk in front of the Coffee Shop; (3) that there was no mass picketing (being only one picket at each *156 door); (4) that sometimes a picket would walk so close to the door of the Coffee Shop that a patron would be impeded in entering; and (5) that because of the picketing the volume of business of the Coffee Shop materially decreased, and the appellees suffered financial loss.
The picketing began at 1:00 a. m. on May 3 and continued until 5:30 p. m. on May 5, at which time the Chancery Court granted a temporary restraining order against all picketing. On June 17 the temporary order was made permanent in the injunction decree (here challenged) which reads in part as follows: "It Is Therefore by the Court considered, ordered and adjudged that the defendants and each of them be and they are hereby permanently and forever restrained, enjoined and prohibited from in any manner interfering with the employees of the plaintiffs and from in any manner interfering with any person who may desire to enter the employ of plaintiffs by way of threats, personal violence, intimidation or other means calculated or intended to prevent such person or persons from entering or continuing in the employ of plaintiffs or calculated or intended to induce any such person or persons to leave the employ of the plaintiffs; from picketing plaintiffs' place of business and from patroling the abutting sidewalks or boycotting plaintiffs' business by the display of placards, distributing circulars, handbills or otherwise; from interfering, intimidating, boycotting, molesting or threatening in any manner the patrons or prospective patrons of plaintiffs or other person or persons seeking to enter plaintiffs' place of business; from congregating or loitering about and congregating on the sidewalks or streets abutting plaintiffs' place of business, or at other places, with intent to interfere with the employees of plaintiffs with intent to cause them to leave the employ of plaintiffs or to interfere with or obstruct plaintiffs' place of business in any manner, or induce the public not to deal with plaintiffs; from interfering with the free access of employees and patrons to and from plaintiffs' place of business and from obstructing the sidewalk in front of plaintiffs' place of business; from giving any directions or orders to individuals, committees, associations or otherwise, for the performance of any such acts or threats which would in any manner impede, obstruct or interfere with the regular operation and conduct of plaintiffs' business."
So much for the statement of the case. The appellant (Union and its officers) claims that the injunction decree violates the right of free speech guaranteed under the Fourteenth Amendment of the Federal Constitution. This contention, made in the lower court and reiterated here, presents the Federal question on which our opinion must necessarily be based.
We have decisions of our own in which permanent injunctions were granted against picketing. These cases are: Local Union No. 313 v. Stathakis, 135 Ark. 86, 205 S.W. 450, 6 A.L.R. 894; Riggs v. Tucker Duck and Rubber Company, 196 Ark. 571, 119 S.W.2d 507; and Local Union No. 858 v. Jiannas, 211 Ark. 352, 200 S.W.2d 763.[1] Each of these opinions was written by that outstanding jurist, Mr. Justice Frank G. Smith, who recently retired from this Court after thirty-seven years of service. The opinions in these three cases have charted the course of our jurisprudence on the questions involved; but in each of these cases the injunction was upheld because there had been law violations and repeated acts of violence. The Supreme Court of the United States has recognized in Milk Wagon Drivers Union v. Meadowmoor Dairies, 312 U.S. 287, 61 S. Ct. 552, 85 L. Ed. 836, 132 A.L.R. 1200, that an injunction prohibiting picketing is justified where there is a background of law violation and acts of violence.
In addition to our own opinions, as previously mentioned, there are certain United States Supreme Court cases which involve the right of free speech as intertwined with picketing cases. Some of these are: Senn v. Tile Layers Protective Union, 301 U.S. 468, 57 S. Ct. 857, 81 L. Ed. 1229; Thornhill v. Alabama, 310 U.S. 88, 60 S. Ct. 736, 84 *157 L.Ed. 1093; Milk Wagon Drivers Union v. Meadowmoor Dairies (called "the Meadowmoor case"), 312 U.S. 287, 61 S. Ct. 552, 85 L. Ed. 836, 132 A.L.R. 1200; American Federation of Labor v. Swing, 312 U.S. 321, 61 S. Ct. 568, 85 L. Ed. 855; Bakery and Pastry Drivers and Helpers, Local 802 v. Wohl (called "the Bakery case"), 315 U.S. 769, 62 S. Ct. 816, 86 L. Ed. 1178; Cafeteria Employees Union, Local 302 v. Angelos (called "the Cafeteria case"), 320 U.S. 293, 64 S. Ct. 126, 88 L. Ed. 58; Lincoln Federal Labor Union No. 19129, A.F. of L. v. Northwestern Iron Company and Whitaker v. North Carolina, 335 U.S. 525, 69 S. Ct. 251, 93 L. Ed. ___; Giboney v. Empire Storage & Ice Co., 336 U.S. 490, 69 S. Ct. 684, 93 L. Ed. ___.
A careful study of these cases has led us to the conclusions herein to be stated. In considering any case involving a right claimed under the Federal Constitution, we must necessarily be guided by the decisions of the United States Supreme Court construing such constitutional provision because, as observed by Mr. Justice McHaney, in Berry v. City of Hope, 205 Ark. 1105, 172 S.W.2d 922, 924, "* * * still the Supreme Court of the United States is the final arbiter of the construction to be given that document which all of us are sworn to support, and we must follow the majority view as expressed in said cases." Here the picketing done by the Union is claimed to be protected by the right of free speech, as guaranteed by the Fourteenth Amendment to the United States Constitution.
That the injunction granted by the Miller Chancery Court is extremely broad and far-reaching, is readily apparent from a reading of it, as heretofore copied. That the Supreme Court of the United States has upheld picketing in cases similar to the one at bar, is likewise readily apparent from a reading of the cases of that Court, as heretofore cited. Therefore, in the light of the Federal cases, appellees' learned counsel, in the brief, and in the oral argument, sought to defend the broad language of the injunction on the three grounds which we now mention:
I. Appellees claim that there had been law violations and acts of violence at the picket line. If the picketing had resulted in violence, unlawful acts, or breaches of the peace, then the case at bar would fall within the rule of our own decisions in the Stathakis case,[2] the Riggs case,[3] and the Jiannas case,[4] and the injunction against the picketing would find Federal approval in the Meadowmoor Dairy case, supra. But here we find only one act of violencei. e. the Murphy-Pruitt fight and we are not convinced that it grew out of the picketing. At most, it was an isolated instance. Neither was there mass picketing, so as to block access to the Coffee Shop. The fact that the two pickets walked near the doors, and at times impeded entrance, is a matter that will be subsequently mentioned as susceptible to specific injunction; but certainly those acts are not sufficient to justify a permanent injunction against all picketing. The fact that a crowd of from twenty-five to one hundred peopleactuated by curiositygathered on the sidewalk outside the Coffee Shop, is not alone sufficient to justify a permanent injunction: the Coffee Shop was located near the railroad station and the bus terminal, where travelers are expected to come and go. There is nothing to show that the crowd was disorderly or engaged in any violence. In short, the facts in the case at bar do not bring it within the rule of our own cases previously mentioned, or the Meadowmoor Dairy case from the United States Supreme Court.
II. Appellees claim, to quote from their own brief, "* * * the picketing was unlawful in that it had an unlawful objective the coercion of the execution of a closed-shop contract proscribed by statute law." Amendment No. 34 to the Arkansas Constitution provides:
"Section 1. No person shall be denied employment because of membership in or affiliation with or resignation from a labor union, or because of refusal to join or affiliate *158 with a labor union; nor shall any corporation or individual or association of any kind enter into any contract, written or oral, to exclude from employment members of a labor union or persons who refuse to join a labor union, or because of resignation from a labor union; nor shall any person against his will be compelled to pay dues to any labor organization as a prerequisite to or condition of employment.
"Section 2. The General Assembly shall have power to enforce this article by appropriate legislation."
Acting under this Amendment, the General Assembly adopted Act 101 of 1947 (See Sec. 81-201 et seq. Ark. Stats. 1947) which provides, inter alia, "* * * no person * * * firm * * * or labor organization shall enter into any contract to exclude from employment * * * persons who are not members of, or who fail or refuse to join, or affiliate with, a labor union * * *"
In Lincoln Federal Labor Union No. 19129, A. F. of L. v. Northwest Iron Company, and in Whitaker v. North Carolina, 335 U.S. 525, 69 S. Ct. 251, 93 L.Ed.___, the United States Supreme Court on January 3, 1949 upheld the constitutionality of a Nebraska constitutional amendment, and also a North Carolina statute, each similar to our amendment and statute just quoted. In Giboney v. Empire Storage and Ice Company, 336 U.S. 490, 69 S. Ct. 684, 93 L. Ed. ___, the United States Supreme Court on April 4, 1949 affirmed a judgment that enjoined picketing which had as its purpose the violation of a State law. On the authority of these Federal cases the injunction in the case at bar could be sustained in some form, if the appellees had shown that the Union was picketing the Jefferson Coffee Shop in an effort to compel the execution of a "closed-shop" contract. There was an allegation to such effect in the complaint, but a denial of it in the answer.
A careful search of the entire record fails to disclose a single line of testimony by anyone to the effect that a closed-shop contract was ever mentioned, or demanded by the Union, or any of its officials, in any of the conversations with the appellees concerning the Jefferson Coffee Shop. So, in the absence of all such evidence, we cannot hold that the picketing in the case at bar had anything to do with a closed-shop contract. In short, the injunction cannot be upheld on appellees' second contention.
III. Finally, appellees seek to uphold the injunction by this contention: "Because no labor dispute existed between appellees and their employees, and there was in progress no strike which might have justified peaceful picketing."
Appellees are correct in stating the fact that no labor dispute existed between the Jefferson Coffee Shop and its employees. The record clearly shows that only one Jefferson employee was in good standing in the union, and the other Jefferson employees did not desire to join. The absence of a labor disputein the sense that the term is ordinarily usedwas a fact that apparently weighed most heavily with the learned Chancellor in granting the injunction because in his opinion he made these observations: "We have a situation here where a group of people operate a restaurant and it seems to have been operated very peacefully. Nobody connected with the restaurant as an employee or as an owner was having any trouble between themselves. They were getting along all right. * * * I don't understand the law to be that if a man or company and all its employees are peacefully working together that any particular person or individual connected with any organization has any right to go down and demand that the people that work in there or the people operating it shall or shall not be connected with the union. * * * I just don't believe the law ever was intended for any group of men to come in and say, `You are either going to join the union and bargain so that we can regulate prices and conditions of labor or we will close your place of business.' That doesn't sound right to me."
Thus, the learned Chancellor was evidently of the opinion that until the employees went on strike, there could be no picketing; and that in the absence of a labor dispute, the Union had no right to *159 establish a picket line. In this view the Chancellor was probably following the text found in 31 Am.Jur. 950 in the Topic, "Labor", Sec. 236: "* * * picketing by union, in the absence of any dispute between an employer and his employees, is unlawful where the purpose is to compel the employer to contract with the union, to adopt the hours of work and scale of wages favored by the union, to recognize the union, * * *."
There is nothing in the record to show that the attention of the Chancellor was ever called to either of the two United States Supreme Court cases now to be discussed. As heretofore observed, we are under oath to obey the United States Constitution; and the interpretation of that document, as made by the United States Supreme Court, is binding on us. That tribunal has decided that there may be picketing in the entire absence of a labor dispute.
In Bakery and Pastry Drivers and Helpers, Local 802 v. Wohl, 315 U.S. 769, 62 S. Ct. 816, 819, 86 L. Ed. 1178, there were some peddlers of bakery products, each of whom drove his own vehicle and solely operated his own business, and employed no helper. The Union undertook to compel these peddlers to work only six days a week and employ a Union driver for the seventh day. In order to accomplish its purpose, the Union picketed the bakery from which the peddlers bought their products, and picketed the vehicles in which the peddlers delivered products to the patrons. The peddlers did not belong to the Union, and did not want to join the Union, or make a contract with it. Yet the Supreme Court of the United States upheld the Union's right to picket, as herein stated; and this decision was based on the right of freedom of speech guaranteed by the Fourteenth Amendment. The majority opinion of the United States Supreme Court contains this language: "We ourselves can perceive no substantive evil of such magnitude as to mark a limit to the right of free speech which the petitioners sought to exercise." In other words, the Union was allowed to do the picketing in this case, under the claimed right of freedom of speech, because there was no mass picketing, there were no acts of violence, and there were no breaches of the peace connected with such picketing.
Again, in Cafeteria Employees Union, Local 302 v. Angelos, 320 U.S. 293, 64 S. Ct. 126, 88 L. Ed. 58, Angelos and other partners owned and operated a cafeteria, conducting the business without the aid of any employees. The Labor Union picketed the cafeteria in an attempt to organize it. The picketing was done by the parading of one person at a time in front of the premises, and carrying a sign which gave the impression that the cafeteria was unfair to organized labor. Angelos obtained an injunction in the State Court against such picketing. Certainly there was no labor dispute based on existing or past transactions because Angelos and his partners had no employees. Yet the Supreme Court of the United States, after pointing out that there was no mass picketing, and that there had been no acts of violence in connection with the picketing, upheld the Union's right to engage in such picketing on the grounds of freedom of speech guaranteed by the Fourteenth Amendment of the United States Constitution.
The Bakery case and the Cafeteria case, just discussed, are cases that rule here. In the case at bar there was an absence of violence, law violations, or breaches of the peace (growing directly out of the picketing); there was no mass picketing; the signs carried by the pickets were not libelous or false; there is no proof that there was a demand for a closed-shop. In short, there is no fact present in the case at bar to distinguish it from the Bakery case and the Cafeteria case, just discussed, so we must hold that there can be peaceful picketing[5] even in the absence of a labor dispute *160 relating to persons presently employed; and we must dissolve in part the injunction granted by the Chancery Court.
Conclusion
There is one item in the injunction that must be sustained, and that relates to the action of one of the two pickets in walking so near the entrance of the Coffee Shop that the patrons were hindered from entering. Under the facts in this case, and due to the location of the Coffee Shop, and the width and use of the sidewalk, we hold that neither of the two pickets should have been allowed to approach at any time nearer to the entrance of the Coffee Shop than the outer edge of the sidewalk. We modify the injunction to prevent any picket from approaching nearer to any entrance of the Coffee Shop than the outer edge of the sidewalk. In all other respects the injunction must be dissolved.
The decree of the Chancery Court is reversed, and the cause is remanded with directions to proceed in a manner not inconsistent with this opinion.
NOTES
[1] In 1 Arkansas Law Review 281, there is an article entitled "Injunction Against Picketing in Arkansas".
[2] 135 Ark. 86, 205 S.W. 450, 6 A.L.R. 894.
[3] 196 Ark. 571, 119 S.W.2d 507.
[4] 211 Ark. 352, 200 S.W.2d 763.
[5] For Annotations on various phases of picketing, see these: 132 A.L.R. 1218, 137 A.L.R. 1108, 147 A.L.R. 1076, 2 A.L.R. 2d 1196. For Law review articles, see 56 Harvard Law Review 180, 513, 532. Also 41 Michigan Law Review 1037 and 42 Michigan Law Review 706.
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987 S.W.2d 660 (1999)
336 Ark. 551
Paul LOVELL, Appellant,
v.
James BEAVERS, Appellee.
No. 98-1357.
Supreme Court of Arkansas.
March 11, 1999.
George Bailey, Little Rock, for appellant.
Alfred F. Angulo, Jr., Brian Allen Brown, Little Rock, for appellee.
*661 ROBERT L. BROWN, Justice.
Appellant Paul Lovell appeals from a judgment in favor of appellee James Beavers following a jury trial on the issue of damages. Lovell raises one point on appealthat the trial court abused its discretion in excluding medical records from evidence that should have been admitted under Arkansas law and our Rules of Evidence. We affirm the ruling of the trial court.
On April 7, 1992, Lovell, age 12, was injured when Beavers backed into the car in which he was a passenger. Lovell filed suit against Beavers, and after Beavers failed to answer in timely fashion, the trial court entered a default judgment in favor of Lovell. The case then proceeded to trial on the issue of damages. The first trial on the matter resulted in a declared mistrial before the jury was seated.
Prior to the second trial, Beavers filed a motion in limine seeking to exclude certain medical records of Arkansas Children's Hospital (ACH). In his response to this motion, Lovell claimed that the medical records should be admitted because they were being offered under Rule 803(6) of the Arkansas Rules of Evidence as well as under the Hospital Records Act of 1995. After a hearing on the matter, the trial court ruled that the only medical records that could be introduced at trial were those that Dr. Krishna Reddy, a treating physician of Lovell's, had referred to in his deposition. The trial court further ruled that all other medical records not referred to by Dr. Reddy, including certain ACH medical records, were inadmissible.
After the trial on damages, the jury returned a verdict in favor of Lovell's father for Lovell's premajority expenses in the amount of $3,500. The jury then found in favor of Beavers on the issue of Lovell's damage claim. It is from that judgment in favor of Beavers that Lovell appeals.
In deciding whether the trial court abused its discretion in excluding certain ACH medical records, we first look at the records in question. The disputed medical records include various physician reports, notes, observations, and opinions over a five-year period. The referenced and treated conditions include an MRI of the cervical spine, headaches, nerve palsy, back pain, neck pain, and elevated high blood pressure that may have been attributable to the 1992 accident. There was also a notation about a second motor vehicle accident, where Lovell's car was rear-ended in 1997.
Lovell's counsel sought to introduce these ACH records, not referred to in the Reddy deposition, without calling the treating physicians as witnesses who made those records. His primary rationale for doing so was his contention that Rule 803(6) of the Rules of Evidence permits the introduction of business records kept "in the course of regularly conducted business activity." His second basis for admissibility was the Hospital Records Act of 1995, codified at Ark.Code Ann. § 16-46-108 (Supp.1997), which states that medical records kept as required by Rule 803(6) "shall be admissible in evidence," if accompanied by an affidavit of the custodian of the records and proper notice is given to the opposing party. Stated simply, Lovell's position is that this authority mandates the admissibility of medical records that are authenticated, even in the absence of the treating physician to explain the notes or reports.
The response of Beavers before the trial court and in this appeal is that irrespective of Rule 803(6) and § 16-46-108, the trial court still retains the power to weigh the relevance of the evidence in question against the potential for juror confusion. Here, the jury, according to Beavers, would have had unexplained medical reports, and Beavers would have been denied cross-examination of the medical witnesses who made those reports. The trial court agreed with Beavers's reasoning and ruled that the ACH medical records, without a witness to explain them, would have been confusing to the jury and caused misunderstanding.
This court uses an abuse-of-discretion standard in reviewing evidentiary errors and has held that the trial court has broad discretion in making its evidentiary rulings. Parker v. State, 333 Ark. 137, 968 S.W.2d 592 (1998). A trial court's rulings on evidence will not be reversed unless the appellant can show that there has been a manifest abuse of discretion. Id.
*662 Rule 403 of the Arkansas Rules of Evidence provides: "Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence." This court has held that Rule 403 "allows a trial court to exclude relevant evidence if its probative value is outweighed by the possibility of confusion of issues. This weighing is left to the trial court's sound discretion and will not be reversed absent a showing of manifest abuse." Bohanan v. State, 324 Ark. 158, 166, 919 S.W.2d 198, 203 (1996).
The case of Southern Farm Bureau v. Pumphrey, 256 Ark. 818, 510 S.W.2d 570 (1974), has facts somewhat analogous to the facts in the case at hand.[1] In Pumphrey, the appellee was injured in an automobile accident with an uninsured motorist. At trial, the trial court allowed appellee's treating physician to testify that nothing in a written report of an examination made by another doctor was inconsistent with the treating physician's testimony as to appellee's injuries. On appeal, this court observed that the trial court properly sustained appellant's objection to the treating doctor's testimony as to what the specialist's report stated because "neither the communication to the treating physician nor its contents were admissible in evidence since the specialist was not present to testify and [be] subject to the test of cross-examination." Id. at 819, 510 S.W.2d at 571. We went on to hold that the trial court erred in allowing the treating physician to testify that the specialist's report was not inconsistent with his own testimony, because the trial court allowed appellee to do "indirectly what could not be done directly." Id. at 820, 510 S.W.2d at 571.
McCormick's treatise on evidence agrees with our reasoning in the Pumphrey case:
[A]dmissibility of all such entries [under Rule 803(6)] is not assured. First, where there are indications of lack of trustworthiness, which may result from a lack of expert qualification or from lack of factual support, exclusion is warranted under the rule. Moreover, inclusion of opinions or diagnoses within the rule only removes the bar of hearsay. In the absence of availability of the expert for explanation and cross-examination, the court may conclude that probative value of this evidence is outweighed by the danger that the jury will be misled or confused. This is of particular concern if the opinion involves difficult matters of interpretation and a central dispute in the case, such as causation. Under these circumstances, a court operating under the Federal Rules, like earlier courts, is likely to be reluctant to permit a decision to be made upon the basis of an un-cross-examined opinion and may require that the witness be produced.
McCORMICK ON EVIDENCE § 293 (John W. Strong, Ed., 4th ed.1992) (citing Raycraft v. Duluth, Missabe and Iron Range Ry. Co., 472 F.2d 27 (8th Cir.1973)) (proper exercise of discretion by trial court to exclude complex diagnostic reports when author not available for cross-examination). A second treatise concurs with McCormick's analysis. In Modern Evidence, the authors state: "Where the physician who made the diagnosis testifies, or where another with firsthand knowledge testifies, admitting reports reflecting difficult, elaborate, or unusual diagnoses seems easier to justify. Without such testimony, risks of confusing the issue or misleading the jury are likely to justify exclusion under FRE 403." CHRISTOPHER B. MUELLER & LAIRD C. KIRKPATRICK, MODERN EVIDENCE § 8.45 (1995).
Other courts have not hesitated to exclude medical records, if fairness, confusion or trustworthiness are at issue. In Nauni v. State, 670 P.2d 126 (Okl.Cr.1983), the Oklahoma Court of Criminal Appeals upheld the decision of the trial court in excluding psychiatric opinions and diagnoses sought to be admitted without a testifying witness because "diagnosis of mental conditions is a subjective and abstract process.... [T]he *663 probative value of this evidence is substantially outweighed by the danger of unfairness in the absence of cross-examination." Id. at 131. In the same vein, the Superior Court of New Jersey has held that a trial court did not abuse its discretion in excluding portions of hospital records in which non-testifying physicians made certain conclusions regarding the extent of the plaintiff's injuries. Nowacki v. Community Med. Ctr., 279 N.J.Super. 276, 652 A.2d 758 (A.D. 1995). In Nowacki, the Superior Court said: "The records involved a complex diagnosis involving the critical issue in dispute, as opposed to an uncontested diagnosis or insignificant issue. This is not a case like Blanks v. Murphy, 268 N.J. Super. 152, 164, 632 A.2d 1264 (App.Div.1993) where `[t]he included hearsay to which plaintiff objected was a straightforward observation of a treating physician.'" Id. at 762.
In the instant case, the trial court was clearly concerned about the jury's ability to assimilate relevant information from complex, unexplained medical records. This court has stated that a trial court had wide discretion in determining the admissibility of evidence, and the court in this case was attempting to balance that discretion with the relevant rules of law. Of course, the medical records at issue fall within both the Hospital Records Act and Rule 803(6) of the Arkansas Rules of Evidence. However, the fact that a piece of evidence falls within an exception to the rule against hearsay does not equate to automatic admissibility. To prevent possible prejudice or confusion, a trial court must still have the authority to exclude a record under Rule 403. We cannot say that the trial court abused that discretion in the instant case.
Affirmed.
GLAZE and IMBER, JJ., not participating.
NOTES
[1] The Pumphrey case was decided prior to the enactment and adoption of the Arkansas Rules of Evidence, but a statute similar to Rule 803(6) was in effect at the time. See Ark. Stat. Ann. § 28-928 (1962). That statute allowed for the admissibility of writings when made in the regular course of business.
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489 Pa. 578 (1980)
414 A.2d 1042
COMMONWEALTH of Pennsylvania
v.
Robert Lark JENNINGS, Appellant.
Supreme Court of Pennsylvania.
Argued April 21, 1980.
Decided May 30, 1980.
*579 James R. Leonard, Jr., Lancaster, for appellant.
Joseph C. Madenspacher, Asst. Dist. Atty., for appellee.
Before EAGEN, C.J., and O'BRIEN, ROBERTS, NIX, LARSEN, FLAHERTY and KAUFFMAN, JJ.
OPINION OF THE COURT
FLAHERTY, Justice.
This is an appeal from an affirmance by the Superior Court[1] of a judgment of sentence imposed upon appellant, Robert Lark Jennings, following convictions for robbery and conspiracy in a jury trial in the Lancaster County Court of Common Pleas. Four contentions are raised in this appeal: (1) that the right to speedy trial under Pa.R.Crim.P. 1100 was violated; (2) that the evidence was insufficient to prove guilt beyond a reasonable doubt; (3) that the trial court abused its discretion in denying a motion for continuance to allow production of certain alibi witnesses; and (4) that trial counsel was ineffective. After thoroughly reviewing the first three arguments, we find them to be without merit. The fourth assertion, however, is of arguable merit and for the reasons that follow we remand this case to the trial court for an evidentiary hearing to determine the effectiveness of trial counsel.
On appeal to the Superior Court, appellant was represented by new counsel who timely raised the claim of ineffectiveness of trial counsel. See Commonwealth v. Smallwood, 465 Pa. 392, 350 A.2d 822 (1976). The basis of the ineffectiveness claim is that counsel inadequately prepared for trial *580 and, consequently, for apparently no sufficient reason failed to seek out alibi witnesses crucial to appellant's defense. The record indicates that the ineffectiveness claim has potential merit: specifically, trial counsel may have brushed aside appellant's efforts to communicate with him, and, by failing to timely pursue a writ of habeas corpus ad testificandum prepared by appellant, trial counsel may have precipitated the denial by the court of a requested continuance for production of alibi witnesses. A failure to attempt to produce material witnesses can be a sound basis for an ineffectiveness claim. Commonwealth v. Twiggs, 460 Pa. 105, 331 A.2d 440 (1975). Because the reasons, if any, for counsel's inaction cannot be determined from the record before us, the appropriate remedy is to remand to the trial court for an evidentiary hearing to determine the grounds for counsel's conduct. Commonwealth v. Hubbard, 472 Pa. 259, 372 A.2d 687 (1975). Commonwealth v. Moore, 466 Pa. 510, 353 A.2d 808 (1976).
Case remanded.
NOTES
[1] Commonwealth v. Jennings, 251 Pa.Super. 598, 381 A.2d 896 (1977).
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227 S.W.2d 791 (1950)
RODRIGUEZ, County Judge, et al.
v.
GONZALES et al.
No. A-2435.
Supreme Court of Texas.
February 22, 1950.
*792 L. Hamilton Lowe, Austin, A. J. Vale, Rio Grande City, for appellants.
H. P. Guerra, Jr., Rio Grande City, for H. P. Guerra, Sr.
John A. Pope, Jr., Rio Grande City, for appellees.
HICKMAN, Chief Justice.
This is a direct appeal from a judgment of the District Court of Starr County permanently enjoining the performance of a contract of employment entered into between the County and Oscar T. Vale. The plaintiffs in the trial court were E. G. Gonzales and two other resident, tax-paying citizens of Starr County. Their right to prosecute the suit is not questioned. The defendants were M. J. Rodriguez, County Judge of Starr County, three of the four County Commissioners (one of the Commissioners having made common cause with the plaintiffs), the County Treasurer, the County Auditor, Starr County as such, and Oscar T. Vale, attorney at law. The case is one in which a direct appeal is provided for in Section 3-b, Article V, Constitution of Texas, Vernon's Ann.St., Article 1738a, Vernon's Ann.Civ.St., and Rule 499a, Texas Rules Civil Procedure.
The contract, the performance of which was enjoined by the trial court, was one of employment entered into between Starr County and Oscar T. Vale, a practicing attorney of that county, by the terms of which the attorney was employed to institute a suit to recover the taxes owing and delinquent against the tenants in common of Porcion No. 78, Ancient Jurisdiction of Camargo, Tamaulipas, Mixico, now in Starr County, Texas, and for a partition. The amount of delinquent taxes was approximately $3,500, exclusive of interest and penalties. By the terms of the contract the attorney was to receive a fee of $3,000 and the County was to pay all necessary expenses of litigation in addition to the fee. One-half of the fee was to be paid on execution of the contract and the balance upon the conclusion of the litigation. The County Auditor approved the contract and would have issued a warrant for $1,500 on the general fund of the County in favor of the attorney had not the performance of the contract been enjoined.
*793 The contract was entered into under the provisions of House Bill No. 108, Acts of the Regular Section of the 51st Legislature, Ch. 404, pp. 754-755, Art. 7345e, Vernon's Ann.Civ.St. The sole question for our decision is the constitutionality of that Act. The Act is as follows:
"Section 1. In any county bordering on the International Boundary between the United States and the Republic of Mexico, wherein there are located one (1) or more tracts of land, or portions thereof, having in excess of one thousand (1,000) acres, which such tracts are owned by ten (10) or more persons in undivided interests, the title to all or portions of which emanate from grants from the King of Spain, and on which there are delinquent taxes owed to such county, the Commissioners Court of any such county is hereby authorized to institute suits against such owners of undivided interests in such tract, or tracts, for the purpose of collecting such delinquent taxes, and it is expressly authorized to seek and compel a partition of said tracts between the owners thereof in order to segregate and identify the ownership for the purpose of collecting such delinquent taxes, and to employ attorneys for the purpose of instituting and prosecuting such suit, or suits, and to pay them such reasonable fees for such services out of the general fund of such county as said Commissioners Court may deem advisable. After the institution of such suits, the provisions of Section 15 of Article 7345b, Revised Civil Statutes of Texas, as amended by the Acts of the Regular Session of the Forty-ninth Legislature, 1945, Chapter 219, shall govern the procedure in such suit, in so far as applicable, and all fees and costs therein provided for shall be in addition to the fees herein authorized for the institution of such suit, or suits.
"Sec. 2. The provisions of this Act shall be cumulative of all existing laws providing for the collection of delinquent taxes and the partitioning of land by suit, or otherwise, except in so far as said existing laws conflict herewith, and all laws and parts of laws in conflict herewith are hereby expressly repealed to the extent of such conflict."
The section of the Constitution of which the Act was held by the trial court to be violative is Section 56 of Article III, the relevant portions of which are:
"Sec. 56. The Legislature shall not, except as otherwise provided in this Constitution, pass any local or special law * * * regulating the affairs of counties, cities, towns, wards or school districts; * * *
* * * * * *
"And in all other cases where a general law can be made applicable, no local or special law shall be enacted; * * *."
The primary purpose back of the adoption of this section was to secure that uniformity in the application of law which is essential to an ordered society. The section is not of doubtful construction, but is a plain mandate from the people to the Legislature. The prohibition is against any "local or special law." We are not concerned with any distinctions which may be drawn between a local law and a special law, for in our opinion the Act under review is both a local and a special law within the meaning of the constitutional provision. This is so clear to our minds that we shall not discuss the question at length.
The primary and ultimate test of whether a law is general or special is whether there is a reasonable basis for the classification made by the law, and whether the law operates equally on all within the class. Bexar County v. Tynan, 128 Tex. 223, 97 S.W.2d 467; Miller v. El Paso County, 136 Tex. 370, 150 S.W.2d 1000; 1 Sutherland (2nd Ed.), Statutory Construction, Sec. 203. If the classification made by the law "is not based upon a reasonable and substantial difference in kind, situation or circumstance bearing a proper relation to the purpose of the statute," it is a special law. 50 Am.Jur., Statutes, Sec. 7. Under that test the Act under review must be classed as a special law. In order for the provision of the Act to be applicable to a particular suit for delinquent taxes, all of the following conditions must exist, and the absence of any one of them would render it inapplicable: *794 (a) The tract must be in a county bordering on the Rio Grande; (b) must be in excess of 1,000 acres; (c) must be owned by ten or more persons in undivided interests; and (d) title to all or a portion thereof must emanate from a grant from the King of Spain. There is no reasonable ground upon which the Act could be so narrowly based. It is a matter of public record in the General Land Office that there are many counties in the State of Texas not bordering on the Rio Grande in which are located tracts of land emanating from grants from the King of Spain. Some of those tracts are very large and cover portions of two or more counties. Should there be a tract or tracts of land in one or more of such counties containing 1,000 acres or more owned in undivided interests by ten or more persons, the title to a portion of which emanated from a grant from the King of Spain, or should that condition arise at any time in the future, as it well may do, the Act excludes its applicability thereto. There is no substantial difference in the situation or circumstance of border counties relating to suits for delinquent taxes upon which to base the classification. No valid reason can be perceived for limiting the operation of the Act to border counties, neither should any distinction be made between tracts of land emanating from the King of Spain and those emanating from the Republic of Mexico or the Republic of Texas or the State of Texas. The sovereignty from which the title to land emanates bears no relation whatever to a suit for delinquent taxes owing by the owners of the land.
At the time of the passage of the Act in question there was in existence an Act of the Legislature governing the partition of lands involved in tax suits which was applicable to the State at large. Vernon's Texas Civil Statutes, Art. 7345b, Sec. 15. That Act did not limit its operation to tracts in which there were ten or more persons owning undivided interests, nor to tracts in excess of 1,000 acres; neither did it provide that fees for instituting suits for partition should be paid by counties out of their general funds. The Act under review authorizes the Commissioners Court in counties covered by the Act to institute partition suits and to pay certain attorney's fees therefor out of the general revenue. There is no reasonable basis for authorizing counties covered by this Act to pay attorney's fees out of the general fund when that authority does not exist in any other county and does not exist in the border counties in cases where titles emanated from Mexico or Texas.
There is a general statute governing delinquent tax contracts, Article 7335a, Vernon's Texas Civil Statutes, which limits the attorney's fees for the collection of delinquent taxes to 15 per cent. of the amount collected. Article 7345b, Section 15, mentioned above, authorizing suits by owners of undivided interests for partition in connection with suits for the collection of delinquent taxes, provides that "in addition to the fees now allowed by law" to the attorney prosecuting the suit, the judge of the district court shall allow an additional fee for services occasioned by the partition of the land where a partition is sought, not to exceed $5 per acre for each separate tract so partitioned. The Act under review (Art. 7345e) provides not only for reasonable fees to be paid by the Commissioners Court out of the general fund, but goes further and provides that after the institution of such suits, the provisions of Section 15 of Article 7345b, supra, shall govern, and that all fees and costs provided in the Act shall be in addition to the fees therein authorized for the institution of the suit. By the cumulative provisions of these statutes an attorney in a county covered by the Act under review could receive (1) a reasonable fee for the institution of the suit, to be fixed by the Commissioners Court and paid out of the general fund (in the instant case $3,000 was set as a reasonable fee for that service); (2) a fee not exceeding $5 per acre for each tract partitioned, to be fixed by the district court and taxed as costs in the case against the respective owners; and (3) 15 per cent. of the amount of the delinquent taxes collected. There is no reasonable basis for the allowance of this additional fee in counties covered by the Act under review or for the provision for *795 the payment of attorney's fees out of the general revenue of such counties.
The Act is clearly a local and special law, and as such is condemned by Article III, Section 56, of the Constitution. Since the Act is invalid, the contract made in pursuance thereof is likewise invalid, and the trial court did not err in enjoining its enforcement.
The case is affirmed.
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489 Pa. 491 (1980)
414 A.2d 998
COMMONWEALTH of Pennsylvania,
v.
Harold D. NELSON, Jr., Appellant.
Supreme Court of Pennsylvania.
Submitted May 21, 1979.
Decided March 20, 1980.
*492 *493 Daniel M. Pell, York, for appellant.
Floyd P. Jones, Asst. Dist. Atty., for appellee.
Before EAGEN, C.J., and O'BRIEN, ROBERTS, NIX, LARSEN and FLAHERTY, JJ.
OPINION OF THE COURT
O'BRIEN, Justice.
This is an appeal from an order entered in the Court of Common Pleas of York County, Criminal Division, denying appellant's petition for post-conviction relief.
Appellant, Harold D. Nelson, Jr., was convicted following a bench trial, of murder of the third degree for the killing of Heidi L. Myers, a five-month old infant. Post-verdict motions were filed and denied, and on December 20, 1976, judgment of sentence of six to fifteen years imprisonment was imposed. No direct appeal was taken.
On July 25, 1977, appellant filed a petition pursuant to the Post-Conviction Hearing Act,[1] in which he apparently advanced three grounds in support of his prayer for relief: that he had been denied his right to appeal; that he had been denied his right to testify in his own behalf; and that he was incompetent to stand trial. Counsel was appointed to represent appellant and directed by the court to file such "formal amendments" to the petition as he deemed advisable. None was filed.
On January 5, 1978, a hearing was held on appellant's petition for post-conviction relief. At the hearing, counsel for appellant informed the court that in light of the record he would not argue that issue raised in the petition which alleged appellant had been denied his right to testify in his own behalf. Moreover, counsel for appellant presented neither *494 argument nor testimony in support of the two remaining issues advanced in the petition; indeed, their very existence was unacknowledged.
Notwithstanding counsel's failure to file an amended petition, counsel seized the opportunity presented by the postconviction hearing to argue two new issues: that trial counsel had been ineffective for failing to move to suppress a confession given by appellant to a Pennsylvania State Police officer; and that "counsel was ineffective because he didn't intervene in the examination of [appellant] by Dr. Laucks [a psychiatrist who conducted an examination of appellant at the behest of the Commonwealth and testified as a prosecution witness at trial]." Testimony was taken and argument was entertained on these issues following which the court denied the petition. From the denial of appellant's petition for post-conviction relief this appeal was taken.[2]
Three arguments are urged upon us: that trial counsel was ineffective for failing to move to suppress appellant's confession to police; that trial counsel was ineffective for failing to move to suppress and/or object to statements made by appellant to a psychiatrist who examined appellant on behalf of the prosecution; and that trial counsel was ineffective in failing to request a hearing on appellant's competency to stand trial.
The Post Conviction Hearing Act (PCHA) requires, inter alia, that a petitioner demonstrate "[t]hat the error resulting in his conviction and sentence has not been finally litigated or waived." 19 P.S. § 1180-3(d). Our initial obligation, then, is to determine which among those issues raised at various times in the progress of the instant case have been properly preserved for our review.
The three issues raised in appellant's pro se petition were abandoned, either expressly or by non-argument at the PCHA hearing. Generally issues, though raised in a PCHA petition, which are not pursued at the time of the hearing are waived. Commonwealth v. Sullivan, 472 Pa. 129, 371 *495 A.2d 468 (1977); Commonwealth v. Bowen, 455 Pa. 152, 314 A.2d 24 (1974). This general principle may not, however, apply where the issue is one asserting a lack of competency to stand trial. See discussion, infra.
The three issues advanced in appellant's brief in this court assail the effectiveness of the representation provided appellant by trial counsel. Issue one assigns as ineffectiveness trial counsel's failure to move to suppress appellant's confession to the police. Issue two asserts as ineffectiveness trial counsel's failure to "suppress [. . .] and/or object [. . .]" to the admission of inculpatory statements made by appellant to a psychiatrist. The alternative claim advanced in issue two, viz. trial counsel was ineffective for failure to move to suppress the statements made to the psychiatrist, has not been presented at any stage heretofore, and is, thus, waived. Commonwealth v. Ligon, 454 Pa. 455, 314 A.2d 227 (1973).
The two broader assignments of ineffectiveness were raised for the first time at the hearing. It is, of course, true that failure to have alleged ineffective assistance of counsel on a direct appeal, or, as instantly, failure to have taken a direct appeal at all, will not act as a waiver of the claim where the same attorney represented appellant at both the trial and post-trial stages. Commonwealth v. Fox, 476 Pa. 475, 383 A.2d 199 (1978). It is also well settled that claims of ineffective assistance of counsel may be raised in a collateral attack. Commonwealth v. Mabie, 467 Pa. 464, 359 A.2d 369 (1976).
Neither of the above principles, however, contravenes the basic proposition that "ineffectiveness of prior counsel must be raised as an issue at the earliest stage in the proceedings at which the counsel whose effectiveness is being challenged no longer represents the defendant." (Emphasis added.) Commonwealth v. Hubbard, 472 Pa. 259, 277 fn. 6, 372 A.2d 687, 695 fn. 6 (1977).
In Commonwealth v. Mitchell, 477 Pa. 274, 383 A.2d 930 (1978), relying upon Pa.R.Crim.P. 1506(4), we "refuse[d] to consider anything not raised in a counseled petition." Id., 477 *496 Pa. at 280-281, 383 A.2d at 933. In Commonwealth v. Wilson, 482 Pa. 350, 393 A.2d 1141 (1978), we noted that "Commonwealth v. Clair, 458 Pa. 418, 326 A.2d 272 (1974), and its progeny require a certain degree of specificity to preserve issues for appellate review, and . . . we believe such specificity must be met before the evidentiary hearing . . ." Wilson, supra, 482 Pa. 354, 393 A.2d at 1143.[3]
Although we acknowledge that the procedural history of the instant case is not identical with the procedural histories of either Wilson, supra, or Mitchell, supra, we do not believe that the principle enunciated in those cases is subordinate to their peculiar facts. In the instant case the pro se petition filed by appellant was forwarded by the court to counsel appointed to represent petitioner to provide "the opportunity to consult with counsel and to amend this petition to be sure that all grounds for relief have been stated." A petition was filed seeking a thirty-day extension of time within which to amend the PCHA petition. The petition was granted by the court. Nevertheless no amendments were made. We are constrained to conclude that the requirement of "specificity" which we stated in Wilson, supra, "must be met before the evidentiary hearing", was not met in the instant case the issues alleging ineffectiveness of trial counsel have not been properly preserved for our review.
We turn to the third issue presented to us in this appeal, and the third issue raised in appellant's pro se PCHA petition, although abandoned by counsel at the hearing: the issue of appellant's competency to stand trial.
We have long held that "the mental competence of an accused must be regarded as an absolute and basic condition of a fair trial." Commonwealth v. Bruno, 435 Pa. 200, 205 *497 n.1, 255 A.2d 519, 522 n.1 (1969). Accordingly we have been loath to find a waiver of such a claim. Commonwealth v. Marshall, 456 Pa. 313, 318 A.2d 724 (1974). Indeed, we have recently held that "when the issue presented is whether a person was competent to stand trial, the waiver rule is not applicable." Commonwealth v. Tyson, 485 Pa. 344, 402 A.2d 995, 997 (1979).
It is, of course, true that Tyson, id., and Marshall, supra, were direct appeals, and while Bruno, supra, was a collateral attack, it was not a PCHA petition. Nevertheless, our waiver doctrine, although judge-made and not statutory, is one we stringently apply. We have expressly discarded the "fundamental error" rule. Commonwealth v. Clair, 458 Pa. 418, 326 A.2d 272 (1974). Thus, while not recognizing fundamental error, we nevertheless will not permit the waiver of a claim of incompetency, so basic is it to our concepts of justice that a trial of an incompetent is no trial at all. Although we recognize the PCHA includes a waiver provision of its own, 19 P.S. § 1180-3(d) having held the competency of an accused to be an absolute and basic condition of a fair trial, we further hold the no-waiver rule in Tyson to be applicable here as well.
Instantly no competency hearing was held, nor was one requested. The issue as it had survived for us, then, is not whether appellant would have passed the two-pronged test for competency,[4] it is rather only whether his counsel was ineffective for failing to raise the claim that he would not.
Since counsel elected not to argue this issue at the PCHA hearing, we have no record before us relevant to the claim of incompetency. The two psychiatric evaluations which are of record are concerned with the question of insanity and legal culpability. These are not the same as competency to stand trial. There is, moreover, no evidence of record indicating what information relative to appellant's competency may have been available to counsel, or what considerations prompted counsel not to seek a hearing on the issue.
*498 Accordingly, the case is remanded for an evidentiary hearing to determine whether trial counsel had "any reasonable basis" for foregoing a claim of "arguable merit". Commonwealth v. Hubbard, supra. Following such hearing should the court determine trial counsel was ineffective for not requesting a competency hearing, it should order such a hearing. Commonwealth v. Marshall, 456 Pa. 313, 318 A.2d 724 (1974); Commonwealth v. Davis, 455 Pa. 596, 317 A.2d 211 (1974); Com. ex rel. Hilberry v. Maroney, 417 Pa., 534, 207 A.2d 794 (1965). If no ineffectiveness is found, the judgment of sentence is affirmed.
The record is remanded for proceedings consistent with this opinion.
ROBERTS, J., files a dissenting opinion.
FLAHERTY, J., files a dissenting opinion in which LARSEN, J., joins.
ROBERTS, Justice, dissenting.
I agree with the majority that this Court must remand the record for further proceedings on appellant's competency claim. But I disagree that appellant has waived his claim that trial counsel provided appellant constitutionally ineffective assistance. It is true that appellant did not raise his claim of ineffective assistance until the hearing on his petition for post-conviction relief. But the Commonwealth then took no objection to appellant's presentation of this claim, and does not now. Indeed, the PCHA court decided appellant's claim on the merits. There is no reason for this Court now sua sponte to raise what all interested parties have viewed as a non-prejudicial technical defect. See 4 Standard Pennsylvania Practice Ch. 17, § 13, pp. 494-95 (1955) ("[i]t is too late after a trial on the merits to raise the objection of variance, particularly after verdict and judgment").
Turning to the merits, I am of the view that trial counsel did not provide appellant constitutionally effective assistance. Although trial counsel knew that appellant is emotionally *499 unstable with poor tolerance to stress and weak impulse control, counsel failed to challenge the admissibility of an inculpatory statement which the police obtained. Instead, counsel stipulated at trial to the voluntariness of both the statement and appellant's waiver of rights under Miranda. Counsel thought it best to utilize appellant's weak impulse control only to defend against a charge of murder of the first degree.[1]
The dispositive question on this appeal is whether counsel acted reasonably in choosing not to challenge the admissibility of appellant's inculpatory statement. In view of appellant's weak impulse control, the answer to this question is clear. Appellant's weak impulse control renders the voluntariness of appellant's statement highly suspect. As this Court has observed,
"Due process prohibits the evidentiary use of a criminal defendant's incriminating statements unless it is first established that those statements were `the product of a rational intellect and a free will.' Lynumn v. Illinois, 372 U.S. 528, 83 S. Ct. 917 (1963), and Townsend v. Sain, 372 U.S. 293, 83 S. Ct. 745 (1963). The determination of whether or not such evidence meets these required standards depends on a consideration of the `totality of the circumstances.' Davis v. North Carolina, 384 U.S. 737, 86 S. Ct. 1761, 16 L. Ed. 2d 360 (1966); Blackburn v. Alabama, 361 U.S. 199, 80 S. Ct. 274 (1960); Lyons v. Oklahoma, 322 U.S. 596, 64 S. Ct. 1208 (1944); and Commonwealth ex rel. Gaito v. Maroney, 422 Pa. 171, 220 A.2d 628 (1966). And *500 the accused's physical and mental condition must be considered, for sickness or ill health may well influence his will to resist and make him prone to overbearing and improper questioning. Reck v. Pate, 367 U.S. 433, 81 S. Ct. 1541 (1961). For the inquiry as to the voluntariness of a defendant's incriminating statements cannot be narrowed to a consideration of whether or not the police resorted to physical abuse in procuring them; equally relevant on the issue of voluntariness is the determination of whether or not the accused's will was overborne at the time he made the statements. Reck v. Pate, supra."
Commonwealth v. Holton, 432 Pa. 11, 17, 247 A.2d 228, 231 (1968). Given this established test, there was no reasonable basis for counsel's failure to seek suppression of appellant's statement. Appellant's weak impulse control also casts the same degree of doubt on the voluntariness of appellant's waiver of rights under Miranda. See e.g., Commonwealth v. O'Bryant, 479 Pa. 534, 388 A.2d 1059 (1978); see generally Johnson v. Zerbst, 304 U.S. 458, 58 S. Ct. 1019 (1938).
This Court should, therefore, remand to permit these issues to be fully litigated.
FLAHERTY, Justice, dissenting.
I dissent. It would appear that the majority is requiring counsel to raise the question of the accused's competence to stand trial in every case, for fear that he will be otherwise found "ineffective," even where there is no question that the accused is competent to stand trial.
The test of an accused's competence to stand trial is:
"his ability to comprehend his position of one accused of murder and to cooperate with his counsel in making a rational defense. [S]tated another way, did he have sufficient ability at the pertinent time to consult with his lawyers with a reasonable degree of rational understanding and have a rational as well as a factual understanding of the proceedings against him."
Commonwealth ex rel. Hilberry v. Maroney, 424 Pa. 493, 495, 227 A.2d 159, 160 (1967).
*501 A review of the record in this case reveals a wealth of psychiatric testimony which clearly establishes appellant's competency to stand trial. Although, as the majority correctly indicates, "the two psychiatric evaluations which are of record are concerned with the question of insanity and legal culpability" (Majority Opinion, supra at 7-8), there is sufficient relevant uncontradicted evidence to show that appellant was indeed competent. Appellant clearly was in touch with reality, had an understanding of the proceedings against him and was perfectly capable of participating in his defense.[*]
*502 Appellant's competence to stand trial was apparently never in question. This being the case, there was absolutely no reason for trial counsel to have ever raised the issue. In fact, had he done so, he would have been asserting a frivolous claim something we should be discouraging. The majority, in remanding to determine whether trial counsel had any "reasonable basis" for failing to raise the competency claim is imposing an unnecessary burden on the court's already limited time and resources, for it is clear that there was never a question of appellant's competence. Accordingly, I dissent.
LARSEN, J., joins in this dissenting opinion.
NOTES
[1] Act of January 25, 1966, P.L. (1965) 1580, § 1, 19 P.S. § 1180-1 et seq. (Supp. 1979-1980).
[2] This case was reassigned to the writer on December 14, 1979.
[3] We recognize that neither Mitchell nor Wilson were procedurally on all fours with the instant case. In Wilson, the claim of ineffectiveness was raised generally in the PCHA petition, "no specific argument" was made on the claim at the hearing, and the specific instances of alleged ineffectiveness were advanced in a brief submitted subsequent to the hearing. In Mitchell the ineffectiveness claim was presented for the first time in a brief submitted after the PCHA hearing.
[4] See, Com. ex rel. Hilberry v. Maroney, 424 Pa. 493, 227 A.2d 159 (1967).
[1] Pursuant to counsel's selected line of defense, counsel without objection permitted a Commonwealth psychiatrist to examine appellant outside counsel's presence. But had counsel utilized appellant's weak impulse control first as a basis for challenging the voluntariness of appellant's inculpatory statement or the voluntariness of appellant's waiver of rights under Miranda, and prevailed, surely he could not, by any standard of effective assistance, still submit appellant to unilateral Commonwealth psychiatric examination. The only other Commonwealth evidence was circumstantial and the Commonwealth does not now claim that this evidence links appellant to the killing. To submit appellant to Commonwealth psychiatric examination in these circumstances would not have served to promote appellant's best interests, but rather the Commonwealth's case.
[*] The following excerpts from the record support a finding that appellant was competent to stand trial:
Testimony of Dr. Laucks (psychiatrist for the prosecution):
Q Would you tell the Court what you observed about the personality of Harold Nelson during the course of your examination?
A Harold was quite calm and cooperative throughout the examination. He didn't seem particularly anxious either about the examination or the situation in which he was currently caught up. At no point throughout the examination did he or I have any difficulty communicating. He did not display any evidence of gross mental symptoms that could be construed as psychotic. He described in considerable detail his behavior both in the current situation and prior to this. (N.T. at 60).
* * * * * *
Q During the conduct of your examination, how would you describe his ability to answer questions or respond to questions or his general verbal productivity?
A Normal.
Q Was he aware of the charge against him?
A He was.
Q Was he aware of the possible sentence he might receive?
A Yes.
Q Did the defendant during your interview express any delusions, any hallucinations, or express any grandiose trends?
A. No.
Q. What is his orientation for time and place and people?
A. Normal. (N.T. at 63).
Testimony of Dr. Pandelidis (defense psychiatrist):
Q. What conclusion did you arrive at with respect to defendant being oriented and so on?
A. He was oriented in all spheres.
Q. Was he able to cooperate with you in the conversation?
A. He was. (N.T. at 77-78).
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414 A.2d 1206 (1980)
Edward PEASLEE, Jr. and Eileen Peaslee
v.
PEDCO, INC.
Supreme Judicial Court of Maine.
Argued May 2, 1980.
Decided May 29, 1980.
*1207 Lipman, Parks, Livingston, Lipman & Katz, P. A., John M. Parks (orally), Sumner H. Lipman, Augusta, for plaintiff.
Clark & Jones, P. A., Dennis L. Jones (orally), Gardiner, for defendant.
Before WERNICK, GODFREY, NICHOLS, GLASSMAN and ROBERTS, JJ.
GODFREY, Justice.
The facts of this case are set forth in Peaslee v. Pedco, Inc., Me., 388 A.2d 103 (1978) [hereinafter referred to as "Peaslee I"]. To state the matter briefly: the Peaslees brought an action for rescission of a contract pursuant to which they had conveyed land to Pedco in exchange for Pedco's note and mortgage. Accepting the report and recommendation of a referee, made after a hearing that Pedco failed to attend after due notice, the Superior Court gave judgment for the Peaslees ordering rescission. The referee found that lawyers from the same law firm represented both the Peaslees and Pedco in preparing the contract. *1208 Although the Peaslees were aware that the two lawyers were associated in the same law office, they were not aware that one of the lawyers owned an interest in Pedco and was an officer of Pedco when they retained his associate to represent them in drawing up the contract. The contract was disadvantageous to the Peaslees in certain important respects.
The judgment of the Superior Court had ordered, as a condition of rescission, that the Peaslees "deliver" the note and mortgage to Pedco. On appeal by Pedco, we affirmed the judgment, modifying the condition that the Peaslees deliver the note and mortgage to require, instead, that the Peaslees offer to surrender to Pedco its promissory note and tender to Pedco an executed discharge of the recorded mortgage securing that note. The obvious purpose of our modification was to avoid requiring the Peaslees to relinquish Pedco's note and mortgage before they were assured of obtaining the reconveyance from Pedco.
We remanded Peaslee I for modification of judgment in accordance with our opinion, in the text of which we stated that rescission should be decreed on condition that the Peaslees offer to make restitution to Pedco of benefits conferred on them by Pedco in the performance of the contract. Such a condition is a common provision in a decree of rescission, and the purpose of our statement was to remind the Superior Court that in revising its judgment in this equitable action it still had the power to assure by the terms of its decree that the Peaslees would not be unjustly enriched as a result of benefits that Pedco may have conferred on them in the course of performance of the contract by Pedco's having made one or more payments on the mortgage debt, for instance. It is necessary to remember a salient and peculiar fact about this case: the original judgment of the Superior Court was based on the report and recommendations made by the referee after a duly noticed hearing at which defendant had not appeared. From the record of that hearing it could not be inferred with certainty that Pedco had not made payments on the mortgage debt, although it seemed probable that it had not done so. The record of the referee's hearing gave no indication, either, whether the Peaslees had received other benefits during the performance of the contract.
Although Pedco had appeared at the hearing in Superior Court held to determine whether the referee's report should be accepted, it does not appear from the record that counsel directed the court's attention in that hearing to the question of conditioning the relief to the Peaslees on their restitution of benefits conferred other than the note and mortgage. As a matter of good equity practice in framing its decree in an action for rescission, the Superior Court may properly order a plaintiff who is entitled to judgment after defendant's default in appearance to comply with certain terms as a condition to equitable relief. The purpose is to prevent unjust enrichment of a prevailing plaintiff after default by defendant. He who seeks equity must do equity.
Within a month after this Court decided Peaslee I, supra, and before the Superior Court had revised its judgment, supposedly to accord with our mandate, Pedco moved for a rehearing, asserting that it was not clear from our opinion whether a hearing was necessary or allowable to determine the benefits, if any, conferred by Pedco on the Peaslees. By order filed September 29, 1978, this Court denied the motion stating:
The judgment of the Superior Court, as modified in accordance with our opinion, makes rescission of the contract conditional on an offer by plaintiffs to make restitution to the defendant of benefits conferred on plaintiffs by defendant in the performance of the contract. From the record on appeal, it was not possible for this Court to determine with certainty precisely what those benefits had been. That is a determination for the parties to arrive at by agreement, if possible. If they are not able to settle the matter themselves, they should follow normal motion practice for obtaining a determination of disputed points from the Superior Court.
*1209 If there was any doubt about the meaning of our mandate in Peaslee I, our order of September 29, 1978 made it clear that our judgment in Peaslee I required the Superior Court to determine whether rescission of the contract should be conditioned on restitution by the Peaslees of benefits (if there were any besides the note and mortgage) conferred on them by Pedco in the performance of the contract a question not theretofore addressed by the Superior Court. However, before our order of September 29 was filed, the Superior Court issued an order directing rescission of the contract on the condition that plaintiffs offer to surrender Pedco's note and tender an executed discharge of Pedco's mortgage.[1] The order set forth no other condition to relief. It appears from the record that the order was not issued after any hearing on the question of restitution.
On November 30, 1978, Pedco moved the Superior Court to hear and "determine with certainty the benefits which have been given to the Plaintiffs by the defendant pursuant to the agreement which is to be rescinded."[2] Affidavits attached to the motion stated that the parties had not been able, between themselves, to settle the question of benefits. The requested hearing was eventually held on October 2, 1979. At the close of the hearing, at which both parties appeared, the Superior Court denied Pedco's motion and had the prior order of the court dated September 15, 1978, entered on the docket.
At the hearing, the court heard an offer of proof by Pedco's attorney in which he listed items for which Pedco had paid or incurred liability in stated amounts: (1) a survey of the property, (2) "plans", (3) aerial photographs, (4) an abstract of title, (5) excavation, clearing of trees and brush, and bulldozing, (6) a sewerage plan, (7) a master plan for development of the tract, (8) drawings of the site and of projected buildings, (9) maps, and (10) a brochure for the sale of the property. From the mere recital of those items and their alleged costs, amounting to over $80,000, no inference can be drawn that the underlying operations must have resulted in benefit to the Peaslees. However, Pedco's attorney said that (1) a copy of the abstract of title costing Pedco nearly $13,000 had been given to the Peaslees; (2) that Mr. Peddle had provided the Peaslees with a "master plan" said to be worth $25,000 to $30,000; and (3) that a copy of the sales brochure was provided to the Peaslees. Pedco's attorney did not offer to prove that Pedco had made any payments on its outstanding mortgage debt to the Peaslees.
In making his offer of proof, Pedco's attorney seemed to be laboring under the impression that the Peaslees could be required to reimburse Pedco for its alleged expenditures as a condition to rescission regardless of whether the operations creating those expenditures resulted in any benefit to the Peaslees. Obviously that is not the case. It is a hornbook rule of equity, needing no citation, that the plaintiff may be required, as a condition to rescission, to surrender any property or other benefits which he has acquired from defendant in the course of performance of the contract to be rescinded and which, all circumstances considered, it is inequitable for him to retain after rescission. This certainly does not mean that a prevailing plaintiff in a rescission action is required to reimburse defendant for expenditures incurred by defendant in reliance on the contract. If, for example, Pedco provided the Peaslees with a copy of an abstract of title in the course of performing the contract, the Peaslees may be required to return the copy (and any copies made from that copy) as a condition of rescission, but not to reimburse Pedco for its expense in having the abstract prepared.
The nature and magnitude of Pedco's reliance costs might have been proper considerations for the referee to entertain at the hearing of the Peaslees' original action, as having some tendency to show that rescission *1210 might be an inequitable remedy in the circumstances. But the referee recommended otherwise, and the Superior Court's judgment in favor of rescission, which we affirmed, became res judicata. Pedco may not now be permitted to prove its reliance costs on any theory that rescission should not have been granted.
That seems to have been the conclusion reached by the Superior Court justice who, in accordance with our judgment in Peaslee I and order of September 29, 1978, held the hearing on October 2, 1979, to determine whether any benefits had been conferred on the Peaslees. He appears to have considered that Pedco's offer of proof of its expenses had to be rejected because it was barred by the res judicata effect of the earlier judgment. His conclusion is understandable in view of the nature of most of the expenditures counsel was offering to prove: few of the expenditures seem to have been for anything that could possibly result in benefit to the Peaslees.
However, the offer of proof included certain evidence from which it could be inferred that the Peaslees acquired something of value from Pedco that they might be properly required to restore as a condition to rescission; for example, a copy of the abstract of title. With respect to the receipt of that evidence for the limited purpose of proving benefit to the Peaslees, the existing judgment was not res judicata. By our judgment in Peaslee I and our order of September 29, we had directed that the Superior Court judgment of rescission was to be modified to the extent of attaching a restitutionary condition to plaintiff's recovery if such a condition should prove warranted by the facts as developed through settlement or hearing. The hearing of October 2, 1979, was held for the very purpose of developing the facts relevant to this narrow question.
To the limited extent that the evidence which was the subject of Pedco's offer of proof was relevant to the Peaslees' having acquired benefits from Pedco in the course of performance of the contract, the offer of proof at least revealed the possibility that Pedco had provided the Peaslees with a copy of an abstract of title, some development plans, and a brochure. We cannot say that all those benefits, if actually found to have been conferred, were de minimis.
The Superior Court justice thus erred in refusing to hear any of the evidence. The case must be remanded once more to the Superior Court for it to determine after hearing whether the Peaslees should be required, as a condition to rescission, to make restitution of benefits they may have acquired from Pedco in the course of performance of the contract. At the appellate level we still cannot determine the facts necessary to resolve this relatively simple question and thus bring this nine-year-old litigation to a close with a just result.
On remand, the Superior Court should
(1) Confine evidence at the hearing to the issue of benefit to the Peaslees. It does not follow from the fact that Pedco incurred a particular expense in performance of the contract that a benefit accrued to the Peaslees therefrom which they must restore to Pedco as a condition of rescission. The cost to Pedco of performing various operations under the contract is not ordinarily relevant to the value of any benefit derived by the Peaslees from those operations.
(2) Determine whether, as a matter of fairness and equity in the light of all the circumstances, the Peaslees should be required, as a condition of rescission, to offer to return any benefits in addition to the note and mortgage that were conferred on them by Pedco in the performance of the contract. In particular, determine whether the Peaslees were provided by Pedco or any of its officers or employees with any abstract, survey, plan, photograph, drawing, map or brochure, or any copy thereof, prepared in the course of performance of the contract. If so, the Peaslees should be required to offer to return them and any copies they may have made thereof, to Pedco as a condition to *1211 rescission. The cost to Pedco of having prepared such items is irrelevant.
(3) If the court determines under (2) above, that there are benefits that plaintiffs should return, issue an order to defendant to reconvey the property on condition that the plaintiffs (a) offer to surrender to defendant its promissory note of May 5, 1970, (b) tender to defendant an executed discharge of the recorded mortgage securing that note, and (c) offer to restore to defendant those benefits, if any, identified by the court as having been conferred by defendant on plaintiffs in the performance of the contract which it would be unjust for plaintiffs to retain.
The entry is:
Appeal sustained. Order of the Superior Court, entered October 2, 1979 denying "Motion for determination of disputed points", vacated. Judgment dated September 15, 1978, entered October 2, 1979, affirmed, subject to possible future modification depending on outcome of hearing on plaintiffs' benefits, if any. Remanded for further proceedings in accordance with the opinion herein. Parties to pay their own costs of this appeal. All concurring. All concurring.
NOTES
[1] The order was dated September 15, 1978, but not properly docketed until October 2, 1979.
[2] Defendant's motion was entitled "Motion for determination of disputed points".
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227 S.W.2d 363 (1950)
CONTINENTAL CASUALTY CO.
v.
SMITH.
No. 14142.
Court of Civil Appeals of Texas, Dallas.
January 13, 1950.
Rehearing Denied February 17, 1950.
Robertson, Jackson, Payne, Lancaster & Walker, and Claude Williams, Dallas, for appellant.
Sisco & Sisco, McKinney, and White & Yarborough, Dallas, for appellee.
CRAMER, Justice.
Appellee brought this suit against appellant to recover workmen's compensation insurance for personal injuries which he received on May 3, 1948 while employed by the Texas Textile Mills at McKinney, in Collin County. He alleged that at that time timbers and sheet iron of his employer's building where he was working fell upon and against him with great and terrific force and violence, resulting in personal injuries. Appellant insurer answered by specifically pleading that the injuries sustained by Smith were caused by a tornado which struck the City of McKinney, Texas, on May 3, 1948, and, therefore, the injuries were the result of an act of God; that appellee was not subjected to a greater hazard of the tornado than were other members of the public generally, and, therefore, appellant was not responsible under our statute which excludes injuries caused by an act of God. Prior to the trial the parties stipulated that the only issues in controversy were whether or not appellee sustained his injuries in the course of his employment with his employer, and the extent of injuries. Appellant's motion for an instructed verdict was overruled and the jury, in answer to special issues, found that appellee sustained personal injuries on May 3, 1948, resulting from an accident while he was working as an employee of the Texas Textile Mills in the course of his employment; found the extent of his incapacity, and that he was subject to a greater *364 hazard from the tornado which struck McKinney on May 3, than ordinarily applied to the general public at that time. The trial court overruled appellant's motion to enter judgment non obstante and to disregard the findings; sustained a motion and entered judgment for appellee, and from such judgment this appeal has been properly perfected.
Appellant's first three points assert error of the trial court in (a) overruling its motion for instructed verdict; (b) overruling its motion for judgment non obstante verdicto; (c) overruling its motion to set aside and disregard the jury findings of injury in the course of employment and that Smith was subjected to a greater hazard from the tornado than ordinarily applied to the general public at that time.
The evidence most favorable to appellee, material to these points, was in substance that the Texas Textile Mills had a large plant and employed approximately 500 people; it covered quite a bit of ground and consisted of a number of buildings; only one building was completely demolished, the one appellee was in at the time of the storm; only two employees received serious injuries,appellee and a man named Miller who was in the same building with Smith at the time of the storm. Smith's usual place of work was in a brick building or warehouse, but shortly before the storm struck he was sent to the building he was in when the tornado struck. Such building was made of sheet iron and 2 × 6 studdings, and was demolished by the tornado. Two men working at the other end of the building Smith was in when the storm struck were not injured. Under these facts, it is appellee's contention "that when plaintiff's duties required him to engage at duties in which he was injured, he was thereby subjected to a greater hazard from the act of God (the windstorm) than was the general public. If he was subjected to a greater hazard, then he is entitled to recover." He cites Security Union Casualty Co. v. Brown, Tex.Civ.App., 297 S.W. 1081, writ ref.; Security Union Cas. Co. v. Kelly, Tex.Civ.App., 299 S.W. 286, affirmed Tex.Com.App., 6 S.W.2d 741; American General Ins. Co. v. Webster, Tex.Civ.App., 118 S.W.2d 1082, writ dis.; Texas Compensation Ins. Co. v. Ellison, Tex.Civ.App., 71 S.W.2d 309; Texas Employers Ins. Ass'n v. Moyers, Tex.Civ.App., 69 S.W.2d 777; U. S. S. Fidelity Guaranty Co. v. Rochester, Tex. Civ.App., 281 S.W. 306, affirmed, 115 Tex. 404, 283 S.W. 135; Southern Surety Co. v. Stubbs, Tex.Civ.App., 199 S.W. 343, writ ref.; Trinity Universal Ins. Co. v. Walker, Tex.Civ.App., 203 S.W.2d 308, writ ref. n. r. e.
In the Brown case an oil derrick was blown down during a severe windstorm; some 80 other derricks, in a strip a quarter of a mile wide, were so blown down and the court held "* * * the derricks were much more easily blown down than were the houses and shacks exposed to the same wind." [297 S.W. 1081] The Kelly case was a companion case to the Brown case. The Webster case was a heat stroke case, the stroke was suffered while the employee was pushing a wheelbarrow and doing heavy labor in the sun. In the Ellison case the employee was killed by an electric shock transmitted over a telephone line to her switchboard where she was working as a telephone operator in a telephone exchange. In the Moyers case the employee was overcome by the heat while painting between two brick buildings, which condition subjected him to a greater hazard from the heat. In the Rochester case the employee was struck by lightning while excavating a pipeline, and at the time had a shovel in his hand which attracted lightning. In the Stubbs case the employee was working on a dredge boat which did not seek the protection other boats did in the storm. In the Walker case the employee was the foreman on a construction crew; had shown a young employee how to lay brick and "in doing so he was required to sit on the ground, or stand in the hole and stoop over with his face close to the ground." [203 S.W. 310] After 30 minutes he was sweating profusely and stated that he was hot and felt like he was burning up; then went to the other side of the building and helped the Negro laborers on the chain hoist so as to swing a heavy section of *365 concrete pipe; again complained of the heat, and shortly thereafter was taken to the hospital.
These cases, together with many others, are discussed in 16 Texas Law Review 130, under title "Workman's Compensation Act of GodCircumstances Causing such Hazards' to which reference is here made. In addition to the cases cited in the Law Review article, we have also reviewed the later cases.
Going back to the history of our own Workmen's Compensation Act, it was originally passed in 1913, 33rd Legislature, General Laws, Regular Session Chapter 179. It followed the then Massachusetts Act which, in turn, to a great extent followed the English Act. It contained no definition of "injury sustained in the course of employment" and no exclusion of accidents caused by an act of God. The present definition of "injury sustained in course of employment" was placed in the Act in 1917 by the 35th Legislature, General Laws, Regular Session, Chapter 103; now Art. 8309, sec. 1, subsec. 5(1), Vernon's Ann.Civ.St., and excluded from such definition in the present Act, "Acts of God," unless the employee is at the time engaged in the performance of duties that subject him to a greater hazard from the act of God responsible for the injury than ordinarily applies to the general public. This case is therefore controlled by our statute and the peculiar wording thereof, which injects the extra hazard element necessary when an act of God is present. We have not endeavored to determine whether or not other States have added such a provision to their Workmen's Compensation Acts, since there are sufficient decisions under our own Texas statute to justify us in holding that the following requirements are necessary to a recovery under our statute; The injuries received must have resulted from an extra hazard created by the particular employment itself, and differing from the hazard from an act of God as experienced by the general public within the path or wake of the tornado; that is, applied to this particular case, was the fact that appellee was, at the time, working in a building constructed of sheet iron with 2 × 6 studding an extra hazard from the tornado not experienced by the general public within its path or wake?
There is no direct evidence that such construction was so unusual and/or more hazardous than other construction generally used by the public as a whole in that community.
In heat stroke cases where the facts are such that the sheet iron building increases the heat inside the building to such an extent as to constitute an extra hazard not suffered by the general public, a recovery is allowable. In each of the other classes of cases passed upon by Texas Courts, the particular place or instrument or object used, has intensified and made accidental injury more hazardous there from an act of God than was ordinary to the general public as a whole.
After a careful review of all the evidence on this trial we cannot say there is a clear preponderance to the effect that a building of sheet iron with 2 × 6 studding would be more hazardous than a frame structure, or other classes of structure generally used by the public as a whole in McKinney, if such other structure had been standing where this one was located at the time of the cyclone. Neither can we say such evidence shows that it was not more hazardous.
While the evidence shows serious destruction, in excess of 15% of the area of the City, the pictures introduced show sheet iron buildings, frame buildings and brick buildings all to be damaged in varying degrees; some buildings of the same class of construction are damaged more than others of the same class; and in some instances numbers of small frame buildings are left unharmed and other more substantial structures not fifty feet away are demolished. We cannot say from the evidence introduced here whether the kind of building in which appellee was working was more, or less, susceptible to destruction by the tornado here involved than other structures of different material would have been if they had been located, at the time the tornado struck, in the same *366 place as was the building in which appellee was working. We have therefore reached the conclusion that the finding of the jury to issue No. 11 that appellee, at the time, was performing duties for his employer that subjected him to a greater hazard from the tornado which struck McKinney on May 3, 1948, than ordinarily applied to the general public is not sustained by a clear preponderance of the evidence. Neither can we hold that there was no evidence to sustain a verdict.
Under such condition of the record it is not necessary for us to pass on other questions raised, since they may not occur on another trial, but require us to reverse the judgment below and remand the cause for a new trial. 3 Tex.Jur. p. 1020, sec. 1019.
Reversed and remanded.
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227 S.W.2d 695 (1950)
BERGER
v.
PODOLSKY BROS. Inc. et al.
No. 41603.
Supreme Court of Missouri, Division No. 2.
March 13, 1950.
*696 George A. Hodgman, Robert G. Winter, St. Louis, for appellant Podolsky Brothers, Inc.
Floyd L. McKinney, St. Louis, for appellant Joseph Michael McDonald.
Cox & Cox, Abraham Altman, St. Louis, for respondent.
BARRETT, Commissioner.
The plaintiff, Harry Berger, was about to drive his automobile from its parked position at the curb in the 700 Block of Spring Street when it was struck by a Podolsky Brothers' delivery truck driven by Joseph Michael McDonald. Berger said that he had just turned the steering wheel and that his automobile was but eight or ten inches from the curb when it was struck by the truck. For his resulting personal injuries Berger instituted this action for $15,000.00 damages against Podolsky Brothers and McDonald. Podolsky Brothers' principal defense, as pleaded in its answer and submitted in instructions, was that McDonald, in the pursuit of his own pleasure, had so deviated from the course and scope of his employment that they as his employers were not liable for his negligent operation of the truck. The plaintiff's, Berger's, cause and the defendants' liability was hypothesized upon a finding that McDonald was Podolsky Brothers' agent and employee and that he was negligent in the course and scope of his employment in running into Berger's automobile in that he drove at an excessive rate of speed under the circumstances, failed to stop or swerve, failed to have the truck under control and failed to keep a proper lookout. At the conclusion of the trial the jury returned the following verdict:
"We, the jury in the above entitled cause, find the issues herein joined in favor of the plaintiff, and against the defendant Podolsky Bros. Inc. and we assess plaintiff's damages in the sum of Two Thousand Five Hundred Dollars.
"We further find the issues joined in favor of the defendant Joseph Michael McDonald."
After this verdict the plaintiff, Berger, filed, as to McDonald, a motion to set aside the verdict and enter a judgment against him; or in the alternative a motion for a new trial as to him. One of the grounds, number five, of the alternative motion was the fact of the inconsistent verdict. On the same day Podolsky Brothers filed a motion for a judgment notwithstanding the verdict in favor of the plaintiff against it. The principal ground of that motion was the fact that the verdict of the jury against it was inconsistent with the jury's finding "that this defendant's agent and employee, defendant McDonald, was not negligent and was not liable in damages to the plaintiff." The trial court sustained Berger's motion for a new trial against McDonald and gave as a reason therefor ground five of the motion. The court overruled Podolsky Brothers' motion for judgment notwithstanding the verdict. At the same time, on the court's own motion under Section 119 of the new Civil Code, the court set aside the verdict in favor of the plaintiff against Podolsky Brothers and ordered a new trial as to that defendant. Both defendants, Podolsky Brothers and McDonald, appeal from the orders granting a new trial.
Berger's right to recover and Podolsky Brothers' liability was of necessity dependent upon a finding that McDonald was negligent-respondeat superior. The appellants therefore seek to invoke the rule that "where employer and employee are joined as parties defendant in an action for injuries inflicted by the employee, a verdict which exonerates the employee from liability for injuries caused solely by *697 the alleged negligence or misfeasance of the employee requires also the exoneration of the employer, and although the verdict purports to hold the employer liable, it cannot form the basis of a judgment against the employer, but must be set aside." 35 Am.Jur., Sec. 534, p. 962; McGinnis v. Chicago, R. I. & P. Ry. Co., 200 Mo. 347, 98 S.W. 590, 9 L.R.A.,N.S., 880, 118 Am. St. Rep. 661, 9 Ann.Cas. 656; Mickely v. Mississippi Valley Structural Steel Co., 221 Mo.App. 205, 299 S.W. 830; Presley v. Central Terminal Co., Mo.App., 142 S.W.2d 799. It is the appellants' position, in view of the verdict, that this court should set aside the trial court's judgment as to Podolsky Brothers and order a judgment entered in its favor and remand the case with directions to reinstate the verdict in favor of McDonald. They contend, in view of the inconsistent verdict and the assignments in the after-verdict motions, that the trial court had no authority under Section 119 of the new Civil Code, Mo. R.S.A. § 847.119, to grant a new trial as to Podolsky Brothers and that its action in granting a new trial under Section 115, Mo.R.S.A. § 847.115, as to McDonald was unreasonable and erroneous.
The cases upon which the appellants rely are readily distinguishable from this case for here the court has granted a new trial as to both employer and employee. Teague v. Plaza Express Co., 356 Mo. 1186, 1192, 205 S.W.2d 563, 566; James v. La Mear, Mo.Sup., 194 S.W.2d 915. In McGinnis v. Chicago, R. I. & P. Ry. Co., supra, the trial court overruled the employer's motion for a new trial and there was no appeal by the plaintiff from the judgment exonerating the employees. In that situation the only possible judgment on appeal was a reversal of the inconsistent verdict against the employer. In Presley v. Central Terminal Co., supra, there was a verdict in an assault case exonerating the employee and inculpating the employer and the trial court overruled the employer's motion in arrest of the judgment as well as the plaintiff's motion for a new trial as to the employee. The plaintiff and the employer appealed but after the appeals were perfected the plaintiff dismissed his appeal as to the employee and again the appellate court necessarily reversed the inconsistent judgment as to the employer. This is the first time, in the inconsistent verdict cases, that the trial court has granted a new trial as to both employer and employee and the meritorious question is whether the court, in the circumstances, could properly enter that judgment under Sections 115 and 119 of the Civil Code.
The appellants argue that the court's action in granting a new trial as to Podolsky Brothers, without specifying reason therefor, as required by Section 119, is unreasonable and that its action in sustaining the motion of the plaintiff for a new trial as to McDonald under Section 115 on the ground of the inconsistent verdict is equally unreasonable. The argument of unreasonableness, however, overlooks the fact that both Sections 115 and 119 endow the trial court with a wide discretion, at least "as to questions of fact and matters affecting the determination of issues of fact." De Maire v. Thompson, Mo.Sup., 222 S.W.2d 93, 97; Donati v. Gauldoni, Mo.Sup., 216 S.W.2d 519, 522. As we have said the court's judgment sustained Berger's motion for a new trial as to McDonald upon the specified ground that "the verdict is inconsistent with the law and the evidence and the other findings of the jury for plaintiff and against defendant, Podolsky Brothers, Inc." The court's judgment then recites that "Podolsky Brothers, Inc. motion for judgment non obstante veredicto was overruled. On Court's own motion verdict and judgment * * * against Defendant Podolsky Brothers, Inc. was set aside and vacated and a new trial under Section 119 of the New Civil Code was ordered * * *." The record then recites: "In connection with said ruling and order of the court, the court files its memorandum * * * as follows: * * *." After overruling Podolsky Brothers' motion the memorandum continues, "In this action plaintiff sought to recover from the employer, Podolsky Brothers, Inc. solely for the tortious conduct of the employee, Joseph Michael McDonald. As I view the law, where a master and servant are sued jointly in *698 an action dependent solely on the doctrine of respondeat superior and based on the tortious act of the servant and the servant is acquitted, there can be no recovery against the master, and such a verdict should be set aside. The Courts of Missouri have repeatedly ruled that such a verdict under such pleadings and evidence is without warrant of law." The record then recites that the court, as provided in Section 119 "hereby sets aside the verdict and judgment heretofore entered herein against defendant Podolsky Brothers, Inc., and orders a new trial to be had as against it." That, plainly, is a sufficient specification of "the grounds therefor" as required by Section 119. Mo.R.S.A. § 847.119; 2 Carr, Civil Procedure, Sec. 857, p. 38; Schreiner v. City of St. Louis, Mo.App., 203 S.W.2d 678.
There was no single instruction in this case which plainly told the jury that a verdict could not be returned against the employer unless a verdict was also returned against the employee but all the instructions, those on behalf of the defendants as well as those on behalf of the plaintiff, in effect hypothesized liability upon that theory. Despite the form of the verdict returned by the jury, which under this record was not invited by the plaintiff, Atterbury v. Temple Stephens Co., 353 Mo. 5, 181 S.W.2d 659, it is apparent from all the instructions that a finding against the employer of necessity had to be predicated upon a finding against the employee, and the jury either mistakenly or arbitrarily failed to properly perform its duty. Compare: Bernstein v. Olian, D.C., 77 F. Supp. 672 reversed as to the merits in Bernstein v. Ems Corp., 2 Cir., 174 F.2d 880. "The court may award a new trial of any issue upon good cause shown", Supreme Court Rule 3.22, and it may not be said that the trial court abused its discretion in this case when it granted a new trial as to both defendants because of the inconsistent verdict. "If in this case the lower court had, either on its own motion or the motion of counsel, awarded a new trial on all the issues as to both plaintiffs, we should have considered such action a reasonable exercise of discretion." Lansburgh & Bro. v. Clark, 75 U.S.App.D.C., 339, 127 F.2d 331, 333; Supreme Court Rule 3.22; Stephens v. D. M. Oberman Mfg. Co., 334 Mo. 1078, 70 S.W.2d 899; De Maire v. Thompson, supra.
Accordingly the judgment is affirmed and the cause remanded.
WESTHUES and BOHLING, CC., concur.
PER CURIAM.
The foregoing opinion by BARRETT, C., is adopted as the opinion of the Court. All concur.
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227 S.W.2d 740 (1950)
FINERSON et al
v.
CENTURY ELECTRIC CO.
No. 41299.
Supreme Court of Missouri, Division No. 1.
March 13, 1950.
*741 John C. Casey, Max M. Librach, and Louis E. Zuckerman, St. Louis, for appellants.
Luke, Cunliff & Wilson and George A. Ryan, St. Louis, for respondent.
LOZIER, Commissioner.
This is a workmen's compensation case wherein the dependents of Phillip Finerson appeal from a judgment affirming an award of the Industrial Commission denying $11,950.00 compensation. The appeal is here because of the amount in dispute. Art. V, Sec. 3, 1945 Constitution, Mo.R.S.A. After a hearing, the referee made findings of fact and rulings of law, including a finding that Finerson's death "was the result of an accident arising out of and in the course of his employment," and awarded compensation. Upon review, the commission found that claimants had "failed to prove that the death of the employee was the result of an accident arising out of and in the course of his employment" and denied compensation. The liability of the company, a self-insurer, and the amount payable are conceded if Finerson's death was by accident arising out of and in the course of his employment. The issues are the sufficiency of the commission's finding of fact and conclusion of law and the sufficiency of the evidence upon which the commission made its award.
Claimants state that, after the award was made, they filed a motion requesting further findings of fact and rulings of law; that the commission did not act upon this motion; and that the cause *742 should be remanded with directions that the commission make further findings. This suggestion is without merit. The commission's finding was as to the ultimate constitutive fact which it was required to determine and was sufficient. Mershon v. Missouri Public Service Corp., 359 Mo. 257, 221 S.W.2d 165. Findings are not required as to evidentiary facts. State ex rel. Probst v. Haid, 333 Mo. 390, 62 S.W.2d 869; Scott v. Wheelock Bros., 357 Mo. 480, 209 S.W.2d 149; Baird v. Gleaner Harvester Corp., Mo.App., 172 S.W.2d 892. Claimants cite Smith v. General Motors Corp., Mo.Sup., 189 S.W.2d 259, in which we held that a party could not complain in the appellate court that additional findings should have been made, unless he had first requested the commission to make such findings. This ruling was subsequently restated in Scott v. Wheelock Bros., 357 Mo. 480, 209 S.W.2d 149; Evans v. Farmers Mutual Hail Ins. Co., Mo.App., 217 S.W.2d 705; Williams v. International Shoe Co., Mo.App., 213 S.W.2d 657; and Jones v. Remington Arms Co., Mo.App., 209 S.W.2d 156. However, none of these cases hold that failure to amplify the findings made, or to make additional findings, when requested is reversible error. As the finding here was sufficient as to the ultimate constitutive fact, and as we are not informed as to what additional or amplifying findings claimants requested, we are unable to determine whether or not claimants were entitled to have the commission make such additional findings and, therefore, rule against claimants upon this issue.
For about 18 months prior to December 6, 1945, Finerson had worked at a moulding machine in the company's Market St. foundry, and on that day was one of 26 men engaged in such work. The machines were so arranged that the moulders were approximately from 12 to 40 inches apart. The operator, after making every fourth or fifth mould, sprayed the pattern with a mixture of oil, paraffin wax and stearic acid, causing wax to adhere to the pattern. The "spray gun" was a can surmounted by a horizontal tube. The moulder filled the can with the mixture, connected an air hose to the tube and released the pressured air which forced a spray of the mixture out of the tube and upon the pattern. The mixture was prepared and kept in a drum on the same floor by another employee, Robert Buckingham. Each moulder had a can or bucket which he filled from the drum and kept near his machine and from which he filled his sprayer. Sometimes moulders working at adjoining machines used the same can or bucket.
Usually Buckingham obtained the paraffin wax and stearic acid, and a drum containing coal oil, from the second floor. Sometimes, however, he obtained the drum, with its coal oil contents, from a platform outside the building on the ground floor. He attached a faucet (for use by the moulders in drawing off the mixture into their cans or buckets) in one hole, placed the drum upon a stand, poured in the wax and stearic acid and stirred the mixture with a paddle.
Some of the drums were painted and others were not. Some "had names on them" and some had tags attached. There was no evidence as to where or from whom the company acquired either the coal oil or the drums. Neither Frank Reingold, the foreman, nor Buckingham had anything to do with the purchase or acceptance of the deliveries of any materials. Each testified that he did not recall the names on those that "had names on them," or had ever read the identification marks, if there were any, on the drums. No one other than Buckingham had anything to do with obtaining the drums from either the storeroom or the platform, with obtaining the wax and stearic acid from the storeroom or with preparing the mixture.
Finerson was 26 years old and was a steady, dependable worker. His widow testified that he had been in good health and was in good health on the day and evening of December 5, 1945, and on the following morning when he left home. He had not worked December 5, and, according to his widow, had spent that day and evening with her, "doing Christmas shopping" and attending a show. Reingold, Buckingham, and moulders Page and Mastin did not recall that Finerson appeared sick or other than in good health. While working at his *743 machine in the usual way, about 10:45 or 11 a. m., December 6, Finerson suddenly fell to the floor, dead or dying.
Frank Reingold testified that he had worked at the Market St. foundry for 13 years, the last 7 as moulder foreman, and that Finerson had worked under him for about 18 months prior to December 6, 1945. Reingold stated that that morning Finerson's actions seemed normal and that he was doing his regular work in the usual manner. He did not see Finerson collapse. None of the moulders had reported sick that morning and Reingold had noticed no "sweet odors." He had never used Blacosolv (a degreasing solvent), had never seen it around the foundry and, in fact, had never heard of it.
Robert Buckingham testified that he had been preparing the mixture for over 2 years. He had never seen Blacosolv around the foundry and, like Reingold, had never heard of it. He had never "smelt a sweetish odor around there" and the mixture "smelt like coal oil" to him. He always "tested" the contents of the drums by smelling the coal oil. It does not appear whether or not the mixture used by the moulders that day was mixed that morning, but, according to Buckingham, the balance of that particular "batch" was subsequently "used up by the moulders."
Robert Page testified that he had been a moulder there for 15 years and had used the spray mixture for the last 7. That morning he was working at the machine immediately left of Finerson's and the two were filling their sprayers out of the same can or bucket. He noticed no unusual odors and the spray had the "usual coal oil smell." The other moulders were using the same mixture and Page noticed nothing unusual. He was not sick himself that day and, in the years he had been spraying patterns, had never been sick except with occasional bad colds.
Hall Mastin had been a moulder there for 6½ years prior to that day. He testified that that morning he was doing work similar to Finerson's, 25 or 30 feet away; that he had noticed a "sweetish-like" odor; that it "was strong and burned" his eyes and that his nose kept running; that it "was mighty strong that day"; that he had noticed it many times previously; that some moulders used the same can or bucket; that he had used a sprayer many times with the mixture; that the "spray fog," after hitting the pattern, flew back in his face; that he had suffered indigestion, gas pains, headaches, and nose running as results; that he continued doing the same work there until some time in January, 1946, when he quit "because of the gas"; and that he had known Finerson about 4 years, had lived near him and had associated with him away from the plant, and that Finerson "was the kind of boy that didn't run around."
While the Coroner of the City of St. Louis was investigating the cause of Finerson's death, two of the company's employees died suddenly while working at its Pine St. plant. The two plants were not used in the same kind of manufacturing operations and the work performed by Finerson and the materials handled by him were quite different from the work performed and the materials handled by the employees at the other plant. See Stamps v. Century Electric Co., Mo.App., 225 S.W.2d 493. The causes of the deaths could not be determined by the coroner. Dr. Walter J. Siebert, a St. Louis pathologist and the coroner's physician, sent parts of the lungs and kidneys and some of the blood of Finerson and the two other employees to Dr. William D. McNally, Chicago. On February 4, 1946, Dr. McNally reported to Dr. Siebert, that, in his opinion, all three employees had died as a result of "the inhalation of a chlorinated hydrocarbon." He did not specify which one of the many chlorinated hydrocarbons it was. Thereafter, claimants' attorney telephoned Dr. McNally and discussed the doctor's February 4 report relative to all three cases. Dr. McNally testified that, as a result of that conversation, he made further tests "to find out the definite chlorinated hydrocarbon in this substance, with the end result that I found tetrachloroethylene."
Dr. McNally testified, in part: That before making this February 4 report, he had made the usual tests of Finerson's lung and kidney for evidence of poisoning by *744 heavier metals, with negative results; that his initial tests of the blood indicated the presence of both .05 per cent (10 times normal) grain alcohol, and a chlorinated hydrocarbon; that, as a result of further tests of the blood and examination of slides of the lung and kidney tissues, he determined definitely that the particular chlorinated hydrocarbon was tetrachloroethylene; and that, in his opinion, Finerson's death was caused by "ingestion" rather than "inhalation" because tetrachloroethylene, with a boiling point of 120.8, was not so easily inhaled as trichloroethylene, with a boiling point of 87.
Dr. McNally stated positively that Finerson did not die of trichloroethylene poisoning and that his findings indicated that Finerson "either had a drink shortly before death or, if he had no access to alcohol at work, he had had considerable when he came to work that morning."
Complainants assert that Dr. McNally's testimony is to be believed only to the extent set out in his original report, and that his testimony that he made further tests after February 4, 1946, is "unworthy of belief" and that "his credibility on this score was utterly destroyed." Dr. McNally was a nationally recognized toxicologist and physician, was toxicologist or chemist to the Cook County coroner, had been engaged in toxicological work for over 30 years, was the author of two books and over 200 articles on toxicology, and had made over 20,000 post-mortem toxicological examinations. He was the only toxicological expert who had made an examination of Finerson's organs and blood. Such examination was made at the request of the St. Louis City coroner, not of the company, and he obviously was a disinterested witness.
Walter A. Quebedeaux testified that he was "a combined chemical engineer and chemist," but was not a physician or a toxicologist. At no time did he make any tests or any examination of Finerson's organs or blood. He testified solely as an expert chemist. He stated he would have made one additional test not made by Dr. McNally. However, he conceded that the tests made by Dr. McNally were "reasonably accurate if performed by a competent person"; that if Dr. McNally made such tests, he made them in a proper manner; and that he (Quebedeaux) "was not prepared to say that his finding was wrong."
At the request of the coroner, Robert M. Brown, a chemical engineer and Chief of the Industrial Hygiene Section, St. Louis City Health Department, made an inspection of the Market St. foundry on February 11, 1946. He found no chlorinated hydrocarbon solvents (and, specifically, no Blacosolv and no tetrachloroethylene compound) on the premises, and saw no process or operation requiring the use of any degreasing solvents. He encountered only the "usual foundry smells" and smelt no odor indicating the presence of any chlorinated hydrocarbon. He found drums of various kinds of oil, none of which contained chlorinated hydrocarbons.
Blacosolv is a trade name of a compound used for removing oil and grease from machine parts. It consists mainly of trichloroethylene. At the hearing, complainants introduced 6 invoices showing purchases of Blacosolv by the company in January, March and November, 1945. All 6 invoices show the purchaser as the "Century Electric Co., 1806 Pine St., St. Louis, Mo." Four of the 6 specifically showed that deliveries were made to the company at the Pine St. plant. The other 2 did not show the place or places of delivery, but the evidence that no Blacosolv was ever delivered at the Market St. foundry is undisputed.
The company had once operated a "shell plant" on Forest Park Blvd., close to the Market St. foundry, but this plant was closed 4 months before Finerson's death. There was no evidence that, prior to the time the Forest Park Blvd. plant was closed, Blacosolv or any other compound containing a chlorinated hydrocarbon, was ever sent to or used in that plant, or that any materials or supplies of any kind were moved from it to the Market St. foundry.
Tetrachloroethylene and trichloroethylene, both chlorinated hydrocarbons, are degreasers and are used commercially for the removal of oil and grease. Neither paraffin wax, stearic acid nor coal oil, nor a *745 combination of the three, is a chlorinated hydrocarbon.
For brevity and convenience, we herein use the terms "industrial accident" for an "accident arising out of and in the course of employment," and "industrial injury" for an injury due to such industrial accident.
Complainants contend, first: that inasmuch as the evidence showed Finerson died while at work, there is a presumption that his death resulted from an industrial accident; that the burden was on the company to rebut this presumption and that it failed to do so; and that, therefore, the commission's finding is not sustained by competent and substantial evidence. Upon the whole record, if the presumption upon which claimants rely ever arose in this case, it was rebutted by competent and substantial evidence. McCoy v. Simpson, 346 Mo. 72, 139 S.W.2d 950; Williams v. Planters Realty Co., Mo.App., 160 S.W.2d 480; and Oswald v. Caradine Hat Co., Mo. App., 109 S.W.2d 893.
Claimants then urge that they proved their case without benefit of presumption. Citing Sec. 3764, R.S.1939, Mo.R.S.A., as requiring a liberal construction of evidence, and relying solely upon the evidence (and the inferences to be drawn therefrom) most favorable to themselves, and upon conjecture and speculation, claimants argue: (1) Finerson died at work; (2) he died from inhalation of trichloroethylene; (3) Blacosolv is trichloroethylene; (4) the company used Blacosolv in its Pine St. plant, and possibly in the Forest Park Blvd. plant; (5) Blacosolv (or a drum which had previously contained Blacosolv) might possibly have been delivered to the Market St. foundry or sent there from one of the other plants; (6) such drum might have been used in preparing the mixture used that morning; (7) this mixture might have contained trichloroethylene in sufficient quantity to cause death by inhalation; (8) Finerson inhaled it; (9) this was an accident; and (10) therefore, Finerson died by industrial accident.
It was vital to claimants' case that they sustain the burden of proving both an industrial accident and death resulting therefrom. A causal connection between the two is essential. Mershon v. Missouri Public Service Corp., supra; Meintz v. Arthur Morgan Trucking Co., 345 Mo. 251, 132 S.W.2d 1010; Miller v. Ralston Purina Co., 341 Mo. 811, 109 S.W.2d 866; and Conyers v. Krey Packing Co., Mo. App., 194 S.W.2d 749. See also Griffin v. Anderson Motor Service Co., 227 Mo.App., 855, 59 S.W.2d 805. A "liberal construction of the evidence" cannot be substituted for failure of proof of any essential element of the claim. Mershon v. Missouri Public Service Corp., 359 Mo.257, 221 S.W.2d 165; Stout v. Sterling Aluminum Products Co., Mo.App., 213 S.W.2d 244, and Tucker v. Daniel Hamm Drayage Co., Mo.App., 171 S.W.2d 781.
Proof of the accident is necessary and the injury or death itself is not the "accident" or the "event." State ex rel. Hussman-Ligonier Co. v. Hughes, 348 Mo. 319, 153 S.W.2d 40, and Baird v. Gleanor Harvester Corp., Mo.App., 172 S.W.2d 892. See also Joyce v. Luse-Stevenson Co., 346 Mo. 58, 139 S.W.2d 918, and DeLille v. Holton-Seelye Co., 334 Mo. 464, 66 S.W.2d 834.
In Seabaugh's Dependents v. Garver Lumber Mfg. Co., 355 Mo. 1153, 200 S.W.2d 55, where deceased fell off a truck and his neck was broken when he struck the ground, the issue was whether the cause of death was a broken neck (sustained in the fall) or heart failure (immediately before the fall). We held that claimants' evidence was "insufficient to reasonably show" that the death "resulted from a cause for which the employer would be liable." In Karch v. Empire Dist. Electric Co., 358 Mo. 1062, 218 S.W.2d 765, death resulted from coronary thrombosis and the issues were both whether or not deceased had been bitten by a tick while at work or at home, and whether or not the bite caused the thrombosis. We found that either of the two contrary inferences to be drawn from the evidence on each of these issues was reasonably possible upon the entire record and upheld the commission's award denying compensation.
Finerson's sudden death while at work was not denied, but that his death was by *746 industrial accident, or was the result of an industrial injury, were vigorously disputed. The sudden death of an employee, occurring while performing his usual work in the customary way, may or may not be due to an accident. Proof merely that the employee died while at work is not proof either that he sustained an accident while performing his work or that his death arose out of and in the course of his employment. There is no evidence whatsoever that Finerson sustained an accident while performing his work or was involved in "an unexpected or unforeseen event, happening suddenly and violently," or sustained an industrial injury resulting in death. Nor is there any evidence from which such accident or injury can be reasonably inferred.
Complainants' case is bottomed upon the assumption, conjecture and speculation that Finerson inhaled poisoned spray while at work and that such inhalation was an accident or injury. The testimony was undisputed as to: the preparation of the spray material; its customary use by all the moulders and, especially, its use that morning by 25 other moulders (and, above all, its use by Finerson and Page out of the same can or bucket) with no bad effects; the "using up" of the same "batch" of mixture by the moulders after Finerson's death; and the absence of Blacosolv (or any other chlorinated hydrocarbon) at the Market St. foundry. The overwhelming weight of the evidence was that he did not inhale poison spray and, under the circumstances, a contrary inference would be wholly unjustified. The only reasonable inference possible is that Finerson neither inhaled, nor died from, poisoned spray and hence, he neither had an industrial accident nor sustained an industrial injury.
From the entire record we find that the commission's finding and conclusion (that claimants had "failed to prove that the death of the employee was an accident arising out of and in the course of his employment") upon which the award denying compensation was made, was supported by competent and substantial evidence.
Accordingly, the judgment of the circuit court sustaining the commission's award is affirmed.
VAN OSDOL and ASCHEMEYER, CC., concur.
PER CURIAM.
The foregoing opinion by LOZIER, C., is adopted as the opinion of the court.
CONKLING, J., and CLARK, P. J., concur; HYDE, J., concurs in separate opinion; DALTON, J., concurs in separate opinion of HYDE, J.
HYDE, Judge.
I concur in the result reached on the merits of this case, because the most favorable view of appellant's evidence affords no basis for anything more than speculation and conjecture.
However, I do not agree that a finding, such as claimants "failed to prove that the death of the employee was the result of an accident arising out of and in the course of his employment," should be held sufficient when claimants file a motion requesting more detailed findings of fact and rulings of law. I think both the Workmen's Compensation Act, Sec. 3729, R.S.1939, Mo.R.S.A., and the Administrative Procedure Act, Sec. 9, Laws 1945, p. 1504, Sec. 1140.109, Mo.R.S.A., contemplate that plain, straightforward unambiguous findings should be made at least as to the essential controverted ultimate facts. See also Annotations 146 A.L.R. 124, 151-155, 146 A.L.R. 209.
It is my opinion that such a general finding is not fair to a claimant in many cases because it does not inform him of the basis of the decision. It amounts to no more and gives no more definite information to say that the death or injury was not "the result of an accident arising out of and in the course of his employment," than it would to say "we find against claimant." I do not think we have properly interpreted the statutory requirements in heretofore approving such general findings. There are three elements which may enter into such a general finding: 1the facts; 2the law; 3the application of the law to the facts. Therefore, it is clear that such a general finding is liable to three sources of error; and it is also clear that if error occur in *747 any of these elements no reviewing court can ordinarily discover it because the constituents of the compound from which such general finding was concocted cannot be ascertained.
It is only in such a case as this, where there was a complete failure of proof, that such a finding can be harmless. That is why I concur in this case. However, I think that a claimant, at least when he definitely requests it, is entitled to have findings of fact and rulings of law which will inform him of the Commission's (and Referee's) view of the controlling facts and the law so that a reviewing court can decide whether there was substantial evidence (on the whole record) to support its view of the facts, whether it is right on the law to be applied and whether the application of correct law to the facts found will justify the result reached. If the Commission does not make a finding on essential controverted facts, the Appellate Court will likely presume (if there is substantial evidence to support it) that the facts were decided in whatever way is necessary to fit the result. Thus a litigant might lose without either the Commission or the Court actually deciding a disputed controlling fact issue. That is why the Commission should make findings on the really controlling fact issues; and I think that is what the statute intended.
DALTON, J., concurs.
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227 S.W.2d 736 (1950)
CITY OF CHARLESTON ex rel. BRADY et al.
v.
McCUTCHEON et al.
CITY OF FREDERICKTOWN ex rel. BRADY et al.
v.
MERCIER et al.
CITY OF SIKESTON ex rel. BRADY et al.
v.
McCUTCHEON et al.
Nos. 41499, 41554, 41591.
Supreme Court of Missouri, en Banc.
February 13, 1950.
Rehearing Denied March 13, 1950.
*737 R. P. Smith, Robert G. Brady, Cape Girardeau, for appellants.
Bailey & Craig, Sikeston, for respondents O. W. McCutcheon, Richard Logan, W. R. McCutcheon and Duree Medley.
Melvin Englehart, Fredericktown, Finch & Finch, Cape Girardeau, for respondents Valle Mercier and L. A. Mercier.
Oliver & Oliver, Cape Girardeau, amicus curiae.
CONKLING, Judge.
Each of the appeals in these three cases presents to us the question of the constitutionality of the same statutes, R.S.Mo. 1939, Secs. 14958 to 14961, inclusive, Mo.R.S.A. Those statutes (among other things) required aisles three feet in width between the ends of the rows of seats and the outer side walls, in certain places of public amusement. Penalties for any violation were provided.
Robert G. Brady and R. P. Smith, the appellants in each of these cases are both plaintiffs, and attorneys. The three petitions, filed on December 29, 1948 and January 3 and 4, 1949, prayed penalties for each violation for the five years preceding the filing of each petition. In each respective petition it is alleged that the named municipality "is styled a plaintiff * * * as required by Sec. 14961 Mo.Rev.stat. 1939", Mo.R.S.A., and that each respective city "has no other right, title or interest."
In each respective petition it is alleged that, for five years or more, the defendants therein named had owned or operated one or more theatres in the city therein named and had failed to comply with R.S.Mo. 1939, Sec. 14958, Mo.R.S.A. in that, in each such theatre so owned or operated, "there is no aisle whatsoever along the outward ends of the rows of seats nor around or along the ends of all rows of seats". These are qui tam actions. Each day upon which the provisions of the statute were not complied with carried a possible forfeiture of from $20 to $5,000, one-half thereof payable "to the person making the complaint", without proof that any one was affected by noncompliance or that any one could have benefitted by compliance. In the City of Charleston case (two theatres involved) plaintiffs pray a recovery of more than $18,000,000. In the City of Fredericktown case (one theatre) plaintiffs pray a recovery of more than $9,000,000 and in the City of Sikeston case (two theatres) a recovery of more than $18,000,000 is prayed. In each case plaintiffs pray also an order cancelling the license of each theatre, and enjoining any further performance therein.
To the separate petition in each case the defendants therein filed a motion to dismiss alleging the unconstitutionality of the statutes involved for reasons specifically therein stated. Each of the three motions to dismiss were sustained, each of the three petititons was dismissed and these appeals duly followed. In the Charleston and Sikeston cases (then pending in the 28th Judicial Circuit) the circuit court dismissed the petitions and held that the statutes were unconstitutional because, among other reasons, they were local and special in character. In the City of Fredericktown case (then pending in the 27th Judicial Circuit) the circuit court dismissed the petition and held the statutes unconstitutional because, among other reasons, they were local and special in character.
The briefs of the respondent-defendants urge the unconstitutionality of the statutes for many other reasons also but, in the view we take of these statutes we need consider but one reason. It is our opinion that the statutes are local and special and therefore unconstitutional. That view and ruling will dispose of each of these three cases.
These four sections of our statutes were enacted in 1877. See Laws Mo. 1877, pages 328 and 329. In the first section, 14958, it was required, among other things, that *738 every place for public amusement have an aisle three feet in width "to run along the outward ends of the said rows of seats, and also around or along the ends of all rows of seats". Because no other violation of the statutes is alleged in any of the three petitions it is unnecessary to notice the other requirements of Sec. 14958. In Sec. 14959 it was required that all subsequently constructed places of public amusement conform to the requirements of Sec. 14958. In Sec. 14960 it was provided that no license should be given for any public amusement in any place not conforming to the various requirements laid down in Sec. 14958.
The last section (14961) was the important one and provided the penalties. For failure by the owner or operator of a place of public amusement to have a three foot aisle "along the outward ends of said rows of seats", (i. e., next to the side walls of the theatres) it was provided that the owner or operator should (1) forfeit his license; (2) pay a fine of not less than $20 nor more than $5,000 for every act of noncompliance with any of the provisions of the three preceding sections, and for every violation of any of them; (3) "to be recovered upon the complaint of any person in an action of debt in any court of competent jurisdiction held in the town, village or city where the offense shall occur, and in the name of such town, village, or city." (emphasis ours). This section also provided that, "One-half of the recovery in every case shall be paid to the person making the complaint, and the other half shall be paid to the treasurer of such town, village or city for the use and benefit of the public common schools thereof."
Defendants contend the statutes are local and special in violation of Sec. 53 of Article IV of the Constitution of 1875 and of Sec. 40 of Article III of the Constitution of 1945, Mo.R.S.A.
In an action brought to recover a statutory penalty the statute must be strictly and literally construed. State ex rel. Ashby v. Cairo Bridge & Terminal Co., 340 Mo. 190, 100 S.W.2d 441. Penal provisions of a statute, or of a statute penal in nature are always strictly construed, and can be given no broader application than is warranted by its plain and unambiguous terms. McClaren v. G. S. Robins & Co., 349 Mo. 653, 162 S.W.2d 856. Certainly an unambiguous statute, penal in nature, neither by implication nor otherwise, can be construed to be something other than it was written to be.
The statute here considered provided for a recovery of the stated penalties only in a "court of competent jurisdiction held in the town, city or village where the offense shall occur". Thus there was created an inequality of burden on persons who might perform the same act. A violation of the statute, if it occurred in a town, village or city where the "court of competent jurisdiction" was not "held", or if the violation occurred outside a town, village or city where such court was "held", was not subject to the penalties. Thus an improper and unfair immunity was granted. The statute was therefore discriminatory. Such a classification of places of violations for which penalties were recoverable, i. e., upon the basis of whether a court of competent jurisdiction was held or not held in the town, village or city, was arbitrary, unreasonable and void. State ex rel, Transport Manufacturing & Equipment Co. v. Bates et al., Mo.Sup., 224 S.W.2d 996. The statute did not operate alike on all persons for the same violations, and did not operate and apply uniformly throughout the state. The fact that a violation was made an offense only when it occurred in a town, village or city (and then only if such court was held therein) is in and of itself sufficient to nullify the penalty section of the act. Such penal statutes must operate uniformly everywhere in the state, in rural areas as well as within towns, villages and cities, and without regard to whether such court is held therein. This penalty section is local only and is void. State ex rel. McCaffrey v. Bailey, 308 Mo. 444, 272 S.W. 921. It is imperative that inequalities in the uniformity of operation of a statute be effected by the legislature, and not by judicial action in the guise of interpretation.
It may be true that in 1877, when this statute was enacted, such places of *739 amusement as were then contemplated in this statute were always within towns, villages or cities. But that fact did not free the section providing the penalties from the unconstitutional infirmities it then and thereafter had. Now, however, all know that many theatres are wholly outside of any town, village or city, and along heavily travelled highways in suburban areas, and between towns along highways. Many more could and no doubt will be so located. In 1877, and in the seventy odd intervening years, courts of such jurisdiction were not held in many towns and villages. We judicially notice where courts were held.
The exception plainly made in this statute as to offenses in places of amusement in towns, villages or cities where such courts were never held, and as to such offenses outside of a town, village or city was so plainly discriminatory, unreasonable, unnatural and arbitrary as to compel the conclusion that the penalty statute (Sec. 14961) was wholly void. State ex rel. Ashby v. Cairo Bridge & Terminal Co., supra; State v. Taylor, 351 Mo. 725, 173 S.W.2d 902; City of Springfield v. Smith, 322 Mo. 1129, 19 S.W.2d 1; Reals v. Courson, 349 Mo. 1193, 164 S.W.2d 306; Carson v. Baldwin, 346 Mo. 984, 144 S.W.2d 134.
Appellants' brief concedes that our above stated conclusion is correct, and admits that the statute "is in fact local and special", if, as we have above held "the statute be strictly and literally construed". But they contend we must construe the statute to carry out legislative intent. We shall later discuss the obvious legislative intention so plainly appearing in the statute itself.
We cannot, however, as appellants request, contort the plain words of the statute or re-write it to say, or to mean, "in any court of competent jurisdiction in the town, village or city where the offense shall occur", thus deleting entirely the word "held" as it in fact appears in the just above quoted portion of the statute after the word "jurisdiction" and before the word "in". Nor do we have the power, as appellants suggest, to delete the word "in" which follows the word "held" and in lieu substitute the word "for", and thus rewrite the statute to read: "any court of competent jurisdiction held for the town, village or city". State ex inf. Collins v. St. L. & S. F. R. Co., 238 Mo. 605, 142 S.W. 279; Leibson v. Henry, 356 Mo. 953, 204 S.W.2d 310, 315. This is a penal statute. Even if the statute were not penal we could not accede to appellants' request and suggestion. To so rewrite this statute would be but judicial usurpation of the legislative function. That we cannot do. We cannot write a new law. We can only consider this one. Nor can we, by construction, amend the act the General Assembly originally wrote.
Urging us to delete from the statute the word "in" following the word "held" and to substitute for the word "in", the word "for", appellants seek to invoke the principle that the unconstitutionality of a part of a statute does not render the remainder invalid where enough remains after discarding the invalid part, to show legislative intent and to furnish means to effectuate it. They cite such cases as State ex rel. McDonald v. Lollis, 326 Mo. 644, 33 S.W.2d 98 and State ex rel. Randolph County v. Walden, 357 Mo. 167, 206 S.W.2d 979. The facts of those cases quickly distinguish them.
In State at the relation of Transport Manufacturing & Equipment Co. v. Bates et al., supra, this court recently considered the principle appellants seek to here invoke. In that case, as in this case, the statute was one calling for strict construction. That was a tax statute. This is a penal statute. In the last named case we said [224 S.W.2d 1001]: "The fact that the residue of an act remaining after a portion has been declared invalid may be complete in and of itself is not always sufficient to sustain it. If the invalid portion is so connected with the residue of the statute as to furnish the consideration for the enactment of the residue and as to warrant the belief that they were intended as a whole and that the Legislature would not have passed the part remaining had it known the other part would be held invalid, then the entire act must fall." See also, State on inf. McKittrick v. Cameron, 342 Mo. 830, 117 S.W.2d 1078.
In the 1877 statute here considered there appears a clear legislative intent and purpose.
*740 It required the authorized action to be in the local court held in the municipality where the violation occurred and for the benefit of local schools. The local forum was required to be used for that purely local purpose. This local nature of the statute was expressed plainly in four different respects, (1) the action was required to be brought in a court of competent jurisdiction held in the town, village, or city where the offense occurred, (2) the action was required to be brought in the name of the town, village or city where the offense occurred, and in which suit was to be brought, (3) half of the fine recovered was required to be paid to the treasurer of such town, village or city where the offense occurred, (4) for the benefit of the public common schools of the town, village or city where the offense occurred.
The clear intent of the legislature as gathered from the Act itself is, that for local municipal school purposes, the violation, the cause of action, the form of such action, the forum of recovery, the person to whom the penalties were required to be paid and the public purpose to which the penalties were to accrue, were all made local to the municipality. This is further made clear by the fact that in the statute (14961) violations were not made a misdemeanor, with a punishment of a jail sentence or a fine payable to the general public treasury only. Here an unconscionable daily fine up to $5,000 was recoverable, half to go to the local common public schools and half to go to the informer.
Therefore, it clearly appears that a portion, at least, of the consideration for the passage of the 1877 act was that local courts had to be used as an instrumentality to accrue financial support of the local public common schools of the municipality where a violation of any provision of Sec. 14958 occurred. With that as one purpose in mind, i. e., the welfare of the local common public schools, the General Assembly localized the violations to those occurring in such towns, villages or cities, and made the local court the only forum for collection of the penalties. The legislative intent seems clear to us and we rule that the parts of this section of the Act (14961) are not separable. The statutory provision that the penalties were recoverable only in a court "held in the town, village or city where the offense shall occur" is an expression of legislative intent of the purely local character of the statute. We rule that the provision requiring the use of the local court is so connected in meaning and substance with the remainder of Sec. 14961 that the legislature would not have passed the statute without it. It follows that Sec. 14961 violated Sec. 53 of Article IV of the Constitution of 1875 and Sec. 40 of Article III of the Constitution of 1945, because it is a local and special law. Section 14961, therefore, was always unconstitutional and void.
It should be here noted that the above statutes, R.S.Mo. 1939, Secs. 14958 to 14961, Mo.R.S.A., were repealed by Senate Committee Substitute for Senate Bill No. 80 passed by the 65th General Assembly, which convened January 5, 1949, and which was approved by the Governor on June 17, 1949, and which became effective on October 14, 1949. This new act prescribes certain minimum construction requirements for all places of assembly for public amusement, buildings used to display motion pictures, etc., anywhere in the state, and provides that a violation thereof shall be a misdemeanor.
The judgment of the circuit court in each of these three cases is affirmed. It is so ordered.
All concur.
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32 B.R. 936 (1983)
In the Matter of Edward EBBIN and Carol Ebbin a/k/a Carol Ann Ebbin, Debtors.
BANK OF COMMERCE, Plaintiff,
v.
Edward EBBIN, Defendant.
Bankruptcy No. 83 B 10119(PBA), Adv. No. 83-5401-A.
United States Bankruptcy Court, S.D. New York.
September 14, 1983.
*937 Harry Gurahian, New York City, for Bank of Commerce; Ernst L. Bendix, New York City, of counsel.
Northrop & Jessop, New York City, for Edward Ebbin; Leon A. Harris, New York City, of counsel.
PRUDENCE B. ABRAM, Bankruptcy Judge:
On April 6, 1983, Bank of Commerce initiated this adversary proceeding seeking to have a debt of $14,516.53, together with interest and costs, declared to be nondischargeable under Bankruptcy Code § 523(a)(2)(B), 11 U.S.C. § 523(a)(2)(B), as to Edward Ebbin. Mr. Ebbin interposed an answer and a trial was held before the court on July 8, 1983. The court has concluded on the basis of all of the evidence as set forth below in its findings of fact and conclusions of law that the debt is dischargeable and that its discharge is not barred by Bankruptcy Code § 523(a)(2)(B).
FINDINGS OF FACT
Sometime in mid-1979, Mr. Ebbin commenced a business in the name of Eagle & Fox. Eagle & Fox was a partnership between Mr. Ebbin and his wife. His wife is not a defendant in this adversary proceeding and her role in the business is not a matter of record. Eagle & Fox was in the business of buying handmade artisan collectibles, principally American Indian jewelry, from the artisans and selling it to department stores such as Saks Fifth Avenue and Bloomingdale's.
At the time Eagle & Fox was formed, Mr. Ebbin had been employed by Colgate-Palmolive for approximately 17 years. His most recent position was as group product manager in which position he was responsible for running a group of products in terms of being responsible for all promotion and advertising to support the sales of those products. Sometime before the events material to this matter, Mr. Ebbin left Colgate-Palmolive.
In mid-1981, Mr. Ebbin approached Bank of Commerce, the plaintiff in this adversary proceeding about securing a commercial loan, the proceeds of which were to be used in the Eagle & Fox business. On August 3, 1981 in connection with obtaining the loan, Mr. Ebbin signed a financial statement as of July 31, 1981 as to his and his wife's financial condition.[1] The statement is on a printed form supplied by and addressed to Bank of Commerce, but the form itself is one suggested by the Federal Reserve Bank of New York. Mr. Ebbin had the form completed by his accountant, Stuart Schmall. Mr. Schmall's uncontradicted testimony is that he simply filled in numbers supplied to him by Mr. Ebbin and that Mr. Ebbin requested assistance because he did not know which lines to put the information on.
Immediately before Mr. Ebbin's signature on the August 3 financial statement appears the following:
"CertificationThis is to certify that all the statements contained herein and in any supporting schedules are true and give a correct showing of my financial condition as of the date indicated. I further certify that I had no liabilities, direct or contingent, business or accomodation, except as set forth in this statement, and that title to all assets therein set forth is in my name solely, except as may be otherwise noted. IN THE EVENT OF ANY MATERIAL ADVERSE CHANGE IN MY FINANCIAL CONDITION, I AGREE TO NOTIFY THE FINANCIAL INSTITUTION NAMED HEREIN IMMEDIATELY IN WRITING."
This August 3 financial statement reflects the following assets: *938
CapitalEagle & Fox $38,800
Jewelry, Furs, Home Furnishings 45,000
Fully Vested Pension Plan 35,000
________
$119,308
Net worth is stated to be $102,208; the only liabilities shown are notes payable to banks of $17,000, detailed on a supplemental schedule appearing below the balance sheet itself. The detail is as follows:
Bankers Trust Co. $ 4,000
Bankers Trust Co. (Visa) 4,000
Chemical Bank 9,000
The August 3 statement was materially false. Each of the assets is substantially overstated. The figure listed for the capital of Eagle & Fox is identical to that shown on a balance sheet for Eagle & Fox complied by Schmall & Kindman, accountants. The accountants expressed no opinion on the balance sheet and their covering letter indicates that "management has elected to omit substantially all of the disclosures required by generally accepted accounting principles." Bank of Commerce was furnished with a copy of the balance sheet and covering letter at or about the time it received the August 3 balance sheet, but in any event by August 10, 1981. Mr. Ebbin testified unequivocally that the inventory comprising $21,745 of the total capital shown on the statement was shown at its retail value, meaning the price at which it could be sold by a retail store. That price is five times what the inventory cost Eagle & Fox. Eagle & Fox sold only wholesale and had no access to a retail market; its wholesale price was twice the cost to Eagle & Fox.
As more fully discussed below, the $45,000 ascribed to jewelry, furs and home furnishings bears no relationship to either the cost or value of any such goods then owned by the Ebbins. At the Section 341 meeting Mr. Ebbin stated that he did not know where the $45,000 figure came from and that he was convinced that at that time he had "nothing close to that" in personal property. Finally, Mr. Ebbin does not and did not have a fully vested pension plan in the amount or value of $35,000 and Mr. Ebbin does not know what rights and benefits, if any, he has under the Colgate-Palmolive pension plan.
In addition to these errors on the asset side, the balance sheet also was materially deficient on the liability side since an obligation to Chemical Bank in the amount of $10,000 on a commercial note dated June 15, 1981 was omitted. On or about August 20, 1981, this note was repaid or rolled over into a note in the increased amount of $25,000.
Mr. Ebbin testified that the $45,000 figure for the jewelry, furs and home furnishings was supplied by Robert Wall, an officer of Bank of Commerce, and that Mr. Wall had also suggested the pension plan as an asset. Mr. Ebbin further testified that Mr. Wall told him to omit the Chemical Bank commercial loan because "it wouldn't show up any way." Mr. Wall testified at trial and was not asked directly to confirm or deny Mr. Ebbin's testimony. However, Mr. Wall did testify that he did not learn of the Chemical Bank commercial loan until November 1981.
In light of the preparation of the August 3 statement by Mr. Ebbin's accountant from figures supplied by Mr. Ebbin and of a financial statement on an identical form given by Mr. Ebbin to Chemical Bank on August 20, 1981, the court has rejected the suggestion that the errors in the August 3 statement are attributable to Bank of Commerce.
The August 20 statement lists the following assets:
Cash on hand $ 2,000
Cash in banks 2,000
Accounts Receivable 32,000
Furs 3,000
Jewelry 75,000
Furnishings 20,000
________
Total Assets $134,000
Total liabilities and net worth is listed as $119,000. The only liabilities listed are Chemical Bank $10,000 and Bank Americard/Visa $5,000.
The August 20 statement makes no reference to Eagle & Fox or the Bank of Commerce borrowings. Mr. Ebbin explained that this was because Eagle & Fox had *939 been incorporated, at the urging of Bank of Commerce, about August 14. Nevertheless, the jewelry listed at $75,000 is the inventory of Eagle & Fox, again listed at retail value, and the accounts receivable of $32,000 are also those of Eagle & Fox. Mr. Ebbin stated that the difference in value of inventory between the two statements ($21,745 as opposed to $75,000) was attributable to the purchase of approximately $5,000-$6,000 worth of jewelry. His explanation for the source of the furs and furnishings numbers on the second statement ($45,000 on the first and $23,000 on the second) is that the figure was "not scientifically arrived at. It was my estimate if, for instance, the whole place was to burn down." There is no reference to the pension plan.
After being asked at length how and whether these two statements could be reconciled, Mr. Ebbin stated:
"Your honor, I paid no attention to any relationship between those two forms."
In other words, Mr. Ebbin simply did not care what was on the forms as long as they fulfilled their function as selling documents and permitted him to make the desired borrowings.
Bank of Commerce has stated that on August 5, 1981 it loaned $25,000 to Eagle & Fox. Mr. Ebbin testified that Eagle & Fox did not have the use of this money until early September, when on September 4, the Bank loaned $31,000 to Eagle & Fox. The only evidence adduced on this issue is the Bank's computer printout captioned "Account Liability Ledger." Although that document shows an advance on August 5 of $25,000 that was repaid on September 4, this is not necessarily inconsistent with Mr. Ebbin's testimony.
On September 3, 1983, both Mr. Ebbin and his wife executed an individual continuing guarantee to the Bank of Commerce of the obligations of Eagle & Fox, Ltd. This guarantee was required because of the incorporation of the business and the change in position of Mr. Ebbin from that of a general partner to sole shareholder. Also on September 3, 1983, Emanuel M. Ebbin, Mr. Ebbin's father, signed and delivered to the Bank a guarantee limited to $35,000. Emanuel Ebbin secured his guarantee with New York Stock Exchange listed stocks having a market value in excess of $35,000, to which the Bank assigned a collateral value of 70% in accordance with standard banking practice. It further appears that the Bank of Commerce required in addition to the collateralized guarantee as a condition to the loan that Eagle & Fox obtain additional capitalization which it did in the form of a $30,000 subordinated loan from Emanuel Ebbin.
Following the $31,000 advance on September 4, the Bank of Commerce made two additional loans of $10,000 each, one on September 18 and one on September 24, bringing the total amount of credit extended to Eagle & Fox, Ltd. to $51,000. The Bank of Commerce also entered into a loan and security agreement on September 16, 1981 pursuant to which Eagle & Fox, Ltd. pledged its accounts receivable on a non-notification basis. This meant that Eagle & Fox retained the full right to collect and utilize the accounts receivable and that the account debtors were not notified of the Bank's interest in the receivables.
According to the Bank's Account Liability Ledger on January 20, 1982, it received principal payments of $15,000, reducing the outstanding loan balance to $36,000. Thereafter on March 29, 1982, the Bank reloaned $15,000 bringing the total loan back up to $51,000.
In November 1982 after Eagle & Fox, Ltd. went out of business, the Bank called the loan because of a default in the payment of interest. Thereafter on November 26, 1982, the Bank received $35,000 benefit from the collateral pledged by Emanuel Ebbin, the maximum amount of his guarantee. This money was applied against the oldest of the notes evidencing the indebtedness, leaving unpaid the $15,000 note representing the March 29, 1982 loan. Four payments to the Bank from accounts receivable further reduced the unpaid principal to $13,923.86.
The Bank never received any further personal financial statements from Mr. Ebbin. *940 Between September 1981 and April 1982, Bank of Commerce received only sporadic financial statements respecting Eagle & Fox and the accounts receivable. During this period the Bank requested financial information from both Mr. Ebbin personally and from Eagle & Fox which it did not receive.
The loan was evidenced by demand notes, which Bank of Commerce typically used with collateralized loans, rather than the time notes typical of unsecured loans. Because the receivables assignment was non-notification, the Bank did not consider the loan to be fully secured. Mr. Wall on behalf of Bank of Commerce testified that it was standard practice in the banking industry to require personal financial statements in making loans of this type. He stated that the purpose of requiring the personal financial statement was several fold. First, the assets demonstrate whether the individual over the course of his business career has the ability to accumulate assets and furthermore to determine in a new venture, which is frequently undercapitalized, whether the borrower has the wherewithal. Secondly, the liability side is looked at to determine that there is a lack of excessive debt that would keep someone preoccupied with staying a step ahead of the bill collector instead of running the business.
Mr. Wall testified that at the time the $25,000 loan was made in early August to the Eagle & Fox partnership, the Bank relied on the financial statement and on the collateral given to it by Mr. Ebbin's father. He further testified that the Bank would not have lent to Eagle & Fox partnership or the later corporation had it known that there was $40,000 less in assets and $10,000 more in liabilities than shown on Mr. Ebbin's financial statement.
The only attempt that Bank of Commerce made to verify the information contained on Mr. Ebbin's financial statement, other than obtaining the Eagle & Fox balance sheet, was to obtain a TRW report, which reflects only consumer credit extensions and therefore did not and would not reflect the omitted loan. The TRW report is dated September 4, 1981.
CONCLUSIONS OF LAW
Bank of Commerce bears the burden of proof. It has met the burden of showing that Mr. Ebbin supplied it with a statement in writing that is materially false respecting the financial condition of Mr. Ebbin and his wife and that Mr. Ebbin caused the statement to be made with intent to deceive.
Bank of Commerce has failed to show that the unpaid indebtedness now due to it was incurred as a result of its reliance on the false financial statement. If Bank of Commerce relied on the August 3 financial statement, its reliance was unreasonable.
DISCUSSION
This case presents yet another variant on the eternal conflict confronting the bankruptcy court when confronted with an objection to the dischargeability of a debt under Bankruptcy Code § 523(a)(2)(B) on the grounds of use of a false financial statement to obtain credit. The United States Supreme Court has said that a primary purpose of a discharge in bankruptcy is to
"relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes." Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S. Ct. 695, 699, 78 L. Ed. 1230 (1934).
In the general view, a debtor who has utilized a false financial statement to obtain a loan is not honest. However, the honesty required to obtain a general discharge under Bankruptcy Code § 727, 11 U.S.C. § 727, is full and fair disclosure in the bankruptcy case itself about assets and liabilities. No general challenge to Mr. Ebbin's right to a discharge has been made.
Bankruptcy Code § 523, 11 U.S.C. § 523, specifies the circumstances under which a challenge to the dischargeability of a particular debt may be made. The burden of proof is on the creditor. Only if the court finds that each of the elements has been proved can it find the debt nondischargeable. Bank of Commerce seeks to have its *941 debt declared to be nondischargeable under Bankruptcy Code § 523(a)(2)(B) which provides that a debt
"for obtaining money, property, services, or an extension, renewal, or refinance of credit, by
* * * * * *
(B) use of a statement in writing
(i) that is materially false;
(ii) respecting the debtor's or an insider's financial condition;
(iii) on which the creditor to whom the debtor is liable for obtaining such money, property, services or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive."
is nondischargeable. The court has found that the August 3 financial statement was materially false, thereby satisfying the requirements of subsection (B)(i) and (ii). The cases make it clear that reckless indifference to the truth is sufficient to prove intent to deceive. See, e.g., In re Kimberly (Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Kimberly), 13 B.R. 145, 4 C.B.C.2d 1445, 1446 (Bkrtcy.S.D.Fla.1981) ("When questioned as to each of these [asset] figures, the debtor responded, `I don't know where I got it.' These representations were materially false and made with such reckless disregard of the truth that the requisite intent to deceive may be imputed."); In re Archangeli, 6 B.R. 50, 7 B.C.D. 63 (Bkrtcy. D.Me.1980); In re Magnusson, 14 B.R. 662, 8 B.C.D. 708 (Bkrtcy.N.D.N.Y.1981) and In re Coughlin, 27 B.R. 632, 10 B.C.D. 266, 268 (Bkrtcy.App. 1st Cir.1983). At a minimum the Bank of Commerce has shown that Mr. Ebbin delivered the August 3 statement with a reckless indifference to the truth such that the court has found an intent to deceive and the requirement of subsection (B)(iv) is satisfied.
The crucial element in this case becomes subsection (B)(iii). The Bank of Commerce must show that it in fact relied on the August 3 statement, that its reliance was reasonable and that it was injured as a result of that reliance. Only the March 29, 1982 note remains unpaid. When the loan went into default, the Bank, in accordance with customary practice, applied the payments received against the oldest notes, leaving the newest one unpaid. This court's decision does not turn, however, on this technicality.
As a starting point, the court accepts that the Bank need not show that it relied solely on the financial statement to prevail; partial reliance would suffice. In re Coughlin, 27 B.R. 632, 10 B.C.D. 266 (Bkrtcy.App. 1st Cir.1983); In re Tomei, 24 B.R. 204, 9 B.C.D. 1166 (W.D.N.Y.1982). The court has considered the total series of events between August 1981 and April 1982. It is apparent that the Bank of Commerce did not in fact rely on the August 3 financial statement in extending any credit, except possibly the August 5 advance, which assuming it was made was in any event repaid September 4, and is therefore irrelevant. All the circumstances surrounding the September 4 loan negate reliance on the August 3 statement.
The Bank's conduct in insisting on incorporation, a collateralized guarantee from Emanuel Ebbin, an additional capital investment and a security interest in receivables indicate an absence of reliance on the August 3 financial statement. In other words, the Bank evaluated the information on the statement negatively and chose to obtain assurance of repayment in another fashion. Although the Bank of Commerce insisted on a written guarantee after the incorporation in order to secure the Ebbins' continued devotion to the business, the Bank was not induced to take that guarantee by the August 3 financial statement. Just as actual reliance may be proved by circumstantial evidence, circumstantial evidence may disprove an assertion of reliance. Compare, In re Kreps, 700 F.2d 372, 10 B.C.D. 308 (7th Cir.1983).
The March 1982 $15,000 loan becomes the critical issue because if that loan had not been made no loss would have been sustained by the Bank since the collateral pledged to it by Emanual Ebbin was sufficient to repay the open loan. Although the August 3 statement states that it is a continuing financial statement, the Bank actually knew by November 1981 that either the *942 statement was false when given or that a significant debt had since been incurred. The Bank of Commerce did not insist on a bring down certificate from Mr. Ebbin on September 4 or in March and thus seek to verify its continued accuracy. Nor does it appear that the Bank undertake any investigation of the non-Eagle & Fox assets. As to the Eagle & Fox assets, the accountant's covering letter clearly reveals the need for further inquiry. There is no allegation that Mr. Ebbin thwarted such an inquiry. Mr. Ebbin's candor at trial on the inventory valuation suggests that an inquiry at that time would have received a like response. These factors combined with the Bank's failure to obtain requested financial information render any continued reliance on the August 3 statement in March 1982 unreasonable. See In re Patch, 24 B.R. 563, 9 B.C.D. 1269 (D.C.Md.1982) (Reliance unreasonable if creditor knows information is not accurate, statement contains insufficient information to portray realistic financial status, creditor's investigation suggests statement is false or incomplete or, under some circumstances, when creditor fails to investigate); In re Archangeli, 6 B.R. 50, 7 B.C.D. 63 (Bkrtcy.D.Me.1980) (no reliance found when Bank failed to verify sources of income listed).
"The creditor's reliance required by the Bankruptcy Act, however, is narrowed by the additional need for reasonable reliance under the Code, thus codifying a strong line of recent case law that read the word `reasonable' into the old reliance requirement. Those cases typically involved situations in which creditors claiming reliance on a false financial statement were shown to have often more accurate information available, such as credit reports or prior credit applications so that it was not reasonable for them to rely on the false statement. Since the purpose of the exception is to protect creditors who are actually misled by fraudulent statements of debtors, the requirement that reliance be reasonable is sensible. A creditor who ignores available information, or who fails to seek information from sources that are commonly used, should not be heard to complain about the debtor's fraud. It is the creditor's failing to comport with normal business practices, not the debtor's fraud, that is the true cause of the loss." Zaretsky, The Fraud Exception to Discharge Under the New Bankruptcy Code, 53 Am.B.L.J. 253, 261-2 (1979).
See also Gerdes v. Lustgarten, 266 U.S. 321, 45 S. Ct. 107, 69 L. Ed. 309 (1924) for its extensive discussion of the issue of the right to rely on a financial statement over a period of time because of continuation language contained in the statement. This court notes that in rendering its opinion that it has not undertaken to second guess the credit decision made. Rather it has attempted to determine how that decision was in fact made. The reasonableness of reliance is not a judgment as to the merits of the credit decision. See In re Garman, 643 F.2d 1252 (7th Cir.1980), cert. denied, 450 U.S. 910, 101 S. Ct. 1347, 67 L. Ed. 2d 333 (1981).
Settle judgment in accordance with this opinion.
NOTES
[1] The court accepts the testimony of Robert Wall, an officer of the Bank of Commerce that the statement was delivered to the Bank of Commerce on August 4 or 5 before any loan was made and that the date stamp of August 10 on the form simply reflects the date the form worked its way through the Bank's paperwork system.
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32 B.R. 969 (1983)
In re RAM MANUFACTURING, INC. (A Florida Corporation).
In re AMPRO CORPORATION (A Pennsylvania Corporation), Debtors.
AMERICAN BANK AND TRUST CO. OF PA., Plaintiff,
v.
RAM MANUFACTURING, INC., Ampro Corporation and Samuel Alper, Trustee, Defendants.
Bankruptcy Nos. 83-00101G, 83-00102G, Adv. No. 83-0539G.
United States Bankruptcy Court, E.D. Pennsylvania.
September 16, 1983.
*970 Marjorie O. Rendell, Marshall A. Fleisher, Duane, Morris & Heckscher, Philadelphia, Pa., for plaintiff, American Bank and Trust Co. of Pa.
Thomas B. Rutter, Rutter, Turner, Stein & Solomon, Philadelphia, Pa., for debtors/defendants, Ram Mfg., Inc. and Ampro Corp.
Donald M. Collins, Stradley, Ronon, Stevens & Young, Philadelphia, Pa., for trustee/defendant, Samuel Alper.
Samuel Alper, Philadelphia, Pa., Trustee, pro se.
OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
A creditor has filed a request for relief under 11 U.S.C. § 362(d)(1) and (d)(2) of the Bankruptcy Code seeking a modification of the automatic stay imposed by § 362(a) in order to foreclose a mortgage on the debtor's real property. The debtor has responded, inter alia, with a counterclaim seeking the use of cash collateral as provided in § 363 of the Bankruptcy Code. For the reasons stated herein we will deny the use of cash collateral and will modify the stay.
The facts of the case are as follows:[1] Ampro Corporation ("Ampro") and Ampro-Scully International, Inc. ("ASI"), are wholly owned subsidiaries of the debtor, Ram Manufacturing, Inc. ("Ram"). The principal offices of these three corporations are located in Montgomery County, Pennsylvania. Ram and Ampro filed for reorganization under chapter 11 of the Bankruptcy Code on January 7, 1983, and ASI filed under the same chapter shortly thereafter. The three debtors ceased conducting business on or about January 14, 1983. Several years prior to the filing of the foregoing petitions, American Bank and Trust Company of Pennsylvania ("bank") loaned Ram $300,000.00. Subsequently this loan was increased to $500,000.00 and then to $700,000.00. In exchange for these loans Ram granted the bank a security interest in all existing and after-acquired accounts receivable, contract rights, chattel paper, machinery, equipment, inventory, general intangibles and proceeds thereof. In increasing Ram's loan from $500,000.00 to $700,000.00, the bank requested and received the written guarantees of Ampro and ASI which were secured by the same type of collateral as that held by Ram. Ram is also indebted to the bank on a $440,000.00 loan granted under the aegis of the Montgomery County Industrial Development Authority ("MCIDA"). Under this loan the bank holds a perfected security interest in Ram's accounts, inventory, machinery, equipment, furniture, furnishings, subleasehold improvements and fixtures purchased with the loan money. The aggregate indebtedness under the $440,000.00 and $700,000.00 loans totalled $1,176,942.00, including principal, interest and late charges as of May 18, 1983. Ram, Ampro and ASI have been in default on the two loans for a substantial period of time while interest continues to accrue at a rate in excess of $346.00 per day. The value of the collateral available to the bank to satisfy the secured indebtedness is $643,815.00 which is the value of the following: cash, $140,000.00; inventory of component parts and finished goods, $330,000.00; *971 consoles, $75,000.00; and equipment and furniture, $98,815.00.
Immediately upon the filing of the petition for reorganization an automatic stay arises which generally bars all debt collection efforts against the debtor or the property of the bankruptcy estate. § 362(a). The bank has commenced proceedings in this court pursuant to § 362(d) to modify the stay in order to foreclose its security interest in the debtor's collateral. Section 362(d) provides as follows:
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or
(2) with respect to a stay of an act against property, if
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
In addressing § 362(d)(1) the bank asserts that relief can be granted "for cause" due to the lack of a sufficient equity cushion protecting its security interest. A creditor's substantiated averments on this basis, if not refuted or undercut by the debtor, are sufficient for granting relief under § 362(d)(1). Provident Mutual Life Ins. Co. v. Winslow Center Associates (In Re Winslow Center Associates), 32 B.R. 685, at 687 (Bkrtcy.E.D.Pa. September 7, 1983); Clark Equipment Credit Corp. v. Kane (In Re Kane), 27 B.R. 902, 904 (Bkrtcy.M.D.Pa. 1983). The evidence educed at trial indicates that the $1,176,942.00 indebtedness is secured by only $643,815.00 of collateral. In light of this fact and the authority of Winslow Center Associates and Kane we find that the bank has established a prima facie case for relief under § 362(d)(1).
Although the trustee of Ram has properly stated that the debtor's uncollected accounts receivable and numerous outstanding lawsuits against third parties form a part of the collateral securing the bank's claim, he contends that this collateral should be valued and considered in adjudicating the bank's request for relief from the stay. We disagree. Since the bank has predicated its request for relief from the stay on § 362(d)(1) due to the lack of adequate protection of its security interest, the only collateral which can properly be considered is property which affords the secured creditor such adequate protection. Three nonexhaustive examples of this protection are listed in 11 U.S.C. § 361 which states as follows:
§ 361. Adequate protection
When adequate protection is required under section 362, 363, or 364 of this title of an interest of an entity in property, such adequate protection may be provided by
(1) requiring the trustee to make periodic cash payments to such entity, to the extent that the stay under section 362 of this title, use, sale, or lease under section 363 of this title, or any grant of a lien under section 364 of this title results in a decrease in the value of such entity's interest in such property;
(2) providing to such entity an additional or replacement lien to the extent that such stay, use, sale, lease, or grant results in a decrease in the value of such entity's interest in such property; or
(3) granting such other relief, other than entitling such entity to compensation allowable under section 503(b)(1) of this title as an administrative expense, as will result in the realization by such entity of the indubitable equivalent of such entity's interest in such property.
As stated in the legislative history "the purpose of the section is to insure that the secured creditor receives in value essentially what he bargained for." H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 339, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 6295. We recently construed this to mean *972 "that adequate protection for a secured creditor means that the creditor must receive the same measure of protection in bankruptcy that he would have had outside of bankruptcy although the type of protection may differ from the bargain initially struck between the parties." In Re Winslow Center Associates, supra, at 688. In Winslow we found that unsecured promises of the debtor or third parties were generally insufficient to constitute adequate protection. Since security interests in unrealized accounts receivable and pending lawsuits are predicated on a third party's ability, or unsecured promise, to repay, they typically do not have sufficient integrity under § 361 to protect adequately a creditor's eroding security interest in real property. This typical situation is presented in the case at bench and consequently the receivables and pending lawsuits will not be considered in determining adequate protection.
The trustee has also asserted that since the debtor has filed for relief under the reorganization provisions of the Bankruptcy Code, its collateral is properly valued on a going concern basis. The Bankruptcy Code does not provide the proper standard to be applied in valuing collateral to determine if a creditor's security interest is adequately protected. The legislative history indicates that this omission was intentional and purposeful. In part the history states as follows:
The section specifies two[2] exclusive means of providing adequate protection, both of which may require an approximate determination of the value of the protected entity's interest in the property involved. The section does not specify how value is to be determined, nor does it specify when it is to be determined. These matters are left to case-by-case interpretation and development. In light of the restrictive approach of the section to the availability of means of providing adequate protection, this flexibility is important to permit the courts to adapt to varying circumstances and changing modes of financing.
Neither is it expected that the courts will construe the term value to mean, in every case, forced sale liquidation value or full going concern value. There is wide latitude between those two extremes although forced sale liquidation value will be a minimum.
In any particular case, especially a reorganization case, the determination of which entity should be entitled to the difference between the going concern value and the liquidation value must be based on equitable considerations arising from the facts of the case. Finally, the determination of value is binding only for the purpose of the specific hearing and is not to have a res judicata effect.
S.Rep. No. 95-989, 95th Cong., 2d Sess. 54, reprinted in 1978 U.S.Code Cong. & Admin. News 5787, at 5840. The House Report contains similar statements:
The section specifies four[3] means of providing adequate protection. They are neither exclusive nor exhaustive. They all rely, however, on the value of the protected entity's interest in the property involved. The section does not specify how value is to be determined, nor does it specify when it is to be determined. These matters are left to case-by-case interpretation and development. It is expected that the courts will apply the concept in light of facts of each case and general equitable principles. It is not intended that the courts will develop a hard and fast rule that will apply in every case. The time and method of valuation *973 is not specified precisely, in order to avoid that result. There are an infinite number of variations possible in dealings between debtors and creditors, the law is continually developing, and new ideas are continually being implemented in this field. The flexibility is important to permit the courts to adapt to varying circumstances and changing modes of financing.
Neither is it expected that the courts will construe the term value to mean, in every case, forced sale liquidation value or full going concern value. There is wide latitude between those two extremes. In any particular case, especially a reorganization case, the determination of which entity should be entitled to the difference between the going concern value and the liquidation value must be based on equitable considerations based on the facts of the case. It will frequently be based on negotiation between the parties. Only if they cannot agree will the court become involved.
H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 339, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, at 6295. In the case at bench the debtor ceased business operations within several days of the filing of the petition for reorganization and has not yet proposed a plan. In light of these facts we find that the proper standard of valuation is distress sale value.
Lastly, the trustee has asserted three points in urging that relief from the stay be denied. First, he alleges that MCIDA is an indispensable party in this proceeding. We find that under Bankruptcy Rule 7019, which deals with joinder of persons needed for just determination, the trustee has presented no colorable claim. Second, the trustee contends that the domicile of ASI is Florida and, as such, the bank failed to perfect its security interest in ASI's property by filing financing statements only in Pennsylvania. We have found that ASI is domiciled in Pennsylvania. Third, the trustee asserts that no consideration was given by ASI and Ampro in exchange for their granting a security interest in their respective corporate assets to the bank. To the contrary, ASI and AMPRO each suffered a detriment by signing the guarantees in exchange for the detriment suffered by the bank, increasing the size of the loan to Ram. An exchange of detriments is sufficient to support this third party beneficiary contract. Bucks County Bank & Trust Co. v. DeGroot, 226 Pa.Super. 419, at 424, 313 A.2d 357, at 359 (1973).
Lastly, we address the trustee's claim for the use of cash collateral under § 363. In pertinent part § 363 states as follows:
(e) Notwithstanding any other provision of this section, at any time, on request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased, by the trustee, the court shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest. In any hearing under this section, the trustee has the burden of proof on the issue of adequate protection.
Since we have found that the bank's security interest in the collateral is not adequately protected, any further depletion of the collateral under § 363 is barred under § 363(e). Consequently, the trustee's request for the use of cash collateral will be denied.
In conclusion, since the bank has met its burden of establishing a prima facie case for relief under § 362(d)(1), which burden the trustee has not refuted, we will grant the request for relief and modify the automatic stay. As stated above we will deny the use of cash collateral.
NOTES
[1] This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
[2] S.Rep. No. 95-989, from which the quoted language is taken, accompanied S. 2266 which provided only two means of providing adequate protection; current 11 U.S.C. § 361(3) was omitted.
[3] H.R.Rep. No. 95-595, from which this quoted language is taken, accompanied H.R. 8200 which provided four nonexclusive means of providing adequate protection. A provision which was later deleted stated that the debtor could provide adequate protection by granting an administrative priority to the extent that the stay or use of the property resulted in a decrease in value of the creditor's interest in the property.
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32 B.R. 93 (1983)
In re Rex ALLEN and Patricia L. Allen, dba Rebet Logging and FTBA Patti-Jo's, Debtors.
CLACKAMAS COUNTY BANK, an Oregon corporation, Plaintiff,
v.
INTERNAL REVENUE SERVICE and Robert K. Morrow, Trustee, Defendants.
Bankruptcy No. 382-01740, Adv. No. 82-0847.
United States Bankruptcy Court, D. Oregon.
June 30, 1983.
*94 Bradley O. Baker, Portland, Or., for plaintiff.
Herbert C. Sundby, U.S. Atty., Portland, Or., for I.R.S.
David A. Foraker, Portland, Or., for trustee.
MEMORANDUM GRANTING SUMMARY JUDGMENT TO CLACKAMAS COUNTY BANK
DONAL D. SULLIVAN, Bankruptcy Judge.
Clackamas County Bank (the bank) and the Internal Revenue Service (I.R.S.) each filed pleadings to recover $10,684.00 resulting from the sale by the trustee of the debtors' logging equipment. The trustee, who asserted no interest, deposited the funds into Court. Both claimants moved for summary judgment. The I.R.S. based its claim on a prior filing of a tax lien on May 11, 1981 and June 16, 1981 in the debtors' county of residence under O.R.S. 87.806(3)(b) and 26 U.S.C. § 6323(a), (f). The bank based its claim on a security interest in the equipment securing a debt having a current balance of $22,153.39. The bank, which filed its financing statement with the Secretary of State after the I.R.S. filed its liens, claimed priority to these funds based upon an alleged right to be subrogated to a prior security interest held by Ferrous Financial Services which the bank paid off. The bank also contended that the I.R.S. filed its tax lien in the wrong place because the debtors were a partnership having a place of filing for tax lien purposes with the Secretary of State under O.R.S. 87.806(3)(a).
Summary judgment should be granted to Clackamas County Bank based upon its rights of subrogation because I find that there is no genuine issue of material *95 fact in this regard and that the bank is entitled to judgment as a matter of law. Rule 56(c) F.R.Civ.P. and Rule 756 of the Bankruptcy Rules. On the other hand, I find that the I.R.S. properly filed its notice of lien with the Secretary of State because the debtors are not a partnership and that there is no genuine issue as to material fact in this regard.
Oregon law governs the priority of subrogation rights in a federal tax lien controversy. 26 U.S.C. § 6323(i)(2). A person who advances money to discharge a prior lien on real or personal property and takes a new mortgage as security will be subrogated under Oregon law to the prior lien as against the holder of an intervening lien of which he was excusably ignorant. Payment of the prior lien cannot bar subrogation because it is the payment which triggers the subrogation. Metropolitan Life Ins. Co. v. Craven, 164 Or. 274, 101 P.2d 237 (1940). A person who pays a debt of another for reasons of self interest is not a volunteer under Oregon law even though he did not act under legal obligation. Hult v. Ebinger, 222 Or. 169, 352 P.2d 583, 590-94 (1960). This circuit applies subrogation liberally in favor of a lender who pays an obligation of another, provided that the entire transaction places no innocent third party in a position more unfavorable than that in which he would have originally stood. United States v. Halton Tractor Co., 258 F.2d 612 (9th Cir.1958). C.I.M. International v. United States, 641 F.2d 671, 676-78 (9th Cir.1980). See also Potter v. United States, 111 F. Supp. 585, 588 (D.R.I.1953).
The I.R.S. did not controvert the facts justifying the right of Clackamas County Bank to be subrogated to the security interest of Ferrous Financial Services. On approximately June 22, 1981, the bank loaned the debtors approximately $42,000.00 and paid $22,706.45 to Ferrous Financial Services in satisfaction of a prior security interest on logging equipment which the debtors gave to plaintiff as collateral for the new loan. Instead of perfecting an express assignment of the Ferrous Financial interest which would have been valid under the C.I.M. International case against the intervening lien of the I.R.S., the bank first filed with the Secretary of State its own financing statement on June 24, 1981 and thereafter allowed the filing of a termination statement covering Ferrous' interest on June 30, 1981. The bank was not a volunteer in paying off Ferrous because it thought it was acting in its self interest. The bank's self-inflicted and ostensible subordination of its interest to the I.R.S. lien was negligent and ignorant because of its failure to check the records of the debtors' county of residence prior to allowing the filing of a termination statement. The bank's negligence and ignorance was excusable because the I.R.S. was not misled to its disadvantage and because of the trap to unwary but good faith lenders represented by the failure of O.R.S. 87.806 to keep up with Oregon's change to a central filing system governing perfection of security interests. The I.R.S. alleged no equity to bar subrogation in favor of the bank.
Although not urged, esoteric arguments to the effect that the bank should apply prebankruptcy payments made by the debtor to satisfy the subrogated portion of the debt cannot change the result under the facts of this case. Assuming that the June 22, 1981 payment to Ferrous froze the subrogated debt at $22,706.45, and assuming that the Ferrous agreement lacked a future advance clause that would survive 26 U.S.C. § 6323(b), there are no allegations that the parties to the loans knew of the existence of the I.R.S. lien, let alone that they intended to treat the bank loan as anything other than a single loan for purposes of applying the payments. In the absence of agreement or a contrary intent, payments on a single under-collateralized debt lessens the burden of debt borne by the collateral but does not free the collateral from the security interest. There is no marshaling principle that would override the intent of and legitimate expectations of the parties here or that would require the bank to apply payments in the most disadvantageous manner to defeat its right of subrogation. While the I.R.S. will not receive a benefit from prebankruptcy payments made by the debtor to the bank if applied to reduce the *96 unsecured part of the bank's debt, it cannot be said that it or its lien has been hurt by those payments and their applications.
The debtors were not a partnership within O.R.S. 68.110 defining a partnership, or within the meaning of any applicable federal authorities. The I.R.S. correctly filed its lien notice in the debtors' county of residence. The filing at the bank's request with the state authorities of an assumed business name for Rebet Logging Co. listing both debtors as parties of interest alone is insufficient under O.R.S. 68.120(2) to establish a business partnership. The debtors are husband and wife and by law are partners in a nonbusiness sense. They did not claim to be a business partnership in their bankruptcy papers or tax returns and there are no affidavits showing an intention to act as business partners or evidence of relevant conduct.
For the foregoing reasons, Clackamas County Bank is entitled to an order granting summary judgment in its favor and directing the Clerk to disburse to it those funds with related interest which were deposited to the Registry by the trustee.
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987 S.W.2d 262 (1999)
337 Ark. 45
Alice L. WALTON, Appellants,
v.
David LEWIS, Appellee.
No. 98-512.
Supreme Court of Arkansas.
March 18, 1999.
*263 John R. Elrod, Vicki Bronson, Fayetteville, Leon Holmes, Peter G. Kumpe, Jeanne L. Seewald, Little Rock, for Appellant.
Peter G. Estes, Jr., Charles L. Stutte, Fayetteville, for Appellee.
ANNABELLE CLINTON IMBER, Justice.
This is an arbitration case. The appellants contend that the trial court erred when it denied their motion to compel arbitration of a tort action Mr. Lewis filed against them. We affirm the trial court's ruling.
Alice L. Walton owns and controls over fifteen different companies bearing the "Llama" name. The Llama companies involved in this appeal are Llama Capital Services, L.L.C. ("Llama Capital"), Llama Mortgage Services Corp. ("Llama Mortgage"), and Llama Company, L.P. ("Llama Company"). The appellee, David Lewis, was the Senior Managing Director of the Arbitrage Department of Llama Company, which is a member of the National Association of Securities Dealers ("NASD"). Pursuant to his employment with Llama Company, Mr. Lewis executed a "Uniform Application for Securities Industry Registration or Transfer" form in 1993. This form, which is commonly known in the securities industry as the "U-4," contained the following arbitration clause:
*264 I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organization indicated in Item 10 [the NASD by-laws including the Code of Arbitration Procedures] as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.
In October of 1995, Llama Capital and Llama Mortgage entered into a joint venture with Boston Capital Corporation for the buying and selling of commercial mortgages. The joint venture was called "Boston Capital Mortgage Company" (hereinafter "the joint venture"). At the urging of Ms. Walton, Mr. Lewis agreed to serve as a member of the joint venture's Capital Markets Committee. As a member of this committee, Mr. Lewis contends that he was eligible for the "Capital Markets Bonus Plan,"which provides that as a "financial incentive ... to maximize the value of the mortgage loan portfolio," committee members would be entitled to bonus awards from a bonus pool. The bonus plan contains a formula to calculate the bonus pool, which is based upon a percentage of the joint venture's portfolio net gain.[1] Specifically, Mr. Lewis alleges that he was entitled to approximately $30,000 under this bonus plan. Finally, Mr. Lewis did not complete a U-4 form or any other arbitration agreement in connection with his services to the joint venture as a member of the Capital Markets Committee, and he remained on the Llama Company payroll at all times relevant to this appeal.
Mr. Lewis claims that without his permission or knowledge Ms. Walton, Llama Capital, and/or Llama Mortgage instructed the joint venture to make the bonus payments directly payable to the general partners of the joint venture instead of the individual members of the Capital Markets Committee. The joint venture allegedly complied with this request by paying the funds to the general partners instead of Mr. Lewis. Ms. Walton then allegedly transferred the funds to Llama Company and notified Mr. Lewis that he would not receive those funds.
Accordingly, on August 19, 1997, Mr. Lewis filed a tort action against Ms. Walton, Llama Capital, Llama Mortgage, and Llama Company.[2] In his complaint, Mr. Lewis alleged that the defendants converted his property and intentionally interfered with his contractual relationship with the joint venture. Mr. Lewis concluded his complaint with a prayer for "compensatory damages in an amount not less than $35,000" and for "punitive damages against the separate defendant, Alice L. Walton, in the sum of $2,000,000.00." The trial court subsequently granted Mr. Lewis's request to voluntarily nonsuit his claim against Llama Company.
Soon after Mr. Lewis filed his complaint, the defendants filed a motion to dismiss and to compel arbitration. In this pleading, the defendants alleged that the U-4 agreement, the NASD by-laws, and the Federal Arbitration Act required the claim to be submitted to arbitration. On January 28, 1998, the trial court denied the defendants' motion to compel arbitration because the arbitration agreement did not encompass the subject matter or the parties involved in the underlying dispute.
Ms. Walton, Llama Capital, and Llama Mortgage (hereinafter "appellants") timely filed a notice of appeal of the January 28, 1998 order denying the motion to compel arbitration. As we have previously explained, the denial of a motion to compel arbitration is an immediately appealable order. Terminix Int'l Co. v. Stabbs, 326 Ark. 239, 930 S.W.2d 345 (1996); American Ins. Co. v. Cazort, 316 Ark. 314, 871 S.W.2d 575 (1994).
I. Standard of Review
The first issue we must resolve in this case is what is the appropriate standard *265 of review. The parties concede, and we agree, that this case is governed by the Federal Arbitration Act, instead of the Arkansas Arbitration Act, because the underlying dispute involves interstate commerce. See Prima Paint Corp. v. Flood & Conklin Mfg., Co., 388 U.S. 395, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967); McEntire v. Monarch Feed Mills, Inc., 276 Ark. 1, 631 S.W.2d 307 (1982). State and federal courts have concurrent jurisdiction to enforce an arbitration agreement pursuant to the terms of the Federal Arbitration Act. McEntire, supra. Although we have never addressed the standard of review under the Federal Arbitration Act, the Eighth Circuit Court of Appeals has held that the denial of a motion to compel arbitration is reviewed de novo. Telectronics Pacing Systs., Inc. v. Guidant, Corp., 143 F.3d 428 (8th Cir.1998); Storey v. Shearson Lehman Hutton, Inc., 949 F.2d 1039 (8th Cir.1991).
Two principles guide this determination. First, the duty to arbitrate is a contractual obligation, and thus we must determine from the language of the arbitration agreement whether the parties intended to arbitrate the particular dispute in question. Morgan v. Smith Barney, Harris Upham & Co., 729 F.2d 1163 (8th Cir.1984); Merrill Lynch, Pierce, Fenner & Smith v. Hovey, 726 F.2d 1286 (8th Cir.1984). Second, when the contract language is ambiguous or unclear, a "healthy regard" for the federal policy favoring arbitration requires that "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Morgan, supra (quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983)).
II. NASD Code of Arbitration Procedure 10201
Turning now to the merits, we must decide whether the U-4 agreement, the arbitration clause contained therein, and the NASD Code of Arbitration Procedure 10201 required arbitration of Mr. Lewis's tort claims against Llama Capital, Llama Mortgage, and Ms. Walton. As mentioned previously, the U-4 agreement Mr. Lewis signed in connection with his employment with Llama Company provided in relevant part that:
I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organization indicated in Item 10 [the NASD by-laws including the Code of Arbitration Procedures] as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.
NASD Code of Arbitration Procedures 10201(a), entitled "Required Submission," provides that:
Any dispute, claim, or controversy eligible for submission under the Rule 10100 Series between or among members and/or associated persons, and/or certain others, arising in connection with the business of such member(s) or in connection with the activities of such associated person(s), or arising out of the employment or termination of employment of such associated person(s) with such member, shall be arbitrated under this Code, at the instance of:
(1) a member against another member;
(2) a member against a person associated with a member or a person associated with a member against a member; and
(3) a person associated with a member against a person associated with a member.
(Emphasis added.)
Pursuant to the unambiguous language of this provision, we believe that a court is required to compel arbitration, under the NASD Code, if the underlying dispute either arises: 1) "in connection with the business of such member(s) or in connection with the activities of such associated person(s)," or 2) "out of the employment or termination of employment of such associated person(s) with such a member."
A. Arising Out of Employment of the Member
In their briefs, the appellants assert that the "first reason this dispute must be *266 arbitrated is that the dispute arose out of the Lewis' employment with Llama Company." This is the second subject matter listed above.
Article I(q) of the NASD by-laws defines "person associated with a member" or "associated person of a member" as:
every sole proprietor, partner, officer, director, or branch manager of any member, or any natural person occupying a similar status or performing similar functions, or any natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by such member, whether or not any such person is registered or exempt from registration with the Corporation pursuant to these By-Laws.
Furthermore, Article I(m) and (g) of the NASD by-laws define "member" as "any broker or dealer admitted to membership in the Corporation [NASD]." The parties agree that Mr. Lewis is the "associated person" and that Llama Company is the "member." Moreover, there is nothing in the record that suggests that either Llama Capital, Llama Mortgage, Ms. Walton, or the joint venture are members of NASD. Although the appellants cite many cases in their brief that define what type of dispute "arises out of employment," we think that the salient issue in this case is whether the dispute over the proceeds of the bonus plan arose out of Mr. Lewis's employment with Llama Company.[3]
After a careful analysis of the relevant relationships in this case, we must answer this question in the negative. The parties admit that Llama Company is the only NASD member in this case. As an employee of an NASD member, Mr. Lewis signed an arbitration agreement embodied in the U-4 form. The underlying dispute in this case is whether Mr. Lewis is entitled to payment under the terms of the joint venture's Capital Markets Bonus Plan, and not whether Mr. Lewis is entitled to payment under any agreement with Llama Company. Importantly, the Capital Markets Bonus Plan does not indicate that Mr. Lewis served on the Capital Markets Committee as a representative of any Llama company.
We are also persuaded by the fact that neither the joint venture nor any of its individual members (Llama Capital, Llama Mortgage, or Boston Capital Corporation) are members of NASD. Hence, the appellants claim that the NASD arbitration agreement applies in this case because two of the members of the joint venture, Llama Capital and Llama Mortgage, were one of the fifteen or so business entities loosely associated with Llama Company, the only NASD member. In fact, the only thing that Llama Company has in common with Llama Capital and Llama Mortgage is that all three entities are owned by Alice Walton, who was sued in her individual capacity and not as a director or officer of any of the relevant Llama entities. We agree with the trial court that this connection is much too tenuous to say that the underlying dispute in this case arose out of Mr. Lewis's employment with Llama Company, the sole NASD "member."
B. Arising in Connection with the Business of a Member
Next, the appellants turn to the first phrase of Section 10201(a) defining the subject matter of disputes that must be submitted to arbitration. Specifically, they allege in this section of their briefs that "the second reason the subject matter of this dispute must be arbitrated is that it arose out of the business of Lewis' employer, Llama Company."[4] For the reasons explained above, we agree with the trial court that the dispute over the bonus-plan proceeds has to do with *267 the business of the joint venture, and not with the business of Llama Company, the sole NASD member in this case.
III. Conclusion
Because we do not think that Mr. Lewis's tort claims against the appellants fall under the subject matter of the arbitration agreement, we need not address the appellants' remaining arguments as to whether they are the proper parties to compel arbitration under NASD Code 10201, or whether they may enforce the arbitration agreement as third-party beneficiaries. In sum, although there is a strong federal policy favoring arbitration when the language of the arbitration agreement is ambiguous, we hold that the unambiguous language of the arbitration agreement in this case does not require arbitration of Mr. Lewis's tort claims against the appellants. Accordingly, we affirm the trial court's denial of the motion to compel arbitration.
Affirmed.
CORBIN, J., THORNTON, J., and SMITH, J., dissent.
RAY THORNTON, Justice, dissenting.
I respectfully dissent from the majority's conclusion that arbitration is not required. In my view, the agreement entered into by Mr. Lewis and the Llama Company, the U-4, clearly subjects this case to arbitration. The NASD Code of Arbitration Procedure 10201(a) applies to any dispute between or among members and/or associated person(s) arising out of the employment of a person associated with such member. The code further provides that such dispute shall be arbitrated under this code, at the instance of "a person associated with a member against a person associated with a member."[1]
The Llama Company, a member of the NASD, was originally joined as a defendant in this case. The Llama Company was the employer of Mr. Lewis, and was the only party to the litigation who was providing employment compensation to Mr. Lewis for providing services to, or at the direction of, the Llama Company throughout the time of this dispute.
Mr. Lewis, as an employee of the Llama Company, was an associated person with the NASD member, the Llama Company, and executed an agreement with his employer (the U-4 agreement) to arbitrate any dispute between himself and his firm "or any other person" as described in 10201(a). The U-4 agreement is an agreement to arbitrate.[2] Alice Walton, the President of the Llama Company, was also a person associated with a member, the Llama Company, and had also executed a U-4 agreement to arbitrate any disputes arising between Ms. Walton and the Llama Company or a person associated with the Llama Company.
This dispute relates to the employment of Mr. Lewis, and the appropriate compensation for services provided by him at the direction of his employer, for the benefit of a joint venture, which was closely associated with his employer, the Llama Company.
The majority holds that the dispute does not arise out of Mr. Lewis's employment with a member. This conclusion is not supported by the pleadings, stipulations of fact, or affidavits presented in this case. Mr. Lewis was at all times relevant to this suit an employee of the Llama Company. The Llama Company is an NASD member. The Llama Company and all of its sister companies are controlled *268 by Alice Walton. Alice Walton urged Mr. Lewis to perform services for the joint venture. While providing services to this joint venture, Mr. Lewis continued to work for Alice Walton's Llama Company. All work on the joint venture performed by Mr. Lewis was completed from his Fayetteville Llama Company office. Moreover, the claim asserted by Mr. Lewis was that Alice Walton, and two other defendants, Llama Capital, and/or Llama Mortgage, converted the money in dispute by depositing it with the Llama Company, the NASD member, and Mr. Lewis's employer. The heart of this dispute involves activities that took place during Mr. Lewis's tenure at the Llama Company. Specifically, it involves events that were the direct result of a work assignment given to Mr. Lewis by Alice Walton. Accordingly, all conditions set forth in the unambiguous agreement to arbitrate signed by Mr. Lewis with Alice Walton's Llama Company should be enforced.
Alice Walton, as a person associated with the NASD member, has the right to demand arbitration. Mr. Lewis sought to avoid this result by dismissing the Llama Company from the litigation on the day before the hearing, but that does not bar Alice Walton's rights. See American Ins. Co. v. Cazort, 316 Ark. 314, 871 S.W.2d 575 (1994) (holding that one should not be allowed to circumvent arbitration by nonsuiting a party that would subject the matter to arbitration).
In my view, Llama Capital and Llama Mortgage have a status interwoven with that of Alice Walton, and arbitration addressing the merits of the compensation issue will resolve any remaining issues between Mr. Lewis and these two corporations. If not joined in arbitration of the underlying dispute, any separate action against them should be stayed pending resolution of the arbitration dispute. The disposition of this case by submitting it to arbitration is required by the plain and unambiguous language of the U-4 agreements and the Code of Arbitration Procedure.
It must also be noted that the position taken by the majority opinion today is contrary to the overwhelming public policy favoring arbitration. The United States Supreme Court in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S. Ct. 1238, 84 L. Ed. 2d 158 (1985), articulated its position on the use of arbitration in cases such as the present case subject to the Federal Arbitration Act. The Court held that:
the Arbitration Act provides that written agreements to arbitrate controversies arising out of an existing contract "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. By its terms, the Act leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed. §§ 3, 4.
Id. The Court also noted that "the Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S. Ct. 1238, 84 L. Ed. 2d 158 (1985); See also, Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983); Morgan v. Smith Barney, Harris Upham & Co., 729 F.2d 1163 (8th Cir.1984). The language used by the Court seems clear that in a case that is governed by the Federal Arbitration Act there is strong public policy in favor of arbitration.
Arkansas has followed the federal courts' lead and also expressed a preference for resolving matters through arbitration. In Anthony v. Kaplan, 324 Ark. 52, 918 S.W.2d 174 (1996), we explained the advantages to arbitration, noting that as a matter of public policy, arbitration is strongly favored, and is looked upon with approval by courts as a less expensive and more expeditious means of settling litigation and relieving docket congestion. Lancaster v. West, 319 Ark. 293, 891 S.W.2d 357 (1995); Estate of Sandefur v. Greenway, 898 S.W.2d 667 (Mo.App. W.D. 1995). Anthony v. Kaplan, 324 Ark. 52, 918 S.W.2d 174 (1996). We have also followed the federal courts view that any doubts and ambiguities of what matters are subject to arbitration should be resolved in favor of *269 arbitration. See Wessell Bros. v. Crossett Sch. Dist. No. 52, 287 Ark. 415, 701 S.W.2d 99 (1985). Thus, I am dismayed that the majority has failed to acknowledge that the U-4 signed by Mr. Lewis clearly subjects him to arbitration at the demand of Ms. Walton, who has also signed a U-4 agreement. I am also concerned that the majority has ignored the strong public policy favoring arbitration as consistently announced by this court and federal courts. For those reasons, I respectfully must dissent.
I am authorized to state that CORBIN and SMITH, JJ., join in this dissent.
NOTES
[1] The bonus plan defines "net gain" as "realized gain after payment of all expenses ... including payment to Llama Company of a fair market investment banking fee in the case of securitization."
[2] Mr. Lewis did not name Boston Capital Corporation or the joint venture, Boston Capital Mortgage Company, as defendants.
[3] On page 64 of their brief, the appellants argue that the trial court should have compelled arbitration under Section 10201 because "[a]ll claims asserted by Lewis arise from the business of Llama Company or his employment with Llama Company and his relationship with person and entities associated with Llama Company." (Emphasis added.) This argument, however, ignores the plain language of Section 10201, which requires the underlying employment dispute to be between the associated person and "a member," and not between an associated person and "person and entities associated with" the member.
[4] It should be noted that in their briefs the appellants do not rely upon the remaining portion of this phrase, which is "in connection with activities of such associated person(s)."
[1] Any dispute, claim, or controversy eligible for submission under the Rule 10100 Series between or among members and/ or associated persons, and/ or certain others, arising in connection with the business of such member(s) or in connection with the activities of such associated person(s), or arising out of the employment or termination of employment of such associated person(s) with such member, shall be arbitrated under this code, at the instance of:
(1) a member against another member;
(2) a member against a person associated with a member or a person associated with a member against a member; and
(3) a person associated with a member against a person associated with a member.
[2] I agree to arbitrate any dispute, claim or controversy that may arise between me, and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organization indicated in Item 10 [the NASD by-laws including the Code of Arbitration Procedure].
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534 A.2d 1303 (1987)
Michael ARBOUR et al.
v.
Ralph HAZELTON et al.
Supreme Judicial Court of Maine.
Argued November 4, 1987.
Decided December 21, 1987.
Thomas R. Downing (orally), Hardy, Wolf & Downing, Lewiston, for plaintiff.
*1304 David W. Austin (orally), Rumford, for Hazeltons.
William C. Nugent (orally), Hunt, Thompson & Bowie, Portland, for Geronda.
Before McKUSICK, C.J., and NICHOLS, ROBERTS, WATHEN, SCOLNIK and CLIFFORD, JJ.
NICHOLS, Justice.
The Plaintiff-Purchasers, Michael and Regina Arbour, appeal from the directed verdicts entered in Superior Court, Oxford County, for the Defendant-Sellers, Ralph and Annie Hazelton, and their agent, Alphonse Geronda, in their action for rescission and misrepresentation. The Plaintiffs challenge the trial court's conclusion that the Plaintiffs failed to establish a prima facie case of the Defendants' knowledge of, or reckless disregard for, the untruth of the alleged false representations.
We vacate the judgments.
The Defendant-Sellers had engaged Defendant Geronda, a Rumford realtor, to sell their variety store in East Peru. In May, 1981, Plaintiff Michael Arbour met with Defendant Geronda to discuss this opportunity to purchase. Subsequently Geronda represented to him by letter that this was a "typical general store.... Sales include gas, oil, all foodsfresh, frozen, canned, meats and produce.... Sales also include kerosene, beer, ... hardware and sundries.... The past records indicate a gross of over $100,000 recently." The agent also provided an accountant's report verifying that the gross receipts for "goods sold" were over $100,000 in both 1978 and 1979. The report did not define "goods" which, contrary to the assertion in Geronda's letter, included both variety store wares and new lawn and garden equipment. Indeed, sale of that equipment generated approximately one-third of the Sellers' profit.
The first visit to the store by Arbour only confirmed the representation that this was a "typical general store" and that its gross receipts derived from a sale of a "typical general store's" goods. Arbour did not discern that the Hazeltons sold lawn and garden equipment there, but he did observe that Hazelton operated a repair service on the premises. This observation was consistent with the representation in the agent's letter that a garage on the premises was used for repairs of such equipment.
Concerned about the store's profitability, the Plaintiffs twice requested specific profit and loss statements from the agent. Geronda provided only the Hazeltons' tax returns from 1978-1980. These returns reported that the Sellers' gross income was based on sales of "general merchandise." The Arbours, relying on the representations in Geronda's letter, never inquired further about what constituted "general merchandise." Understanding the sale of store wares to constitute the store sales and understanding the store sales to constitute the Hazeltons' gross income, the Arbours believed that these income tax returns reflected the store's actual gross receipts.
Both Arbours visited the store in August, 1981. No promotional materials on the premises indicated that the Hazeltons operated an equipment distributorship there. Mrs. Arbour inspected one bay of the garage after being told by Geronda that Hazelton was repairing something in the closed bay. Geronda told Mrs. Arbour that it was Hazelton's "hobby" to repair equipment. Mrs. Arbour did not regard this information of the Hazelton's hobby of repairing old equipment as notice of his business of selling new lawn and garden equipment.
Although no Defendant explicitly denied the sales of lawn and garden equipment, none likewise corrected the inaccurate representation in Geronda's letter that only the sales of wares of a typical general store made up the store's gross sales for the reported period. The contract for sale that the parties entered into September 25, 1981, did not clarify that salient point either. The only reference in their writing to *1305 such equipment alluded to prior servicing, not prior sales, by the Sellers.[1] Moreover, the store inventory purchased thereunder by the Arbours did not include any new lawn or garden equipment.
The Plaintiffs promptly took over the store in East Peru, and, not realizing that approximately one-third of the store's income depended upon lawn and yard equipment sales, attempted no sales of such items. When the store's early sales yielded a minimal gross, the Arbours consulted Hazelton, who then disclosed to them his prior equipment sales. After unsuccessful attempts to sell the store, the Plaintiffs commenced an action, equitable in nature, against the Sellers for rescission of the contract, cancellation of the Purchasers' promissory note, repayment of the Purchasers' down payment, an acceptance of the surrendered premises, and, in the alternative, an action, legal in nature, for diminution of the value of the store. Plaintiffs subsequently filed a complaint against the Sellers' agent, Geronda, seeking damages for misrepresentation and professional malpractice in misrepresenting the value of the store.[2] Notwithstanding that the relief sought was in part equitable, it appears that the parties acquiesced in trying the case before a jury, and no question in that regard has been raised on appeal.
At the close of the Plaintiffs' evidence, the Superior Court granted the motions for directed verdict of both the Sellers and the agent. The court concluded that the Purchasers had failed to prove by clear and convincing evidence that the allegedly false representations made by the Sellers were made with knowledge of their falsity or with reckless disregard of their truth or falsity. This conclusion is not error if, after viewing the evidence and all of the reasonable inferences therefrom in the light most favorable to the Plaintiffs, a contrary verdict could not be sustained. Butler v. Poulin, 500 A.2d 257, 260 (Me. 1985); Seiders v. Testa, 464 A.2d 933, 935 (Me.1983).
We note at the threshold of our analysis that directed verdicts should be granted sparingly, as the exception rather than the rule. Butler v. Poulin, 500 A.2d at 260 (quoting Moore v. Fenton, 289 A.2d 698, 700 n. 1 (Me.1972)). Only if all reasonable doubts of possible error or uncertainty have been removed should the court direct a verdict. Moore v. Fenton, 289 A.2d at 700 n. 1. To avoid a directed verdict in a fraud action a plaintiff must establish a prima facie case for each of the five elements by clear and convincing evidence. Butler v. Poulin, 500 A.2d at 260 n. 5; Wildes v. Ocean National Bank of Kennebunk, 498 A.2d 601, 602 (Me.1985). A defendant is liable for fraud if he: (1) makes a false representation (2) of a material fact (3) with knowledge of its falsity or in reckless disregard of whether it was true or false (4) for the purpose of inducing another to act in reliance upon it, and (5) the plaintiff justifiably relies upon the representation as true and acts upon it to his damage. Butler v. Poulin, 500 A.2d at 260; Letellier v. Small, 400 A.2d 371, 376 (Me.1979). See also Restatement (Second) of Torts §§ 525, 526 (1977).
The representation in Geronda's letter that the $100,000 in sales came entirely *1306 from the sale of a "typical general store's" wares, absent any subsequent clarification by the agent, is sufficient evidence of a false representation. In this contract the gross sales figure is a critical fact. The record contains no evidence that the Sellers themselves knew that this misrepresentation was false or that they acted in reckless disregard of whether it was true or false. The Purchasers' evidence established that the Plaintiffs negotiated almost exclusively with the Sellers' agent; the agent provided all of the pertinent financial information. There is no evidence that the Sellers knowingly or recklessly misled the Purchasers or even knew that their agent misled the Purchasers. There is likewise no evidence that the Sellers attempted to conceal information from the Purchasers. Indeed, the Sellers remained two weeks after the closing to help the Purchasers in their take-over of the store.
We do, however, find evidence sufficient to withstand a directed verdict that Defendant Geronda, the Sellers' agent, recklessly disregarded the truth in his representations to the Purchasers. He should have been aware that the new equipment sales accounted for a significant percentage of the general store's gross sales. Consequently, he should have known that his letter to the Purchasers was in fact a misrepresentation. Defendant Geronda knew of the Purchasers' concern for the store's profitability, and, responding to that concern, he provided an accountant's report and the Sellers' income tax returns, neither of which disclosed the sales of new equipment by the Sellers. The negotiations gave the Purchasers to understand that the Sellers were selling the entire business that generated the $100,000 gross sales they had reported for income tax purposes. The contract represented that the Sellers were retaining rental space in the garage only to continue a "hobby" of repairing old lawn equipment. In fact, they were retaining a very profitable portion of the business, and selling the less profitable remainder. The financial information provided to the Plaintiffs clearly did not reveal this and a factfinder could rationally find that the Sellers' agent should have known it.
Contrary to the trial court's conclusion, a factfinder could rationally find that the discussion of Hazelton's "hobby" and the offer of commissions on future sales did not put the Purchasers on notice that a significant percentage of the variety store's past gross sales came from the sale of new yard and garden equipment. A factfinder, therefore, could rationally regard the agent's misrepresentations and his alleged belief that it did put them on notice as a reckless disregard for the truth.[3]
This evidence, sufficient to withstand a directed verdict as to the Defendant Geronda's recklessness, may also be sufficient to render the Sellers, as the agent's principals, liable in the Purchasers' action for rescission. Under Maine law a principal is liable for the fraudulent misrepresentations made by his agent within the scope of the agent's authority, whether or not the principal knows of the agent's misconduct. Crowley v. Dubuc, 430 A.2d 549, 552 (Me.1981); Nyer v. Carter, 367 A.2d 1375, 1378 (Me.1977); Harlow v. Perry, 114 Me. 460, 462-63, 96 A. 775, 776 (1916); Restatement (Second) of Agency § 257 (1958).[4]
Therefore, we vacate the entry of a directed verdict for the Defendants Hazelton as well as the directed verdict for their agent, Defendant Geronda.
The entry is: Judgments vacated.
*1307 Remanded for further proceedings consistent with the opinion herein.
All concurring.
NOTES
[1] That portion of the contract provided that:
The SELLERS agree that [the Sellers] will continue to service the yard and garden equipment, utilizing the two car garage only, in consideration of which the SELLERS agree to let the BUYERS sell said yard and garden equipment as agents of the SELLERS. The SELLERS further agree to pay the BUYERS a 10% commission with relation to the sale of any such yard and garden equipment, with a guaranteed minimum of $1200 annually as compensation.
The Purchasers did not read this offer for future commission sales as notice of the Sellers' prior sales of new equipment and the Hazeltons' inclusion of those sales receipts among the store's gross receipts. They understood this offer to suggest a new enterprise for the Sellers.
[2] The Superior Court entered a directed verdict for Geronda on the professional malpractice count because the Plaintiffs failed to prove duty and cause. The Plaintiffs do not challenge that portion of the directed verdict.
[3] Although the trial court did not reach the other elements of misrepresentationinducement, justifiable reliance and damagesthere is sufficient evidence of each to withstand a motion for a directed verdict.
[4] Section 257 provides that:
A principal is subject to liability for loss caused to another by the other's reliance upon a tortious representation of a servant or other agent, if the representation is: (a) authorized; (b) apparently authorized; or (c) within the power of the agent to make for the principal.
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32 B.R. 29 (1983)
In re Frank C. SNEDAKER, Debtor.
Bankruptcy No. 82-01266-BKC-TCB.
United States Bankruptcy Court, S.D. Florida.
July 21, 1983.
*30 Reggie Sanger, Fort Lauderdale, Fla., for debtor.
ORDER CONTINUING CONFIRMATION
THOMAS C. BRITTON, Bankruptcy Judge.
A confirmation hearing was held on May 17, upon this debtor's chapter 11 plan filed March 15, 1983. The plan has been rejected by class 2. This class includes only the IRS which has a sixth priority tax claim of $8.125. The plan has been accepted by all other classes of impaired creditors.
The debtor's position is that the IRS claim is unimpaired under this plan and, therefore, under 11 U.S.C. § 1126(f) the rejection may be disregarded.
The plan provides for the IRS claim to be paid in deferred cash payments, over a period of six years after confirmation, together with interest of 12%.
Impairment is defined by § 1124 which provides that a claim is impaired unless the plan (1) "leaves unaltered" the rights of the claimant or (3) the claimant receives "on the effective date of the plan . . . cash equal to . . . the allowed amount of such claim".
Applying this definition literally, it would appear that this plan "alters" the rights of the IRS by deferring payment and it would appear equally clear that IRS will not receive "cash" payment of its claim "on the effective date of the plan", therefore, the plan "impairs" this claim. If so, confirmation must be denied under § 1129(a)(8). And this is so notwithstanding the fact that § 1129(a)(9)(C) explicitly provides that with respect to certain unsecured governmental claims § 507(a)(6), including this particular tax claim, the plan must make at least the following minimum provision for such claims:
"deferred cash payments, over a period not exceeding six years after the date of assessment of such claim, of a value, as of the effective date of the plan, equal to the allowed amount of such claim."
At Collier on Bankruptcy (15th ed.) ¶ 1129.02[9], the editors have concluded that although a plan complies with § 1129(a)(9), it must be denied confirmation under § 1129(a)(8) unless the priority class consents to that treatment. The statutory language, applied literally, certainly supports this conclusion.
However, the dicta in Matter of Southern States Motor Inns, Inc., 709 F.2d 647 (11 Cir.1983), persuades me otherwise. Relying on the legislative history, our court has said:
"governmental tax claims entitled to priority under § 507(a)(6) `may be required to take deferred cash payments over a period not to exceed 6 years after the date of assessment of the tax with the present value equal to the amount of the claim'"
and
"Congress used the phrase `value, as of the effective date of the plan' in order to insure that creditors with priority tax claims who were required to accept payments over time would receive deferred payments equivalent to the present value of their claims." Id. at 650.
It is clear from these statements that if the plan's provision for a class complies with § 1129(a)(9), the class is "not impaired" under the provisions of § 1129(a)(8).
We turn, therefore, to the question whether this plan complies with *31 § 1129(a)(9). The IRS claim concedes on its face that its assessment was prohibited by the filing of bankruptcy. Therefore, the only remaining question is whether the 12 percent interest provides IRS with the equivalent of immediate payment in full.
In Matter of Southern States Motor Inns, Inc., the court held that:
"the interest rate to be used in computing present value of a claim pursuant to § 1129(a)(9)(C) should be the current market rate"
and in footnote 10, the court makes it clear that it is referring to the current rate for unsecured loans. The court has also said:
"the court must consider the prevailing market rate for a loan of a term equal to the payout period, with due consideration of the quality of the security and the risk of subsequent default."
The debtor offered no proof as to the current interest rates and the IRS has not participated in this case other than to reject the plan. The plan enjoys no presumption that it meets all the statutory requirements. Therefore, it is the burden of the plan proponent, the debtor in this instance, to show that 12 percent is enough. The debtor has failed to do so.
I take judicial notice that the current prime rate in this area is 10.5% for a one year unsecured loan. The market rate for unsecured loans to borrowers who are not prime candidates but are acceptable risks for a three year loan currently ranges from 13% to 20% in this area. No market exists in this area for an unsecured, six year fixed interest loan to a marginal borrower. And no market presently exists for any unsecured loan to any debtor in bankruptcy for any time period at any rate of interest. Therefore, the proposed 12% falls far short of the test framed in Southern States Motor Inns and, therefore, the IRS is impaired and since its class has rejected the plan, confirmation is denied under § 1129(a)(8).
The confirmation hearing is continued to August 2, 1983, at 10:00 a.m. in Courtroom 329, 701 Clematis Street, West Palm Beach, Florida, to afford the debtor an opportunity to either (a) win acceptance of a modified proposal for the IRS, or (b) submit a modified proposal and/or evidence that would comply with § 1129(a)(9). Failing either of these alternatives, this case will be dismissed or converted to chapter 7.
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987 S.W.2d 705 (1999)
337 Ark. 186
CITY OF DOVER, Appellant,
v.
A.G. BARTON, et al., Appellees.
No. 98-907.
Supreme Court of Arkansas.
April 8, 1999.
*706 David H. McCormick, Russellville, AR, for Appellant.
Donald Wayne Bourne, James Dunham, Alexander Graham Strett, Russellville, AR, for Appellees.
ROBERT L. BROWN, Justice.
The City of Dover (hereinafter "Dover") appeals from a final decree enjoining Dover from constructing, operating, or maintaining a sewage-treatment facility due to a violation of Act 1336 of 1997, now codified at Ark.Code Ann. § 14-235-203 (Repl.1998). Because the trial court applied Act 1336 retroactively and because the appellees failed to exhaust their administrative remedies, we reverse and remand.
On July 22, 1996, the Dover City Council passed an ordinance calling for a special election on whether to issue bonds to finance a sewage-treatment facility. The voters approved the bond issue. On February 18, 1997, the Pollution Control and Ecology Commission issued a draft construction permit to Dover for the sewage-treatment facility, and a public hearing on the draft permit was held on April 17, 1997.
In May of 1997, Dover contracted to buy fifteen acres near Baker's Creek to build the facility, which is within ten miles of the *707 Dover corporate limits. In July 1997, Dover entered into a contract with a contractor for the construction of the facility, and construction commenced. On July 31, 1997, the Pollution Control and Ecology Commission issued its final construction permit. On September 8, 1997, various interested petitioners, other than the appellees, filed a response to the final permit, but the Commission ruled that the response, which was a request for rehearing, was untimely.
On July 25, 1997, appellees A.G. and Bettye Barton and Jay and Edith King (hereinafter "Bartons"), who were landowners near the proposed construction site, sued Dover in chancery court for taking their land by inverse condemnation. They asked that the construction be stayed and for damages. Dover moved to dismiss on the basis that damages could not be awarded in chancery court, and the Bartons amended their complaint to ask for injunctive relief due to a violation of Act 1336 of 1997.
On August 12, 1997, appellee City Corporation, which operates a sewage-treatment plant in Russellville, filed a separate lawsuit against Dover for violation of its contract to treat Dover's sewage. This lawsuit was consolidated with the Bartons' litigation. On August 22, 1997, appellee City of Russellville intervened and alleged that Dover had violated Act 1336 of 1997 and that its proposed sewage-treatment facility constituted a public nuisance.
On August 26, 1997, the trial court held a hearing and concluded that Dover had not complied with Act 1336 and issued a temporary injunction. Cross motions for summary judgment were filed, and on March 24, 1998, the trial court ruled that Dover was in violation of Act 1336 and enjoined further construction. On June 24, 1998, the trial court entered its final decree enjoining the project and declining to reach the other issues raised.
Dover initially advanced multiple points on appeal which included a recusal motion for the trial court and constitutional challenges to Act 1336, but Dover has now conceded that those issues do not constitute reversible error. The remaining issues include the retroactive application of Act 1336 and the subject matter jurisdiction of the trial court to enforce the Act.
Because this appeal turns on whether Act 1336 was appropriately applied to this project, the effective date of Act 1336 is all important. On April 11, 1997, Act 1336 was enacted into law. However, an effort to add an Emergency Clause to the original bill failed, which meant that the Act's effective date was August 1, 1997. There is no language in Act 1336 stating that the Act is to be applied retroactively. Our law is clear that absent language in the legislative act to the contrary, statutes affecting substantive rights are to be given only prospective application. See Arkansas Dep't of Human Servs. v. Walters, 315 Ark. 204, 866 S.W.2d 823 (1993). It is presumed that the General Assembly intended prospective application unless the language of the act clearly admits no other construction. Arkansas Rural Med. Practice Student Loan and Scholarship Bd. v. Luter, 292 Ark. 259, 729 S.W.2d 402 (1987). Any doubt on the matter is resolved against retroactive application. Id.
Prior to August 1, 1997, the statute that Act 1336 amended provided that municipalities had jurisdiction for ten miles outside of their corporate limits for the purpose of building sewage-treatment facilities. See Ark.Code Ann. § 14-235-203 (Supp.1995). Prior to Act 1336, § 14-235-203 also provided that every municipality was authorized to construct, operate, and maintain a sewage-treatment center inside or outside its corporate limits. With Act 1336, § 14-235-203 was amended to read:
However, before a municipality may construct, operate, or maintain a sewage collection system or sewage treatment plant outside of the corporate limits, it must be demonstrated in accordance with subsection (d) of this section that such construction, operation, or maintenance within the corporate limits is not feasible. If it is determined that it is not feasible to construct, operate, or maintain the sewage collection system or sewage treatment plant within the corporate limits, the feasibility of constructing, operating, or maintaining the sewage collection system or *708 sewage treatment plant within the municipality's seven-year growth area must be determined in accordance with subsection (d) of this section.
Ark.Code Ann. § 14-235-203(c)(1) (Repl. 1998). Act 1336 further provided that the determination of feasibility must include the municipality's best efforts to locate the sewage-treatment facility inside the corporate limits and also must address certain factors, including the material adverse effect on real property in locating the facility outside of the corporate limits.
We view the applicability of Act 1336 as affecting those sewage-treatment facilities constructed after the effective date of the Act. Clearly, in such circumstances the feasibility study must be done before construction can commence. If construction by Dover commenced under § 14-235-203 prior to the effective date of Act 1336, that Act would have no pertinence. We believe that is what occurred in this case.
It is undisputed that Dover planned for the sewage-treatment facility outside of its corporate limits, passed a bond issue, received a construction permit from Pollution Control and Ecology, bought the land for the facility, contracted for its construction, and began the construction all before the effective date of Act 1336 on August 1, 1997. Under § 14-235-203 before its amendment by Act 1336, there was no requirement of a feasibility study justifying construction outside the corporate limits. Thus, the manner in which Dover proceeded was entirely appropriate under the law as it existed at that time.
We are mindful that by its terms Act 1336 must be complied with before a sewage-treatment plant can be "constructed, operated or maintained." The City of Russellville and City Corporation focus on the disjunctive language and interpret this to mean that even if construction of the Dover sewage facility began before the effective date of Act 1336, operation and maintenance of the facility without question would occur after August 1, 1997. Thus, according to their theory, Act 1336 is still controlling.
We do not read this phrase in Act 1336 strictly in the disjunctive but rather as a continuum of activity relating to the initial location, building, and operation of a sewage facility. To read the language otherwise would mean that any municipality now operating a sewage-treatment facility would have to file a feasibility plan irrespective of when the facility was located and built. Again, we will not give Act 1336 a retroactive effect. Nor will we interpret the words in such a fashion as to require municipalities that have legitimately commenced construction of sewage-treatment facilities before Act 1336's effective date but not begun operation by that time to file a feasibility study regarding location. That would be unfair in the extreme. The clear purpose of Act 1336 relates to the appropriate siting of a facility within the corporate limits of the municipality or within its seven-year growth area.
We would be remiss if we did not also address the fact that the appellees never pursued their remedies to enforce Act 1336 before the Arkansas Pollution Control and Ecology Commission. Dover correctly points to statutory law that vests the Commission with the authority to issue permits for sewage-treatment facilities. See Ark.Code Ann. § 8-4-203(a) (Supp.1997). It is also the Commission that is given the power to "enforce all laws" relating to water pollution. See Ark.Code Ann. § 8-4-201(a)(1) (Supp. 1997). As part of this function, the Commission must approve plans for sewage systems. See Ark.Code Ann. § 8-4-201(a)(4) (Supp. 1997).
It is clear to us that the Commission was the proper forum for hearing the appellees' Act 1336 claim. Dover emphasizes that interested parties, other than the appellees, did request a hearing on the Commission's issuance of a final construction permit to that city but were untimely in making the request. We are likewise convinced that the appellees should have pursued their remedies for a violation of Act 1336 before the Commission and, failing a satisfactory ruling, appealed the matter to circuit court. See Ark. Code Ann. § 8-4-222 (Repl.1993). They did not and, thus, failed to exhaust their administrative remedies. See Regional Care Facilities, Inc. v. Rose Care, Inc., 322 Ark. 780, 912 S.W.2d 406 (1995). We conclude that chancery court was not the appropriate jurisdiction to hear the Act 1336 claim.
*709 Finally, City of Russellville and City Corporation urge that the trial court should be affirmed because it reached the right result albeit for the wrong reason. According to these appellees, Dover's location of the sewage-treatment facility violated ordinances of the City of Russellville in that part of the facility is located in an area subject to Russellville's jurisdiction and Dover did not obtain a large-scale development permit from the City. Dover contested the fact that Russellville ordinances applied and attached a plat of the sewage site to its motion for summary judgment. There was no ruling by the trial court on this issue. Whether the Dover sewage facility is subject to Russellville's ordinances on large-scale developments is a disputed issue of fact which is material and which is unresolved. Summary judgment is not appropriate where material issues of fact remain to be decided. Ark. R. Civ. P. 56(c). Hence, appellees' argument of an alternative basis for affirming summary judgment has no merit.
We reverse the trial court's decree based on Act 1336 which enjoins Dover from continuing construction of the sewage-treatment facility and remand for an order consistent with this opinion.
Reversed and remanded.
GLAZE, J., concurs and affirms solely on the basis that Act 1336 is not applicable.
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32 B.R. 577 (1983)
In re REVERE COPPER AND BRASS, INC., Debtor.
Bankruptcy Nos. 82 B 12073 to 82 B 12086.
United States Bankruptcy Court, S.D. New York.
August 23, 1983.
*578 Weil, Gotshal & Manges, Cahill, Gordon & Reindel, New York City, for Revere Copper and Brass; Stephen Karotkin, Mary Rose, Thomas R. Jones, New York City, of counsel.
Herbert S. Sanger, Jr., Gen. Counsel, James E. Fox, Assoc. Gen. Counsel, Robert C. Glinski, Edwin W. Small, Knoxville, Tenn., for Tennessee Valley Authority; Richard Lieb, Kronish, Lieb, Shainswit, Weiner & Hellman, New York City, of counsel.
Wachtell, Lipton, Rosen & Katz, New York City, for the Creditors' Committee; Stewart E. Tabin, New York City, of counsel.
Anderson, Russell, Kill & Olick, P.C., New York City, for Equity Committee; New York City, Robert M. Miller, New York City, of counsel.
DECISION AND ORDER ON DEBTORS' MOTION TO MODIFY THE AUTOMATIC STAY
PRUDENCE B. ABRAM, Bankruptcy Judge.
This matter comes before the court on the motion of Revere Copper and Brass, Incorporated ("Revere") seeking an order modifying the automatic stay to permit determination of the validity of a certain contract in an action currently pending in the United States District Court for the Northern District of Alabama captioned Revere Copper and Brass Incorporated v. Tennessee Valley Authority, Cv. 82-M-5412MW (the "District Court Action") but not to permit determination of the defendant's counterclaim. The defendant in that action, Tennessee Valley Authority ("TVA") has opposed Revere's motion. The Equity Securityholders' Committee supported Revere's motion at oral argument on the motion on May 11, 1983. For the reasons set forth below,[1] this court concludes that further litigation of the TVA counterclaim in the District Court Action should be stayed *579 but that all proceedings necessary to determine the validity of the 1980 contract should go forward in the District Court Action.
THE FACTS
The factual background pertinent to this motion is the following: In April, 1969 Revere and TVA entered into a ten-year contract pursuant to which TVA agreed to supply electric power to Revere's aluminium reduction plant and aluminium sheet mill located near Scottsboro, Alabama. This 1969 contract provided for negotiation in good faith of the terms and conditions of a new power supply contract at the end of the ten-year term. On December 3, 1980, Revere entered into a new ten-year supply contract with TVA. It is this 1980 contract and the circumstances of its negotiation that form the basis of the District Court Action.
According to Revere's complaint in that action, prior to the expiration of the 1969 contract, Revere and TVA entered into negotiations for a new contract. TVA offered a ten-year contract, cancellable upon five years' notice. Revere proposed a one year extension in order to enable it to obtain justification for a more favorable rate because of its use of electricity as part of its manufacturing process and to analyze any new TVA rate structure resulting from the cost study TVA was required to submit pursuant to the Public Utility Regulatory Policies Act of 1978, 16 U.S.C. § 2601 et seq. (the "PURPA Study").
During the negotiations, Revere alleges that it was informed by TVA that the cost for a one year extension of the contract would exceed Revere's ten-year contract rate by approximately 20% and moreover that it was advised that the PURPA Study was not then available. Revere is apparently wholly dependent on TVA for electrical power. Its complaint alleges that "relying upon TVA's representation and having no other choice, Revere acceded to TVA's demand for a ten-year contract, dated December 3, 1980, subject to cancellation upon five-years' notice." (Complaint at ¶ 13).
In June 1982 Revere obtained a copy of the PURPA Study. It is Revere's position that this study indicates that the rate for a one-year contract at TVA's short term marginal cost would have been lower, not higher, than the rate under the long term rate fixed in the 1980 contract. Revere further maintains that the results of PURPA Study were known to TVA at the time of Revere's request for the study.
On July 14, 1982 Revere instituted the District Court Action seeking a judgment declaring the 1980 contract invalid, void, and unenforceable in that it was procured by unlawful means in violation of the Tennessee Valley Authority Act of 1933 and Section 3 of Article IV of the U.S. Constitution and of Revere's rights protected by the Fifth and Ninth Amendments of the Constitution and applicable common law (Complaint at ¶ 16). TVA's answer to the complaint asserts a number of defenses and also asserts a counterclaim. The substance of the counterclaim is that Revere has refused to pay the full bills specified in the 1980 contract since June 1982 and that $3,110,905.21 was due to TVA from Revere for that reason as of the time the answer was filed and judgment is sought for that amount and all additional amounts coming due not paid. On or about October 4, 1982 TVA filed a motion in the District Court Action for summary judgment seeking a dismissal of Revere's complaint and a grant of judgment in TVA's favor on the counterclaim. On or about October 15, 1982 Revere filed a cross-motion for summary judgment seeking a judgment declaring the 1980 contract invalid and denying TVA's motion.
Prior to oral argument or decision on the summary judgment motions and on October 27, 1982, Revere filed a petition in this court for reorganization under Chapter 11 of the Bankruptcy Code. Revere is continuing to operate its business as a debtor-in-possession. Due to the Chapter 11 filing, the District Court postponed oral argument on the two summary judgment motions which had been scheduled for December 3, 1982.
On January 13, 1983 Revere sent a letter to the judge presiding over the District *580 Court Action requesting that the court schedule oral argument on Revere's motion for summary judgment and on that part of TVA's motion dealing with the validity of the 1980 contract. The letter stated that the automatic stay precluded prosecution of the counterclaim. In response, on February 16, 1983 TVA wrote the District Court strongly opposing any bifurcation of the District Court Action. The District Court responded by letter on February 22, 1983 as follows:
"After considering the issues discussed in your letters, it is my decision to continue the stay and apply it not only to the TVA counterclaim, but to the complaint by Revere Copper. This being true, there is no need for another hearing and no need for another order. If and when the Bankruptcy Court should release the stay both as to the complaint and the counterclaim they will proceed to trial here. Otherwise, all issues will remain with the Bankruptcy Court."
Shortly thereafter, Revere filed a formal motion asking the court to schedule a hearing for oral argument and for decision on its pending motion for partial summary judgment which was denied on February 24, 1983.
Thereafter and on March 3, 1983, TVA filed a petition for writs of prohibition and mandamus with the United States Court of Appeals for the Second Circuit precluding the United States District Court and the United States Bankruptcy Court for the Southern District of New York from exercising jurisdiction over Revere's Chapter 11 case or any proceedings therein. TVA's petition was based on an assertion that the Emergency Rule adopted by the United States District Court for the Southern District of New York in late December, 1982 could not and did not cure the constitutional defect in the structure of the bankruptcy court system created by the expiration of the stay of effectiveness on December 24, 1982 of the decision of the United States Supreme Court in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S. Ct. 2858, 73 L. Ed. 2d 598 (1982). TVA thereafter on or about April 7, 1983 filed a motion seeking to dismiss the petition for the writs without prejudice on the basis that it had determined that it could pursue its rights and claims against Revere by other means. TVA's motion for withdrawal without prejudice expressly sought to preserve the jurisdictional issue. Revere opposed the dismissal without prejudice because TVA would be free to attack the jurisdiction of the Bankruptcy Court at some later date and thus undermine Revere's reorganization. Without comment, the Second Circuit granted TVA's motion for dismissal without prejudice shortly thereafter.
Thereafter and on April 14, 1983, Revere filed the present motion seeking to modify the automatic stay to allow the issues as to the validity of the 1980 contract to go forward in the District Court Action but continuing the stay as to the TVA's counterclaim for the unpaid charges.
DISCUSSION AND CONCLUSIONS OF LAW
At the outset, it is noted that Revere's characterization of the requested relief as a modification of the automatic stay is perhaps inappropriate since the relief requested is in the nature of a request for a declaratory judgment as to the effect of the automatic stay and for a specific order and stay if the automatic stay does not in fact provide the desired result of continuing the main action while enjoining the prosecution of counterclaim. The automatic stay imposed by Bankruptcy Code Section 362, 11 U.S.C. § 362, provides in relevant part that the stay is applicable to
"(1) The commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title; "* * *
*581 "(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title; * * *"
This action was commenced by Revere and as such is not affected by the automatic stay. See e.g., Assoc. of St. Croix Condo. Owners v. St. Croix Hotel, 682 F.2d 446, 448 (3d Cir.1982) ("Section 362 by its terms only stays proceedings against the debtor."). However, TVA's counterclaim does involve a matter which could have been the subject of a separate proceeding against the debtor that was or could have been commenced before the filing of the Chapter 11 petition to recover a claim against the debtor and it is an act to assess a claim against the debtor. However, this is not a motion seeking to punish by contempt a violation of the automatic stay contained in Bankruptcy Code § 362. It is therefore not necessary for the court to reach the question of the effect of the automatic stay on a counterclaim, involving as it does questions of compulsory and permissive counterclaims and bankruptcy law, because of the powers afforded to the court under Bankruptcy Code § 105 to fashion appropriate relief.
The issue before this court is whether the District Court Action should be bifurcated by staying TVA's counterclaim while the main action on the validity of the 1980 contract proceeds. TVA argues that bifurcation of the District Court Action is inappropriate because it will somehow be prejudiced if the action continues only in part. Furthermore, TVA urges the District Court has already ruled on the issue and therefore Revere is precluded from seeking the requested relief in this forum. Both arguments are rejected.
I. TVA Will Not Be Prejudiced by Bifurcating the Claims
It is well established that the federal courts "in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy, may order a separate trial of any claim, cross-claim, counterclaim, or third-party claim. . . ." F.R.Civ.P. 42(b). See Filtrol Corp. v. Kelleher, 467 F.2d 242, 246 (9th Cir.1972), cert. denied, 409 U.S. 1110, 93 S. Ct. 914, 34 L. Ed. 2d 691 (1973). The separation for trial of the issues of liability and damages often results in economy and efficiency and is frequently utilized in litigation of antitrust issues and negligence suits. Notes of Advisory Committee on Rules, F.R.Civ.P. 42(b); Gutor International AG v. Raymond Parker Co., Inc., 493 F.2d 938, 947 (1st Cir.1974); Rickenbacher Transportation, Inc. v. Pennsylvania Railroad, 3 F.R.D. 202 (S.D.N.Y.1942). The former Bankruptcy Rules expressly adopted Federal Rule 42, as do the Bankruptcy Rules which became effective August 1, 1983. See former Bankruptcy Rules 742 and 914; Bankruptcy Rules 7042 and 9014.
The situation at hand lends itself to separate trials on the issues of liability, i.e. is there a contract, and damages, i.e., what amount is due under the contract if there is one. The reasons for separate trials include avoidance of confusion resulting from similarity or dissimilarity of claims, avoidance of prejudice, unusual difficulty in proving a particular issue, and the inherent power of the court to regulate the order of proof at trial. See generally Weinstein, Routine Bifurcation of Jury Negligence Trials: An Example of Questionable Use of Rule Making Power, 14 Vand.L.Rev. 831 (1961). The issues presented and the proof needed to prevail on the validity of the contract claim are separate and distinct from that required on a trial on the counterclaim for unpaid charges under the 1980 contract, and bifurcation has the potential for shortening the trial. See Kushner v. Hendon Const., Inc., 81 F.R.D. 93, 99 (M.D.Pa.) aff'd 609 F.2d 502 (3d Cir.1979). The situation is typical of that of determining liability, and then proceeding separately on the issue of damages. See Gutor International AG v. Raymond Packer Co., Inc., 493 F.2d 938 (1st Cir.1974); Crummett v. Corbin, 475 F.2d 816 (6th Cir.1973).
At oral argument this court inquired extensively as to what effect the separation of the determination of the validity of the 1980 contract from TVA's counterclaim for *582 unpaid charges would have. This inquiry provided no information on the nature of any prejudice. This court can find no prejudice from bifurcation.[2] TVA is free to raise and litigate any and all defenses and theories on the contract validity issue.
A judgment in TVA's favor on its counterclaim would in any event be only a partial and unsatisfactory step towards resolution of TVA's rights against Revere under the 1980 contract, if it is held to be valid. A judgment in TVA's favor would not permit TVA to levy on Revere's property to recover on a prepetition claim. Prepetition creditors may be paid or recover on their claims in a Chapter 11 case only by means of a distribution under a confirmed plan of reorganization. A meaningful resolution of TVA's counterclaim necessarily requires application of bankruptcy principles respecting the treatment of executory contracts, priority and payment of claims. "Relief from the stay [to permit the liquidation of claims against the debtor in a state court action] . . . will result in at best only a partial resolution of the issues and at worst will further complicate issues and result in needless relitigation." In re Cloud-Nine Ltd., 3 B.R. 202, 204 (Bkrtcy.N. M.1980).
The ultimate determination of amount and priority of any TVA claim rests with this court. The determination and allowance of claims is a matter essential to the bankruptcy process. Bankruptcy Code §§ 502 and 503; Gardner v. New Jersey, 329 U.S. 565, 573-74, 67 S. Ct. 467, 471-72, 91 L. Ed. 504 (1947); In re Cloud-Nine Ltd., supra. Under the circumstances of this case, the bankruptcy court will not delegate its function of determining the amount, priority and allowability of any claim of TVA to the District Court of Alabama.
TVA relies on the case of In re Bohack v. Borden, Inc., 599 F.2d 1160 (2d Cir.1979) for support of its position that the District Court Action should proceed in its entirety, including the TVA counterclaim. Such reliance is misplaced. The crucial difference is that Bohack dealt with a creditor's right of setoff, and, in any event, the Second Circuit did not fix an absolute rule. Id. at 1166. No setoff is involved here. Although properly denominated a counterclaim, TVA's counterclaim is not in fact an offset to Revere's claim since if Revere succeeds in invalidating the 1980 contract, the counterclaim must fail. The only circumstance that comes to mind in which setoff could arise is if Revere were to be awarded monetary damages from TVA in addition to or in lieu of the relief it seeks, which is to have the 1980 contract declared invalid. If that unlikely outcome occurs, nothing decided here precludes an application by TVA for permission to effectuate a setoff. TVA is not being denied a right to setoff,[3] nor is this a situation in which TVA *583 is being forced to litigate with its hands tied behind its back. Cf. In re Bailey, 11 B.R. 199, 201 (Bkrtcy.E.D.Va.1981) (creditor entitled to relief from automatic stay so that it could take discovery of debtor, as it would be inequitable to allow debtor to proceed in an action without giving creditor opportunity to defend itself). Indeed, this court's careful review of TVA's memorandum of law to this court and the attached exhibits leaves this court of the opinion that TVA has sought to obscure the applicable bankruptcy issues by surrounding them with suggestions of complexity and novelty.[4] TVA should not in the guise of protecting its legitimate interests be permitted to use this Chapter 11 case to shield itself from a determination on the merits of Revere's claims respecting the invalidity of the 1980 contract. Even as a plaintiff in an action in a non-bankruptcy forum, Revere remains a debtor-in-possession and TVA's rights and remedies against Revere in the event TVA should prevail on the contract validity issue and the counterclaim are necessarily affected by that debtor-in-possession status.
Under Bankruptcy Code § 105(a) the bankruptcy court may
"issue any order, or judgment that is necessary or appropriate to carry out the provisions of this title."
Due to the significance of the 1980 contract to the reorganization plan, it is essential that Revere be permitted to obtain a prompt judicial determination of the validity of that contract and that it proceed in a forum free of the constitutional cloud imposed by the Marathon decision. That this latter point is no mere academic concern is indicated by the fact that TVA has already raised the Marathon issue in this case. This court in the exercise of its discretion determines that it is necessary and appropriate to carry out the purposes of Chapter 11 that an order be entered permitting the District Court Action to proceed for the purposes of resolving the validity of the 1980 contract but enjoining the resolution of the TVA counterclaim. See Assoc. of St. Croix Condo. Owners v. St. Croix Hotel, supra at 448 (non-bankruptcy forum will remand proceeding to bankruptcy forum for determination as to whether the stay should remain in effect).
II. Revere Is Not Barred By Collateral Estoppel
TVA further argues that the question presently before this court was previously decided by the District Court and by virtue of this Revere is collaterally estopped from raising the issue in the bankruptcy forum. This court need not address the question of whether Revere should be collaterally estopped from seeking the requested relief as this court does not view District Court Judge Acker's letter to be a decision on the merits. The letter merely evidences an intent by Judge Acker to defer to the bankruptcy court. This conclusion is buttressed by the last two sentences: "If and when the Bankruptcy Court should release the stay both as to the complaint and the counterclaim they will proceed to trial here. Otherwise, all issues will remain with the Bankruptcy Court." This court has made its determination as to which issues will remain in this forum, and which issues should be litigated in the District Court Action. Accordingly, the parties shall proceed with the determination of the contract validity issues in the District Court Action.
CONCLUSION
For the foregoing reasons, the parties should continue with the District Court Action for the purpose of obtaining a determination of the validity of the 1980 contract but shall be stayed from continuing the District Court Action with respect to TVA's counterclaim.
SO ORDERED.
NOTES
[1] This opinion shall constitute findings of fact and conclusions of law.
[2] The court notes that Revere's complaint filed in the District Court contains a demand for trial by jury. Neither the right to trial by jury nor the right to present evidence is affected by this decision. Although not stated, the only "prejudice" this court can see from bifurcation is that TVA will not be able to attempt to influence a jury on the contract issue by repeated reference to the amount of money Revere owes to it and the effect that has on other ratepayers. TVA's complaint on the effects of nonpayment on it is no different than that of any unpaid creditor of a Chapter 11 debtor and those effects, although perhaps appealing to a jury's sympathies, are not material to TVA's legal rights. Indeed, prevention of this type of prejudice is one of the purposes of bifurcation. See Crummett v. Corbin, supra at 817 ("[C]onsideration of evidence not related to the question of liability appears to be a type of prejudice which is to be avoided by separating the issues of liability and damages under Rule 42(b)."). This court leaves it entirely in the hands of the District Court to determine to what extent TVA may properly introduce evidence respecting the general amount of the indebtedness which would be due to it from Revere if the contract is upheld.
[3] Setoff is a statutory exception to the law of preference and may be conceptualized as a form of security for payment of a claim. See Bankruptcy Code §§ 547 and 553. Having the right to setoff enables a prepetition creditor to secure payment on its claim by means of the offset to the extent of the offset. Should the creditor be owed more on its prepetition debt than the amount of any available setoff, the creditor is relegated to recovering on the remaining claim by means of a pro rata dividend in a liquidation or a distribution under a plan in a reorganization. Compare Bohack, supra, in which the claimed setoff was substantially less than the amount being sought by the debtor on its antitrust claims.
[4] The court notes that no applications have been made in this court to resolve the "novel and complex" issues suggested in TVA's letter to Judge Acker.
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32 B.R. 455 (1983)
In re Terry FLORES, Debtor.
Bankruptcy No. 82-03260-H2-3.
United States Bankruptcy Court, S.D. Texas, Houston Division.
July 12, 1983.
*456 H.W. Gill, Houston, Tex., for debtor.
G.J. Knostman, Fulton Beach, Tex., for Chapter 13 Trustee.
J. Craig Cowgill, P.C., Karen Emmott, Houston, Tex., for Oscar & Willie Cowgill.
Memorandum Opinion
RANDOLPH F. WHELESS, Jr., Bankruptcy Judge.
This matter came on for confirmation of a Chapter 13 Plan. The Debtor, Terry Flores, sought to confirm a plan which sought to modify the terms of a contract for deed with Oscar C. and Willie Francis Cowgill. By his proposed Chapter 13 plan, Terry Flores sought to cure his arrearages and to change the monthly payment provisions under his contract for deed with the Cowgills from $752.08 per month for the *457 life of the original contract for deed to payment of $472.00 per month over the 60 month period of the plan. This proposed payment would be sufficient to pay his substantial arrearages under the contract and to pay off the balance owed under the contract; including interest.
The Cowgills contend that the Debtor has lost any rights under the contract prior to the filing of this proceeding. They contend that they had terminated his rights for default. In addition, they contend that the Debtor cannot modify the terms of the contract for deed but must cure the arrearage at the time of the assumption and pay the balance of the contract price over the period of its original terms.
FACTS
Terry Flores and wife, Rebecca Flores entered into a contract for deed with Oscar C. and Willie Francis Cowgill on April 28, 1978. Under the terms of the contract for deed, the buyer-debtor agreed to pay to the seller the sum of $27,000.00 plus interest. This was payable $2,900.00 in cash to be paid June 1, 1978 with the balance ($24,000.00 plus interest at 8%) to be paid on the first day of each month in the amount of $160.00 per month beginning July 1, 1978 and continuing to December 1, 1979. After that date, the buyer was to make monthly installment payments of $752.08 per month, each payable on the first day of each month beginning January 1, 1980 and continuing until the principal sum with interest had been fully paid. Past due principal and interest was to bear interest at the rate of 10% per annum from majority until paid. There was an additional provision for 10% attorney's fees in the event of default.
Under the contract for deed, the buyer was to pay all taxes and assessments of every kind and nature and was to keep the premises insured and to keep the improvements in good repair.
The contract further provides that when the entire purchase price (as well as all other debts owed under the contract) is paid by the buyer in accordance with the terms, the seller is obligated to convey the property to the buyer by warranty deed.
In addition, the contract provides that if the buyer should default in the prompt payment in any indebtedness or should fail to perform any of the provisions of the agreement for a period of 10 days, the seller may elect to declare the entire unpaid indebtedness immediately due and payable and enforce the collection thereof or to declare the contract cancelled and of no further force and effect. In the event of the latter election, all monies theretofore paid or deposited are stated to be forfeited to sellers as liquidated damages.
The buyer has the right at any time after December 31, 1980 to pay the balance of the principal without penalty.
It appears that the Debtor made his payments under the contract for deed until the monthly payments accelerated from $160.00 to $752.08 per month beginning January 1, 1980. Thereafter the Debtor fell into default, as he could not make the full $752.08 payment each month.
The Cowgills tolerated the performance of the Debtor under the contract until on about August 30, 1982, at which time their attorney wrote a letter to the Debtor informing him of his default and giving him ten days to bring current the principal amount of $11,579.17 plus interest thereon for a total of $12,156.71 as of September 1, 1982.
The letter further provided that the Cowgills' attorney and Mr. Cowgill would meet with the Debtor to discuss the satisfaction of the past due amount and to schedule a meeting in the attorney's office on September 7, 1982 at 5:30 p.m. The letter further said:
"Failing to hear from you, or your failing to appear in my office, then under the terms of the contract for deed all monies paid by you will be forfeited as liquidated damages and an eviction process will be initiated to evict you from the property."
The Debtor did appear at the scheduled meeting but there was no resolution concerning the total unpaid and delinquent *458 principal and interest as of September 1, 1982.
On September 9, 1982 the attorney for the Cowgills wrote the Debtor an additional letter advising the Debtor that he had thirty days in which to secure financing to pay the balance and advising that if he had not refinanced or was not in a position to pay off the full amount of $15,747.39 by October 10, 1982, he should vacate the premises by November 1, 1982. The letter further contained advice that the Cowgills gave permission to refinance the property, in which event they would issue the general warranty deed required by the contract.
This proceeding was filed on October 21, 1982.
Mr. Flores testified that he worked twenty-three years for the same company doing welding, painting, shop work and carpentry. His take home pay is about $887.00 per month, but he works by the hour and sometimes his take home pay is a little more or a little less each month. Mr. Flores testified that he lives alone; his wife having died. He further testified that the property was worth $30,000.00.
With respect to the contention of the Cowgills that the property interest of Flores terminated prior to the filing of this proceeding, this Court determines to the contrary. First, the letter of August 30, 1982 conditioned the forfeiture by stating that if the Cowgills did not hear from Mr. Flores or if he failed to appear at the office, all monies paid by him would be forfeited as liquidated damages and an eviction process would be initiated to evict him from the property. However, Mr. Flores did in fact appear at the meeting, even though there was no resolution of the issue of the accumulated unpaid principal and interest on the property. This appearance satisfied the condition set out in the terms of the letter. The expressed intent and right to forfeit Mr. Flores interest cannot be based on a satisfied condition.
The letter of September 9, 1982 simply granted Mr. Flores thirty days in which to secure financing. Nothing was stated in this letter of the option of the Cowgills to terminate Mr. Flores interest.
In all probability this is because of the apparent willingness of the Cowgills to attempt to work with Mr. Flores in every reasonable way.
More importantly, however, are the provisions of Article 1301b of Vernon's Ann. Civ.Stat. of Texas. This statute provides that where a purchaser under a contract for deed has paid 20% or more of the purchase price, he is entitled to 60 days notice of the seller's intention to enforce the forfeiture and acceleration. In this instance, there were less than 60 days notice given by both the August 30, 1982 letter and the September 9, 1982 letter and, in addition, less than 60 days expired before the Debtor filed this proceeding on October 21, 1982. As a result, as a matter of law, there could not have been an acceleration of maturity since, under the evidence, the Debtor had paid more than 20% of the purchase price of the property.
Moreover this Texas Statute requires that the notice of this intent be conspicuously set out and printed in 10 point bold face type and include the following language:
NOTICE
YOU ARE LATE IN MAKING YOUR PAYMENT UNDER THE CONTRACT TO BUY YOUR HOME. UNLESS YOU MAKE THE PAYMENT BY (date) THE SELLER HAS THE RIGHT TO POSSESSION OF YOUR HOME AND TO KEEP ALL PAYMENTS YOU HAVE MADE TO DATE.
It thus appears that Article 1301b was not complied with in this instance prior to the filing of this proceeding, and therefore, the Debtor's interest was not terminated prior to the filing of this proceeding.
Next, however, the question of the Debtor's right to modify the contract for deed under the provisions of § 1322 of the United States Bankruptcy Code must be considered.
*459 Under the provisions of § 365 of Title 11 (11 U.S.C. § 365), an executory contract cannot be rejected in part and assumed in part. Assumption of such a contract carries with it all of the burdens as well as all of the benefits of the contract. In re City Stores Company, 21 B.R. 809 (Bkrtcy.S.D.N.Y.1982); In re Yonkers Hamilton Sanitorium Inc., 22 B.R. 427 (Bkrtcy.S. D.N.Y.1982) and Thompson v. Texas Mexican Railway Company, 328 U.S. 134, 66 S. Ct. 937, 90 L. Ed. 1132 (1946).
Section 1322(b)(7) of the United States Bankruptcy Code, which provides for the contents of a Chapter 13 Plan, provides for the assumption or rejection of any executory contract or unexpired lease of the Debtor not previously rejected. However, there appears to be no language in that sub-section setting out the right to modify the terms of an assumed executory contract. It therefore appears that there is no direct and express authority in the Bankruptcy Code for the Debtor to modify the terms of the contract of deed, if it is deemed to be an executory contract.
In the case of In re Booth, 19 B.R. 53 (Bkrtcy.D.Utah, 1982), in a very well analyzed opinion by Judge Ralph R. Mabey, the Bankruptcy Court held that in a case where a Debtor was a vendee under a contract for deed, the contract should be construed as a lien rather than an executory contract. Judge Mabey determined that this holding is in harmony with the rationale of § 365(i) and § 365(j). Under those provisions of the Bankruptcy Code, if a Debtor or Trustee as seller rejects an executory contract of sale of real property, a purchaser in possession may remain in possession and pay off the contract balance. If the purchaser is not in possession, then that purchaser has a lien on the interest of the Debtor in the property for the recovery of any portion of the purchase price that has been paid.
Judge Mabey suggests that ". . . in the final analysis, executory contracts are measured not by a mutuality of commitments but by the nature of the parties and the goals of reorganization." Judge Mabey further asserts that it is the consequences of applying § 365 to a Debtor-Vendee, especially in terms of benefit to the estate, and the protection of creditors, not the form of the contract between the vendor and vendee, which should control in determining whether or not the contract is "an executory contract". Judge Mabey points out that where a Debtor is vendee, the estate is benefited more when the contract for deed is viewed as a lien than it is when it is viewed as an executory contract. The vendor under a contract for deed, although in substance a mortgagee, may receive an advantage over other lienors and the estate may be deprived of whatever equity exists in the property. The Bankruptcy Court, as a Court of Equity, regards substance over form, demands equality of treatment among creditors, and loathes forfeiture.
Judge Mabey then held that the contract should be treated as a lien, the vendor placed on a par with other lienors, and forfeiture and the loss of the equity prevented. Judge Mabey concludes that this result is analogous to the treatment of security interests disguised as leases. Judge Mabey lastly concludes that instead of taking the contract cum onere, the lien may be "dealt with" in the plan by scaling down the debt, reducing the interest rate, and extending the maturities. With or without the plan, the property may be sold free of the lien. Treating the contract as a lien thus allows more latitude in proposing a plan and thereby furthers the rehabilitation of the Debtor. The Creditor is adequately protected, he holds title as security and payments under the plan gives adequate protection of the indebtedness.
Judge Mabey concludes that executory contracts should be handled to assist in the Debtor's rehabilitation and cites H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 348 (1977), U.S.Code Cong. & Admin.News, p. 6304.
If this Debtor is required to assume the contract for deed as an executory contract under § 1322(b)(7) he will be unable to do so under the existing circumstances. He simply does not have sufficient assets or the means of obtaining them to satisfy this requirement. Clearly treating the contract *460 for deed as an "executory contract" which must be assumed under § 1322(b)(7) would not "assist in the Debtor's rehabilitation".
Judge Mabey further points out that vendors have two rights under a contract for deed: the right to payment, which is not adequately protected, and the right to hold title as security which is adequately protected. While the right to payment is suspended, the interest in property is adequately protected. This strikes a balance between vendors, other creditors, and the estate.
In addition, Judge Mabey makes the point that "where possible the code should be given a Federal meaning. This permits uniformity in a national system; it promotes exegesis in line with bankruptcy policies."
Judge Mabey's reasoning in Booth was followed in In re Cox, 28 B.R. 588 (Bkrtcy. D.Idaho 1983). In that case, Bankruptcy Judge Merlin S. Young points out that where the Debtor is a vendee under a contract for deed, assumption may be an impossible burden with the result that any equity the Debtor may have in the asset of the amount of the unpaid purchase price will be lost. That is the precise situation that exists in the Flores case.
As noted by Judge Young the Bankruptcy Code does not attempt to define the term "executory contract" as used in § 365 and in § 1322. Purchase money mortgage transactions (including trust, deed, and security devices) have not been held to be executory contracts for bankruptcy purposes, although they are for future payment of the purchase price and often functionally the equivalent of a contract for sale of real estate. Judge Young agreed with the result in the In re Booth case decided by Judge Mabey.
In the case of In re Gladding Corp., 22 B.R. 632, (Bkrtcy.D.Mass.1982), Bankruptcy Judge Paul W. Glennon points out that the Bankruptcy Court should not be bound by static definitions of what is an executory contract, but should strive to satisfy the purposes of the act in conjunction with the goals of the Debtor (or Trustee), in order that equity may be served.
None of the authorities located by this Court on this subject have discussed the provisions of § 1322(b)(10), which subsection provides that the Debtor's Chapter 13 plan may "include any other appropriate provision not inconsistent with this title." It thus appears that the provision of § 1322(b)(7) regarding the assumption of the executory contract could not be the exclusive remedy regarding executory contracts under § 1322(b); otherwise § 1322(b)(10) could not exist. It should further be pointed out that there is no requirement in § 1322(b)(7) that the Debtor promptly cure all the arrearages (as is provided in § 365(b); although there is a separate provision in § 1322(b)(3) for the curing of any default.
Therefore, it is this Court's opinion that this Court, acting as a Court of equity consistent with the purposes of the Bankruptcy Code, can approve a plan whereby a Debtor seeks to modify the rights of a vendor under a contract for deed wherein the Debtor is vendee and is in possession of the premises. Any other result would give vendors under contract for deed an advantage over other creditors of the estate where there is equity in the property, as there is in this case. For this reason the Court determines to confirm the plan of Terry Flores provided it is amended to comply with the provisions of § 1325(a)(4) and (5) so that the "vendor" can receive value, as of the effective date of the plan, of property to be distributed under the plan on the account of his claim in a sum not less than the allowed amount of such claim, and the value is not less than the amount that would be paid on such claim if the estate of the Debtor were liquidated under the Chapter 7.
The Debtor has 30 days to make such an amendment and file it with this Court.
Counsel for the Debtor is requested to prepare and present an order in conformity with this opinion.
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97 B.R. 603 (1989)
In re Milburn FRANZ, Debtor.
No. 87-1716-C.
United States District Court, D. Kansas.
February 15, 1989.
*604 E. Dexter Galloway, and Patricia Macke Dick, Branine Chalfant & Hill, Hutchinson, Kan., for 1st Nat. Bank of Hutchinson.
J. Michael Morris, Wichita, Kan., for debtor.
MEMORANDUM AND ORDER
CROW, District Judge.
This is bankruptcy appeal brought by the creditors, The First National Bank and Trust Company of Hutchinson, Kansas, Farmers Cooperative Elevator Company and Action Auto Rental and Sale. These creditors filed an involuntary bankruptcy petition against the debtor, Milburn Franz, on October 7, 1986.
In an order filed September 25, 1987, the bankruptcy court found that debtor was a farmer as defined by 11 U.S.C. § 101(19), and, as a result, an involuntary petition in bankruptcy could not be commenced against the debtor pursuant to 11 U.S.C. § 303(a). On October 13, 1987, the creditors moved to set aside the judgment arguing that a deposition of Marjorie Schmidt has been taken on October 8, 1987, in which she testified that neither her husband nor his corporation had paid any compensation to debtor or leased any pasture from debtor in 1985. This testimony contradicted Milburn Franz' testimony that in 1985 he received approximately $3300 from Geral Schmidt for leasing pasture ground. The bankruptcy court treated the creditors' motion as brought under Bankruptcy Rule 9024 and Federal Rule of Civil Procedure 60. In an order filed January 13, 1988, the bankruptcy court denied the motion "in that the alleged new evidence could have been discovered prior to the trial of issues in this case." (Rec. on App. 48).
The creditors filed a notice of appeal on December 16, 1987, stating the orders being appealed were filed on September 16, 1987, and December 7, 1987. These listed dates correspond to the hearing dates on which the bankruptcy court orally ruled and then directed counsel to prepare written orders. These orders were subsequently signed and filed on September 25, 1987, and January 13, 1988.
Appellant/creditors specify five issues on appeal:
1. Did the bankruptcy court abuse its discretion by refusing to grant a continuance of the trial?
2. Did the bankruptcy court abuse its discretion by refusing to adjourn the trial for the introduction of testimony at a later date by Mrs. Schmidt?
3. Did the bankruptcy court abuse its discretion when it entered the order dismissing the case without circulation of the order as ordered by the court at the hearing on September 16, 1987?
4. Should these appellants be restricted to a proceeding under Federal Rule of Civil Procedure 60 (thus precluded from utilizing Federal Rule of Civil Procedure 59) when the order dismissing the action was filed (a) without being circulated for approval by counsel for the appellants, and (b) without a copy of the order even being provided to counsel for the appellants?
5. Did the bankruptcy court abuse its discretion by failing to grant the motion for relief from judgment and retrying the issues?
(R. 4 at p. 8). The first four issues were neither argued nor raised in the pleadings or hearing upon the appellant's motion to set aside or for relief from judgment.
A party appealing a bankruptcy court order must file a notice of appeal within 10 days from the date of the entry of the order. Bankruptcy Rule 8002(a). An untimely notice of appeal deprives the district court of jurisdiction to review the bankruptcy court's order. In re Abdallah, 778 F.2d 75, 77 (1st Cir.1985), cert. denied, 476 U.S. 1116, 106 S.Ct. 1973, 90 L.Ed.2d 657 (1986); In re Intern. Coating applicators, Inc., 647 F.2d 121, 124 (10th Cir.1981); Matter of Ramsey, 612 F.2d 1220, 1222 (9th Cir.1980). In the present case, the appellants *605 filed their notice of appeal more than 10 days after entry of the order of September 25, 1987. That order and the appellant's issues regarding it are beyond this court's jurisdiction to review.
Appellants have not established that issues three and four were raised before the bankruptcy court and, therefore, preserved for appellate review. This court will not entertain such arguments raised for the first time on appeal.
The only issue properly before the court is whether the bankruptcy court abused its discretion in denying appellants' motion for relief from judgment. Federal Rules of Civil Procedure 59 and 60 are made applicable to cases under the Bankruptcy Code by Bankruptcy Rules 9023 and 9024, respectively. Appellants' post-trial motion was not filed within the 10-day period allowed in Rule 59(e). Federal Rule of Civil Procedure 60(b) permits a court to relieve a party from a final judgment or order upon six possible grounds. The only ground advanced by the appellants is Rule 60(b)(2) "newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b). . . ."
Motions for relief from judgment are committed to the trial court's discretion and reviewed only for abuses of that discretion. Miller v. Cudahy Co., 656 F.Supp. 316, 326 (D.Kan.1987), modified on other grounds, 858 F.2d 1449 (10th Cir.1988). A motion for relief from judgment seeks extraordinary relief to be granted only upon a showing of exceptional circumstances and strict satisfaction of the following requirements. First, the evidence must have existed at the time of trial, but not have been known to the movant. Second, the evidence could not have been discovered by the exercise of due diligence in time to present it during the original proceeding. Third, the evidence must be such that it would probably have produced a different outcome had it been presented initially. American Motorists Ins. Co. v. General Host Corp., 120 F.R.D. 129, 132 (D.Kan. 1988); Miller, 656 F.Supp. at 326.
Appellants have not shown any abuse of discretion by the bankruptcy court in denying their motion for relief from judgment. Appellants had ample opportunity to depose Mrs. Schmidt prior to trial. As of July 14, 1987, appellants were aware of the name and address of the appellee's pasture tenant, and they took no immediate action to discover that information. Dilatory conduct cannot be awarded with a second opportunity for litigation. The bankruptcy court did not abuse its discretion in denying the appellants' motion for relief from judgment.
IT IS SO ORDERED.
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32 B.R. 617 (1983)
In re Kristin Marie BOTHWELL, Debtor.
Gene F. LIEKWEG, Plaintiff,
v.
Kristin Marie BOTHWELL, Defendant.
Bankruptcy No. 80-03118, Adv. No. 80-0226.
United States Bankruptcy Court, N.D. Iowa.
August 26, 1983.
James E. Coonley II, Hampton, Iowa, for plaintiff.
David M. Nelsen, Mason City, for defendant.
WILLIAM W. THINNES, Bankruptcy Judge.
The matter before the Court is a Complaint filed by Gene F. Liekweg, Plaintiff, against Kristin Marie Bothwell, Debtor, seeking a determination that a debt owed by Debtor be determined nondischargeable pursuant to 11 U.S.C. § 523(a)(6). Upon proper notice, a hearing[1] was held at which Attorney David M. Nelsen represented the Debtor and Attorney Michael J. Cross represented the Plaintiff. The Court, being fully advised and pursuant to B.R. 752, now makes the following Findings of Fact, Conclusions of Law and Order.
The Plaintiff, Gene Liekweg, 26 years old at time of Trial, has been a farmer since 1977. Through a mutual friend, he was introduced to the Debtor in January, 1978. The Plaintiff and the Debtor dated each other from that time through July, 1978, when the Plaintiff indicated that he desired to terminate the relationship. The termination, however, appeared to be unilateral, as the Debtor continued to visit the Plaintiff.
During the Fall of 1978, the Debtor became concerned that she might be pregnant. *618 Her attempts to have the Plaintiff accompany her to undergo pregnancy tests were unsuccessful. The Debtor, in yet another attempt to urge Plaintiff to accept responsibility for the relationship between the parties, drove out to the Plaintiff's farm shortly after midnight on February 10, 1979. Upon meeting the Plaintiff in his truck, the Debtor proceeded to question Plaintiff as to his whereabouts earlier that evening. After exchanging a few words, the Plaintiff directed the Debtor to leave. At that time, the Debtor threw her keychains at the Plaintiff through the truck's half-opened window, striking his right eye. After several surgeries, it was determined that Plaintiff has permanently lost sight in his right eye.
A suit was commenced in Iowa District Court for Franklin County by the Plaintiff seeking $1,500,000.00 damages against the Debtor. Shortly after the commencement of that suit, the Debtor filed a Chapter 7 petition in this Court. During the pendency of the Debtor's bankruptcy proceeding, the Plaintiff filed this adversary proceeding to determine the dischargeability of the Debtor's debt toward the Plaintiff arising under the lawsuit filed in Iowa district court.
The governing statutory provision is 11 U.S.C. § 523(a)(6):
(a) A discharge under § 727 . . . of this title does not discharge an individual debtor from any debt
* * * * * *
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity . . .
Construing 11 U.S.C. § 523(a)(6), this Court recently held in In re Simpson, 29 B.R. 202, 212 (Bkrtcy.N.D.Iowa 1983):
To be willful and malicious, an act must be wrongful, done intentionally, necessarily produce harm, and without just cause or excuse.
Thus, hatred, spite, ill-will or reckless disregard are not necessary for a § 523(a)(6) finding. In re Simpson, 29 B.R. 212; see also In re Dashner, Bkcy No. 81-04216, Adv. No. 81-0509, slip op. at 14 (Bankr.N.D. Iowa 1983) ("intentional disregard," not reckless disregard, is the correct standard). However, consistent with the congressional policy of giving debtors a fresh start, statutory provisions concerning exceptions to discharge are construed strictly against creditors and liberally in favor of debtors. In re Simpson, 29 B.R. at 210. Thus, a creditor claiming an exception to discharge bears the burden of proving its claim by "clear and convincing evidence." In re Dashner, slip op. at 10.
Applying the above factors to the case at bar, this Court concludes that, for the purpose of 11 U.S.C. § 523(a)(6), the Debtor has willfully and maliciously injured the Plaintiff. First, the act of throwing keys at another person was "wrongful." Cf. Singer v. Marx, 144 Cal. App. 2d 637, 301 P.2d 440, 443 (1956) ("while throwing rocks at trees or into the street ordinarily is an innocent and lawful pastime, the same act when directed at another person is wrongful.")
Second, this Court finds that the Debtor intentionally threw the keys at the Plaintiff. Cf. In re Greenwell, 21 B.R. 419, 421 (D.C.S.D.Ohio 1982) (voluntary drinking constituted intentional act). While the Debtor testified that she did not intend to injure Plaintiff's eye, such lack of intent is not an essential element in a common-law battery action. W. Prosser, Law of Torts § 9 (4th ed. 1971) (intent to injure is not required for a plaintiff to recover on an assault and battery theory); Restatement 2d of Torts § 16 (1965)[2]; id § 435; accord Lambertson v. United States, 528 F.2d 441, 444 (2d Cir.1976) (intent to make contact, not to do injury, is essential element of assault and battery) (Applying New York law); Whitley v. Andersen, 37 Colo. App. 486, 551 P.2d 1083 (1976) (an intent to cause physical injury is not a prerequisite for liability on battery); cf. 6 Am.Jur.2d Assault & Battery § 117 (1963) ("the fact that an act was done with good intentions does *619 not excuse the actor from civil liability for damage resulting therefrom"); 6A C.J.S. Assault & Battery § 7, at 325 (1975) ("absence of injury affects the measure of damages rather than the right of action"). See generally Rankin v. Farmers Elevator Mutual Insurance Co., 393 F.2d 718, 720 (10th Cir.1968) ("Where an intentional act results in injuries which are the natural and probable consequences of the act, the injuries as well as the act are intentional."). By throwing her keys through a half-opened window at another person located a short distance away, Debtor manifested "an act [that was] . . . done intentionally."
Third, the act of throwing keys at another person is one that "necessarily produce[s] harm." The Debtor should have known that metal objects such as keys when struck against the human body would be harmful. Indeed, the loss of sight could hardly not be harmful. As stated by the court in In re Cooney, 18 B.R. 1011, 1014 (Bkrtcy.W.D.Ky. 1982), a case involving injuries inflicted by a debtor while intoxicated:
His actions toward her . . . hardly flowed from a compassionate tranquility, nor was it the milk of human kindness that filled him. The incident may have begun as one of those points of inebriant social friction to which the defendant, according to his own testimony, was occasionally a party. But the difference between violent mischief and actual hatred, when reflected upon from a hospital bed for nineteen days, is not much of a difference.
Last, there is no showing that the Debtor acted with "just cause or excuse." It might well have been annoying to the Debtor that Plaintiff repeatedly refused to accompany her to undergo pregnancy tests. Indeed, Debtor testified that she was at the point of being "frustrated." Such annoyance and frustration does not, however, rise to the level of justification. See 6 Am.Jur.2d Assault & Battery § 151 (1963) ("mere words or acts that do not amount to an assault . . . are no defense to civil action on the ground of assault").
In sum, this Court concludes that Plaintiff has satisfied his burden to prove a willful and malicious injury within the meaning of 11 U.S.C. § 523(a)(6). The Plaintiff's Complaint seeking a determination that the debt be held nondischargeable is therefore sustained. The debt owed by the Debtor to the Plaintiff is not included in the effect of the discharge previously entered; and
IT IS SO ORDERED.
NOTES
[1] Pursuant to a pre-trial order, the only issue to be resolved at the hearing was whether the debt was dischargeable. The hearing did not concern the issue of damages. The ruling by this Court herein therefore is focused only on the dischargeability of the debt.
[2] The Restatement contains the following illustration:
A is playing golf. B, his caddie, is inattentive and A becomes angry. Intending to frighten but not to harm B, A aims a blow at him with a golf club which he stops some eight inches from B's head. Owing to the negligence of the club maker from whom A has just bought the club, the rivet which should have secured the head is defective, though A could not have discovered the defect without removing the head. The head of the club flies off and strikes B in the eye, putting it out. A is subject to liability to B for the loss of his eye.
Restatement (2d) of Torts § 16 comment a, illustration 2 (1965). While the Restatement illustration differs factually from the case at bar, the legal principles are analogous.
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987 S.W.2d 704 (1999)
337 Ark. 193
Roger HAASE, Appellant,
v.
C. Wayne STARNES, M.D., Appellee.
No. 98-1483.
Supreme Court of Arkansas.
April 8, 1999.
Larry J. Hartsfield, Little Rock, for Appellant.
Robert David Trammell, Michael L. McCarty, Little Rock, for Appellee.
ANNABELLE CLINTON IMBER, Justice.
This is the second appeal in this action for breach of express warranty.[1] The appellant, *705 Mr. Roger Haase, filed a medical malpractice action against Dr. C. Wayne Starnes. Dr. Starnes holds himself out to be a specialist in hair transplant and scalp-reduction surgery. In his complaint, Mr. Haase alleged that Dr. Starnes advertised, "We guarantee you a full, growing head of hair for the rest of your life," and "Transplants guaranteed to grow for the rest of your life." Mr. Haase also alleged that, as a result of his reliance on the advertisements, he contracted with Dr. Starnes to perform a series of hair transplants, grafts, and scalp reductions, and that during the course of the treatments, his scalp became infected, which caused a "permanent scar on his head which is incapable of sustaining transplants." He concluded by alleging that Dr. Starnes breached the "representations and warranties" contained in his advertisements.
On the day of trial, prior to impaneling a jury, Dr. Starnes orally moved to exclude any evidence pertaining to the cost of maintaining artificial hairpieces over the course of Mr. Haase's lifetime, arguing that this evidence was not the proper measure of damages for breach of warranty. The trial court granted the motion in limine and excluded the evidence. Mr. Haase then announced he could not proceed to trial without the excluded evidence and moved for an interlocutory appeal. The trial court granted the motion and entered a judgment dismissing Mr. Haase's cause of action. Citing Mr. Haase's contention that the trial court's evidentiary ruling was dispositive of the case, the judgment stated it was a final judgment pursuant to Ark. R. Civ. P. 54(b).
Although the parties did not raise the non-appealable order issue, it is well settled that it is our duty to determine that this court has jurisdiction. See Associates Fin. Servs. Co. v. Crawford County Mem. Hosp., 297 Ark. 14, 759 S.W.2d 210 (1988). For an order to be final, it must dismiss the parties from the court, discharge them from the action, or conclude their rights to the subject matter in controversy. See Ark. R.App. P. 2(a) (listing nine types of judgments, orders, or decrees from which an appeal may be taken); Doe v. Union Pac. R.R., 323 Ark. 237, 914 S.W.2d 312 (1996). Further, Rule 54(b) does not obviate the requirement of finality, but instead merely provides that a judgment which is final as to less than all of the litigants or the claims is subject to appeal in accordance with the conditions recited in the rule. See Ark. R. Civ. P. 54(b); see also John Cheeseman Trucking, Inc. v. Dougan, 305 Ark. 49, 805 S.W.2d 69 (1991).
We cannot address the arguments raised on appeal because the judgment appealed from, its recitations notwithstanding, is not a final judgment. It merely determines the admissibility of evidence pursuant to a motion in limine prior to trial. Evidentiary rulings are not appealable orders. See Story v. Hodges, 272 Ark. 365, 614 S.W.2d 506 (1981). Furthermore, we have held that an order which merely determines liability and defers a determination as to the damages is not final. See John Cheeseman Trucking, Inc., supra. In the same vein, we hold that this order, which merely determines the admissibility of evidence and defers a determination as to liability and damages, is not final. To allow an appeal at this point would only invite two more appeals where one would suffice. Fratesi v. Bond, 282 Ark. 213, 666 S.W.2d 712 (1984).
Appeal dismissed.
NOTES
[1] In the first appeal, we held that the trial court erred in granting summary judgment to Dr. Starnes because Ark.Code Ann. § 16-14-206 (1987) does not apply to actions for medical injury based on breach of express warranty where the issue is whether the medical-care provider guaranteed the results. Haase v. Starnes, M.D., 323 Ark. 263, 915 S.W.2d 675 (1996).
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32 B.R. 224 (1983)
In the Matter of Philander P. CLAXTON, III, Bankrupt.
Richard A. BARTL, Receiver in Bankruptcy, Plaintiff,
v.
Jeffrey T. TWARDY and Allen & Company, Inc. and Thomas R. Dibenedetto and J. Gerald Combs and George W. Siguler and Nella Company, Defendants.
Bankruptcy No. 79-684-A.
United States Bankruptcy Court, E.D. Virginia, Alexandria Division.
August 8, 1983.
*225 *226 Richard J. Stahl, Annandale, Va., for bankrupt.
Richard A. Bartl, Alexandria, Va., trustee in bankruptcy.
Robert O. Tyler, Alexandria, Va., for Richard A. Bartl.
Ronald L. Walutes, Annandale, Va., trustee in bankruptcy, for Watkins Corp.
John S. Stump, Fairfax, Va., for Ronald Walutes.
Jeffrey T. Twardy, Alexandria, Va., pro se.
Carl F. Bowmer, Richmond, Va., for Allen & Co., Inc., Thomas R. DiBenedetto, J. Gerald Combs, George W. Siguler and Nella Co.
MEMORANDUM OPINION
MARTIN V.B. BOSTETTER, Jr., Bankruptcy Judge.
The issues here arise on the complaint of Richard A. Bartl, Receiver in Bankruptcy[1], *227 seeking a determination by the Court that a deed of trust conveying to the defendants an interest in real property formerly held by the bankrupt, Philander P. Claxton, III ("Claxton, III") is null and void as fraudulent to creditors.
The deed of trust in controversy encumbers 5.3 acres of a land parcel in McLean, Virginia, consisting of approximately 7.3 acres, with a residence ("the property"), and of which the bankrupt was, until May 22, 1979, the record owner. On May 1, 1979, Claxton, III executed the deed of trust in favor of the defendants. Said document was recorded May 7, 1979 as a purported fifth deed of trust. Claxton, III lost title two weeks later when Clasic Homes, Inc. ("Classic") recorded a previously escrowed deed to the property. Claxton, III had executed this escrow deed on April 20, 1979, pursuant to a consent decree settling prior state court action between Classic and Claxton, III. Several creditors of Claxton, III filed an involuntary petition in bankruptcy against him on June 26, 1979, slightly more than one month following transfer of the property to Classic. Further facts will appear as they relate to the issues to be determined.
As a threshold matter, defendants have moved to dismiss this proceeding and raised a "suggestion of lack of subject matter jurisdiction" of this Court to deal with conflicting claims to the property. Defendants question whether this Court may consider a challenge to the validity of a transfer when at the time of filing of the petition in bankruptcy title to the property was no longer in the bankrupt but in Classic Homes, Inc.
Defendants argue that this Court has no jurisdiction over the property at issue because, at the time the bankruptcy petition was filed, Claxton, III was no longer the owner of the property and had no interest in it which could have been transferred by him or levied upon and sold under judicial process by creditors. Defendants argue further that the transfer of title from Claxton, III to Classic occurred under the terms of an order of a state court of competent jurisdiction and, therefore, cannot be considered fraudulent.
The Trustee in Bankruptcy responds that Section 70a of the Bankruptcy Act of 1898 ("the Act")[2] vests in the trustee title to any property transferred by the bankrupt in fraud of his creditors, and that Section 2a(7) of the Act empowers bankruptcy courts to cause the estates of bankrupts to be collected. It is the trustee's position that these two provisions of the Act demonstrate that title to property and subject matter jurisdiction are not co-extensive. Rather, the trustee argues, bankruptcy courts may examine a pre-petition transfer of property by a bankrupt to determine whether the transaction effected a fraud against creditors, issues which never arose in the state court action.
Section 70a of the Act vests in the Trustee in Bankruptcy title to all the bankrupt's non-exempt property as of the date of the filing of the petition[3]. Under subsection a(4) of Section 70, the title of the Trustee *228 extends to property transferred by a bankrupt "in fraud of his creditors." (Bankruptcy Act of 1898, § 70a(4); 11 U.S.C. § 110a(4) (repealed) (cited hereafter as "Bankruptcy Act"). See also, Bankruptcy Act, § 70a(5).)
The Act defines as fraudulent any transfer made or incurred within one year prior to the filing of a petition in bankruptcy which is either (a) made without fair consideration by a debtor who is or thereby becomes insolvent, or (b) made with actual intent to hinder, delay or defraud creditors. (Bankruptcy Act § 67d(2).) Section 67, subsection d(6), states that any such transaction "shall be null and void against the trustee. . . ." (Bankruptcy Act § 67d(6).) Section 67d(6), however, is not self-executing. Rather it requires the Trustee in Bankruptcy to act affirmatively to recover the property and bring it into the bankruptcy estate for the benefit of creditors. (4 Collier on Bankruptcy (14th ed.), ¶ 67.41[3] at 585 and cases cited therein.)[4] Defendant's argument that this Court lacks jurisdiction because at the time the petition was filed the bankrupt no longer could have transferred the property is without merit. The ancient right asserted by the Trustee in Bankruptcy derives by operation of law not from the bankrupt but from the creditors of the bankrupt and dates from the Statute of 13 Elizabeth. (Bush v. Export Storage Co., 136 F. 918 (E.D.Tenn.1904).) Under Section 70e(2), the Trustee in Bankruptcy may follow the property into the hands of anyone who may have received it. (Id.; See also, 4B Collier on Bankruptcy (14th ed.), ¶ 70.92[5] at 1067-1068.)
Section 2 of the Act confers upon the Bankruptcy Court jurisdiction over all of a debtor's non-exempt property and subsection a(7) of Section 2 expressly grants to said courts the power to "[c]ause the estates of bankrupts to be collected. . . ." (Bankruptcy Act § 2a(7).)[5] This Court could lack subject matter jurisdiction over the instant proceedings only if they did not relate in any way to the estate of the bankrupt. Claxton, III transferred the property at issue within one year of the filing of the petition, an action that rendered the transfer subject to judicial scrutiny as allegedly having been accomplished in fraud of creditors. This jurisdiction to inquire into pre-petition transfers of property is similar to the authority of bankruptcy courts hearing dischargeability matters to look behind a state court judgment to determine the nature of the debt for which judgment was entered. Matter of Pigge, 539 F.2d 369 (4th Cir.1976). Accordingly, this Court has subject matter jurisdiction to hear disputes concerning the property[6].
The Trustee in Bankruptcy also argues that defendants confuse subject matter jurisdiction with this Court's summary jurisdiction under the Bankruptcy Act. When there has been a pre-petition transfer of property by the bankrupt, the transferee may object to the summary jurisdiction of the Bankruptcy Court and demand a plenary proceeding in the District Court. (Bankruptcy Act § 2a(7).) Under Section 2a(7) and Bankruptcy Rules 712 and 915, such an objection must be raised timely, either by pre-answer motion or in the answer, whichever is served first. Otherwise the objection is waived. Defendants filed the motion on October 23, 1980, almost three *229 months after filing of the answer, or untimely.
In addition, the Court notes that defendants appear to address their objection to the exercise of summary jurisdiction over the conflicting claims of the trustee and Classic Homes rather than asserting it as to their own claim. The trustee avoided as fraudulent Claxton, III's deed of the property to Classic by an action in this Court. The parties settled the action, and this Court approved the settlement in an Order entered June 3, 1980. At minimum, the assertion that such exercise of jurisdiction was improper forms the basis for defendants' objection to this Court's jurisdiction over their claim of interest in the property.
The Bankruptcy Court may exercise summary jurisdiction regardless of objections if the Court determines that the objecting transferee's claim: (1) is not adverse to the estate (e.g., property held by an agent or bailee of the bankrupt), or (2) is only colorable (cannot be substantiated). (See, e.g., Loyd v. Stewart & Nuss, Inc., 327 F.2d 642 (9th Cir.1964).) When a potentially adverse claimant objects to summary jurisdiction, the determination of whether the claim actually is adverse is made on the facts as they existed at the time of the filing of the petition. If the Court determines that the claim was not adverse on that date the Court may exercise summary jurisdiction. (American Mannex Corporation v. Huffstutler, 329 F.2d 449 (5th Cir. 1964).
Classic was the record owner of the property on the date of filing of the petition. As such, it was an adverse claimant to the property and could have objected to summary adjudication. Classic, however, consented to this Court's jurisdiction. Defendants, who assert an objection in this separate proceeding, have no standing to challenge this Court's summary jurisdiction over Classic's claim in the former action. Accordingly, the Court finds that even if the objection to jurisdiction had been otherwise properly and timely asserted, it must be overruled.
Defendants also have filed a motion for relief from the order of this Court which avoided the transfer of the property from Claxton, III to Classic. Defendants contend that as creditors claiming an interest in the property they were necessary or indispensable parties to any action that might impair or impede their ability to protect their interest therein. In addition, defendants state that they received no notice of the proceedings which led to entry of the order and argue that this failure to notify of a proceeding which might jeopardize their interest in the property was a violation of their fundamental rights to due process. Defendants argue also that settlement terms approved in the Court's order are not in the best interest of creditors.
The trustee has responded with a motion in limine requesting a ruling that the defendants may not properly go forward with their motion for relief from the Court's Order until defendants have satisfied the Court that they were "parties" to the proceeding in which the Order was entered. In support, the trustee argues that Rule 60(b) of the Federal Rules of Civil Procedure, under which defendants made the motion, restricts relief from a judgment or order to a "party" (or his legal representative).
The requirement that one seeking relief from a judgment or order must have been a party thereto has been strictly enforced by the courts. 7 Moore's Federal Practice, ¶ 60.19, p. 241 (1982). Accordingly, defendants here have no standing to request relief from an order entered in another proceeding to which they were not parties and the Trustee's motion is granted.
Assuming, arguendo, that defendants' motion here had been properly brought, said motion still would have been denied. Defendants' argument that they were necessary parties to the dispute between Classic and the receiver is based upon Rule 719 of the Rules of Bankruptcy Procedure. Bankruptcy Rule 719(a) states, in pertinent part, that a person:
shall be joined as a party in the proceeding if (1) in his absence complete relief cannot be accorded among those *230 already parties, or (2) he claims an interest relating to the subject of the proceeding and is so situated that the disposition of the proceeding in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.
(Rule 719(a), Rules of Bankruptcy Procedure.) Bankruptcy Rule 719 is adapted from Rule 19 of the Federal Rules of Civil Procedure and for purposes of making the determination required here the relevant factors to be considered are identical.
Holders of a lien or security interest are not indispensable parties. (Air-Exec, Inc. v. Two Jacks, Inc., 584 F.2d 942 (10th Cir.1978).) Moreover, when the court can afford complete relief to those already parties and disposition of the action will not impair the absent party's ability to protect his interest, the court may proceed. (Trail Realty, Inc. v. Beckett, 462 F.2d 396 (10th Cir.1972).) In this case, the relief sought was the voiding of Claxton, III's deed to Classic, and both the receiver and Classic were before the Court. No other persons were required for the purpose of effecting that action. The effect of the order voiding Classic's deed was to return record title to the bankrupt and, by operation of law, vest that title in the receiver. This Court's order did not impair or impede defendants' ability to defend their interest. Had the Court undertaken to decide issues regarding the validity of defendants' interest in the property, such action would have impaired their ability to defend their title. The Court took no such action. In the instant proceeding, indeed, defendants have been and will be afforded a full opportunity to defend their title to and interest in the property.
The remedy, when a demand for joinder is successful, is for the Court to order the person to be joined. If for any reason the person cannot be joined, the Court may consider dismissing the action (so that the plaintiff may seek a remedy in another court), but the Court is not required to do so. In any case, failure to join a party, even a "necessary" party does not deprive a court of subject matter jurisdiction or subject the court's action to attack by other than the traditional means of appeal. Defendants had no standing to appeal this Court's order of June 3, 1980 because they were not parties to the action. Similarly, in the instant proceeding, which is a separate suit involving the same parcel of real property, defendants have no standing to attack collaterally the order entered in the prior action. As for due process, regarding the validity of their deed of trust on the property, defendants in the trial in this proceeding have had their "day in court".
Defendants assert that the failure of the trustee to provide them with notice of the hearing on approval of the settlement between the trustee and Classic was a violation of Rule 203(a)(3) of the Rules of Bankruptcy Procedure. The trustee responds that it was impossible to comply with the requirement of the Rule that notice be sent to all creditors because the bankrupt, who was resisting adjudication, had not filed the schedules listing said creditors with addresses.
Rule 203(a)(3) of the Rules of Bankruptcy Procedure requires that all creditors be given notice of any hearing on settlement of a controversy unless the Court for good cause shown directs otherwise.
The deed of trust granted by Claxton, III to the defendants was recorded prior in time to the recording by Classic of its escrow deed. Thus, this deed of trust was a lien of record and was so listed in the documents filed with the Court in connection with the settlement of the action between the trustee and Classic. Accordingly, the identity of the defendants, if not their addresses, was known to the trustee at the time of the hearing to approve the settlement. Notice to creditors was expressly waived in the order entered by the Court approving the settlement. The defendants, however, are prior lien holders. Their lien was not affected by the avoiding of the deed to Classic but remained an encumbrance *231 on the property. The defendants, therefore, were not prejudiced by the failure of the trustee to give the required notice or by the waiver of notice by the Court. Accordingly, if error occurred, it was harmless error and not grounds for granting relief from the Order entered pursuant to the hearing.
Defendants argue further that this Court had no jurisdiction to enter the order voiding Claxton, III's deed to Classic because Classic was a bona fide purchaser for value of the property. Section 67d(6) of the Bankruptcy Act protects a transferee of a bankrupt's property who is bona fide purchaser for value. The Trustee in Bankruptcy admits that Classic was a bona fide purchaser but argues that the transaction was not for "value". Rather, the trustee argues that no present consideration passed between the parties and that upholding the transaction would have permitted certain lienholders (including the defendants herein) to obtain a greater percentage of their debt than other creditors of the same class in violation of Section 67d(3) of the Act. Classic had an opportunity to defend the conveyance as a bona fide purchase for value but chose to settle the action. Regardless of the actual merits of the arguments advanced, however, defendants have no standing to challenge an order entered in another proceeding.
Accordingly, and for all the foregoing reasons, the objections of the defendants to the jurisdiction of this Court are overruled, and the motion to dismiss this proceeding based upon said objections is denied. Similarly, the motion of the defendants for relief from the Order avoiding the deed of the property from Claxton, III to Classic also is denied.
Claxton, III, the bankrupt herein, originally purchased the subject property in 1976. The sellers, Mr. and Mrs. Samuel T. Neel, took back a first deed of trust in the approximate amount of $335,000.00. Claxton, III later obtained a new first trust for $200,000.00 and the Neels then took a second trust for the unpaid balance remaining.
In December 1978, Claxton, III executed a sales contract to sell 5.3 acres of the 7.3-acre property to Classic Homes, Inc. The terms were $100,000.00 cash plus $300,000.00 under a deed of trust and note. In April 1979, apparently concerned that Claxton did not intend to convey under the contract, Classic filed suit for specific performance in Fairfax County Circuit Court. On April 20, 1979, the parties settled this suit and the Circuit Court entered a consent decree. The settlement terms, as stipulated by the parties and approved by the Circuit Court were as follows: Claxton, III could encumber the property up to a maximum of $400,000.00; Claxton, III was required to execute an escrow deed conveying to Classic the full 7.3 acres of the property, rather than only the 5.3 acres in the sales contract; in the event Claxton, III defaulted, Classic would have the right to record the escrow deed and obtain title to the entire parcel; if Classic exercised its right to record the escrow deed, it would take subject to all liens of record and assume all debts encumbering the property at that time.
During the first week of May 1979, Claxton, III placed upon the property four additional deeds of trust totalling $520,000.00. These encumbrances were as follows: a $100,000.00 deed of trust to his parents, Mr. and Mrs. Philander P. Claxton, Jr. (the "third" deed of trust), a $20,000.00 deed of trust to Edward M. Waibel (the "fourth" deed of trust), a $300,000.00 deed of trust to Allen & Co. and others (the "fifth" deed of trust); and a $100,000.00 deed of trust to Union First National Bank of Washington (the "sixth" deed of trust). Classic, upon discovering that Claxton, III had violated the terms of the consent decree by encumbering the property beyond the $400,000.00 limit, recorded its escrow deed on May 22, 1979.
During this time, Claxton, III was the chief executive officer of the Watkins Corporation ("Watkins"), of which he was also the founder. On May 10, 1979 Watkins filed a voluntary petition in bankruptcy in this Court pursuant to a resolution of the corporation's Board of Directors a few days *232 earlier. Edward M. Waibel ("Waibel"), holder of the fourth deed of trust, was the former president of Watkins. Allen & Co. and the other defendants herein, holders of the fifth deed of trust, were investors in Watkins and the consideration for the $300,000.00 deed of trust granted to them was the purchase by Claxton of Allen & Co.'s stock in Watkins.
In this action the Trustee in Bankruptcy is proceeding under Sections 60, 67 and 70 of the Bankruptcy Act. Section 60b gives the trustee power to avoid preferential transfers of property by a bankrupt; Section 67d gives the trustee power to avoid transfers made in fraud of creditors; and Section 70e gives the trustee power to avoid any transfer which is fraudulent under applicable state law. Under both Section 60 and Section 67, insolvency of the debtor at the time of the transfer is a threshold issue, an essential element which must be proved by the trustee in every case. (Bankruptcy Act §§ 60b, 67d and 70e.)
Under Section 1(19) of the Bankruptcy Act, a person is deemed insolvent "whenever the aggregate of his property . . . shall not at a fair valuation be sufficient in amount to pay his debts." (Bankruptcy Act § 1(19).) Section 67d contains its own definition of insolvency and states that a debtor "is `insolvent' when the present fair salable value of his property is less than the amount required to pay his debts." (Bankruptcy Act § 67d(1)(d).) These definitions are substantially similar, and any nuances which have been appended to one or the other by various courts over the years will not illuminate the issue in this case.
This Court has adjudicated Claxton, III a bankrupt. (Matter of Claxton, 21 B.R. 905 (Bkrtcy.E.D.Va.1982).) Adjudication alone is not conclusive of the issue of insolvency. (Gratiot County State Bank v. Johnson, 249 U.S. 246, 39 S. Ct. 263, 63 L. Ed. 587 (1919).) However, adjudication properly may be considered as evidence of insolvency. In this case, Claxton, III vigorously contested the involuntary petition, and adjudication resulted only after lengthy evidentiary hearings. Accordingly, there is little dispute that Claxton, III was insolvent on the date the involuntary petition was filed, June 26, 1979. The issue to be determined here is whether Claxton, III was insolvent six weeks earlier, during the first week of May 1979 or, under Section 67d(2)(a), whether the transfer to the defendants rendered him insolvent.
Insolvency need not be proved by direct evidence but may, and indeed often must, be proved by other facts from which the ultimate fact of insolvency may be presumed or inferred. (In re Entertainment Incorporated, 375 F. Supp. 390, 394 (E.D.Va. 1974) and cases cited therein.) Where the date of the bankruptcy petition is "near" the date of the transfer and there is no evidence of changed conditions, courts have permitted the trustee to "retroject" the financial condition of the debtor to show insolvency on the date of the challenged transfer. (Hassan v. Middlesex County National Bank, 333 F.2d 838 (1st Cir.1964); In re Great Western Biscuit Co., 85 F. Supp. 314 (S.D.Cal.1949); In re Entertainment Incorporated, supra.) The period of time over which retrojection has been approved ranges from a few weeks to several months. (In re Elmira Steel Co., 109 F. 456, 460-61 (N.D.N.Y.1901).)
Two witnesses testified at trial on behalf of the trustee. They were Richard A. Bartl, the trustee herein, and Samuel F. Neel, who, at the time of the transfer in question, was chairman of the board of the bankrupt Watkins Corporation.
Neel testified that Claxton, III, the bankrupt herein, was a shareholder, director and also the chief operating officer of Watkins. Claxton, III had held these positions for several years until about two weeks prior to the Watkins bankruptcy when, in lieu of dismissal by the board of directors, the board permitted him to resign as an officer and director. Claxton, III's resignation occurred on or about April 30, 1979, approximately one week prior to the recording of the deed of trust securing Claxton, III's note to the defendants.
Neel testified that a major factor in the Watkins bankruptcy was the discovery by *233 the board, in the late winter or early spring of 1979, that Claxton, III had failed to file proper withholding tax returns or pay withholding taxes for the corporation as far back as 1977. By the time the failure to pay was discovered, these taxes amounted to approximately $1.6-million of which more than $1-million represented trust funds payable on behalf of the corporation's employees. In addition, the corporation, which operated thirteen restaurants under a franchise from the International House of Pancakes, was in default in its payments to the franchisor, to equipment lessors and to others. Claxton, III had personally guaranteed many of these defaulted loans.
Neel testified further that the corporation had transferred on its books and records one-million shares of stock belonging to Claxton, III to two brothers named Halmos. Claxton, III had placed this stock in escrow to guarantee payment of a note for $285,000.00 which he had given to settle a lawsuit. When Claxton, III defaulted, the Halmos brothers made demand and the corporation effected the transfer. The one-million shares so transferred represented in excess of 85 percent of the outstanding stock, or a controlling interest in the corporation. Neel testified further that the transfer of shares from defendants to Claxton, III pursuant to the transaction at issue in this case had not been accomplished in the records of Watkins by the time the corporation filed for bankruptcy on May 10, 1979 but, apparently, took place at a later date. In addition, investigation by the board of directors revealed that Claxton, III had removed approximately $900,000.00 from the corporation's bank accounts.
Regarding the value of stock in Watkins, Neel testified as both an owner of shares and as chairman of the board of the corporation that "the stock was absolutely worthless in May of 1979." (Tr. at 37.)
Trustee, Richard A. Bartl, testified regarding his investigation of the collectibility of the assets which Claxton, III listed in the schedules and statement of affairs filed following his adjudication. The results of this investigation were that none of the assets listed by Claxton, III were collectible or could yield any funds to the bankruptcy estate. The claimed assets to which the trustee testified consisted of an unsecured note the obligor on which could not be found and interests in various corporations and partnerships which investigation revealed to be either defunct or not generating or likely to generate any funds. Regarding one claimed asset, that of stock in Austin Molding Corporation, the trustee testified that he had determined that Claxton, III was not and had never been a stockholder but, rather, owed money to that corporation. The trustee stated that the only asset he anticipated collecting was the real property at issue herein which Claxton, III had transferred prior to the filing of the bankruptcy petition.
Claxton, III resisted the involuntary proceeding and was not adjudicated a bankrupt until March 1980. No schedules were filed until after the order of adjudication and the trustee, accordingly, was unable to undertake the investigation of the claimed assets until the summer of 1980. The trustee testified, however, that he had keyed his investigation to the time of the filing of the petition in June 1979.
The bankrupt's schedules themselves never were formally introduced or admitted into evidence in this adversary proceeding. The trustee, however, identified the documents, which had been admitted in another complaint as part of a consolidated trial[7]. Subsequently, both during the trial and in a post-trial brief, the trustee requested the Court to take judicial notice of the bankruptcy schedules. Defendants oppose the trustee's request that the Court take judicial *234 notice of the bankrupt's schedules. Rule 201 of the Federal Rules of Evidence gives the trial court considerable discretion in this matter. (Fed.R.Evid. 201.) Certain case law, however, imposes restrictions on this discretion. The Third Circuit Court of Appeals has ruled that a court may not take judicial notice sua sponte of a bankrupt's schedules and related documents in the Court's files. (In re Aughenbaugh, 125 F.2d 887 (3rd Cir.1942).) The rationale of Aughenbaugh is that due process requires that the opposing party be apprised of what evidence is being relied on and be able to exercise his full right to cross-examine and rebut.
Defendants cite a number of other cases in which the taking of judicial notice has been disapproved because the material at issue never was introduced at the trial. In re Phippens, 4 B.R. 155 (Bkrtcy.M.D.Tenn. 1980); In re Birchminster Corp. of California, 6 B.R. 258 (Bkrtcy.E.D.Pa.1980); In re Ratmansky, 7 B.R. 829 (Bkrtcy.E.D.Pa. 1980); In re Traffic Safety Co., Inc., 21 B.R. 669 (Bkrtcy.E.D.Pa.1982). The Court notes that, with one exception, these cases arose in a jurisdiction within the Third Circuit and that the ruling courts accordingly were bound by the Aughenbaugh decision. Bankruptcy courts located in other circuits, however, have taken judicial notice of their own related court records. See, e.g. Matter of Maplewood Poultry Co., 2 B.R. 545 (Bkrtcy.D.Me.1980); Matter of Harland, 3 B.R. 597 (Bkrtcy.D.Neb.1980); In re Ponn Realty Trust, 4 B.R. 226 (Bkrtcy.D.Mass. 1980); In re Hollander, 25 B.R. 905 (Bkrtcy. W.D.Mo.1982). In appropriate cases, courts have reached beyond the bankruptcy proceedings to take judicial notice of the record in other cases involving activities of a debtor. Meyerson v. Werner, 683 F.2d 723 (2nd Cir.1982); In re D.H. Overmyer Telecasting Co., Inc., 23 B.R. 823, 927-28 (Bkrtcy.N.D.Ohio 1982).
This Court is within the jurisdiction of the Fourth Circuit. There do not appear to be any decisions of the Fourth Circuit Court of Appeals dealing with the precise issue of the extent to which a bankruptcy court may exercise its discretion to take judicial notice of the bankrupt's schedules in an adversary proceeding arising within the same bankruptcy case. In addition, the Court notes that the cases cited by the defendants all involved voluntary bankruptcy petitions in which the debtor had a vested interest in demonstrating insolvency. The opposite situation is presented here. Claxton, III was the subject of an involuntary petition and consistently sought to demonstrate solvency, rather than insolvency, throughout lengthy adjudication proceedings. (See Matter of Claxton, 21 B.R. 905 (Bkrtcy.E.D.Va.1982).) The Court further notes that the rationale of the Aughenbaugh case has been satisfied here. The trustee listed the bankrupt's schedules in his pre-trial list of exhibits which was furnished to defendants' counsel in a timely manner. The schedules themselves also were furnished pursuant to this Court's pre-trial order. Accordingly, for all the foregoing reasons, the Court takes judicial notice of the schedules filed by Claxton, III in the bankruptcy case of which this proceeding is a part.
Credibility of witnesses as to the evidentiary facts giving rise to an inference of insolvency is always an issue and one to be resolved by the trier of fact, which in the instant case is the Court. (In re Entertainment Incorporated, 375 F. Supp. 390 (E.D.Va.1974).) In addition, although the trustee bears the burden of proof initially, once the trustee has adduced testimony and other evidence from which it would be reasonable to infer the requisite insolvency, the burden of going forward may shift, obliging the defendant to come forward with rebutting evidence. (Id. at 396.)
For a debtor to be insolvent under Section 67d his debts must exceed the "fair salable value of his property." (Bankruptcy Act § 67d(1)(d).) Claxton, III's property at the time of the transfer to the defendants consisted of his remaining interest in the real property at issue herein, and the assets which he later listed on the bankruptcy schedules. Among the assets listed is stock in Watkins Corporation having an alleged *235 value of $1,475,000.00. Neel's testimony, however, showed that the one-million shares formerly owned by Claxton, III had been transferred to the Halmos brothers. This, in addition to the fact that the purchase of 125,000 shares from the defendants had not yet been recorded on the corporation's books, resulted in Claxton, III's holdings in Watkins Corporation in early May 1979 being only minimal. In any event, considering Neel's testimony and the filing of a bankruptcy petition by the corporation within a few days of the transaction between Claxton, III and the defendants, whatever shares Claxton, III held on that date had little if any value[8]. Although there was testimony that Claxton, III had withdrawn a total of approximately $900,000.00 in cash from Watkins, no time frame for the withdrawals was established, and there is no evidence that Claxton, III still had this money during the first week of May 1979. Regarding the other assets listed in the petition, with the exception of the real property, there is no evidence to suggest that these were any more collectible, and therefore "valuable" six weeks prior to the filing of the involuntary petition than they were when the petition was filed.
As to the value of the real property, Claxton, III listed the property in his schedules at $850,000.00. Salable or market value, however, generally is defined as being the amount a willing purchaser would pay for the property in an arms-length transaction. Here, Classic Homes recorded its escrow deed when it learned that Claxton, III had encumbered the property in a total amount of $820,000.00. Classic Homes could have abandoned the deal. The fact that it chose to take the property for the existing obligations indicates that $820,000.00 represents the "fair salable value" of the property as contemplated by Section 67d(1)(d).
Claxton, III's liabilities on the relevant date were substantial. The deed of trust given to the defendants was a fifth trust. Prior deeds of trust amounted to a total of $420,000.00, leaving an equity in the property of $400,000.00 before the transfer to the defendants. In the bankruptcy schedules filed with this Court, Claxton, III listed undisputed debts of $347,438.70. In addition, Claxton, III faced potential liability for the unpaid withholding taxes due from Watkins and any penalties thereon. (26 U.S.C. § 6672.) Further, Claxton, III had personally guaranteed a number of the obligations of Watkins Corporation. Watkins filed its petition less than a week after the transaction between Claxton, III and the defendants. Thus, it is reasonable to infer that Watkins already was in default in its payments to these creditors triggering Claxton, III's liability on the debts. There is no evidence in this proceeding of the amounts of these liabilities. The creditors involved, however, included the corporation's franchisor, equipment lessor and its major financiers. Lastly, Claxton, III owed Watkins the $900,000.00 he had taken from the corporation.
The Court finds the testimony of Neel and the trustee regarding Claxton, III's financial condition to be fully credible. The trustee's testimony indicates insolvency on June 26, 1979. With the exception of the transactions involving the real property, there is no evidence of changed circumstances that would preclude the Court from retrojecting said insolvent condition to the first week of May 1979. Neel's testimony regarding the unpaid taxes and other liabilities of Watkins, however, demonstrates that in early May 1979 Claxton, III's debts far exceeded his $400,000.00 remaining equity in the real property. Thus retrojection is unnecessary here.
The cumulation of uncontradicted evidence on this issue is persuasive, and the Court accordingly finds that on the date of the recording of the deed of trust to the *236 defendants Claxton, III was insolvent or became insolvent as a result of said conveyance.
Under Section 67d(2) of the Act the trustee may avoid as fraudulent any transfer by a debtor within one year of the filing of the petition if made without fair consideration by a debtor who is or thereby becomes insolvent. (Bankruptcy Act § 67d(2).) Section 67d(1) states that consideration is "fair" if property is transferred or an antecedent debt satisfied in exchange for a "fair equivalent." (Bankruptcy Act § 67d(1)(e)(1).) If security is given, what the debtor receives must not be "disproportionately small" compared to what he gives. (Bankruptcy Act § 67d(1)(e)(2).)
In the transaction at issue here, Claxton, III exchanged a $300,000.00 interest in real property for 125,000 shares of Watkins Corporation stock. The evidence adduced indicates that at the time of the conveyance to the defendant Claxton, III had equity in the real property in the approximate amount of $400,000.00, so that the deed of trust had an actual value equal to its face amount of $300,000.00. The note and deed of trust which Claxton, III signed bear the date May 1, 1979, and the deed of trust was recorded on May 7, 1979. Watkins Corporation filed a petition for liquidation bankruptcy three days later, on May 10, 1979. The bankruptcy of Watkins and the testimony of the corporation's chairman indicate that the stock which constituted the consideration for the conveyance had a value of zero.
Thomas R. DiBenedetto ("DiBenedetto"), a former vice president of Allen & Co., one of the defendants here, testified that he believed that on May 1, 1979 Watkins was an ongoing concern and that the value of the stock was commensurate with the value of the property interest conveyed by the deed of trust. DiBenedetto, who stated that he is an investment banker experienced in bankruptcy reorganizations, was also a director of Watkins and must, therefore, be charged with knowledge of the corporation's true condition. DiBenedetto admitted that his estimate of the value of the Watkins stock was contingent upon the success of a plan by Claxton, III to regain complete control of the corporation, refinance it, and make a deal with its creditors.
There is no evidence here of any antecedent debt of Claxton, III to defendants. Accordingly, the Watkins stock is the consideration which must meet the "fair equivalent" standard, with that flowing from one party not "disproportionately small" compared to that flowing from the other. (Bankruptcy Act §§ 67d(1)(e)(1)-(2).) In this transaction, Claxton, III conveyed away an interest having a value of $300,000.00 in exchange for 125,000 shares of worthless stock. The Court finds, therefore, that the transaction between Claxton, III and the defendants was without fair consideration.
The transfer herein was made by Claxton, III within one year of the filing of the bankruptcy petition. The transfer occurred without fair consideration. Claxton, III was insolvent at the time of the transfer or became insolvent as a result. In these circumstances, under Section 67d(2)(a), the transfer is deemed fraudulent as to creditors existing at the time without regard to the debtor's actual intent. Accordingly, for all the foregoing reasons, the Court finds that the deed of trust made by Claxton, III to the defendants herein is null and void ab initio as a fraudulent transfer under Section 67d(2)(a) of the Bankruptcy Act.
In this Complaint, the trustee is proceeding also under Sections 60 and 70 of the Bankruptcy Act. Under Section 60, the trustee may avoid as preferences certain transfers by a debtor in payment of antecedent debts. There is in this action, however, no evidence of any antecedent debt of Claxton, III to the defendants. Accordingly, the transfer was not a voidable preference under Section 60. Section 70e permits the trustee to avoid transfers which are fraudulent under applicable state law. Virginia's fraudulent conveyance statute is found in Section 55-80 of the Virginia *237 Code[9]. This statute, however, applies only to transfers effected "with intent to hinder, delay or defraud creditors." (1950 Code of Virginia § 55-80 (1981 Repl. vol.).) This statutory language would require the Court to make an affirmative finding of fraudulent intent on the part of the debtor. While the requisite intent may have existed, such fraud must be proved by clear, cogent and convincing evidence, and the evidence adduced does not support such a finding.
Having thus ruled, the Court finds it unnecessary to reach the additional issues raised by the parties.
An appropriate Order will enter.
NOTES
[1] Richard A. Bartl, who was receiver for Claxton, III at the inception of this complaint, is now Trustee in Bankruptcy of the estate of Claxton, III. See footnote 3, infra.
[2] The bankruptcy petition against Claxton, III was filed prior to the October 1, 1979 effective date of the Bankruptcy Code, the current Title 11 of the United States Code. Accordingly, this case continues to be governed by the former Bankruptcy Act of 1898. (Act of November 6, 1978, PL 95-598, Title IV § 403(a), 92 Stat. 2683.)
[3] This follows even when adjudication occurs much later. Once the order of adjudication is entered and a trustee appointed, the trustee's title "relates back" to the date of filing. (In re Lustron Corp., 184 F.2d 798 (7th Cir.1950); In re Diamond's Estate, 259 F. 70 (6th Cir.1919).) In the instant case, Claxton, III was the subject of an involuntary petition filed June 26, 1979. An order of adjudication was entered March 21, 1980. Claxton, III moved to vacate the order and, following further hearings, the Court denied the motion on March 8, 1982. Richard A. Bartl, Claxton, III's receiver, was appointed trustee at the first meeting of creditors held April 12, 1982. The trustee's title to the bankrupt's property however, dates from June 26, 1979. A receiver exercises the same rights during the pendency of adjudication proceedings. (Bankruptcy Act § 69; Rule 201 Rules of Bankruptcy Procedure.)
[4] Section 70e confers on the Trustee in Bankruptcy similar power to avoid any transfers which are fraudulent under applicable state law. (Bankruptcy Act § 70e.)
[5] The Supreme Court in the case of Cline v. Kaplan, 323 U.S. 97, 65 S. Ct. 155, 89 L. Ed. 97 (1944), cited by the defendant, sustained a defendant's objection to jurisdiction based on the defendant's allegation that the bankrupt did not own the property. However, this case was later overruled by Congress with the enactment in 1952 of Section 2a(7).
[6] Collier on Bankruptcy states that "subject matter jurisdiction in a bankruptcy setting, essentially goes only to the original issue as to whether the bankrupt is a proper party who may utilize the benefits of the Bankruptcy Act or who may be proceeded against as an involuntary bankrupt". (13 Collier on Bankruptcy (14th ed.), ¶ 712.05[2] at 7-179.) Therefore, once the case has been filed and is pending, disputes and proceedings "arising within that case do not raise the strict issue of subject matter jurisdiction." (Id.)
[7] This adversary proceeding, Complaint No. 5 in the Claxton, III bankruptcy, was consolidated for trial with Complaints Nos. 2 and 4. All exhibits of the trustee were stipulated into evidence in Complaints Nos. 2 and 4 but not in Complaint No. 5, the proceeding herein. Following the direct examination of the trustee, the Court ruled that the exhibits in each Complaint would be considered separately. (Tr. at 85.) Earlier, the Court had ruled that all admitted testimony of witnesses would be admitted in all three Complaints. (Tr. at 54.)
[8] Neel's testimony that the stock of Watkins was worthless is not vitiated by his admission later in the trial that he had accepted $50,000.00 for his own shares during the summer of 1979, a few months after the Watkins and Claxton, III bankruptcies. The "insider" status of the purchaser, who was Claxton, III's father, indicates that the transaction was not at arms length.
[9] Section 55-80 reads, in pertinent part:
Every gift, conveyance, assignment or transfer of, or charge upon, any estate, real or personal, every suit commenced or decree, judgment or execution suffered or obtained and every bond or other writing given with intent to delay, hinder or defraud creditors, purchasers or other persons of or from what they are or may be lawfully entitled to shall, as to such creditors, purchasers or other persons, their representatives or assigns, be void.
1950 Code of Virginia § 55-80 (1981 Repl. vol.).
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221 N.J. Super. 103 (1987)
534 A.2d 21
STATE OF NEW JERSEY, PLAINTIFF-APPELLANT,
v.
MARIANO CARRION-COLLAZO, DEFENDANT-RESPONDENT.
Superior Court of New Jersey, Appellate Division.
Argued October 6, 1987.
Decided October 29, 1987.
*105 Before Judges SHEBELL, GAYNOR and A.M. STEIN.
Steven P. Goodell, Assistant Prosecutor, argued the cause for appellant (Paul T. Koenig, Jr., Mercer County Prosecutor, attorney; Steven P. Goodell, of counsel and on the letter brief).
Bernadette DeCastro, Assistant Deputy Public Defender, argued the cause for respondent (Alfred A. Slocum, Public Defender, attorney; Bernadette DeCastro, of counsel and on the letter brief).
The opinion of the court was delivered by SHEBELL, J.A.D.
This is a case of first impression in New Jersey. The State appeals the Law Division's February 1987 granting of defendant's motion for post-conviction relief which vacated defendant's convictions and sentences and granted a new trial. The motion judge found that the State's failure to show a voluntary waiver by defendant of his right to wear civilian clothes at trial *106 was a violation of defendant's constitutional right to a fair trial under the due process clause. Defendant, Mariano Carrion-Collazo, was convicted of murder, possession of a weapon for an unlawful purpose and unlawful possession of a weapon, following a jury trial in February 1983. The New Jersey Supreme Court denied certification of our affirmance on direct appeal of defendant's convictions and sentences.
Within hours of the crime, defendant was arrested and transported to the Mercer County Detention Center from a local police station. The civilian clothes he was wearing at the time of his arrest were taken from defendant at the police station and he was dressed in "detention center greens." Collazo never again saw his civilian clothes but was told that the State was holding them "as proof against me." Collazo remained in custody for approximately seven months prior to trial, during which time his residence burned down. His "common-law wife" retained an attorney to represent him. The attorney met with Collazo at least four times while defendant was confined. Communication was through inmate-interpreters.
Several days before trial, the trial judge's secretary contacted defense counsel and asked him "to attempt to have Mr. Collazo clothed in civilian clothing for the onset of ... trial." The attorney "spoke with Mr. Collazo on Saturday [before the trial] and I told him that if his girlfriend did come by to ask her to see if she could get some clothes." The attorney testified he advised his client that
I did not consider it to be a problem if he was not able to get clothes because even if he did, it would probably be one set which he would have to wind up wearing day in and day out, and my experience is that that has roughly the same effect as someone sitting in court with prison garb on day to day.
Collazo appeared on the first day of trial dressed in detention greens. The problem was acknowledged before the jury was impanelled and defense counsel proposed that the court advise the jury that
Mr. Collazo was arrested at the time of this incident and has not made bail since that time and accordingly is wearing prison clothing because he is currently incarcerated in the detention center pending the outcome of this case and that *107 they are not to draw any inferences from the fact that he is wearing the prison greens, that he is still entitled to the presumption of innocence.
The attorney also requested the charge
so the jury understood the reason he was in prison clothing was this charge, this arrest for homicide and not some other charge that he was being brought in from another institution.
The prosecutor, concerned with potential prejudice to the State, requested that defendant be given an opportunity to get civilian clothes. In response to the prosecutor's concerns, the court stated:
We have already taken care of the first part of your request that he be given an opportunity to get clothes because this case has been specially set down for a good month, we have all known the date for a very, very long while. [Defense counsel] has discussed it with his client.
The court indicated that the matter would be handled in voir dire of the jury, to which defense counsel and the prosecutor agreed. Concerning defendant's understanding of the situation, his attorney represented to the court:
He appears to be cognizant of the nature of the problem and nature of my proposed solution. I don't think he has any difficulty with it, but if the Court wants to direct any further inquiry directly to him, I am amenable to that.
Defendant at the hearing on his post-conviction relief motion said he accepted his attorney's advice on the first day of trial to wear prison garb, and that his attorney told him prior to trial that his dress would make no difference. He further stated that he changed to civilian clothes after the first couple of days of trial based on advice from other inmates and since his girlfriend had made clothes available by that time.
At that hearing, the defendant's attorney explained that defendant's appearance in greens at trial was a strategic matter, since such garb facilitates a manslaughter defense by suggesting to the jury that "the decision you make is not the difference between this guy going to jail and going free but the difference between the number of years...." The defense attorney further stated that he saw no distinction between civilian clothes and greens in their effect on a jury, because
when you get a maximum security prisoner, he comes in in the same set of clothes every day and suddenly there is five sheriff's officers in the courtroom *108 who weren't there before, the jury looks around and, hey, like, you expect us not to know this guy is incarcerated.
To me it is not nothing more than a subtle attempt to divert the jury's attention from the truth and I never understood why. You know, in Britain you just have the defendant stand in the dock and they know he is being brought up from jail.
The attorney could not understand why "[f]or some reason the defense attorneys insist on civilian clothing in so many cases." Counsel also wanted to present his client as "a guy who was wrongfully accused...." Defense counsel further stated:
what you do in this type of case is you just let the prosecutor start and see what develops ... you just get into the case knowing you really don't have a defense but you got nothing to lose because of the plea bargain and you just wait and see what develops. [Emphasis supplied].
The Law Division judge found that no question of trial strategy existed since the unavailability of civilian clothing foreclosed any exercisable option to defendant, and that even if there were such a strategy, federal case law indicated the need for "a clear, intelligent waiver from his client since [the attorney] is taking away from him one of his constitutional rights." The judge also found the State and the trial court to be lacking in their responsibility to defendant. Drawing an analogy to the Fifth Amendment, the judge asserted:
It was the duty of the prosecutor to ask the judge to record a waiver. It was the duty of the judge to do so. It was not the defendant's duty to record it.
The motion judge concluded that there was an insufficient discussion of defendant's rights to support a waiver; only discussion of "what they were going to do since [the defendant] didn't have any civilian clothes with him." The court continued:
When I think of all the efforts which are made by a defense lawyer to grab every possible inference which will aid his client, I can't believe that he would not fight to avoid the inference which comes from appearing before the jury in prison garb. A man certainly should never suffer a life sentence in prison for want of a shirt and what you boil it down to, it is the smallest level of consideration here, it comes to that. At least, he could have been given a white shirt when he stood trial for murder.
The post-conviction relief motion was therefore granted.
We find no New Jersey case law on this subject. The trial judge, however, did not consider the United States Supreme *109 Court's opinion in Estelle v. Williams, 425 U.S. 501, 96 S.Ct. 1619, 48 L.Ed.2d 126, reh'g den. 426 U.S. 954, 96 S.Ct. 3182, 49 L.Ed.2d 1194 (1976). In Williams, defendant appeared at trial in prison garb when his request for civilian clothes was denied, but neither the defendant nor his counsel objected at any time. Id. at 502, 96 S.Ct. at 1692, 48 L.Ed.2d at 129-30. The Court held that
although the State cannot, consistent by [sic] with the Fourteenth Amendment, compel an accused to stand trial before a jury while dressed in identifiable prison clothes, the failure to make an objection to the court as to being tried in such clothes, for whatever reason, is sufficient to negate the presence of compulsion necessary to establish a constitutional violation. [Id. at 512-13, 96 S.Ct. at 1696-97, 48 L.Ed.2d at 135 (footnote omitted)].
The Court acknowledged that the presumption of innocence is "a basic component" of the right to a fair trial secured by the Fourteenth Amendment, id. at 503, 96 S.Ct. at 1692, 48 L.Ed.2d at 130, and that "[i]n the administration of criminal justice, courts must carefully guard against dilution of the principle that guilt is to be established by probative evidence and beyond a reasonable doubt." Ibid. The Court agreed that the practice of wearing prison garb "may affect a juror's judgment," "furthers no essential state policy" and "operates usually against only those who cannot post bail prior to trial." Id. at 505, 96 S.Ct. at 1693, 48 L.Ed.2d at 131. It concluded, however, that
the courts have refused to embrace a mechanical rule vitiating any conviction, regardless of the circumstances, where the accused appeared before the jury in prison garb. Instead, they have recognized that the particular evil proscribed is compelling a defendant, against his will, to be tried in jail attire. [Id. at 507, 96 S.Ct. at 1694, 48 L.Ed.2d at 132-33].
The Supreme Court appropriately noted that this approach arises from the "not ... uncommon defense tactic" of attempting to elicit the jury's sympathy by having the defendant appear in prison garb. Id. at 508, 96 S.Ct. at 1695, 48 L.Ed.2d at 133 (footnote omitted).
Whether defendant in Williams appeared in prison garb as a matter of defense tactic or indifference was not considered important since, "[i]n either case, [defendant's] silence precludes any suggestion of compulsion." Id. at 512 n. 9, 96 S.Ct. *110 at 1697 n. 9, 48 L.Ed.2d at 135 n. 9. Since in Williams, as here, no evidence was adduced indicating a policy of compulsion, id. at 510-12, 96 S.Ct. at 1695-97, 48 L.Ed.2d at 134-35, the trial judge could not be faulted
for not asking the [defendant] or his counsel whether he was deliberately going to trial in jail clothes. To impose this requirement suggests that the trial judge operates under the same burden here as he would in the situation in Johnson v Zerbst, 304 U.S. 458, 82 L. Ed. 1461, 58 S. Ct. 1019, 146 A.L.R. 357 (1938), where the issue concerned whether the accused willingly stood trial without the benefit of counsel. Under our adversary system, once a defendant has the assistance of counsel the vast array of trial decisions, strategic and tactical, which must be made before and during trial rests with the accused and his attorney. Any other approach would rewrite the duties of trial judges and counsel in our legal system. [Id. at 512, 96 S.Ct. at 1697, 48 L.Ed.2d at 135].
The fact that the accused was represented by counsel in Williams distinguished it from those cases involving "an alleged relinquishment of a fundamental right of the sort at issue in Johnson v Zerbst" where the defendant's decision to forego the fundamental right of assistance of counsel required a showing of conscious surrender of a known right. Id. at 508 n. 3, 96 S.Ct. at 1695 n. 3, 48 L.Ed.2d at 133 n. 3.
Williams overruled the voluntary waiver principle enunciated by the federal circuit court cases on which the motion judge here relied. The Court of Appeals for the Third Circuit had observed in Gaito v. Brierley, 485 F.2d 86 (3d Cir.1973) that only when as part of a trial strategy a defendant "remain[s] silent and willingly go[es] to trial in prison garb" he voluntarily waives his constitutional right and is barred from any subsequent claim of error. Id. at 88 n. 3 (emphasis added) (citing Hernandez v. Beto, 443 F.2d 634, 637 (5th Cir.), cert. den. 404 U.S. 897, 92 S.Ct. 201, 30 L.Ed.2d 174 (1971)). This principle had been confirmed in Lemons v. United States, 489 F.2d 344, 345 (3d Cir.1974). However, building on the Gaito reasoning, the Lemons court further explained that "[e]ach case must be considered in its own factual context, and, as with all rights which emanate from the Constitution, the government bears the burden of showing a voluntary waiver." Id. at 345-46 (emphasis added) (footnotes omitted).
*111 Under Williams, the federal rule of law is that where defendant is represented by counsel, a waiver of defendant's right not to be compelled to appear at trial in prison garb is implied from defendant's failure to object. See, e.g., United States v. Dawson, 563 F.2d 149, 151 (5th Cir.1977); Gray v. Estelle, 538 F.2d 1190, 1190 (5th Cir.1976); Boswell v. Alabama, 537 F.2d 100, 102-04 (5th Cir.1976). This rule is an exception to the principle that a constitutional right is not presumed to be validly waived unless made by the accused personally with his knowledge of both the right, and the consequences, of waiver. See, e.g., United States v. Williams, 631 F.2d 198, 208 & n. 20 (3d Cir.1980) (Adams, Cir. J., dissenting); United States v. Dansker, 565 F.2d 1262, 1265 n. 10 (3d Cir.1977), cert. dismissed, 434 U.S. 1052, 98 S.Ct. 905, 54 L.Ed.2d 805 (1978).
In this case there is no evidence of any policy of compulsion. Collazo was represented by counsel and neither defendant nor his attorney objected. Further, defense counsel was satisfied that defendant's appearance in prison garb was supportive of defense trial strategy. The attorney also represented to the trial court his client's awareness of the situation. Contrary to the motion judge's conclusion, the trial judge was not under then existing law obligated to make any inquiry of the defendant personally, nor was the State required to bear the burden of showing a voluntary waiver. Further, any error is rendered harmless in light of the trial judge's voir dire and instruction to the jury. R. 2:10-2; State v. Macon, 57 N.J. 325, 340 (1971).
We must, however, express our concern that certain unfortunate defendants may in the future, without regard to a tactical or strategic trial decision, suffer an erosion of their presumption of innocence due to the unavailability of civilian clothing. See Coffin v. United States, 156 U.S. 432, 15 S.Ct. 394, 39 L.Ed. 481 (1895) concerning the importance of this presumption.
*112 In New Jersey the judiciary has a "constitutional responsibility to guarantee the proper administration of justice,... and particularly, the administration of criminal justice ...," State v. Williams, 93 N.J. 39, 62 (1983). We have looked to our own State Constitution on many occasions to afford our citizens broader protection of certain personal rights than that afforded by the federal Constitution; however, we do not find it necessary to do so in these circumstances. See State v. Novembrino, 105 N.J. 95, 145 (1987); Williams, 93 N.J. at 58; Right to Choose v. Byrne, 91 N.J. 287 (1982); State v. Hunt, 91 N.J. 338 (1982); State v. Alston, 88 N.J. 211 (1981); State v. Schmid, 84 N.J. 535 (1980), appeal dismissed sub nom. Princeton Univ. v. Schmid, 455 U.S. 100, 102 S.Ct. 867, 70 L.Ed.2d 855 (1982); State v. Johnson, 68 N.J. 349 (1975). We are convinced that, even in the absence of a constitutional requirement, future criminal defendants appearing for a jury trial in prison garb should be personally questioned by the trial judge concerning their desire to relinquish the right to appear in civilian clothing and that this right should be given up only by means of a knowing, intelligent and voluntary waiver on the record before the trial judge.
Notwithstanding the fact that we are satisfied that the due process rights of a defendant can be sufficiently safeguarded, as was accomplished in the present case, even when a defendant's incarceration is apparent to the jury, by a proper voir dire of the jurors and a cautionary instruction, we believe that the interests of justice are better served by trial judges ensuring that all future defendants in this State are advised of their right to wear civilian clothing and that defendants proceed to trial in prison garb only after explicit in-court waivers. As stated in Williams:
[t]he potential effects of presenting an accused before the jury in prison attire need not, however, be measured in the abstract. Courts have, with few exceptions, determined that an accused should not be compelled to go to trial in prison or jail clothing because of the possible impairment of the presumption so basic to the adversary system. Gaito v Brierley, 485 F2d 86 (CA3 1973); Hernandez v Beto, supra; Brooks v Texas, 381 F2d 619 *113 (CA5 1967); Commonwealth v Keeler, 216 Pa Super 193, 264 A2d 407 (1970); Miller v State, 249 Ark 3, 457 S.W.2d 848 (1970); People v Shaw, 381 Mich. 467, 164 NW2d 7 (1969); People v Zapata, 220 Cal App 2d 903, 34 Cal Rptr 171 (1963), cert denied, 377 U.S. 406, 12 L. Ed. 2d 495, 84 S. Ct. 1633 (1964); Eaddy v People, 115 Colo 488, 174 P2d 717 (1946). The American Bar Association's Standards for Criminal Justice also disapprove the practice. ABA Project on Standards for Criminal Justice, Trial by Jury § 4.1(b), p 91 (App Draft 1968). This is a recognition that the constant reminder of the accused's condition implicit in such distinctive, identifiable attire may affect a juror's judgment. [425 U.S. at 504-05, 96 S.Ct. at 1693, 48 L.Ed.2d 130-31].
Moreover, when a request for civilian clothing or a precautionary voir dire or jury charge is made by a defendant or his counsel such request may not be denied. We are aware that in the more populous counties advance planning and significant expenditures will be required to implement this safeguard as some defendants will not have civilian clothing available through their own resources. We are convinced, however, that appropriate action can reasonably be taken to comply with this court's mandate, and that on balance the cost and inconvenience are fully warranted.
Although the defendant presented his entire evidence in support of his motion for post-conviction relief, the motion judge did not decide the issues of ineffective assistance of counsel and illegal sentence because of his disposition of the motion on fair trial grounds. In the interest of judicial economy we dispose of defendant's remaining contentions.
Regarding the assertions of ineffective counsel, New Jersey has adopted the two-prong test of Strickland v. Washington, 466 U.S. 668, 687, 104 S.Ct. 2052, 2064, 80 L.Ed.2d 674, 693, reh'g denied, 467 U.S. 1267, 104 S.Ct. 3562, 82 L.Ed.2d 864 (1984), requiring defendant to show that counsel's performance was deficient and that the deficient performance prejudiced the defense. State v. Fritz, 105 N.J. 42, 58 (1987). "[A] conclusive presumption of prejudice is inappropriate except in cases exemplified by egregious shortcomings in the professional performance of counsel." Id. at 61. We find no evidence in the record *114 to support a finding that trial counsel's performance was deficient or that the defense was prejudiced by defense counsel.
Defendant's argument that his sentence was illegal is clearly without merit. On initial appeal, this court found defendant's sentence to be reasonable under the statutory provisions "in force at the time the defendant committed the murder." State v. Carrion-Collazo, No. A-4108-82T4, slip op. at 7 (N.J. Super.Ct.App.Div. Jan. 24, 1986). This holding comports with the rule that a "convicted defendant may be sentenced in accordance with the penalty in effect at the time he committed the crime, even though the penalty for that crime has subsequently been reduced." State v. Glass, 171 N.J. Super. 157, 160 n. 2 (Law Div. 1979) (citing State v. Ford, 119 N.J. Super. 260, 263 (App.Div. 1972)). See also State v. Bass, 141 N.J. Super. 170, 171 (App.Div. 1976).
The order vacating defendant's convictions and sentences and granting defendant a new trial is reversed. Defendant's motion for post-conviction relief is denied.
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32 B.R. 900 (1983)
In the Matter of NOR-LES SALES, INC., a Michigan corporation, Debtor.
Bankruptcy No. 81-05549-B.
United States Bankruptcy Court, E.D. Michigan, S.D.
September 12, 1983.
*901 Stark & Reagan, P.C., Troy, Mich. by Thomas H. Finnerty, Detroit, Mich., for trustee.
OPINION
GEORGE BRODY, Bankruptcy Judge.
On September 25, 1981, Nor-Les Sales, Inc., filed a petition under chapter 11 of the Bankruptcy Code. Neal R. Sutherland was appointed trustee on October 5, 1981 by agreement between a secured creditor, Security Pacific Credit Corporation, and the debtor. The trustee retained the law firm of Stark & Reagan to represent him. A creditors' committee was appointed on October 20, 1981, and an order authorizing the committee to retain the law firm of Hertzberg, Jacob & Weingarten was entered on the same day. The creditors' committee moved to convert the chapter 11 to a chapter 7 and on November 20, 1981, an order of conversion was entered. Mr. Sutherland was appointed as interim trustee, and he retained the law firm of Stark & Reagan, the same firm that he retained when acting as trustee in the chapter 11 case, to represent him in the chapter 7 proceeding.
Mr. Thomas Finnerty, of the firm of Stark & Reagan, filed an application for compensation in the amount of $4,750 for services rendered in the chapter 11 proceeding and an application for compensation in the amount of $1,875 for services rendered in the chapter 7 proceeding. The time sheets submitted by counsel indicate that he expended 47½ hours of time in the chapter 11 proceeding and 18¾ hours of time in the chapter 7 proceeding. Actually, the time listed for the services rendered during the chapter 11 should be increased by 3 hours for time charged for attending a hearing on the creditors' committee's motion to convert and for a meeting with the trustee to review projections relative to the continued operation of the business if the case were converted. These services were performed prior to the entry of the order of conversion and prior to retention of counsel by the interim trustee. These services, if they are at all compensable, are chargeable as expenses incurred during the chapter 11 phase of the case. The applications also indicate a charge of $100 an hour for the services rendered. The fee request is a product of the hours expended multiplied by the hourly charge.
A hearing was held on December 9, 1982, and the court entered an order allowing compensation but in a reduced amount. The court did not make any specific findings of fact to justify the reduction of the fee request. Counsel appealed, and the case was remanded to the bankruptcy court to make required findings of fact.
Initially, counsel contends that since no objections were raised to the fee request, *902 the court must award the fee as requested. This argument has no merit. The burden of establishing the reasonableness of a fee rests upon the party making the request. The court has a duty, regardless of whether objections are filed, to determine if the compensation requested is or is not reasonable. York International Building, Inc. v. Chaney (In re York International Building, Inc.), 527 F.2d 1061 (9th Cir.1975); see also, In re Detroit International Bridge, 111 F.2d 235 (6th Cir.1940); In re Interstate Stores, Inc., 437 F. Supp. 14 (S.D.N.Y.1977); In re Dole Co., 244 F. Supp. 751 (D.Me.1965); In re Kentucky Electric Power Corp., 11 F. Supp. 528 (W.D.Ky.1935); In re Piedmont Development & Investment Corp., 3 Bankr. Ct.Dec. (CRR) 97 (Bankr.N.D.Ga.1976); In re Urban American Development Co., 2 Bankr.Ct.Dec. (CRR) 474 (Bankr.S.D.Iowa 1976). Such holdings reflect the clear mandate of section 330 of the Bankruptcy Code and its predecessors, section 62 of the Bankruptcy Act and Rule 219 of the Rules of Bankruptcy Procedurea mandate grounded in reality. Seldom are objections lodged to fee requests. In re Kentucky Electric Power Corp. The failure of parties in interest to oppose fee requests is not surprising. The reasons for this lack of opposition are spelled out in In re Hamilton Hardware Co., 11 B.R. 326 (Bkrtcy.E.D.Mich.) aff'd 8 Bankr.Ct.Dec. (CRR) 667 (E.D.Mich.1981). In part, the court in Hamilton Hardware observed that:
The Bankruptcy Bar is a relatively closed society. The same attorneys generally appear in varying capacities in almost all substantial chapter 11 cases. Such continuing association fosters a club atmosphere which militates against effective client representation in matters relating to compensation. The court, thus, is faced with the difficult and delicate task of fixing fair and just compensation without the input of those who are in the best position to evaluate the fee request.
11 B.R. at 330 n. 1. Thus, the ultimate responsibility to assure that fees do not exceed the bounds of reasonableness rests, as it must, with the court.
An attorney is entitled to reasonable compensation based on the time, nature, extent and value of the services rendered. 11 U.S.C. § 330. The amount to be allowed is left to the sound discretion of the court. In re Urban American Development Co. This discretion, however, must be reasonably exercised. The compensation awarded should be adequate to provide an incentive for competent and able lawyers to participate in bankruptcy proceedings and to insure efficient case administration. However, courts are not at liberty to indulge in the luxury of "vicarious generosity" by awarding more than a fair and reasonable fee. In re Owl Drug Co., 16 F. Supp. 139, 142 (D.Nev.1936), aff'd sub nom. Cohn v. Edler, 90 F.2d 823 (9th Cir.1937); In re York International Building, Inc.
Each of the fee requests of counsel will be considered separately in light of these principles.
The court will first consider counsel's application for compensation for representing the chapter 11 trustee. The basic factors courts have considered in evaluating a fee application are: "the time spent, the intricacy of the questions involved, the size of the estate, the opposition encountered, [and] the results obtained." In re Paramount-Merrick, Inc., 252 F.2d 482, 485 (2d Cir. 1958); In re Owl Drug Co. Courts have additionally considered other factors such as the "undesirability of the case," "the nature and length of the professional relationship with the client," "the preclusion of other employment by the attorney due to the acceptance of the case," "whether the fee is fixed or contingent," and "awards in similar cases. Johnson v. Georgia Highway Express, 488 F.2d 714, 718-19 (5th Cir.1974). It is questionable whether these additional factors have any significant impact in the fee analyzation process.
The point of departure for evaluating a reasonable fee is to determine the number of hours reasonably expended on necessary services and to multiply such hours by a reasonable hourly rate. "This calculation provides an objective basis on which to make an initial estimate of the *903 value of a lawyer's services." Hensley v. Eckerhart, ___ U.S. ___, ___, 103 S. Ct. 1933, 1939, 76 L. Ed. 2d 40 (1983).
[A]n analytical approach, grounded in the number of hours expended on the case, will take into account all the relevant factors, and will lead to a reasonable result. The number of hours of work will automatically reflect the "time and labor involved," "the novelty and difficulty of the question," and "preclusion of other employment." The attorney's normal hourly billing rate will reflect "the skill requisite to perform the legal services properly," "the customary fee," and the "experience, reputation and ability of the attorney."
Northcross v. Board of Education of Memphis City Schools, 611 F.2d 624, 642-43 (6th Cir.1979) cert. den. 447 U.S. 911, 100 S. Ct. 2999, 64 L. Ed. 2d 862 (1980). However, an attorney is not entitled to compensation for all services that he performs. To justify an award of compensation, the services rendered must be legal; they must be necessary; and they must relate to the scope and duties of the entity by whom counsel was retained.
A review of the chapter 11 fee application reveals that a significant amount of time charged by counsel is clearly noncompensable. Counsel requests compensation for a 3¾ hour meeting he attended on October 21, 1981, with the trustee, the attorney for the debtor and attorney for the creditors' committee to discuss "the operation and function of the trustee and the creditors' committee." The duties of a trustee and the role of a creditors' committee are spelled out in the Code. §§ 1103, 1106. Undoubtedly, questions may arise as to whether the trustee or the creditors' committee may be charged with the performance of a particular function. However, no evidence establishes that a problem existed which required discussion. Even a general discussion of the role of a trustee and creditors' committee in a chapter 11 case should not require a 3¾ hour meeting. Moreover, an attorney is not entitled to compensation for time spent in discussing abstract legal questions. An estate cannot be compelled to pay for counsel's private educational seminars.
The time sheets indicate that counsel attended a 4-hour meeting with the trustee, the principals of the debtor and the debtor's counsel on October 14, 1981 to discuss whether the business should be operated or converted to chapter 7 and the assets sold. A trustee when appointed has a duty to investigate "the operation of the debtor's business and the desirability of the continuance of such business." § 1106(a)(3). Whether a business should be continued or terminated involves a business judgment. The trustee appointed had an extensive business background. He has served as a receiver in chapter XI Bankruptcy Act cases and as trustee in chapter 11 Code cases. He was appointed because of his expertise. He was retained to make this business judgment and he had the expertise to do so. Counsel for the trustee had no role to play in this determination. Counsel was retained to perform legal services for the trustee, not to perform services that a trustee was appointed to perform. An attorney is not entitled to compensation for frolicking at his whim and fancy in unassigned pastures. He is not the alter ego of the trustee, and he is not to be compensated for the duties that the trustee is required to perform. Cle-Ware Industries, Inc. v. Sokolsky (In re Cle-Ware Industries, Inc.), 493 F.2d 863 (6th Cir.1974) cert. den. 419 U.S. 829, 95 S. Ct. 50, 42 L. Ed. 2d 253 (1974); In re Eureka Upholstering Co., 48 F.2d 95 (2d Cir.1931); Finn v. Childs Co., 181 F.2d 431 (2d Cir.1950); In re Leader International Industries, Inc., 2 Bankr.Ct.Dec. (CRR) 588 (Bankr.E.D.Mich.1976) aff'd No. 4-91206-B (E.D.Mich. Dec. 14, 1976), aff'd No. 4-91206-B (6th Cir. Dec. 29, 1978). Once the trustee makes a decision to terminate, he may have the need for services of counsel to enforce that decision; but until that decision is made, the trustee has no demonstrable need for counsel.
For similar reasons, counsel is not entitled to compensation for the 2½ hour meeting he attended on November 5, 1981, with *904 the secured creditors and the debtor to discuss the status of the case and the prospects for rehabilitation.
Counsel also requests compensation for attending 3 meetingsa 5½ hour meeting on October 21, 1981, a 4-hour meeting on November 4, 1981, and approximately 3¾ hours for a meeting on November 18, 1981meetings attended by the debtor, counsel for the debtor, the creditors' committee and counsel for the committee to discuss the prospects for successful operation and presumably to decide whether the operation of the business should be continued or whether the case should be converted to a chapter 7 case. The attendance of counsel at these meetings served no purpose. To insure that the rights of unsecured creditors are adequately protected, section 1102 requires that the court appoint an unsecured creditors' committee as soon as practicable after the entry of an order for relief. The creditors' committee was represented by experienced, competent and conscientious counsel. The trustee's attendance at the meeting was necessary. He undoubtedly had factual information which was pertinent to the creditors' committee's inquiryinformation that he was required to provide to the committee by the express direction of section 1106(a)(4)(B). He was not present at the hearing in any adversary posture. He did not have any need for legal assistance at those meetings. Unlike a trustee, the members of a creditors' committee are not chosen because of their expertise, nor are they compensated for their services. They are members of the committee because they are creditors who are willing to serve. To enable them to carry out their obligation to protect the creditors they represent, they obviously have need for legal advice. Unless they are represented by competent counsel, the rights of the creditors whom they represent will not be fully protected. To the extent that the committee required legal assistance in determining an appropriate course of action, such advice was available to them from their retained counsel. The committee had no need to solicit the advice of the attorney for the trustee.
Counsel also claims compensation for 2 hours and 25 minutes of time spent attending a hearinga hearing that lasted less than 15 minutesconcerning the creditors' committee's motion to convert the chapter 11 case. Counsel is not entitled to compensation for his attendance at that hearing. The motion was brought by the creditors' committee. The only necessary parties at that hearing were the debtor and the creditors' committee and their respective counsel.
Not only was the time spent in attending the creditors' committee meetings and the hearing on the motion to convert unnecessary, it was duplicative of time charged by counsel for the creditors' committee, whose presence was required at these meetings. "The time of two . . . lawyers in a courtroom or conference when one would do, may obviously be discounted." Johnson, 488 F.2d at 717. See, also, In re Cle-Ware Industries, Inc. A debtor in financial difficulty is not to be burdened with unnecessary and duplicative costs. The sin of unnecessary and duplicative services is that they do not benefit the debtor or creditors. To burden the debtor with such costs materially lessens the ability of such a debtor to survive. If such unnecessary charges are allowed, reorganizations will "inure to the benefit, not of the distressed debtor and its creditors, but only to those engaged in saving it." Pennish v. A. Herz, Inc., 81 F.2d 511, 512 (7th Cir.1936).
On November 19, 1981, counsel lists time spent discussing with the trustee, counsel for the debtor, and counsel for the creditors' committee the desirability of operating the debtor after conversion of the case. After conversion of a chapter 11 case, it may be desirable to continue operations for a limited time, if such operations will be of benefit to the estate. The determination of whether a debtor should continue to operate involves a business judgment for the trustee to make. Counsel has no duty to become involved in this decisional process. Such services are clearly not compensable. "[N]othing in the Bankruptcy [Code] permits *905 attorneys to be compensated for services ordinarily performed by [trustees]." Cle-Ware Industries, Inc., 493 F.2d at 878. Courts have consistently admonished that "there should be much hesitation about compensating such wasteful labor." Finn, 181 F.2d at 436.
Counsel also lists an hour of time on November 19, 1981, spent with the trustee to discuss his possible testimony on the motion to convert. The trustee was merely a witness. The contest was between the debtor and the creditors' committee. The only role of the trustee was to testify as to facts which were relevant to the motion. No need existed for him to review his testimony with his attorney.
Counsel also has charged time for a conference with the trustee on November 16, to discuss the liquidation of assets of the estate in the event of conversion. The liquidation of assets is clearly a function of the trustee and not of counsel. As the Second Circuit observed:
In conclusion, we cannot ignore the curious notion which this application discloses, that an attorney can recover for what are not legal services at all. For example, in the petition at bar are items for arranging for the sale of assets. . . . The implication behind these claims is that the receiver's attorney may recover, as for legal services, for discharging the duties of the receiver himself.
In re Eureka Upholstering Co., 48 F.2d at 96.
On October 7 and October 8, 1981, counsel charged time for drafting an order to appoint himself as attorney for the trustee, for drafting an application and order to open a bank account for the trustee, and for drafting changes with respect to this application and order. Time spent in drafting an order for one's own appointment is noncompensable. The order appointing a trustee directs that the trustee open bank accounts in his name. A separate order with respect to bank accounts was totally unnecessary. Moreover, the court records do not reflect that any such order was entered; nor does counsel have any evidence that any such order was submitted to the court.
Deducting the hours for unnecessary and duplicative services, counsel is entitled to compensation for approximately 23 hours of services rendered. Counsel has requested that the court compensate him at the rate of $100 an hour for services rendered. However, the simple mathematical exercise of multiplying attorney's hours by an hourly rate, while a legitimate starting point for analysis, does not end the matter. Hensley. The reasonable rate of compensation justifiably may differ for different activities. In re Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir.1973). Not all services are necessarily properly billable at the established hourly rate. Routine and ministerial services are to be compensated at a lower rate than purely legal services irrespective of the experience and competency of the attorney who performs them.
[W]ithin the purely legal classification, there are different classifications, having to do with relative difficulty, complexity and degree of legal applications, knowledge, experience and/or intensity or persistence. For instance, litigation, research, preparation of settlements, agreements, documents, seem to this court to require a greater degree of legal talents or specialization and to be of greater value to the estate than conferences with debtor's representatives and other parties, actions of pacification of creditors, letters and telephone responses to inquiries of parties in interest, reporting and informational services to creditors and the court, routine review of claims and supportive legal documents. . . .
In re Piedmont Development & Investment Corp., 3 Bankr.Ct.Dec. (CRR) at 101.
All of the compensable services were largely routine. They consisted of attending meetings with the trustee, drafting of routine orders, drafting and reviewing letters, and providing information to creditors. The application does not disclose any significant accomplishment by counsel. Not only were the services rendered routine, but the *906 time charged for at least some of the services is patently excessive. The time sheets list 17 telephone calls. Each call was assigned arbitrarily a time factor of 15 minutes. Rarely does a telephone call, absent unusual circumstances, last 15 minutes. Counsel has not established the existence of unusual circumstances to justify the arbitrary charge.
Based upon the foregoing analysis, counsel would be entitled to a fee of less than $2,300. However, the court has previously fixed the fee for the services rendered in the chapter 11 proceeding in the amount of $2,500. No purpose would be served at this time for modifying that allowance.
The court will now consider the application of counsel for compensation for services rendered to the chapter 7 trustee.
The charge of 2½ hours for services rendered on November 19, 1981, as previously indicated, is properly applicable to services rendered for the chapter 11 trustee and, therefore, must be excluded from the chapter 7 application in considering counsel's award. The application also requests compensation for 4½ hours of unrecorded administrative time (estimated at ½ hour per week for 9 weeksOctober 7, 1981 through December 7, 1981). An attorney who files an application for fees "bears the burden of establishing entitlement to an award and documenting the appropriate hours expended and hourly rates." Hensley, ___ U.S. at ___, 103 S.Ct. at 1941. An attorney who expects compensation for services rendered is required to keep accurate and current records of work done and time spent. Id. See also, In re National Accessories, Inc., 13 F. Supp. 278 (D.Neb. 1936).
[He] must submit to the court a detailed record of the time spent on the case and the duties performed. . . .; [B]ills which simply list a certain number of hours and lack such important specifics as dates and the nature of the work performed during the hour or hours in question should be refused.
King v. Greenblatt, 560 F.2d 1024, 1027 (1st Cir.1977) cert den. 438 U.S. 916, 98 S. Ct. 3146, 57 L. Ed. 2d 1161 (1978). "There is no excuse for an established law firm to rely on estimates made on the eve of payment . . . unsupported by daily records. . . ." In re Hudson & Manhattan Railroad Co., 339 F.2d 114, 115 (2d Cir.1964).
Appointees of the court, whether receiver, trustee, or attorney, must expect their claims to be closely scrutinized by the debtor, the creditors, and by the court, and they should be meticulous in keeping accurate accounts of the various items and elements which go to making up their claim. It will not do to state in a general way services performed, and then ask a bulk allowance.
In re National Accessories, Inc., 13 F.Supp. at 281. Counsel has not established entitlement to an award for the 4½ hours of estimated time.
The application also discloses that counsel has charged approximately 4 hours for 15 telephone calls. Each of these calls was arbitrarily assigned a time factor of 15 minutes. For the reason previously set forth, this charge is excessive. The services provided by counsel to the chapter 7 trustee consisted essentially of drafting an order to permit the trustee to continue limited operations during the chapter 7 proceeding and working out an agreement with the secured creditor to finance that limited operation. Compensation is awarded for the services rendered to the chapter 7 trustee in the amount of $1,000.00.
After the remand, counsel filed an additional claim for compensation for the time spent in prosecuting his appeal. The appeal was clearly improvident. The proper procedure for counsel to have taken was to move for a rehearing and request that the court make specific findings of fact to enable the district court to review the bankruptcy court's order. The appeal without following this procedure was fruitless. Counsel, therefore, is not entitled to compensation for taking the appeal. See In re J.V. Knitting Service, Inc., 22 B.R. 543 (Bkrtcy.S.D.Fla.1982). Moreover, even if counsel had taken all the preliminary steps *907 necessary to insure that the appeal was not improvident, he would not be entitled to the expenses incurred in prosecuting the appeal. The law generally imposes on a party the duty to pay his own fees and expenses in vindicating his own personal interests. Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 95 S. Ct. 1612, 44 L. Ed. 2d 141 (1975). This general rule is also applicable where a court appointed officer appeals his compensation award. United States v. Larchwood Gardens, Inc., 420 F.2d 531 (3d Cir.1970). Expenses and costs in defending the allowances of court appointed officers on appeal are not proper charges against the estate. Id. To hold that these expenses and costs were compensable would inhibit judges from performing their duly mandated obligation to protect estates from depletion by excessive compensation demands and would "unduly chill the legitimate right" of parties in interest to question any compensation request. Id. at 534. Officers appointed to protect the estate are not to be permitted to burden it with costs and expenses incurred in vindicating their personal interests.
An order consistent with this opinion will be entered.
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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/1533280/
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534 A.2d 919 (1987)
In re James D. HUTCHINSON, Respondent.
No. 85-53.
District of Columbia Court of Appeals.
Reargued en banc May 15, 1987.
Decided December 4, 1987.
John M. Bray, with whom Judah Best and Charles J. Landy were on brief, for respondent.
Michael S. Frisch, Asst. Bar Counsel, with whom Thomas H. Henderson, Jr., Bar Counsel at the time the brief was filed, was on brief, for petitioner, the Office of Bar Counsel.
Joan L. Goldfrank, Executive Atty., for Board on Professional Responsibility.
Before PRYOR, Chief Judge, MACK, NEWMAN, FERREN, BELSON, TERRY, ROGERS, and STEADMAN, Associate Judges, and NEBEKER, Associate Judge, Retired.[*]
TERRY, Associate Judge:
In this disciplinary case, the Board on Professional Responsibility ("the Board") found that respondent Hutchinson's untruthful testimony before the Securities and Exchange Commission (SEC) in February 1982 was conduct involving moral turpitude that adversely reflected on his fitness to practice law, in violation of Disciplinary Rule (DR) 1-102(A)(3); conduct involving dishonesty and misrepresentation, in violation of DR 1-102(A)(4); and conduct prejudicial to the administration of justice, in violation of DR 1-102(A)(5).[1] The Board also found that Hutchinson's disclosure of certain material non-public information relating to a tender offer, which resulted in a misdemeanor conviction under 15 U.S.C. *920 § 78ff(a) (1982) and 17 C.F.R. § 240.14e-3(d) (1983), amounted to "statutory fraud" and was therefore a separate violation of DR 1-102(A)(4). The Board recommended that Hutchinson be suspended from the practice of law for one year.
A division of this court held that the Board had erred in concluding that the conduct which served as the basis for his misdemeanor conviction amounted to "statutory fraud." After considering the nature of Hutchinson's disciplinary violations in light of all the relevant factors, the division rejected the recommended sanction of the Board and imposed instead a suspension of six months, relying primarily on In re Reback, 513 A.2d 226 (D.C.1986) (en banc), in which a six-month suspension had also been imposed. In re Hutchinson, 518 A.2d 995 (D.C.1986) ("Hutchinson II").
Both Bar Counsel and the Board filed petitions for rehearing en banc, and on March 10, 1987, we entered an order granting those petitions and vacating the division opinion. In re Hutchinson, 521 A.2d 676 (D.C.1987). Having reheard the case en banc, we adopt the holding of the division that Hutchinson's misdemeanor conviction did not involve "statutory fraud." On the question of sanction, however, we now conclude that the appropriate sanction is a suspension for one year.
I
Hutchinson was a partner in a large Washington law firm, where his specialty was pension law. His practice did not involve securities law, but he did trade extensively in securities on his own account.
On January 21, 1982, Hutchinson received a telephone call from a close friend, a California attorney named William Chadwick, who told Hutchinson that he believed a tender offer was about to be made for the Brunswick Corporation. Chadwick said that he had invested in Brunswick, recommended that Hutchinson invest in it also, and offered to split any profits or losses if Hutchinson decided to buy Brunswick stock. When Hutchinson pressed for details, Chadwick said that he believed he did not have inside information and that his broker had verified this. Chadwick told Hutchinson that his conclusions about Brunswick were based on cocktail-party conversations and on independent analysis by him and a friend, whose identity he did not then disclose.
Within five minutes after talking with Chadwick, Hutchinson purchased forty Brunswick call options. The next day he bought one hundred more options through the same broker and attempted (unsuccessfully) to buy yet another fifty through a second broker in Florida. He also decided to pass along the recommendation to invest in Brunswick to another friend, Robert Chaloupka. Hutchinson first tried to call Chaloupka on Friday, January 22, but he was unable to reach him until Monday morning, January 25. By then trading in Brunswick stock had been suspended, although Hutchinson did not know this at the time. Chaloupka never bought any Brunswick stock or options.
On Monday, January 25, the Whittaker Corporation publicly announced its takeover of Brunswick, and trading in Brunswick stock was temporarily suspended. On the same day, an SEC attorney called Hutchinson's office to ask whether his law firm represented either Brunswick or Whittaker. Hutchinson was out of the office, but through his secretary he later sent word to the SEC attorney that his firm represented neither company. On January 26 Hutchinson himself called the SEC attorney and confirmed this. During that call he was asked to participate in an informal SEC inquiry and to answer questions about his personal trading in Brunswick options, and he agreed to do so.
The next day, January 27, Hutchinson called Chadwick to tell him that he had agreed to testify before the SEC about his Brunswick trading. Chadwick then told Hutchinson, for the first time, that his information about Brunswick had come not from his own analysis or that of his broker but from Martin Cooper, an officer of a Los Angeles bank in charge of the Whittaker account (the unidentified "friend" mentioned in the first telephone call). Chadwick said that both he and Cooper would be *921 "sunk" if Hutchinson revealed their January 21 conversation to the SEC because the information from Cooper would undoubtedly be regarded as inside information, and trading on it would constitute insider trading, which is illegal. After some discussion, Hutchinson agreed to lie to the SEC about the nature and source of his information about Brunswick if he was asked about it.
Hutchinson was deposed under oath by the SEC staff on February 2, February 16, March 29, April 1, and April 30, 1982. At the first two meetings, at which he was not represented by counsel, Hutchinson denied that he had discussed his purchase of Brunswick options with Chadwick or with anyone other than his own broker and denied that he had recommended the purchase of Brunswick stock to anyone else. He also said that he first learned of the tender offer for Brunswick from his broker on January 25, the date of the public announcement by Whittaker of the takeover bid. He denied having had any information before January 25 that a tender offer might be made for Brunswick. He told the SEC investigators that his sudden interest in Brunswick had resulted from his own research in the financial press and his personal strategy of purchasing low-priced options on stock which had recently traded at or below the option price.
Sometime between February 2 and February 16, Hutchinson unsuccessfully tried to convince Chadwick to agree to let him tell the truth to the SEC. Finally, on March 12, Hutchinson met with Chadwick and Chadwick's attorneys, and all of them agreed that Hutchinson and Chadwick would both contact the SEC and tell the whole truth. After that meeting, Hutchinson for the first time retained his own counsel, who got in touch with the SEC and made arrangements for Hutchinson to correct and supplement his earlier statements.
At the depositions in March and April, Hutchinson recanted his prior testimony and testified truthfully about his conversations with Chadwick, his agreement with Chadwick to lie to the SEC, and his efforts to relay the advice about Brunswick to Robert Chaloupka. In addition, on April 29, 1982, he voluntarily deposited all the profits he had made from trading in Brunswick options into an escrow account.
The SEC then brought a civil enforcement action against Hutchinson, Chadwick, and Cooper in the United States District Court for the Central District of California. In that proceeding, without admitting or denying the allegations in the SEC's complaint, Hutchinson agreed in a consent order to surrender the profits he had made (approximately $72,000) from his trading in Brunswick securities. This money was eventually distributed to other sellers of Brunswick options. The consent order, which was entered on July 15, 1982, also provided for certain injunctive relief against Hutchinson.
About a year later,[2] in the United States District Court for the District of Columbia, Hutchinson was convicted of a criminal violation of the federal securities laws. An information filed by the United States Attorney charged him with a misdemeanor under 15 U.S.C. § 78ff(a) (1982), the penalty section of the Securities Exchange Act of 1934 ("the 1934 Act"), and 17 C.F.R. § 240.14e-3(d) (1983), which, broadly speaking, prohibits the communication of inside information about tender offers. On July 28, 1983, Hutchinson pleaded guilty and was fined $10,000.
The subsection of the regulation which Hutchinson was charged with violating, subsection (d), does not prohibit the purchase or sale of securities. Rather, it makes unlawful the communication of "material non-public information relating to a tender offer to any other person under circumstances in which it is reasonably foreseeable" that the other person will purchase or sell securities in the company which is the subject of the tender offer. Thus the criminal case against Hutchinson was based not on his personal trading in Brunswick options (as was the civil action in the Central District of California) but on his communication to Chaloupka of the impending *922 tender offer for Brunswick. Furthermore, Hutchinson was convicted and sentenced under that portion of 15 U.S.C. § 78ff(a) which permits only a fine as punishment when the defendant proves that he had no knowledge of the regulation he was violating.[3]
II
On November 28, 1983, Bar Counsel filed a petition instituting formal disciplinary proceedings against Hutchinson. Some time before that, when a copy of the misdemeanor conviction was filed with this court, we ordered the immediate suspension of Hutchinson from the practice of law, concluding that he had been convicted of a "serious crime" within the meaning of Rule XI, section 15 of our Rules Governing the Bar.[4] Hutchinson moved for reconsideration, and after full briefing and oral argument, we granted the motion and ruled that the misdemeanor at issue was not per se a serious crime, so that immediate suspension of Hutchinson was not required under the rule. In re Hutchinson, 474 A.2d 842 (D.C.1984) ("Hutchinson I"). We remanded the case to the Board for further proceedings under D.C.Bar R. XI, § 15(5).
After an evidentiary hearing, a hearing committee of the Board concluded (1) that Hutchinson's trading in Brunswick securities did not violate any Disciplinary Rule; (2) that neither Hutchinson's communication to Chaloupka nor the misdemeanor conviction based on that communication constituted a violation of any Disciplinary Rule; and (3) that Hutchinson's false statements to the SEC lawyers amounted to (a) conduct involving moral turpitude that adversely reflected on his fitness to practice law, in violation of DR 1-102(A)(3),[5] (b) conduct involving dishonesty and misrepresentation, in violation of DR 1-102(A)(4), and (c) conduct prejudicial to the administration of justice, in violation of DR 1-102(A)(5).[6] The hearing committee recommended that Hutchinson be suspended from the practice of law for one year.
The Board adopted all of the hearing committee's conclusions as its own, with one exception. Contrary to the hearing committee, the Board ruled that Hutchinson had been convicted of what it called "statutory fraud," and that the conduct underlying the conviction amounted to a separate, additional violation of DR 1-102(A)(4). The Board also recommended a one-year suspension.
III
Hutchinson asserts that the Board erred in its conclusion that DR 1-102(A)(4), which prohibits an attorney from engaging in conduct involving fraud, was violated by the conduct which led to his misdemeanor conviction. We agree.
In its report the Board stated:
*923 Whether Hutchinson knew it or not, his conversation with Chaloupka was statutory fraud. That is, federal law makes it fraud, even though Hutchinson may have actually and honestly believed he was acting lawfully. Since DR 1-102(A)(4) prohibits an attorney from engaging in conduct involving fraud, and since Hutchinson's communication with Chaloupka and his conviction definitionally involved fraud, we find a violation. [Emphasis added.]
Thus the Board held that Hutchinson's conduct violated DR 1-102(A)(4) because the crime of which he was convicted necessarily involved fraud. That ruling was flatly contrary to our decision in Hutchinson I, supra. In that case we refused to characterize the crime of which Hutchinson was convicted as a "serious crime"[7] precisely because it did not necessarily involve fraud or deceit. We held:
Crucially, no intent of any kind is required in order to be convicted; a negligent communication is sufficient. Therefore, since the components of the definition of a serious crime relevant to this case are all intentional acts, such as fraud and deceit, and intent is not a necessary element of the crime of which respondent was convicted, respondent's offense cannot be deemed a serious crime under Rule XI, § 15(2).
474 A.2d at 845. The Board's conclusion that the conviction "definitionally" involved fraud is in direct conflict with Hutchinson I.
Bar Counsel argues that the Board's conclusion on this issue should be upheld because one of the elements of the offense to which Hutchinson pleaded guilty is the reasonable foreseeability "that the communication is likely to result in a fraudulent, deceptive, or manipulative act or practice in violation of the regulation." Id. at 844-845. This argument ignores the very next sentence in Hutchinson I, which said that "no intent of any kind is required in order to be convicted; a negligent communication is sufficient." Id. at 845. Furthermore, to violate DR 1-102(A)(4), the respondent himself, not someone else, must "[e]ngage in conduct involving ... fraud." The reasonably foreseeable consequence of the communication was not some further action by Hutchinson himself; rather, it was the anticipated conduct of the person to whom the disclosure was made in this instance, Mr. Chaloupka.
Although he may have been suspicious, Hutchinson did not have actual knowledge that Chadwick's investment tip had an illegitimate source when he called Chaloupka and recommended that he invest in Brunswick. In fact, Hutchinson specifically asked Chadwick whether his advice was based on inside information, and Chadwick assured him that it was not. He did not learn otherwise until two days after his conversation with Chaloupka. The record also shows indeed, there is no dispute that Hutchinson had no knowledge of the regulation and therefore no knowledge that his communication with Chaloupka was unlawful. Without actual knowledge that the information he possessed was inside information, we conclude that Hutchinson's conduct in advising Chaloupka to purchase some of the Brunswick stock did not necessarily involve dishonesty, fraud, deceit, or misrepresentation. We therefore cannot accept the Board's conclusion that "[w]hether Hutchinson knew it or not, his conversation with Chaloupka was statutory fraud ... even though Hutchinson may have actually and honestly believed he was acting lawfully." On this point the hearing committee was correct. In the absence of affirmative proof of a fraudulent intent or state of mind, we hold that Hutchinson's misdemeanor conviction did not establish a violation of DR 1-102(A)(4).
IV
Hutchinson strongly contests the one-year suspension proposed by the Board. He maintains that the Board did not sufficiently take into account the mitigating factors present in this case and that the Board's recommended sanction would foster a tendency toward inconsistent dispositions *924 for comparable conduct. He urges us to impose only a minimal suspension, if we decide that any suspension is warranted at all. We conclude that the appropriate sanction is a suspension for one year.
D.C.Bar R. XI, § 7(3), requires this court to "adopt the recommended disposition of the Board unless to do so would foster a tendency toward inconsistent dispositions for comparable conduct or otherwise would be unwarranted." Although the rule makes clear that the choice of a sanction rests with the court, not the Board, it also directs us to give considerable deference to the Board's recommendation.
[T]he rule endorses the Board's exercise of broad discretion in handing out discipline that is subject only to a general review for abuse in that discretion's exercise. The rule requires that we enforce a general sense of equality in the sanctions handed out, but it otherwise commands that we should respect the Board's sense of equity in these matters unless that exercise of judgment proves to be unreasonable.
In re Haupt, 422 A.2d 768, 771 (D.C.1980); accord, In re Hines, 482 A.2d 378, 386 (D.C.1984); In re Smith, 403 A.2d 296, 303 (D.C.1979).
"In order to determine what discipline is appropriate under the circumstances, we must assess [Hutchinson's] violations in the light of all relevant factors." In re Reback, supra, 513 A.2d at 231. Those factors include "the nature of the violation, the mitigating and aggravating circumstances, [and] the need to protect the public, the courts, and the legal profession," In re Haupt, supra, 422 A.2d at 771, as well as "the moral fitness of the attorney," to the extent that we can discern it. In re Smith, supra, 403 A.2d at 303. Ultimately, however, "[w]ithin the limits of the mandate to achieve consistency, each case must be decided on its particular facts." In re Haupt, supra, 422 A.2d at 771; accord, In re Hines, supra, 482 A.2d at 386; In re Smith, supra, 403 A.2d at 303. "In all cases, our purpose in imposing discipline is to serve the public and professional interests we have identified, rather than to visit punishment upon an attorney." In re Reback, supra, 513 A.2d at 231 (citations omitted).
Looking to the relevant factors in this case, we find the nature of the violation quite serious. Lying to an agency of the federal government is a felony under the laws of the United States, punishable by imprisonment for five years or a fine of $10,000, or both. 18 U.S.C. § 1001 (1982). Lying under oath, of course, is perjury. 18 U.S.C. § 1621 (1982); D.C.Code § 22-2501 (1981). It is also, obviously, a dishonest act. Lawyers have a greater duty than ordinary citizens to be scrupulously honest at all times, for honesty is "basic" to the practice of law. In re Reback, supra, 513 A.2d at 231 (citation omitted). The need to protect the legal profession is also significant here. Every lawyer has a duty to foster respect for the law, and any act by a lawyer which shows disrespect for the law tarnishes the entire profession. On the other hand, the need to protect the public and the courts is somewhat less important in this case, given the isolated nature of the incidents which constituted the misconduct and the fact that they were unrelated to any court proceeding. Hutchinson's moral fitness to continue to practice law does not greatly trouble us, for the record reveals not only that he is genuinely contrite but also that he has taken steps toward an understanding of the root causes of his behavior. Additionally, we see no aggravating factors in this case that would suggest a sanction greater than that which the violations themselves call for.
There are significant factors in mitigation, as the Board itself recognized. To begin with, Hutchinson has no prior disciplinary record. Since being admitted to the bar in 1968, he has had a distinguished career encompassing both government service and private practice. Just as a prior disciplinary record is a factor which may be considered in aggravation, see In re Roundtree, 467 A.2d 143, 147-148 (D.C. 1983), so may the absence of such a record be considered in mitigation. See In re Reback, supra, 513 A.2d at 233. The Board also observed that Hutchinson recanted his *925 false testimony of his own volition and that he voluntarily surrendered all profits from his illegal trading in Brunswick options. Finally, Hutchinson's disciplinary violations occurred at a time of marital crisis when he was emotionally dependent on his close friend Chadwick (who, the Board noted, was the author of the cover-up). In the ensuing months he not only was remorseful but sought psychiatric counseling.[8]
"Accepting the facts in mitigation as true," the Board nonetheless recommended a suspension for one year.[9] Its reasoning was as follows:
Hutchinson engaged in reprehensible conduct. He lied to an official investigative body in order to shield himself and others from possible civil and criminal liability. And he lied not once but twice, with sufficient time between the incidents to allow him to reflect on the gravity of his actions. Every citizen must know that this is unacceptable behavior in a society that places a great premium indeed, is founded on voluntary compliance with the law. For a lawyer, whose training and practice should make him especially sensitive to the obligation of truthfulness in official investigations, to lie to an investigative body is inexcusable. Had Hutchinson been convicted of perjury or of false statements to a federal official, a conviction which these facts would likely support, he would surely be disbarred.
We share the Board's outrage and agree with its sentiments. We also agree that a one-year suspension would be consistent with sanctions rendered in prior disciplinary decisions, and that it is therefore appropriate here.
A majority of the division in Hutchinson II felt itself limited by the six-month suspension imposed in In re Reback, supra, and therefore ordered that Hutchinson likewise be suspended for six months. See Hutchinson II, supra, 518 A.2d at 1001. The court en banc, however, now concludes that Reback (which was also an en banc decision) was never intended to place a ceiling on the suspension to be imposed on an attorney who has engaged in dishonest conduct. Our task here is simply to resolve this case in a manner consistent with our past decisions, giving due deference to the recommendation of the Board. See, e.g., In re Hines, supra, 482 A.2d at 386; In re Haupt, supra, 422 A.2d at 771. Viewing Reback in this light, we find it distinguishable in at least two respects.
Reback involved two attorneys, Reback and Parsons, who agreed to represent a plaintiff in a divorce action. After filing a verified complaint, however, they neglected the case, and the complaint was eventually dismissed. When Reback and Parsons learned of the dismissal, they prepared another complaint identical to the first, and Reback falsely signed the client's name to it. The complaint, bearing this false signature, was then notarized and filed with the court. These actions violated DR 1-102(A)(4) and (5) (conduct involving dishonesty, fraud, deceit, or misrepresentation, and conduct prejudicial to the administration of justice), DR 6-101(A)(3) (neglect of a legal matter), and DR 7-102(A)(5) (knowingly making a false statement of law or fact). The en banc court in Reback concluded that a six-month suspension for both attorneys was the appropriate sanction.
At first glance, Reback bears some resemblance to the case at bar. Reback and Parsons committed a series of misdeeds (lying to a notary public and filing a complaint with a false signature) in order to avoid the potential consequences of an earlier misdeed (neglecting a legal matter). Similarly, Hutchinson lied to the SEC on two occasions to conceal an insider trading *926 deal. In both cases, the attorneys hoped to cover up one impropriety by committing another. But Reback and Parsons' initial misconduct, though irresponsible and gravely negligent, was not criminal; they merely neglected their client's case, thereby causing it to be dismissed. Hutchinson's initial misconduct, on the other hand, consisted of trading for his own benefit on the basis of inside information about a tender offer and communicating that information to Robert Chaloupka. Each of these acts was a violation of federal law; see 15 C.F.R. § 240.14e-3(a), (d) (1983). In addition, as the Board noted in its recommendation, Hutchinson "lied not once but twice, with sufficient time between the incidents to allow him to reflect on the gravity of his actions."
Furthermore, Reback and Parsons' objective was to revive their client's case and restore it to the court's docket, which was not inherently improper and which would indeed have somewhat rectified their prior negligence. Hutchinson's actions, in contrast, had a totally illicit objective: to prevent the SEC from detecting an insider trading deal. His dishonesty was not intended to rectify a prior misdeed, as in Reback, but instead was designed to ensure the success of his illegal conduct. Had the deception worked, Hutchinson not only would have escaped punishment for relaying inside information to Chaloupka, but also would have retained a tidy profit of $72,000.
Although the division in Hutchinson II found In re Wild, 361 A.2d 182 (D.C.1976), distinguishable from the case at bar, the en banc court now concludes that it offers probably the closest parallel to this case on its facts. Wild, a vice president of Gulf Oil Corporation, was involved in making secret, illegal campaign contributions totaling $100,000 out of corporate funds to the Committee to Re-Elect the President.[10] Although he acted out of fear of what would happen if he did not contribute money after being importuned by two cabinet officers, he also tried to prevent public disclosure of his illegal conduct. Eventually, however, he came forward voluntarily and cooperated completely with investigating authorities. Wild pleaded guilty to a misdemeanor charge of making improper campaign contributions and was fined $1,000. This court suspended him for one year from the practice of law.
Hutchinson, like Wild, pleaded guilty to committing a federal misdemeanor[11] and received a stiff fine. Both men succumbed to pressure from individuals who wielded a substantial amount of political or personal influence. Furthermore, by attempting to conceal their actions from public scrutiny, Hutchinson and Wild sought to guarantee the success of their misdeeds.[12] Eventually, however, they decided to come forward and tell the truth to the authorities. Although comparisons between cases are inexact at best, and "every case must turn on its own particular facts," In re Hines, supra, 482 A.2d at 386, there are enough similarities between the conduct of these two attorneys to persuade us that similar sanctions are warranted.
To support his argument for a short suspension, Hutchinson primarily relies on In re Rosen, 481 A.2d 451 (D.C.1984); In re Kent, 467 A.2d 982 (D.C.1983); In re Keiler, 380 A.2d 119 (D.C.1977); and District of Columbia Bar v. Kleindienst, 345 A.2d 146 (D.C.1975). Each of these cases is distinguishable from the case at bar.
*927 In Rosen we held that a thirty-day suspension was appropriate for an attorney who made three separate misrepresentations to a federal court, even though he had a record of prior disciplinary violations. Rosen, like Hutchinson, knowingly made these misrepresentations to conceal prior misconduct. But Rosen's conduct resulted from procrastination and lack of preparation, whereas Hutchinson's conduct was knowing and willful. In addition, Rosen was found to have violated only two disciplinary rules, whereas Hutchinson violated three. Since Hutchinson's misconduct was more serious than Rosen's, we believe his sanction should be more severe.
In Kent the attorney openly shoplifted merchandise from a department store, apparently trying to be caught. She was suspended for thirty days, primarily because her act was impulsive and isolated, because it was unrelated to the practice of law, and because she voluntarily sought psychiatric help for her behavior. Hutchinson's conduct in twice giving testimony which he knew to be false cannot be equated with Kent's "neurotic desire to be caught." 467 A.2d at 984. Furthermore, Kent had already undergone what amounted to a self-imposed suspension of more than two years. See id. at 985. Thus a heavier sanction is warranted in Hutchinson's case than in Kent.
In Keiler the attorney selected a partner in his own law firm to serve as an arbitrator in a labor dispute in which he represented one of the parties. The supposedly impartial arbitrator ruled in favor of Keiler's client without revealing his relationship with Keiler or his law firm. This court imposed a thirty-day suspension, even though we concluded that the attorney's conduct had perpetrated a fraud on the judicial system and compromised the administration of justice. The Keiler case is distinguishable in one significant respect: Keiler's conduct was reprehensible but not criminal, whereas Hutchinson's lying to the SEC under oath probably violated at least two criminal statutes, 18 U.S.C. §§ 1001 and 1621; see page 924, supra.[13]
The respondent in Kleindienst, in hearings before a Senate committee on his nomination to be Attorney General of the United States, lied to the committee about his involvement in certain antitrust litigation. This court rejected the one-year suspension recommended by the Board, imposing instead a thirty-day suspension. Although Kleindienst is somewhat analogous to the case at bar, it is also distinguishable. Kleindienst's disciplinary violation had already been the subject of proceedings in his home state of Arizona which had resulted only in a censure. The same act of misconduct had been the subject of a criminal prosecution in which Kleindienst had received a suspended sentence. In addition, a three-judge committee of the United States District Court for the District of Columbia had considered the same conduct by Kleindienst and concluded that no disciplinary action was warranted. None of these factors are present in the case at bar.
In any event, because we are sitting en banc,[14] we take this occasion to overrule Keiler and Kleindienst as controlling precedents on the issue of disciplinary sanctions. Insofar as it relates to sanctions, Keiler has always been a weak precedent. The choice of a sanction for Keiler's disciplinary violation was not even mentioned until the very last sentence of the opinion, 380 A.2d at 124, and then only in a statement that the court was adopting the recommendation of the Board. As for Kleindienst, it at least appears to be somewhat inconsistent with other decisions (In re Wild, for example), and Bar Counsel has felt obliged in a number of cases to try to distinguish it. To eliminate further confusion and uncertainty, we hereby overrule both Keiler and Kleindienst to the extent that they deal with the question of appropriate sanctions for disciplinary violations.
V
For the foregoing reasons, we conclude that Hutchinson should be suspended from *928 the practice of law for one year for his disciplinary violations in this case. For 62 days, however, from January 7, 1987, the effective date of the suspension ordered in Hutchinson II, until March 10, 1987, the date on which that opinion was vacated, he was under suspension for those same violations. Accordingly, we subtract those 62 days from the one-year suspension which we now impose, leaving a remainder of 303 days.
It is therefore ORDERED that respondent, James D. Hutchinson, is suspended from the practice of law in the District of Columbia for a period of 303 days, effective 30 days from the date of this opinion. See D.C.Bar.R. XI, § 19(3).
NEWMAN, Associate Judge, concurring:
In my dissent in In re Reback, 513 A.2d 226, 234 (D.C.1986) (en banc), I made clear that I believed the six months' suspension imposed on Reback and Parsons was woefully inadequate; I thought the appropriate sanction was suspension for one year and a day. It was clear to me then that the inadequate sanction imposed in that case would come back to haunt us in future cases. In this case it does. The en banc court struggles to distinguish Reback to justify a greater sanction in this case. I decline to join in that struggle. The sanction in Reback was seriously deficient. A sanction here of a one-year suspension, however, is appropriate.
I specifically join so much of the opinion of the court as overrules Keiler and Kleindienst as controlling precedents on the issue of disciplinary sanctions.
NOTES
[*] Judge Nebeker was an Associate Judge of this court at the time of oral argument. His status changed to Associate Judge, Retired, on September 1, 1987.
[1] DR 1-102(A) provides in part:
A lawyer shall not:
* * *
(3) Engage in illegal conduct involving moral turpitude that adversely reflects on his fitness to practice law.
(4) Engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.
(5) Engage in conduct that is prejudicial to the administration of justice.
[2] Hutchinson resigned from his law firm as of December 31, 1982.
[3] 15 U.S.C. § 78ff(a) imposes criminal penalties for any willful violation of the 1934 Act (with an exception not pertinent here) "or any rule or regulation thereunder the violation of which is made unlawful or the observance of which is required under the terms of [the 1934 Act] ... but no person shall be subject to imprisonment under this section for the violation of any rule or regulation if he proves that he had no knowledge of such rule or regulation."
[4] D.C.Bar R. XI, § 15 provides in pertinent part:
(1) Upon the filing with the Court of a certified copy of the court record ... demonstrating that an attorney has been found guilty of a serious crime as hereinafter defined, the Court shall enter an order immediately suspending the attorney.... Upon good cause shown, the Court may set aside such order of suspension when it appears in the interest of justice so to do.
(2) The term "serious crime" shall include any felony and any lesser crime a necessary element of which, as determined by the statutory or common law definition of such crime, involves improper conduct as an attorney, interference with the administration of justice, false swearing, misrepresentation, fraud, willful failure to file income tax returns, deceit, bribery, extortion, misappropriation, theft, or an attempt or a conspiracy or solicitation of another to commit a "serious crime."
[5] Because the finding of moral turpitude was unrelated to Hutchinson's criminal conviction, this case does not present the issue of whether he is subject to disbarment under D.C. Code § 11-2503 (1981). See generally In re Colson, 412 A.2d 1160 (D.C.1979) (en banc); In re Kerr, 424 A.2d 94 (D.C.1980) (en banc).
[6] Hutchinson does not challenge the Board's finding that his untruthful testimony before the SEC violated these three Disciplinary Rules.
[7] See note 4, supra.
[8] Given the Board's acknowledgment of these factors, we find this case clearly distinguishable from In re Cope, 455 A.2d 1357 (D.C.1983).
[9] Before the Board and the division, Bar Counsel urged that Hutchinson be suspended for three years. Now, however, Bar Counsel seeks only a suspension for a year and a day, which would require (unlike a suspension for a year or less) that Hutchinson demonstrate affirmatively, by clear and convincing evidence, his fitness for readmission to the bar after the suspension has run its course. Compare D.C.Bar R. XI, § 21(3) with id, § 21(5); see In re Harrison, 511 A.2d 16, 18 (D.C.1986); In re Roundtree, 503 A.2d 1215, 1216-1217 (D.C.1985).
[10] The Committee to Re-Elect the President was the principal campaign organization seeking the re-election of President Nixon in 1972.
[11] The statutes under which Hutchinson and Wild were prosecuted specified that a willful violation was a felony, but that other violations were misdemeanors. See 18 U.S.C. § 610 (1970) (repealed 1976) (barring political contributions by corporations); 15 U.S.C. § 78ff(a), supra note 3.
[12] Although the Board found that Wild had violated only one disciplinary rule, as opposed to Hutchinson's three violations, this disparity is not significant here. The hearing committee found that Wild had violated three rules, but the Board, "since it found a clear violation of DR 1-102(A)(4)," deemed it "unnecessary to determine" whether his conduct breached the other two rules as well. In re Wild, supra, 361 A.2d at 183.
[13] We say "probably" because Hutchinson was never actually charged with such violations.
[14] See M.A.P. v. Ryan, 285 A.2d 310, 312 (D.C. 1971).
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987 S.W.2d 575 (1999)
Ex parte Clinton Charles ROBERTS, Applicant.
No. 73159.
Court of Criminal Appeals of Texas.
January 27, 1999.
Clinton Charles Roberts, pro se.
Charles J. Sebesta, Jr., Dist. Atty., Caldwell, Matthew Paul, State's Atty., Austin, for State.
OPINION
MEYERS, J., delivered the unanimous opinion of the Court.
This is a post-conviction application for a writ of habeas corpus filed pursuant to Code of Criminal Procedure article 11.07. Applicant was convicted of felony driving while intoxicated and punishment was assessed at three years and six months imprisonment when his community supervision was revoked. No appeal was taken from this conviction.
Applicant contends he has not been given credit for all the time he was confined in this cause. The judgment reflects this offense was committed May 30, 1992. The trial *576 court has entered findings that Applicant was confined in county jail in this cause for a total of 249 days before his community supervision was revoked. He was also confined for other periods in various community corrections facilities as conditions of community supervision. Upon revocation the trial court credited Applicant for 90 days pretrial confinement, which included time Applicant was confined before he was placed on community supervision, and time confined pursuant to a motion to revoke community supervision. The trial court concludes Applicant is not entitled to credit for his other periods of confinement because they were served as conditions of community supervision.
On the date this offense was committed, Code of Criminal Procedure article 42.12, § 26(b), provided:
No part of the time that the defendant is on probation shall be considered as any part of the time that he shall be sentenced to serve, except for time spent by the defendant in actual confinement as a condition of probation under Section 12 or 13 of this article.
Section 12 authorized detention in a county jail as a condition of community supervision. Article 42.03, § 2(a), similarly stated:
In all criminal cases the judge of the court in which the defendant was convicted shall give the defendant credit on his sentence or period of confinement served as a condition of probation for the time that the defendant has spent in jail in said cause, from the time of his arrest and confinement until his sentence by the trial court.
In 1993 the 73rd Legislature amended both article 42.03, § 2(a), and article 42.12, § 26(b), to provide that persons confined in county jails as a condition of community supervision would no longer receive credit for those periods of confinement if the community supervision were revoked.[1] However, the bill containing these amendments included provisos that they would be effective only for offenses committed on or after September 1, 1993.[2] Because applicant committed this offense in 1992, these amendments are not applicable to him, and he is entitled to credit for all of his time in jail in this cause, including periods of confinement as a condition of community supervision. However, since September 1,1989, article 42.12, § 19(d),[3] has provided that "[a] probationer granted probation under this section may not earn good conduct credit for time spent in a community corrections facility or apply time spent in the facility toward completion of a prison sentence if the probation is revoked." (emphasis added). Applicant is therefore not entitled to credit for his periods of confinement in community corrections facilities. Ex parte Stover, 946 S.W.2d 343 (Tex.Crim.App.1997).
Relief is granted in part. The Texas Department of Criminal Justice, Institutional Division, shall credit Applicant's sentence in cause number 10,703 in the 21st Judicial District Court of Burleson County for an additional 159 days presentence confinement. Credit for other periods of confinement is denied.
NOTES
[1] The legislature also placed a limit of 180 days on the amount of time a person may be confined in county jail as a condition of community supervision, article 42.12, § 12(a), and provided that the combined amount of such confinement in jail and community corrections facilities may not exceed 24 months, § 12(b).
[2] Both amendments were part of Senate Bill 1067, which became Chapter 900 of the 73rd Legislature. Article 42.03 was amended in § 5.03, and article 42.12 was amended in § 4.01. The provisos were contained in §§ 5.09 and 4.02, respectively. West Publishing Co. publications including these statutes note the proviso in § 4.02, but not § 5.09.
[3] In 1993 this provision was renumbered § 18(c) and the terminology was changed, such that "probationer" became "defendant" and "probation" became "community supervision." However, the substance of this provision is still in effect. Additionally, from 1983 to 1993 similar provisions precluded credit for time spent in "restitution centers" and "community rehabilitation centers" as a condition of probation. § 6c (1983), § 6e(c)(1985), § 18(c) (1989).
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32 B.R. 688 (1983)
In re HARROW LEASING CORPORATION, Debtor.
LaSALLE NATIONAL BANK as Trustee U/A Dated May 5, 1981, Plaintiff,
v.
HARROW LEASING CORPORATION, Defendant.
Bankruptcy No. 83-02653G, Adv. No. 83-1833G.
United States Bankruptcy Court, E.D. Pennsylvania.
September 7, 1983.
*689 Marjorie O. Rendell, Duane, Morris & Heckscher, Philadelphia, Pa., for plaintiff, LaSalle Nat. Bank as Trustee U/A dated May 5, 1981.
Marc J. Sonnenfeld, E. Clive Anderson, Jami Wintz McKeon, Morgan, Lewis & Bockius, Philadelphia, Pa., for debtor/defendant, Harrow Leasing Corp.
OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue presented in this action for relief from the automatic stay is whether we should grant the debtor's mid-trial motion for leave to amend its answer to the plaintiff's complaint by disputing the computation of the interest on its debt, and by joining a third party defendant against whom it will assert a claim for breach of contract.
The facts of the case are as follows: Harrow Leasing Corporation ("Harrow") filed a petition for relief under Chapter 11 of the Bankruptcy Code on July 1, 1983. The debtor's only asset is an aircraft which was purchased from Fokker Aircraft U.S.A., Inc. ("Fokker") with the financial assistance of Algemene Bank Nederland ("ABN") and Amsterdam-Rotterdam Bank N.V. ("Am-Ro"). On the date of the purchase of the plane the debtor executed a security agreement in favor of LaSalle National Bank ("LaSalle") which was to act as a security trustee in protecting the interests of ABN and Am-Ro. LaSalle filed the instant adversary action against the debtor seeking relief from the automatic stay imposed by 11 U.S.C. § 362(a) in order to foreclose the security interest in the plane. During the course of the trial on the LaSalle complaint, Harrow avers that it learned that it had been misled by the secured lenders during the negotiations which culminated in the security agreement.
In essence, Harrow asserts that it should be granted leave to amend its answer to the complaint by adding an affirmative defense challenging the computation of the interest on the debt, and thus the total outstanding indebtedness, and a claim for breach of contract against Fokker, ABN and Am-Ro. In support of its motion Harrow cites Bankruptcy Rule 715 which states in part that leave to amend "shall be freely granted when justice so requires." Nonetheless, Harrow fails to cite the legislative history of 11 U.S.C. § 362 and the case law which state that an action for relief from the automatic stay is typically not the proper forum for hearing counterclaims and third party actions. Lincoln Bank v. High Sky, Inc. (In Re High Sky, Inc.), 15 B.R. 332 (Bkrtcy.M.D.Pa.1981); Citibank, N.A. v. Executive Leasing Corp. (In Re Executive Leasing Corp.), 3 B.R. 261 (Bkrtcy.D.P.R. 1980). As stated in the legislative history:
[A]t the expedited hearing under subsection [362](e), and at hearing on relief from the stay, the only issue will be the lack of adequate protection, the debtor's equity in the property, and the necessity of the property to an effective reorganization of the debtor, or the existence of other cause for relief from the stay. This hearing will not be the appropriate time at which to bring in other issues, such as counterclaims against the creditor, which, although relevant to the question of the amount of the debt, concern largely collateral or unrelated matters. This approach is consistent with that taken in cases such as In re Essex Properties, Ltd., 430 F. Supp. 1112 (N.D.Cal.1977), that an action seeking relief from the stay is not the assertion of a claim which would give rise to the right or obligation to assert counterclaims. Those counterclaims are not to be handled in the summary fashion that the preliminary hearing under this provision will be. Rather, they will be the subject of more complete proceedings by the trustee to recover property of the estate or to object to the allowance of a claim. However, this would not preclude *690 the party seeking continuance of the stay from presenting evidence on the existence of claims which the court may consider in exercising its discretion. What is precluded is a determination of such collateral claims on the merits at the hearing.
S.Rep. No. 95-989, 95th Cong., 2d Sess. 55, reprinted in 1978 U.S.Code Cong. & Admin. News 5787, at 5841.
Since the debtor's allegation that LaSalle incorrectly computed the rate of interest goes to the essence of LaSalle's claim for relief, we will allow the amendment on this issue. But we will deny the request to amend by adding a third party defendant against whom it proposes to assert a counterclaim, since these matters seem largely tangential to the request for relief from the stay.
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221 N.J. Super. 438 (1987)
534 A.2d 1035
DIENCO, INC., PLAINTIFF,
v.
SECURITY NATIONAL BANK OF NEW JERSEY; AND THE NATIONAL STATE BANK; AND BROAD NATIONAL BANK, DEFENDANTS.
SECURITY NATIONAL BANK AND TRUST COMPANY OF NEW JERSEY, THIRD-PARTY PLAINTIFF-RESPONDENT,
v.
THE NATIONAL STATE BANK, ELIZABETH NEW JERSEY, THIRD-PARTY DEFENDANT-APPELLANT.
Superior Court of New Jersey, Appellate Division.
Argued November 10, 1987.
Decided December 7, 1987.
*440 Before Judges ANTELL, DEIGHAN and COHEN.
John D. North argued the cause for third-party defendant-appellant National State Bank (Mackenzie, Welt, Duane & Maher, attorneys; Felice T. Londa, on the brief).
Avram S. Eule argued the cause for third-party plaintiff-respondent Security National Bank and Trust Company of New Jersey (Scheider & Wiener, attorneys; Avram S. Eule, on the brief).
The opinion of the court was delivered by ANTELL, P.J.A.D.
On August 31, 1984 plaintiff deposited in its account with defendant Security National Bank of New Jersey (hereinafter "Security") a $60,000 check issued to the order of plaintiff by Trans Global Airlines and drawn upon National State Bank (hereinafter "National"). At the time of deposit the following endorsement was placed on the back of the check:
For deposit Only
Account # XX-XXX-XXX-X
It also bore Security's stamp, "PAY ANY BANK" together with the legend "P.E.G," meaning "prior endorsements guaranteed."
The check was received by National September 4, 1984 and "Returned Unpaid For Endorsement" September 10, 1984. Although Security then returned the check to National with the endorsement supplied on September 12, it was again returned by National on September 14, 1984. This time it was marked "Payment Stopped." Trans Global Airlines thereupon went into bankruptcy proceedings, the check has not been paid and plaintiff sues Security and National to recover thereon.
This appeal is from an order dated February 27, 1987 directing indemnification by National in favor of Security on the latter's third-party complaint. The trial court concluded that the check had been properly endorsed on August 31 and that *441 because National had retained the item beyond the deadline prescribed by N.J.S.A. 12A:4-302 it was therefore answerable for the amount thereof.
On this appeal National argues that because plaintiff's name did not appear on the back of the check it had no way of knowing whether payment of the proceeds had actually been made to the payee and the check was therefore not properly endorsed. Noting its possible liability in conversion under Humberto Decorators, Inc. v. Plaza Nat'l Bk., 180 N.J. Super. 170, 174 (App.Div. 1981) for payment on a check which does not bear the payee's endorsement, it contends that it properly returned the check for the endorsement essential to good title.
The flaw in National's argument is that upon obtaining payment of the check, under N.J.S.A. 12A:4-207(1)(a) Security, as collecting bank, warrants to National, as payor bank, that it "has a good title to the item or is authorized to obtain payment or acceptance on behalf of one who has a good title." Security's position as plaintiff's agent for the collection was shown by the restrictive words "For Deposit Only." First Nat. Bank, Bloomingdale v. North Jersey Trust Co., 18 N.J. Misc. 449, 451 (Sup.Ct. 1940). Moreover, Security's use of the legend "PAY ANY BANK, P.E.G." was a guaranty that it would save National harmless in the event a prior endorsement was defective "or irregular in any respect." Ibid. Finally, as to this issue, N.J.S.A. 12A:4-207(3) provides that the collecting bank's warranties arise "notwithstanding the absence of indorsement or words of guaranty or warranty in the transfer or presentment and a collecting bank remains liable for their breach despite remittance to its transferor." The check should therefore have been paid on presentation.
N.J.S.A. 12A:4-302 provides, insofar as here relevant, that "[i]n the absence of a valid defense such as breach of a presentment warranty (subsection (1) of 12A:4-207), settlement effected or the like, if an item is presented on and received by a payor bank the bank is accountable for the amount of a demand *442 item ... whether properly payable or not if the bank ... retains the item beyond midnight of the banking day of receipt without settling for it...."
Since no valid defense to payment of the check has been shown by National, its retention thereof beyond the foregoing deadline is a further reason why National is answerable for payment.
Affirmed.
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368 Pa. Super. 341 (1987)
534 A.2d 114
COMMONWEALTH of Pennsylvania
v.
David Charles CUMMINGS, Appellant.
Supreme Court of Pennsylvania.
Submitted July 27, 1987.
Filed December 2, 1987.
*342 Scott W. Naus, Public Defender, Bloomsburg, for appellant.
Elwood R. Harding, Jr., District Attorney, Bloomsburg, for Com., appellee.
Before CIRILLO, President Judge, and HOFFMAN and HESTER, JJ.
*343 CIRILLO, President Judge:
This is an appeal from a judgment of sentence entered by the Court of Common Pleas of Columbia County against appellant, David Cummings, after he pled guilty to burglary. We quash.
Appellant was arrested and charged with receiving stolen property, criminal trespass, burglary, and theft. He pled guilty to the burglary charge and the remaining charges were subsequently withdrawn. The court then sentenced Cummings to a period of incarceration of not less than four years nor more than ten years. Cummings appealed to this court, challenging the sentence as an abuse of discretion.
Appellant does not challenge the legality of the sentence. Thus, an appeal in this case is not taken as of right. See 42 Pa.C.S. § 9781(a). Rather, appellant challenges the discretionary aspects of the sentence.
When appealing the discretionary aspects of a sentence, the appellant must invoke the appellate court's jurisdiction by including in his brief a separate concise statement demonstrating that there is a substantial question as to the appropriateness of the sentence under the Sentencing Code. Commonwealth v. Tuladziecki, 513 Pa. 508, 511-513, 522 A.2d 17, 19 (1987); 42 Pa.C.S. § 9781(b). Only after appellant has fulfilled these requirements will this court review the merits of the case. Id.; Pa.R.A.P. 2119(f).
Appellant has minimally complied with the first requirement set out above. His brief does in fact contain a statement of the reasons relied upon for allowance of appeal. See Pa.R.A.P. 2119(f). However, "[i]t is only where a party can articulate reasons why a particular sentence raises doubts that [the sentencing] scheme as a whole has been compromised that the appellate court should review the manner in which the trial court exercised its discretion." Tuladziecki, 513 Pa. at 515, 522 A.2d at 20.
Appellant's statement of the reasons relied upon for allowance of appeal proclaims that "failure of the [trial] *344 court to consider on the record mitigating circumstances in the sentence raises [a] substantial question that the sentence imposed is inappropriate." This assertion fails to provide us with any articulable reasons why the sentence imposed upon the appellant compromises the sentencing scheme as a whole. The proffered statement fails to mention the length of the sentence imposed on him or the crime for which he was sentenced. The terms of the sentence the appellant is asking us to review and the crime or crimes which gave rise to that sentence are sine qua nons of a petition for allowance of appeal of the discretionary aspects of a sentence. This court simply cannot gauge whether there is a "substantial question" that "a particular sentence raises doubts that [the scheme of the Sentencing Code] as a whole has been compromised" without knowing what the length of the sentence is or what the crimes involved are. Appellant's failure to supply these elements in his statement of the reasons relied upon for allowance of appeal prevents us from finding a substantial question that the sentence is inappropriate, and thus we cannot accept the appeal.
Appeal quashed.
HOFFMAN, J., concurs in result.
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987 S.W.2d 359 (1999)
Larry, Louis and Jeanette GEROW, Appellants,
v.
MITCH CRAWFORD HOLIDAY MOTORS, A Missouri Corporation, and Chrysler Corporation a Delaware Corporation, Respondents.
No. WD 55008.
Missouri Court of Appeals, Western District.
January 12, 1999.
Motion for Rehearing and/or Transfer Denied March 2, 1999.
Application to Transfer Denied April 27, 1999.
*361 Paul L. Redfearn, Daniel R. Brown, Kansas City, Missouri, Redfearn & Brown, P.C., for appellant.
Craig A. Smith, Gary R. Cunningham, Springfield, Missouri, Daniel, Clampett, Powell & Cunningham, for respondent.
Before SMART, P.J., ELLIS and HOWARD, JJ.
Motion for Rehearing and/or Transfer to Supreme Court Denied March 2, 1999.
ELLIS, Judge.
Larry Gerow, Louis Gerow, and Jeannette Gerow are the surviving adult children of William and Barbara Gerow, both now deceased. The Gerow children brought a wrongful death action against Chrysler Corporation ("Chrysler") in the Circuit Court of Jackson County. They alleged that Chrysler manufactured the car in which their parents were traveling when they sustained the injuries resulting in their deaths, and that the car was defective in design and manufacture, and unreasonably dangerous when put to its reasonably anticipated use. The case was tried to a jury, which returned a verdict in favor of Chrysler on June 19, 1997. The Gerow children appeal.
At the time of the subject accident, William and Barbara Gerow owned a 1984 Plymouth Reliant K car, which they had purchased used from a dealer. On September 16, 1994 Barbara was driving the vehicle westbound on 50 Highway in Lee's Summit, Missouri. William was seated in the passenger seat, and Jeannette Gerow was in the rear seat. The vehicle left the roadway, straddled the guardrail, and struck a bridge support pillar at the southwest M-291 Highway overpass. Gasoline spilled from the fuel tank, which had been ruptured when the vehicle straddled the guardrail, resulting in fire. Witnesses pulled Jeannette and Barbara from the vehicle, but were unable to extricate William, who died at the scene. Barbara Gerow died 15 days later. Jeannette survived the accident.
The three adult children of William and Barbara Gerow ("the Gerows") brought suit against Chrysler, the manufacturer of the vehicle, for strict liability in the deaths of William and Barbara. They alleged that the Reliant K car was defective in design and manufacture, and was unreasonably dangerous when put to reasonably anticipated use. The allegations were based on the fact that the K car had an "underslung" fuel tank which was positioned one-quarter inch above the floor pan in front of the rear axle. According to the Gerows' expert, the positioning of the fuel tank was dangerous because it made the tank vulnerable to puncture in a reasonably foreseeable accident, and safer designs were available at the time of the vehicle's manufacture.
The Gerows brought their claim against Chrysler under the "second collision" or "enhanced injury" doctrine, which differentiates between conduct causing the accident and an alleged design defect which is the proximate cause of enhanced injuries. Expert witnesses for the Gerows testified that the injuries suffered by William and Barbara as a result of the impact with the overpass pillar alone were not sufficient to cause their deaths, but that fatal injuries resulted from the fuel fire. The action against Chrysler sought recovery only for the secondary, or enhanced, injuries from the ruptured fuel tank. Chrysler contended the vehicle was not being used as reasonably anticipated by the manufacturer at the time of the accident, and Barbara Gerow's negligence caused or contributed to the injuries. The case was tried to a jury in June, 1997 resulting in a verdict in favor of Chrysler.
The Gerows assert four points of error on appeal. In their first point, the Gerows allege that the trial court erred when it allowed Chrysler to state in closing argument that a reasonably anticipated use of the vehicle involved an operator that was alert, conscious, and awake when he or she is driving.
*362 A jury instruction pursuant to § 537.765[1] assessing comparative fault on Barbara Gerow had been tendered by Chrysler and refused by the court.[2] In rejecting Chrysler's jury instruction as to the comparative fault of Barbara Gerow, the court stated:
The way I understand the theory of this instruction, one of the things [Chrysler] would have to prove is she failed to use the product as product for a purpose not intended by the manufacturer. I don't think there's any evidence of that. The fact that she drove off the road and had a wreck,... I think that's an anticipated use.
During closing argument, Chrysler's attorney made the following statements:
MR. CUNNINGHAM (Counsel for Chrysler): [S]he was nodding as if she was asleep ... the vehicle gently veers off the road when the road makes just a gentle right-hand turn. And that's very consistent with what everyone says ... A reasonably anticipated use of this vehicle involves an operator and sometimes operatorsno, I won't say sometimesalways operators are reasonable to be alert, to be conscious, to be awake when they're driving a vehicle at 55 and 60 miles per hour on open roads
MR. REDFEARN (Counsel for Gerows): Your Honor, I object to this whole line of argument. It's outside the scope of the instructions in this case and its irrelevant to the issues of this case.
THE COURT: Overruled.
MR. CUNNINGHAM: To make corrections, is that an unreasonable thing to expect of an operator? With regard to their anticipated use that the operator will be, in fact, awake to make corrections....An anticipated use, is it unreasonable to think that they will avoid striking guardrails, that they will avoid getting their vehicle so that it is up on two wheels into steel I-beam posts. Anticipated use is an issue in this case. And I submit to you that is not an anticipated use.
The Gerows argue that defense counsel's statements in closing argument were an attempt to improperly inject comparative fault into the case after the comparative fault instruction had been rejected by the court. Chrysler contended that its statements were made in support of its defense to the reasonableness element in the Gerows' enhanced injury claim.
The enhanced injury theory is recognized in Missouri. See Polk v. Ford Motor Co., 529 F.2d 259 (8th Cir. banc 1976); Cryts v. Ford Motor Co., 571 S.W.2d 683 (Mo.App. E.D.1978). "The second collision doctrine merely extends the scope of liability of a manufacturer to the situations in which the construction or design of its product has caused separate or enhanced injuries in the course of an initial accident brought about by an independent cause." Cryts, 571 S.W.2d at 687. "[T]he defect would not have produced any injury in the absence of an intervening cause which sets the injury producing cycle into action." Id.
To make a submissible case under the enhanced injury theory in the case at bar, the Gerows were required to prove that the 1984 Plymouth Reliant K car was used in a manner reasonably anticipated. Id. However, "[t]he source of the original or intervening cause is irrelevant so long as the plaintiff's particular use of the product *363 is reasonably foreseeable." Id. (emphasis added). The conduct of Barbara Gerow was irrelevant as long as it was reasonably foreseeable that a vehicle could leave the roadway and straddle the guardrail, puncturing the fuel tank. Cryts, 571 S.W.2d at 687.
The U.S. Court of Appeals for the Eighth Circuit noted that Missouri courts have found misuse to be reasonably anticipated. Polk, 529 F.2d at 266. "[T]he intended use doctrine necessarily includes foreseeable consequences of (unintentional) misuse." Id. "The concept of reasonably anticipated use includes misuse ... and abnormal use which is objectively foreseeable." Threats v. General Motors Corp., 890 S.W.2d 327, 329 (Mo.App. E.D.1994) (quoting Nesselrode v. Executive Beechcraft, Inc., 707 S.W.2d 371, 381 (Mo. banc 1986)). The fact that Barbara Gerow was driving the vehicle on a highway was an intended use. Driver error which resulted in unintentional misuse was therefore reasonably foreseeable, and the nature of the error was irrelevant to proving an enhanced injury claim. Cryts, 571 S.W.2d at 687. Chrysler's suggestion that Barbara Gerow fell asleep or was not alert inappropriately suggested comparative fault in the context of a claim which should have centered entirely on whether the design of the vehicle and placement of the fuel tank contributed to the fuel-fed fire.
The trial court has broad discretion concerning final argument. Kelly by Kelly v. Jackson, 798 S.W.2d 699, 704 (Mo. banc 1990). However, the trial court's discretion is not so broad as to permit argument beyond the issues or to urge a theory of claim or defense which conflicts with the trial court's instructions. Hart v. Forbes, 633 S.W.2d 90, 92 (Mo.App. W.D.1982). "In ruling on the propriety of final argument, the challenged comment must be interpreted in light of the entire record rather than in isolation." Kelly, 798 S.W.2d at 704. When determining the prejudicial effect of final argument, the court's discretion will not be disturbed absent a showing of abuse. Hart, 633 S.W.2d at 92. An abuse of discretion occurs where counsel's comments are "plainly unwarranted and clearly injurious" to the adverse party. State v. Simmons, 944 S.W.2d 165, 178-79 (Mo. banc), cert. denied ___ U.S. ___, 118 S. Ct. 376, 139 L. Ed. 2d 293 (1997).
Since any error on the part of Barbara Gerow which might have caused the original accident is irrelevant in this enhanced injury case, Chrysler's argument as to the reasonableness of her failure to correct her direction was unwarranted. This is particularly so since the trial court had already found that there was no evidence that Barbara Gerow failed to use the vehicle as reasonably anticipated by the manufacturer or that she used it for a purpose not intended by the manufacturer. Indeed, the trial court had ruled that, for purposes of the enhanced injury theory, veering off the roadway and being involved in an accident was a reasonably anticipated use. An improper argument, objection to which is overruled, has the effect on the jury of the court's approval. State v. Gonzalez, 899 S.W.2d 936, 937 (Mo.App. W.D.1995). To this jury, the effect of overruling the Gerows' objection to Chrysler's argument was to approve its consideration. The argument was designed to create confusion on the jury's part. Such confusion was unwarranted and clearly injurious to the Gerows' case. Chrysler's argument was, therefore, both improper and prejudicial, and the trial court erred in overruling the Gerows' objection. The error compels reversal and remand for a new trial.
While our resolution of Point I is dispositive of the appeal, two of the Gerows' three other points on appeal present issues which may arise on retrial. Accordingly, judicial economy dictates that we address those matters at this juncture. In their second point, the Gerows allege the trial court erred in admitting evidence of post-accident changes to the guardrails at the accident location. Chrysler presented testimony of Elizabeth Wright, Operational Support Engineer with the Missouri Department of Transportation. Wright testified that the guardrail involved in this accident, referred to as a "Texas Twister,"[3] was installed in *364 1969, and sometime after this accident both the guardrail and the median were removed and replaced with a three-foot-high concrete barrier called a "New Jersey barrier." The Gerows objected to the following line of questioning:
MR. CUNNINGHAM: With regard to this design of guardrail that was put in in 1969, can you even use that type of guardrail any more on U.S. Highways?
MR. REDFEARN: Your Honor, I object to this as really not being relevant to any of the issues involved in this case and it's completely immaterial to any of the issues involved in this case.
THE COURT: Overruled.
* * *
MR. CUNNINGHAM: Ms. Wright, do you remember my question?
MS. WRIGHT: I believe so. We would not install them today.
The Gerows assert that Wright's testimony injected a false issue into the case since it pertained to the duty of the Missouri Department of Transportation (a non-party), not that of Chrysler. Chrysler argues it presented Wright's testimony to show the lack of foreseeability of this type of accident for the manufacturer, and that her response was not that the department "could not" use this type of guardrail today, but rather that they "would not."
To be admissible, "[e]vidence must have logical relevancy and probative value." Kalish v. Smith, 824 S.W.2d 35, 38 (Mo.App. 1991) (quoting Moreland v. State Farm Fire & Casualty Co., 662 S.W.2d 556, 565 (Mo. App. S.D.1983)). The issue in this case was whether the Plymouth Reliant K car was defective in design and manufacture. Whether the Missouri Department of Transportation would or would not install such guardrails today is not probative of whether Chrysler's vehicle was defective in its design and manufacture. See, e.g., Watkins v. Toro Co., 901 S.W.2d 917, 920 (Mo.App. E.D.1995). Although Chrysler argues its questions to Wright went to the foreseeability of its vehicle encountering this type of guardrail, the record reflects that the guardrail is common in Missouri and other states.[4] Evidence of current standards has no bearing on whether the guardrails still exist on the roads and did exist in September, 1994.
[T]he sole fact that evidence is logically relevant does not require its admission; the evidence must also have some probative force over and above logical relevancy... If evidence pertaining to collateral matters brings into a case new controversial matters which would result in confusion of issues ... it should be excluded.
Yingling v. Hartwig, 925 S.W.2d 952, 956 (Mo.App. W.D.1996) (quoting Edgell v. Leighty, 825 S.W.2d 325, 327 (Mo.App. S.D. 1992)). Wright's testimony on this particular issue was improper and should be excluded when the case is tried again.
In their third point, the Gerows assert the trial court erred in excluding the testimony of Chief Richard Dyer of the Lee's Summit Fire Department and Officer William Oothout of the Lee's Summit Police Department pertaining to a fatal accident which occurred within 100 yards of the location of the Gerow accident less than two years before, and which involved a fuel tank ruptured by the guardrail, resulting in a fuelfed fire. Chrysler argued throughout its case that the type of accident was extremely unusual and could not be reasonably anticipated. The Gerows offered this testimony as evidence of the foreseeability of this type of accident by Chrysler and proof of reasonably anticipated use of the product. Following an offer of proof by the Gerows, the trial court ruled against admission of the testimony.
Evidence of a similar occurrence is generally admissible when the accident sought to be admitted (1) is of like character; (2) occurred under substantially the same circumstances; and (3) resulted from the *365 same cause. Hess v. Chicago, Rock Island & Pac. R.R., 479 S.W.2d 425, 431 (Mo.1972). When determining the relevance of evidence of similar occurrences, the court must consider the purpose for which the evidence is sought to be used, whether it is sufficiently similar for that purpose, and whether it is unduly prejudicial or confusing when used for that purpose. Pierce v. Platte-Clay Elec. Coop., Inc., 769 S.W.2d 769, 774-75 (Mo. banc 1989); State ex rel. Malan v. Huesemann, 942 S.W.2d 424, 430 (Mo.App. W.D.1997). When a material part of one party's defense is to show the infrequency of an occurrence, or that an occurrence is very rare, an opponent may present relevant evidence to refute the inferences raised by that defense. Pierce, 769 S.W.2d at 775; Deveney v. Smith, 812 S.W.2d 810, 813 (Mo.App. W.D.1991).
The testimony of Chief Dyer and Officer Oothout was offered for the purpose of refuting Chrysler's contention that it is not foreseeable that a vehicle would ramp up on or straddle a guardrail, and to prove that guardrails and gas tanks are a dangerous combination. The fact that another accident, involving almost identical circumstances to the Gerows' accident, occurred within 100 yards of the site of the Gerow accident less than two years before, is powerful evidence tending to show that this type of accident was not a freak occurrence. The evidence clearly demonstrates that other accidents have occurred in the same manner, and tends to prove that the accident was foreseeable and could be reasonably anticipated. It is relevant for the purpose of refuting a material part of Chrysler's defense. The fact that the incident did not involve a Chrysler vehicle does not diminish its relevance. "When evidence of prior accidents is presented to show notice of danger, the similarity of the circumstances does not have to be completely symmetrical." Lohmann v. Norfolk & Western Ry., 948 S.W.2d 659, 668 (Mo.App. W.D. 1997). The circumstances of the prior accident were sufficiently similar to the Gerow accident to have probative value on the issue of foreseeability, and therefore the evidence is admissible.
In their fourth and final point, the Gerows assert the trial court erred when it admitted the testimony of Chrysler expert Mark Noble because he had reviewed transcripts of the Gerows' experts' trial testimony before he took the stand, in violation of the court's order to exclude witnesses.
The aim of imposing "the rule on witnesses," as the practice of sequestering witnesses is sometimes called, is twofold. It exercises a restraint on witnesses "tailoring" their testimony to that of earlier witnesses; and it aids in detecting testimony that is less than candid. Sequestering a witness over a recess called before testimony is completed serves a third purpose as wellpreventing improper attempts to influence the testimony in light of the testimony already given.
Geders v. United States, 425 U.S. 80, 88, 96 S. Ct. 1330, 47 L. Ed. 2d 592 (1976) (Citations omitted). Obviously, reading transcripts of the in-court testimony of witnesses is equivalent to being present in the courtroom and listening to that testimony. Thus, when the court grants a party's request to impose the "Rule," and thereby exclude witnesses from the courtroom prior to their giving testimony, such ruling of necessity precludes witnesses from reading transcripts of trial testimony. Nonetheless, any error in the admission of Mr. Noble's testimony is moot by virtue of the cause being remanded for a new trial and therefore, we need not further address the point.
The judgment of the trial court is reversed and the cause is remanded for further proceedings consistent with this opinion.
All concur.
NOTES
[1] All statutory references are to RSMo (1994) unless otherwise noted.
[2] Section 537.765 states:
Defendant may plead and prove the fault of the plaintiff as an affirmative defense. Any fault chargeable to the plaintiff shall diminish proportionately the amount awarded as compensatory damages but shall not bar recovery. For purposes of this section, "fault" is limited to: (1)[t]he failure to use the product as reasonably anticipated by the manufacturer; (2)[u]se of the product for a purpose not intended by the manufacturer; (3)[u]se of the product with knowledge of a danger involved in such use with reasonable appreciation of the consequences and the voluntary and unreasonable exposure to said danger; (4)[u]nreasonable failure to appreciate the danger involved in use of the product or consequences thereof and the unreasonable exposure to said danger; (5)[t]he failure to undertake the precautions a reasonably careful user of the product would take to protect himself against dangers which he would reasonably appreciate under the same or similar circumstances; or (6)[t]he failure to mitigate damages.
§ 537.765.
[3] John Stilson, plaintiff's expert and an automotive engineer, defined the "Texas Twister" guardrail as a steel W-beam and supporting post.
[4] The Gerows' expert, John Stilson, testified that the "Texas twister" guardrail is found extensively in Missouri, as well as in several other states. This was not refuted by Chrysler's experts. Wright testified that this type of guardrail was installed through the early '90's and is common in Missouri and other states.
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97 B.R. 990 (1989)
In the Matter of EYE CONTACT, INC., Debtor.
Bankruptcy No. MM7-86-02842.
United States Bankruptcy Court, W.D. Wisconsin.
March 3, 1989.
*991 Michael Kepler, Madison, Wis., trustee.
Richard Jacobson, Borns, Macaulay & Jacobson, Madison, Wis., for debtor.
MEMORANDUM DECISION
ROBERT D. MARTIN, Chief Judge.
Claimant, Bernadette Stoudt, was employed by Eye Contact after May 27, 1986, under a contract for an annual salary of $18,000.00 and a bonus of $2,500.00 upon the completion of each three months' work. On August 27, 1986, she became entitled to a bonus of $2,500.00 but Eye Contact was unable to pay it. On September 6, 1986, Eye Contact and Ms. Stoudt agreed to a new contract for an annual salary of $28,000.00 without any bonuses. On October 3, 1986, Eye Contact paid Ms. Stoudt $1,000.00 to be applied to the unpaid portion of her $2,500.00 bonus. On November 14, 1986, Eye Contact filed a chapter 11 petition. Twelve days later, Ms. Stoudt terminated her employment with Eye Contact. At that time all her wages except the unpaid bonus had been paid.
On June 18, 1987, Ms. Stoudt filed a claim for the unpaid bonus in the amount of $1,746.60[1] due for work performed from May 27 to September 6, 1986. She claims $1,000.00 is entitled to third priority status under Bankruptcy Code § 507(a)(3). The trustee appointed in the Chapter 7 case to which this case was converted on March 23, 1987, objects to the claim and any priority.
Section 507(a)(3) provides:
(a) The following expenses and claims have priority in the following order:
. . . .
(3) Third, allowed unsecured claims for wages, salaries, or commissions, including vacation, severance, and sick leave pay
(A) earned by an individual within 90 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first; but only
(B) to the extent of $2,000 for each such individual.
(emphasis supplied). Since section 507(a)(3) limits wage priority claims to $2,000.00 and she has already received $1,000.00, Ms. Stoudt concludes that only $1,000.00 of the $1,746.60 still owed her is entitled to priority.
The trustee contends that section 507(a)(3) only grants priority to the extent work is actually performed during the ninety days prior to bankruptcy. The ninetyday priority period began on August 16, 1986, and Ms. Stoudt worked twenty-one days thereafter under the wage bonus system. The trustee calculates these twentyone days of work within the priority period entitle Ms. Stoudt to $576.92 as a wage priority claim.[2] However, the trustee further contends that the $1,000.00 bonus payment made on October 3, 1986, was a voidable preference and that because the amount of the preference has not been tendered to the estate the entire claim must be disallowed under section 502(d).
Section 502(d) provides:
Notwithstanding subsections (a) and (b) of this section, the court shall disallow *992 any claim of any entity . . . that is a transferee of a transfer avoidable under section . . . 547 . . . unless such entity or transferee has paid the amount, or turned over any such property, for which such entity or transferee is liable under section . . . 550 . . . of this title.
The trustee need not commence an avoidance action to bring section 502(d) into play. In re Larsen, 80 B.R. 784, 791 (Bankr.E.D.Va.1987); In re Mid Atlantic Fund, Inc., 60 B.R. 604, 610 (Bankr.S.D.N. Y.1986). By making a prima facie showing that the transfer is voidable, he can assert the alleged preference defensively under section 502(d) to defeat a proof of claim. See Mid Atlantic Fund, 60 B.R. at 609.
Under the facts of this case, there is no doubt that a "transfer of an interest of the debtor in property" occurred, 11 U.S.C. § 547(b), that Ms. Stoudt was a creditor at the time she received the money, id. section 547(b)(1), and that the payment was on account of an antecedent debt, id. section 547(b)(2). Because Eye Contact is presumed to have been insolvent during the ninety days prior to bankruptcy, id. section 547(f), the only element of the trustee's prima facie case not clearly evident is whether the payment enabled Ms. Stoudt to receive more than she would under a distribution from the chapter 7 estate if the transfer had not been made. Id. sections 547(b)(4), (5). If the transfer had not been made, Ms. Stoudt would hold a claim for $2,746.60, $575.40 of which would be entitled to priority. See infra at 992. Assuming that the portion of Ms. Stoudt's claim entitled to priority would be paid in full, she would have to receive a distribution of less than $424.60 on account of her general unsecured claim of $2,171.20 in order for section 547(b)(5) to be satisfied. The full record in this case indicates the probability that general creditors will receive a distribution, if any, of considerably less than 19.6%. This, and the trustee's conclusory assertion that the payment was "not in the ordinary course and to me represents a preference," will suffice as to the final element of § 547(b).
Under section 502(d), therefore, Ms. Stoudt's entire claim must be disallowed. As the legislative history states:
Subsection (d). . . . requires disallowance of a claim of a transferee of a voidable transfer in toto if the transferee had not paid the amount or turned over the property received as required under the sections under which the transferee's liability arises.
H.Rep. No. 95-595, 95th Cong., 1st Sess. 354 (1977); U.S.Code Cong. & Admin.News 1978, pp. 5787, 6310. Should Ms. Stoudt surrender the $1,000.00 to the estate, she could assert an allowable claim against the estate. Verco Industries v. Spartan Plastics (In re Verco Industries), 704 F.2d 1134, 1138 (9th Cir.1983) (court states that refusing to allow transferee to assert a claim against the estate after disgorging the fraudulent transfer would result in an "`inequitable' double recovery"). Should Ms. Stoudt elect, however, to retain the $1,000.00 and hope the trustee does not seek its recovery[3], she will forgo her opportunity to participate in the distribution from the estate based on her claim. See Tidwell v. Atlanta Gas Light Co. (In re Georgia Steel, Inc.), 38 B.R. 829, 839 (Bankr.M.D.Ga.1984) ("Section 502 was not designed to punish, but to give creditors an option to keep their transfers (and hope for no action by the trustee) or to surrender their transfers and their advantages and share equally with other creditors."). Should the status quo prevail, Ms. Stoudt appears better off than if she had not received the October 3rd payment (or, if she had turned it over to the estate) and received a distribution from Eye Contact's *993 estate. This observation is based upon the court's determination that Ms. Stoudt's allowable wage priority claim would be limited to $575.40.
The court of appeals decision in In re Northwest Engineering Co. v. United Steel Workers of America, 863 F.2d 1313 No. 88-1489 (7th Cir.1988) is dispositive of the wage priority issue raised in this case. In Northwest Engineering, Judge Easterbrook confronted the conundrum posed by a case such as ours, where the employment agreement provides that work performed over a certain period of time gives rise to a benefit which only vests at the end of the specified time period. Id., at 1315.
Judge Easterbrook held that to the extent the employer is contractually indebted to the employee, "vacation pay is `earned' continuously" as work is done. Id. at 1316. Under this approach, the court first inquires whether the employee's rights to an employment benefit have vested either prior to, or during, the priority period; if so, a "debt" exists. All work performed during the priority period which would entitle the employee to a future benefit constitutes the "earning" of that benefit to the extent the employer was already indebted to the employee. Id.
In our case, Ms. Stoudt's rights to $2,500.00 in bonus wages vested on August 27, 1986, eleven days into the priority period. Presumably her rights to an additional $246.60 in bonus wages vested on September 6, 1986, when the wage bonus system was discontinued. In any event, Eye Contact owed Ms. Stoudt at least $1,500.00 in bonus wages at the time the bankruptcy petition was filed. The amount of the debt owed to Ms. Stoudt that is to receive third-priority status is measured by how much bonus pay was "earned" in the ninety days prior to the bankruptcy. Calculating from the date of filing on November 14, 1986, the ninety-day priority period began on August 16, 1986. Twenty-one days elapsed from that date until September 6, 1986, when Ms. Stoudt was converted into a fullsalaried employee and the bonus system was terminated. Therefore, Ms. Stoudt "earned" twenty-one days of bonus wages during the priority period leaving her with an allowable wage priority claim of $575.40. The remaining $1,171.20 would be allowable as a general unsecured claim.[4]
In conclusion, the trustee's objection to the allowance of Ms. Stoudt's entire claim is sustained. As noted above, this result is more favorable to Ms. Stoudt than it may appear. She loses the right to share in distribution from the estate on account of her claim. However, even assuming the portion of her claim entitled to priority would be paid in full from the estate, it is improbable that any distribution on account of the remainder of her claim would result in Ms. Stoudt receiving more than amount of the preferential transfer she has retained.
Upon these findings and conclusions an order for judgment may be entered sustaining the trustee's objection.
NOTES
[1] Apparently Ms. Stoudt arrived at the $1,746.60 figure by adding the $27.40 per day ($2,500.00 divided by 91.25 days or ¼ of a year) she earned for the nine days from end of the first three-month bonus period (August 27) until the termination of the bonus system (September 6) to the unpaid $1,500.00 from the first quarter of her employment.
[2] How the trustee arrived at this figure is unclear. If Ms. Stoudt accrued $27.40 in bonus wages for each day of her employment, Ms. Stoudt should have accrued $575.40 in bonus wages for the twenty-one days of her employment under the bonus system within the ninetyday priority period (August 16September 6).
[3] At this juncture it appears that the trustee has little incentive to commence an adversary proceeding to recover the $1,000.00. Moreover, the trustee will soon be time barred from bringing such an action. Under section 546(a)(1), "an action . . . under section . . . 547 . . . may not be commenced after . . . two years after the appointment of a trustee under section 702. . . ." Following the conversion of this bankruptcy case from chapter 11, the trustee was appointed on March 24, 1987. Since no trustee was appointed in the superseded chapter 11, the statute of limitations commenced on March 24, 1987, and thus will expire shortly.
[4] Wage priority claim of $575.40: (21 days times; $27.40/day).
General unsecured claim of $1,171.20: ($2,500.00 [wage bonus March 27 to Aug. 27] + 246.60 [wage bonus Aug. 28 to Sept. 6]$1,000.00 [Oct. 3 payment]575.40 [wage priority claim] ).
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987 S.W.2d 59 (1999)
Patricia MAESTAS, Appellant,
v.
The STATE of Texas.
No. 496-98
Court of Criminal Appeals of Texas.
February 24, 1999.
*60 Richard Gould, McAllen, for appellant.
Theodore C. Hake, Asst. Dist. Atty., Edinburg, Matthew Paul, State's Atty., Austin, for State.
OPINION
MEYERS, J., delivered the opinion of the Court, in which McCORMICK, P.J., and MANSFIELD, KELLER, PRICE, JOHNSON, and KEASLER, J.J., joined.
A grand jury indicted Appellant for aggravated assault with a deadly weapon. TEX. PENAL CODE § 22.02(a)(1). The jury found Appellant guilty and the court assessed punishment at ten years imprisonment.[1] The court of appeals affirmed Appellant's conviction. Maestas v. State, 963 S.W.2d 151 (Tex.App.Corpus Christi 1998, pet. granted). We granted Appellant's petition for discretionary review to determine whether the court of appeals properly evaluated Appellant's claim that the police violated her Fifth Amendment right to remain silent.[2] Because the facts of this case do not involve an evaluation of credibility of any witness by the trial judge, we will conduct our own de novo review. See Guzman v. State, 955 S.W.2d 85 (Tex.Crim.App.1997).
I.
On October 4, 1993, Officer Jaime Vasquez arrested Appellant at the McAllen airport. Vasquez advised Appellant that she was under arrest and read her the Miranda[3] warnings. Vasquez read Appellant her Miranda rights again upon arrival at the police station, approximately one hour after her arrest. Appellant indicated she understood her rights and signed a waiver. Appellant stated she did not want to talk to police.[4] After Appellant initialed the form, police placed her in a holding cell at approximately 4:30 p.m.
On October 5, 1993 at approximately 11:00 a.m., Appellant signed another waiver form. Appellant told Vasquez she did not want to talk to police. Vasquez left Appellant in her cell and continued to investigate the crime. Around 8:00 p.m. Vasquez brought Appellant to his office, Mirandized her again, and asked some additional questions. Appellant then indicated she was willing to talk to the police. Vasquez Mirandized Appellant again, and she signed a statement indicating she understood her rights. Vasquez questioned Appellant *61 for several hours and took notes on her responses. Police returned Appellant to her cell while Vasquez prepared a typed version of Appellant's statement. On October 6, 1993, Appellant read the statement, including the Miranda warnings, and signed it at approximately 1:30 a.m.
Later that day, Appellant provided additional information to Vasquez. Vasquez advised Appellant of her Miranda rights again before discussing the new information.[5] Appellant assisted Vasquez in modifying her original statement to include the new information. Vasquez prepared the amended statement, which included Miranda warnings, and read it to Appellant. Appellant signed the statement. During this entire time period, the police provided Appellant with basic necessities including drinking water, a toilet, a bed, and a source of light. Appellant never invoked her right to an attorney.
Appellant moved to suppress her statement on the ground that it was obtained in violation of her constitutional right to remain silent. The trial court overruled Appellant's motion to suppress, and admitted the confession at trial.
II.
The Fifth Amendment to the United States Constitution guarantees that "No person... shall be compelled in any criminal case to be a witness against himself[.]" The importance of this right is emphasized by its inclusion in the Miranda warnings. In Miranda, the United States Supreme Court explained the implications of an assertion of the right to remain silent:
Once warnings have been given, the subsequent procedure is clear. If the individual indicates in any manner, at any time prior to or during questioning, that he wishes to remain silent, the interrogation must cease. At this point he has shown that he intends to exercise his Fifth Amendment privilege; any statement taken after the person invokes his privilege cannot be other than the product of compulsion, subtle or otherwise. Without the right to cut off questioning, the setting of in-custody interrogation operates on the individual to overcome free choice in producing a statement after the privilege has been once invoked.
Miranda, 384 U.S. at 473-74, 86 S. Ct. 1602. Following the Miranda language to its logical conclusion, however, would produce the absurd result that no confession or inculpatory statement would ever be admissibleeven if the accused changed his mind and wanted to speak with police after invoking the right to remain silent.
In Michigan v. Mosley, 423 U.S. 96, 96 S. Ct. 321, 46 L. Ed. 2d 313 (1975), the Supreme Court explained that no passage in the Miranda opinion "can sensibly be read to create a per se proscription of indefinite duration upon any further questioning by any police officer on any subject, once the person in custody has indicated a right to remain silent." Mosley, 423 U.S. at 102-103, 96 S. Ct. 321. The Court continued,
A reasonable and faithful interpretation of the Miranda opinion must rest on the intention of the Court in that case to adopt `fully effective means ... to notify the person of his right of silence and to assure that they exercise of the right will be scrupulously honored ...' 384 U.S., at 479 [86 S. Ct. 1602]. The critical safeguard identified in the passage at the time is a person's `right to cut off questioning.' Id., at 474 [86 S. Ct. 1602]. Through the exercise of his option to terminate questioning he can control the time at which questioning occurs, the subjects discussed, and the duration of the interrogation. The requirement that law enforcement authorities must respect a person's exercise of that option counteracts the coercive pressures of the custodial setting. We therefore conclude that the admissibility of statements obtained after the person in custody has decided to remain silent depends under Miranda on whether his `right to cut off questioning' was `scrupulously honored.'
Mosley, 423 U.S. at 103-104, 96 S. Ct. 321 (footnotes omitted). Examining the facts *62 present in Mosley, the Court concluded admission of the petitioner's statement did not violate his right to remain silent.
In Mosley, The Supreme Court found the following factors important to this analysis: (1) whether the suspect was informed of his right to remain silent prior to the initial questioning; (2) whether the suspect was informed of his right to remain silent prior to the subsequent questioning; (3) the length of time between initial questioning and subsequent questioning; (4) whether the subsequent questioning focused on a different crime; and (5) whether police honored the suspect's initial invocation of the right to remain silent. Thus Mosley created an ad hoc test in which "courts must evaluate the facts of each case to determine if the resumption of police interrogation was consistent with scrupulous observance of the right to cut off questioning." United States v. Alvarado-Saldivar, 62 F.3d 697, 699 (5th Cir. 1995), citing Wilcher v. Hargett, 978 F.2d 872, 877 (5th Cir.1992); see also Phillips v. State, 701 S.W.2d 875, 890-91 (Tex.Crim.App. 1985).[6]See also Watson v. State, 762 S.W.2d 591 (Tex.Crim.App.1988),[7] and Murphy v. State, 766 S.W.2d 246 (Tex.Crim.App.1989).
III.
In Guzman v. State, 955 S.W.2d 85 (Tex.Crim.App.1997), this Court explained the standards of review for different types of cases. We said
appellate courts, including this Court, should afford [almost total deference] to trial courts' rulings on `application of law to fact questions,' also known as `mixed questions of law and fact,' if the resolution of those ultimate questions turns on an evaluation of credibility and demeanor. The appellate courts may review de novo `mixed questions of law and fact' not falling within this category.
Guzman, 955 S.W.2d at 89. The first step in our appellate analysis is to determine which standard applies.
The present case presents an "application of law to fact" question. In making the decision we now review, the court of appeals had to consider evidence in the record and apply the law regarding the right to remain silent, as set forth in Miranda and Mosley. Under the circumstances present in this case, the resolution of this issue does not turn on an evaluation of credibility and demeanor.[8] As such, we review the court of appeals' decision de novo.
*63 In our de novo review, we apply Miranda and Mosley. We recognize the prominence of the right to remain silent as well as the ad hoc review set forth by the United States Supreme Court. With this in mind, we turn to the factors set out in Mosley and examine the record to determine whether each factor weighs in favor of finding a "scrupulous honoring" of Appellant's right to remain silent. See United States v. Alvarado-Saldivar, 62 F.3d 697, 699 (5th Cir.1995) (examining the record and weighing the Mosley factors). We emphasize that whether a resumption of questioning is consistent with "scrupulously honoring" the right to remain silent depends on the unique facts and circumstances of each case.[9]
Police testified that they informed Appellant of her rights prior to the initial questioning as well as prior to each subsequent questioning. Accordingly, the first two Mosley factors weigh in favor of "scrupulous honoring." In addition, police stopped interrogating Appellant as soon as Appellant said she wished to invoked her right to remain silent. Once Appellant began to talk to the officers, she did not try to re-invoke her right to remain silent, to end the interrogation, or to speak with an attorney. Thus the fifth Mosley factor also weighs in favor of "scrupulous honoring."
Officer Vasquez testified that Appellant appeared to be intoxicated when she was arrested and initially read her Miranda rights.[10] Officers Mirandized Appellant again after she had slept and appeared to be sober, and Appellant indicated she wished to remain silent. Approximately nine hours later, Vasquez confronted Appellant with additional information discovered during his investigation. He Mirandized Appellant, who indicated that she understood her rights and then signed a statement waiving those rights. Appellant's conversation with Vasquez lasted several hours. Appellant then waited several hours for Vasquez to prepare a written version of her statement, which she signed. The third Mosley factor was meant to guard against abuses in subsequent questioning. For example, in United States v. Hernandez, 574 F.2d 1362 (5th Cir.1978), the Fifth Circuit found a Miranda violation where police resumed questioning thirty to forty-five minutes after the appellant's invocation of the right. The present case is more like Kelly v. Lynaugh, 862 F.2d 1126 (5th Cir.1988), cert. denied, 492 U.S. 925, 109 S. Ct. 3263, 106 L. Ed. 2d 608 (1989) and West v. Johnson, 92 F.3d 1385 (5th Cir.1996), two cases in which the Fifth Circuit found police had scrupulously honored the suspect's assertion of the right to remain silent. In Kelly, police Mirandized Kelly when he was arrested. Five hours later, officers approached Kelly and read the Miranda warnings, and Kelly again invoked his right to remain silent, which the police honored. After four to six hours, police *64 approached Kelly with a co-defendant's confession. Kelly orally confessed and signed a written confession which included the Miranda warnings. In West, police Mirandized West when arresting him. He invoked his right to remain silent during the initial police interview and police terminated the questioning. Police approached West again more than thirteen hours later. We find the third Mosley factor weighs in favor of "scrupulous honoring."
Subsequent questioning did not focus on a different crime, so the fourth Mosley factor does not weigh in favor of "scrupulous honoring." As part of the Mosley analysis, however, we also consider other facts and circumstances in determining whether Appellant's right to remain silent was "scrupulously honored." Appellant was not coerced, threatened, or promised anything for talking with officers. Officers testified Appellant had access to necessities such as food, water, and restroom facilities. Finally, although officers initiated the questioning that resulted in Appellant's statement, ongoing investigations provided them with additional information which tended to show that Appellant was present at the scene of the murder. These additional considerations tend to support the conclusion that police "scrupulously honored" Appellant's right to remain silent.
After applying the ad hoc test set out in the case law to the evidence in the record and performing our de novo review, we find Appellant's right to remain silent was "scrupulously honored." As such, we hold the court of appeals did not err in holding the police scrupulously honored Appellant's right to remain silent.
The judgement of the court of appeals is affirmed.
HOLLAND, J., concurs with note:
I would conclude appellant's petition for discretionary review was improvidently granted. TEX. R. APP. P. Rule 69.3.
WOMACK, J., dissented.
NOTES
[1] Additionally, the trial court found that commission of the offense involved the use of a deadly weapon.
[2] Specifically, Appellant asks:
Where a suspect has previously on two occasions affirmatively indicated to the police, after the administration of Miranda warnings, that she does not wish to speak to them, does a confession obtained after the third, fourth, and fifth police-initiated attempts to interview the suspect comply with the requirement that the police `scrupulously honor' the suspect's right to remain silent?
[3] Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694 (1966).
[4] During the hearing on Appellant's motion to suppress her confession, Vasquez testified Appellant appeared intoxicated at the time of her arrest. He stated Appellant had a moderate to strong smell of alcohol on her breath, was a little unsteady in her balance, had somewhat bloodshot eyes, exhibited slurred speech, did not appear to be following instructions well, and initialed the waiver form in an improper location.
[5] According to testimony provided at the pre-trial hearing and again at trial, this would have been the seventh time Appellant was advised of her Miranda rights since her arrest.
[6] Phillips was a capital murder case on direct appeal to this Court. As the appellate court, we performed the review mandated by Mosley.
[7] Appellant argues Watson supports her contention that police did not scrupulously honor her right to remain silent. In Watson, we reiterated that Mosley requires "each case must ... be decided on the totality of the circumstances in that particular case." Watson, 762 S.W.2d at 597.
In Watson, we concluded the court of appeals erred because it assumed the appellant had to verbally and specifically assert his right to remain silent before police had to scrupulously honor his decision to remain silent: "There need not be a formal invocation of constitutional or Miranda rights. Anything said or done by the defendant that could reasonably be interpreted as a desire to invoke these rights should be sufficient to halt questioning." Id. at 598. As such, the court of appeals should have applied the Mosley test. In light of the fact that the appellant made it clear he wished to remain silent, police did not stop questioning, police interrogated the appellant four times in the same day, the interrogations were separated by a few hours, and the same police interrogated the appellant regarding the same crime, we held police did not scrupulously honor the appellant's right to remain silent. Finally, we noted the totality of the circumstances did not demonstrate that the appellant knowingly, intelligently, and voluntarily waived his right.
The present case presents completely different facts and a different legal inquiry.
Watson does not support Appellant's contention that she is entitled to relief. Instead, it stands for the proposition that each case must be analyzed based on its own facts and circumstances.
[8] This is because the officers' testimony as to what transpired from Appellant's arrest up to Appellant's confession is uncontroverted. Appellant did not provide conflicting testimony or contradict the officers' presentation of the facts in any way. In addition, Appellant did not present any complaints, for example complaints concerning the conditions of her jail cell, or complaints that she was coerced, intimidated, or forced to speak with police. Under different circumstances, where the police and the appellant provided conflicting testimony, resolution of this question would involve an evaluation of credibility and demeanor because the trial court would have to decide which testimony deserved more weight. In that case, our review would "afford almost total deference" to the trial court's determination, in accordance with Guzman.
[9] Citing many of the examples that illustrate this point, the court of appeals wrote:
Determining whether a resumption of questioning is consistent with scrupulous observance of the right to cut off questioning depends upon the circumstances of each case. Murphy, 766 S.W.2d at 249; see Mosley, 423 U.S. at 104-05, 96 S. Ct. 321 (interrogation immediately ceased, reinstated on different subject more than two hours later, after warnings were readministered, constitutes scrupulous honoring of right); United States v. Bosby, 675 F.2d 1174 (11th Cir.1982) (interrogation immediately ceased, reinstated two weeks later, after warnings readministered; scrupulous honoring); Murphy, 766 S.W.2d 246 (defendant arrested in Houston on Anderson County warrant, declines to talk, fifteen days later agrees to talk to Houston police in Anderson County jail after warnings readministered and after learning he's a suspect in Houston murder; scrupulous honoring); Phillips v. State, 701 S.W.2d 875 (Tex.Crim.App.1985), overruled on other grounds, Hernandez v. State, 757 S.W.2d 744, 752 (Tex.Crim.App.1988) (interrogation immediately ceased, defendant given lunch, returned to his cell, later that evening warnings repeated, defendant wanted guarantees, officer refused, confession given; scrupulous honoring).
Maestas, 963 S.W.2d at 160.
[10] Officers first Mirandized Appellant as they were arresting her and placing her into a police vehicle, and a second time upon arrival at the police station. Vasquez said Appellant smelled of alcohol and exhibited other characteristics of intoxication, such as slurred speech, unsteady balance, and inability to follow directions, as evidenced by the fact that she initialed the written warnings in the wrong place when Mirandized at the police station.
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471 S.W.2d 926 (1971)
Carl Calvin FUTRELL, Appellant,
v.
INDIANA LUMBERMENS MUTUAL INSURANCE COMPANY, Appellee.
No. 15795.
Court of Civil Appeals of Texas, Houston (1st Dist.).
September 16, 1971.
Rehearing Denied October 7, 1971.
*927 W. Leo Theiss, Sr., Houston, for appellant.
Frank B. Stahl, Jr., Houston, Watkins & Hamilton, Houston, of counsel, for appellee.
PEDEN, Justice.
Suit for medical payment benefits under an automobile insurance policy. The insured sued the insurer for medical expenses incurred by his minor son, who was injured while riding a motorbike when it collided with a motorcycle. Appellant contends that the trial court erred in concluding that a motorcycle is not an automobile within the meaning of that term as it is used in the medical payments coverage of the Texas family combination automobile insurance policy.
The parties filed this stipulation as to the facts of the case:
"On or about March 15, 1970, Carl C. Futrell, Jr., age 14, was riding a two-wheel vehicle known in common parlance and in every day usage as a motorbike which belonged to his father and the Plaintiff in the case at bar, Carl C. Futrell. In the vicinity of the 1000 block of Peach Springs, a collision occurred between the vehicle being ridden by Carl C. Futrell, Jr., and a two-wheel vehicle powered by an internal combustion engine. The latter vehicle is known as a motorcycle in popular and common usage of that term. Carl C. Futrell, Jr., sustained injuries as a result of said collision which necessitated medical treatment and services. The reasonable and necessary expense of the medical treatment and services rendered to Carl C. Futrell, Jr., exceeded $2,000.00.
"On March 15, 1970, there existed an insurance contract entered into between the Plaintiff and the Defendant entitled: `Family Combination Automobile Policy-Texas.' The number of said policy was FCA 6537270. The automobile insured under said policy was a 1969 Chevrolet station wagon, identification No. 1643695120247 owned by Carl C. Futrell. Carl C. Futrell had paid a premium of $17.00 to the Defendant, Indiana Lumbermens Mutual Insurance Company, for coverage under Part II of said policy entitled `Expenses for Medical Services.'"
A certified copy of the insurance policy was attached to the stipulation and made a part of it. Each party moved for summary judgment in reliance on the stipulation. The trial court granted that of the insurer and denied that of the insured. Findings of fact made by the trial judge include the stipulation and the material provision of the policy. The court concluded that a motorcycle is not an automobile within the meaning of Part II, Coverage C, Division 1(c) of the policy.
The provision in question was
"Coverage CMedical Payments. To pay all reasonable expenses incurred within one year from the date of accident *928 for necessary medical, surgical, X-ray and dental services, including prosthetic devices, and necessary ambulance, hospital, professional nursing and funeral services:
Division 1. To or for the named insured and each relative who sustains bodily injury, sickness or disease, including death resulting therefrom, hereinafter called `bodily injury', caused by accident,
(a) while occupying the owned automobile,
(b) while occupying a non-owned automobile, but only if such person has, or reasonably believes he has, the permission of the owner to use the automobile and the use is within the scope of such permission, or
(c) through being struck by an automobile or by a trailer of any type; * * *."
The policy contains definitions of "owned automobile," "temporary substitute automobile," "non-owned automobile," "private passenger automobile," "farm automobile" and "utility automobile," but it does not contain a definition of "automobile."
We find nothing ambiguous in the term "automobile," and no indication that it was used in a technical or different sense. Terms used in an insurance contract are given their ordinary and generally accepted meaning unless the policy shows the words were meant in a technical or different sense. Western Reserve Life Insurance Co. v. Meadows, 152 Tex. 559, 261 S.W.2d 554 (1953); Guardian Life Insurance Co. of America v. Scott, 405 S.W.2d 64 (Tex.Sup. 1966).
In Texas Casualty Insurance Co. v. Wyble, 333 S.W.2d 668 (Tex.Civ.App.1960, no writ) the court held:
"The term `automobile' is narrower than the terms `vehicle' and `motor vehicle.' In the absence of words in the policy which indicate a different meaning, it has been held that the term `automobile' is not broad enough to embrace a motorcycle. Neighbors v. Life & Casualty Ins. Co. of Tennessee, 182 Ark. 356, 31 S.W.2d 418; Bullard v. Life & Casualty Ins. Co., 49 Ga.App. 27, 174 S.E. 256; Id., 178 Ga. 673, 173 S.E. 855; Wallnitz v. Werner, Mo.App., 241 S.W. 668; Deardorff v. Continental Life Ins. Co., 301 Pa. 179, 151 A. 814; McDonald v. Life & Casualty Ins. Co., 168 Tenn. 418, 79 S.W.2d 555; Moore v. Life & Casualty Ins. Co., 162 Tenn. 682, 40 S.W.2d 403."
The judgment of the trial court is affirmed.
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97 B.R. 468 (1989)
In re HANSON OIL COMPANY, INC., Debtor(s).
In re Jack HANSON, Individually, Debtor(s).
Bankruptcy Nos. 88-40239, 88-40240.
United States Bankruptcy Court, S.D. Illinois.
March 13, 1989.
*469 James Van Winkle, McLeansboro, Ill., for B.I.C. Oil Co., Inc. and Monroe Webb & Mary C. Hornbrook.
A. Courtney Cox, Benton, Ill., for Fir Community.
Feldman & Wasser, Springfield, Ill., for debtors.
Charles E. Jones, McLeansboro, Ill., for trustee.
MEMORANDUM AND ORDER
KENNETH J. MEYERS, Bankruptcy Judge.
This matter is before the Court to consider the validity of a notice of rejection of lease filed by lessors of an oil and gas lease owned in part and operated by debtor, Hanson Oil Co., Inc. Lessors allege that the trustee in bankruptcy has failed to assume or reject such oil and gas lease within 60 days as required by § 365(d)(4) of the Bankruptcy Code. Lessors assert, therefore, that debtor's interest in the oil and gas lease must be deemed rejected.
Section 365(d)(4) provides in pertinent part:
. . . [I]n a case under any chapter of this title, if the trustee does not assume or reject an unexpired lease of nonresidential real property under which the debtor is the lessee within 60 days after the date of the order of relief, . . . then such lease is deemed rejected, and the trustee shall immediately surrender such nonresidential real property to the lessor.
11 U.S.C. § 365(d)(4)(emphasis added). The trustee and a secured creditor, who have objected to the notice of rejection, contend that an oil and gas lease under Illinois law is not an "unexpired lease" as contemplated by § 365(d)(4) and that the trustee thus was not required to assume debtor's interest in the oil and gas lease to prevent a deemed rejection of the lease.
The oil and gas lease in question, known as the "Rex Webb" lease, was granted for a primary term and for so long thereafter as oil and gas were produced. Oil was discovered on the Rex Webb lease during the primary term, and an oil well was producing at the time of debtor's bankruptcy. The lease contained a "cessation of production" covenant providing that if, after discovery of oil and gas, production should cease, the lease would not terminate if additional reworking or drilling operations were commenced within 60 days.
Debtor, who had financed operations on the Rex Webb lease by the sale of fractional working interests to investors, retained a portion of the working interest as well as the right to operate the lease. The lease provided for payment of a standard one-eighth royalty to lessors from the production of oil and gas. The lease contained no provision for delay rental payments or other periodic payments to lessors.
Whether or not the instant lease comes within the purview of § 365(d)(4) requires a determination of the interest created by an oil and gas lease under state law. See In re Petroleum Products, Inc., 72 B.R. 739 (Bankr.D.Kan.1987); Matter of Myklebust, 26 B.R. 582 (Bankr.W.D.Wis.1983). Illinois law recognizes that an oil and gas lease, while not granting title to the oil itself, grants to the lessee the right to enter upon the surface of the land and to reduce the oil and gas to the lessee's possession. Ohio Oil Co. v. Daughetee, 240 Ill. 361, 88 N.E. 818 (1909). It is uniformly held that leases which contain a primary term requiring exploration or development within a stated period, followed by a "thereafter" clause, are to be construed as conveying a freehold interest or estate in that, unlike an estate strictly for a term of years, the lessee's right under such a lease may continue for an indefinite period. Dethloff v. Zeigler Coal Co., 82 Ill. 2d 393, 45 Ill. Dec. 175, 412 N.E.2d 526 (1980); Transcontinental *470 Oil Co. v. Emmerson, 298 Ill. 394, 131 N.E. 645 (1921); Ohio Oil Co. v. Daughetee. Under Illinois law, the grant of this right to go on the land and remove oil "is, in effect, a sale of a part of the land." Transcontinental Oil Co. v. Emmerson, 298 Ill. 394, 403, 131 N.E. 645; Ohio Oil Co. v. Daughetee.
While, through common usage and convenience, the operative act whereby the oil and gas operator acquires the right to explore and produce oil from the land, giving as consideration therefor a share of that produced, is denominated a "lease," oil and gas leases differ in many respects from ordinary leases for land or buildings that are governed by common law landlord-tenant principles. See Williams and Meyers, 1 Oil and Gas Law, § 202.1, at 22-24 (1986); Summers, 1A Law of Oil and Gas, § 151 (1954). For example, one possessing a life estate in land may make ordinary leases for a term not to outlast his own estate, but he has no right to lease the land for the mining of oil and gas, as this would amount to "waste" for which he would be liable to the remainderman. See 18 Ill. L. & Prac. Estates, § 27, at 22 (1956). The Illinois Supreme Court, in Central Standard Insurance Co. v. Gardner, 17 Ill. 2d 220, 238, 161 N.E.2d 278 (1959), commented on this distinction:
Oil and gas, like other minerals, is considered a wasting asset, a part of the real estate subject to depletion and exhaustion by removal, although such removal may continue over a period of years before exhaustion occurs. Once exhausted, its value is gone and not subject to further recovery. From the very nature of oil and gas royalties and bonuses, one cannot class them in the same category as the "rentals" or "income" realized annually from the normal, recurring production of crops from real estate or customary annual cash rentals paid for the surface use of real estate.
In the instant case, the oil and gas lease at issue is of indefinite duration by reason of its "thereafter" clause and, under Illinois law, is not an ordinary lease but conveys a freehold estate. A freehold estate, defined as an estate of uncertain duration or a right of title to land, is clearly distinct from a "leasehold," which is an estate for a fixed number of years. See Black's Law Dictionary, at 793, 1036 (rev. 4th ed. 1968). Such an oil and gas lease, therefore, may not be equated with the "lease" of § 365(d)(4) simply because of the terminology used to describe this legal relationship.
The Court is aware of no case that has addressed the applicability of § 365(d)(4) to oil and gas leases under Illinois law. However, decisions based upon the characterization of oil and gas leases under the laws of other states are instructive in determining whether an Illinois oil and gas lease constitutes an unexpired lease for purposes of § 365(d)(4). In two decisions interpreting Oklahoma oil and gas law, the courts in In re Heston Oil Co., 69 B.R. 34 (N.D. Okla.1986), and In re Clark Resources, Inc., 68 B.R. 358 (Bankr.N.D.Okla.1986), ruled that oil and gas leases were neither unexpired leases nor executory contracts under § 365 requiring assumption or rejection by the trustee. The district court in Heston observed that under Oklahoma law concerning oil and gas leases, use of the term "lease" was more in deference to custom than a description of the legal relationship involved. The court cited Oklahoma case law holding that, rather than a true lease, an oil and gas lease was really a "`[present] grant of oil and gas to be captured in the lands described during the term demised and for so long thereafter as these substances may be produced.'" Heston, at 36, quoting Shields v. Moffitt, 683 P.2d 530, 532 (Okla.1984). Thus, the interests arising from an oil and gas lease in Oklahoma are "akin to a profit á prendre and are generally considered as estates in real property having the nature of a fee." Heston, at 36.
The court in Clark Resources expressly followed Heston in finding that § 365 does not apply to an Oklahoma oil and gas lease. The court found from the legislative history of § 365(d)(4) that it was the Congressional intent that § 365(d)(4) be applied to "traditional" leases of shopping centers and other nonresidential structures. The court, adopting the Heston rationale that *471 an Oklahoma oil and gas agreement grants a profit á prendre rather than a leasehold estate, concluded that the oil and gas lease was not a lease as contemplated by § 365(d)(4).
Illinois law relating to oil and gas leases is similar to Oklahoma law as interpreted in Heston and Clark Resources in that an Illinois oil and gas lease is not an ordinary lease but constitutes an interest in realty. The reasoning of these cases is thus persuasive authority for finding that § 365(d)(4) does not apply to an Illinois oil and gas lease.
In a third decision based on Ohio law, the court in In re Gasoil, Inc., 59 B.R. 804 (Bankr.N.D.Ohio 1986), held that § 365(d)(4) applied to an oil and gas lease because, under Ohio law, the interest created was in the nature of a leasehold for a term of years rather than a freehold estate. The leases in question provided for monthly royalty payments and for the payment of annual rental in any year in which there was no production. The court found that this made the leases run in successive periods of one year similar to automatically renewing periodic tenancies.
Because of the characterization of an oil and gas lease under Ohio law as a leasehold estate, the Gasoil analysis is not applicable to an Illinois gas and oil lease described as conveying a freehold interest. Ohio case law, as discussed in Gasoil, holds that an oil and gas lease for an indefinite term "`does not rise to the dignity of a freehold estate,'" (Gasoil, at 807, quoting Acklin v. Waltermier, 19 Ohio C.C. 372, 379 (1899)), while Illinois case law uniformly holds that such a lease, by reason of its indefinite term, conveys a freehold estate. The Gasoil decision is, therefore, distinguishable from the instant case and cannot be relied on in determining the applicability of § 365(d)(4) to an Illinois oil and gas lease.
In the course of its decision, the Gasoil court referred to § 365(m), which provides:
For purposes of this section 365 . . ., leases of real property shall include any rental agreement to use real property.
11 U.S.C. § 365(m). The court stated that it was unnecessary to classify the oil and gas leases in question either as leases or as licenses, since they at least conveyed a right to use real property and so constituted leases within the meaning of § 365(d)(4). By its terms, however, § 365(m) covers agreements that are both (1) rental agreements and (2) for the use of real property. It does not follow that any use of real property is a lease, as it is necessary to determine in the first instance whether a "rental agreement" is involved. See In re Harris Pine Mills, 862 F.2d 217 (9th Cir. 1988). The somewhat circular definition of § 365(m), therefore, does not obviate the necessity of discerning whether a lease exists under state law before § 365(d)(4) is found to be applicable. In re Harris Pine Mills, 862 F.2d 217.
While the Gasoil court interpreted § 365(m) to justify a broad construction of § 365(d)(4), consideration of the purpose and effect of § 365(d)(4) lends support for the conclusion that this section should not be extended to the instant oil and gas lease. Section 365(d)(4) was enacted to protect affected parties, particularly shopping centers and their solvent tenants, from the commercial vacuum resulting from prolonged delay of the trustee in administering a bankruptcy case. See In re Harris Pine Mills, 79 B.R. 919 (D.Or.1987); In re Clark Resources, Inc. The effect of a rejection of a lease under § 365(d)(4) is to give rise to a breach, which allows the landlord to file a claim for damages for unpaid rent reserved under the lease. See 11 U.S.C. § 365(g); 2 Collier on Bankruptcy, § 365.08 (1988).
Unlike the ordinary lease that would be held in abeyance pending the trustee's decision to assume or reject, the oil and gas lease in question provides for automatic termination upon cessation of production for the required period so that the lessors would not be prejudiced in the event of delay or nonperformance under the lease. Cf. Matter of Compass Development, Inc., 55 B.R. 260 (Bankr.D.N.J.1985): oil and gas lease terminated by its terms after filing of bankruptcy petition notwithstanding automatic *472 stay; see also In re Trigg, 630 F.2d 1370 (10th Cir.1980); In re Anne Cara Oil Co., Inc., 32 B.R. 643 (Bankr.D.Mass.1983). Thus, the purpose of § 365(d)(4) to require timely action by the trustee would not be served by applying the requirements of § 365(d)(4) to such oil and gas lease. Moreover, since no periodic rents are reserved under the oil and gas lease, the trustee's rejection of the oil and gas lease would give rise to no claim for damages as contemplated by § 365(d)(4). The unique characteristics of the oil and gas lease, therefore, make application of § 365(d)(4) to such an agreement inappropriate.
For the reasons stated, the Court finds that the oil and gas lease in question does not constitute an "unexpired lease" within the meaning of § 365(d)(4). The trustee was not required to assume or reject the debtor's interest in the oil and gas lease under this section, and the lessors' notice of rejection of lease is void and of no effect.
IT IS ORDERED, therefore, that the trustee's objection to the lessors' notice of rejection of lease is SUSTAINED.
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987 S.W.2d 227 (1999)
Ex parte Jose GUTIERREZ, Appellant.
No. 03-98-00346-CR.
Court of Appeals of Texas, Austin.
March 11, 1999.
Rehearing Overruled April 8, 1999.
*228 Michael C. Gross, San Antonio, for Appellant.
Ken Anderson, Dist. Atty., John M. Bradley, Asst. Dist. Atty., Georgetown, for State.
Before Justices JONES, PATTERSON and ONION.[*]
JOHN F. ONION, Jr., Justice (Retired).
This is an appeal from an order denying relief following a pretrial application for writ of habeas corpus. The application was based on a claim of violations of the double jeopardy provisions of the Fifth Amendment to the United States Constitution and article I, section 14 of the Texas Constitution. See also Tex.Code Crim. Proc. Ann. art. 1.10 (West 1977).
Habeas Application
In his habeas application, appellant Jose Gutierrez alleged that he was charged by indictment in cause number 97-630-K277 with three counts of aggravated sexual assault of a child and two counts of indecency with a childN.R.; that he was convicted in said cause number in April 1998 in the 277th District Court of Williamson County of two counts of aggravated sexual assault of a child and two counts of indecency with a child; that the jury assessed his punishment at 50 years' imprisonment for each of the aggravated sexual assault offenses and 20 years' imprisonment for each of the indecency offenses; and that he is also charged by indictment in cause number 97-631-K277 with one count of aggravated sexual assault of a child and two counts of indecency with a child B.R.
Appellant also alleged that at his trial in cause number 97-630-K277 where N.R. was the complainant, B.R. testified at the penalty stage as to extraneous unadjudicated acts committed on her by appellant, which were the very acts or offenses alleged in the second indictmentcause number 97-631-K277; that in the subsequent jury argument the prosecutor repeatedly asked the jury to punish appellant for the acts committed against N.R., but also for the extraneous offenses committed against B.R.; and that it was obvious from the harsh punishment assessed that the jury followed the prosecutor's request and assessed punishment for offenses against both N.R. and B.R. Appellant argued in his habeas application that to put him to *229 trial in cause number 97-631-K277 would place him in double jeopardy because he had already been assessed punishment for all the offenses allegedly committed against B.R.
The Hearing
The trial court issued the writ and conducted a hearing to determine if appellant was entitled to the relief requesteddischarge from confinement by virtue of cause number 97-631-K277. At the hearing, appellant called no witnesses but introduced into evidence the two indictments, excerpts from the testimony of B.R. at both the guilt/innocence and penalty stages of the trial, and excerpts from the prosecutor's argument at the penalty stage of the trial. No other portions of the trial record were offered. At the conclusion of the hearing, the trial court denied relief. Appellant appeals from the order rendered.
Points of Error
Appellant advances two points of error. He contends that the trial court erred in refusing to grant relief after the habeas hearing thus exposing him to double jeopardy in violation of (1) article I, section 14 of the Texas Constitution, and (2) the Fifth Amendment to the United States Constitution.
Double Jeopardy
The double jeopardy clause of the Fifth Amendment to the United States Constitution protects against second prosecution after acquittal, protects against second prosecution after conviction, and protects against multiple punishments for the same offense. See United States v. Halper, 490 U.S. 435, 440, 109 S. Ct. 1892, 104 L. Ed. 2d 487 (1989); Illinois v. Vitale, 447 U.S. 410, 415, 100 S. Ct. 2260, 65 L. Ed. 2d 228 (1980); Watson v. State, 900 S.W.2d 60, 61 (Tex.Crim.App. 1995).
The Fifth Amendment is applicable to the states through the Fourteenth Amendment. See Breed v. Jones, 421 U.S. 519, 532, 95 S. Ct. 1779, 44 L. Ed. 2d 346 (1975); Benton v. Maryland, 395 U.S. 784, 794, 89 S. Ct. 2056, 23 L. Ed. 2d 707 (1969); Benard v. State, 481 S.W.2d 427, 429 (Tex.Crim.App.1972) (op. on reh'g). Conceptually, the state and federal double jeopardy provisions are identical. See Ex parte Mitchell, 977 S.W.2d 575, 580 (Tex.Crim.App.1997); Stephens v. State, 806 S.W.2d 812, 814-15 (Tex.Crim.App.1990); Phillips v. State, 787 S.W.2d 391, 393 n. 2 (Tex.Crim.App.1990); Ex parte Busby, 921 S.W.2d 389, 392 (Tex.App.Austin 1996, pet. ref'd). The Texas double jeopardy provision (art. I, § 14, Tex. Const.) does not give greater rights or protection than the Fifth Amendment. See Washington v. State, 946 S.W.2d 912, 913-14 (Tex.App.Austin 1997, pet. ref'd).
The Jury Argument
On appeal appellant does not complain about the introduction of the evidence of the extraneous unadjudicated offenses at the penalty stage of the trial,[1] but contends that jeopardy attached for the extraneous offenses when the prosecutor asked the jury to punish appellant for the instant offenses as well as the extraneous offenses and the jury did so. Appellant relies upon Rogers v. Lynaugh, 848 F.2d 606 (5th Cir.1988), which held that the State committed constitutional error in its jury argument at the penalty stage of a Texas trial by asserting the current robbery offense and three prior convictions were each "worth at least 10 years" and that if 10 years was allocated to each offense "you would come up with 40." Out of many penalty options, the jury assessed 40 years in prison as requested. The court concluded *230 that the State was necessarily urging punishment for the current offense and additional punishment for the three final prior convictions. Such action was in violation of the double jeopardy provisions of the Fifth Amendment and could not be considered harmless error. Id. at 610.
The State seeks to distinguish Rogers by pointing out that the instant case involves unadjudicated offenses, not prior convictions, that the prosecutor could properly argue consideration of extraneous offenses in the assessment of punishment, and that the jury's assessment of punishment was not in accordance with that requested by the State.
Ready for Consideration?
We must now determine if appellant's contentions about double jeopardy violations are ripe for consideration.
Pretrial Application for Writ
Appellant's pretrial application for a writ of habeas corpus is an appropriate method to present a Fifth Amendment or an article I, section 14 constitutional claim of a violation of the double jeopardy guarantees. See State v. Lara, 924 S.W.2d 198, 202 (Tex. App.Corpus Christi 1996, no pet.); see also Apolinar v. State, 820 S.W.2d 792, 794 (Tex. Crim.App.1991); Stephens, 806 S.W.2d at 814; Ex parte Robinson, 641 S.W.2d 552, 555 (Tex.Crim.App.1982); Ex parte Carter, 849 S.W.2d 410, 413 (Tex.App.San Antonio 1993, pet. ref'd).
Burden of Proof
An applicant for a pretrial writ of habeas corpus who makes an allegation of double jeopardy has the burden of presenting sufficient evidence to establish his claim. See Ex parte Culver, 932 S.W.2d 207, 212 (Tex.App.El Paso 1996, pet. ref'd); see also Ex Parte Kimes, 872 S.W.2d 700, 703 (Tex. Crim.App.1993); Ramirez v. State, 916 S.W.2d 32, 33 (Tex.App.Houston [1st Dist.] 1995, no pet.); Hoang v. State, 810 S.W.2d 6, 8 (Tex.App.Dallas 1991), aff'd, 872 S.W.2d 694 (Tex.Crim.App.1993), cert. denied, 513 U.S. 863, 115 S. Ct. 177, 130 L. Ed. 2d 112 (1994).
If the trial court denies relief to a habeas corpus applicant, the applicant has the burden of presenting an appellate record sufficient to show that the trial court erred; in the absence of a complete record, an appellate court is not in a position to overrule the trial court. See Kaman v. State, 923 S.W.2d 129, 132 (Tex.App.Houston [1st Dist.] 1996, no pet.).
As noted, to sustain his burden at the habeas hearing, appellant offered the two indictments and excerpts from B.R.'s testimony and the prosecutor's jury argument. No judgment or sentence, no jury charges, no jury verdicts, or any other portion of record in cause number 97-630-K277 were offered into evidence. No request was made for the trial court to take judicial notice of any of the records. See Kaman, 923 S.W.2d at 131-32. There were no requests for the State to stipulate. Appellant has not sustained the burden assigned him.
The State, not appellant, notes that appellant is appealing his conviction in cause number 97-630-K277 to this Court. It is not proper, however, for an appellate court to look to another appellate record to supply a deficiency in the proof of another case under consideration on appeal. See Berrios-Torres v. State, 802 S.W.2d 91, 95 n. 3 (Tex.App. Austin 1990, no pet.) (citing Garza v. State, 622 S.W.2d 85, 89-90 (Tex.Crim.App.1981) (op. on reh'g)); see also Jones v. State, 711 S.W.2d 634, 636 n. 1 (Tex.Crim.App.1986); Jones v. State, 931 S.W.2d 35, 38 n. 1 (Tex. App.Houston [1st Dist.] 1996, no pet.). Thus, we cannot look to another record to supply the deficiencies in this record.
No Final Conviction
If the conviction in cause number 97-630-K277 is pending appeal, it is not a final conviction. An accused cannot successfully claim that he has already been punished for the same offense in a prior proceeding unless the judgment in the prior proceeding has become final. See Clarke v. State, 928 S.W.2d 709, 721 (Tex.App.Fort Worth 1996, pet. ref'd); Marr v. State, 689 S.W.2d 290, 292 (Tex.App.Waco 1985, pet. ref'd). An accused must first suffer jeopardy before *231 he can suffer "double jeopardy." Ex parte Garcia, 927 S.W.2d 787, 788-89 (Tex.App. Austin 1996, no pet.) (citing Serfass v. United States, 420 U.S. 377, 393, 95 S. Ct. 1055, 43 L. Ed. 2d 265 (1975); Ex parte McAfee, 761 S.W.2d 771, 772 (Tex.Crim.App.1988)); see also Ex parte Cantu, 913 S.W.2d 701, 705 (Tex.App.San Antonio 1995, pet. ref'd).
In Clarke, the defendant presented the same contention as appellant does here. There, the court wrote:
Clarke also argues that jeopardy attached for the extraneous offense during the first punishment phase of the trial for this offense when the prosecutor asked the jury to punish him based on this offense and the extraneous offense. However, "[i]n order for there to be any double jeopardy bar to [a] second prosecution under the double jeopardy guarantee against multiple punishment, appellant has to have already been punished once."
Id. 928 S.W.2d at 721 (quoting Broxton, 888 S.W.2d at 25).
Conclusion
Appellant did not sustain his burden at the habeas hearing before the trial court, did not present a sufficient record on appeal to show that the trial court erred, and has made no showing that cause number 97-630-K277 is a final conviction. Appellant's first and second points of error are overruled.
The order denying habeas corpus relief is affirmed.
NOTES
[*] Before John F. Onion, Jr., Presiding Judge (retired), Court of Criminal Appeals, sitting by assignment. See Tex. Gov't Code Ann. § 74.003(b) (West 1998).
[1] See Tex.Code Crim. Proc. Ann art. 37.07, § 3(a) (West Supp.1999). The mere consideration by a jury of an extraneous sexual assault when assessing punishment for a charged offense does not amount to a trial, conviction, or punishment for the extraneous sexual assault. See Broxton v. State, 866 S.W.2d 711, 714 (Tex.App.Houston [14th Dist.] 1993), aff'd, Ex parte Broxton, 888 S.W.2d 23 (Tex.Crim.App.1994), cert. denied, 515 U.S. 1145, 115 S. Ct. 2584, 132 L. Ed. 2d 833 (1995) (emphasis in original); see also McDuff v. State, 939 S.W.2d 607, 621 (Tex.Crim.App.1997); Ex parte Smith, 884 S.W.2d 551, 554 (Tex.App. Austin 1994, no pet.); Smith v. State, 842 S.W.2d 401, 404 (Tex.App.Fort Worth 1992, pet. ref'd). The rationale underlying these decisions has been earlier discussed. See Broxton, 888 S.W.2d at 27.
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471 S.W.2d 60 (1971)
Charles Edward HARDIN, Appellant,
v.
The STATE of Texas, Appellee.
No. 44070.
Court of Criminal Appeals of Texas.
October 6, 1971.
*61 Merritt F. Hines, Tom Parker, Midland, for appellant.
James A. Mashburn, Dist. Atty. and Joel D. Conant, Asst. Dist. Atty., Midland, Jim D. Vollers, State's Atty., Austin, for the State.
OPINION
DOUGLAS, Judge.
This is an appeal from a conviction for robbery by assault. A prior conviction for an offense of like character was alleged for enhancement. The punishment was assessed at life.
It is contended that the court erred in refusing to issue bench warrants for witnesses who were incarcerated in prison and in jail and for trying appellant while he was shackled.
We affirm.
The sufficiency of the evidence is not challenged.
The evidence shows that the appellant at gun point robbed Joe Hemingway, an employee of a grocery store in Midland, of some $240.
Some four days prior to the trial, the appellant's counsel filed an application for bench warrants for Theo Rae Thames, Russell Chamberlain and Raymond Lee Brown who were in the Tarrant County jail, and for Nancy Haggard and Pat Wayne Gilliland who were both in the Texas Department of Corrections. It was alleged that they were to be used as alibi witnesses. There has been no showing *62 that the witnesses would have testified to an alibi or that their testimony would have been material.
It is a fundamental element of due process of law that an accused has the right to present his own witnesses to establish a defense, and due process is denied when the State arbitrarily denies the accused the right to put on the stand a "witness who was physically and mentally capable of testifying to events that he had personally observed, and whose testimony would have been relevant and material." Washington v. Texas, 388 U.S. 14, 87 S. Ct. 1920, 18 L. Ed. 2d 1019 (1967).
In Cruz v. State, Tex.Cr.App., 441 S.W.2d 542, we reversed a conviction in which the trial court denied defendant's timely application to subpoena and issue a bench warrant for his co-defendant who had been convicted on a plea of guilty and who was a penitentiary inmate. The trial court denied the application pursuant to Article 82, Vernon's Ann.P.C., and Article 711, V.A. C.C.P., which were then in force but later repealed by the Texas Legislature. Our reversal was based on Washington, supra.
In Washington, the defendant and the denied witness were coindictees for the same offense. Washington v. State, Tex. Cr.App., 400 S.W.2d 756. In Cruz, the defendant and the denied witness were co-defendants indicted for the same offense. In each case the materiality of the testimony of the denied witness was sufficiently established.
The materiality of a witness' testimony is the touchstone for determining whether reversible error was committed in denying compulsory process. "The Framers of the Constitution did not intend to commit the futile act of giving to a defendant the right to secure the attendance of witnesses whose testimony he had no right to use." Washington v. Texas, supra.
The issue before us in the instant case is what measure of materiality is necessary before the court will commit reversible error by denying compulsory process of a witness.
Where a defendant seeks a continuance because of an unavailable witness the Texas Legislature demands that the motion set forth the "facts which are expected to be proved by the witness, and it must appear to the court that they are material." Article 29.06(3), V.A.C.C.P. It is further required that "the facts set forth in said motion were probably true." Article 29.06(6), V.A.C.C.P. As a minimum requirement to determine the materiality and truth of the facts set forth the Legislature has also determined that "[a]ll motions for continuance on the part of the defendant must be sworn to by himself." Article 29.08, V.A. C.C.P.
This Court has consistently and recently held that no reversible error exists where a defendant sought either a continuance to get his witness, or an "attachment of witness," where the defendant did not offer a sworn statement at the time of the motion saying what the witness would have testified to." Brito v. State, Tex.Cr.App., 459 S.W.2d 834. See also Ex parte Selby, Tex.Cr.App., 442 S.W.2d 706.
The same rights of a defendant are at stake when he seeks a continuance to get a witness, an attachment of a witness, or a bench warrant for a witness: has his constitutional right to compulsory process of a witness been denied. The same issue is before the court in each instance: whether the request of a witness by the defendant is a futile act which will only serve to cause delay rather than to promote justice. Where a defendant seeks compulsory process for a witness to appear in his defense which results in a continuance, an attachment, or a bench warrant the court is within its rights to demand sufficient appearance of the materiality of the witness' testimony. An affidavit or sworn testimony by the defendant saying what the witness would testify to is a reasonable minimum requirement.
*63 In the instant case the appellant did not make a sworn statement and said nothing. His attorney took the stand during the trial to state that his work product and investigation convinced him that these five witnesses would, if present, have testified that appellant could not possibly have been in the City of Midland on the day alleged in the indictment. He further testified that neither he nor his investigator had seen or talked to any of the five witnesses and did not know what they would say. The record is devoid of any showing during the trial or in a motion for new trial of what the witnesses would have testified or if they were willing to testify.
The order denying appellant's motion for a bench warrant recited that the witnesses were "material alibi witnesses." This Court is not bound by the conclusion of the trial court when the record does not support that conclusion but affirmatively shows that appellant or his attorney did not know that those named in the application for the bench warrants were material witnesses.
Taylor v. State, Tex.Cr.App., 243 S.W.2d 583, held there may be a certification of error, nevertheless, such being a mere conclusion upon the part of the trial court, this Court will look to the whole record, and if therein be found a contradiction of such certification such could be utilized in disposition of the matter.
In Sublett v. State, 158 Tex. Crim. 627, 258 S.W.2d 336, the Court stated:
"The facts are before us as they were before the trial judge. We alone reserve the right to pass upon what effect those facts had upon the trial of the accused. * * *"
See also Free v. State, 165 Tex. Crim. 374, 307 S.W.2d 808; Johnson v. State, Tex. Cr.App., 366 S.W.2d 560; Moore v. State, Tex.Cr.App., 380 S.W.2d 626.
In Ex parte Marez, Tex.Cr.App., 464 S.W.2d 866, it is written: "This court is not bound by the findings of the trial court that petitioner was deprived of a fair trial * * *."
Generally, it is presumed that the trial court ruled correctly and an appellant must show that the trial court committed reversible error. It would be an almost impossible burden to have the State prove that five or perhaps a dozen convicts would not testify as alleged by a defendant or to show that they were not material witnesses. The rule should not be changed in the present case especially where the attorney for appellant testified that neither he nor his investigator had talked to the witnesses and did not know what their testimony would be.
It is contended that reversible error was committed because the trial court proceeded with the trial with the appellant shackled.
Appellant objected because he had "been brought into court in shackles, same being leg irons attached to each leg by a chain." The prosecutor then stated to the court that the shackles were not observable by the jury panel and that the appellant was not brought into the courtroom in the presence of the jury and that the shackles would not be observed by the jury panel. The prosecutor stated that the State would offer evidence of appellant's intent to break jail by his letters and by witnesses if the court so desired and would introduce copies of the convictions of his jail break attempt by use of firearms in Tarrant County.
Appellant's counsel countered that Hardin had "not been finally convicted of said offense" and that the offense could not be used to substantiate the State's position. He also stated that the leg irons could not be concealed from the jury panel.
The court overruled the motion. The matter was not pursued further. There is no showing that any juror saw or *64 knew that appellant had on leg chains or was prejudiced in any way.[1] Absent such a showing, no reversible error is presented.
The judgment is affirmed.
NOTES
[1] It would be a better practice for the trial court to include in the record the reasons for allowing the appellant to be tried in leg chains. Record keeping for appellate and post-conviction review is all important. See Boykin v. Alabama, 395 U.S. 238, 89 S. Ct. 1709, 23 L. Ed. 2d 274, which was reversed because the record did not affirmatively show that Boykin was properly admonished.
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97 B.R. 239 (1989)
In re RAILROAD DYNAMICS, INC., Debtor.
Harry B. ALTENBERG, Trustee, Plaintiff,
v.
FRANKFORD TRUST CO., Defendant and Third-Party Plaintiff,
v.
A. STUCKI COMPANY, Third-Party Defendant.
Bankruptcy No. 84-00869S, Adv. No. 88-0894S.
United States Bankruptcy Court, E.D. Pennsylvania.
March 17, 1989.
*240 Lawrence J. Tabas, Philadelphia, Pa., for trustee.
Stephen J. Springer, Philadelphia, Pa., for A. Stucki Co.
James M. Peck, David T. Sykes, Margery N. Reed, Philadelphia, Pa., for Frankford Trust Co.
James Adelman, Philadelphia, Pa., for debtor.
OPINION
DAVID A. SCHOLL, Bankruptcy Judge.
A. INTRODUCTION
From the complex jumble of facts surrounding Objections by a Trustee to claims of the Debtor's two major creditors and an adversary proceeding involving the Trustee and both of these creditors, all of which were consolidated for trial, emerge three rather simply-resolved legal issues. The adversary proceeding, attempting to render Frankford Trust Co. (hereinafter referred to as "Frankford") liable for its failure to sell the Debtor's tumbling stocks which it was holding as collateral in connection with the Debtor's appeal of a judgment obtained against it by A. Stucki Company (hereinafter "Stucki"), clearly lacks merit. We also conclude that Frankford's attempt to assert an administrative claim against the Debtor because the Debtor improperly received post-petition dividends on the stocks after they were liquidated by Frankford lacks merit, because we do not see how or why Frankford was the victim of the Debtor's actions. Finally, equally ill-fated is the effort of Stucki to claim secured status of its claim on the basis of its large prepetition monetary judgment against the Debtor, because it has not established that the Debtor's personalty had been validly levied upon prior to the bankruptcy filing. Therefore, we sustain the Objections to both Stucki's and Frankford's claims, and we dismiss the claims of the Trustee in the adversary proceeding, mooting the third-party claim asserted by Frankford against Stucki therein.
B. PROCEDURAL HISTORY
The bankruptcy case underlying all of these matters was filed under Chapter 11 of the Bankruptcy Code on March 16, 1984, eight (8) days after the district court refused any further stay of a judgment entered on a Counterclaim of Stucki against the Debtor. This judgment determined that the Debtor's only business, manufacture of certain hydraulic shock absorbers utilized on railroad freight cars known as "snubbers," was violative of Stucki's patent and that Stucki was entitled to an injunction and a monetary judgment in excess of $2 million. This bankruptcy case was converted to a Chapter 7 case on September 5, 1984, and, on September 11, 1984, HARRY B. ALTENBERG, the plaintiff in the adversary proceeding and the protagonist of both of the Objections, was named interim trustee (hereinafter referred to as "the Trustee").
The present flurry of activity is the tailend of the case. We set this process in motion by an Order of April 21, 1988, in which we not only denied a motion of a landlord of the Debtor for administrative expenses, but also directed that the Trustee file, on or before June 1, 1988, any adversary proceedings or additional Objections to proofs of claims necessary prior to *241 the closing of the case. Among the Objections ultimately and somewhat belatedly filed, on June 29, 1988, and July 1, 1988, respectively, were attacks upon an administrative claim in the amount of $35,180.00 filed by Frankford (No. 30) and two secured claims filed by Stucki (Nos. 26 and 38), the last, superseding one of which was in the amount of $2,000,635.00.
The adversary proceeding was filed against Frankford on July 5, 1988. Therein, the Trustee sought to recover the amount by which the Debtor's stocks held as collateral by Frankford depreciated in value between the date of the bankruptcy filing on March 16, 1984, and April 19, 1984, when Frankford liquidated them. Frankford joined Stucki as a third-party defendant, contending that it would have liquidated the stocks earlier if Stucki had not provided the only opposition to Frankford's motion seeking relief from the automatic stay to effect the disposition of the stocks.
These matters ultimately became listed on our calendar on the same date, and were continued several times until October 25, 1988, when we entered an Order that a continuance until December 6, 1988, would be the last. The consolidated trial began and consumed several hours on December 6, 1988. However, we were unable to complete it, and were obliged to schedule it for completion on January 5, 1989. At its completion, Frankford initially indicated a desire to order a transcript, but thereafter withdrew this request, allowing us to enter an Order of January 30, 1989, requiring that all three parties file Opening Briefs by February 20, 1989, and Reply Briefs by February 27, 1989. Pursuant to a request by Frankford, the length of whose briefs far exceeded that of the other parties, the date that the Reply Briefs were due was pushed back to March 1, 1989.
As the matters before us include an adversary proceeding, were are obliged, by the terms of Bankruptcy Rule (hereinafter "B.Rule") 7052 and Federal Rule of Civil Procedure (hereinafter "F.R.Civ.P.") 52(a), to present our decision in the form of Findings of Fact and Conclusions of Law. We do so, utilizing our Conclusions of Law as headnotes for legal discussions which are presented immediately thereafter.
C. FINDINGS OF FACT
1. On March 17, 1976, the Debtor instituted a declaratory judgment action to have Stucki's patent on snubbers, the manufacture of which was the Debtor's sole business, declared invalid. Stucki counter-claimed to enjoin the Debtor's alleged infringement of its patent and for damages.
2. On March 28, 1983, subsequent to a trial in which Stucki prevailed, the Debtor's post-trial motions were denied, and an amended judgment of $2,182,986.00 was entered by the federal district court in this district, per the Honorable Raymond J. Broderick, in favor of Stucki and against the Debtor. See 579 F. Supp. 353 (E.D.Pa. 1983), aff'd, 727 F.2d 1506 (Fed.Cir.), cert. denied, 469 U.S. 871, 105 S. Ct. 220, 83 L. Ed. 2d 150 (1984).
3. Although the Debtor filed an appeal from this judgment to the Court of Appeals for the Federal Circuit, which hears patent appeals, it did not have sufficient funds to post a supersedeas bond. Therefore, on April 8, 1983, Stucki commenced execution on its judgment by filing and serving a writ of execution upon the Debtor; serving writs of attachment and interrogatories on eight (8) banks in Philadelphia; and noticing the deposition of the Debtor's custodian of records and president.
4. The Debtor then moved the district court for a stay of execution pending appeal without the necessity of posting a supersedeas bond. On April 12, 1983, in response to an informal request from Judge Broderick, Stucki agreed to a voluntary stay of execution pending a hearing on the Debtor's motion.
5. On April 29, 1983, after the hearing, Judge Broderick entered an Order granting the Debtor's motion subject, inter alia, to the following terms and conditions:
1. Within seven (7) days of the date of this Order, [the Debtor] shall post security in the form of a bond executed by an *242 approved corporate surety in the amount of $1,100,000
. . . . .
2. [The Debtor] shall take all necessary steps to maintain the value of its assets and prevent a decrease in the value thereof. . . .
6. To satisfy these conditions of the Stay Order, the Debtor obtained a standby letter of credit in the amount of $1.1 million from Frankford in favor of the Insurance Company of North America (hereinafter "INA"), which posted the necessary security bond.
7. As security for the issuance of the letter of credit, the Debtor signed a promissory note in favor of Frankford in the amount of $1.1 million with interest. The Debtor also entered into security agreements with Frankford granting to Frankford a first priority perfected security interest in virtually all of the Debtor's assets, including 52,000 shares of Duquesne Power and Light Co. and 20,000 shares of Detroit Edison Co. stock. The Debtor delivered the stock certificates and signed stock powers giving Frankford the right to, inter alia, sell the stock or replace it with other securities if it depreciated in value.
8. On May 12, 1983, the stock had a market value in excess of $1,230,000.00. However, the stock, though fluctuating, suffered an overall decline in value thereafter. Consequently, on February 2, 1984, Frankford required the Debtor's president, Stuart Schwam, and his wife, to furnish additional securities and assign two $100,000 certificates of deposit and certain money market and demand deposit accounts to Frankford as additional collateral for the letter of credit.
9. On January 25, 1984, the Court of Appeals for the Federal Circuit affirmed the district court's judgment. See 727 F.2d 1506 (Fed.Cir.), cert. denied, 469 U.S. 871, 105 S. Ct. 220, 83 L. Ed. 2d 150 (1984). On March 8, 1984, after remand, Judge Broderick granted Stucki's motion for an injunction to prohibit the Debtor's further infringement of Stucki's patent and denied the Debtor's motion for a further stay pending consideration of its ultimately-unsuccessful petition for certiorari to the United States Supreme Court.
10. On March 19, 1984, three days after filing this bankruptcy case, the Debtor unsuccessfully filed an emergency application with this court, per our predecessor, the Honorable William A. King, Jr., to enjoin Frankford from paying INA under its letter of credit and to enjoin INA from paying Stucki under the appeal bond. Accordingly, Frankford paid $1.1 million to INA under the letter of credit, and INA in turn paid Stucki this sum pursuant to its bond.
11. Frankford correctly concluded that it could not liquidate the collateral to satisfy the Debtor's obligations without first obtaining relief from the automatic stay imposed by 11 U.S.C. § 362(a) of the Bankruptcy Code. It therefore filed an expedited motion for relief from the stay and, on March 20, 1984, this court ordered that a Stipulation agreeing to modify the stay would be approved if no objections to it were filed on or before March 30, 1984.
12. On March 27, 1984, Stucki filed numerous motions in an effort to stop the Debtor's entire case from going forward, including a motion to withdraw the reference of the entire bankruptcy case to the district court and a motion to stay the entire bankruptcy proceedings. In addition, Stucki filed an objection to the Stipulation to allow Frankford relief from the stay on that date.
13. Because of Stucki's filing, which was the only Objection to the Stipulation, a hearing on the Stipulation was scheduled and not heard until April 18, 1984. At the hearing, Judge King approved the Stipulation and dismissed Stucki's Objection.
14. On April 19, 1984, the day immediately following the approval of the Stipulation, Frankford sold the stock through the brokerage firm of Kidder Peabody & Co. (hereinafter "Kidder"). The proceeds of the sale of the stock overall were only $924,928.99, due to the overall depreciation of the stock from May 12, 1983, to March 18, 1984. This depreciation had continued between March 16, 1984, and April 19, 1984.
15. Even though Frankford had sold the stock in April, the Debtor was erroneously *243 issued dividend checks in July, 1984, from Duquesne Power and Light Co. in the amount of $26,780.00 and from Detroit Edison Co. in the amount of $8,400.00.
16. Since the stock had been transferred before the dividend date and hence he correctly believed that the Debtor had no right to receive dividends, Schwam testified that he nevertheless deposited the dividend checks in the Debtor's bank account, which was ultimately included in a balance of approximately $600,000 turned over to the Trustee because he was unsure what to do with them. Schwam testified that the funds in the account had been used for the administration of the Debtor's estate in the interim, but there is no evidence when and if the particular funds received from the dividend checks were used.
17. Frankford's vice-president in charge of its investment department testified that he believed that Kidder had erroneously failed to transfer the stock to the new owners, thus causing the dividends to be sent to the Debtor. Nevertheless, he stated that Kidder had made a claim for the full amount of the dividends plus interest against Frankford and had set off the entire sum against Frankford's account with it.
18. Frankford's house counsel, however, clarified that Kidder had in fact only set off approximately $10,000 against its account as the result of these events. Counsel also indicated in a letter to Schwam of January, 1985, that litigation between it and Kidder over this matter was "imminent." However, there has been no such litigation filed to date.
19. The proof of claim of Frankford, in the amount of $35,180.00, reflects the sum of the dividends which were wrongfully paid to the Debtor.
D. CONCLUSIONS OF LAW/DISCUSSION
1. THIS COURT HAS JURISDICTION TO HEAR AND DETERMINE ALL OF THE MATTERS PRESENTED HEREIN.
There is, apparently, no dispute that this court has jurisdiction to hear and determine all aspects of the instant matters, as they are all core proceedings. 28 U.S.C. § 157(b)(1). Clearly, the objections to proofs of claim are core proceedings. 28 U.S.C. § 157(b)(2)(B). We also believe that the adversary proceeding is core in nature, because it involves post-filing conduct of Frankford which relates directly to the administration of the Debtor's estate. 28 U.S.C. §§ 157(b)(2)(A), (b)(2)(O). See In re Arnold Print Works, Inc., 815 F.2d 165, 168-71 (1st Cir.1987); and In re Jackson, 90 B.R. 126, 128-31 (Bankr.E.D.Pa.1988). We shall, therefore, proceed to enter a final Order as to all of these matters.
2. THE TRUSTEE HAS PROVIDED SUFFICIENT EVIDENCE IN THIS RECORD TO REQUIRE BOTH CLAIMANTS TO PROVE THE VALIDITY AND/OR PROPER CLASSIFICATION OF THEIR CLAIMS BY A PREPONDERANCE OF THE EVIDENCE.
Much of Frankford's Briefs on the issue of the validity of its proof of claim as filed is devoted to a contention that it should prevail because the Trustee failed to present any evidence to support his objection to its claim. Evidence was presented in the consolidated hearings first by Stucki; then by the Trustee; and, lastly, by Frankford. While the Trustee did not call any witnesses, we disagree with Frankford's contention that he failed to present any evidence relevant to his objections to its claim, or to Stucki's claim, for that matter. Rather, since the Trustee knew that both Stucki and Frankford intended to call witnesses which would support their respective claims and positions in the adversary proceedings, and attempt to attack the claims of the other, he properly deferred to each of them to present their own evidence both in support of their claims and in opposition to the other.
In determining which of the scenarios set forth in In re Lewis, 80 B.R. 39, 40-41 (Bankr.E.D.Pa.1987), was manifested by this sequence of presentation of evidence, *244 it is clear that we must focus upon the record made at the hearing as a whole. Frankford (and Stucki) opted to present considerable evidence which they believed supported the validity of their respective claims. The Trustee apparently concluded that the evidence presented by Frankford and Stucki not only failed to succeed in supporting their claims, but tended to undermine them. In retrospect, this conclusion appears to be accurate. However, it is clear that the testimony presented, whether from the mouths of witnesses called by Frankford or by Stucki or by the Trustee, was evidence submitted on the Trustee's behalf at the hearing.
Therefore, clearly, the record on the proofs of claim must be considered to fall within the fifth scenario set forth in Lewis, 80 B.R. at 41. It is only a record in which, taking all of the evidence into account, there is no evidence to support the objector's position anywhere in the record in which the third scenario, or the "relatively uncommon" situation in which the claimant only presents evidence which supports the claim, arises. 80 B.R. at 41 & n. 1. As we pointed out in In re Jordan, 91 B.R. 673, 683-84 (Bankr.E.D.Pa.1988), it is virtually impossible for the objector to prove a negative, i.e., that a claim has no merit, when the objector is uncertain of the basis of the claim. Any evidence from any source tending to raise a question concerning the validity of the claim is therefore sufficient to put the claimant to his proof.
We therefore conclude that, as to the objections of the Trustee to the proofs of claims, the record, as a whole, clearly contains sufficient evidence to place upon the respective claimants the burden of proving their claims by a preponderance of the evidence. See, e.g., Jordan, supra, 91 B.R. at 683-84; In re Celona, 90 B.R. 104, 109 (Bankr.E.D.Pa.1988); and In re BRI Corp., 88 B.R. 71, 73 (Bankr.E.D.Pa.1988) (TWARDOWSKI, CH. J.).
3. STUCKI HAS FAILED TO PROVE THAT THERE WAS A VALID LEVY ON ANY OF THE DEBTOR'S PERSONAL PROPERTY; ITS STATUS IS THEREFORE THAT OF AN UNSECURED CREDITOR.
The only facts presented by Stucki in support of its contention that its claim should be accorded secured status are that (1) it filed a writ of execution, and (2) commenced certain discovery in aid of execution, see Finding of Fact 3, page 241 supra, between April 8, 1983, and April 12, 1983, because (3) it ceased these proceedings only at the specific request of Judge Broderick. The only other period of time in which it could have proceeded to execute upon its judgment was between March 8, 1984, when Judge Broderick refused to extend the stay after the unsuccessful appeal to the Federal Circuit, and March 16, 1984, when the Debtor filed bankruptcy. There is no evidence that any execution proceedings were effected during the latter period.
Stucki accurately cites In re Decker, 27 B.R. 184, 185-86 (Bankr.M.D.Pa.1983), for the principle that, if a creditor effects a valid levy on a debtor's personalty prior to a bankruptcy filing, then the creditor has created a lien which renders the creditor's claim secured by the property levied upon.[1]*245 However, the difficulty with the application of that principle to the facts here is that Stucki has not established that a valid levy on any of the Debtor's personal property was ever effected.
Pursuant to B.Rule 7069 and F.R.Civ.P. 69(a), the execution procedures in the local district court in issue here must be undertaken in accordance with the law of Pennsylvania. It is well-established, under Pennsylvania law, that a judicial officer effecting a levy must bring personalty levied upon "within the actual power of the court." 12 STANDARD PA.PRAC.2d 453 (1983). This can be accomplished, in the absence of extraordinary circumstances which actively prevents a judicial officer from doing so, only by manual seizure of the property levied upon by the judicial officer, or by the officer's viewing the property and following up the view by taking actual possession of the property within a reasonable time thereafter. Id. at 454-55. See, e.g., Trainer v. Saunders, 270 Pa. 451, 453, 113 A. 681, 682 (1921); Dixon v. White Sewing Machine Co., 128 Pa. 397, 405, 18 A. 502, 502 (1889); Duncan's Appeal, 37 Pa. 500, 502-03 (1861); and Commonwealth v. Weglein, 147 Pa.Super. 257, 260, 24 A.2d 633, 636 (1942). If the levy is not validly effected, no lien arises and the purportedly-secured creditor has no security interest which is prior to the claim of a trustee on behalf of general unsecured creditors. Barnes v. Billington, 2 F. Cas. 858, 861-62 (D.Pa.1803) (No. 1,015).
Since the burden is upon Stucki to prove the validity of its secured claim by a preponderance of the evidence, we must conclude that Stucki has failed to meet its burden of establishing that any of the property of the Debtor was validly levied upon by the United States Marshal. No marshal's return showing that any of the Debtor's personalty was in fact levied upon was produced. We note that, to validly levy on the Debtor's stock, it was necessary that the marshal actually seize same. 13 Pa. C.S. § 8317(a); and 12 STANDARD PA. PRAC.2d, supra, at 455-56. This was obviously not accomplished, as Frankford remained in possession of the stock at all pertinent times. Other than the docket entries of the district court proceeding, which are totally inconclusive as to the actions of the marshal to effect a levy, the only evidence touching upon the execution proceedings is the testimony of Stucki's counsel, Raymond Hasley, Esquire. Mr. Hasley expressly disclaimed any knowledge of the efforts undertaken by the marshal to effect a levy on any of the Debtor's property.
We therefore conclude that Stucki has failed to meet its burden of establishing that it had a valid execution, a valid levy, or a valid lien against the Debtor's personalty, as would be necessary to sustain secured classification of its claim. As the only objection of the Trustee to Stucki's Amended Proof of Claim, which superseded its earlier claim, is the improper classification of the claim as secured, we shall allow Stucki one claim in the amount of $2,000,635.00, as a general unsecured claim.
4. FRANKFORD HAS FAILED TO PROVE THAT IT HAS A VALID ADMINISTRATIVE CLAIM AGAINST THE DEBTOR'S ESTATE, AS IT IS NOT CLEAR THAT THE DEBTOR'S ERRONEOUS RECEIPT OF THE DIVIDEND CHECKS IN ISSUE WAS AT FRANKFORD'S EXPENSE.
A closer and rather provocative issue is presented by Frankford's attempt to assert an administrative claim against the debtor in the amount of $35,180.00, representing the dividends which were erroneously paid to the Debtor and retained by it. As we indicated at pages 243-44 supra, we are unconvinced by the main thrust of Frankford's argument, i.e., that the purported failure of the Trustee to present evidence requires us to sustain its claim. We believe, instead, that the burden is thrust upon Frankford to establish that it (as opposed to any other party) had a *246 valid administrative claim against the Debtor.
Frankford's basis for priority classification of its claim is founded upon 11 U.S.C. § 507(a)(1), which establishes that "administrative claims allowed under section 503(b) of this title" are entitled to a first priority. The particular provision of 11 U.S.C. § 503(b) relied upon by Frankford is § 503(b)(1)(A), which provides as follows:
(b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including
(1)(A) the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case: . . .
We have repeatedly expressed our policy of "`keeping administrative costs to a minimum'" and therefore reading § 503(b)(1) narrowly to "embrace only those items clearly allowed by statute." In re American International Airways, Inc., 77 B.R. 490, 494 (Bankr.E.D.Pa.1987) (hereinafter cited as "AIA"), citing and quoting In re Grant Broadcasting of Philadelphia, Inc., 71 B.R. 891, 897 (Bankr.E.D.Pa.1987). Cf. In re St. Mary Hospital, Velez v. St. Mary Hospital, 97 B.R. 199, 203-04 (Bankr. E.D.Pa. 1989) (11 U.S.C. §§ 503(b)(3)(D) and (b)(4) must be narrowly construed).
We recognize that a debtor's post-petition misappropriation of funds may justify the imposition of an administrative claim against a debtor in favor of the party suffering a monetary loss by reason of the misappropriation. See AIA, supra, 77 B.R. at 491-92 (district court rules that debtor's post-petition presentation of bad checks to recover credit-card slips paid for by collecting agent entitles the collecting agent to "super-super-priority claim" status).
We believe a rather closely analogous contention to that of Frankford was stated by the Internal Revenue Service (hereinafter "IRS"), in In re Motor Freight Express, 91 B.R. 705, 712 (Bankr.E.D.Pa. 1988), appeal dismissed, 94 B.R. 346 (E.D. Pa.1988) (hereinafter cited as "MFX"). There, the IRS sought to recoup an erroneous, post-petition tax refund which it allegedly remitted to the debtor. We stated that "[c]learly, property stolen or improperly received by a debtor during a bankruptcy cannot be retained by a debtor on the ground that it is property of the estate." Id. However, we also recognized, in that Opinion, a contrary policy of "distaste for a creditor's contentions that it is required to receive favored treatment in distribution of estate assets." Id. at 713. We were ultimately disinclined to grant the request of the IRS that the funds be turned over to it on the merits of its claim[2] because the IRS failed to establish, by production of a cancelled check, that the check for the erroneous refund was ever paid to the debtor, and hence that the IRS actually suffered a loss by reason of the debtor's alleged improper receipt of funds. Id. at 712.
It is clear that, unlike the debtor in MFX, the Debtor here did actually receive a financial windfall to which it was not entitled. It thus obtained funds within the potential scope of § 503(b)(1)(A), because, if these funds did not necessarily preserve the Debtor's estate financially, they certainly enhanced it. However, it is not clear why Frankford should be considered the victim of the Debtor's windfall and entitled to an administrative claim as a result. Frankford was simply acting as the Debtor's agent in selling the stock and, according to its witnesses' testimony, it performed its duties properly. The testimony of Frankford's witnesses clearly supports the conclusion that Kidder or some other party negligently failed to advise the companies in which the stock was held to send the dividends elsewhere than to the Debtor. Certainly, if the buyer of the stock did not receive dividends to which it was entitled, it would appear to have a claim against the *247 Debtor. Likewise, the companies in which the stock was held, if compelled to pay the dividends twice, would appear to have had a justified claim against the Debtor. If Kidder, because of its negligence, was compelled to reimburse the companies or the buyer, it would appear to have a legitimate claim. However, it is unclear why Frankford, whose losses resulted solely due to Kidder's improper attempt to effect a set off against it, see Limbaugh v. Merrill, Lynch, Pierce, Fenner, & Smith, Inc., 732 F.2d 859, 863-65 (11th Cir.1984) (broker has no right to set off amount of dividends improperly received by seller against his account), would have a claim against the Debtor. It is totally unclear why Kidder would set off only approximately $10,000 against Frankford in any event. We are unfavorably impressed by the misleading testimony of Frankford's vice-president, even if innocently misleading, that Kidder had set off the entire $35,180 sum of the dividends. Had Frankford's house counsel not set the record straight on this point, we would have been misled. We also consider it extremely strange that, over the intervening period of four and a half years, Frankford and Kidder have apparently been unable or unwilling to resolve their rights inter se in this matter.
Our difficulty is therefore not that some party may not have a good claim, entitling it to some sort of priority against the Debtor for the wrongfully-received dividends. Rather, it is ascertaining why Frankford should be that party. It would seem to us that Kidder or whoever is ultimately actually out of pocket for the $35,180.00 that was sent to the Debtor should be making this claim. Clearly, Frankford is entitled to no more than the "approximately $10,000" set off against it. Failing to understand why this sum was set off, we are, frankly, suspicious of Frankford. We fear that, by awarding this entire sum or even a part thereof as an administrative claim to Frankford, which should not be liable for any of it, we would merely providing Frankford with a windfall to which it is not entitled.
In AIA, there was no question that that claimant-collection agent was the direct and only victim of the Debtor's defalcation. In MFX, where a question arose as to whether the IRS has suffered a loss as a result of the Debtor's receipt of the funds to which it was not entitled, we ruled against the IRS. Here, due to the confusion between the testimony of its own witnesses, we are unable to conclude with any degree of certainty that Frankford suffered a loss of $35,180.00, or any ascertainable sum, as a result of the Debtor's receipt of the dividends. Given the policy of keeping administrative costs at a minimum, we are not prepared to allow Frankford any claim of this sort in the face of such uncertainty.
Frankford has therefore failed to convince us that the preponderance of the evidence supports the allowance of its claim. There is no basis other than § 503(b)(1)(A) cited to us as support for the allowance of this clearly post-petition claim against the Debtor's estate. We therefore shall sustain the Trustee's Objections thereto and strike the claim.
5. THE CLAIMS ASSERTED IN THE ADVERSARY PROCEEDING AGAINST FRANKFORD ARE TOTALLY WITHOUT MERIT AND MUST BE DISMISSED.
The Trustee, in a display of sound discretion, virtually abandons the adversary proceeding in his briefing, stating, without embellishment and with a somewhat less impressive display of discretion, that he "adopts" Stucki's discussion on these issues. Stucki, in its Brief, ignoring entirely the recitations in the Complaint, which assert no such claims, argues that Frankford is liable to the estate for all of the losses in the value of the stock from April 29, 1983 (the date of Judge Broderick's stay order), to April 19, 1984 (the date of the disposition of the stock), on the grounds that: (1) It breached a duty to preserve the Debtor's assets by not selling the stock sooner, which it had the power to do; and (2) It received preferential transfers in demanding and receiving replacement collateral from Schwam and his wife when the stock declined in value.
*248 The abrupt departure of Stucki from the allegations of the complaint, which it will be recalled alleged only a breach of duty on the part of Frankford in failing to liquidate the stock in the post-petition period from March 16, 1984, through April 19, 1984, appears to have been motivated by its careful consideration of our statement, in the course of the trial, that we believed that the stock, contrary to the earlier assertions of Stucki, were property of the Debtor's estate, and that Frankford had proceeded properly in obtaining relief from the stay before proceeding to sell them.[3] However, by failing, at any time, to have the Trustee so much as seek to amend the original Complaint, either by formal motion or even orally in the course of the trial, we believe that the Trustee, and Stucki taking his part, are barred from seeking recoveries for damages never sought, based on theories never raised, in the pleadings. See Evans Products Co. v. West American Ins. Co., 736 F.2d 920, 922-24 (3d Cir.1984).
Furthermore, the theories articulated by Stucki are, in any event, far-fetched. According to Stucki, Frankford had the responsibility to determine whether the value of the Debtor's stock would decline, and, if it did, to dispose of it. It should be noted that, although the value of the stock did decline overall, the values fluctuated throughout the period. There was no evidence that Frankford knew or should have known that the value of the stocks would decline or that any interested party, most notably the Debtor or Stucki, ever requested that Frankford sell the stocks for this or any other reason. We believe that one or both of these elements would have had to have been established to even possibly support the merits of this claim. Frankford cannot be held in the role of an insurer against the vagaries of the stock market.
Being unable to articulate any theory which would create a duty on the part of Frankford to effectively have served as the Debtor's investment manager as to the stock, Stucki attempts to argue that, by failing to sell the stock, Frankford may be declared in contempt of that portion of the district court's Order of April 29, 1983, requiring the Debtor "to maintain the value of its assets and prevent a decrease in the value thereof!" Support for the principle that a person not a party to an Order may be adjudged in contempt thereof is found in Quinter v. Volkswagen of America, 676 F.2d 969, 972-74 (3d Cir.1982) (witness held in contempt for sharing materials with an attorney in relation to other similar litigation in direct violation of a protective order). Not recited are the following passages from Quinter, id., at 974 (same witness not held in contempt for holding the materials before the camera, but not reading their contents, on a nationally-televised news commentary show):
"The plaintiff has a heavy burden to show a defendant guilty of civil contempt. It must be done by `clear and convincing evidence,' and where there is ground to doubt the wrongfulness of the conduct of the defendant, he should not be adjudged in contempt." (quoting Fox v. Capitol Co., 96 F.2d 684, 686 (3d Cir. 1938)).
See also, e.g., United States v. Norton, 717 F.2d 767, 774 (3d Cir.1983) ("a party should not be held in contempt unless the court first gives a fair warning that certain acts are forbidden; any ambiguity in the law should be resolved in favor of the party charged with contempt").
It is far, far from clear that Frankford had any warning that any act on its part would or could result in its being held in contempt of the Order of April 29, 1983, or that its agents were even aware of the Order. To conclude that there was ambiguity as to whether Frankford violated this Order is an understatement. Suffice it to say that we find no act of Frankford to be legally improper, even in light of this Order, much less contemptuous of it.
The assertion that an action to recover the pre-petition additional advances of Schwam and his wife to Frankford as preferential, *249 under 11 U.S.C. § 547(b), is, if anything, even more problematical than Stucki's other assertions, for several reasons. First, this claim is not even remotely close to the cause of action stated in the Complaint. Secondly, as Frankford points out, a preference action would be barred by the two-year statute of limitations contained in 11 U.S.C. § 546(a)(1), because the Trustee was appointed on September 5, 1984, almost four years before this proceeding was filed. Thirdly, the "preferences" attacked are transfers made by Schwam and his wife, to shore up the collateral. They were not transfers "of an interest of the debtor," as required by 11 U.S.C. § 546(b). Finally, the record contains no evidence that the elements set forth in 11 U.S.C. §§ 547(b)(3) or (b)(5) were present. Compare In re E & S Comfort, Inc., 92 B.R. 616, 619-20 (Bankr.E.D.Pa. 1988) (failure of trustee to prove the element of § 547(b)(5) is fatal to a preference action despite the probability that this element could have been proven had the burden to do so been undertaken).
Therefore, we can readily conclude that the claims set forth in the adversary proceeding, and raised by Stucki in its Briefs despite their absence from the pleadings, are in any event without merit. Since the principal claim set forth against Frankford in this proceeding, must be dismissed, the third-party complaint stated by Frankford against Stucki falls as well. We should observe that, had any merit in the claims originally set forth in the Complaint been established, we would have been distinctly inclined to have ruled in favor of Frankford on the third-party Complaint.
E. CONCLUSION
For the reasons set forth herein, the Trustee's Objections to the Proofs of Claim filed by Frankford and Stucki will be sustained, but his adversary Complaint will be dismissed. In our Order, we also follow up our Order of April 21, 1988, and direct the Trustee to file the papers necessary to conduct a Final Audit hearing and, thereafter, make the other filings necessary to bring this case to a close.
ORDER
AND NOW, this 17th day of March, 1989, after a consolidated trial on (1) the Objections of the Trustee, HARRY B. ALTENBERG, to the Proof of Claim of FRANKFORD TRUST COMPANY (hereinafter "Frankford"), Claim No. 30, and Proofs of Claim of A. STUCKI CO. (hereinafter "Stucki"), Claims No. 26 and 38; and (2) the above adversary proceeding on December 6, 1988, and January 5, 1989, and upon consideration of the Briefs and Reply Briefs of the parties, it is hereby ORDERED AND DECREED as follows:
1. The Trustee' Objections to Frankford's Claim (No. 30), are SUSTAINED. Frankford's proof of claim is therefore STRICKEN.
2. The Trustee's Objections to Stucki's Claims (Nos. 26 and 38) are SUSTAINED. Stucki is determined to have one general, unsecured claim in the total amount of $2,000,635.00.
3. The Complaint of the Trustee against Frankford in the adversary proceeding is DISMISSED. Accordingly, the third-party Complaint of Frankford against Stucki is DISMISSED as well.
4. The Trustee or his counsel shall file the papers necessary to conduct a Final Audit hearing in this case on or before May 1, 1989.
5. A Final Audit hearing shall be conducted on
TUESDAY, JUNE 6, 1989, at 10:00 A.M. in Courtroom No. 2 (Room 3718), United States Court House, 601 Market Street, Philadelphia, PA 19106.
6. The Trustee or counsel for the Trustee shall submit an Order for Distribution on or before August 1, 1989, and shall thereafter file the cancelled checks and zero bank statement; or an affidavit, pertaining to disbursements made pursuant to the Order of Final Distribution, setting forth that there is a zero balance in the account and that the cancelled checks are no longer available, on or before October 1, 1989.
NOTES
[1] Stucki, however, attempts to carry this principle too far, and contends that a valid levy against a debtor's property would remove that property from the category of "property of the debtor's estate," citing, as support for this principle, Mid-Jersey Nat'l Bank v. Fidelity-Mortgage Investors, 518 F.2d 640, 642-44 (3d Cir.1975). Mid-Jersey does hold that, under the Bankruptcy Act, which was superseded by the Bankruptcy Code, the automatic stay did not extend to property levied upon but on which the levy was stayed by a supersedeas bond. However, as the Supreme Court unanimously held in United States v. Whiting Pools, Inc., 462 U.S. 198, 210 n. 18, 103 S. Ct. 2309, 2316 n. 18, 76 L. Ed. 2d 515 (1983), the preposition that effectuation of a lien on property places that property beyond the bankruptcy court's jurisdiction "is now irrelevant because of the expanded jurisdiction of bankruptcy courts under the Bankruptcy Code." Therefore, in Whiting Pools, the Court held that property which had even been physically seized by the Internal Revenue Service pursuant to a lien prior to the debtor's bankruptcy filing was nevertheless property of the debtor's estate under the Code. 462 U.S. at 204-05, 103 S.Ct. at 2313. Accord, e.g., In re Koresko, 91 B.R. 689, 695-96 (Bankr.E.D.Pa.1988); and In re Ford, 78 B.R. 729, 734-37 (Bankr.E.D.Pa.1987).
This erroneous assessment of its rights by Stucki apparently led to its misplaced and unfortunate opposition to Frankford's totally proper conclusion in March, 1984, that it was obliged to obtain relief from the stay before liquidating the Debtor's stock.
[2] The basis for the decision was, however, procedural. The IRS had earlier failed to establish that its claim should be classified higher than a seventh priority, and we found that it had failed to produce the requisite "cause" to have us reconsider our prior classification determination. 91 B.R. at 709-11.
[3] See pages 244-245 n. 1 supra, where we discuss and dispose of the merits of Stucki's claim in this regard.
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471 S.W.2d 796 (1971)
Glenn WALTERS, Appellant,
v.
The STATE of Texas, Appellee.
No. 44181.
Court of Criminal Appeals of Texas.
October 26, 1971.
*797 William R. Magnussen, Fort Worth, (Only on Appeal), for appellant.
Jim D. Vollers, State's Atty., Austin, for the State.
OPINION
DALLY, Commissioner.
The conviction is for robbery by assault with punishment assessed at sixty-five years.
The State abandoned the first count of the indictment alleging robbery by firearms and elected to try appellant on the second count of the indictment alleging robbery by assault.
Appellant entered a plea of guilty before a jury and by a signed written application, requested that his punishment be assessed by the jury.
The appellant's written confession, in which he admits active participation in the robbery, was introduced without objection. The complainant identified the appellant and testified fully concerning the commission of the offense. Testimony of the arresting officer was offered, as well as that of two witnesses who were fired upon by the appellant and his accomplices during pursuit in a high-speed automobile chase from the scene of the crime. Proof that appellant had two prior convictions for burglary and theft was introduced. The sufficiency of the evidence cannot be challenged.[1]
The indigent appellant was represented by counsel appointed by the court, well in advance of the trial. After his motion for new trial was overruled and he was sentenced, appellant gave notice of appeal. Appellant filed an affidavit showing his indigency and requested that the court appoint counsel on appeal, and that the he be furnished with a record for appeal. The court ordered the court reporter to furnish a transcript of the testimony and appointed counsel to assist with the appeal of the case.
Counsel's brief, filed in the trial court, states after an examination of the record and after consulting with the appellant, he finds no grounds which he can urge for reversal of the case. The appellant, by a witnessed but undated receipt, acknowledges receipt of a copy of counsel's brief and a copy of the record on appeal. There appears to be full compliance with Anders v. California, 386 U.S. 738, 87 S. Ct. 1396, 18 L. Ed. 2d 493 and Gainous v. State, Tex. Cr.App., 436 S.W.2d 137.
Appellant pro se has filed two briefs.
Appellant complains that he was tried by a prejudiced, all caucasian jury. He states no basis for his claim of prejudice and we find none. No error is shown.
Further complaint is made that there was not served upon appellant, two days before trial, a copy of the jury list. This complaint is without merit, as appellant was not tried for a capital offense. See Art. 34.04, Vernon's Ann.C.C.P.
Other grounds urged to have been considered and are without any merit. There being no error, the judgment is affirmed.
Opinion approved by the Court.
ROBERTS, J., not participating.
NOTES
[1] "* * * a plea of guilty to a felony charge before a jury admits the existence of all facts necessary to establish guilt and, in such cases, the introduction of testimony by the State is to enable the jury to intelligently exercise the discretion which the law vests in them touching the penalty to be assessed." Darden v. State, Tex.Cr.App., 430 S.W.2d 494, and cases there cited. See also Maldonado v. State, Tex.Cr.App., 467 S.W.2d 468.
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471 S.W.2d 316 (1971)
Mary A. HALL, M.D., Appellant,
v.
WILLARD & WOOLSEY, P. S. C., d/b/a Daniel Boone Clinic, Appellee.
Court of Appeals of Kentucky.
June 4, 1971.
Rehearing Denied October 29, 1971.
Robert J. Greene, Paintsville, for appellant.
William Forrester, Harlan, Dan Jack Combs, Pikeville, for appellee.
MILLIKEN, Chief Justice.
This appeal principally involves the validity of a restrictive covenant in an employment contract which the chancellor *317 permanently enjoined the employee, Dr. Mary A. Hall, from breaching.
The appellee, Willard-Woolsey Public Service Corporation, doing business as the Daniel Boone Clinic at McDowell in Floyd County, was the sublessee of the space and equipment of several Appalachian Regional Hospitals including the one at McDowell which had been leased by Clover Fork Medical Service, Incorporated. The Clinic amplified the equipment and staffed the personnel with the assistance of its lessor and employed, in all, forty-two physicians in its various operations. Liability and other insurance was supplied for the protection of its personnel as well as the Clinic itself.
Dr. Hall, a native of Floyd County, was employed by the Clinic after the completion of her one year residency training in Brooklyn subsequent to her graduation from the medical school of the University of Louisville, and worked for the Clinic for several years before the present altercation arose. She testified that she joined the Clinic because "* * * a person coming out of training does not know what it is all about." As a specialist in internal medicine and pediatrics she treated five to six hundred patients a month and she, and perhaps the patients, considered their relationship that of patient and personal physician rather than patient and clinic. Although she had not attended corporate business meetings she admitted that she was acquainted with the by-laws of the corporation and held stock in the corporation.
On July 2 of 1969 she accepted in writing the one-year employment contract tendered her for the year beginning July 1, 1969 at a salary of $24,000. The letter tendering her the employment twice called her attention to Article XII of the by-laws of the Corporation which, though not quoted in the tendering letter, reads as follows:
"RESTRICTIVE COVENANT: Each fulltime employee further expressly covenants and agrees (unless waived in writing by the corporation) that, for a period of one (1) year following the termination of his employment with the corporation, he will not, directly or indirectly, for himself or as an agent, on behalf of, or in conjunction with, any person, firm, association or corporation, engage in the practice of medicine within a fifty (50) mile radius from the city where he has primarily performed his services."
Dissatisfaction was brewing at the Clinic and three weeks after Dr. Hall had accepted the annual employment offer of the Clinic, she and four other physician-employees served notice in writing that they desired to "* * * resign from the Daniel Boone Clinic with the explicit purpose of forming our own group for the practice of medicine and with the explicit intention of continuing such practice in McDowell, Kentucky." They expressed dissatisfaction with the administrative policies of the Clinic, with their compensation, and asserted that the growth of the Clinic was "* * * the result of the undersigned and not to the name Daniel Boone Clinic of which no exterior indication as such exists." Twelve days later Dr. Hall requested the Clinic in writing to release her from her contract. The other dissidents had not renewed their contracts. The Clinic refused to release Dr. Hall for, if she were permitted to leave, there would be no internal medicine specialist left at the McDowell Clinic and apparently only one other physician who was licensed to practice in Kentucky. It is obvious that the Clinic was placed at a great disadvantage with inadequate time in which to re-staff its hospital. Efforts to heal the breach with the disgruntled physicians were unavailing.
While it certainly is arguable that competition is the life of trade, nevertheless, courts have upheld restrictive covenants where they are reasonable in scope and in purpose. As this court said in Crowell v. Woodruff, Ky., 245 S.W.2d 447 (1952):
"* * * Reasonableness is to be determined generally by the nature of the *318 business or profession and employment, and the scope of the restrictions with respect to their character, duration and territorial extent. In gauging reasonableness, there is a distinction between a covenant ancillary to the sale of a business and to a contract of employment. The character of service to be performed and relationship of the employee are of importance. Another test of reasonableness may be whether or not the restraint imposed upon the employee as covenantor is more comprehensive than is necessary to afford fair protection to the legitimate interests of the employer as convenantee. Torian v. Fuqua, 175 Ky. 428, 194 S.W. 359, L.R.A.1917F, 251; Thomas W. Briggs Co. v. Mason, 217 Ky. 269, 289 S.W. 295, 52 A.L.R. 1344; Johnson v. Stumbo, 277 Ky. 301, 126 S.W.2d 165; Calhoun v. Everman, Ky., 242 S.W.2d 100; 28 Am.Jur., Injunctions, Section 108; 36 Am.Jur., Monopolies, etc., Section 50 et seq., Section 73 et seq., Annotations, 98 A.L.R. 963 and antecedents."
Although it may be urged that public policy requires that such restrictive covenants should be frowned upon by the courts when applied to the medical profession because the health of the public is implicitly involved, it may also be urged that the health of the public is better served if squabbles among physicians are averted by prior agreements and the public is not a pawn in the squabble. At any rate, according to 54 Am.Jur., Monopolies, Section 555,
"The courts have enforced, with respect to physicians' contracts of employment, townwide, citywide, and countywide covenants, and covenants not to practice within 5, 20, 25, 30, or 50 miles of the same city. But the courts have held unreasonable, and unenforceable as written, a physician's unlimited term, citywide covenant; an ear, nose, and throat specialist's covenant not to practice within 50 miles of the same city; a surgical chiropodist's unlimited-term covenant not to practice within 100 miles of his employer's office; and a physician's 10 year covenant not to practice within 100 miles of the same city."
An overall view of the subject is summarized in Volume 6 of Corbin on Contracts, Section 1394, as follows:
"It is the function of the law to maintain a reasonable balance, and this requires us to recognize there is such a thing as unfair competition by an ex-employee as well as unreasonable oppression by an employer. The circumstances of each case must be carefully scrutinized." (page 89)
"* * * The courts have tried to maintain this reasonable balance. They have specifically enforced restrictive promises in many cases, when the restriction is one that accords with prevailing mores as made known to the judge; and they have refused such enforcement in many other cases in which the restriction is deemed excessive abinito, or in which it subsequently operates harshly, or in which the termination of the employment is accompanied by unworthy action by the employer. In the older cases courts have been too ready to assume a mechanical sanctity of contract." (pages 89-93)
"The restriction is deemed excessive abinitio if its limit in either space or time is greater than is necessary for the employer's protection against `unfair' competition." (pages 94-95)
In any event, as recently as 1962 in Lareau v. O'Nan, Ky., 355 S.W.2d 679, which we are requested to overrule, we considered the problems presented here that is, a restrictive covenant on the practice of a physician, and there declared at page 681, "There is no basic public policy against such covenants, particularly when they invoke professional services. In fact, the policy of this state is to enforce them unless very serious inequities would result. *319 See Bradford v. Billington, Ky., 299 S.W.2d 601. In our opinion there are no strong equities in Lareau's favor. It is also our opinion that the damages that the clinic might suffer from breach of the covenant though intangible, are sufficient to justify invoking the injunctive powers of the courts, and that, since the damages are not susceptible of monetary valuation, there is no adequate remedy at law." In Lareau the restriction was for five years in the county of Henderson, while here it is only for a year in a fifty-mile radius.
We conclude that we see no sound reason to deviate from the policy considerations discussed in Lareau and so affirm the judgment. Other issues raised we do not consider of sufficient importance to discuss.
The judgment is affirmed.
STEINFELD, PALMORE, REED and NEIKIRK, JJ., concur.
OSBORNE, J., dissents.
EDWARD P. HILL, J., not sitting.
OSBORNE, Judge (dissenting).
I respectfully dissent from the majority opinion in this case as I believe the interest of the public in medical care outweighs the selfish interest of a physician to rid himself of competition.
I especially believe it to be heinous when an older practitioner of any profession invokes a contract that in any way hampers a younger practitioner in his or her profession. The law has never favored contracts of this type and to me this one is especially reprehensible.
For the foregoing reasons I respectfully dissent.
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97 B.R. 30 (1988)
In re Charlotte CHICOINE d/b/a Leisure Park Trailer Park, Debtor.
Bankruptcy No. 88-20058.
United States Bankruptcy Court, D. Montana.
September 21, 1988.
*31 William R. Baldassin, Missoula, Mont., for debtor.
Rex Palmer, Missoula, Mont., for Baileys.
ORDER
JOHN L. PETERSON, Bankruptcy Judge.
In this Chapter 11 case, the Debtor and the major secured creditors Albert and Irma Bailey (Baileys), are engaged in serious dispute over the failure of Baileys to timely file a Proof of Claim in this case of a state court Judgment rendered in favor of Baileys and against the Debtor on February 13, 1987. On July 5, 1988, this court denied Baileys' motion for relief from the automatic stay to prosecute an appeal to the Supreme Court of Montana on the issue of denial of attorney fees by the state court. On July 8, 1988, this court approved the Debtor's Disclosure Statement and set a confirmation hearing on the Plan for September 6, 1988. On August 23, 1988, the Debtor moved pursuant to Bankruptcy Rule 3003 for an order declaring that Baileys shall not be treated as creditors for the purpose of voting on and distribution under the Plan by reason of Baileys failing to file a Proof of Claim on its Judgment of February 13, 1987, within the time set by order of the Court. On August 25, 1988, this Court entered its decision which determined that since Baileys' judgment claim was listed as disputed in the Debtor's schedules and the Baileys failed to file a Proof of Claim within the bar date, under Section 1126 of the Code and Bankruptcy Rule 3003, Baileys are prohibited from voting on the Plan on their judgment claim. Baileys, on August 31, 1988, filed a Motion to Reconsider the Order of August 25, 1986, on grounds that the Motion for Relief from the Automatic Stay, filed well within the bar date for claims, was an informal Proof of Claim, now amendable, under case authority of In the Matter of Pizza of Hawaii, 761 F.2d 1374 (9th Cir.1985). Hearing on the reconsideration motion was held on September 6, 1988, and the Court, by bench ruling, found the Motion for Relief from Stay constituted an informal Proof of Claim, which could be amended. A formal Proof of Claim, was then filed by Baileys, and objections to that claim by the Debtor are pending hearing. On September 16, 1988, the Debtor filed a Motion to Reconsider the bench ruling of September 6, 1988, on the basis that the Motion for Relief from Stay filed by Baileys fails to satisfy the test of Pizza of Hawaii, supra.
Debtor and Baileys agree that the test to establish an informal Proof of Claim is that a document qualifies as an informal Proof of Claim if it states an explicit demand showing the nature and amount of the claims against the estate, and evidences an intent to hold the debtor liable. Pizza of Hawaii, supra, at 1381, citing In re Sambo's Restaurants, Inc., 754 F.2d 811, 815 (9th Cir.1985). Other courts concur. In re Sherret, 58 B.R. 750 (Bankr.W.D.La. 1986); In re Mitchell, 82 B.R. 583 (Bankr. W.D.Okl.1988).
Baileys' Motion for Relief from Automatic Stay, filed March 30, 1988, states:
*32 "Movant is a secured creditor of the debtor pursuant to a Contract for Deed to sell a trailer court and unsecured creditor under a Judgment entered in Montana District Court in February, 1987, in the amount of $33,847.69, plus other relief."
As to the secured claim, Baileys sought adequate protection, admitting, however, debtor had substantial equity in the property. As to the unsecured claim, Baileys sought relief from the stay to perfect appeal to the Montana Supreme Court on the denial by the state court of an award of attorney's fees to Baileys. In ruling on the motion, after hearing, this Court found that the Contract for Deed payments have been timely made, that insurance on some of the older trailers could not be obtained in the market, and that her Plan of Reorganization would call for a cure of the delinquent taxes. Baileys have never given the Debtor Notice of Default under the contract for non-payment of the monthly installment. The Debtor's schedules acknowledge the balance due on the secured claim and has never contested that sum as due and payable. On the unsecured claim based on the judgment, by separate Order of July 5, 1988, I concluded:
"In this case, Bailey may be entitled to the award of reasonable attorney's fees and costs pursuant to the contract as part of his claim. This is a matter of state law. Bailey could pursue his claim in this court by filing a Proof of Claim rather than concede to the position of the Debtor. The award of the fees would then be a matter of determination by this Court in a timely manner. Appeal on the sole issue of fees to the Supreme Court and then return to the State District Court is a burden the estate should not bear. Therefore, Bailey's request to pursue his claim on appeal should be denied."
From the Motion for Relief from Stay, and subsequent hearing and briefs, it is clear Baileys claimed a judgment due of $33,847.69, plus attorney's fees. Baileys wanted the issue of attorney's fees decided on appeal, but this Court, following the argument of the Debtor, expressly determined such claim should be decided in this Chapter 11 case. I conclude, as did the Ninth Circuit Court of Appeals in Pizza of Hawaii, supra, and Sambo's, supra, that such actions by Baileys clearly evidence their intent to hold the estate liable. The case of In re Mitchell, supra, cited and relied upon by the Debtor holds:
"Amendment is permitted, however, only where the original documents provide notice of the existence of a claim against the estate. In re International Horizons at 1217. [751 F.2d 1213 (11th Cir. 1985)]. It is not necessary that documents actually constitute a proof of claim. Sun Basin Lumber Co. Inc. v. United States, 432 F.2d 48, 49 (9th Cir. 1970).
* * * * * *
For the documents at issue to constitute an informal claim, they must state the nature of the claim, its amount, and must evidence an intent to hold the estate liable. Sambo's Restaurant, Inc. v. Wheeler (In re Sambo's Restaurants, Inc.), 754 F.2d 811 (9th Cir.1985).
If a writing meets this test, it is susceptible of amendment after the bar date in order to conform to the requirements of Bankruptcy Rule 3001. In re Benedict, 65 B.R. 95 (Bankr.N.D.N.Y.1986).
Courts recognize several ways a creditor may manifest the necessary demand and intent to hold the estate liable. See, Levine v. First National Bank of Lincolnwood (In re Evanston Motor Co.), 26 B.R. 998 (N.D.Ill.1983) and cases cited at page 1001. Pleadings filed either in the bankruptcy case itself or filed in other litigation to which the debtor or trustee is a party have been held to be informal claims. See, Pizza of Hawaii, Inc. v. Shakey's Inc. (In re Pizza of Hawaii, Inc.), 761 F.2d 1374 (9th Cir.1985) (relief from stay motion and other documents filed with court during claims filing period); In re Sambo's Restaurant, Inc., 754 F.2d 811 9th Cir.1985) (wrongful death complaint filed in violation of automatic stay and joint motion with debtor to transfer case to bankruptcy court constitutes informal claim)." Id. at 585.
*33 In Mitchell, the court found the creditor's motion for relief from stay failed evidencing an intent to hold the estate liable because the creditor sought to have the property abandoned and to pursue such claim outside the bankruptcy proceeding. Mitchell concedes that "courts have held that intent to hold the estate liable may be implicit", Id. at 586, citing Sun Basin Lumber Co., supra, and County of Napa v. Franciscan Vineyards, Inc. (In re Franciscan Vineyards, Inc.), 597 F.2d 181 (9th Cir.1979), cert. den. 445 U.S. 915, 100 S. Ct. 1274, 63 L. Ed. 2d 598 (1980).
In the case sub judice, Baileys not only claimed the amount of the judgment due from the Debtor, but sought express authority to pursue their claim for attorney's fees. The record reflects a copy not only of the Judgment against the Debtor, but also the claim for fees and its denial by the state courtall filed in this proceeding within the claims period. As stated in Pizza of Hawaii, Inc., supra, at 1381:
"Although the complaint thus discloses the nature of Shakey's claim, it does not quantify the damages requestedthe amount of Shakey's claimexcept for the $58,335 in dealer's fees. Yet, because the violations were ongoing and proof of injury would require extensive evidentiary presentation, Shakey's simply could not be more specific in its request for damages. We agree with the district court that `[t]he adversary matter contained all of the necessary prerequisites to advise the bankruptcy court of Shakey's claim.'"
I conclude the proceedings in this court, together with documents filed herein, were sufficient to constitute an informal Proof of Claim, and since there is a "long established liberal policy toward amendment of proofs of claim", Pizza, at 1381, the formal Proof of Claim on the Judgment must be allowed.
Finally, I would note that the Order of July 5, 1988, denying relief from the stay to pursue appeal on the attorney fees issue specifically invited Baileys to file a Proof of Claim on that matter, and such Order was issued after the bar date of June 14, 1988. Thus, the Debtor's contentions that Baileys slept on their rights is without merit.
IT IS ORDERED the Motion to Reconsider the Court's ruling of September 6, 1988, allowing Albert and Irma Bailey to file a formal Proof of Claim on their Judgment of February 13, 1987, is denied and the formal Proof of Claim is deemed filed as of September 6, 1988.
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471 S.W.2d 151 (1971)
H. F. COLLIER, d/b/a H. F. Collier Conoco Station, Appellant,
v.
B & B PARTS SALES, INC., Appellee.
No. 556.
Court of Civil Appeals of Texas, Tyler.
September 2, 1971.
*152 Law Offices of James N. Phenix, Kyle Freeman, Henderson, for appellant.
Smead, Roberts, Harbour, Smith, Harris, French & Parker, Robert M. Parker, Longview, for appellee.
McKAY, Justice.
Appellee sued appellant for $1,027.94, plus attorney's fee, alleging that to be the balance due on a sale of stereo tapes, cartridges and stereo equipment sold by appellee to appellant on October 12, 1968. Trial was before a jury, but at the close of the evidence, the trial court granted appellee's motion for an instructed verdict and rendered judgment for appellee for the amount sued for plus the stipulated attorney's fee of $275.00. Appellant contends in his one point that the trial court erred because there was a genuine issue of a material fact which should have been submitted to the jury.
Appellee's salesman Donaho testified he called on appellant on or about October 1, 1968, to sell him some stereo tapes and equipment, and that on October 12, 1968, he returned and delivered to appellant stereo tapes, speakers and other equipment. Invoices for the items were also prepared and these invoices had printed thereon "Sold To," followed by appellant's name and address in handwriting. Also written by Donaho by hand was "Terms 30-60-90 this equipment will be picked up if not sold in 90 days." Donaho further testified that appellant asked him about a consignment arrangement but that he told appellant that appellee did not have any consignment arrangement. He further testified that when he and appellee's general manager, Bell, went to appellant's station after appellant had reported a burglary, that appellant asked that they bring more tapes and equipment for him to sell so that when he got enough money, he would pay appellee, and that appellant would not accept the offer Donaho and Bell made to him to pick up the small amount of equipment remaining so that appellant could be given credit for it.
It is undisputed that appellant's service station was burglarized about two weeks after the tapes, speakers and equipment were delivered to appellant and that most of the merchandise involved in this case was stolen. Appellant had made one payment of $18.86, and there was a credit memo of $51.25 for some item returned.
Appellant contends that Donaho agreed to a consignment arrangement, and the merchandise was delivered to him on consignment, and that when Donaho made the delivery, he, appellant, refused to sign the invoice because Donaho had put the 30-60-90 day terms on it, but that after Donaho wrote "this equipment will be picked up if not sold in 90 days," he signed it. Appellant testified that Donaho told him that the 30-60-90 day terms had to be on the invoice for appellee to borrow money on its accounts receivable and appellant further said Donaho told him before he signed the invoice that he would have to pay for the merchandise when he sold it and a replacement would be shipped to restock it and that appellee was to own the merchandise. The testimony of appellant further shows that he tendered the remaining items to appellee for full release of any indebtedness but that General Manager Bell would not agree to do so.
It is appellant's position that the fact issue for the jury raised by the evidence was whether there was a consignment. The oral testimony dealing with negotiations and circumstances of the transaction must give way to the written invoice under the rule of mergerthat is, all prior negotiations are presumed to be merged into the writing and, in the absence of fraud, accident or mistake, cannot be shown to vary the terms of the written agreement. 13 T.J.2d, section 276, page 509. We must look to the written agreement and measure it by the court's instructed verdict.
An instructed verdict is warranted only when the evidence is such that no other verdict can be rendered, and the winning *153 party is entitled, as a matter of law, to a judgment. Stephenson v. O'Neal, 433 S.W.2d 804 (Tex.Civ.App., Houston 14th, 1968, writ ref., n. r. e.); Carsey v. Bolin, 427 S.W.2d 721 (Tex.Civ.App., Houston 14th, 1968, n. w. h.). We conclude the trial court properly granted the motion for instructed verdict and rendered judgment for appellee because under the Uniform Commercial Code, Article 2.326, Vernon's Ann.Tex.St.,[1] the transaction was a sale as a matter of law. The transaction here was a "sale or return," and under section (c) of Article 2.326 and section (b) (1) and (2) of Article 2.327[2] of the Uniform Commercial Code, it became a sale, and therefore title passed to the appellant. The notations "Terms 30-60-90" and "this equipment will be picked up if not sold in 90 days" do not constitute a consignment. We construe the language to mean that there was a sale of the items listed on the invoices, but the seller agreed to pick up items which had not been sold in 90 days.
In Anderson's Uniform Commercial Code, Vol. 1, Sec. 2-326:1, p. 258, it is stated: "* * * The type of `sale or return' involved herein is a sale to a merchant whose unwillingness to buy is overcome only by the seller's engagement to take back the goods (or any commercial unit of goods) in lieu of payment if they fail to be resold. * * *" And in Sec. 2-326:4, p. 260, of the same work is found: "Unless otherwise agreed, a transaction under which goods delivered primarily for resale may be returned to the seller even though they conform to the contract is a `sale or return.'"
In 50 T.J.2d, Sales, section 22, page 277, we find this statement:
"Under the Uniform Commercial Code, many transactions that might have been regarded as consignments under former law will be regarded as sales. This is because of a code provision stating that where goods are delivered to a person for sale and he maintains a place of business where he deals in goods of the kind involved, under a name other than that of the person making delivery, the goods are deemed to be on sale or *154 return, as regards claims of creditors of the person conducting the business. In other words, many transactions whereby a consignor sends goods to a dealer in goods of that kind will be regarded as sales transactions, and not consignments, under the code. * * *"
The intention of the parties seems to be no longer determinative of the question of whether a transaction was a sale or a consignment under the Uniform Commercial Code. In addition, under Article 2.327(b) (2), supra, when a transaction is a sale or return agreement, the return is at the buyer's risk.
We conclude there was no question of fact for the trial court to submit to the jury and the question of law was properly decided by the court.
The judgment is affirmed.
NOTES
[1] "(a) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is
(1) a `sale on approval' if the goods are delivered primarily for use, and
(2) a `sale or return' if the goods are delivered primarily for resale.
"(b) Except as provided in Subsection (c), goods held on approval are not subject to the claims of the buyer's creditors until acceptance; goods held on sale or return are subject to such claims while in the buyer's possession.
"(c) Where goods are delivered to a person for sale and such person maintains a place of business at which he deals in goods of the kind involved, under a name other than the name of the person making delivery, then with respect to claims of creditors of the person conducting the business the goods are deemed to be on sale or return. The provisions of this subsection are applicable even though an agreement purports to reserve title to the person making delivery until payment or resale or uses such words as `on consignment' or `on memorandum'. However, this subsection is not applicable if the person making delivery
(1) complies with an applicable law providing for a consignor's interest or the like to be evidenced by a sign, or
(2) establishes that the person conducting the business is generally known by his creditors to be substantially engaged in selling the goods of others, or
(3) complies with the filing provisions of the chapter on Secured Transactions (Chapter 9).
"(d) Any `or return' term of a contract for sale is to be treated as a separate contract for sale within the statute of frauds section of this chapter (Section 2.201) and as contradicting the sale aspect of the contract within the provisions of this chapter on parol or extrinsic evidence (Section 2.202). (59th Legis., Ch. 721, Sec. 2-326.) Acts 1967, 60th Leg., vol. 2, p. 2343, ch. 785, section 1."
[2] "(b) Under a sale or return unless otherwise agreed
(1) the option to return extends to the whole or any commercial unit of the goods while in substantially their original condition, but must be exercised seasonably; and
(2) the return is at the buyer's risk and expense."
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471 S.W.2d 343 (1971)
William Wayne DECKER, Appellant,
v.
STATE of Arkansas, Appellee.
No. 5603.
Supreme Court of Arkansas.
September 27, 1971.
Rehearing Denied November 1, 1971.
Wright, Lindsey & Jennings, Little Rock, for appellant.
Ray Thornton, Atty. Gen., James A. Neal, Asst. Atty. Gen., Little Rock, for appellee.
HARRIS, Chief Justice.
William Wayne Decker, appellant herein, was arrested by Officer Tommy Robinson of the North Little Rock Police Department, placed in the back seat of the automobile, and Officer Robinson proceeded toward police headquarters. While the car was stopped at an intersection, appellant produced a pistol, held it on Robinson and told the officer to give him (appellant) his pistol or he would shoot him. In compliance with this demand, Robinson gave to appellant the service revolver he was carrying, after which Decker left the car and fled north. Robinson then obtained a shotgun from the car and started in pursuit of appellant, firing at Decker four times with the shotgun. Four or five hours later, appellant was found in a house on the Arch Street Pike, lying on a bed in the back room of the house; he had sustained three wounds in the back of his body. Officers found the pistol there which had been taken from Robinson, a .38 police service revolver, which was identified.
*344 Decker had told one of the officers where the gun was hidden. Another witness, David Romandia, who lived at the house where Decker was found, testified that appellant related to him how he had pulled his gun on the policeman and made the latter give to Decker his (the policeman's) service revolver. On July 30, 1970, Decker pleaded guilty in the North Little Rock Municipal Court to the offense of drawing a weapon on an officer, was fined $500.00, and sentenced to six months confinement in the County Jail. On August 6, 1970, the Prosecuting Attorney for Pulaski County filed an Information charging Decker with the crime of robbery, arising out of the same incident. He was convicted and sentenced to serve four years in the state penitentiary. Appellant moved in the trial court to dismiss the charge, contending that the robbery trial placed him in double jeopardy of life or liberty in violation of Article II, Section 8 of the Arkansas Constitution, and in violation of the Fifth Amendment of the United States Constitution. The motion was denied, as was a motion for new trial based on the same contention. From the judgment of conviction of robbery, appellant brings this appeal. For reversal, only one point is asserted, viz, that the trial of the robbery charge placed the defendant in double jeopardy of life or liberty in violation of the Federal and Arkansas Constitutions as set out above.
We do not agree. The offenses were entirely separate crimes. Though arising out of the same incident, the two acts were certainly not the same offense. Ark.Stat. Ann. § 41-4001 (Repl.1964) provides as follows:
"Every person and the aiders and abettors of every person who shall draw a pistol, gun or any other deadly weapon upon any other person or shall serve or give notice either verbal or in writing to any other person or shall place notice upon the door or about the premises of any other person for the purpose of frightening or intimidating him from doing any lawful act, when such person drawing said pistol or gun or other deadly weapon is not justified in self-defense for so doing, shall be deemed guilty of a misdemeanor and upon conviction shall be fined in a sum not less than five hundred dollars [$500] nor more than one thousand dollars [$1,000] and shall be imprisoned in the county jail for twelve [12] months."
Ark.Stat.Ann. § 41-3601 (Repl.1964) defines robbery thusly:
"Robbery is the felonious and violent taking of any goods, money or other valuable thing from the person of another by force or intimidation; the manner of the force or the mode of intimidation is not material, further than it may show the intent of the offender."
It will be immediately observed that the robbery statute includes an additional act, not present in the statute first quoted, viz, the felonious and violent taking of goods or other valuable thing from the person of another by force or intimidation; furthermore, a violation of Ark. Stat.Ann. § 41-4001 (Repl.1964) is not included in the charge of robbery as a lesser offense, unlike petit larceny, which is included where one is charged with grand larceny;[1] nor is it an offense that can be joined with the offense of robbery in an indictment or information. Ark.Stat.Ann. § 43-1010 (Repl.1964).
We have said that where two acts are intended to suppress different evils, the acquittal or conviction of one will not preclude prosecution of the other. Sparks v. State, 88 Ark. 523, 114 S.W. 1183.
Of course, if Decker had only drawn his pistol on the officer, and then departed, he would have been guilty of violating 41-4001, but when he forced Robinson to hand over his own pistol and carried *345 it away with him, an entirely separate and different offense was committed. However, even where there are no additional acts upon which a second charge is based, we have said that the test is not whether the defendant has already been tried for the same act, but whether he has been put in jeopardy for the same offense. See Binganan v. State, 181 Ark. 94, 24 S.W.2d 969, and Turner v. State, 248 Ark. 367, 452 S.W.2d 317.
Appellant cites the case of Ashe v. Swenson, 397 U.S. 436, 90 S. Ct. 1189, 25 L. Ed. 2d 469 (1970), in support of his double jeopardy argument, but the facts in that case are entirely different from the facts before us. There, six men were engaged in a poker game in the basement of a home when suddenly masked men armed with shotguns and pistols, broke into the basement and robbed each of the poker players of money and various articles of personal property. Ashe was subsequently arrested and placed on trial for the robbery of a man named Knight, one of the poker players. The proof identifying Ashe as one of the robbers was weak and the jury brought in a verdict of not guilty. Sometime thereafter, the state charged Ashe with the robbery of one of the other poker players and Ashe was convicted. The conviction was affirmed by the Missouri Supreme Court but reversed by the United States Supreme Court on the basis of the doctrine of "collateral estoppel[2]", which the court held was embodied in the Fifth Amendment guarantee against double jeopardy. The opinion made clear that the reversal was predicated on the fact that a jury had already determined that Ashe was not one of the robbers, and any subsequent prosecution for that same robbery, even though of a different victim placed the defendant in double jeopardy. The court stated:
"The question is not whether Missouri could validly charge the petitioner with six separate offenses for the robbery of the six poker players. It is not whether he could have received a total of six punishments if he had been convicted in a single trial of robbing the six victims. It is simply whether, after a jury determined by its verdict that the petitioner was not one of the robbers, the State could constitutionally hale him before a new jury to litigate that issue again [Emphasis supplied]."
It is apparent that the facts in the above case are entirely different from those here at issue, and actually, appellant is only relying on a concurring opinion by Mr. Justice Brennan, joined by Justices Douglas and Marshall, in which the view is expressed that even if the rule of collateral estoppel had been inapplicable to the facts of the case, the double jeopardy clause found in the Fifth Amendment to the Constitution of the United States would bar a prosecution, the two prosecutions arising out of one criminal episode. As stated however, this was only a concurring opinion, and was not the view of the majority.
It follows from what has been said that we do not agree that the trial of the robbery charge placed appellant in double jeopardy in violation of the Federal and State Constitutions.
Affirmed.
NOTES
[1] See Southworth v. State, 42 Ark. 270.
[2] The opinion in Ashe v. Swenson, supra, in discussing "collateral estoppel" stated that this term "means simply 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".
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273 B.R. 677 (2002)
In the Matter of DEL CASTILLO, Josefa E. Morales, Debtor.
No. 98-02729-9P7.
United States Bankruptcy Court, M.D. Florida, Tampa Division.
January 29, 2002.
William D. Kramer, Naples, FL, for debtor.
Diane L. Jensen, Fort Myers, FL, Chapter 7 Trustee.
Terry E. Smith, Bradenton, FL, Chapter 13 Trustee.
*678 ORDER GRANTING MOTION FOR TURNOVER OF CHAPTER 13 FUNDS
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on to consider Motion For Turnover of Chapter 13 Funds (Doc. No. 64), filed by Josefa E. Morales Del Castillo, a/k/a Josefa Elena Morales Del Castillo (Debtor), on December 4, 2001. A detailed synopsis of this present Chapter 7 case is set forth as follows. On February 13, 1998, the Debtor filed her Chapter 7 case. On June 10, 1998, the Debtor received her Discharge. On November 27, 1998, the Debtor filed a Motion to Convert her Chapter 7 case to a Chapter 13 case. On December 8, 1998, this Motion was granted and the case was converted to a Chapter 13 case.
On June 29, 1999, the Debtor filed her Chapter 13 Plan. On October 16, 2000, this Court entered Order Denying Confirmation And Reconverting Case to Chapter 7 (Reconversion Order). On October 23, 2000, this Court entered Order Governing Procedures After Conversion To Chapter 7 Case (Procedures Order). The Procedures Order provided, inter alia, that any motion for to turnover of undistributed funds held by the Chapter 13 shall be filed within fifteen (15) days of the date of entry of the Procedures Order. The Procedures Order further provided that if no motion was filed, the funds held by the Chapter 13 Trustee shall be turned over to Chapter 7 Trustee that was to be appointed and shall be considered property of the estate.
As set forth in the Notice of Conversion, the United States Trustee scheduled an additional meeting of creditors pursuant to 11 U.S.C. § 341 and appointed Diane Jensen as the Chapter 7 Trustee for the estate of the Debtor. On July 26, 2001, the Chapter 7 Trustee filed a Motion for Turnover of Funds paid to the Chapter 13 Trustee by the Debtor while the case was pending under Chapter 13. No motion for turnover was filed by the Debtor within the time fixed by the Procedures Order. However, finally one was filed on December 4, 2001, or more than a year after the entry of the Procedures Order.
In her Motion for Turnover, the Debtor contends that pursuant to 11 U.S.C. § 348(f), she is entitled to the funds paid by her to the Chapter 13 Trustee before the reconversion. In opposition to the Debtor's Motion, the Trustee contends that since the Debtor failed to seek the turnover of the funds held by the Chapter 13 Trustee within the time fixed by the Procedures Order, the Debtor is no longer entitled to the funds, and in any event should be estopped to make a claim to the funds.
11 U.S.C. § 348(f)(1)(A) provides that "property of the estate in the converted case shall consist of property of the estate, as of the date of filing the petition, that remains in possession of or is under the control of the debtor on the date of conversion." This sub-clause was added to Section 348 in 1994 for the purpose of clarifying a split in the case law concerning what property is or is not included in the estate when the debtor converts from a Chapter 13 to a Chapter 7 case. Some courts held that upon conversion, all after acquired properties will be part of the Chapter 7 case. Other courts held that the property of the estate, in a converted case, is the property that the debtor had when the original Chapter 13 was filed and, thus does not include property acquired by the debtor after the commencement of the Chapter 13 case.
According to the Legislative History, this amendment overrules the case of Matter of Lybrook, 951 F.2d 136 (7th Cir.1991) and adopts the holding of In re Bobroff, *679 766 F.2d 797 (3d Cir.1985). See H.R. Rep. 103-834, 103rd Cong., 2nd Sess. 42-43 (Oct. 4, 1994), U.S.Code Cong. & Admin.News 1994, p. 3323; 140 Cong. Rec. H10770 (Oct. 4, 1994).
Courts interpreting this amendment have uniformly concluded that funds by the debtor to the Chapter 13 Trustee prior to conversion did not become property of the Chapter 7 estate after conversion. In the case of In re Young, 66 F.3d 376 (1st Cir.1995), the court held that the Debtor's post-petition income received after filing the Chapter 13 case and before the conversion did not become property of the Chapter 7 estate but belonged to the debtor. See also In re Bobroff, supra; In re Sargente, 202 B.R. 1023 (Bankr.S.D.Fla.1996); In the Matter of Gorski, Jr., 85 B.R. 155 (Bankr.M.D.Fla.1988).
The 1994 amendment of Section 348 is admittedly designed for the situation of when the case was originally commenced as a Chapter 13 case and later on converted to a Chapter 7 case, the same scenario involved in the cases cited above. In the present instant, the case did not start as a Chapter 13 case but rather as a Chapter 7 case, which later converted to a Chapter 13 case and then reconverted to a Chapter 7 case. This Court is satisfied that notwithstanding this factual difference in the sequence of events, the difference is without distinction, and is of no consequence. Therefore, it does not require a different result. This is especially true for the simple reason that wages earned by a debtor in a Chapter 7 case never become property of the Chapter 7 estate.
However, in the present instance, the Debtor did not seek a turnover the funds within the time fixed by the Procedures Order, but instead filed the Motion more than a year after. It is the Trustee's contention that the Debtor's failure to comply with the Procedures Order, entered by this Court, should operate as a forfeiture of the right to a turnover or in the alternative, the Debtor should be estopped to seek a turnover of the funds in question.
Concerning the claim of forfeiture, it should be pointed out that neither the Code nor the Rules specifically authorize the fixing of a bar date for seeking turnover of funds after conversion. It is equally true that in order to assure the expeditious and orderly administration of the Chapter 7 estate after conversion, courts have the inherent power pursuant 11 U.S.C. § 105(a) to fix a bar date. This power, however, does not include a power to abrogate a substantive right granted to a debtor by virtue of Section 348(f)(1)(A). This conclusion, however, should not end the inquiry and does not mandate a disregard of the Trustee's contention. Based on the undisputed facts, the Trustee conducted the administration of the Chapter 7 estate; conducted the rescheduled Section 341 meeting of creditors; employed an attorney; filed a Motion for Turnover of the funds; filed several objections to claims; and filed the required reports in reliance of the assumption that the funds in controversy were subject to administration because the Debtor failed to seek a turnover of the funds.
Based on the foregoing, while this Court is satisfied that the Debtor is entitled to the funds involved, the Trustee is entitled for an allowance on general equitable principles of a quantum meruit basis, to be charged against the funds to be turned over to the Debtor.
Accordingly it is
ORDERED, ADJUDGED AND DECREED that the Debtor's Motion for Turnover of Chapter 13 Funds be, and the same is hereby, granted. It is further
*680 ORDERED, ADJUDGED AND DECREED that the Trustee and/or the Trustee's attorney may file an Application for Compensation if so deemed to be advised within twenty (20) days from the date of the entry of this Order, the same to be served on counsel for the Debtor who shall have a right only to challenge the amount sought within ten (10) days after the service of the Application. If no objection is filed, this Court will enter an appropriate order on the Application without further notice or hearing. It is further
ORDERED, ADJUDGED AND DECREED that in the event an objection is filed, this Court will either schedule a hearing with notice or will consider the objection and enter an appropriate order.
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273 B.R. 352 (2002)
In re Sandra M. ROLLINSON, Debtor.
No. 99-33281 (AS).
United States Bankruptcy Court, D. Connecticut.
February 19, 2002.
John S. Demetre, Yudkin & Young, Shelton, CT, Timothy M. Pletter, Stratford, CT, John R. Williams, Williams & Pattis, LLC, New Haven, CT, for debtor.
BRIEF MEMORANDUM AND ORDER DENYING MOTION TO REOPEN CASE
ALBERT S. DABROWSKI, Bankruptcy Judge.
The Debtor's Motion to Reopen Case to Amend Schedule F and Add Creditor ("Motion to Reopen"), Doc. I.D. No. 8, and the Objection to Motion to Reopen and Add Creditor ("Objection"), Doc. I.D. No. 14, of the proposed new creditor, Robert J. Penzerro ("New Creditor"), whose claim ("Claim") was not listed or scheduled during the pendency of the Debtor's bankruptcy case, are presently before the Court for resolution under somewhat unusual circumstances. Initially, the Motion to Reopen and the Objection came before the Court for a hearing on February 6, 2002, but were marked "Off" at the request of counsel for the Debtor who had earlier and telephonically advised the Courtroom Deputy that the Objection would be withdrawn, with the Motion to Reopen prosecuted thereafter without *353 pending objection pursuant to this Court's Bar Date Procedure.[1]
The Motion to Reopen is now before the Court through a Request for Entry of Proposed order (hereafter, the "Request for entry"), Doc. I.D. No. 18, filed February 11, 2002, pursuant to this Court's Bar Date Procedure. Inexplicably, the Request for Entry cites "11 U.S.C. Section 522(f)"[2] as the statutory basis for the Motion to Reopen and asserts therein that "no objections to the [Motion to Reopen] ... have been filed with the Court" (emphasis added). Notwithstanding the aforementioned representations to the Clerk, as of February 15, 2002, the Objection has not been formally withdrawn.
It is significant that the exclusive relief requested in the Motion to Reopen is the reopening of this closed no asset case to permit the Debtor to "file an Amendment to Schedule F [to include the claim of the New Creditor]." It appears that both counsel for the Debtor and the New Creditor May labor, or have previously labored, under the mistaken belief that the filing of a new Schedule F in a reopened Chapter 7 case affects the applicability of the Debtor's discharge, determines the dischargeability of the Claim, or impacts state court litigation related to the Claim.[3] The mere filing of amended schedules in a reopened case, however, does not impact the dischargeability of any debt to an omitted creditor is determined solely by reference to the standards of Section 523(a)(3) a determination which is unaffected by a debtor's late scheduling of a debt. See, e.g., Zirnhelt v. Madaj (In re Madaj), 149 F.3d 467, (6th Cir.1998); In re Keenom, 231 B.R. 116, 120-121 (Bankr.M.D.Ga.1999); In Re Mendiola, 99 B.R. 864 (Bankr.N.D.Ill.1989).
Under the circumstances of this no-asset Chapter 7 case, the impact of Section 523(a)(3) is plain. If the Claim is not of the type specified in Section 523(a)(2), (4), or (6), it was discharged in this bankruptcy case. See 11 U.S.C. §§ 523(a)(3)(A); 727(b). If, however, the Claim is of the type specified in Section 523(a)(2), (4), or (6), it was not discharged, and is not dischargeable, in this bankruptcy case. See 11 U.S.C. § 523(a)(3)(B); Keenom, 231 B.R. at 121 n. 5. Thus, the dischargeability of the Claim ultimately turns on whether it is a debt of the type specified in Section 523(a)(2), (4), or (6); and that is a determination which can be made by this Court upon proper motion and/or complaint under Section 523(a)(3) or by the Connecticut Superior Court.[4]See Mendiola, 99 B.R. at 870.
*354 Accordingly, because the limited and specific object of Motion to Reopen the mere filing of an amended ScheduleF has no effect on the pending litigation between the Debtor and the New Creditor in the Connecticut Superior Court, and is superfluous to the calculus necessary to determine dischargeability, the Motion to Reopen should be and hereby is DENIED.[5]
IT IS SO ORDERED.
NOTES
[1] Neither counsel for the Debtor nor counsel for the New Creditor appeared at the call of the calendar on February 6, 2002. On that date the Court planned to solicit from appearing counsel the precise nature of the relief requested and to discuss the practical ramifications of exercising jurisdiction to determine dischargeability issues, if in the nature of the relief requested, and to accommodate the interests of both parties, and the Connecticut Superior Court, where reasonable and appropriate.
[2] The Motion to Reopen was filed pursuant to Code Section 350(b).
[3] The Objection alleges that the Claim is the subject of a pending civil action in the Connecticut Superior Court; and that the Complaint in that action alleges facts sufficient on their face to support a finding of non-dischargeability under Bankruptcy Code Section 523(a)(b).
[4] The state courts have concurrent jurisdiction with the United States District Courts to determine, inter alia, proceedings under Section 523(a)(3). See 28 U.S.C. § 1334(b) (2001). Assuming, as is reasonably permitted by the record, that the dischargeability of the Claim will ultimately be determined by reference to Bankruptcy Code Sections 523(a)(3) and (a)(6), the interest of judicial economy may be better served by a State Court determination of that issue. In either a federal or state forum, Kawaauhau v. Geiger, 523 U.S. 57, 118 S. Ct. 974, 140 L. Ed. 2d 90 (1998) (holding that Section 523(a)(6) renders non-dischargeable "only acts done with actual intent to cause injury", not merely "acts, done intentionally, that cause injury"), must be applied to the factual record. Whereas the Connecticut Superior Court plainly has jurisdiction to determine the validity and extent of the Claim together with its dischargeability, this Court may only enjoy jurisdiction to determine dischargeability. Thus, if this Court were to determine the Claim to be non-dischargeable, a duplicative evidentiary record both testimonial and documentary might thereafter be required to liquidate the Claim on its merits in state court.
[5] On past occasions, the Court has granted motions similar to that presently before the Court, determining that limited "cause" exists to reopen and amend Schedule F i.e. to insure the completeness and accuracy of the Court file and record, where a reopening for that limited purpose imposes no prejudice on the new creditor. Having now revisited this issue, and having now balanced this very limited "cause" against the inconvenience to the Clerk and the Court, and the potential inconvenience and confusion of all creditors who are noticed with an amended Schedule F, the Court deliberately departs from its prior practice.
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273 B.R. 789 (2002)
In re PAYLESS CASHWAYS, INC., Debtor.
No. 01-42643.
United States Bankruptcy Court, W.D. Missouri.
January 25, 2002.
*790 Paul D. Sinclair, Sinclair Sawyer Thompson Haynes Cowing, Kansas City, MO, for Creditor.
Kathryn B. Bussing, Esq., Richard Beheler, Esq., Blackwell Sanders Peper Martin, Kansas City, MO, for Debtor.
MEMORANDUM OPINION
ARTHUR B. FEDERMAN, Chief Judge.
Creditor Winthrop Resources Corporation (Winthrop) filed a Motion for Adequate Protection or, in the Alternative, for Relief from the Automatic Stay in this Chapter 11 bankruptcy case. Debtor Payless Cashways, Inc. (Payless) responded that Winthrop did not property perfect its lien, therefore, it is not entitled to adequate protection. This is a core proceeding under 28 U.S.C. § 157(b)(2)(G) over which the Court has jurisdiction pursuant to 28 U.S.C. § 1334(b), 157(a), and 157(b)(1). The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure as made applicable to this proceeding by Rule 7052 of the Federal Rules of Bankruptcy Procedure.
ISSUE PRESENTED
The Uniform Commercial Code allows a secured creditor to file a financing statement to perfect a future security interest whenever the security interest attaches. Winthrop filed financing statements in both Texas and Missouri three years prior to Payless granting it a security interest in computer equipment. Did the previously filed financing statements serve to perfect Winthrop's security interest?
DECISION
The purpose of filing a financing statement is to give notice to a third party to make further inquiry as to specific collateral. If a financing statement is filed in the right place and correctly identifies the debtor, the secured party, and the collateral, a prudent third party has notice and the financing statement is sufficient to perfect a future security interest.
*791 FACTUAL BACKGROUND
The facts are not disputed here. On November 6, 1997, Winthrop and Payless executed what they both agree was a true lease for computer equipment. Prior to the execution of the lease, on April 28, 1997, and May 7, 1997, Winthrop filed UCC-1 lease financing statements in the State of Texas covering the same computer equipment. On February 10, 1998, Winthrop filed other UCC-1 lease financing statements with the Missouri and Texas Secretaries of State, and on April 23, 1998, Winthrop filed a UCC-1 lease financing statement with the Jackson County, Missouri Recorder of Deeds. On February 23, 2001, Payless and Winthrop entered into an Equipment Sales Agreement whereby Payless agreed to purchase the computer equipment that was subject to the November 6, 1997, lease for the sum of $234,000, payable over twelve months at $20,989.53 per month. On April 23, 2001, Winthrop filed UCC-1 financing statements in Missouri and Texas. On June 4, 2001, Payless filed this Chapter 11 bankruptcy petition. Payless has made no post-petition payments to Winthrop. Based upon that default, and the fact that Payless was continuing to use the equipment, Winthrop moved this Court for adequate protection of its collateral. Payless responded that Winthrop is not entitled to adequate protection, since it failed to perfect its security interest within 20 days, therefore, the filing of the financing statement on April 23, 2001, was a preferential transfer. Winthrop countered that the UCC-1 lease financing statements served to perfect its security interest in the computer equipment. The parties agree that the only issue before the Court is whether the UCC-1 lease financing statements filed in 1997 and 1998 served to perfect Winthrop's security interest in the computer equipment at the time of the Equipment Sales Agreement. If the Court finds that Winthrop has a perfected security interest in the computer equipment, the parties agree that Winthrop is entitled to a priority administrative expense claim in the amount of $20,989.53 per month, pursuant to 11 U.S.C. § 507(a)(1), from June 4, 2001, until such time as Payless physically tenders the computer equipment for redelivery to Winthrop.
DISCUSSION
The Uniform Commercial Code (the UCC) controls my decision in this matter. The purpose of the UCC is to simplify, clarify, and modernize the law governing commercial transactions.[1] The matter before me is a commercial transaction, and I look to Article 9 of the UCC for guidance. I note that both Texas and Missouri have adopted revised Article 9, which became effective on July 31, 2001. The parties executed the transaction at issue here, however, prior to that date, so all references will be to the version of Article 9 in effect in both Texas and Missouri before the revision, except where noted. Since the dispositive issue is whether Winthrop properly perfected its security interest in the computer equipment, I begin with the purpose of perfection. A creditor perfects a security interest in computer equipment by filing a financing statement in the Office of the Secretary of State in order to give notice to, and assure priority over, other creditors and interested third parties with respect to goods described in a security *792 agreement.[2] That notice protects the rights of the secured party against the claims of other creditors of the debtor.[3] The financing statement must contain the names and addresses of the debtor and the secured party, be signed by the debtor, and contain a description of the collateral:
(1) A financing statement is sufficient if it gives the names of the debtor and the secured party, is signed by the debtor, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral.[4]
Moreover, a creditor may file a financing statement in advance of entering into a security agreement, provided the statement has been signed by the debtor:
A financing statement may be filed before a security agreement is made or a security interest otherwise attaches.[5]
In fact, the Comment to the UCC states that "the financing statement is effective to encompass transactions under a security agreement not in existence and not contemplated at the time the notice was filed, if the description of collateral in the financing statement is broad enough to encompass them."[6] A security interest attaches when the debtor has signed a security agreement containing a description of the collateral, there is consideration, and the debtor has obtained rights to the collateral:
(1) . . ., a security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless:
(a) the collateral is in the possession of the secured party pursuant to agreement, . . . or the debtor has signed a security agreement which contains a description of the collateral . . . ;
(b) value has been given; and
(c) the debtor has rights in the collateral.[7]
Thus, a security interest is perfected when it has attached and when all of the applicable steps required for perfection have been taken. In the case at hand, Winthrop filed UCC-1 financing statements with the Texas Secretary of State on April 28, 1997, May 7, 1997, and February 10, 1998.[8] The financing statements are signed on behalf of Payless, they contain the name and address of both Payless and Winthrop, and *793 they contain an "Attached Schedule A," which is a list of equipment identified by manufacturer, quantity, machine/model number, equipment description, and serial number.[9] On February 10, 1998, Winthrop also filed a UCC-1 financing statement with the Missouri Secretary of State, and on April 23, 1998, Winthrop filed a UCC-1 financing statement with the Jackson County, Missouri Recorder of Deeds.[10] Those financing statements are also signed on behalf of Payless, contain the name and address of both Payless and Winthrop, and contain an "Attached Schedule A," which identifies certain items of collateral by manufacturer, quantity, machine/model number, equipment description, and serial number.[11] I find, therefore, that the financing statements on file in both Missouri and Texas conform in all ways to the requirements of the UCC. And the UCC permits such filing in advance of a security interest, or in this case, as a precaution in the event a third party challenged the characterization of the lease as a "true lease."[12] Despite the motivation for filing the UCC-1's, Winthrop filed the financing statements in compliance with the UCC, and they were effective on February 23, 2001, when Winthrop and Payless executed the Equipment Sales Agreement (the Agreement).[13] As to the Agreement, it is signed on behalf of both Payless and Winthrop, it nullifies the lease agreement, it transfers title in the computer equipment to Payless upon payment of the purchase price, it sets forth the purchase price and payment terms, it grants Winthrop a security interest in the collateral, and it identifies the collateral subject to the sale as being the equipment in Payless' physical possession on February 23, 2001.[14] I, therefore, find that the security interest both attached on that date, and because of the precautionary UCC-1 on file, it became perfected on that date.
As such, Winthrop had a validly perfected security interest in the computer equipment on June 4, 2001, when Payless filed this chapter 11 bankruptcy case. I will, therefore grant Winthrop's motion for a priority administrative claim in the amount of $20,989.53 per month until such time as the computer equipment is physically tendered for redelivery to Winthrop.
Payless argues vigorously that any financing statement filed as a precaution before Payless filed its first Chapter 11 bankruptcy petition was eliminated when this Court confirmed its Chapter 11 Plan of Reorganization on November 19, *794 1997.[15] Even if I were to accept this argument, which I do not, according to the exhibits submitted by stipulation of the parties, on February 10, 1998, Winthrop filed another UCC-1 financing statement with the Texas Secretary of State,[16] and on April 23, 1998, Winthrop filed UCC-1 financing statements with the Missouri Secretary of State and with the Jackson County, Missouri Recorder of Deeds.[17] Thus the Order of Confirmation did not have any effect on these filings. Payless also argues that the reorganized debtor was not the same entity as the pre-petition Payless, therefore, the financing statements were seriously misleading. A financing statement is seriously misleading, and does not serve to perfect a lien, if a third party could not discern from the face of the financing statement a means to locate the debtor and secured creditor to make further inquiry.[18] The financing statements in this case adequately provide that information. Payless does not cite any authority for its interpretation of seriously misleading, however, the argument is irrelevant, as Winthrop filed post-confirmation financing statements that correctly identified the "Reorganized Payless." And I note that there is no recognizable change in the name or designation of the reorganized entity. It was then, and is now, known as Payless Cashways, Inc.
Canadian Imperial Bank of Commerce (CIBC) filed a response to Winthrop's motion alleging a prior security interest based an after acquired property clause in the security interest it executed with Payless at the time of confirmation. Winthrop filed a motion to strike the response as being filed out of time. Having reviewed CIBC's argument, and based upon the reasoning above, I find that Winthrop's security interest is a purchase money security interest, and it takes priority over CIBC's alleged security interest in all of Payless' after acquired equipment. A purchase money security interest is a security interest that is retained by the seller of collateral to secure all or part of the purchase price.[19] The UCC provides that a "purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral or its proceeds if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within twenty days thereafter."[20] Because Winthrop filed its financing statement in advance of the purchase sales agreement, I find that the security interest was perfected upon execution. I will, therefore, overrule CIBC's objection.
An Order in accordance with this Memorandum Opinion will be entered this date.
NOTES
[1] Mo. Stat. Ann. 400.1-102(2)(a) (1994); Tex. Bus. & Com.Code Ann. § 1.102(2)(a) (1991); Robinson v. Citicorp Nat'l Serv., Inc., 921 S.W.2d 52, 54 (Mo.Ct.App.1996) (stating that the purpose of the UCC is to eliminate uncertainty by providing plain and certain rules of law).
[2] Goehring v. Superior Court, 62 Cal. App. 4th 894, 907, 73 Cal. Rptr. 2d 105, 113 (1998);
[3] Id. citing Turbinator, Inc. v. Superior Court, 33 Cal. App. 4th 443, 451, 39 Cal. Rptr. 2d 342 (1995).
[4] Mo. Stat. Ann. § 400.9-402(1) (1994); Tex. Bus. & Com.Code Ann. 9.402(b)(1) (Vernon's 1999). I note that Revised Article 9, which became effective on July 31, 2001, provides that a security interest sufficiently provides the name of the debtor, if it provides the name of the debtor indicated on the public record where the debtor was organized. Mo. Stat. Ann. § 400.9-503(a)(1). The Official Comment 2 to that section instructs that financing statements are indexed under the debtor's name, and those who wish to find financing statements search for them under the debtor's name.
[5] Id.
[6] Id. at Comment 2.
[7] Mo. Stat. Ann. § 400.9-203(1) (Supp.2001); Tex. Bus. & Com.Code Ann. § 9.203(1) (Vernon 1999).
[8] Cr. Ex. # 3 (The date of the May filing is corrected to May 7, 1999, pursuant to Winthrop's Amendment to Memorandum of Law in Support of Creditor's Motion for Adequate Protection or, in the Alternative, for Relief from the Automatic Stay).
[9] Id at Attachment A.
[10] Cr. Ex. 5 and 6.
[11] Id. at Attachment A.
[12] See Mo. Stat. Ann. § 400.9-408 (1994) and Tex. Bus. & Com.Code Ann. § 9.408 (1991) Comment 2 (stating that if a lease is intended as security, Article 9 applies in full. If, however, the lessor chooses to file for safety even while contending that the lease is a true lease, section 9-409 authorizes filing with appropriate changes of terminology, and without affecting the question of classification). See also Mo. Stat. Ann. § 400.9-409 (1994) and Tex. Bus. & Com.Code § 9.408 (1991), which specifically state that a lessor may file a financing statement using the term lessor, and if the lease is ever determined to be a security interest, it is perfected by the filing. That is not relevant here as the filing in this case perfected the later security interest at the time the security interest attached. Again I note that Revised Article 9 also allows a lessor to file a precautionary financing statement that will perfect a lessors' interest in the event it is determined to be a security interest and not a true lease. Mo. Stat. Ann. § 400.9-505 (Supp.2002); Tex. Bus. & Com.Code Ann. § 9.505 (Vernon 2002).
[13] Cr. Ex. # 2.
[14] Id.
[15] Case No. 97-50543, Doc. # 858.
[16] Cr. Ex. # 3.
[17] Cr. Ex. 5 and 6.
[18] General Electric Credit Corporation v. Aurora Mobile Homes, Inc., 37 Cal. App. 3d 1016, 1022, 112 Cal. Rptr. 735, 739 (1974).
[19] First Nat'l Bank of Steeleville, N.A. v. Erb Equipment Co., Inc., 921 S.W.2d 57, 61 (Mo.Ct.App.1996).
[20] Mo. Stat. Ann. § 400.9-312(4) (1994); Tex. Bus. & Com.Code Ann. § 9.312(4) (1991).
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212 B.R. 128 (1997)
In re Timothy J. PEARSON and Dona T. Pearson, Debtors.
Donald F. KING, Trustee, Plaintiff,
v.
Kenneth M. THOMPSON, II, Trustee of the Kenneth M. Thompson Family Irrevocable Inter Vivos Trust, et al., Defendants.
Bankruptcy No. 92-14162-AB, Adversary Nos. 95-1097, 95-01086, 95-1086.
United States Bankruptcy Court, E.D. Virginia, Alexandria Division.
August 6, 1997.
*129 Sally Hostetler, Odin, Feldman & Pittleman, P.C., Fairfax, VA, for Donald F. King, Chapter 7 Trustee.
Leslie W. Lickstein, Goodman, Gary & Lickstein, P.C., Vienna, VA, for Debtors, Timothy and Dona Pearson.
Richard C. Sullivan, Hazel & Thomas, P.C., Alexandria, VA, for the Kenneth M. Thompson Family Trust.
MEMORANDUM OPINION
(For Publication As Amended)
MARTIN V.B. BOSTETTER, Jr., Chief Judge.
In this adversary proceeding, the Chapter 7 Trustee, Donald F. King, (hereinafter referred to as the Bankruptcy Trustee) seeks to compel turnover of the debtor's interest in a Family Trust from Kenneth M. Thompson, II, Trustee of the Family Trust. Both parties have moved for summary judgment. The parties agree that the Court may decide the issues of law on the agreed facts. After reviewing the briefs of the parties, hearing oral argument and having conducted independent research, we make the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
I. FACTS.
The agreed facts are as follows. The debtor, Dona Pearson, is a primary beneficiary under the Kenneth M. Thompson Family Irrevocable Inter Vivos Trust established pursuant to an Irrevocable Inter Vivos Trust Agreement dated December 14, 1976 (hereinafter referred to as the "Trust"). The Trust was set up by the debtor's parents, Kenneth M. Thompson and Minnie D. Thompson. The debtor's parents are still living. There are two other beneficiaries under the Trust, Dana Thompson Dunn and Kenneth M. Thompson, II, the debtor's sister and brother. The debtor's brother, Kenneth M. Thompson, II is the Trustee of the Trust.
The debtor was born on June 30, 1954 and is 43 years old today. The Family Trust was established to provide the following benefits for the Beneficiaries:
(1) medical care and attention, (2) assistance for education pursuits, and (3) support and maintenance in such amounts and to such an extent not provided or furnished to the Primary Beneficiaries by either their parents or themselves, so as to preserve *130 the standard of living to which they have become accustomed.
Art. 2, section E, page 3 of the Trust.
Article Seven of the Trust Agreement contains the spendthrift provisions and states:
It is the purpose and intent of the Grantors in the creation of this Trust Estate for the Primary Beneficiaries to provide for their needs and those of their issue during their minority.
Therefore, in no event shall any portion of the whole or any portion of the Trust Estate, become liable for any debt or obligation whatsoever of any beneficiary regardless of whether the beneficiary contracting or otherwise incurring such obligation shall have been of legal age or not at that time. Furthermore, in no event shall any or all of the beneficiaries have the right and/or power in any manner whatsoever, whether by sale, assignment, mortgage, pledge or otherwise, to alienate or subject the whole or any portion of the Trust Estate to be used in payment of, or as a security for, any personal debt or obligation whatsoever incurred by any beneficiary; and the Trustee is hereby expressly directed and limited to pay all or any portion of the Trust Estate to or for the use of the person or persons hereinbefore mentioned and designated as the property beneficiaries of the Trust and for whose use and benefit this Trust Estate has been created, but in no event shall the Trustee pay the same to any other person or persons whomsoever.
Article 2, Section F(2) of the Trust Agreement provides that when the debtor attains twenty-five years of age, she shall have the right to distribution of "¼ of the Trust Estate Share allocated to [her] and held at that time." The debtor attained the age of twenty-five on June 30, 1979. Article 2, Section F(3) of the Trust Agreement provides that when the debtor attains thirty years of age, she shall have the right to distribution of "1/3 of the Trust Estate Share allocated to [her] and held at that time." The debtor attained the age of thirty on June 30, 1984. Article 2, section F(4) of the Trust Agreement provides that when the debtor attains thirty-five years of age, she shall have the right to distribution of "½ of the Trust Estate Share allocated to [her] and held at that time." The debtor attained the age of thirty-five on June 30, 1989. Finally, Article 2, section F(5) of the Trust Agreement provides that when the youngest of the beneficiaries "attains forty (40) years of age, each Primary Beneficiary shall have the right to withdraw, upon his or her written request the remaining balance of the Trust Estate share allocated to such Primary Beneficiary and held at that time." The youngest Primary Beneficiary will attain the age of forty on July 23, 1997.
Subsection six of Article Two gives the Trustee of the Trust 5 years to make a distribution under Article Two sections F(2) through F(5):
It is further provided, however, that if the Trustee, in his sole and absolute discretion, deems any of such partial distributions described in subparagraphs (2), (3), (4) and (5) of paragraph F of the ARTICLE TWO to be inappropriate, he may retain and delay the withdrawal of all or any portion of such aforedescribed distributions of the Trust Estate shares for a period not to exceed five (5) years. Before the expiration of any of the five (5) year periods described in subparagraphs (2), (3), (4) and (5) of paragraph F of this ARTICLE TWO, the Trustee may transfer, convey and pay over any part of a distributive portion of a share previously retained by him, as he, in his sole and absolute discretion, deems best; provided, however, that upon the expiration of each such five (5) year period, he shall then transfer, convey and pay over to the Primary Beneficiary any portion of his or her distributive share of the Trust Estate retained and delayed and not previously paid over to such Primary Beneficiary, in fee simple and absolutely.
The Trust Agreement also provides that when the youngest of the beneficiaries attains forty years of age, each primary beneficiary shall have the right to withdraw, upon his or her written request the remaining balance of the Trust Estate Share allocated to such Primary Beneficiary and held at that *131 time. The youngest Primary Beneficiary will attain the age of forty on July 23, 1997.
On August 28, 1992, the debtor filed a voluntary petition for relief under Chapter 11 of the Code. On March 18, 1994, the debtor's Chapter 11 case was converted to a case under Chapter 7. On May 27, 1994, July 13, 1994 and September 15, 1994, the Trustee of the Trust made distributions to the debtor from the Trust totaling $91,333. No other distributions have been made to the debtor during the course of her bankruptcy, nor has the debtor made any requests for distributions. Since the final distribution to the debtor on September 15, 1994, distributions have been made from the Trust to the other beneficiaries of the Trust. The debtor's funds have been withheld pending the outcome of this litigation.
On March 28, 1995, the Trustee in bankruptcy filed a five-count complaint against both the Trustee of the Trust and the debtor seeking turnover of the debtor's interest in the Trust. On April 4, 1995, the Trustee of the Trust filed a complaint for declaratory judgment relating to the debtor's interest in the Trust. The respective complaints have been consolidated into one action now before the Court.
II. CONCLUSIONS OF LAW.
This is a core proceeding under 28 U.S.C. § 157(b)(2)(B). Summary judgment is proper where there is no genuine dispute as to any material fact, and either moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); see also Celotex Corp. v, Catrett, 477 U.S. 317, 323-25, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986); Hinkleman v. Shell Oil Co., 962 F.2d 372, 375 (4th Cir.), cert. denied, 506 U.S. 1041, 113 S. Ct. 831, 121 L. Ed. 2d 701 (1992).
The bankruptcy estate generally consists of all of the debtor's legal and equitable interest at the time the bankruptcy petition is filed. 11 U.S.C. § 541(a)(1). However, under section 541(c)(2), a debtor's beneficial interest in a trust is excluded from the estate if it is restricted from transfer under applicable nonbankruptcy law. 11 U.S.C. § 541(c)(2). Therefore, a debtor's beneficial interest in a spendthrift trust is excluded from the bankruptcy estate so long as the spendthrift provision is valid under nonbankruptcy law. See McLean v. Central States, S.E. & S.W. Pension Areas Fund (In re McLean), 762 F.2d 1204, 1206-07 (4th Cir.1985); In re Hanes, 162 B.R. 733, 738 (Bankr.E.D.Va.1994) (Bostetter, C.J.).
The Trust was established and is administered in Virginia. Virginia Code section 55-19 authorizes the creation of spendthrift trusts. Va.Code Ann. § 55-19 (Michie 1995). Section 55-19(B) permits a $500,000 trust estate to be held in trust upon the condition that the trust corpus and income not be subject to the beneficiaries' liabilities or to alienation by them. The language contained in Articles Two and Seven of the Trust Agreement, as set forth above, specifies an intent to protect both the income and the corpus of the Trust from alienation or the claims of creditors. Thus, we find that the Trust is a valid spendthrift trust under Virginia law.
Accordingly, under section 541(c)(2) of the Bankruptcy Code, the debtor's share of the Trust is not property of her bankruptcy estate to the extent permitted by Virginia law. Virginia law permits the debtor to hold $500,000 in a trust estate protected by the spendthrift provisions. Va.Code § 55-19; see also In re Baydush, 171 B.R. 953, 959 (E.D.Va.1994). It follows then, that the debtor's share of the Trust above the $500,000 statutory protection is property of the bankruptcy estate. Cf. Neuton v. Danning (In re Neuton), 922 F.2d 1379, 1383 (9th Cir.1990) (finding that spendthrift restriction under California law fully protects only 75% of the debtor's interest in trust; thus, the bankruptcy estate possesses an income interest in 25% of trust).
The Bankruptcy Trustee asserts the theory that he is entitled to turnover of 75% of the debtor's interest in the Trust, plus any value in the remaining 25% which exceeds the $500,000 protection. The Bankruptcy Trustee's position is that because the debtor had the right to request distribution of 75% of her share in the Trust on the petition date, that share lost its spendthrift protection and *132 should be included as property of the bankruptcy estate. We disagree.
On the petition date, the debtor had the right to request distribution of 75% of her share of the Trust. She was entitled to request ¼ of her Trust share on June 30, 1979, 1/3 of her Trust share on June 30, 1984 and ½ of her Trust share on June 30, 1989. The Trustee of the Trust had absolute discretion to withhold distribution for 5 years from the date the debtor was entitled to request distribution. Under the terms of the Trust Agreement, upon the expiration of the five year period, the Trustee's discretionary powers ceased and the debtor had the absolute right to distribution. Thus, on August 28, 1992, the petition date, 50% of the debtor's share of the Trust was available for distribution to her free of the Trustee's discretionary powers. The next 25% of the debtor's share was available to her at her request, however, distribution was subject to the Trustee's discretionary powers until June 30, 1994. Nevertheless, the debtor did not request distribution from the Trust at any time prior to filing bankruptcy.
The issue here is whether income that has accrued to the debtor but remains in the hands of the Trustee of the Trust is protected by the spendthrift provisions of the Trust. To make this determination, we look to the intention and purpose of the grantors. In re Wilson, 3 B.R. 439 (Bankr.W.D.Va.1980). The grantors' intent can be gleaned from the terms of the trust itself. Based on the language of the spendthrift provisions as stated previously, it is obvious that the grantors did not want their assets to end up in the hands of their children's creditors.
The Virginia Supreme Court has noted that "[n]o distinction is made by the legislature between the policy of protection of income and protection of corpus, nor does there seem to be any logical distinction between either, so long as the trust fund remains in the hands of the trustee subject to the provision of the trust instrument." Alderman v. Virginia Trust Co., 181 Va. 497, 25 S.E.2d 333 (1943). Given the language of the Trust, we hold that the restraint on alienation of the right to receive the principal from the Trust is effective until the principal is no longer in the hands of the Trustee. Accord 2A Scott on Trusts § 153 (4th ed.1989); Domo v. McCarthy, 66 Ohio St. 3d 312, 612 N.E.2d 706 (Ohio 1993); Dierschke v. Central National, 876 S.W.2d 377 (Tex. App.-Austin 1994). We recognize that there is authority to the contrary, and decline to follow it. See 2A Scott on Trusts § 153 (citing cases). In this case, the debtor's entire interest in the Trust remained in the hands of the Trustee on the date she filed bankruptcy. Consequently, the debtor's entire interest was subject to the spendthrift provisions.
The finite issue then is what is the Bankruptcy Trustee entitled to recover? This is an unusual case because the debtor's interest in the Trust far exceeds the $500,000 spendthrift trust estate allowed under Virginia law. Thus, our analysis above appears to be purely academic. The fact that the debtor was unconditionally entitled to receive 50% of her interest in the Trust on the petition date is a distinction without a difference in this case because the Virginia Code only allows $500,000 to be held in a spendthrift trust free from the reach of a debtor's creditors. Because the Bankruptcy Trust enjoys the power of a hypothetical judgment creditor, 11 U.S.C. § 541(a)(1), he is entitled to turnover of the actual value of the debtor's entire interest in the Trust as of the petition date that exceeds the $500,000 statutory exclusion. Although we find that the Trustee's discretionary powers would trump the rights of the Bankruptcy Trustee, such discretionary powers do not trump the mandate of the Virginia Legislature limiting the amount of money that may be held in a trust estate and remain protected by the spendthrift provision to $500,000.
The Bankruptcy Trustee also requests turnover of the post-petition distributions made to the debtor. Because we find that the trust estate was not property of the estate to the extent of $500,000, the Bankruptcy Trustee has no interest in post-petition distributions made to the debtor within the statutory limit. However, the post-petition distributions made to the debtor shall be deducted from her $500,000 statutory exclusion.
*133 III. CONCLUSION.
For the foregoing reasons, we hold that the Trust is a valid spendthrift trust under Virginia law. Under section 541(c)(2) of the Bankruptcy Code, the debtors interest in the Trust is not property of the bankruptcy estate to the extent permitted under Virginia law. Virginia law permits the debtor to hold $500,000 in actual value in a spendthrift trust. Therefore, $500,000 of the debtor's share of the Trust is excluded from the bankruptcy estate. The Trustee of the Trust shall turnover to the Bankruptcy Trustee the actual value of her interest in the Trust as of the petition date above the $500,000 spendthrift limit. The Trustee of the Trust is directed to provide an accounting to the Bankruptcy Trustee of the value of the Trust as of the petition date. The Bankruptcy Trustee is not entitled to recovery of post-petition distributions made to the debtor within the statutory limit. Should the parties be unable to agree as to the value of the debtor's interest in the Trust, the Court will hear and determine that issue.
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01-03-2023
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10-30-2013
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839 A.2d 159 (2003)
365 N.J. Super. 419
BOARD OF EDUCATION, TOWNSHIP OF MIDDLETOWN, Plaintiff,
v.
MIDDLETOWN TEACHERS EDUCATION ASSOCIATION, et al., Defendants.
Superior Court of New Jersey, Chancery Division, Monmouth County.
Decided July 31, 2003.[1]
*160 Gail Oxfeld Kanef, Newark, for defendants (Oxfeld Cohen, LLC).
*161 Mark P. Stalford, Assistant Prosecutor, appearing, for plaintiff (John Kaye, Monmouth County Prosecutor).
FISHER, P.J.Ch.
This matter came before the court upon the post-judgment application of 216 defendants ("the applicants") who were incarcerated for anywhere from one to five days in and about November and December 2001, pursuant to R.1:10-3, for failing and refusing to comply with an injunction entered in this civil matter. Seeking expungement of all records relating to their incarceration, applicants rely upon both the expungement statutes and the court's inherent equity powers.[2] Because the expungement statutes do not apply to R. 1:10-3 proceedings and their consequences, because it is doubtful the equitable power exists to grant the relief sought, and because equitable relief is not warranted in this case, the application will be denied.
I
The events which form the predicate for the present application need only be briefly recounted.[3] The applicants engaged in an illegal work stoppage, prompting the entry of a preliminary injunction. Applicants were served with the injunction, but continued to engage in this work stoppage. This led to a series of hearings culminating in the eventual incarceration of all the applicants. These incarcerations were based upon R.1:10-3, which allows a court to enforce its orders through various coercive means, including incarceration. Eventually, all defendants, including the applicants, agreed to return to work and, as a result, all the applicants were immediately released from jail. Now, applicants seek expungement of any record of their having been incarcerated during this proceeding, claiming the existing expungement legislation and an inherent equitable power authorize such relief.
II
The application, in the first instance, invokes N.J.S.A. 2C:52-1 et seq. as the legal basis for the relief sought. In this regard only, the Attorney General and the Monmouth County Prosecutor opposed the application, asserting that this statutory scheme does not permit expungement in civil matters. Their technical objections as to the particular form of the application need not long detain the court, since it is clear that the expungement statutes do not permit the relief sought by the applicants herein.[4]
The Prosecutor also contends that the matter should have been ruled upon by the Criminal Part judge designated to preside over expungement matters in this vicinage. Considering this court's familiarity with the underlying proceedings, *162 considering there is nothing in the statute which directs that only Criminal Part judges may hear such applications, and considering also that the General Assignment Order entered by the Chief Justice renders inconsequential any apparent lines created by a judge's particular assignment,[5] this court certainly is empowered and has jurisdiction over the matter. In other words, the jurisdiction to grant or deny relief pursuant to N.J.S.A. 2C:52-1 et seq. lies in the superior court and not with any particular superior court judge.
The court finding no insurmountable procedural obstacle, attention will be turned toward a consideration of the merits of the application.
There can be no question but that N.J.S.A. 2C:52-1 et seq. does not permit the relief sought herein. The Legislature defined "expungement" as the "extraction and isolation" of records "of an offense within the criminal justice system." N.J.S.A. 2C:52-1a. It has been held that this statutory scheme embodies "an expressed design to deal only with criminal charges and their consequences." Matter of M.D.Z., 286 N.J.Super. 82, 85, 668 A.2d 423, 424 (App.Div.1995) (emphasis added). As a result, the expungement statutes authorize the granting of relief regarding convictions of crimes, N.J.S.A. 2C:52-2, disorderly persons offenses and petty disorderly persons offenses, N.J.S.A. 2C:52-3, ordinance violations, N.J.S.A. 2C:52-4, juvenile delinquency adjudications, N.J.S.A. 2C:52-4.1, and convictions for certain drug offenses, N.J.S.A. 2C:52-5. The statutory scheme also provides for the expungement of records of arrests not resulting in convictions. N.J.S.A. 2C:52-6. This provision, however, also unambiguously forecloses the relief sought herein, since, again, it applies only when the person "has been arrested or held to answer for a crime, disorderly persons offense, petty disorderly persons offense or municipal ordinance violation." N.J.S.A. 2C:52-6a (emphasis added). As a result of the clarity of the limiting nature of these provisions, our appellate courts have held that claims not specifically delineated in these statutes may not form a predicate for the expunging of public records.
For example, in State v. K.M., 220 N.J.Super. 338, 339-40, 532 A.2d 254, 255 (App.Div.1987), the court held that Title 39 violations "do not fall within the specific categories covered by the expungement chapter" and relief may not be granted regarding such a matter even though the particular violation may permit imprisonment. And, in M.D.Z., the court held that "while a criminal charge and its related consequences that arise from a domestic incident may be subject to expungement, a domestic violence complaint arising from the same incident, in which the victim seeks restraints and other civil relief, is not." 286 N.J.Super. at 87, 668 A.2d at 425. As Judge Kestin summarized the approach to the scope of the expungement statutes in M.D.Z.:
Where the Legislature has been so meticulous in establishing what is within the scope of a statute, a court is hard-pressed to expand that coverage by divining a legislative purpose that is more inclusive. It is clear, from both the specific provisions of the expungement statute and its general tenor, that the Legislature intended it to encompass only criminal charges and their consequences. [286 N.J.Super. at 86, 668 A.2d at 425]
*163 The present situation does not remotely fall within the scope of the expungement statutes. The court's incarceration of the applicants was based upon its coercive powers to enforce orders in a civil case, pursuant to R. 1:10-3. Even the inaccurate contention that these applicants were held "in contempt"[6]in an attempt to suggest a quasi-criminal nature of the proceedingsis not sufficient to bring the matter within the scope of the statute.
An incarceration based upon R. 1:10-3 does not fall within the bounds of the expungement statutes. The reason this is so is not known and none of the parties has provided the court with any extrinsic evidence of the Legislature's intent for failing to include such matters. It may very well be that the Legislature was concernedas with Title 39 violationsthat our courts would be overwhelmed by countless such applications.[7] In any event, there is no need for the court to speculate as to the reasonsthe important point is that these statutes do not expressly permit the expungement of records created as a result of an order incarcerating a party pursuant to R. 1:10-3.
III
The applicants also contend that the court possesses the equitable power to grant expungement in the absence of statutory support. The authorities cited by applicants do not support this contention but further research reveals that there is some limited authority for the proposition that the power to expunge such or similar records exists.
That is, some courts have recognized a party's right to expungement of an arrest record based on purely equitable considerations independent of statutory authority. In our own State, trial courts have entertained such applications with mixed results. In Fernicola v. Keenan, 136 N.J. Eq. 9, 39 A.2d 851 (Ch.1944), for example, the applicant had been arrested on a charge of assault and battery, as a result of which he was fingerprinted, measured and photographed. The matter was presented to the grand jury which did not return an indictment. Notwithstanding, photographs of and other information about the applicant were retained in "what is popularly known as the Rogues' Gallery." Id. at 9, 39 A.2d at 851. Claiming embarrassment and the potential prejudice in obtaining future employment, the applicant sought an order requiring the removal of this information. The trial court concluded that the issue turned on the discretion of the police, explaining:
The taking of the fingerprints in the first place and the whole process of arrest *164 of a possibly innocent person are a humiliation to which he must submit for the benefit of society. To the same end, the police are justified in retaining such records, in certain cases, after an acquittal or a failure of the grand jury to indict. Sometimes a grand jury dismisses a charge because it seems trivial; sometimes the trial jury must acquit a guilty person because the evidence does not establish guilt beyond a reasonable doubt. In every large community are men who have never been convicted of an indictable offense but whose associations and manner of life are such that the police feel reasonably assured that such a one, unless he turn over a new leaf, will eventually be guilty of a serious crime. If he be lawfully arrested and fingerprinted, the police are justified in keeping the prints for possible use in the future, even though no indictment is found. On the other hand, when a man of good repute has a false charge made against him and is cleared of it, it seems to me that the police should destroy his fingerprints and photograph, or remove them from the rogues gallery. But in the absence of statute, discretion in the matter belongs to the police. Since they are responsible for our safety, it is for them to decide whose identification papers will be apt to assist them in the performance of their duty. It is not for the court to make the decision.
[136 N.J. Eq. at 10-11, 39 A.2d at 851-52 (emphasis added)]
While Fernicola did not acknowledge the equitable power to grant such reliefdeferring, instead, to law enforcement discretionthe trial court in In re Fortenbach, 119 N.J.Super. 124, 290 A.2d 315 (Cty.Ct. 1972) concluded that the court possessed the discretion to grant relief in areas not covered by the expungement statute.
In Fortenbach, the applicant was arrested and indicted for lewdness; he pleaded not guilty and the complaint was later dismissed. Citing applicant's "unblemished record" in the approximate 10 years since his arrest, and the "loss of economic benefits and psychological embarrassment," the trial court asserted that, in the absence of a statute to the contrary, it nevertheless possessed the discretion necessary to acknowledge "the equities involved" and grant relief. Id. at 129-30, 290 A.2d at 318. In a later case, however, the Appellate Division held that it was not "persuaded by [Fortenbach`s] reasoning and [did] not follow it" in construing the expungement statute in a factually similar context. In re Application of Raynor, 123 N.J.Super. 526, 528, 303 A.2d 896 (App. Div.1973).[8]
Other states have faced situations where applicants have sought expungement based upon equitable considerations. While some jurisdictions have refused to expunge records in the absence of statutory authority,[9] others have acknowledged a limited equitable right of expungement where, as in the federal cases cited in the margin, see, n. 8, supra, there are certain extreme circumstances which make such relief *165 "necessary and appropriate to preserve basic legal rights," as where an individual is arrested without probable cause or purely for the purpose of harassment. Bradford v. Mahan, 219 Kan. 450, 548 P.2d 1223, 1230 (1976); Mulkey v. Purdy, 234 So. 2d 108 (Fla.1970); State v. Pinkney, 33 Ohio Misc. 183, 290 N.E.2d 923 (1972); Eddy v. Moore, 5 Wash.App. 334, 487 P.2d 211 (1971); State v. Bellar, 16 N.C.App. 339, 192 S.E.2d 86 (1972); Doe v. Comdr, Wheaton Police Dep't, 273 Md. 262, 329 A.2d 35 (1974).
Certainly, it is arguable, particularly in light of some of these authorities, that the equitable power may exist in order to prevent law enforcement abuse or unconstitutional activities and where the Legislature neither permits nor precludes such relief. In criminal matters, the appellate authorities cited earlier would strongly suggest that even in egregious cases, the existing statutes have preempted the field. However, the existing statutes expressly deal only with criminal matters and, a fortiori, there is presently no reason to believe that any limited equitable power to grant relief in non-criminal matters has also been preempted by the existing statutes.
In this case, even if such equitable authority exists, the court would decline to exercise it in favor of applicants. The applicants here willfully disobeyed a court order and, as such, were found in violation of same. Applicant's argument that the stigma attached due to the record of their incarceration is unwarranted because they were involved in an instance of civil disobedience. The court rejects this gravely mistaken approach. These actions were not, for example, the equivalent of a trespass committed to emphasize the injustice of racial segregation or an unjust war. Applicants' acts of alleged civil disobedience caused the shut down of all public schools in Middletown, depriving thousands of children of their constitutional right to an education, all for the sake of applicants' financial well-being. Their actions do not conjure up thoughts of Thoreau, Gandhi or Martin Luther King.
In addition, earlier cases, such as Fernicola, suggest that relief may be denied for reasons of expediency. While the soundness of much of what was said in Fernicola is quite debatable, to the extent the court should consider the desires of law enforcement in this regard, this too would warrant a denial of the relief sought by applicants. Teacher strikes have occurred in this school district in 1998 and 2001. This might suggest a likelihood of another strike in the near future. If so, would it not be of benefit to the court and to the county to have the existing records retained for the foreseeable future?
In addition, if the matter may be resolved through consideration of the court's equitable powers, then should the court not balance the equities in ascertaining the most just result? In such circumstances, what is the harm to the applicants if these records are retained?[10] Nothing applicants has asserted would suggest any real or even psychological harm caused by the continued retention of these records.
IV
For the foregoing reasons, the court finds neither a statutory nor an equitable basis (assuming such power exists) to *166 grant the relief sought by the applicants. An appropriate order has been entered.
NOTES
[1] Section II of this opinion supersedes a written opinion of April 10, 2003.
[2] As it appears, according to the written and oral submissions of the Attorney General and the Prosecutor, the only records of the applicants' incarceration can be found either in the court's file in this civil matter and in the records maintained by the Monmouth County Correctional Institution (hereafter "the jail"). Applicants seek only the expungement of the latter.
[3] For further detail, see, Middletown Bd. of Ed. v. Middletown Tp. Educ. Ass'n, 352 N.J.Super. 501, 800 A.2d 286 (Ch.Div.2001).
[4] For example, the Prosecutor contends that this application should have been commenced by way of a separate, independent proceeding and not within the ambit of the civil action which gave rise to applicants' incarcerations. Indeed, it is claimed that there should have been 216 separate petitions for reasons which strike this court as valid but which need not be discussed at this time.
[5] The current Assignment Order states in pertinent part: "all Superior Court and Tax Court judges are hereby temporarily assigned to the Law Division (Civil and Criminal) of the Superior Court and the Chancery Division (General Equity and Family) of the Superior Court, the Tax Court, and all municipal courts in the vicinage to which they are assigned."
[6] These applicants were never held "in contempt." The relief granted was based upon R. 1:10-3 which imbues the court with broad powers to enforce its orders to "aid" a litigant in a civil suit. The court's earlier opinion in this matter, wherein the prior proceedings were summarized, in fact, does not contain the word "contempt." See, 352 N.J.Super. 501, 800 A.2d 286.
[7] Each day in this vicinage anywhere from a few to as many as 20 or 30 individuals are brought before a Family Part judge for a determination as to whether they should be incarcerated for having failed to pay child or spousal support pursuant to court order. Those proceedings, like the proceedings herein, are authorized and based upon R.1:10-3. If all those individuals will ultimately have the opportunity to seek expungement of the records of their incarceration, it can readily be seen that there would be a flood of such applications. As the court said in K.M., "the Legislature in removing Title 39 violations from the expungement statute must have been aware of the great number of such violations which are processed each year and may have decided not to burden the courts with their expungement." The same may also be true of R. 1:10-3 incarcerations.
[8] Federal courts have recognized that arrest records may be expunged in the absence of an authorizing statute for equitable reasons, but only in extraordinary circumstances such as where probable cause was lacking, where constitutional rights were flagrantly violated by the arresting officer, or in the case of mistaken identity. United States v. McLeod, 385 F.2d 734 (5th Cir.1967); Hughes v. Rizzo, 282 F.Supp. 881 (E.D.Pa.1968); Sullivan v. Murphy, 478 F.2d 938 (D.C.Cir.1973).
[9] Sterling v. City of Oakland, 208 Cal.App.2d 1, 24 Cal.Rptr. 696 (1962); Kolb v. O'Connor, 14 Ill.App.2d 81, 142 N.E.2d 818 (1957); Weisberg v. Police Dept. of Village of Lynbrook, 46 Misc.2d 846, 260 N.Y.S.2d 554 (Sup.Ct. 1965.)
[10] The mere fact that applicants were fingerprinted cannot be of concern to them since they were undoubtedly fingerprinted in order to gain school employment and those records were presumably shared with, or are available to, the Federal Bureau of Investigation and the Division of State Police. See, N.J.S.A. 18A:6-4.14.
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01-03-2023
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10-30-2013
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839 A.2d 398 (2003)
In re: Involuntary TERMINATION OF C.W.S.M. and K.A.L.M.-S.
Appeal of: D.A.M., Appellant.
Superior Court of Pennsylvania.
Argued May 23, 2003.
Filed December 9, 2003.
*399 Robert Glazer, Easton, for appellant.
Sara J. Hogan, Bethlehem, for appellees.
Daniel G. Spengler, Easton, for Northampton County Children and Youth Services, participating party.
Before: TODD, GRACI, and TAMILIA, JJ.
TODD, J.
¶ 1 D.A.M. ("Mother") appeals the July 25, 2002 Order of the Northampton County Court of Common Pleas which terminated her parental rights to her son, C.W.S.M., born October 23, 1994, and daughter, K.A.L.M.-S., born January 29, 1996.[1] Upon review, we are constrained to reverse and remand.
¶ 2 Northampton County Department of Human Services, Children, Youth and Families Division ("CYF") first became involved with Mother, C.W.S.M., and C.W.S.M.'s father C.J.S. ("Father") in December 1994, following allegations of chemical dependency of Father, inappropriate discipline with a leather strap of the children's older sibling, B.M., who is not subject to the instant petition, and C.W.S.M.'s failure to thrive. (N.T. Termination Hearing, 3/12/02, at 25-26.) In January 1995, CYF engaged the services of the Visiting Nurse Association ("VNA") to educate Mother on parenting skills and monitor C.W.S.M.'s weight. (Id. at 27-28.) B.M. was referred to KidsPeace Afternoon Treatment Program. (Id. at 26-27.) However, in February 1995, C.W.S.M. was hospitalized due to his low weight. (Id. at 28.) While hospitalized, C.W.S.M. gained weight; however, after he was released from the hospital with a prescription for an intensive feeding program, C.W.S.M. began to lose weight and was removed from the family home on February 17, 1995. (Id.)
¶ 3 After C.W.S.M. was removed from the home, Mother was offered parenting classes through the Program for Women and Children. (Id. at 29.) Mother also underwent a psychological evaluation by Dr. Henry Gursky, who recommended continued parenting skills training, random urine screens, and individual counseling. (Id.) Mother also was referred to the Housing Authority since the family was at risk of being evicted. (Id. at 28.) Mother refused to attend the parenting classes through the Program for Women and Children, but she did attend 7 of 22 sessions of the KidsPeace parenting program. (Id. at 29.) Mother stopped attending the program, however, in May 1995. Mother also refused to submit to the random urine screens and she failed to complete the necessary Housing Authority forms to obtain housing for the family. (Id.) As a result, Mother subsequently was referred *400 to the Valley Youth House housing program. (Id.)
¶ 4 Father was referred to an inpatient drug treatment program at Valley Forge Medical Center, which he completed at the end of March 1995. (Id. at 29-30.) Father was scheduled to attend the Lehigh Valley Addictions Treatment Service ("LVATS") aftercare program as well as a parenting program, but failed to attend either program due to alleged conflicts with his employment. (Id. at 30.)
¶ 5 In May 1995, Mother and Father were granted visitation with C.W.S.M. in Mother's home under the supervision of the VNA. (Id. at 30-31.) Mother was referred to Al-Anon or Nar-Anon, but did not attend because she was "too busy with her other requirements." (Id. at 31.) She did attend a spousal support group at LVATS. (Id.) Father attended weekly outpatient counseling, but failed to attend his 12-step meetings. (Id.) In May 1995, Mother was advised by CYF that C.W.S.M. could return home if she complied with the service recommendations during the next two weeks and if Father was not living in the home. (Id. at 32.) Father moved to an upstairs apartment; however, Mother stopped attending the KidsPeace parenting program, told the CYF caseworker that the court could not keep Father from visiting with C.W.S.M., and missed several visits with C.W.S.M. as a result of her failure to allow the VNA nurse into her home. (Id. at 33-35.) As a result of Mother's noncompliance, C.W.S.M. did not return home, and on May 12, 1995, was adjudicated dependent.
¶ 6 Following the birth of K.A.L.M.-S. on January 29, 1996, Mother and Father obtained new housing and complied with the court-ordered services, and C.W.S.M. was returned home on July 18, 1996. (Id. at 39.) The family continued to experience difficulties, however. Father was incarcerated in January 1997 due to failure to pay child support. (Id. at 40.) Mother experienced financial difficulties, and the utility companies threatened to shut off her service. (Id. at 40.) In June 1997, B.M. was removed from the home after Mother admitted to throwing a bottle at him, giving him a black eye. (Id. at 42-43.) Between June and October 1997, Mother was referred to Valley Youth House, a family protection program, for outpatient counseling and psychiatric care, but refused the initial intake appointment, and then missed her first appointment and refused to reschedule. (Id. at 45.)
¶ 7 During the summer of 1997, Father called CYF several times to express concern regarding the children's safety since B.M., who had acted as a caretaker of the younger children, had been removed from the house. (Id. at 45-56.) In November 1997, the police were summoned to the family home on two separate occasions as a result of domestic disputes. (Id. at 50.) On December 18, 1997, both C.W.S.M. and K.A.L.M.-S. were adjudicated dependent, but placement was suspended and the children were permitted to remain with Mother provided she cooperate with a program of protective services. (Id. at 51.) Mother was ordered to undergo outpatient counseling and psychiatric care, cooperate with casework services, cooperate in the provision of medical services for the children, undergo family budget counseling, and take the children to daycare, which was paid for by CYF, at least twice a week. (Id. at 51, 93.) Father was ordered to cooperate with the Innovations and/or Intensive Outpatient Treatment Alternatives drug treatment programs, and to undergo random urine testing. (Id. at 48, 93.)
¶ 8 Father failed to comply with the requirements, was terminated from the Innovations program due to poor attendance, and tested positive for amphetamines and *401 cannabinoids in January 1998. (Id. at 53.) On several occasions, Father refused to submit to drug screens. Mother initially complied with the ordered services, but in January 1998 stopped taking the children to daycare, began screaming at the caseworker when the caseworker visited the home, and refused to provide an address when she moved to Allentown. (Id. at 94-95.) In addition, in January 1998, C.W.S.M. appeared at day care with a severe burn on his buttocks, which occurred while in Mother's care, and an investigation by CYF resulted in a finding that there was a lack of proper parental supervision. (Id. at 18-19.) On January 13, 1998, CYF filed a petition to revoke the suspended placement; however, the petition was withdrawn after Mother came into compliance. (Id. at 94-95.)
¶ 9 In March 1998, Mother again stopped taking the children to daycare and refused to work with her counselor. (Id. at 96-97.) Mother also permitted Father to see the children, despite a court order preventing Father from visiting with the children unless he complied with his court-ordered drug counseling and drug screening. (Id. at 98-99.) As a result of Mother's and Father's noncompliance, in December 1998, the children were ordered to be placed in foster care. (Id. at 100.) Mother and Father appealed, however, and the placement did not occur. (Id.)
¶ 10 In February 1999, Lehigh County Children and Youth conducted an abuse investigation with respect to K.A.C.M.-S. (Id. at 133-34.) The allegations of abuse ultimately were deemed unfounded; however, the children were deemed at risk and placed in the custody of CYF. (Id.) The children have been in foster care since that time.
¶ 11 Mother began counseling with Dr. Robert Lewis in January 1999 to address her anger management issues. (Id. at 135, 141.) Since that time, Father completed three of twelve random urine screens. (Id. at 135.) Father also began outpatient counseling at St. Luke's Treatment Center on April 16, 1999, but attended only three sessions before he was discharged on May 28, 1999. (Id. at 135.) Mother and Father each attended six of eight bi-weekly visits with the children during the first half of 1999. (Id. at 136.) Mother was ordered by the court to participate in parenting classes, address budgeting issues, and undergo a neurological and psychiatric evaluation. (N.T. Termination Hearing, 3/13/02, at 154.) The neurological assessment took place at the end of December 1999. (Id. at 156.)
¶ 12 Between November 1999 and March 2000, Father's attendance at drug counseling was poor, and he missed numerous urine screens between March and June 2000. (Id. at 159-160.) On June 21, 2000, Father was charged with harassment as a result of an assault against Mother. (Id. at 162.) On July 5, 2000, Father tested positive for cocaine, and he was discharged from the SLATS program due to his unwillingness to follow therapeutic advice. (Id. at 160, 164.)
¶ 13 On September 25, 2001, CYF filed a petition to terminate Mother's and Father's parental rights to the children pursuant to 23 Pa.C.S.A. § 2511(a)(1), (2), (5), and (8). Following a four-day non-jury trial, the trial court granted CYF's petition and terminated Mother's and Father's parental rights to the children on the basis of subsections § 2511(a)(1), (2), (5) and (8). This timely appeal followed.
¶ 14 In this appeal, Mother presents the following questions for our consideration:
1. Did the Trial Court err in finding that termination of parental rights was in the children's best interests?
*402 2. Did the Trial Court err in finding that the Appellant failed to perform parental duties for a period of six (6) months prior to the filing of the Termination Petition?
3. Did the Trial Court err in finding that the Appellant has not taken the appropriate steps [in] order to remedy the circumstances that led to the removal of the children?
(Appellant's Brief at 5.)
¶ 15 When reviewing an appeal from a decree terminating parental rights, we are limited to determining whether the decision of the trial court is supported by competent evidence. See In re K.C.W., 456 Pa.Super. 1, 9, 689 A.2d 294, 298 (1997). Absent an abuse of discretion, an error of law, or insufficient evidentiary support for the trial court's decision, the decree must stand. Id. Where a trial court has granted a petition to involuntarily terminate parental rights, this Court must accord the hearing judge's decision the same deference that we would give to a jury verdict. See In re Child M., 452 Pa.Super. 230, 245, 681 A.2d 793, 800 (1996).
¶ 16 In the present case, the trial court terminated Mother's parental rights pursuant to subsections (a)(1), (2), (5) and (8) of 23 Pa.C.S.A. § 2511, which provide:
§ 2511. Grounds for involuntary termination
(a) General rule.The rights of a parent in regard to a child may be terminated after a petition filed on any of the following grounds:
(1) The parent by conduct continuing for a period of at least six months immediately preceding the filing of the petition either has evidenced a settled purpose of relinquishing parental claim to a child or has refused or failed to perform parental duties.
(2) The repeated and continued incapacity, abuse, neglect or refusal of the parent has caused the child to be without essential parental care, control or subsistence necessary for his physical or mental well-being and the conditions and causes of the incapacity, abuse, neglect or refusal cannot or will not be remedied by the parent.
* * *
(5) The child has been removed from the care of the parent by the court or under a voluntary agreement with an agency for a period of at least six months, the conditions which led to the removal or placement of the child continue to exist, the parent cannot or will not remedy those conditions within a reasonable period of time, the services or assistance reasonably available to the parent are not likely to remedy the conditions which led to the removal or placement of the child within a reasonable period of time and termination of the parental rights would best serve the needs and welfare of the child.
* * *
(8) The child has been removed from the care of the parent by the court or under a voluntary agreement with an agency, 12 months or more have elapsed from the date of removal or placement, the conditions which led to the removal or placement of the child continue to exist and termination of parental rights would best serve the needs and welfare of the child.
(b) Other considerations.The court in terminating the rights of a parent shall give primary consideration to the developmental, physical and emotional needs and welfare of the child. The rights of a parent shall not be terminated solely on the basis of environmental factors such as inadequate housing, furnishings, *403 income, clothing and medical care if found to be beyond the control of the parent. With respect to any petition filed pursuant to subsection (a)(1), (6) or (8), the court shall not consider any efforts by the parent to remedy the conditions described therein which are first initiated subsequent to the giving of notice of the filing of the petition.
23 Pa.C.S.A. § 2511(a)(1), (2), (5), (8) and (b).
¶ 17 In support of her argument that the trial court erred in terminating her parental rights, Mother contends that CYF failed to meet its burden of proving by clear and convincing evidence that termination of her parental rights would best serve the interests of the children. Specifically, Mother argues that the record is devoid of evidence to support a conclusion that termination of her parental rights is in the children's best interests, that the record is silent as to the effect termination would have on the children, and that "[t]he only inquiry regarding the children is about how they are doing in their current foster care placement." (Appellant's Brief at 20-21.) We are constrained to agree with Mother's argument.
¶ 18 Section 2511(a)(1), for example, provides that parental rights may be terminated if the parent has demonstrated a settled purpose of relinquishing parental claim to a child or has refused or failed to perform parental duties. 23 Pa.C.S.A. § 2511(a)(1). However, once either of these factors has been established,
the court must engage in three lines of inquiry: (1) the parent's explanation for his or her conduct; (2) the post-abandonment contact between parent and child; and (3) consideration of the effect of termination of parental rights on the child pursuant to Section 2511(b).
Matter of Adoption of Charles E.D.M., II, 550 Pa. 595, 602, 708 A.2d 88, 92 (1998) (citation omitted). Similarly, this Court recognized in In re Adoption of A.C.H., 803 A.2d 224 (Pa.Super.2002), that the question of whether termination would best serve the needs and welfare of the child is not a mere formality flowing from the existence of the other required elements under Section 2511(a)(5), but instead is a discrete consideration. Id. at 229 (citation omitted).
¶ 19 Furthermore, our Supreme Court has held that where there is a lack of evidence as to the effect termination of parental rights will have on the child, there is not competent evidence to allow the trial court to make a proper determination under Section 2511(b). Matter of Adoption of Charles E.D.M., II, 550 Pa. at 604, 708 A.2d at 92-93; see also In re E.M., 533 Pa. 115, 620 A.2d 481 (1993). In In re E.M., a case involving an action to terminate the parental rights of a mentally retarded mother, the Court held that although there was evidence that the mother was unable to provide proper care for her children, her parental rights could not be terminated absent a consideration of the emotional bonds she had with her children:
It is clearly conceivable that a beneficial bonding could exist between a parent and child, such that, if the bond were broken, the child could suffer extreme emotional consequences. This is true regardless of whether adoption is imminent. To render a decision that termination serves the needs and welfare of the child without consideration of emotional bonds, in a case such as this where a bond, to some extent at least, obviously exists ... is not proper.
Id. at 123, 620 A.2d at 485.
¶ 20 Indeed, in In re Adoption of A.C.H., supra, this Court reversed the trial court's order terminating a mother's parental rights on the basis that the trial court, *404 which referenced needs and welfare of the child in a conclusory fashion, failed to consider evidence of the emotional bonds between mother and child, or the effect termination would have on the child. In an opinion by our esteemed colleague, the Honorable John G. Brosky, we stated:
As our distinguished Court has so aptly noted, "[w]e cannot underestimate the importance of a child's relationship with his or her biological parents." Adoption of Charles E.D.M., supra, at 93. Furthermore, we are mindful of the fact that the continuity of relationships is important to a child, and we agree that severance of close parental ties through termination of parental rights can be extremely painful. In re C.S., 761 A.2d 1197 (Pa.Super.2000). With these considerations in mind, we are constrained to reverse and remand this matter to give the parties an opportunity to present further testimony regarding the emotional bonds between mother and daughter, and the effect a termination of parental rights would have on A.C.H. Subject to such hearing, the trial court shall conduct an analysis regarding this issue as well as all other factors bearing upon the termination of S.H.'s parental rights. See E.M., supra.
803 A.2d at 229-30.
¶ 21 Despite the troubled history in this family, our review of the record indicates that there is at least some type of bond between Mother and the children. The evidence indicates that Mother and Father have been consistent in their visitation with the children, and that Mother and Father interact with the children and supervise them appropriately. (N.T. Termination Hearing, 3/14/02, at 228, 239.) One CYF caseworker testified that "[t]here was good interaction between [Mother and Father] and the children." (Id. at 282.) Indeed, the children run to Father when they see him. (Id. at 225.) Furthermore, the children have expressed in the past their desire to return home. (Id. at 243.) Although a CYS caseworker testified that the children haven't expressed such a desire in "quite a while", the caseworker acknowledged that there was one recent occasion where C.W.S.M. told Mother that his foster mother said it was up to the judge whether he would return home. (Id. at 243.)
¶ 22 In its opinion written in support of its order terminating Mother's rights to C.W.S.M. and K.A.L.M.-S., the trial court evaluated the needs and welfare of the children as follows:
[C.W.S.M. and K.A.L.M.-S.] were developmentally delayed when first removed from the care of their parents. Since entering their foster home, they have made significant strides and are now receiving above average grades in school. They are content in their new home and have established a positive bond with their foster family. There have been no reports of overt physical abuse or malnourishment in their foster home.
We find that the needs and welfare of [the children] are best served by the termination of mother and father's parental rights.
(Trial Court Opinion, 7/25/02, at 16-17.) Notably absent from the trial court's analysis, however, is a consideration of the bonds that may or may not exist between Mother and the children, and the likely effect termination of Mother's parental rights will have on the children. Moreover, our review of the record reveals a lack of evidence as to the likely effect termination of Mother's parental rights will have on the children. Thus, in accordance with the cases discussed above, we are constrained to reverse the trial court's order terminating Mother's parental rights *405 to C.W.S.M. and K.A.L.M.-S, and remand the matter to allow the parties to present testimony regarding the emotional bonds between Mother and the children, and the effect a termination of parental rights will have on the children, after which the trial court should conduct an analysis regarding this issue as well as all other factors bearing upon the termination of Mother's parental rights.[2]
¶ 23 Order REVERSED and case REMANDED for proceedings consistent with this Opinion. Jurisdiction RELINQUISHED.
¶ 24 Judge TAMILIA files a Dissenting Opinion.
DISSENTING OPINION by TAMILIA, Judge.
¶ 1 Having carefully reviewed the majority memorandums in the matters of In Re: Involuntary Termination C.W.W.M and K.A.L.M.-S., Appeal of D.A.M. (mother), 3393 EDA 2002 and In Re: Involuntary Termination C.W.W.M and K.A.L.M.-S., Appeal of C.J.S. (father), 3394 EDA 2002, I respectfully dissent to the decision to reverse the Orders terminating appellants' parental rights and remand to allow the parents to present testimony regarding the emotional bonds between each parent and their children and also, the effect the termination of parental rights will have on the children.
¶ 2 A review of the record indicates the evidence presented by CYS was clear and convincing so as to support the trial court's conclusion that termination of parental rights is in the children's best interests.
The parents demonstrated a repeated failure to comply with the treatment and educational opportunities suggested and offered by CYS or ordered by the court, and their overt failure and/or refusal to cooperate with CYS in order to regain custody of their children supports the trial court's finding that termination of parental rights is in the best interest of the children as they are thriving both mentally and physically in their foster environment.
¶ 3 The majority has reversed the Orders of the trial court and remands the matters for the court to make an analysis of the presence of bonding or lack of it between the father and the children, mother and the children and the likely effect termination of each parent's parental rights will have on the children.
¶ 4 The factual summary of this case is as follows. C.J.S., father, and D.A.M., mother, appeal the July 25, 2002 respective Orders terminating each parents rights to the children, son, C.W.S.M., D.O.B. 10/23/94 and daughter, K.A.L.M.-S., D.O.B. 1/29/96.[3] The children are represented by counsel who supports termination.
¶ 5 Northampton CYS became initially became involved with parents in December 1994 because of abusive strapping of B.M., an older son not involved here, and C.W.S.M.'s failure to thrive. Father's chemical dependency was a precipitating factor as were multiple referrals for failure in parenting by both parents. In February 1995, C.W.S.M. was hospitalized for low weight. After gaining weight he was released subject to an intensive feeding program but weight loss again resulted.
*406 This necessitated removal from his parents on February 17, 1995. Parents were directed to be involved in parenting classes, and to seek more adequate housing. Mother failed to complete Housing Authority forms necessary to obtain housing; moreover she refused parenting classes offered to her through the Program for Women and Children, instead attending seven (7) of twenty-two (22) sessions of the Kidspeace parenting program. She also refused urine testing for drugs. Father completed an inpatient drug treatment program at the end of March 1995 but failed to attend the aftercare addiction treatment program and parenting classes. CYS involved parents in several other programs including supervised visitation with C.W.S.M. but lack of progress resulted in denial of the child's return. Ultimately, on May 12, 1995, C.W.S.M. was adjudicated dependent.
¶ 6 Following the birth of K.A.L.M.-S., on January 29, 1996, parents obtained new housing; they complied with court-ordered service and C.W.S.M. was returned home on July 18, 1996. Thereafter, family problems continued which resulted in the removal of B.M. (the older child) in June 1997 due to mother's abuse. Father had called CYF several times during the summer of 1997 regarding concern over mother's neglect and in November 1997, police were summoned for two domestic disputes.
¶ 7 On December 18, 1997, both C.W.S.M. and K.A.L.M.-S. were adjudicated dependent with placement suspended and the children permitted to remain with mother provide she cooperate with services and referrals. Father was also required to participate. In January 1998, C.W.S.M. appeared at day care with severe burns on his buttocks which occurred while in mother's care. CYF filed a petition to revoke the suspended placement which was withdrawn upon mother's compliance with agency programs. In March 1998, there was further non-compliance and an Order was entered in December 1998 for placement of the children out of the home. Mother and father appealed placement and placement did not occur.
¶ 8 In February 1999, an abuse report was filed and although unfounded, after investigation, the children were found to be at risk and placed in custody of CYF and have remained in foster care since that time. The parents were placed in multiple programs for parenting, anger management, drug rehabilitation, none of which were completed successfully. On September 25, 2001, CYF petitioned to terminate parental rights. Following a four-day hearing, termination was ordered on the basis of findings of violations of sections 23 Pa.C.S.A. §§ 2511, Grounds for involuntary termination, (a) General rule (1), (2), (5) and (8).
¶ 9 The majority would require the trial court to establish an additional element, the lack of an emotional relationship between the children and the parents, before termination would be justified. I believe this would not be possible in this case or the majority of cases where termination occurred as children continue to be attracted to their biological parents even in situations of neglect or abuse when their needs and welfare clearly mandate removal and placement for adoption. Only when the bond is unusually strong, and severance clearly would be detrimental to the children, would termination be contraindicated. I do not find that situation existing here.
¶ 10 The continued attachment to the natural parents, despite serious parental rejection through abuse and neglect, and failure to correct parenting and behavior disorders which are harming the children cannot be misconstrued as bonding. The bonding cannot be in one direction only *407 that of child to the parentbut must exhibit a bilateral relationship which emanates from the parents' willingness to learn appropriate parenting, anger management, drug rehabilitation and marital stability. It is inconceivable that a child's bonding to the parent, if it can be documented, will supervene failure to thrive, abuse reports, burned buttocks due to neglect, domestic violence reports and removal of the children into foster care due to adjudications of dependency and termination findings pursuant to four categories of the law permitting termination of parental rights (2511(a)(1), (2), (5) and (8)).
¶ 11 Although the trial court did not expressly categorize lack of bonding with the parents as a finding which addressed the needs and welfare of the children, the totality of the evidence demonstrates a lack of bonding and, in conjunction with the overwhelming evidence addressing the children's' needs and welfare which support termination, a further review of the presence or absence of bonding is unnecessary.
¶ 12 The following is an example which establishes that bonding is contraindicated and not present:
¶ 13 In January 1995, the agency became concerned with C.W.S.M.'s low weight and added services by the Visiting Nurse Association (VNA) to monitor his weight and to provide additional parenting skills education to the mother (N.T., 3/12/02). The child was hospitalized for low weight, gained weight in the hospital, and was then released on a very intensive, enriched feeding program. Notwithstanding, he again suffered significant weight loss and it was necessary for the agency to provide emergency placement for him. (N.T. at 28). This is the classic pattern of failure to thrive incident to maternal deprivation and is the major indicator of lack of bonding between parent and child. Thereafter, parents failed to achieve most of the goals of parenting training, drug rehabilitation and living/housing improvements (N.T. at 29). Their behavior, life style and intractability indicates there will be no bonding as these are patterns of parenting inadequacy which make bonding to the child improbable or, if it takes place, pathological.
¶ 14 The trial court made 94 findings of fact and documented supporting conclusions of law through eleven pages of discussion. In particular, findings of fact by the trial court which contraindicate parental bonding or capacity to bond are as follows.
8. Chris was hospitalized for low weight. During this hospitalization, he gained weight and was released with a prescription for a very intensive, rich feeding program.
9. Chris began losing weight after leaving the hospital and he was removed from his home and provided an emergency placement on February 17, 1995.
...
19. The agency informed mother that Chris could come home if she complied with services for the next two weeks and if father was not living in the home.
...
21. As a result of her noncompliance, Christopher was not returned home.
...
23. After obtaining new housing and complying with court ordered services, Chris was returned home on July 18, 1996.
...
34. The agency conducted an abuse investigation in January 1998 when mother was accused of physically *408 abusing Chris. The abuse consisted of a severe burn on Chris's buttocks received while under mother's supervision. The abuse was found to be "indicated."
(Trial Court Opinion, Freedberg, P.J., at 2-5.)
¶ 15 Between December 1997 and January 2002, there were 52 findings of fact indicating failure on the part of the parents to follow agency and court directions required to have the children reunited with them, including parent training, anger management, drug rehabilitation, visitation compliance, psychiatric treatment, drug testing and screening, daycare placement of the children, compliance with visitation restrictionsin addition there were police domestic calls, harassment and assault by husband against wife and difficulties with housing and budgeting requiring seeking help from the food bank. In general it has been established, by the findings of fact based on the testimony presented by several agency workers, psychologists, drug rehabilitation experts and family counselors, that this is a dysfunctional family with virtually no prospects of rehabilitation.
¶ 16 At finding of fact 80 of the trial court Opinion, the court states: "Father testified that he stopped attending urine screens because he was going to voluntarily relinquish his paternal rights. He stated that `it's been going on for three years. I don't want to do it anymore.'" (Trial Court Opinion at 10.) This is a clear admission he is bonded to his drug addiction and gives it priority over his children. There can be no bonding to the children under these circumstances.
¶ 17 At findings 83, 84 and 85, the court states:
83. Initially, both children had developmental delays when they were placed in foster care. In July 1999, it was determined that both children were developing normally.
84. The children are comfortable and happy in their foster home. The family relationships are positive. The children are bonding well with the foster parents.
85. The children leave the visitation periods [with parents] without incident. There is no crying and the children do not hesitate to leave.
(Trial Court Opinion at 10; emphasis added.)
¶ 18 To document the bonding which has occurred with the foster parents and the affirmative results of that relationship, which could only face reversal if the children were reunited with the parents, who have made no significant progress in over three years, the court made the following findings of fact.
86. The children's needs are being met by the foster parents.
87. The children are content and happy in the foster parents' care.
88. The children are involved in school related activities such as soccer.
89. The children are receiving regular medical and dental checkups at their foster home.
90. Martha Doerr testified as an expert in family and couples counseling.
91. Doerr stated that couples counseling was not going to help father and mother resolve their differences.
92. She testified that their relationship was not good for their children. The pattern of splitting up and reuniting raises children's anxiety and shakes their sense of security and stability.
*409 93. Chris is in first grade and Kira is in kindergarten.
94. Their grades are above average, they have adjusted very well, and they have made many friends.
(Trial Court Opinion at 11; emphasis added.)
¶ 19 Returning to the totality of the evidence and findings by the trial court noted above, it is beyond question the parents have not fulfilled any of the FSPs proposed in over 27 months and the children have remained in foster care during that period. There is no clear evidence that the children are bonded to the natural parents and substantial evidence of their bonding to the foster parents. Aside from one family counselor of the several involved over the years (Robert Lewis), whose credibility was discounted by the trial court, all the experts testified as to the inadequacy of the parents in their relationship with each other and their inability to resolve problems relating to drugs, parenting, finances and providing safe and healthy care for the children.
¶ 20 The progress of the children in emotional and physical development and adjustment to school and the community is primarily attributable to the stability and nurturing they have experienced in the foster home over a period of more than two years. Two major cases cited by appellants for the necessity of exploring of the effect of the child parental bond on their health and welfare are Adoption of E.D.M., 550 Pa. 595, 708 A.2d 88 (1998), and Adoption of Atencio, 539 Pa. 161, 650 A.2d 1064 (1994). In both cases, the issues were much different than those in the present case. In those cases, termination was sought by one natural parent as to the other parent and involved extreme antagonism and denial of access to the child by one of the parents with no evidence produced to show the effect termination would have on the children. The issues in the present case are those addressed by the Adoption and Safe Families Acts[4] when the virtual life time of the children may be spent in foster care and the courts and CYS have exhausted reasonable efforts to reunite the family beyond the minimal six months required by the Adoption Act. The *410 facts in this case are better directed to the cases which hold that a child's life, happiness and vitality simply cannot be put on hold until the parent finds it convenient to perform parental duties. In the Matter of the Adoption of A.M.B., 812 A.2d 659, 675 (Pa.Super.2002). Appellee's brief closes its argument as follows:
Christopher and Kira have been [in] a foster home for 27 months,[5] the foster parents are stable influences on their lives, the children are doing very well there. It would not be in their best interest to consign them to more years of limbo as dependent children. Having met the requirements of termination of parental rights, the needs and welfare of the children required that those parental rights be terminated.
(Appellee's brief at 26.)
¶ 21 I believe the remand directed by the majority for the trial court to explore the existence of bonding to the natural parent would be an exercise in futility and if, by chance, it was determined to be a viable possibility, would be detrimental to the needs and welfare of the children. I would affirm the Order of the trial court terminating parental rights of D.A.M. and C.J.S.
NOTES
[1] The children's father, C.J.S., has filed a separate appeal to the trial court's order, which is pending at docket number 3394 EDA 2002. The children are represented by counsel who has submitted a brief on their behalf arguing that the trial court's termination order was proper and should be affirmed.
[2] In view of our determination, we need not address Mother's two remaining issues. We note, however, that a best interest of the child analysis is required under each subsection of 23 Pa.C.S.A. § 2511 upon which the trial court grounded its termination of Mother's parental rights. 23 Pa.C.S.A. § 2511(b).
[3] While the majority has chosen to write separate opinions, I have chosen to sua sponte consolidate the appeals for writing purposes. The Dissenting Opinions filed in these matters are identical.
[4] The legislative history of the Adoption and Safe Families Act provides in pertinent part as follows:
There seems to be a growing belief that Federal statutes, the social work profession, and the courts sometimes err on the side of protecting the rights of parents. As a result too many children are subjected to long spells of foster care or are returned to families who reabuse them.
The bipartisan group that wrote this legislation recognized the importance and essential fairness of the reasonable efforts criterion. What is needed is not a wholesale reversal of reasonable efforts or of the view that government has a responsibility to help troubled families solve the problems that lead to child abuse or neglect. Rather than abandoning the Federal policy of helping troubled families, what is needed is a measured response to allow States to adjust their statutes and practices so that in some circumstances States will be able to move more efficiently toward terminating parental rights and placing children for adoption.
Thus, the Committee bill would require States to define "aggravated circumstances," such as chronic abuse, or sexual abuse, in which States are allowed to bypass the Federal reasonable efforts criteria and instead would be required to make efforts to place the child for adoption. In addition, States would be required to bypass reasonable efforts to provide services to families if the parent has another child for whom parental rights were involuntarily terminated.
Adopted by Pennsylvania Legislature, 42 Pa. § 6302, Definition, "Aggravated Circumstances", § 6334, Petition, (b) Aggravated Circumstance, § 6351, Permanency hearing, (9). Also, 55 Pa.Code § 3130.67(b)(9)(iii), Placement planning.
[5] At the time of the Order terminating parental rights, the children had been in foster placement for at least 3½ years.
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839 A.2d 755 (2003)
154 Md. App. 262
Gale MOLOVINSKY, et al.
v.
The FAIR EMPLOYMENT COUNCIL OF GREATER WASHINGTON, INC., et al.
No. 949, Sept. Term, 2002.
Court of Special Appeals of Maryland.
December 22, 2003.
*757 Martin S. Protas, Germantown, for Appellant.
Warren Kaplan (Washington Lawyers Committee for Civil Rights and Union Affairs on the brief), Washington, DC (Robert M. Marino, Dexter U. Nutall, Reed Smith LLP on the brief), Washington, DC, for Appellee.
Panel: HOLLANDER, SALMON, and BARBERA, JJ.
*756 BARBERA, Judge.
Appellants, Gale S. and Arlene M. Molovinsky, appeal from an order of the Circuit Court for Montgomery County awarding appellees, The Fair Employment Council of Greater Washington, Inc., et al., ("the Council"), $152,628.78 in attorneys' fees and costs. The Molovinskys present nine questions for our review which, with the exception of minor stylistic changes, we set forth as they appear in the Molovinskys' brief:
I. Whether the transfer of assets from the testamentary trust established under the last will and testament of Ruth Irene Molovinsky and pursuant to a trust termination agreement dated December 17, 1998, to Arlene Molovinsky, a contingent beneficiary of the trust, constituted a "conveyance" from Gale Molovinsky to Arlene Molovinsky, his wife, within the meaning of Sections 15-201, 15-204, 15-206 and 15-207 of the Maryland Fraudulent Conveyance Act.
II. If the transfer was a conveyance to Arlene Molovinsky, whether under Sections 15-204 and 15-206 of the Act, Arlene Molovinsky gave consideration, fair or otherwise, as defined in Section 15-203 of the Act, for the conveyance of the trust assets to her.
III. If Arlene Molovinsky did not give consideration, fair or otherwise, for the conveyance of the trust assets to her, was consideration required under the circumstances of the transaction complained of by the Molovinskys.
IV. Whether Gale Molovinsky was insolvent at the time he renounced his interest in the trust.
V. Whether the Council was barred from the relief sought by equitable reasons, inter alia, by the failure to bring a petition for attorneys' fees for nearly six (6) years after the underlying case was decided, and by the failure to serve Gale Molovinsky with the petition for attorneys' fees in the underlying action.
VI. Whether the Council was barred from the relief sought by the doctrine of accord and satisfaction.
VII. Whether the Council was barred from the relief sought by perpetrating a fraud upon Gale Molovinsky, to wit, by procuring a settlement of the underlying *758 judgment without disclosing the claim for attorneys' fees.
VIII. Whether the trial court erred in awarding a money judgment in favor of the Council when the relief sought was an order setting aside the alleged "conveyance."
IX. Whether the trial court erred in permitting, over objection, the testimony of Donald LaBarre, through the reading of his deposition taken in a prior action, thereby denying the Molovinskys' counsel the opportunity to cross-examine said witness.
For the reasons that follow, we affirm the judgment of the circuit court.
FACTS AND LEGAL PROCEEDINGS
The litigation underlying this appeal commenced in 1991, when the Council sued Gale Molovinsky for violations of the District of Columbia Human Rights Act ("the Act"), relating to Molovinsky's operation of his employment counseling business. A 1993 jury trial resulted in a verdict for the Council against Molovinsky in the amount of $79,000.00 ("the original judgment"). Molovinsky appealed the original judgment to the District of Columbia Court of Appeals.
While the appeal was pending, the Council filed, on April 1, 1994, a fee petition pursuant to the Act, seeking an award of fees and expenses of $72,000.00. This amount represented services rendered up to and including the jury trial. The superior court stayed action on the petition pending resolution of the appeal.
On October 3, 1996, the District of Columbia Court of Appeals affirmed the jury's verdict. Molovinsky v. Fair Employment Council of Greater Washington, Inc., 683 A.2d 142 (D.C.1996). One week later, on October 10, 1996, Molovinsky directed Lafayette Federal Credit Union to remove his name from savings account No. 2822005, which he held jointly with his wife, Arlene.
In 1997, the Council commenced discovery in aid of execution of the original judgment. In the course of discovery, the Council issued interrogatories, a document request, and deposed Molovinsky about his assets.
The Trust
Gale Molovinsky was a beneficiary of a testamentary trust established under the will of his mother, Ruth Irene Molovinsky. By its terms, the trust's income was to be paid to Melvin Molovinsky, Gale's father, for the balance of his life, then to Gale, until he reached age sixty. At that time, the trust was to terminate and the corpus distributed to Gale. The trust further provided that if Gale died before reaching age sixty, the income would go to his wife, Arlene, for the balance of her life and, upon her death, the entire proceeds were to be distributed per stirpes to their children. The trustee was Donald LaBarre, a Pennsylvania lawyer who had represented Ruth and Melvin Molovinsky.
Melvin Molovinsky died in 1994, at which time Gale became the sole income beneficiary of the trust. The trust contained about $500,000.00 in municipal bonds, and the trust income distributed to Gale amounted to approximately $35,000.00 annually.[1]
Events Leading to the Termination of the Trust
In May 1997, LaBarre produced, at Gale's behest, a first draft of the trust *759 termination agreement. Under this draft, the trust was to be terminated and the entire proceeds placed in a new Merrill Lynch account in the joint names of Gale and Arlene Molovinsky. According to the deposition testimony of LaBarre offered at trial in this case, Gale was concerned that his creditors could reach the Merrill Lynch account if it was registered under the joint names of his wife and himself. Gale sought LaBarre's opinion as to whether the assets would be immune from his creditors if the account was in the Molovinskys' joint names.
Sometime in 1997, Gale informed LaBarre that the District of Columbia Court of Appeals had affirmed the 1993 jury verdict. In light of the now-final unpaid judgment, LaBarre declined to proceed with the trust termination agreement.
In February 1998, the Council took Gale's deposition in aid of execution of the judgment. At the deposition, the Council learned that Melvin Molovinsky had died four years earlier, that Gale had become the sole income beneficiary of the trust, and that he was entitled to receive the monthly income from it.
Three months later, the Council instituted garnishment proceedings against LaBarre, as trustee of the trust. In response, LaBarre notified Gale that, "until this matter gets resolved," LaBarre would have to cease sending him payments of trust income.
By October 1998, Gale and LaBarre had agreed that LaBarre would invade the corpus of the trust to pay the judgment, and the interest thereon, so that Gale could resume receiving the monthly trust income payments. Gale told LaBarre, however, that, in connection with paying the judgment, he wanted (1) a release of any claim by the Council for attorneys' fees; and (2) an agreement that the Council would not file any objection to his pending petition to get reinstated to the bar of the District of Columbia.[2]
LaBarre duly wrote to the Council's Pennsylvania attorney, Catherine Nelson. He advised her of Gale's offer to pay the entire amount of the judgment, plus accrued interest, in return for a "complete release" from any further claim of legal fees and assurance that the Council would not oppose Gale's reinstatement as a member of the District of Columbia bar.
After conferring with her co-counsel in Washington, D.C., Nelson told LaBarre that the issue of the attorneys' fees was being handled not by the Philadelphia law firm, but by the "civil rights attorneys" (Washington Lawyers Committee for Civil Rights, co-counsel for the Council in these proceedings) in Washington, D.C. Nelson further advised LaBarre that she was explicitly directed not to offer any release of the claim for fees. Instead, Gale would receive only a receipt reflecting the payment, and a praecipe marking the judgment as paid. In addition, there would be no promise not to oppose Gale's reinstatement to the bar.
Nelson followed this conversation with a letter to LaBarre confirming the conversation. That letter read, in part: "Upon full satisfaction of the judgments, Plaintiffs will issue a receipt of payment and arrange for the Court to mark the judgment satisfied and paid in full."
LaBarre gave this information to Gale. He nonetheless elected to go forward with the payment of the judgment, so he could *760 resume obtaining income from the trust assets.
LaBarre returned to work on a revised trust termination agreement that would transfer all assets of the trust to Arlene. LaBarre completed the agreement and sent it to Gale on December 15, 1998. LaBarre later testified that he agreed to the premature termination of the trust in an effort to protect those trust assets that remained after the payment of the original judgment, from any of Gale's creditors or potential creditors. LaBarre testified that, based on his conversations with Gale, he understood Gale to be acting for the same reason.
LaBarre also testified that both he and Gale were aware at the time the agreement was being prepared that the Council's claim for attorneys' fees had not been acted upon by the District of Columbia Superior Court. LaBarre testified that he also was aware that, given the Council's pending fee claim, transferring the trust assets to Arlene could be viewed as a fraudulent conveyance.
On December 7, 1998, the trust termination agreement was executed. It provided that, after payment of the original judgment, the remaining assets, approximately $400,000.00, would be transferred to a new Merrill Lynch account that had been opened in the sole name of Arlene Molovinsky. Both before and after the transfer to Arlene, the $35,000.00 in annual income from the trust was used to pay the household expenses of the Molovinsky family.
Events Following Termination of the Trust
In February 1999, LaBarre used the trust assets to pay the original judgment, plus accrued interest, for a total payment of $106,570.75. Shortly thereafter, the Council filed a praecipe marking the judgment satisfied.
One month later, the Council filed in the District of Columbia Superior Court a renewed and amended petition for attorneys' fees. The Council sought fees and expenses for the entire case, including both the pre-judgment phase covered by the original fee petition filed in 1994, and the post-judgment phase covering the appeal and collection efforts. On May 9, 1999, the court (Bartnoff, J.) entered judgment against Gale on the fee petition in the amount of $152,628.78.
Gale filed a motion to vacate that judgment. He claimed that he had never been served with a copy of the amended fee petition, and argued, inter alia, that there should be no fee award because the Council had agreed (through LaBarre) to forego any request for fees in consideration of being paid the original judgment.
The Council filed an opposition to Gale's motion to vacate, and included an affidavit from Catherine Nelson. Nelson swore in her affidavit that she never made any such agreement with LaBarre; to the contrary, she had always told LaBarre that the attorneys' fees claim was not waived, and would be dealt with separately by her Washington, D.C. co-counsel. Gale did not file any counter-affidavit by LaBarre, nor did he reply to the Nelson affidavit in any way.
On June 30, 1999, the superior court (Bartnoff, J.) entered an order denying the motion to vacate. The court found that the amended fee petition had in fact been served on Gale, and found no merit to his additional arguments for vacation of the judgment.
In May 1998, not knowing that the trust had been dissolved, the Council once again initiated garnishment proceedings against the trustee, LaBarre. This time, LaBarre *761 responded by saying that the trust had been terminated and the assets transferred to Arlene Molovinsky.
After learning of the circumstances surrounding the trust termination, the Council filed a fraudulent conveyance action in Pennsylvania, where the trust termination had taken place. The Molovinskys filed a motion to dismiss for lack of jurisdiction, in response to which the Council voluntarily dismissed the action.
On January 7, 2000, the Council re-filed the action in the Circuit Court for Montgomery County, where the Molovinskys reside. The three-count complaint alleged that the transfer of the trust funds constituted a fraudulent conveyance under Maryland's Uniform Fraudulent Conveyance Act.
On April 17, 2000, the Council filed a motion for summary judgment. The Molovinskys opposed the motion, and also filed a cross-motion for summary judgment.
The motions came on for a hearing on July 12, 2000. At its close, the court stated:
[I]t is the Court's determination that with respect to the issue of whether [there] was a transfer and/or a conveyance, that the [the Council's] motion for summary judgment at tab 14 shall be granted.
The Court determines based upon the undisputed facts before it that there is no material dispute of fact as to whether or not there was a transfer or a conveyance. The only dispute as we have debated is what is the legal significance of that which occurred.
It appears from the undisputed evidence that under the existence of the trust agreement which was under the will of [Gale's] mother, that the monies were held in trust, that the trustee had the right to invadeand that [Gale] was the income beneficiary, but that the trustee had the right in his sole discretion to invade the trustthe language was extremely broadthe trustee shall have full power and ability to the exercise in his sole and uncontrolled discretion to pay over to my said son, Gale Molovinsky, whatever part or parts or all of the principal the trustee shall deem wise and safely consistent with the future needs of my said son.
As well, he had other permissions and authorities to invade the trust.
What is evident from the undisputed facts here is that up to and culminating in December of 1998, December 17th, the trust terminating agreement I believe it is entitled, that there were discussions between the trustee and [Gale] about terminating the trust and it appears from that document and from the other evidence presented that precisely what occurred was that at the request of [Gale] that the monies that were previously held in trust were transferred, not through the trust agreement but basically were transferred outside of the trust directly to the defendant's wife [, Arlene].
As I discussed in my discussions with Mr. Protas [counsel for the Molovinskys], if [Gale] had simply renounced any interest he had, then under the terms of the trust it would have continued with the wife being entitled to income for her life and, upon her death the trust would have terminated and the principal would have been to the children.
That is not what has occurred her[e] and I recognize that the trustee could not have been compelled to take this action, but I think that notwithstanding it is clear from the undisputed facts that the trustee took the action he took in this caseas a matter of fact, in his *762 deposition said he consented to the action, that he took it at the request of [Gale] and therefore that it was a transfer or conveyance within the meaning of Sections 204, 206 and 207.
Further, the Court finds having had a chance to read Pierce [sic][[3]] and considering arguments of counsel that the transfer that did occur of the principal of the trust to the wife was without consideration.
There is no evidence before the Court from which the Court could find or any reasonable fact-finder could find that the monies were transferred to cover any []necessaries such as are described in Pierce [sic], so to that extent [the Council's] motion for summary judgment is granted.
With respect to all remaining matters, I believe that there are material disputes of fact so the motion for summary judgment as to the remaining matters is denied.
A written order embodying the court's grant of partial summary judgment was thereafter entered on the docket. That order stated, in pertinent part: "[T]he transfer of assets from [Gale to Arlene] constituted a `conveyance'" and "Arlene Molovinsky gave no consideration, fair or otherwise ... for the conveyance of the Trust assets to her."
In July 2001, the remaining counts of the Council's complaint came on for a bench trial. Nearly one year later, the court issued a seventeen-page memorandum opinion, resolving the remaining issues in favor of the Council. From entry of that judgment, this appeal followed.
We shall include additional facts in our discussion as necessary.
DISCUSSION
I.
The Molovinskys argue that the court erred in concluding that Gale conveyed the trust assets to Arlene without her giving fair consideration for the transfer, and thus erred in granting summary judgment in the Council's favor on that issue. They mount three arguments in support of this contention: (1) the transfer of trust assets did not constitute a conveyance because Gale had renounced his interest in the trust prior to the transfer; (2) Arlene gave fair consideration in exchange for the conveyance of the trust assets to her, either "in the form of past services performed by a spouse" or by virtue of the "obligation to provide necessaries"; and (3) the transfer of trust assets from the trustee to Arlene was in accordance with the trust instrument, and therefore she was not required to provide fair consideration. We reject all of these arguments.
This Court reviews an order granting summary judgment de novo. Beyer v. Morgan State Univ., 369 Md. 335, 359, 800 A.2d 707 (2002). We are required to determine whether a dispute of material fact exists. Id. at 359-60, 800 A.2d 707. "`A material fact is a fact the resolution of which will somehow affect the outcome of the case.'" Matthews v. Howell, 359 Md. 152, 161, 753 A.2d 69 (2000) (quoting King v. Bankerd, 303 Md. 98, 111, 492 A.2d 608 (1985)).
Summary judgment is only appropriate when, upon review of the facts and inferences therefrom in the light most favorable to the non-moving party, there is no genuine issue of material fact and the party *763 in whose favor judgment is entered is entitled to judgment as a matter of law. Md. Rule 2-501(e); Frederick Road Ltd. P'ship v. Brown & Sturm, 360 Md. 76, 93-94, 756 A.2d 963 (2000). If the record reveals that a material fact is in dispute, summary judgment is inappropriate. Okwa v. Harper, 360 Md. 161, 178, 757 A.2d 118 (2000). Once we have concluded that there is no genuine issue of material fact, we review the trial court's grant of summary judgment to ascertain if it was legally correct. Jahnigen v. Smith, 143 Md.App. 547, 555, 795 A.2d 234, cert. denied, 369 Md. 660, 802 A.2d 439 (2002).
A.
The Molovinskys contend that the court erred in concluding that the transfer of trust assets from Gale to Arlene constituted a conveyance, as that term is defined in the Maryland Uniform Fraudulent Conveyance Act ("MUFCA"). See Md.Code (1975, 2000 Repl.Vol.), § 15-201 et seq. of the Commercial Law Article.[4] They argue that Gale renounced his interest in the trust, and therefore Arlene, the second contingent beneficiary of the trust, lawfully received the trust's assets. We disagree.
MUFCA § 15-201(c) defines a conveyance as "every payment of money, assignment, release, transfer, lease, mortgage, or pledge of tangible or intangible property, and also the creation of any lien or incumbrance." The record leaves no doubt that moving the trust's corpus from the Merrill Lynch account of Donald LaBarre, trustee, to a newly created account in the name of Arlene Molovinsky, was a "transfer," as contemplated by MUFCA § 15-201(c).
The Molovinskys attempt to circumvent the plain language of MUFCA § 15-201(c) by arguing that Gale renounced his interest in the trust, resulting in the trust lawfully passing by its terms to Arlene. In support of this argument, the Molovinskys rely on a sixty-eight year old case, Bouse v. Hull, 168 Md. 1, 176 A. 645 (1935). Bouse does not assist them.
We note at the outset that the facts of the instant case are distinguishable from those in Bouse. In Bouse, the Court of Appeals was asked to decide whether a group of corporate legatees under a will were subject to a collateral inheritance tax, notwithstanding that the legatees had renounced their legacies. Id. at 2, 176 A. 645. Gale, unlike the legatees in Bouse, did not execute "a formal and effective written renunciation" of his interest in the trust; instead, he executed a trust termination agreement, and in that agreement he instructed LaBarre "to disburse all remaining Trust assets into an account to be opened ... in the name of Arlene M. Molovinsky."
More important to our decision, however, is the undisputed fact that Gale's actions prior to his execution of the trust termination agreement are at complete odds with the renunciation argument he advances on appeal. The uncontradicted evidence shows that Gale received monthly interest payments from the trust for several years prior to his arranging for the transfer of its assets. He authorized the trustee to invade the corpus of the trust to satisfy the 1994 judgment against him. And, he initiated the development of the trust termination agreement and instructed LaBarre to transfer the trust's assets to an account registered in his wife's name. We note also that the trust termination agreement does not contain the word "renounce" or any variation of it. Furthermore, had Gale renounced his interest in the trust, the trust would not have ceased to exist; instead, Arlene would have become *764 the income beneficiary for the remainder of her life, with the corpus then passing to their children.
In sum, we see no error in the court's grant of partial summary judgment because "the transfer of assets ... to Arlene Molovinsky, Gale S. Molovinsky's wife, constituted a conveyance from Gale Molovinsky to Arlene Molovinsky."
B.
The Molovinskys argue that the court erred in ruling that "Arlene Molovinsky gave no consideration, fair or otherwise... for the conveyance of the Trust assets to her." They hinge their argument on the proposition in Pearce v. Micka, 62 Md.App. 265, 489 A.2d 48 (1985), that "past services from a spouse, or the obligation to provide necessaries may constitute consideration."
The Molovinskys' reliance on Pearce is misplaced. In Pearce, an insolvent husband deposited monies into his wife's checking account, which, after being commingled with funds from other sources, totaled approximately $6,000.00. Id. at 277, 489 A.2d 48. The wife used the money in this account to purchase food, clothing, and other necessaries. Id. at 278, 489 A.2d 48. This Court affirmed the circuit court's ruling that the husband's deposits of money did not constitute fraudulent conveyances, stating:
[D]eposits of money used by [husband] to support his family did not constitute fraudulent conveyances because, within the meaning of the Uniform Act, there is "fair consideration" for the payment of money by a debtor to satisfy his obligation to provide necessaries for his wife and children. Nor do such expenditures constitute interspousal transfers of property to the prejudice of creditors within the meaning of art. 45, § 1. Providing necessaries for a family is not a transfer of property from one spouse to another.
Id. (citation omitted).
The Molovinskys cite no evidence in the record that supports their contention that Gale transferred the trust assets to Arlene in consideration for past services or the obligation to provide necessaries. In fact, Arlene acknowledged in her deposition that she had not given any consideration for the transfer. In any event, we have reviewed the record and find not a scintilla of evidence before the court at the hearing on summary judgment that the transfer of the $400,000.00 trust corpus was to enable Arlene to provide necessaries for their family. We therefore agree with the court's conclusion that Gale's transfer of the trust assets to Arlene was without consideration.
C.
The Molovinskys argue that Arlene should be excused from the fair consideration requirement of the MUFCA on the ground that "the transfer of the assets from the trust occurred as a function of the trust directive itself." This argument fails because it rests upon the premise that Gale had renounced his interest in the trust which, as we have already concluded, he did not.
II.
The Molovinskys argue that the trial court was clearly erroneous in finding, after a trial on the merits of this issue, that Gale was insolvent at the time of the conveyance. We disagree.
Section 15-204 of the MUFCA provides: "Every conveyance made and every obligation incurred by a person who is or will be rendered insolvent by it is fraudulent as to creditors without regard to his actual intent, if the conveyance is made or the *765 obligation is incurred without a fair consideration." What this statute "was intended to address is that a conveyance is fraudulent as to creditors if it is made by a person who is insolvent or who will be rendered insolvent by it." Field v. Montgomery County (In re Anton Motors ), 177 B.R. 58, 61 (Bankr.D.Md.1995).
Section 15-202 of the MUFCA addresses insolvency. It states, in pertinent part: "A person is insolvent if the present fair market value of his assets is less than the amount required to pay his probable liability on his existing debts as they become absolute and matured." A debt, as defined in MUFCA § 15-201(e), "includes any legal liability, whether matured or unmatured, liquidated or unliquidated, absolute, fixed, or contingent."
The court found Gale to have been rendered insolvent within the meaning of MUFCA §§ 15-202 and 15-204, by transferring the trust assets to Arlene. In reaching its decision, the court found:
Gale Molovinsky, in his direct examination, testified that he had bank accounts and cash on hand of approximately $761 at the time of the Trust Termination Agreement in December 1998. On cross examination, he claimed that he had an additional "business" bank account at Riggs Bank with approximately $1,000 which he had not previously included, as well as some home furnishings whose value was never specified. In addition, he owns a home with Arlene Molovinsky, his wife, as tenants by the entirety, which is excluded from the tally because it is exempt from liability for his debts.
On the liability side, Mr. Molovinsky stated in his affidavit that he had credit card debt of about $10,000, [] and owed a balance of $143,548 to Chevy Chase Bank on a home equity line of credit. In addition, there is the debt for attorneys' fees to [the Council], which is asserted by [the Council] and denied by [the Molovinskys].
* * *
There can be no doubt but that [Mr. Molovinsky] had a "legal liability" for the attorneys' fees claim, as evidenced by Judge Bartnoff's subsequent order and judgment, from which Molovinsky took no appeal. The claim was "matured," since the legal services on which the claim was based had already been performed over the previous nine years. The fact that the amount of the liability on December 17, 1998 was not yet "liquidated" or "fixed" is inconsequential, under the statutory definition. The amount of the debt became "liquidated" and "fixed" when Judge Bartnoff entered the judgment of June 30, 1999 in the amount of $152,628.78.
* * *
Thus, on the date of the conveyance, Molovinsky had a negative net worth of ($304,415.78).
The Molovinskys take issue with these findings concerning Gale's insolvency. The findings are supported by the record. They therefore are not erroneous, much less clearly so. Md. Rule 8-131(c).
As evidenced by the superior court's order, from which Gale took no appeal, Gale had a legal liability for the attorneys' fees claim. We therefore agree with the circuit court that the claim had matured because the legal services upon which the claim was based had been performed over the preceding nine years.
The Molovinskys argue that the court erred in including the Council's claim for attorneys' fees in its solvency calculation because the fees awarded by the superior court had not been reduced to a judgment at the time the trust termination *766 agreement was executed; consequently, they argue, the claim was not "fixed" or "liquidated."[5] This argument is unavailing because, under the statutory definition, a debt may be "unliquidated" and "contingent." Furthermore, it is not necessary for purposes of MUFCA § 15-202 that the debt be absolute and matured at the time of the transfer; it is only necessary that the assets be less than "the amount required to pay [the person's] probable liability on his existing debts as they become absolute and matured." See MUFCA § 15-202(a) (emphasis supplied). Cf. F.S. Bowen Elec. Co. v. United States Fid. & Guar. Co., 256 F.2d 46, 49 (4th Cir.1958) (stating that the "[d]etermination of the issue of solvency ... requires an appraisal of probable liabilities as well as the salable value of assets").
III.
The Molovinskys argue that the Council waived or abandoned the claim for attorneys' fees by waiting nearly six years after the underlying litigation concluded, and three years after the conclusion of the appeal, to file the fee petition. Our response to this argument is that the Molovinskys are barred by the doctrine of res judicata from raising waiver, since that claim was resolved against them in the superior court suit.
Recently, in Ross v. American Iron Works, 153 Md.App. 1, 834 A.2d 962 (2003), this Court set forth the elements of res judicata. They are: " `1) that the parties in the present litigation are the same or in privity with the parties to the earlier dispute; 2) that the claim presented in the current action is identical to the one determined in the prior adjudication; and 3) that there was a final judgment on the merits.'" Id., at 17, 834 A.2d 962 (quoting Colandrea v. Wilde Lake Cmty Ass'n, Inc., 361 Md. 371, 392, 761 A.2d 899 (2000)); accord United Book Press, Inc. v. Maryland Composition Co., Inc., 141 Md. App. 460, 476, 786 A.2d 1 (2001).
As we mentioned in our summary of the facts, in March 1999, the Council filed in the superior court a renewed and amended motion for attorneys' fees. Gale did not oppose the Council's motion. The superior court (Bartnoff, J.) thereafter granted the Council's motion and ordered Gale to pay the Council $152,628.78.
Sometime thereafter, Gale filed a motion to vacate the superior court's order, arguing preliminarily that he had not been served with a copy of the amended fee petition, and on the merits that the Council had waived the fee claim. As to the latter, Gale averred that the Council's Pennsylvania attorney, Catherine Nelson, had brokered a deal with LaBarre, and the two agreed to waive the attorneys' fee claim in exchange for Gale's agreement to pay off the original judgment. The Council answered in opposition to Gale's motion to vacate. Attached to the answer was the affidavit of Ms. Nelson, who unequivocally denied that the Council had agreed to waive the claim for fees in exchange for Gale's satisfaction of the original judgment.
Following a hearing, the superior court denied Gale's motion to vacate, stating: "The Court does not find that the defendant [Gale] has raised any credible or meritorious objections to the fee petition or to the fees that were awarded." An order embodying the superior court's ruling was thereafter entered onto the docket. Gale did not appeal that judgment, rendering it *767 final. Plainly, res judicata bars the Molovinskys from reasserting in the present case the waiver argument that was rejected by the superior court.
The Molovinskys declare in an argument heading in their brief, but without supporting argument, that the doctrine of accord and satisfaction precludes the Council's claim for attorneys' fees. This "argument" falls far short of the requirements of the rules of appellate procedure. See Md. Rule 8-504(a)(5); Honeycutt v. Honeycutt, 150 Md.App. 604, 618, 822 A.2d 551 (2003) (holding that where a party does not adequately brief an argument, we need not address it on appeal). We shall nonetheless exercise our discretion to address the issue briefly, but conclude there is no merit to it.
The equitable doctrine of accord and satisfaction ordinarily concerns monetary settlements of debts and liabilities. Automobile Trade Ass'n v. Harold Folk Enters., Inc., 301 Md. 642, 665, 484 A.2d 612 (1984). This Court defined an accord and satisfaction as follows:
"Accord and satisfaction is a method of discharging a contract or cause of action, whereby the parties agree to give and accept something in settlement of the claim or demand of the one against the other, and perform such agreement, the `accord' being the agreement, and the `satisfaction' its execution or performance."
Air Power, Inc. v. Omega Equip. Corp., 54 Md.App. 534, 538, 459 A.2d 1120 (1983) (citation omitted); accord Wickman v. Kane, 136 Md.App. 554, 561, 766 A.2d 241, cert. denied, 364 Md. 462, 773 A.2d 514 (2001).
As we have said, there is no evidence in the record supporting the Molovinskys' position that the Council agreed to waive their claim for attorneys' fees once Gale satisfied the original judgment. Indeed, the record speaks unequivocally to the contrary. At trial, counsel for the Council asked Gale whether "Mr. LaBarre told you that he had asked the plaintiffs to give you a release of the claim for attorneys' fees, and they had refused to do it?" He answered: "I believe that is so."
IV.
The Molovinskys also present the question "whether the Council was barred from the relief sought by perpetrating a fraud upon Gale Molovinsky, to-wit, by procuring a settlement of the underlying judgment without disclosing the claim for attorneys' fees." We do not address this question because nowhere in their brief do the Molovinskys supply argument relating to this assertion. See Md. Rule 8-504(a)(5); Honeycutt, 150 Md.App. at 618, 822 A.2d 551.
V.
The Molovinskys' next contention does not detain us long. Without citation to authority, they argue that "[t]here is not a shred of evidence in the record of this trial which establishes, tends to establish or even suggests that Arlene Molovinsky is liable to" the Council for the $152,628.78 judgment entered by the superior court against Gale. The Molovinskys are wrong.
In Damazo v. Wahby, 269 Md. 252, 305 A.2d 138 (1973), the Court of Appeals was asked to decide whether an in personam judgment can be entered in a suit to set aside a fraudulent conveyance. The Court indicated that "if the subject of the fraudulent conveyance has been disposed of or cannot be reached, the person defrauded should be able to recover from the person to whom the transfer was wrongfully made, and through whose hands it passed." Id. at 256, 305 A.2d 138.
*768 The Court's analysis in Damazo is equally applicable to the contention the Molovinskys now present. In Part I of our discussion, we affirmed the circuit court's ruling on summary judgment that Gale had fraudulently conveyed the trust's assets to Arlene. Consequently, Arlene, the fraudulent transferee, is liable by way of a personal judgment to the creditor, the Council. As the Court stated in Damazo, equity
will adapt its relief to the exigencies of the case and will enter a money judgment if this will achieve an equitable result. The form of the relief should be so framed as "to place the judgment creditor in the same or similar position he held with respect to the fraudulent transferor prior to the fraudulent conveyance."
Id. at 257, 305 A.2d 138; see also MUFCA § 15-209 (providing that once a conveyance is proven to be fraudulent, a creditor has the option of either having the conveyance set aside or disregarding the conveyance and attaching or levying execution upon the property conveyed).
The Molovinskys' contention fails by resort not only to the law, but to logic. In enacting the MUFCA, the General Assembly did not seek to "restrict[ ] the legal or equitable remedies" available to a creditor, but to enact a statute declaratory of the common law. Damazo, 269 Md. at 256, 305 A.2d 138. If we were to accept the Molovinskys' position, the MUFCA would be rendered meaningless because a fraudulent transferee could dispose of the transferred assets, leaving a judgment creditor without legal redress. There is, in short, no merit to the Molovinskys' contention that the Council was not entitled to seek redress from Arlene, the fraudulent transferee.
VI.
The Molovinskys argue that the circuit court abused its discretion in admitting into evidence the deposition testimony of Donald LaBarre. They specify that LaBarre's deposition testimony should not have been admitted because they were not present at the deposition and did not have an opportunity to cross-examine the witness. We disagree.
In its case in chief, the Council sought to admit the deposition of LaBarre because he was unavailable to testify. Counsel for the Molovinskys objected and, after a lengthy colloquy between the court and counsel, the court ruled that LaBarre's deposition would be admitted into evidence. The court did not err in so ruling.
Maryland Rule 2-419(a)(3)(B) states:
The deposition of a witness, whether or not a party, may be used by any party for any purpose against any other party who was present or represented at the taking of the deposition or who had due notice thereof, if the court finds: that the witness is out of the State, unless it appears the absence of the witness was procured by the party offering the deposition.
Under Maryland Rule 2-419(c),
[a] deposition lawfully taken in another action may be used like any other deposition if the other action was brought in any court of this State, or any other state, or of the United States, involved the same subject matter, and was brought between the same parties or their representatives or predecessors in interest.
It is undisputed that LaBarre was not available to be deposed in this action because he was out of state, thus the requirements of Rule 2-419(a)(3)(B) have been met. Likewise, there is no question that the requirements set forth in Rule 2-419(c) *769 have been satisfied. The Council took LaBarre's deposition on September 22, 1999, in connection with the garnishment proceeding the Council had filed against Gale.[6] The subject matter of the garnishment proceeding involved the same subject matter as that of the instant case, namely, what trust assets, if any, were available to satisfy the Council's judgment against Gale.
Moreover, the Molovinskys are hard pressed to argue, now, that "[i]t is patently unfair to permit a deposition to be read into the record where the party against whom it is sought to be used was unable to cross-examine the witness." At trial, counsel for the Molovinskys acknowledged both that the Council's intention had been made known to him on at least four occasions, and that he had not objected on any of these occasions. Counsel for the parties also agreed that the Council offered to redepose LaBarre, but that the Molovinskys did not express an interest in doing so.
In short, there is simply no reason to disturb the court's decision to admit the deposition testimony of LaBarre.
JUDGMENT AFFIRMED.
COSTS TO BE PAID BY APPELLANT.
NOTES
[1] The record contains differing assertions concerning the average annual trust income. The court, however, found that the income was approximately $35,000.00. Neither party contests this finding, so we accept it as fact. Md. Rule 8-131(c).
[2] Gale Molovinsky was disbarred in the District of Columbia and in Maryland following his conviction in federal court of conspiracy to counterfeit. See United States v. Molovinsky, 688 F.2d 243 (4th Cir.1982), cert. denied, 459 U.S. 1221, 103 S.Ct. 1228, 75 L.Ed.2d 462 (1983).
[3] Pearce v. Micka, 62 Md.App. 265, 489 A.2d 48 (1985). We shall discuss this case later in the opinion.
[4] All statutory references are to the Commercial Law Article (2000 Repl.Vol.).
[5] We agree with the circuit court that the amount of Gale Molovinsky's debt became "fixed" and "liquidated" when the superior court entered judgment, in June 1999, on the Council's fee petition.
[6] Arlene Molovinsky was not named as a defendant in the garnishment proceeding. At the time, Gale, the named defendant, was Arlene's predecessor in interest regarding the trust assets.
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839 A.2d 670 (2003)
In re Randy A. WEISS, Respondent.
A Member of the Bar of the District of Columbia Court of Appeals.
No. 00-BG-493.
District of Columbia Court of Appeals.
Argued March 6, 2001.
Decided December 11, 2003.
Abbe David Lowell, with whom Andrew N. Gentin, Washington, DC, was on the brief, for respondent.
Michael S. Frisch, Senior Assistant Bar Counsel, with whom Joyce E. Peters, Bar Counsel, was on the brief, for the Office of Bar Counsel.
*671 Before STEADMAN, RUIZ and WASHINGTON, Associate Judges.
WASHINGTON, Associate Judge:
The Board on Professional Responsibility (the "Board") recommended that respondent, Randy A. Weiss, be suspended from the practice of law for a period of three years, with one year suspended in favor of probation for a period of two years or until his therapist concludes that therapy is no longer necessary, for illegally taking funds from his law firm. The suspension, does not require a showing of fitness. Weiss filed an exception to the Board's Report and Recommendation arguing that a suspension for more than one year is too harsh a sanction in light of his mitigating circumstances. Despite Weiss' claims, we adopt the recommendation of the Board.
I.
In May of 1997, Weiss notified his law firm and the Bar Counsel that he had improperly diverted funds from the firm. Specifically, Weiss admitted that in a number of transactions he handled on behalf of the firm between April 1993 and May 1997 he diverted portions of title insurance fees from the firm's escrow accounts to his own personal account. He obtained the funds either by having checks made payable directly to him or by placing the fees into one of the firm's escrow accounts over which he had effective control. Weiss took funds from the firm on fifty-four occasions totaling $676,465.99. Weiss placed those funds in a money market account the existence of which was not disclosed to anyone. Ultimately, Weiss repaid the firm the entire amount of money that he had improperly obtained. Based on Weiss' admissions, Bar Counsel filed a Specification of Charges alleging that Weiss had violated DISTRICT OF COLUMBIA R. OF PROF'L CONDUCT 8.4(b) and (c) (2001).[1]
On March 18 and May 6, 1998, hearings were held and Weiss offered the following in mitigation of his charges. First, Weiss noted that he voluntarily notified the firm of his misconduct. Second, two psychiatrists concluded that Weiss' actions were the result of a psychological need for security born of his father's depression-era fear of poverty. Third, neither psychiatrist believes that Weiss will likely repeat this conduct. Finally, Weiss helped the firm institute new procedures to help reduce the risk of future funds being diverted from the firm.
On December 29, 1998, the Hearing Committee issued its report stating that misconduct had been established and that Weiss had violated Rule 8.4(b) and (c). Despite the seriousness of the misconduct, however, the Hearing Committee, persuaded by the evidence offered in mitigation, recommended that Weiss be suspended for one year without a fitness requirement and then placed on probation for two years. The recommended probation required Weiss to submit quarterly certificates from his therapist confirming his good faith participation in therapy.
The Board agreed with the Hearing Committee that Weiss violated Rule 8.4(b) and (c), but recommended that Weiss be suspended from the practice of law for a period of three years with one year suspended in favor of probation for two years or until his therapist advised Bar Counsel that therapy was no longer necessary. The only condition of probation was that *672 Weiss' treating therapist submit quarterly certificates confirming his continued good faith participation in therapy.
II.
Weiss contends that the Board's recommendation that he be suspended for more than one year is excessive and fails to adequately take into account the mitigating factors that were presented on his behalf. When reviewing a recommended disciplinary sanction against an attorney, this court must adopt the Board's recommended sanction "unless to do so would foster a tendency toward inconsistent dispositions for comparable conduct or would otherwise be unwarranted." See D.C. Bar R. XI, § 9(g)(1). When deciding whether there is the possibility for inconsistent dispositions, this court should compare "the gravity and frequency of the misconduct, any prior discipline, and any mitigating factors such as cooperation with Bar Counsel, remorse, illness, or stress" between the present case and past decisions. In re Steele, 630 A.2d 196, 199 (D.C.1993). In determining whether a particular recommendation is warranted, this court should examine "the nature of the violation, the mitigating and aggravating circumstances, [and] the need to protect the public, the courts, and the legal profession." In re Haupt, 422 A.2d 768, 771 (D.C.1980).
While the evidence offered in mitigation in this case is unique among those cases where attorneys have improperly diverted funds, see In re Appler, 669 A.2d 731, 741 (D.C.1995) (disbarring an attorney for asking clients to bill him directly rather than the firm); see also In re Gil, 656 A.2d 303, 306 (D.C.1995) (disbarring an attorney who took funds from a friend outside the attorney-client context), the Board determined that Weiss should neither be disbarred nor receive a suspension for one year or less, as recommended by the Hearing Committee, but should be suspended for three years with one year suspended in favor of two years probation and no fitness requirement. The question before us is whether the Board's recommended sanction is inconsistent with prior dispositions for comparable conduct or is otherwise unwarranted under the circumstances.
Weiss argues that in other cases where it was a law firm's funds that were diverted, this court supported the imposition of lesser sanctions than those recommended by the Board in this case, and, therefore, the Board's recommendation should be rejected as inconsistent with prior dispositions for comparable conduct. As support for this proposition, Weiss relies on two reciprocal disciplinary cases, In re Paragano, 747 A.2d 1189, 1190 (D.C.2000) and In re Berg, 694 A.2d 876, 877 (D.C.1997). In both of those cases the respondents were suspended for one year or less for diverting funds from their law firm. This court, however, has never ruled that diversion of funds involving a law firm require a lesser sanction. Neither Paragano nor Berg can be cited for that proposition.
Paragano, supra, was a New Jersey case in which the respondent was suspended for six months for writing numerous checks from his law firm business account for personal expenses without his partner's authorization, and for mischaracterizing the disbursements in the firm's records in order to conceal his actions. In adopting the Board's recommendation that we impose identical reciprocal discipline of a six month suspension, we noted that the New Jersey court specifically found that the evidence presented to them failed to establish that the attorney actually stole money from the firm and, thus, they ruled that the attorney was only guilty of mischaracterizing personal disbursements. Because of that court's specific finding that there was no actual theft, we found that the *673 discipline imposed, a six month suspension, was reasonable under the circumstances and not inconsistent with our prior decisions.
In Berg, supra, the respondent was suspended for one year after it was determined that he had diverted law firm funds for his own personal use. While the misconduct of Berg, in that case, was substantially similar to the misconduct of Weiss, here, their personal circumstances differ significantly. In Berg, the respondent agreed to permanently retire from the practice of law after serving the court imposed suspension, if the court would agree not to disbar him. Based primarily on his promise to permanently retire, and in deference to what the Court of Appeals for the State of Maryland acknowledged was a long and distinguished career, the court agreed to suspend him for one year and not disbar him. Because Berg's agreement to permanently retire was tantamount to disbarment, we agreed to impose identical reciprocal discipline. Unlike Berg, however, Weiss clearly intends to return to the practice of law once his suspension is concluded. As such, his circumstances are clearly distinguishable from those presented in Berg.
Finally, Weiss argues that even if this court finds his law firm diversion argument unpersuasive, he has presented compelling mitigating circumstances that should reduce the severity of any proposed sanction for his conduct to a suspension for no more than one year. Weiss relies primarily on our decision in In re Hutchinson, 534 A.2d 919 (D.C.1987), as support for this proposition. In In re Hutchinson, the respondent engaged in illegal insider trading and then lied to the Securities and Exchange Commission to cover it up. He was suspended for one year for his untruthful testimony.
Weiss contends that the mitigating circumstances relied upon by the Board in recommending a one year suspension in Hutchinson were almost identical to the mitigating circumstances offered here. As a result, he reasons that the recommended sanction in this case is inconsistent with our prior decisions. While Weiss is correct that the mitigation evidence offered here is similar to the mitigation evidence presented in Hutchinson, that is the only similarity that exists between the two cases. Hutchinson's conduct, unlike this case, did not involve any breach of his fiduciary obligation to his clients or to his law partners. Thus, Weiss' contention, that this court should look to Hutchinson for guidance because of the similarities between the mitigating circumstances presented in both cases, completely ignores the underlying conduct which gave rise to the ethical violation. Our responsibility is to ensure that the Board is not recommending inconsistent dispositions for "comparable conduct." It is in that context that we look to see whether mitigating factors are being consistently applied. In the absence of comparable conduct, a mitigation analysis is of little significance.
While Weiss took significant steps to mitigate his misconduct by self-reporting his theft; making efforts to ensure that the opportunity to misappropriate money from his firm and other firms will be more difficult in the future; and seeking counseling to help him address the psychological problems that led him to his ethical lapse, the fact remains that Weiss unlawfully diverted a substantial amount of money from his law firm over a significant number of years and a sanction of one year or less would be wholly inconsistent with the discipline imposed on others for comparable conduct. See Appler, supra, 669 A.2d at 731; Gil, supra, 656 A.2d at 303.
*674 Given those prior precedents and the facts of this case, the Board stated that it did not come easily to the conclusion that Weiss should not be disbarred. Ultimately, however, the fact that Weiss self-reported his violation led the Board to conclude that the sanction should be reduced from disbarment to three years suspension with one year suspended. Further, the Board, obviously influenced by the psychological evidence presented by Weiss, decided not to require a showing of fitness as a condition of Weiss resuming his law practice. Both of these accommodations by the Board are significant and were warranted under the circumstances.
Accordingly, it is ORDERED that respondent, Randy A. Weiss, is suspended from the practice of law in the District of Columbia for a period of three years with one year suspended in favor of probation for two years or until his therapist advises Bar Counsel that therapy is no longer necessary. The only condition of probation is that quarterly certificates from Weiss' treating therapist be submitted confirming his continued good faith participation in therapy. Finally, we direct respondent's attention to the requirements of D.C. BAR R. XI, § 14 and their effect on his eligibility for reinstatement. See D.C. BAR R. XI § 16(c).
So ordered.
RUIZ, Associate Judge, dissenting.
This is a difficult case that compels us to consider the purposes of our disciplinary system for attorneys and presents us with an opportunity to choose a sanction to further those goals. Bearing in mind that the overarching purpose of the discipline system is not to punish but to enhance confidence in the legal profession and protect clients and the community affected by a lawyer's actions, I conclude that on the facts of this case, not only the individual attorney but the legal profession as a whole would be better served by a more lenient sanction that places a meaningful incentive on voluntary disclosure of serious lawyer misconduct.
My dissent has nothing to do with disagreement over the Board's or the majority's characterization of the gravity of Randy Weiss's misconduct. In fifty-four transactions over a period of three years, he embezzled hundreds of thousands of dollars that belonged to his firm. He kept the money in a personal money market account and paid taxes on the interest earned, treating it as his own. But for the unusual fact that he did not touch the funds, Weiss's conduct is sadly reminiscent of other thefts from people to whom lawyers owe a fiduciary responsibility. His conduct is criminal and involves dishonesty, of other thefts from people to whom lawyers owe a fiduciary responsibility. His conduct is criminal and involves dishonesty, and therefore violates Rule 8.4(b) and (c) of the Rules of Professional Responsibility.
What takes this case out of the ordinary is what happened next. Filled with remorse, Weiss consulted his rabbi and, on his advice, informed his partners about what he had done. He then repaid the money (which, as mentioned, he had not used), foregoing the 17.2% share to which he would have been entitled had the firm received the fees in the normal course. He also paid for an outside audit and helped to implement procedures to prevent similar future occurrences. The record indicates that, but for his voluntary disclosure, Weiss's misconduct would not have been revealed.[1] Weiss ceased to be a partner *675 of the firm after his disclosure. He remains associated with the firm, however, and his former partners have indicated that they will review his status upon conclusion of these proceedings. Weiss has been examined by two psychiatrists, both of whom advise that his actions were motivated by extreme insecurity, that he has responded well to treatment and that he is unlikely to repeat his misconduct. The Hearing Committee similarly found that Weiss is unlikely to engage in future misconduct.
Weiss's decision to disclose his misconduct voluntarily is not only unusual as a matter of fact; it is also without precedent in our disciplinary cases. Rejection of the Board's recommendation in this case, therefore, will not "foster a tendency toward inconsistent dispositions for comparable conduct" because we simply have never had a case like this one.[2] D.C. Bar R. XI, § 9(g). The majority adopts the recommended sanction of suspension for three years with one year suspended in favor of probation for two years or until his therapist advises that therapy is no longer necessary. For the reasons that follow, I conclude that the recommended sanction is inconsistent because it is too harsh in comparison to other cases. Most important, the recommended sanction is also unwarranted because it does not adequately serve the interest of promoting voluntary disclosure. Instead, I would suspend the entire recommended three-year suspension in favor of probation conditioned on the continuation of therapy until Weiss's therapist advises that therapy is no longer required.
The principal case where we have discussed voluntary reporting of misconduct is In re Hutchinson, 534 A.2d 919 (D.C. 1987) (en banc). After buying call options on a tip from a friend, Hutchinson communicated the inside information about an impending tender offer. He then lied under oath in the course of an SEC investigation to cover up the insider source of the information and his own actions. See id. at 921. He later recanted his misstatements and told the truth. In a civil enforcement *676 action brought by the SEC, Hutchinson agreed to surrender $72,000 in profits. See id. He also plead guilty to a misdemeanor under the Securities Exchange Act of 1934, 15 U.S.C. § 78 ff (a) (1982). See id. In the ensuing discipline case, we noted that his eventual cooperation mitigated his offense and suspended him for one year. See id at 924-25.
The majority dismisses the relevance of the more lenient sanction in Hutchinson on the ground that the underlying misconduct in the two cases is different. But the differences are immaterial on the question of sanction. Although Hutchinson's untruthful testimony and disclosure of inside information and Weiss's embezzlement of firm funds are different, both involve dishonesty and are punishable as crimes;[3] both constitute violations of the rule against engaging in dishonest conduct or committing a criminal act that impugns a lawyer's honesty, trustworthiness or fitness as a lawyer.[4] Moreover, insider trading is a type of theft from investors who do not have the benefit of inside information to avert loss or realize gain. See Hutchinson, 534 A.2d at 921 (noting that in consent order settling the SEC civil enforcement action Hutchinson's profits from insider trading were distributed to sellers of stock options). Thus, I disagree that the misconduct in the two cases is not comparable. What is significantly different is that nothing in Hutchinson suggests that the insider trading would have gone undetected, as the SEC immediately mounted an investigation. Unlike Weiss, who reported his misconduct to his firm and to Bar Counsel under circumstances where it was not likely to be discovered, Hutchinson made a tactical decision to disclose only under pressure of an SEC investigation. If Hutchinson was suspended for one year in a situation where he disclosed in the course of an impending investigation, Weiss, whose disclosure was truly voluntary, should not be suspended for two additional years. To do so is to apply inconsistent sanctions.
The recommended sanction is also "unwarranted" in light of "the nature of the violation, the mitigating and aggravating circumstances, the need to protect the public, the courts and the legal profession," In re Haupt, 422 A.2d 768, 771 (D.C.1980), and the moral fitness of the attorney. See In re Smith, 403 A.2d 296, 303 (D.C.1979). The violation, though admittedly grave, has been fully cured. No client funds or trust, the prime concern of the disciplinary system, were involved. The direct victims of the misconduct, Weiss's firm and partners, have been made whole financially, and continue to include him in their law practice. Weiss's moral fitness, is evidenced by his decision to self-report, the actions he took to correct his misconduct, and the absence of any prior or anticipated problem with the discipline system.
So the remaining question is what sanction will best protect the public, the legal profession and the courts. I do not dispute that a valuable function of sanction is its deterrent value, and that a sanction of suspension might in routine cases deter others from engaging in similar conduct. But fidelity to the facts of this case requires *677 us to ask the narrower question whether misconduct that would go undetected but for voluntary disclosure, as here, will be deterred by the prospect of suspension. If one assumes that the misconduct would remain undetected, the premium is on encouraging voluntary disclosure and full restitution. I rather think that will be more likely at the prospect of a significantly lessened sanction that does not imperil the ability to practice law.
If deterrence depends on the expected value of punishment, calculated as the severity of that punishment multiplied by the probability of apprehension and conviction, as the probability of detection increases, a less severe penalty must be used to achieve the same level of effective deterrence. See RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 204-07 (3d ed. 1986). Typically the probability of detection is less than oneescape is always possible. For an individual who self-reports a violation, however, the probability of detection is one, and to achieve the same level of effective deterrence as those who attempt to avoid punishment, the severity of the punishment must be lessened. If not, no one would self-report, because a rational individual would always prefer to secrete his crime and suffer the possibility of detection rather than confess that crime and face the certainty of the identical penalty. An individual who self-reports therefore should always be punished less severely than one who does not, assuming comparable violations.
Weiss, of course, made full disclosure out of a sense of remorse and not because of an expectation gleaned from our cases that he would escape serious sanction. But if we could always rely on a prodding conscience, the investigations, adjudications and sanctions of the disciplinary system would be largely unnecessary. In the discipline system, we do not stand in judgment of lawyers' souls and impose punishment in some absolute sense. Our job is more prosaic: to evaluate attorney conduct in light of the Rules, and assess sanctions that further the goals of protecting clients and promoting confidence in the Bar. See In re Reback, 513 A.2d 226, 231 (D.C.1986) (an banc) ("In all cases, our purpose in imposing discipline is to serve the public and professional interests we have identified, rather than to visit punishment upon an attorney"). Consequently, our approach should be pragmatic and logical.
The imposition of probation in this case not only would recognizeas have other jurisdictions[5] that Weiss's self-disclosure and full restitution merit leniency, but also would provide an opportunity to establish a real incentive for future voluntary self-disclosure and restitution, which would foster integrity in the profession, enhance public confidence and ease the burden at all levels of the discipline system: Bar Counsel, the BPR and this court. We have the discretion to do so. See In re Banks, 709 A.2d 1181, 1182 (D.C.1998) (explaining that "nothing in our decisions prohibits the Board from recommending probation in a *678 non-disability case"). I would not miss that opportunity.
NOTES
[1] Rule 8.4 states: "It is professional misconduct for a lawyer to: ...(b) Commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer in other respects; (c) Engage in conduct involving dishonesty, fraud, deceit, or misrepresentation...."
[1] Weiss acted not only as counsel but as title insurance agent, and was compensated in both capacities. In his testimony, Weiss explained that, unlike legal fees, the cost of title insurance is not shown on the settlement statement. Generally, the licensed title insurance agent who conducts the closing retains for his or her account a portion of the title insurance premium as a commission (in this case 80 percent) remitting the rest as to the title insurance company for its risk associated with the transaction. Whenever Weiss acted in his capacity as real estate lawyer and title insurance agent, an invoice would be generated by the law firm for legal fees associated with the transaction, and the firm's accounting system would show an account receivable in that amount. That bill would either be paid directly to the firm, or, if paid to Weiss, would be turned over to the firm. An invoice, however, was not generated by the firm for the title insurance commission, which was owed by the client to Weissnot the firmas agent. As a result, the firm's billing system would not show an account receivable for the title insurance commission. Under this system Weiss easily was able to remit the legal fees to the firm and retain the title insurance commission for himself in approximately 30 percent of the cases without being detected.
[2] The cases relied on by the Board and the majority do not approximate the voluntariness and candor that Weiss has shown and, in some cases, were the exact opposite. See In re Appler, 669 A.2d 731 (D.C.1995) (disbarring attorney, who suffered from bipolar disorder, caught after he embezzled more than 1.1 million from his law firm over a five-year period and there was possibility of relapse into future misconduct); In re Gil, 656 A.2d 303 (D.C.1995) (noting that "respondent's betrayal of the trust of a friend.... show[ed] him to be wanting in his fundamental awareness of right and wrong"); In re Goffe, 641 A.2d 458 (D.C.1994) (noting that attorney, who lied and manufactured evidence, did not "understand the impropriety of his conduct").
I also do not think that the cases on which Weiss relies, In re Berg, 694 A.2d 876 (D.C. 1997), and In re Paragano, 747 A.2d 1189 (D.C.2000), are particularly useful because they are reciprocal discipline cases in which we defer to the sanction imposed by the original disciplining jurisdiction.
[3] In Hutchinson we noted that lying to the SEC is a felony punishable by imprisonment for five years or a fine of $10,000, or both, under 18 U.S.C. § 1001 (1982), and that lying under oath is perjury under 18 U.S.C. § 1621 (1982) and D.C. code § 22-2501 (1981). See Hutchinson, 534 A.2d at 924.
[4] Here, the applicable provision is Rule 8.4(b) and (c). The predecessor at issue in Hutchinson was D.R. 1-102(A).
[5] The Minnesota Supreme Court has declined to suspend attorneys, where the misconduct has come to light as a result of full voluntary disclosure. See In re Nurnberger, 272 N.W.2d 914 (Minn.1978) (placing on supervised probation an attorney who converted large sums of money from clients' trust fund to own use over a period of three years, but then remitted funds to clients and disclosed to all affected clients and discipline system, in absence of investigation); In re Simonson, 365 N.W.2d 259 (Minn.1985) (ordering public reprimand and fine for lawyer who misappropriated $67,652 in client funds, which usually is sanctioned by disbarment, in case where lawyer voluntarily disclosed even though misconduct might have gone undetected, cooperated with investigation, made restitution and had good character).
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221 N.J. Super. 89 (1987)
534 A.2d 13
PRIVATE TRUCK COUNCIL OF AMERICA, INC., PPG INDUSTRIES, INC., W.H. CHRISTIE & SONS, INC., AND DENNIS TRUCKING, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS-APPELLANTS,
v.
STATE OF NEW JERSEY, AND CLIFFORD W. SNEDEKER, INDIVIDUALLY AND AS DIRECTOR, DIVISION OF MOTOR VEHICLES, AND MICHAEL HORN, INDIVIDUALLY AND AS STATE TREASURER OF NEW JERSEY, DEFENDANTS-RESPONDENTS.
WEST MOTOR FREIGHT, INC. AND WEST TRUCK LEASING, INC., PLAINTIFFS-APPELLANTS,
v.
CLIFFORD W. SNEDEKER, DIRECTOR OF THE DIVISION OF MOTOR VEHICLES OF THE STATE OF NEW JERSEY, AND MICHAEL M. HORN, TREASURER OF THE STATE OF NEW JERSEY, AND THE STATE OF NEW JERSEY, DEFENDANTS-RESPONDENTS.
Superior Court of New Jersey, Appellate Division.
Argued March 16, 1987.
Decided March 31, 1987.
*90 Before Judges PETRELLA, BILDER and GAYNOR.
*91 Richard A. Allen argued the cause for appellants in A-1145-85T1 (Arnold L. Simon, attorney; Jacob P. Billig, Terrence D. Jones, David F. Smith and Richard A. Allen, on the brief).
Martin L. Wheelwright, Deputy Attorney General, argued the cause for respondents in A-1145-85T1 (W. Cary Edwards, Attorney General of New Jersey, attorney; Michael R. Clancy, Deputy Attorney General, of counsel; Mary R. Hamill, Deputy Attorney General, on the brief).
Brown & Connery and Kohn, Savett, Marion & Graf admitted pro hac vice, attorneys for appellants in A-1559-85T1 (Merle A. Wolfson and Joseph M. Yohlin, of counsel; Steven G. Wolschina and David H. Weinstein, pro hac vice, on the brief).
W. Cary Edwards, Attorney General of New Jersey, attorney for respondents in A-1559-85T1 (Michael R. Clancy, Deputy Attorney General, of counsel; Mary R. Hamill, Deputy Attorney General, on the brief).
BILDER, J.A.D.
This appeal involves the constitutionality of the Counterpart Fee Act, N.J.S.A. 39:3-6, which imposes a retaliatory fee or tax on trucks operating in New Jersey which are registered in one of eighteen states which impose so-called "third structure taxes" on trucks registered in New Jersey, a tax which New Jersey does not impose. Plaintiffs, a motor carrier trade organization and individual motor carriers,[1] contend the act violates the Commerce Clause, U.S. Const. Art I, § 8, cl. 3, and the Privileges and Immunities Clause, U.S. Const. Art. IV, § 2, of *92 the United States Constitution. The Law Division upheld the act on the ground that the matter had been decided in B & L Motor Freight, Inc. v. Heymann, 120 N.J. Super. 270 (Ch.Div. 1972), aff'd o.b. 125 N.J. Super. 372 (App.Div. 1973), certif. den. 64 N.J. 494 (1974), appeal dis. 419 U.S. 1042, 95 S.Ct. 613, 42 L.Ed.2d 636 (1974), reh. den. 420 U.S. 913, 95 S.Ct. 837, 42 L.Ed.2d 845 (1975). Concluding that he was bound by that decision, the trial judge granted the defendants a summary judgment dismissing the action, 210 N.J. Super. 611. On appeal plaintiffs contend B & L is not controlling because it did not decide the issues presented in this case and that, in any event, B & L must yield to subsequent case law supervening doctrinal developments. Substantively they contend the counterpart fees violate the Commerce Clause because they discriminate against interstate commerce, are not fairly related to services provided by New Jersey and are retaliatory or coercive; and, further, that they violate the Privileges and Immunities Clause because they discriminate against the citizens of other states. Finally, they contend that as a consequence of the unconstitutionality of the fees, plaintiffs are entitled to refunds of the monies unlawfully collected as well as counsel fees and costs under the federal Civil Rights Act, 42 U.S.C. § 1983.
I.
The fees in question, counterpart fees, are imposed as part of the registration and licensing provisions of our motor vehicle laws. They are referred to as "third structure" fees because they are in addition to the two types of fees or taxes imposed by all 50 states on interstate trucks operating within their borders: motor fuel taxes (first structure) and registration fees (second structure). These additional taxes are imposed by some eighteen states for highway use. In Pennsylvania, for example, the third structure tax takes the form of a tax of $36 per axle. In other states it takes the form of a flat per-truck or per-tractor-trailer unit charge.
*93 In order to eliminate this burden on New Jersey trucks, by either encouraging reciprocal agreements exempting our vehicles or eliminating the taxes entirely, New Jersey adopted the Counterpart Fee Act which imposes a retaliatory tax or fee on trucks which use our highways and are registered in one of the states which impose third structure taxes on trucks registered in this state.
Except as otherwise provided by reciprocity agreement or arrangement entered into by the director [Division of Motor Vehicles] or by a declaration issued by him, no motor vehicle or motor-drawn vehicle registered in another jurisdiction which requires the payment of a registration fee or fees or taxes of any other nature from an owner of a similar vehicle properly registered in this State for the operation of such vehicle on the highways of such other State, shall be operated on the highways of this State unless a fee is paid to the director, equal in amount to the fee or tax collected by the authorized official or body of such other jurisdiction for the operation on its highways of the motor vehicle or motor-drawn vehicle properly registered in this State. In the event that the fee or tax collected by such other jurisdiction is imposed for the registration of the vehicle therein, then in no case shall the fee paid to the director be less than the amount now or hereafter provided for by the laws of this State for the registration of a similar vehicle. The director shall from time to time promulgate such regulations as may be necessary for the effective enforcement of this section. [N.J.S.A. 39:3-6]
Similar statutes were enacted in six other states. In two, Maine[2] and New Hampshire[3], they have been found unconstitutional; in New Hampshire the statute had already been repealed.
II.
As already noted, the Law Division never considered plaintiffs' substantive claims of unconstitutionality because it concluded that the matter had been decided in B & L. While we entertain doubts about whether the discrimination question was decided in that case, we need not decide the issue because we *94 are satisfied that in any event B & L must yield to supervening doctrinal development, see Hicks v. Miranda, 422 U.S. 332, 344, 95 S.Ct. 2281, 2289, 45 L.Ed.2d 223 (1975), which requires a different result.
III.
The fundamental law against which the constitutionality of the challenged law must be tested was succinctly set forth by Justice Brennan in A & P Tea Co. v. Cottrell, 424 U.S. 366, 96 S.Ct. 923, 47 L.Ed.2d 55 (1976):
"[t]he very purpose of the Commerce Clause was to create an area of free trade among the several States." And at least since Cooley v. Board of Wardens, 12 How. 299, 13 L.Ed 996 (1852), it has been clear that "the Commerce Clause was not merely an authorization to Congress to enact laws for the protection and encouragement of commerce among the States, but by its own force created an area of trade free from interference by the States.... . [T]he Commerce Clause even without implementing legislation by Congress is a limitation upon the power of the States." It is no less true, of course, that under our constitutional scheme the States retain "broad power" to legislate protection for their citizens in matters of local concern such as public health, and that not every exercise of local power is invalid merely because it affects in some way the flow of commerce between the States. Rather, in areas where activities of legitimate local concern overlap with the national interests expressed by the Commerce Clause where local and national powers are concurrent the Court in absence of congressional guidance is called upon to make "delicate adjustment of the conflicting state and federal claims," thereby attempting "the necessary accommodation between local needs and the overriding requirement of freedom for the national commerce." In undertaking this task the Court, if it finds that a challenged exercise of local power serves to further a legitimate local interest but simultaneously burdens interstate commerce, is confronted with a problem of balance:
"Although the criteria for determining the validity of state statutes affecting interstate commerce have been variously stated, the general rule that emerges can be phrased as follows: Where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities."
[A & P Tea Co. v. Cottrell, supra at 370-372, 96 S.Ct. at 927-928; citations omitted]
*95 IV.
Under the Commerce Clause a state tax will be sustained if (1) there is a sufficient nexus with the taxing state; (2) the tax is fairly apportioned to local activities and does not result in multiple burdens being placed on the taxpayer; (3) the tax does not discriminate against interstate commerce; and (4) the tax is fairly related to the services and benefits provided by the taxing state to the taxpayer. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S.Ct. 1076, 1079, 51 L.Ed.2d 326 (1977), reh. den. 430 U.S. 976, 97 S.Ct. 1669, 52 L.Ed.2d 371 (1977); Continental Trailways v. Director, Div. of Motor, 102 N.J. 526, 535 (1986), pet. for cert. filed Oct. 24, 1986. Plaintiffs contend the counterpart fees violate the third part of this test because they discriminate against interstate vehicles registered in the eighteen offending states for the benefit of New Jersey-registered vehicles. The discrimination is apparent and unquestionable. The fees have the effect of giving New Jersey-registered trucks a commercial advantage over their out-of-state competition from the eighteen states. See Continental Trailways, supra at 541. It also discriminates between foreign trucks by giving trucks from the non-offending states a similar advantage over competition from the eighteen states. Ibid.
The State suggests that the fees are not discriminatory because they are offset by other taxes on our trucks. See discussion of offset, id. at 544. However, other than a general argument that all three levels of the motor vehicle fees should be considered together, it cannot point to any particular compensating fee which offsets the inherently discriminatory effect of the counterpart fees. They are not imposed to fairly apportion the burden of the cost of state government but are intended to coerce certain states into abandoning conduct which New Jersey finds offensive to the endeavors of our registered trucks engaged in interstate commerce they prevent discrimination against our trucks. Nor can the fees be found to equalize the tax burden between interstate and intrastate carriers, because *96 to do this the counterpart fees would have to apply to motor vehicles registered in all foreign states.
The purpose alone of the challenged statute requires its demise. As earlier noted, taxes affecting interstate commerce must effectuate a legitimate local public interest. See A & P Tea Co. v. Cottrell, supra. Retaliatory legislation has been clearly rejected as a means of accomplishing state regulatory objectives. Id. at 379-380, 96 S.Ct. at 931-932; Private Truck Council v. Secretary of State, supra at 218; Private Truck Council of America v. State, supra 517 A.2d at 1154. Neither retaliation nor the economic protection of local interests is a legitimate purpose such as will support an intrusion on interstate commerce. The State concedes, as it must, that the purpose of the statute is to secure reciprocity; to induce other states not to impose third structure taxes on New Jersey registered vehicles. As already noted, in two jurisdictions where similar legislation has been examined, counterpart fees have been held unconstitutional.[4]See Private Truck Council v. Secretary of State, supra; Private Truck Council of America v. State, supra.
Since we are satisfied the clearly retaliatory use of the tax dooms it constitutionally, we deem it unnecessary to engage in the essentially academic exercise of considering plaintiffs' other contentions which, at best, would merely add alternative grounds to the result we have reached. We note in passing, however, that when these grounds were considered by the Maine and New Hampshire courts, they were also found to be *97 appropriate bases for striking down third structure retaliatory motor carrier fees. Ibid.
V.
Having concluded the tax is unconstitutional, we must now consider plaintiffs' claims to refunds and counsel fees. Plaintiffs concede that their claim of a statutory right to refunds has been foreclosed by Continental Trailways, supra 102 N.J. at 546; however, they seek the refunds on equitable and constitutional grounds. As did our Supreme Court in Continental Trailways, we find no evidence the fees were paid under duress or protest prior to the institution of this litigation, id. at 549-550; see also Private Truck Council v. Secretary of State, supra at 219; Private Truck Council of America v. State, supra 517 A.2d at 1155-1156; however, once the complaint was filed, they could no longer be looked upon as volunteers.[5] Accordingly, we find plaintiffs are entitled to refunds from that time. Such refunds shall be without interest, it being the general rule that the State is not liable for interest in the absence of a statutory provision. See City of East Orange v. Palmer, 52 N.J. 329, 334 (1968).
As to the counsel fees, it is sufficient to note that 42 U.S.C. § 1983 was not intended to apply to this type of action. See Consol. Freightways Corp. of Del. v. Kassel, 730 F.2d 1139, 1145-1147 (8th Cir.1984), cert. den. 469 U.S. 834, 105 S.Ct. 126, 83 L.Ed.2d 68 (1984); Private Truck Council v. Secretary of State, supra at 220-222; Private Truck Council of America v. State, supra 517 A.2d at 1156-1157.
VI.
Plaintiffs in the consolidated West Motor Freight suit additionally appeal from the trial court's denial of class certification *98 in their action. Their suit raised the identical issues already raised by the earlier suit which was certified as a class action. The judge's action was clearly not an abuse of discretion. See Percodani v. Riker-Maxson Corp., 51 F.R.D. 263, 265 (S.D.N.Y. 1970), aff'd sub nom Farber v. Riker-Maxson Corp., 442 F.2d 457 (2nd Cir.1971).
The decisions below are reversed; the counterpart fee is found to be unconstitutional. The ruling in A-1559-85T1 denying class certification is affirmed. The matter is remanded for further proceedings consistent with our opinion.
NOTES
[1] Two suits were brought, one by Private Truck Council of America, Inc. PPG Industries, Inc. W.H. Christie & Sons, Inc. and Dennis Trucking; the other by West Motor Freight, Inc. and West Truck Leasing, Inc. The two suits, essentially the same, were consolidated in the Law Division. In Private Truck the matter was certified as a class action. A similar motion in West Freight was denied. Their separate appeals are consolidated for the purpose of this opinion.
[2] Private Truck Council v. Secretary of State, 503 A.2d 214 (Me. 1986), cert. den. 476 U.S. 1129, 106 S.Ct. 1997, 90 L.Ed.2d 677 (1986).
[3] Private Truck Council of America v. State, 128 N.H. 466, 517 A.2d 1150 (N.H. 1986).
[4] At oral argument our attention was directed to a recent unreported decision of an Oklahoma District Court upholding a counterpart fee similar to New Jersey's. Private Truck Council of America, Inc. v. Oklahoma, District Court of the Seventh Judicial District (February 1987). The opinion relied exclusively on B & L Motor Freight, supra, a decision which we have concluded is inapplicable. We have not found any other decisions upholding such legislation, nor have any been called to our attention.
[5] Indeed, in their original complaint, plaintiffs sought to stay the collection of the fees.
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471 S.W.2d 508 (1971)
Barbara DANIELS, Plaintiff-Appellant,
v.
Robert J. SMITH, Administrator of the Estate of Carolyn Sue Thomas Dillinger, Deceased, Defendant-Respondent.
No. 9059.
Springfield Court of Appeals, Missouri.
August 18, 1971.
Motion for Rehearing or to Transfer Denied September 8, 1971.
Application to Transfer Denied November 8, 1971.
*509 Thomas G. Strong, Lincoln J. Knauer, Jr., Farrington, Curtis & Strong, Springfield, for plaintiff-appellant.
Edwin C. Haseltine, Donald E. Bonacker, Springfield, for defendant-respondent.
Motion for Rehearing or to Transfer to the Supreme Court Denied September 8, 1971.
TITUS, Presiding Judge.
When the concerned casualty occurred, plaintiff was a front seat passenger in a Dodge being operated by Donald Houston in a westerly direction on Seminole Street in Springfield, Missouri. Lee Payton, driving an Oldsmobile, and Carolyn Sue Dillinger, driving a Chevrolet, were traveling north on Glenstone Avenue when their automobiles successively collided with the Dodge at and north of the intersection of the two thoroughfares. Plaintiff initially sued the three drivers but, ere trial, settled with Payton for $10,000. The jury in the first trial exonerated Mrs. Dillinger and returned a verdict for plaintiff against Houston in the sum of $25,000, which prompted entry of a $15,000 net judgment. Thereafter, plaintiff settled with Houston for $4,000 and the trial court granted her a new trial against Mrs. Dillinger on the issue of liability only. We affirmed the new trial order. Daniels v. Dillinger, Mo.App., 445 S.W.2d 410. Following remand, Mrs. Dillinger died and the administrator of her estate, Robert J. Smith, became the defendant. The second trial resulted in a defendant's verdict and the azygous product of plaintiff's present appeal is the extraordinary asseveration that the trial court erred in refusing to lade defendant with the burden of proving that plaintiff's injuries were not caused by Mrs. Dillinger's negligence.
Because the issue here involved is limited, we need not give a full account of the accident circumstances. Those interested in more details may find them in Daniels v. Dillinger, supra. It suffices to say that while traveling at a reported speed of 85 miles per hour, the Oldsmobile first struck the Dodge in the intersection and propelled it northward. Some eight to ten seconds later the Chevrolet, driven by Mrs. Dillinger at an estimated speed of 65 miles per hour, collided with the Dodge approximately 75 to 80 feet north of the intersection. At some time in the course of the accident, so it is assumed, plaintiff was thrown from the Dodge and came to rest supine upon the pavement with her head against the east curb of Glenstone 60 to 70 feet, more or less, north of the intersection. In the first trial and appeal, plaintiff alternatively claimed that Mrs. Dillinger's negligence had caused her harm either (1) when the Chevrolet hit the Dodge while she was in the Dodge, or (2) when she was struck by the Chevrolet as she lay on the pavement after having been dispatched from the Dodge by the force of its collision with the Oldsmobile. The second alternative claim was abandoned at the last trial. Consequently, as the matter now stands if Mrs. Dillinger's negligence was a proximate cause of plaintiff's injuries, it would be because plaintiff was still in the Dodge at the time it was struck by the Chevrolet. Plaintiff has no recollection of the accident nor the events which transpired immediately before or after. Defendant produced an eyewitness who stated that she had seen a woman come out of the Dodge "from the front seat on the right-hand side" at the time of the first impact and that the woman was lying on the pavement before the Chevrolet collided with the Dodge, but no one identified the woman as being the plaintiff. Although it is reasonable to conclude that plaintiff was not in *510 the Dodge following the impacts, the witnesses could not state positively that plaintiff had been thrown from the Dodge at any time or, if so, at what particular moment that event transpired.
Plaintiff's specific complaint is that the trial court refused her proffered Instruction No. A, thereby requiring her to offer Instruction No. 2, which was given. Refused Instruction No. A reads:
"Your verdict must be for plaintiff if you believe:
"First, Carolyn Dillinger either: drove at an excessive speed; or knew, or by the use of the highest degree of care could have known that there was a reasonable likelihood of collision in time thereafter to have slackened her speed and swerved, but she failed to do so; and
"Second, Carolyn Dillinger's conduct, in any one or more of the respects submitted in paragraph First, was negligent; and
"Third, such negligence directly caused or directly contributed to cause the collision between the Dillinger [Chevrolet] and Houston [Dodge] vehicles. * * *"
Instruction No. A concluded with a definition of negligence in the words of MAI 11.03. Instruction No. 2 was in the same form as Instruction No. A, except for paragraph Third which was in the words required by the second alternate of MAI 19.01, i. e., "Third, such negligence directly caused or directly contributed to cause damage to plaintiff."
If MAI contains an applicable instruction, such an instruction must be given to the exclusion of any other on the same subject. Civil Rule 70.01(b), V.A. M.R. Paragraph Third of refused Instruction No. A represents a clear deviation from the third paragraphs prescribed in either MAI 17.02 or MAI 19.01. Undoubtedly one of the submissions in MAI 19.01
(preferably the second alternate) was applicable in this case (Joly v. Wippler, Mo., 449 S.W.2d 565, 569), and had the trial court given Instruction No. A, which it did not, it would have been presumed that the charge was prejudicially erroneous. Brittain v. Clark, Mo.App., 462 S.W.2d 153, 155(1), and cases there cited. Nevertheless, plaintiff argues the deviation from the applicable instructions was proper in this instance because she is "unable to prove causation" in the acceptable fashion due to the circumstances peculiar to this action. She further urges that "the principles of fault and compensation to the innocent injured party demand that the burden of proof as to causation, * * * be transferred to the negligent defendant" and that "to avoid manifest injustice" we should this once, at least, depart from the rule in "the normal case" which casts upon plaintiff the burden of proof as to all elements of the cause of action. Farnham v. Boone, Mo., 431 S.W.2d 154, 156(2); 31A C.J.S. Evidence § 104 b, at p. 176.
Plaintiff's "point" is difficult for us to grasp, principally because it consists of a trifurcated statement entangled in conclusionary abstractions which do little towards satisfying the requirements of Civil Rules 83.05(a) (3) and (e), V.A.M.R. The first branch is that Instruction No. A was proper because "(A) In analogous situations the courts have utilized a variety of procedural devices to relieve plaintiffs of related burdens and thus avoid manifest injustice." Inter alia, the "analogous situations" to which plaintiff alludes in her argument are res ipsa loquitur and rear end doctrine cases, and causes involving accidents where the defendant's car skids onto the wrong side of the road. She argues that in "instance after instance, the courts have shifted the burden of proof, or the burden of going forward with the evidence, to the defendant in order to avoid manifest injustice or inequity." Albeit the terms "burden of proof" and "burden of going forward with the evidence" are sometimes ambiguous, one is rarely, if *511 ever, used to synonymize the other (31A C.J.S. Evidence § 103, pp. 164-168, and § 110, pp. 184-188), and while the burden of going forward with the evidence may shift during the progress of a trial, absent a statutory provision to the contrary, the burden of proof never shifts but remains with the party having the affirmative of the issue until the termination of the case. Frank v. Wabash Railroad Company, Mo., 295 S.W.2d 16, 22(12); State ex rel. State Dept. of Pub. Health & W. v. Ruble, Mo.App., 461 S.W.2d 909, 913(4). These principles are not altered by the "analogous situations" relied on by plaintiff. Proof that a skidding vehicle is on the wrong side of the road when the collision occurs merely creates an inference of negligence and shifts the burden of evidence or the burden of going forward with the evidence to the operator of the skidding vehicle, but does not relieve the one having the affirmative of the issue of negligence from the burden of proving fault. Friederich v. Chamberlain, Mo. (banc), 458 S.W.2d 360, 366. Likewise, proof of a collision under circumstances sufficient to make the rear end collision doctrine applicable, simply makes out a prima facie case of specific negligence (Hays v. Proctor, Mo.App., 404 S.W.2d 756, 760) which only shifts the burden of going forward with the evidence; the doctrine does not apply to shift the burden of proof as to negligence or as to causation. MAI 17.16. The doctrine of res ipsa loquitur is a part of the law of evidence [Stemme v. Sicdhoff, Mo., 427 S.W.2d 461, 466; Warner v. Terminal R. Ass'n of St. Louis, 363 Mo. 1082, 1093, 257 S.W.2d 75, 80(8)] which "permits an inference of negligence to be drawn from the unusual occurrence itself and permits proof of negligence from circumstantial evidence when * * * the conditions for its application, are otherwise present." Cunningham v. Hayes, Mo.App., 463 S.W.2d 555, 560(8). In a res ipsa loquitur case, the plaintiff has the burden of proof and, at the outset, the burden of going forward with the evidence as in any other negligence case. Markman v. Bi-State Transit System, Mo., 457 S.W.2d 769, 771(3). Even if a res ipsa case is made, it does not shift the burden of proof to the defendant to disprove negligence [Mizerany v. Gittemeier, Mo.App., 437 S.W.2d 103, 107(9); Thurman v. Johnson, Mo.App., 330 S.W.2d 179, 182(6)] or to disprove causation. Henneke v. Gasconade Power Co., 236 Mo.App. 100, 109(2), 152 S.W.2d 667, 671(2); MAI 31.02(1) and 31.02(2). Louisiana, as plaintiff says, apparently subscribes to a rule that where property of an innocent party is damaged as the result of a collision between two automobiles, the burden is upon each driver to exculpate himself from any negligence. Ashenfelter v. Gertrude Geddes Willis Life Ins. Co., La.App., 209 So. 2d 299, 300-301(4). This is Louisiana's, and perhaps Mississippi's, peculiar application of the doctrine of res ipsa loquitur [Gauthreaux v. Hogan, La. App., 185 So. 2d 44, 46(1)] which, as noted in Prosser's Handbook of the Law of Torts, 3d ed., at p. 234, "shifts to the defendant the ultimate burden of proof, requiring him to introduce evidence of greater weight than that of the plaintiff." Such, of course, is not the rule in Missouri where the plaintiff in a res ipsa case has the burden of proving each factual element necessary to a submissible case. Walsh v. Phillips, Mo., 399 S.W.2d 123, 126(4).
The second branch of plaintiff's point is that "(B) Where two or more independently acting persons are guilty of consecutive acts of negligence at points closely related in time, plaintiff is not required to prove which tort feasor harmed her, but each tort feasor is liable for the entire harm done plaintiff." The third and last phase of plaintiff's point welds together the two previous segments of the point into an argument designed to demonstrate that the "law as previously stated is applicable to the case at bar." As to branch (B), plaintiff relies first on 2 Restatement (Second) of Torts, § 433 B which states: "(1) Except as stated in Subsections (2) and (3), the burden of proof that the tortious conduct of the defendant has caused the harm *512 to the plaintiff is upon the plaintiff. * * * (3) Where the conduct of two or more actors is tortious, and it is proved that harm has been caused to the plaintiff by only one of them, but there is uncertainty as to which one has caused it, the burden is upon each such actor to prove that he has not caused the harm." (Our emphasis). In support of this pronouncement, plaintiff cites such authorities as Summers v. Tice, 33 Cal. 2d 80, 199 P.2d 1; Copley v. Putter, 93 Cal. App. 2d 453, 207 P.2d 876; Harris v. Cleveland, Tex.Civ. App., 294 S.W.2d 235; 2 Harper and James, The Law of Torts, § 20.2, at pp. 1115-1116, and Prosser's Handbook of the Law of Torts, 3d ed., at p. 247. It is not necessary that we discuss these authorities or attempt an exposition of the rule advanced, supra. The very basis of decision in the cited cases and authorities is wholly wanting here. Plaintiff has proceeded upon a declaration that all three drivers were negligent and that each of them individually contributed to her damages. She did not prove or undertake to prove that the harm which befell her had been caused by only one of the negligent drivers. In other words, the facts themselves in this case do not produce a situation which makes it impossible to pin responsibility on the actual wrongdoers. Rather, plaintiff asserts that each driver caused her some harm, but because of the dearth of favorable evidence she is unable to prove causation between Mrs. Dillinger's negligence and any part of the injuries she sustained.
In Daniels v. Dillinger, supra, 445 S.W. 2d at 413, we acknowledged the rule that when two or more independently acting persons are consecutively negligent in a closely related point of time and cause an indivisible injury, i. e., an injury which the fact trier finds cannot reasonably be apportioned among them, the tort feasors are jointly and severally liable for all damages directly and proximately resulting from such negligence. Glick v. Ballentine Produce Incorporated, Mo., 396 S.W.2d 609, 612-613(5, 6), appeal dismissed 385 U.S. 5, 87 S. Ct. 44, 17 L. Ed. 2d 5; Brantley v. Couch, Mo.App., 383 S.W.2d 307, 310(1). The question raised by this rule is not one of the fact of causation, because the rule presupposes the negligence of each defendant has been a cause of some damage suffered by the plaintiff. Application of the rule is permissible only where no logical basis can be found for practical apportionment and there is no reasonable course except to hold defendant for the entire loss, although the negligence of others has contributed to it. Prosser's Handbook of the Law of Torts, 3d ed., § 42, pp. 247-257, and authorities there cited.
Plaintiff does not contend, as we understand, that the analogies employed conform unerringly to the facts at hand. Instead, she is saying (and sometimes erroneously) that if particular courts in the samplings taken have relieved plaintiff of certain burdens for hardship reason, then she should be accommodated in a similar fashion because of her admitted inability to prove causation. It would seem that plaintiff's urging was excited not only because she cannot prove causation, but also because she is unable, short of a contribution of $11,000 from the present defendant, to collect the total amount of what has been determined to be the extent of her damages. We have been cited no authority, and know of none, which would utilize these reasons, independent of additional considerations, to depart from the well established rule in this jurisdiction which places upon plaintiff the burden of proving that defendant's negligence was a proximate cause of her injuries. Lindsay v. Wille, Mo., 348 S.W.2d 1, 4(4); Osterhaus v. Gladstone Hotel Corporation, Mo., 344 S.W.2d 91, 94(4).
The mere fact that injury follows negligence does not of and in itself create liability, and the burden is on plaintiff to prove causal connection between the two. Steele v. Woods, Mo., 327 S.W.2d 187, 195(5). Rules as to burden of proof constitute a substantial right of the party on whose adversary the burden rests; such *513 rules are indispensable in the administation of justice and should, therefore, be jealously guarded and rigidly enforced by the courts. Highfill v. Brown, Mo., 320 S.W.2d 493, 497(8). Neither difficulty nor impossibility of proof of a material element in a case, though unfortunate, will alter the rules of evidence, and the one having the burden of proof who cannot bear it is simply left with an unenforceable claim. Henry H. Cross Co. v. Simmons, 8 Cir., 96 F.2d 482, 486(8); 31A C.J.S. Evidence § 104, at p. 175. But irrespective of this, we repeat that refused Instruction No. A was a patent departure from the instructions made applicable by MAI and was erroneous. Murphy v. Land, Mo., 420 S.W.2d 505, 507(4). It cannot be error for a trial court to deny a request for an instruction unless it is correct in all respects. Samuels v. Illinois Fire Insurance Company, Mo.App., 354 S.W.2d 352, 361(13); Wilson v. Murch, Mo.App., 354 S.W.2d 332, 338(13).
The judgment is affirmed.
STONE and HOGAN, JJ., concur.
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97 B.R. 333 (1989)
In re TEMPLE RETIREMENT COMMUNITY, INC., Debtor.
Bankruptcy No. 87-60663-C.
United States Bankruptcy Court, W.D. Texas, Waco Division.
February 5, 1989.
*334 Michael R. Rochelle, Rochelle & Balzersen, Dallas, Tex., for debtor.
George E. Henderson, Fulbright & Jaworski, Austin, Tex., for indenture trustee First RepublicBank Temple, N.A.
ORDER AWARDING ATTORNEY'S FEES
LEIF M. CLARK, Bankruptcy Judge.
This Order addresses the application of the law firm of Rochelle & Balzerson, counsel for the debtors, for compensation. After a hearing, the court took the application under advisement to further review the application in detail and to consider the propriety of the hourly rates requested. Upon consideration thereof, the court finds and concludes, for the reasons set out in this Order, that the fees should be awarded in the amount requested, without reduction or diminution.
BACKGROUND FACTS
The debtor, doing business as a retirement community known as the Village on Canyon Creek, had fallen on difficult times due in large part to the misfeasance (or malfeasance) of its original developer and management entity. AmeriCare developed the Village with money raised from a bond issue. Most of the bondholders were individuals, many of whom had invested their life savings in these bonds. The bond indenture trustee held a first mortgage on the development. The Village's residents were solicited with a guarantee of life care *335 in exchange for a rather substantial frontend deposit, which the Village promised to refund should a resident choose to leave. AmeriCare failed to honor this obligation, however, and further was unable to maintain an occupancy sufficiently high to service the bond debt, which fell into default. The retirement community's board of directors fired AmeriCare, and cast about for a buyer who would put enough capital into the community to prevent catastrophe for bondholders and residents alike. In late 1985, the board of directors engaged Rochelle & Balzerson, a Dallas firm which has for many years specialized in bankruptcy, to assist in the reorganization effort. The firm put together a process for soliciting and evaluating potential buyers, working with the residents' council, the indenture trustee, and an ad hoc bondholders' committee. Eventually, the firm negotiated an agreement with LeGan, Inc., an entity out of Denver, Colorado, to manage and eventually acquire the facility via a carefully timed bankruptcy filing. The process required careful coordination with nervous residents, jittery and fractious bondholders, an equally jittery bank serving as indenture trustee, querulous trade creditors, and an often difficult and occasionally overbearing purchaser. The firm successfully orchestrated a bankruptcy which, in just four months, resulted in a confirmed plan. Post-confirmation, it successfully resolved a dispute with the State Board of Insurance that threatened to undo the reorganization before it even closed.
The application accurately and best summarizes the accomplishments of the firm:
. . . The Debtor's facility could continue to function only so long as the residents were confident that progress was being made on solving the Village's problems. Had the residents lost that confidence, they would have quickly voted with their feet; a significant drop in occupancy might have rendered the Village unreorganizable, given that its most precious asset is its residents. . . .
The plan was confirmed 117 days after the filing of the case, 63 days before the end of the exclusivity period.
This would be a sizable case in any court, with more than $20 million in total claims against the estate. . . . pre-petition planning succeeded in assuring that no trade or utility creditors existed at filing, thereby simplifying the plan and keeping the Debtor's trade credit unimpaired. Applicant Firm also succeeded in creating an environment hostile enough to the Debtor's original promoter, Americare, Inc., to convince it not to seek any share of the assets coming from the sale of the facility, even though it asserted a $1.9 million claim. . . .
The two major creditor groups in this case were the bondholders and the current and former residents. It appears that the bondholders will receive more than the 60% dividend estimated in the disclosure statement.
Current and former residents, being unsecured creditors, will receive considerably more under the plan than they would have in a liquidation. . . . the residents have . . . improved their position by now having a claim against LeGan, which is a solvent, experienced, and capable operating entity.[1]
With reference to both bondholders and residents, it must be said that the results which they enjoy under the plan are considerably better than were foreseen eighteen months ago.
The firm, in its application, seeks compensation of $74,472 and reimbursement for expenses totalling $12,417.88 covering a period of just over six months. A total of 517.90 hours were expended, at an overall average blended rate of $143.80 per hour.
The following billing rates are requested in the application:
Michael R. Rochelle $195.00/hr.
Stephen T. Hutcheson $125.00/hr. [1987];
$145.00/hr. [1988]
Patrick J. Neligan $110.00/hr.
Pedro V. Hernandez, Jr. $85.00/hr.
*336 All travel was billed at one-half the hourly rate of the attorney doing the traveling. Routine services such as reviewing claims, drafting and presenting administrative motions, and maintaining routine communications with the client were handled mostly by Messrs. Hernandez and Hutcheson. Mr. Rochelle was the principal architect of the plan and disclosure statement and conducted the critical negotiations with LeGan, the indenture trustee, and the residents' council.
ANALYSIS
In this decision, this court addresses a number of issues common to all fee applications as well as one issue endemic to this fee application. We turn first to the general issues.
A. The necessity for independent review by the court
At the outset, this court holds with numerous other courts that it "has the independent authority and responsibility to determine the reasonableness of all fee requests, regardless of whether objections are filed." Matter of Pothoven, 84 B.R. 579, 583 (Bankr.S.D.Ia.1988); In re Pettibone Corp., 74 B.R. 293, 299 (Bankr.N.D. Ill.1987); In re NRG Resources, Inc., 64 B.R. 643, 650 (W.D.La.1986); In re JensenFarley Pictures, Inc., 47 B.R. 557, 585 (Bankr.D.Utah 1985); In re Wilson Foods Corp., 36 B.R. 317, 320 (Bankr.W.D.Okla. 1984); see also 2 Collier on Bankruptcy, para. 328.02 at 328-8 (15th ed.1987); Lavien, Fees as Seen from the Bankruptcy Bench, 89 Com.L.J. 136-138 (March 1984). This duty arises in part from the very wording of the statute, which specifies that, after notice and a hearing,
the court may award . . . (1) reasonable compensation for actual, necessary services rendered by [the professional] . . . based on the nature, the extent, and the value of such services, the time spent on 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(a)(1). The award of fees is discretionary, bounded by (1) whether the compensation is reasonable and (2) whether the services were actually rendered and were necessary. In re Nucorp Energy, Inc., 764 F.2d 655, 658 (9th Cir.1985). Compensation of professionals employed by the debtor is always an appropriate province for judicial scrutiny "to protect the creditors of the estate and the debtor against overreaching by an officer of the court who is in a peculiarly advantageous position to impose on both the creditors and his client." Bankr.R. 2017, Advisory Comm. Note (1987); 2 Collier on Bankruptcy, para. 329.02 (15th ed.1987). "The numerous limitations imposed by the Bankruptcy Code upon compensation of court-appointed counsel . . . are designed to insure the highest standards of ethical conduct and minimize the overhead expenses which can easily deplete a debtor's estate." Matter of Consolidated Bancshares, Inc., 785 F.2d 1249, 1255 (5th Cir.1986).
A bankruptcy court is also charged with evincing an "over-arching policy of avoiding the waste of the debtor's estate." In re Wonder Corp. of America, 82 B.R. 186, 191 (D.Conn.1988), citing Continental Vending Machine Corp, 543 F.2d 986, 994 (2d Cir.1976) and In re United Merchants and Manufacturers, Inc., 674 F.2d 134, 140 (2d Cir.1982).
The bankruptcy judge can and must apply his own expertise sua sponte, if necessary, in order to be fair to both counsel and creditors because, in the final analysis, either excess generosity or extreme miserliness in allowing fees will reflect in the public perception of the system.
Lavien, Fees as Seen from the Bankruptcy Bench, 89 Com.L.J. at 138. A recent decision out of the Southern District of Texas adds that
Congress has in effect required bankruptcy judges to weigh the "public interest" in the calculation of fees by compensating counsel only for "actual, necessary services." 11 U.S.C. § 330(a)(1). . . . [P]ublic interest still plays a part in a determination of fee awards in bankruptcy cases . . . at least inherently from the standpoint of the Code's requirements *337 for court supervision of fees, and the public's perception of the integrity and fairness of our bankruptcy system and courts.
In re Gulf Consolidated Services, Inc., 91 B.R. 414, 419-20 (Bankr.S.D.Tex.1988).[2]
The duty to serve this "public interest" is imposed in this Circuit upon all court-appointed counsel. See Matter of Consolidated Bancshares, Inc., 785 F.2d at 1255.[3] The reality, however, is that many cases have only one court-appointed counsel, the debtor's attorney. Even in cases served by committees, however, the court-appointed lawyers, "sharing the mutual goal of securing approval for their fees, enter into a conspiracy of silence . . . [best] characterized . . . as a `massive backscratching exercise.'" Id. What is more, the debtor is often not likely to act as a brake on fees, as it often matters very little to a debtor whether his attorney's fees are large or small since it will be paid out of assets which, in any event, would normally be consumed in distribution. See In re Olen, 15 B.R. 750 (Bankr.E.D.Mich.1981). With the advent of the U.S. Trustee system in this district, the court anticipates that that office will adopt as a priority the routine review of fee applications in chapter 11 cases, though the statute itself makes the U.S. Trustee's active participation technically discretionary. See 28 U.S.C. § 586 (1986).[4] If the court fails to review fee applications sua sponte, the public interest will in all likelihood go begging.
Bankruptcy courts also have a duty to preserve the integrity of the court itself. The debtor-in-possession (as well as the trustee and the creditors' committee) retains counsel only with court approval. 11 U.S.C. § 327. The court-appointed counsel are then paid only upon application to the court. Bankr.R. 2016. The money is transferred almost literally over the judge's signature on a court order approving the fees. See In re Wildman, 72 B.R. 700, 705 (Bankr.N.D.Ill.1987). The affixing of a judge's signature to an order is not an empty formality. It is a judicial confirmation that the fees in question are in fact reasonable and do in fact represent compensation for actual and necessary services, measured against the various factors set out in the case law. In re Manoa Finance Co., Inc., 853 F.2d 687, 690 (9th Cir.1988). See Matter of Consolidated Bancshares, Inc., 785 F.2d 1249, 1257 (5th Cir.1986). Because fees can be paid only upon court order, the court which signs that order must therefore be prepared to accept responsibility for its judicial actions by independently determining that court authorization for the fees is warranted. See In re National Paragon Corp., 87 B.R. 11, 13 (E.D.Pa.1988); In re Benassi, 72 B.R. 44 (D.Minn.1987); Cohen & Thiros v. Keen Enterprises, 44 B.R. 570, 574 (N.D.Ind.1984), citing In re Meade Land and Development Co., 527 F.2d 280, 284 (3rd Cir.1975).
The local rules for this district affirmatively adopt the Code of Professional Responsibility as adopted by the State Bar of Texas as standards of professional conduct in this district. Rule 200-4, Local Rules for the Western District of Texas (1982). *338 All lawyers seeking fees in this district are expected to comply with Disciplinary Rule 2-106, which prohibits the collection of a fee in excess of a reasonable fee. State Bar Rules, art. 10, § 9, DR 2-106, reprinted at Tex.Govt.Code Ann., Title 2, Subtitle G, Appendix (Vernon 1988). The standards for reasonableness set out in that rule track the twelve factors set out in First Colonial Corp. v. American Benefit Life Insurance Co. (In re First Colonial Corp.), 544 F.2d 1291, 1298-99 (5th Cir. 1977), cert. denied, 431 U.S. 904, 97 S. Ct. 1696, 52 L. Ed. 2d 388 (1977). If the fees requested are in fact excessive as tested against the disciplinary rules, a court has no business whatsoever in contributing its judicial imprimatur to the award of those fees. For this reason as well, a court must independently review fee applications sua sponte.
This court recognizes that Section 330(a) commences with the phrase "after notice and a hearing," which triggers the operation of Section 102(1), permitting the entry of an order without an actual hearing if no objections have been filed. See Matter of U.S. Golf Corp., 639 F.2d 1197, 1202 (5th Cir.1981) ("the judge must hold an evidentiary hearing if there are any disputed factual issues"). The statute does not compel the award of fees absent objection, however. It merely authorizes the award.[5] The judge still enjoys the independent discretion to award only so much in fees as he or she determines is reasonable compensation for actual, necessary services rendered. Holding a hearing is simply the most efficient way to make that determination. It affords the attorney an opportunity to respond to questions the court might have and in the long run saves the court's and the lawyer's time.[6] For these reasons, this court has declined adopting the laissezfaire approach suggested in In re Chapel Gate Apartments, Ltd., 64 B.R. 569 (Bankr.N.D.Tex.1986), even though that approach technically complies with the Code's requirements.
Consistent with the foregoing policy, this court conducted an extensive hearing on the fee application submitted by Rochelle & Balzerson in this case.
B. The standards applicable to review of fee applications
Section 330(a)(1) imposes a two-step analysis. As a threshold matter, the court must first satisfy itself that services rendered were in fact necessary and appropriate. Then the court must find that the compensation requested for those services is reasonable, with reference to the factors delineated in Section 330(a)(1). In re Gulf Consolidated Services, Inc., 91 B.R. 414, 420 (Bankr.S.D.Tex.1988).
1. Determining that services were actual and necessary
With other courts that have considered the question, this court requires attorneys to set out their services as rendered in sufficient detail for the court to determine what work was done, by whom it was done, how long it took to do, whether there has been any duplication of effort, and what results were achieved. In this way, the court is given the data with which to determine that the compensation requested is for actual and necessary services. 11 U.S.C. § 330(a)(1); Matter of Pontiac Hotel Associates, 92 B.R. 715, 716 (E.D.Mich. 1988) ("requests for fees [must] be carefully itemized in order that the bankruptcy court may eliminate excessive charges, or *339 wasteful services and expenditures of professional time"). Generally, this requires each attorney who works on the case to maintain detailed, contemporaneous time records in sufficient detail to accurately re-create for the court what the firm in fact did for the client. "The detailed fee applications enable the bankruptcy court to fulfill its obligations to examine carefully the requested compensation in order to ensure that the claimed expenses are justified." In re Nucorp Energy, Inc., 764 F.2d 655, 658 (9th Cir.1985); see also In re Beverly Mfg. Corp., 841 F.2d 365, 370 (11th Cir. 1988); In re Westside Creek Ltd. Partnership, 93 B.R. 177, 180 (Bankr.E.D.Ark. 1988) (citing numerous authorities); Matter of W.T. Grant Co., 85 B.R. 250, 261 (Bankr.S.D.N.Y.1988) (applying similar requirements in a case under the former Bankruptcy Act); In re C & J Oil Co., Inc., 81 B.R. 398, 403 (Bankr.W.D.Va.1987); Matter of Pothoven, 84 B.R. 579, 583-84 (Bankr.S.D.Ia.1988); In re Baldwin-United Corp., 79 B.R. 321, 337 (Bankr.S.D.Ohio 1987); In re Pettibone Corp., 74 B.R. 293, 301 (Bankr.N.D.Ill.1987); In re S.T.N. Enterprises, 70 B.R. 823, 832-33 (Bankr.D.Vt. 1987); In re Jensen-Farley Pictures, Inc., 47 B.R. 557, 582 (Bankr.D.Utah 1985).
Attorneys who practice regularly in the Western District of Texas are already aware of the standards courts of this district regularly impose for fee applications. The following comments are intended to be instructive rather than exhaustive.
Services should be reported to the nearest tenth of an hour, and must not be lumped together. In re Westside Creek Ltd. Partnership, 93 B.R. 177, 180 (Bankr. E.D.Ark.1988). It is not sufficient to simply describe a given service as "telephone call with bank counsel," for example, without indicating in some way the function or substance of the telephone call. In re Pettibone Corp., 74 B.R. at 301, Matter of Pothoven, supra at 584; In re Westside Creek Ltd. Partnership, supra at 180. Counsel should supplement their time records with written narrative that places the services rendered in context so that the court can evaluate the necessity of their rendition. In re Pettibone Corp., 74 B.R. at 300.
Attorneys are expected to exercise billing judgment. They should therefore exclude from their applications, prior to their submission, time spent which, upon reflection, is excessive, redundant, unjustifiable, or otherwise unnecessary. This represents no more than the selfsame billing judgment attorneys regularly impose upon themselves at the "edit" stage of the billing process before submitting a bill to their private clients. Matter of Pothoven, supra, citing Hensley v. Eckerhart, 461 U.S. 424, 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983). Examples of billing judgment include, by way of example only, billing travel time at one-half their normal hourly billing rate, refraining from billing routine matters at a senior attorney's premium rate when the service could (or should) have been performed by a junior attorney at that attorney's lower rate, and billing an amount of attorney time appropriate to the service rendered. When possible, firms are expected to use paralegals and other staff to perform mundane (albeit necessary) tasks such as the preparation of exhibits for trial or the compilation of ballots. Matter of Pothoven, 84 B.R. at 585; In re Amatex Corp., 70 B.R. 624, 627 (Bankr.E.D.Pa. 1985). Attorney conferences are not prohibited, but they must be justified, as they are conducted at a high cost to the estate. See In re Pettibone Corp., 74 B.R. at 303.[7] When attorneys fail to exercise this sort of billing judgment in advance, the court is constrained to play the role of "client," "objecting" to excessive fees which overstep the "actual and necessary" standard imposed by Section 330(a)(1). See Pontiac Hotel Associates, 92 B.R. at 716.[8]
*340 The fee application of Rochelle & Balzerson satisfies this court's requirements for adequate documentation of fees and expenses requested. Each attorney's time has been broken down into the small enough "chunks" to portray the discreet task being performed, and has been reported to the nearest tenth of an hour. The services were actually performed and the application demonstrates their necessity. Travel time was uniformly billed at half the regular billing rate, and duplicative work has (to the extent there ever was any) evidently been excised from the bill. Mr. Rochelle has delegated to Mr. Hernandez many of the more mundane tasks, and directed Mr. Hutcheson to handle all but the most critical hearings. So-called "supervisory time," a necessary component of the practice for law partners, has been excised from the bill, having been appropriately absorbed into the billing rate itself as part of the firm's overhead. The fee application meets the threshold determination imposed by Section 330(a)(1)the services for which compensation is requested were actually rendered and were both necessary and appropriate.
2. Determining whether the compensation is reasonable
In applying the reasonableness factor of Section 330(a)(1), there are two controlling legal issues. First is the extent to which the First Colonial decision has continuing vitality in deciding the reasonableness of fees requested in Code cases. Second is whether the average billing rates in a given community dictate the standard for reasonable fees to be awarded under Section 330(a)(1).
a. The continuing vitality of First Colonial
We turn first to the First Colonial question. That decision held that the twelve factors previously set out in Johnson v. Georgia Highway Express, Inc. must also dictate the award of fees in bankruptcy cases. Georgia Highway involved a fee award under a fee-shifting statute in an EEOC case. Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974). In 1977, the Fifth Circuit correctly adopted the Georgia Highway standard for use in bankruptcy cases arising under the Bankruptcy Act because awards under that Act were to made "at the lower end of the spectrum of reasonableness." First Colonial Corp. v. American Benefit Life Insurance Co. (In re First Colonial Corp.), 544 F.2d 1291, 1299 (5th Cir.1977), cert. denied, 431 U.S. 904, 97 S. Ct. 1696, 52 L. Ed. 2d 388 (1977); accord, Matter of U.S. Golf Corp., 639 F.2d 1197, 1201 (5th Cir. 1981). However, Judge King (then Randall) observed in U.S. Golf that,
We note that this consideration does not affect the determination of attorneys' fees under the new Bankruptcy Act [sic], 11 U.S.C. § 101 et seq., for the Bankruptcy Reform Act of 1978 specifically provides that compensation for attorneys shall be based, inter alia, on "the cost of comparable services other than in a case under this title.." 11 U.S.C. § 330(a)(1) (1979).
Matter of U.S. Golf Corp., 639 F.2d at 1201.
The new Bankruptcy Code expressly overruled pre-Code caselaw that defined trustees and debtor's counsel as public officers who were not entitled to compensation at the same level as they might receive in private employment and that forced the judge to focus solely on economy of administration and conservation of the estate in awarding fees to these "public officers."[9]*341 The blind application of standards designed for use under the Bankruptcy Act can thus not be justified under the Bankruptcy Code's compensation scheme.
It is clear that in adopting § 330 Congress intended a retreat from doctrines which strictly limited fee awards under § 241 [of the Bankruptcy Act] to less than attorneys might have received for services of the same professional quality in non-bankruptcy cases.
In re Manoa Finance Co., Inc., 853 F.2d 687, 689 (9th Cir.1988); In re Nucorp Energy, Inc., 764 F.2d 655, 659 (9th Cir.1985).
What is more, it is equally irresponsible to give blanket adherence to judicial precedents such as Georgia Highways which have their genesis in fee-shifting statutes:
[t]here are . . . some notable differences between § 330 and the typical fee-shifting statute. Congress has expressed its intent that bankruptcy compensation be commensurate with that earned in comparable nonbankruptcy cases, while the usual fee-shifting statute is not "intended to replicate exactly the fee an attorney would earn through a private fee arrangement with his client." Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 478 U.S. 546, 106 S. Ct. 3088, 92 L. Ed. 2d 439 (1986). In addition, the source of fees in bankruptcy cases is unique, and § 330 has no parallel to the condition that fees will be awarded only to a prevailing party. . . . [W]hile awards under fee-shifting statutes are by their nature contingent, the risk of nonpayment in bankruptcy cases generally arises only in the event of insufficient funds in the estate to pay for the services rendered.
In re Manoa Finance Co., Inc., 853 F.2d at 690, 691. To the extent the First Colonial standards undercut the overriding function of assuring payment commensurate with what attorneys are receiving in nonbankruptcy cases, they have thus been statutorily repudiated.
By the same token, however, the factors enumerated in First Colonial are not without utility. Significantly, they track the provisions set out in the disciplinary rule which prohibits attorneys from charging or collecting excessive fees:
(A) A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee.
(B) A fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee. Factors to be considered as guides in determining the reasonableness of a fee include the following:
(1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly.
(2) The likelihood, if apparent to the client, that acceptance of the particular employment will preclude other employment by the lawyer.
(3) The fee customarily charged in the locality for similar legal services.
(4) The amount involved and the results obtained.
(5) The time limitations imposed by the client or by the circumstances.
(6) The nature and length of the professional relationship with the client.
(7) The experience, reputation, and ability of the lawyer or lawyers performing the services.
(8) Whether the fee is fixed or contingent.
Texas Code of Professional Responsibility, DR 2-106(B)(3), State Bar Rules, art. 10, § 9 reprinted at 3 Tex.Govt.Code, Title 2, Subtitle G, appendix (Vernon 1988). The standards are thus still useful in preventing *342 the award of excessive fees, regardless in what context the fees have been incurred, which is precisely consistent with this court's obligation to the public to assure that it not knowingly or unknowingly participate in the violation of the disciplinary rules by authorizing fees in excess of "reasonable fees," as measured against the standards set out in the disciplinary rules.
The use of the First Colonial standards in this context is also consistent with and furthers the congressional intent implicit in the statute:
We think that in enacting that section [Section 330(a)(1)] Congress did not intend to authorize higher compensation than attorneys would receive for comparable non-bankruptcy services.
In re Manoa Finance Co., Inc., 853 F.2d at 690.
The true point of departure from preCode law is the directive to assure comparability, while still retaining sufficient control to prevent excessive fee awards. The statute itself suggests simply looking to comparable non-bankruptcy services, in large part because of Congress' intentions, clearly expressed in the legislative history, to break with the then-prevalent trend of courts to "low-ball" fee allowances in bankruptcy. See 124 Cong Rec H11091 (daily ed. Sept. 28, 1978, remarks of Rep. Edwards). An overstrict reading, however, may tend to lead back to the very evil Congress intended to prevent, if the attorney hired is a bankruptcy specialist whose practice is restricted to a limited market and whose services therefore command a premium. If "reasonable compensation" means "not excessive," as it does in the disciplinary rule, then the focus on comparability should turn to the community or marketplace within which the services were rendered.
The court must be guided not merely by what rate the applicant charges its nonbankruptcy clients, but by what range of rates is charged by attorneys of comparable competence for comparable services in the comparable community or marketplace.
In re Gulf Consolidated Services, Inc., 91 B.R. at 420; In re Shades of Beauty, Inc., 56 B.R. 946, 952 (Bankr.E.D.N.Y.1986). Thus, the appropriate question may not always simply be: "What do you charge your nonbankruptcy clients?" In many cases, the court should also ask: "What is the range of rates charged by attorneys of comparable competence for comparable services in the comparable community or marketplace?"
b. The relevant community or market for testing comparability
All of which brings us to the second legal issue affecting the reasonableness of fees requested. How does one properly define the appropriate community for purposes of reviewing comparable services? The community whose standard is applied to attorneys' fees in most civil litigation is normally presumed to be the local community in which the services are rendered. See Texas Code of Professional Responsibility, DR 2-106(B)(3), State Bar Rules, art. 10, § 9, reprinted at 3 Tex.Govt.Code, Title 2, Subtitle G, appendix (Vernon 1988) ("factors to be considered as guides in determining the reasonableness of a fee include . . . (3) the fee customarily charged in the locality for similar legal services"). First Colonial somewhat more broadly directs the court to consider "the customary fee" and "awards in similar cases." In re First Colonial Corp., 544 F.2d at 1299. Many bankruptcy cases are often more regional or even national than they are local in scope, so that looking solely to the local community's range of rates would impose an unnecessarily parochial cap on the case. See In re Public Service Co. of New Hampshire, 86 B.R. 7, 11 (Bankr.D.N.H.1988). In addition, bankruptcy is sufficiently specialized that a firm with the skills necessary to meet the needs of a particular debtor might not be available in the local community. In this case, for example, the debtor required the services of a bankruptcy specialist with the expertise to move a complicated case through the bankruptcy system quickly and efficiently. The complexities of the case justified hiring a bankruptcy specialist with a national reputation, but the venue *343 for the case was clearly Waco, Texas. Limiting the "lodestar" to that customarily awarded in the Waco-Temple-Killeen market would have effectively deprived the debtor its choice of counsel. While it may well be that there are firms in that local market who could have handled the case, it cannot be denied that the Dallas firm the debtor chose achieved an extraordinarily favorable result for the estate with a minimum of litigation, and did so in a remarkably short period of time.
A firm may be justified in recovering their own normal rate in a given case, as opposed to the local rate in the city where the case is pending, when the circumstances of the case justify bringing in outside counsel, as was done here. In re Public Service Co. of New Hampshire, 86 B.R. 7, 11 (Bankr.D.N.H.1988) (Los Angeles bankruptcy firm of national reputation representing major public utility company in New Hampshire); In re Frontier Airlines, 74 B.R. 973, 977 (Bankr.D.Colo.1987) (New York counsel in a major air line case filed in Denver, Colorado); Matter of Baldwin-United Corp., 36 B.R. 401, 403 (Bankr.S.D. Ohio 1984) (major Los Angeles firm represented corporate debtor in a highly complicated case then pending in Cincinnati, Ohio); In re Atlas Automation, Inc., 27 B.R. 820, 822 (Bankr.E.D.Mich.1983) (regional firm with bankruptcy expertise took case in Flint, Michigan). The Sixth Circuit has said that ". . . courts are free to look to a national market, an area of specialization market, or any other market they believe appropriate to fairly compensate particular attorneys in individual cases." Louisville Black Police Officers Organization, Inc. v. City of Louisville, 700 F.2d 268, 278 (6th Cir.1983). With Bankruptcy Judge Yacos, this court does not intend this finding to augur an empty-headed approach to fees. In re Public Service Co. of New Hampshire, 86 B.R. at 10 n. 4 ("bankruptcy cases are to be administered as economically as possible"). Not every case warrants going outside the local community for representation.[10] When the nature of a given case in fact justifies the retention of out-of-town counsel, however, local rates should not operate as a limiting factor in determining the reasonableness of the base fee sought. Id. Moreover, even if the billing rates themselves are justified, the total bill must itself be reasonable:
The regular hourly rates simply do not become ipso facto final fee awards in this court. Retention of attorneys at high hourly rates is based not only upon the assumption that the attorneys billing at such rates have the necessary experience and competence to handle complex matters, but also upon the further assumption that attorneys billing at such high rates can normally perform their duties in fewer hours than less experienced attorneys who may bill at a lower rate.
. . .
True economy of administration in a reorganization case must be determined not by hourly rates per se but rather by the overall "bottom line," i.e., the total hours expended to hopefully accomplish a successful reorganization. . . . the total cost to the estate in terms of total dollars will normally be lower in the first instance notwithstanding the higher hourly rates.
Id. at 11, n. 7.
The facts of this case justified the retention of Rochelle & Balzerson, warranting this court to look to the "area of specialization" market within which that firm operates to evaluate the reasonableness of the fees charged. Moreover, the overall amount sought, as measured against the amount involved and the results achieved also satisfies the "bottom line" test suggested in Public Service Co. of New Hampshire. By these standards, Rochelle & Balzerson's fees are well within the range of reasonableness.
*344 C. A final note on delay in awards
The court is concerned that counsel has had to wait a long time for this decision. The delay has penalized the firm, which would otherwise have had the use of the money awarded for the past number of months (the debtor escrowed the funds necessary to pay these fees many months ago). See Graves v. Barnes, 700 F.2d 220, 223 (5th Cir.1983).[11] To compensate for that delay, the court deems it appropriate to award the firm, in addition to its fee and expenses, interest on the total of that sum from and after April 5, 1988 through the date of entry of this order, at the rate of 8.5%, a rate which this court finds approximates the rate such funds could have earned in a certificate of deposit for the term during which this decision has been pending.
So ORDERED.
NOTES
[1] What is not said in the Application is that current residents have a far greater assurance of a place to live now than they did a year before the filing, a matter of no small moment to men and women in their final years with limited resources (both physical and financial) to move elsewhere.
[2] Judge Greendyke added in a footnote that "when the Code was drafted, the concern was to make sure bankruptcy fees kept pace with fees in other areas of the law. Now, ten years later, in the eyes of many it appears that the bankruptcy bar no longer needs Congress' help." Id. at 419 n. 1.
[3]
Vigilance is required by and among court-appointed counsel in particular to enforce the standards of the Code. . . . At the least, they should inform the court in writing, as and when interim fee applications for other parties are filed, that hey have reviewed such applications carefully, indicate whether or not such applications are reasonable and whether they are based on any impermissible grounds. . . . we believe some such vehicle is necessary to screen and control any possible abuses of compensation and to compel court-appointed counsel to perform their fiduciary duty.
Id.
[4]
each United States Trustee . . . shall . . . supervise the administration of cases . . . by, whenever the United States trustee deems it to be appropriate . . . monitoring applications for compensation . . . filed under section 330 of title 11 and, whenever the United States trustee deems it to be appropriate, filing with the court comments with respect to any such applications.
28 U.S.C. § 586(a)(3)(A) (1986).
[5]
After notice . . . and a hearing, . . . the court may award . . .
11 U.S.C. § 330.
[6] Holding hearings on applications for interim compensation also benefits attorneys. It alerts attorneys early on to any difficulties the court might have with their such items as their hourly rates, the manner in which they are staffing a case, the manner in which they are documenting their services, or the master whom they are serving. Should these issues be left to be raised by the judge for the first time at the hearing on the final application for compensation (long after interim compensation has been paid, booked by the firm, and distributed to partners), the firm could find itself facing an unpleasantly large and equally unexpected disgorgement order. See In re Kendavis Industries International, Inc., 91 B.R. 742, 762 (Bankr.N.D.Tex.1988) (court-ordered disgorgement of approximately $2 million in fees previously paid in interim compensation).
[7] One legitimate use of such conferences, for example, might be the structuring of the plan and the development of the disclosure statement, tasks which usually require contemporaneous input from all professionals involved in the case.
[8] The court also recommends that fee applications be accompanied by an affidavit from the client, be that the debtor's estate, the trustee, or the chairman of the creditors' committee, confirming that person's review of the application prior to filing and affirming that the fee requested is, in his or her opinion, reasonable and justified (i.e., represents actual and necessary services rendered).
[9] The legislative history states that
The compensation is to be reasonable, for actual necessary services rendered, based on the time, the nature, the extent, and the value of the services rendered, and on the cost of comparable services other than in a case under the bankruptcy code. The effect of the last provision is to overrule In re Beverly Crest Convalescent Hospital, Inc., [548 F.2d 817 (9th Cir.1977)], which set an arbitrary limit on fees payable, based on the amount of a district judge's salary, and other similar cases that require fees to be determined based on notions of conservation of the estate and economy of administration. If that case were allowed to stand, attorneys that could earn much higher incomes in other fields would leave the bankruptcy arena . . . the bankruptcy field would be occupied by those who could not find other work and those who practice bankruptcy law only occasionally almost as a public service. . . . Bankruptcy specialists . . . if required to accept fees in all of their cases that are consistently lower than fees they could receive elsewhere, will not remain in the bankruptcy field.
H.R.Rep. No. 595, 95th Cong, 2d Sess 329-330 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5963, 6286.
[10] Many has been the case filed in the Waco division, for example, that involved the reorganization of businesses running the gamut from bus companies through farm machinery manufacturers through one of the largest Arabian horse farms in the worldall competently handled by counsel from within the division.
[11]
The concept of compensation for delay in receipt of payment is founded on the principle that "payment today for services rendered long in the past deprives the eventual recipient of the value of the use of the money in the meantime, which use, particularly in an inflationary era, is valuable." Copeland v. Marshall, 641 F.2d 880, 893 (D.C.Cir.1980) (en banc).
Graves v. Barnes, 700 F.2d 220, 223 (5th Cir. 1983).
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97 B.R. 730 (1989)
In re Phillips B. HOYT, Debtor.
Phillips B. HOYT, Plaintiff,
v.
Lis HOYT, Defendant.
Bankruptcy No. 5-87-00524.
United States Bankruptcy Court, D. Connecticut.
March 23, 1989.
John Serrano, Hunt & Leibert, Hartford, Conn., for plaintiff/debtor.
Douglas J. McDade, Hartford, Conn., for defendant.
MEMORANDUM AND ORDER ON MOTION FOR SUMMARY JUDGMENT
ALAN H.W. SHIFF, Bankruptcy Judge.
BACKGROUND
The plaintiff and the defendant were married on September 3, 1961. On October 8, 1985, the plaintiff petitioned the Connecticut Superior Court for a dissolution of the marriage, which the defendant contested. On December 22, 1986, the state court entered a judgment dissolving the marriage and inter alia ordered the plaintiff to transfer all of his right, title and interest in certain real estate and pay one-third of the net proceeds from his grandfather's trust to the defendant. Memorandum of Law in Support of the Defendant's Motion for Summary Judgment, Exhibit A at 2-3.[1] The plaintiff conveyed his interest in the real property to the defendant by a quitclaim deed dated June 12, 1987.
The plaintiff filed a voluntary petition under chapter 13 of the Bankruptcy Code on July 16, 1987 and on July 28, 1987, commenced this adversary proceeding alleging that the transfers[2] were fraudulent *731 under Code §§ 548(a)(2) and 544(b).[3] On September 16, 1988, the defendant moved for summary judgment, contending that the plaintiff received reasonably or substantially equivalent value in exchange for the transfers ordered by the state court after trial and that the judgment must be given preclusive effect in this court. The plaintiff contends that neither res judicata nor collateral estoppel are applicable because the issue of whether the plaintiff received "reasonably equivalent value" or "substantial consideration" was not litigated in state court, and even if it was, the creditors of his bankruptcy estate were not parties or privies in the dissolution proceeding.
DISCUSSION
Bankruptcy Rule 7056 states that Rule 56 Fed.R.Civ.P. applies in adversary proceedings. Rule 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings . . . show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law". It is well settled in this circuit that in determining whether to grant summary judgment, the court "cannot try issues of fact but can only determine whether there are issues of fact to be tried." Empire Elec. Co. v. United States, 311 F.2d 175, 179 (2d Cir.1962) (emphasis in original). The moving party has the burden of showing that there is no genuine issue of material fact, Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 1608, 26 L. Ed. 2d 142 (1970); Katz v. Goodyear Tire and Rubber Co., 737 F.2d 238, 244 (2d Cir.1984), and all reasonable inferences are to be drawn and all ambiguities are to be resolved in favor of the non-moving party. Katz, supra, 737 F.2d at 244.
Title 28 U.S.C. § 1738 provides: "[S]tate 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, Territory or Possession from which they are taken." See Allen v. McCurry, 449 U.S. 90, 96, 101 S. Ct. 411, 415, 66 L. Ed. 2d 308 (1980). There is, however, "nothing in § 1738 that prohibits a federal court from giving collateral estoppel effect to a state court judgment, even if the state court would not." Falk v. Hecker (In re Falk), 88 B.R. 957, 961 (Bankr.D.Minn.1988).
1.
Res Judicata
Res judicata ensures the finality of decisions by barring further claims on the same cause of action by parties or their privies. Brown v. Felsen, 442 U.S. 127, 131, 99 S. Ct. 2205, 2209, 60 L. Ed. 2d 767 (1979). See also Corey v. Avco-Lycoming Division, 163 Conn. 309, 316-17, 307 A.2d 155 (1972), cert. denied, 409 U.S. 1116, 93 S. Ct. 903, 34 L. Ed. 2d 699 (1973); Bridgeport Hydraulic Co. v. Pearson, 139 Conn. 186, 195-96, 91 A.2d 778 (1952). In applying that doctrine the court of appeals for this circuit has held that
the circumstance that several operative facts may be common to successive actions between the same parties does not mean that the claim asserted in the second is the same claim that was litigated in the first, and that litigation of the second is therefore precluded by the judgment in the first. Whether or not the first judgment will have preclusive effect depends in part on whether the same transaction or connected series of transactions is at issue, whether the same evidence is needed to support both claims, and whether the facts essential to the second were present in the first.
N.L.R.B. v. United Technologies Corp., 706 F.2d 1254, 1259-60 (2d Cir.1983) (causes of action were not the same though based on the same contract provisions and work rules where events giving rise to two proceedings occurred at different places *732 and times, and concerned different employees engaged in different acts and different employer response to those acts). See also Tucker v. Arthur Andersen & Co., 646 F.2d 721, 727-28 (2d Cir.1981); Herendeen v. Champion Int'l Corp., 525 F.2d 130, 134-35 (2d Cir.1975); Bridgeport Hydraulic Co., supra, 139 Conn. at 197, 91 A.2d 778.
Unlike the adversary proceeding here, the complaint in state court sought a dissolution of the marriage. The economic issues were only reached by that court after it had "granted" a "decree of dissolution". See Conn.Gen.Stat.Ann. § 46b-40, -81, -82 (West 1986). This is not the same cause of action, and the doctrine of res judicata is therefore not applicable.
2.
Collateral Estoppel
Collateral estoppel bars "the relitigation of an issue of law or fact that was raised, litigated, and actually decided by a judgment in a prior proceeding between the parties, if the determination of that issue was essential to the judgment, regardless of whether or not the two proceedings are based on the same claim." United Technologies Corp., supra, 706 F.2d at 1260. See also Tucker, supra, 646 F.2d at 728; Stone v. Stone (In re Stone), 90 B.R. 71, 75 (Bankr.S.D.N.Y.1988); P.X. Restaurant, Inc. v. Town of Windsor, 189 Conn. 153, 161-62, 454 A.2d 1258 (1983); Slattery v. Maykut, 176 Conn. 147, 156-57, 405 A.2d 76 (1978).
a. Same Issue
Code § 548 provides in pertinent part:
(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily
. . . .
(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(B)(1) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation. . . .
. . . .
(d)(2)(A) "value" means . . . satisfaction . . . of a present or antecedent debt of the debtor. . . .
(Emphasis added). Code § 544(b) permits the trustee to "avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under § 502. . . ." Connecticut's fraudulent conveyances statute is applicable here and provides:
All fraudulent conveyances . . . made or contrived with intent to avoid any debt or duty belonging to others, shall, notwithstanding any pretended consideration therefor, be void as against those persons only, their heirs, executors, administrators or assigns, to whom such debt or duty belongs.
Conn.Gen.Stat.Ann. § 52-552 (West 1960). A conveyance is fraudulent under the state statute "`if made without substantial consideration by a person who is or will be thereby rendered insolvent.'" United States v. Edwards, 572 F. Supp. 1527, 1534 (D.Conn.1983) (quoting Molitor v. Molitor, 184 Conn. 530, 536, 440 A.2d 215 (1981)). See also Town Bank & Trust Co. v. Benson, 176 Conn. 304, 307, 407 A.2d 971 (1978); Genovese Coal and Mason's Material Co. v. River Bend Builders, Inc., 146 Conn. 48, 51-52, 147 A.2d 193 (1958); White v. Amenta, 110 Conn. 314, 318-19, 148 A. 345 (1930).
The quoted statutory provisions require a two pronged test for a determination that a transfer may be avoided, to wit: adequate consideration and insolvency. Therefore, the focus of this controversy is whether the issue of reasonably equivalent value or substantial consideration for the property transferred was raised, litigated, and actually decided by the state court. If it was, the remaining insolvency issue is *733 irrelevant in this summary judgment proceeding.
The plaintiff argues that the transfers ordered by the state court were intended to accomplish a division of marital property. The defendant, on the other hand, contends that the transfers were intended as an award of alimony. The distinction is of no material significance here.
Under Connecticut law, an award of alimony under Connecticut General Statutes § 46b-82 is based upon one spouse's continuing duty to support the other. Dubicki v. Dubicki, 186 Conn. 709, 714 n. 2, 443 A.2d 1268 (1982). Therefore, a transfer, calculated by the state court to satisfy a support obligation, would not deplete the estate since the payment would be matched by an equivalent reduction in that spouse's debt. See Matter of Ottaviano, 63 B.R. 338, 341 (Bankr.D.Conn.1986); Meister v. Jamison (In re Jamison), 21 B.R. 380, 382 (Bankr.D.Conn.1982).
The result would not change if the state ordered transfers were intended to divide the marital property. Under Connecticut law, the court
(a) . . . may assign to either the husband or wife all or any part of the estate of the other.
. . . .
(c) In fixing the nature and value of the property, if any, to be assigned, the court . . . shall consider the length of the marriage, the causes for the annulment, dissolution of the marriage or legal separation, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities and needs of each of the parties and the opportunity of each for future acquisition of capital assets and income. The court shall also consider the contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates.
Conn.Gen.Stat.Ann. § 46b-81(a), (c) (West 1986). The standard Connecticut courts use to award alimony and assign property are nearly identical; the "distinguishing characteristic of property assignment is the court's duty to consider the `contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates.'" Pasquariello v. Pasquariello, 168 Conn. 579, 583, 362 A.2d 835 (1975) (quoting Conn.Gen.Stat. § 46-51 [predecessor statute to § 46b-81]).
Assuming the transfer was a court ordered division of property, the judgment, which took into account the circumstances of the parties and the marriage in assigning a percentage of marital property to each, relieved the plaintiff of mortgage and loan obligations in exchange for the defendant's receipt of whatever interest the plaintiff had in the real estate and one-third of what he will receive from the trust.[4] In essence then, under the division of property scenario, the state court found that the value of releasing the plaintiff from the mortgage and loan obligations was reasonably equivalent to the transfer of whatever property interest he held in the real estate and the trust. Similarly, if the transfers were intended as alimony, the plaintiff's support obligation was equated to those transfers. Thus, whether the transfers were alimony or a division of property, the result was a judgment calculated, under the factors established by statute, to achieve an equation of reasonably equivalent value, which subsumes the concept of substantial consideration.
b. Same Parties
Collateral estoppel "[protects] litigants from the burden of relitigating an identical issue with the same party or his privy. . . ." Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326, 99 S. Ct. 645, 649, 58 L. Ed. 2d 552 (1979). See also P.X. Restaurant, Inc., supra, 189 Conn. at 161, 454 A.2d 1258; Slattery, supra, 176 Conn. at 156-57, 405 A.2d 76. The plaintiff argues that collateral estoppel is not applicable here because the creditors of his bankruptcy estate were not parties or privies in the dissolution proceeding. The plaintiff relies on Blackwell *734 v. Wallace (In re Wallace), 66 B.R. 834 (Bankr.E.D.Mo.1986), in which the court held that principles of collateral estoppel and res judicata do not apply in a fraudulent transfer or preference action because creditors are not parties to a plaintiff's dissolution proceeding. See also In re Teltronics Serv., Inc., 18 B.R. 705, 706 (E.D.N.Y.1982). It is implicit in the plaintiff's argument that as a chapter 13 debtor, he has a fiduciary duty to the creditors of his bankruptcy estate which was lacking in the state court dissolution proceeding, and that as a consequence, there is no privity between him in his representative capacity here and him in his capacity as plaintiff there.
This court does not take such a restrictive view of privity. As a matter of public policy, collateral estoppel should be applied to "relieve parties of the cost and vexation of multiple suits, conserve judicial resources, and, by preventing inconsistent decisions, encourage reliance on adjudication." Allen, supra, 449 U.S. at 94, 101 S.Ct. at 414. Privity has been defined as a "`mutual or successive relationship to the same rights of property.'" Price v. Worldvision Enter., Inc., 455 F. Supp. 252, 259 (S.D.N.Y.1978) (quoting Litchfield v. Goodnow, 123 U.S. 549, 550-51, 8 S. Ct. 210, 210-11, 31 L. Ed. 199 (1887)), aff'd, 603 F.2d 214 (2d Cir.1979). See also Donovan v. Estate of Fitzsimmons, 778 F.2d 298, 301 (7th Cir.1985) ("Strict identity of the parties is not necessary to achieve privity. Privity applies to successive parties who adequately represent the same legal interests."); Vulcan, Inc. v. Fordees Corp., 658 F.2d 1106, 1109 (6th Cir.1981), cert. denied, 456 U.S. 906, 102 S. Ct. 1752, 72 L. Ed. 2d 162 (1982) ("`Privity' is an ambiguous term, a shorthand designation for those persons who `have a sufficiently close relationship with the record parties to be bound by the judgment,'" (quoting Note, Developments in the Law Res Judicata, 65 Harv.L.Rev. 818, 856 (1952)).
It is inconceivable that the plaintiff's interest in protecting his property rights is greater now that he has a bankruptcy estate to consider than it was in the dissolution proceeding. Instead, I find that the plaintiff's interest in this court is the same as it was in state court and that the plaintiff in his capacity as debtor is in privity with his status as plaintiff in the dissolution action. I accordingly conclude that collateral estoppel is applicable.
This result comports with clearly defined public policy that questions regarding divorce are properly left to the states, with the bankruptcy court's role reduced to a determination of whether what was awarded in state court is or is not in the nature of alimony. See Pauley v. Spong (In re Spong), 661 F.2d 6, 9 (2d Cir.1981). It is unlikely that Congress intended the avoiding powers under §§ 544 and 548 to be used to readjust alimony or a division of property ordered by a state court. See Harman v. Sorlucco (In re Sorlucco), 68 B.R. 748, 754 (Bankr.D.N.H.1986). To conclude otherwise would enable a dissatisfied spouse to retry a dissolution action in this court when it is clear that the proper forum for dissatisfied litigants is in the state's appellate courts.
CONCLUSION
For the foregoing reasons, the plaintiff is precluded from litigating the issue of "reasonably equivalent value" or "substantial consideration" for the transfers ordered by the state court, there is no issue to be tried by this court, and the defendant's motion for summary judgment is granted.
IT IS SO ORDERED.
NOTES
[1] The plaintiff alleges that the judgment required him to assume full responsibility for the first and second mortgages on the real estate and the loan to Norman Kamerman. Debtor's Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment at 1-2. This allegation is inconsistent with the terms of the judgment and is not explained.
[2] At oral argument, the plaintiff contended that because his interest in the trust was contingent, there had been no transfer. This argument is self-defeating. If there was no transfer, the relief sought is not available under § 548 or § 544. Further, § 101(50) of the Code defines a transfer to include "every mode . . . absolute or conditional . . . of disposing of or parting with property or with an interest in property. . . ." The legislative history of § 101(50) states that the "definition of `transfer' is as broad as possible." H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 314 (1977); S.Rep. No. 95-989, 95th Cong., 2d Sess. 27 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5813, 6271.
[3] The plaintiff's amended complaint does not specifically identify the transfers to be avoided. At oral argument, the parties agreed that the transfers involved are of the plaintiff's interest in the real estate and his one-third interest in the trust.
[4] There was a first and second mortgage on the house and a loan from one Norman Kammerman.
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991 S.W.2d 887 (1999)
AMERICAN AIRLINES EMPLOYEES FEDERAL CREDIT UNION, Appellant,
v.
Tim A. MARTIN, Appellee.
No. 2-98-044-CV.
Court of Appeals of Texas, Fort Worth.
March 4, 1999.
*890 Vial, Hamilton, Koch & Knox, L.L.P., Stephen L. Baskind, Karen K. Fitzgerald, and Tex Lezar, Dallas, for Appellant.
Lewis & Hutchinson, P.C., Kern A. Lewis, Fort Worth, for Appellee.
Panel B: LIVINGSTON, DAUPHINOT, and HOLMAN, JJ.
OPINION
TERRIE LIVINGSTON, Justice.
In 1990, Tim Martin, appellee, opened a savings account at American Airlines Employees Federal Credit Union ("Credit Union"). Four years later, the Credit Union adopted a deposit agreement shortening the statutorily prescribed one-year time period in which a customer could assert claims to 60 days.
On June 10, 1995, Molly Blair, Martin's girlfriend, fraudulently added herself as co-owner of Martin's savings account. Over the next six months, Blair transferred approximately $49,800 from Martin's account to her own account.
The Credit Union mailed Martin notices of these transactions, as well as quarterly statements showing all account activity for the period. Martin failed to notice the addition of Blair as co-owner of the account or any of the transfers until December 20, 1995, 63 days after the Credit Union mailed his last quarterly statement. We are asked to determine whether Martin's failure to report the withdrawals within 60 days precludes his recovery under Texas Business and Commerce Code (the "UCC") section 4.406 as modified by the parties' 1994 deposit agreement. The trial court held it did not, and we affirm its judgment.
BACKGROUND
Martin opened a savings account at the Credit Union in July of 1990. Martin was the sole owner of the account and the only authorized signatory. When Martin opened the account, the Credit Union did not provide him with a deposit agreement or other information regarding the account. However, Martin agreed to be bound by the then-existing deposit agreement. He also agreed to any changes, modifications, amendments, or future deposit agreements adopted by the Credit Union.
In May 1994, using individual quarterly statements and the membership newsletter, the Credit Union notified members that it had adopted a new deposit agreement. The Credit Union made copies of the agreement available in its various branches; however, it did not mail its members a copy of the new deposit agreement unless requested.
Sometime prior to June 1995, Martin began dating and living with Molly Blair. Blair was also a member of the Credit Union. On June 2, 1995, Blair executed a "Membership Account Change Card" for her account, giving Martin joint ownership. On June 10, the Credit Union received a reciprocal request adding Blair as joint owner of Martin's account. Before making either change, the Credit Union verified the personal and account information contained in the requests, compared signatures to those on the member's original signature card, and changed the ownership status of both accounts.
Almost immediately, Blair began withdrawing funds from Martin's account. Just two days after the Credit Union received the request to change Martin's account status, Blair transferred $5,000 to her account. Between June 12 and November 16, 1995, Blair completed fourteen transfers totaling $49,800.
Blair only made two of these transfers in person; the remaining transfers were made over the telephone. Blair simply telephoned the Credit Union, identified herself with some personal information, and transferred money from Martin's account directly to her account. As part of each of these transactions, the Credit Union completed a "journal voucher," detailing *891 the transaction. The Credit Union mailed a copy of each voucher to Martin.
In addition to the vouchers, the Credit Union also mailed two quarterly statements covering the June through September time periods. These quarterly statements showed 10 of the 14 transfers, as well as the addition of Blair as co-owner of Martin's account. Martin testified that he never saw the statements or vouchers, although the evidence is conflicting as to why.
On December 20, 1995, while making a deposit, Martin detected the discrepancy in the account's balance and immediately informed the Credit Union of the variance. Later he filed suit, seeking recovery of the $49,800.
The parties tried the case to the court. Martin's primary complaint at trial was that the Credit Union had breached the deposit agreement and former UCC sections 3.401, 3.404(a), 4.401(a)[1] by transferring funds to Blair's account. The Credit Union denied liability. Based on former section 4.406, the Credit Union contended that by sending the journal vouchers and quarterly statements to Martin, coupled with his failure to examine these documents and report the transfers, Martin's recovery is barred.
The Credit Union advances a three-fold defense to Martin's recovery based on former section 4.406.[2] First, it argues that Martin is barred from recovery because he breached his duty to discover and report Blair's unauthorized withdrawals within a statutorily-prescribed absolute notice period, as modified by the deposit agreement. See former section 4.406(d) (currently codified at section 4.406(f)). Second, the Credit Union contends that Martin's failure to exercise reasonable care and promptness in examining and discovering unauthorized activity bars his recovery. See former section 4.406(b)(1) (currently codified at section 4.406(f)). Third, the Credit Union asserts that former section 4.406(b)(2) places a 14-day limitation on Martin's recovery, separate and apart from the 60-day notice period. See former section 4.406(b)(2) (currently codified at section 4.406(d)(2)).
Absolute Notice PeriodFormer Section 4.406(d)
The trial court entered findings of facts and conclusions of law. It found (1) there was no unauthorized signature used to obtain funds from Martin's account, (2) Blair gave no written instructions for any transfers from Martin's account, (3) the 60-day notice provision in the 1994 deposit agreement was not conspicuous, (4) the 60-day *892 notice provision was vague, and (5) the 60-day notice provision was ambiguous.[3] In addition, the court concluded the 1994 deposit agreement provisions modifying the one-year statutory notice provision were vague, ambiguous, and inconspicious and that Martin did not knowingly waive his statutory one-year notice period.
The Credit Union challenges the legal sufficiency of the court's finding that no unauthorized signature was used to obtain the funds and that Blair made no written instructions to transfer funds. The Credit Union also asserts that Martin's failure to discover and report unauthorized signatures within an "absolute notice period" bars his recovery.
Findings of fact entered in a case tried to the court have the same force and dignity as a jury's answers to jury questions. See Anderson v. City of Seven Points, 806 S.W.2d 791, 794 (Tex.1991). The trial court's findings of fact are reviewable for legal and factual sufficiency of the evidence to support them by the same standards that are applied in reviewing evidence supporting a jury's answer. See Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996); Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex.1994). However, conclusions of law may not be challenged for factual sufficiency, but may be reviewed to determine their correctness based upon the facts. See Forbis v. Trinity Universal Ins. Co., 833 S.W.2d 316, 319 (Tex.App. Fort Worth 1992, writ dism'd).
The Credit Union claims that Martin was required to report the transfers within a prescribed absolute notice period, and that that period was 60 days. Former section 4.406(d) provided:
Without regard to care or lack of care of either the customer or the bank a customer who does not within one year from the time the statement and items are made available to the customer (Subsection (a)) discover and report his unauthorized signature or any alteration on the face or back of the item ... is precluded from asserting against the bank such unauthorized signature ... or such alteration. [emphasis added.][4]
Former section 4.406(d), therefore, provided an absolute one-year period in which a customer had to assert that an item contained an unauthorized signature. However, the UCC, with few restrictions, allows parties to modify its provisions. See former section 4.103(a).[5]
The Credit Union asserts that the parties modified the UCC's terms and shortened the time period in which a customer was required to report unauthorized signatures. The Credit Union claims the 1994 deposit agreement reduced the limitation period from one year to 60 days.[6] The amended deposit agreement provided that all objections were "waived unless made in writing to us, and received on or before the sixtieth (60 th) day following the date the statement is mailed, subject to applicable law." Based on the modified 60-day period, the Credit Union argues that Martin's recovery is limited to $5,300.[7]
*893 To avail itself of former section 4.406(d)'s defense, the Credit Union was required to either send the account holderMartina statement accompanied with items paid in good faith, hold the statement and items at his request, or make the statement and items otherwise reasonably available. See former section 4.406(a). Once any of these triggering events occurred, the account holderMartinhad to report any unauthorized signatures or alterations within a prescribed period or lose the right to complain of such. Central to this discussion is whether the transfers were obtained with an unauthorized signature. See former section 4.406(d); see also La Sara Grain Co. v. First National Bank of Mercedes, 673 S.W.2d 558, 564 (Tex.1984) (holding that former section 4.406(d) provided no defense when funds were obtained without the use of an unauthorized signature). The Credit Union contends that the journal vouchers generated with each withdrawal contain "unauthorized signatures" for the purposes of section 4.406. We disagree.
The supreme court defines an unauthorized signature to include: a forgery or other signature made without actual, implied, or apparent authority. See La Sara Grain Co., 673 S.W.2d at 562; see also TEX. PENAL CODE ANN. § 32.21(a)(1)(A)(i) (Vernon 1994) (defining forgery as execution of any writing that purports to be the act of another who did not authorize the act).
The Credit Union contends that the tellers' initials on the journal vouchers were the unauthorized signatures of the Credit Union's tellers as agents of the account holder. The Credit Union argues that the tellers' signatures were unauthorized because they were made at Blair's request, and Martin had not authorized the transfer of funds.
The Credit Union's focus is misplaced. Its argument focuses on the subsequent clerical actions of its employees rather than Martin's or Blair's actions. Blair made 12 of the transfers orally by telephone with no accompanying written request that funds be transferred. While the Credit Union might not have actually transferred the funds until the vouchers were processed, this internal procedure simply created a record of the completed transaction. This procedure did not transform the oral request into a signature; it created a receipt. See TEX. BUS. & COM. CODE ANN. § 1.201(39) (Vernon 1994) (defining "signed" as any symbol executed or adopted by a party with present intention to authenticate a writing).
Admittedly, initials are sufficient to satisfy authentication. See id. cmt. 39. However, the question is whether the "symbol was executed or adopted by a party with present intention to authenticate the writing." Id. We believe the executing or adopting party is the person requesting the transfer of funds, not the Credit Union's employees. Thus, the question is whether Blair intended for the tellers' initials to authenticate the writing.[8] Here, there is no evidence that Blair knew of the tellers' initials on the journal vouchers. Therefore, Blair did not adopt the "symbol" (the tellers' initials) "with present intention to authenticate [the] writing." Id. Furthermore, the employee has no reason to authenticate a writing. Rather, the employee would be required to rely on an authenticated writing before paying out funds.
*894 Further, in La Sara Grain Co., the Texas Supreme Court stated that former section 4.406(d) provided no defense regarding an oral transfer of funds because no unauthorized signature was used to obtain the withdrawal. See id. at 564. This was based on the court's conclusion that the contract between the bank and La Sara "did not authorize the bank to disburse funds ... at the oral request of Jones" (the defrauding party). Id. Thus, a "signature" under 4.406 may depend on the parties' deposit agreement. Nonetheless, the Credit Union does not offer any evidence that the parties agreed to allow oral transfers. In fact, the 1994 deposit agreement states, "You authorize us to recognize any of the signatures set forth on the [Membership] Application in the payment of funds or the transaction of any business for your accounts." While the Credit Union's transfers of funds were not authorized by Martin, they also were not evidenced by signatures, as that term is defined in the UCC or in the 1994 deposit agreement.
Because the tellers' initials were not signatures under former section 4.406(d), and because Blair did not forge Martin's signature, sign her name, or execute or adopt any symbol or mark to authenticate the writing, we hold that no unauthorized signature was used to transfer the funds. Thus, the trial court correctly concluded that the transfers did not involve an unauthorized signature.
On two other occasions, July 12, and July 28, Blair made transfers in person. When initiating these transfers, Blair was asked to show identification, and after a teller confirmed her identity, funds were transferred to her account. As with the telephone transfers, journal vouchers were generated and signed by the teller. We find nothing in the record, and the Credit Union points to no evidence, showing that Blair forged Martin's signature, signed her name, or executed or adopted any symbol or mark to authenticate the writing to effectuate these transfers. Thus, although made in person, these transfers were otherwise identical to the telephone transfers. We hold the trial court's conclusion that the "in-person" transfers were not obtained with an unauthorized signature is likewise correct. Because no unauthorized signature was used to effectuate either the telephone or in-person transfers, former section 4.406(d) is not a defense available to the Credit Union.
The Credit Union argues that federal case law and legal commentators support its position that former section 4.406's defense is applicable. In Minskoff v. American Express Travel Related Servs. Co., 98 F.3d 703 (2d Cir.1996), the court held a corporation and its president liable for a portion of debt created by the unauthorized use of a fraudulently obtained credit card. See id. at 710. There, the court held the wrongdoer's use of the credit cardcoupled with the cardholder's failure to examine his credit card statements and subsequent payments by the corporation created an appearance of authority that the wrongdoer was authorized to use the credit card. See id. at 709. In its discussion of whether Minskoff's actions created apparent authority in the wrongdoer to use the credit card, the court stated that Minskoff had a duty to examine his credit card statements and analogized this duty to the duty to examine bank statements found in section 4.406.[9] Because Minskoff was decided on the issue of apparent authority, and did not address the issue of "unauthorized signature," we do not find it applicable.
Next, the Credit Union urges that section 4.406's defense is available because, regardless of whether the only hard copy evidencing a transaction is produced by the credit union on its statement sent to the customer, it is still an "item." See 6 *895 WILLIAM D. HAWKLAND, ET AL., UNIFORM COMMERCIAL CODE SERIES § 4.406:02, at 446. This argument addresses whether the transactions are "items" and not whether an unauthorized signature was used to obtain funds; therefore, it is irrelevant to the unauthorized signature issue.
Although not raised as a separate point, the Credit Union also contends that Blair's unauthorized signature on the "Membership Account Change Card," that changed Martin's account to co-ownership status, provided an unauthorized signature upon which it may assert a section 4.406(d) defense.
While it is clear that the account card contained an unauthorized signature, an unauthorized signature alone is insufficient to implicate section 4.406(d)'s protection. A second requirement is that the unauthorized signature be on an "item." See former section 4.406(d). Former section 4.104(a)(7) defined an item as, "any instrument for the payment of money even though it is not negotiable but does not include money."[10] An instrument is a signed writing that is made payable to "order" or "bearer" and contains "an unconditional promise to pay a sum certain on demand or at a specified time."[11] The account card contained neither; therefore, it was not an "item." Accordingly, Martin's forged signature on the Membership Account Change Card is an insufficient basis for the Credit Union's 4.406 defense. We overrule the Credit Union's first and second points.
REASONABLE CARE AND PROMPT EXAMINATION
In its third and fourth points, the Credit Union asserts that former section 4.406(b)(1) also bars Martin's claim for failure to exercise reasonable care in examining his statements and promptly reporting the unauthorized activity. Here, the Credit Union challenges the following findings of fact:
the signature on the Membership Account Change Card is so dissimilar to Martin's signature card that any person exercising reasonable care during a comparison would recognize the difference;
an adequately trained employee exercising reasonable care would have recognized the account change card was forged;
the Credit Union did not adequately train either its temporary or permanent employees in signature comparison;
the Credit Union failed to exercise reasonable care or follow commercial standards in its acceptance of the account change card;
the Credit Union was negligent in processing the account change card;
the Credit Union breached the deposit contract;
all information required on the account change card is reasonably available to the public;
no unauthorized signature was used to obtain funds from Martin's account;
Blair gave no written instructions for any transfers from Martin's account;
the Credit Union's conduct was a breach of the deposit agreement;
the Credit Union's conduct was a breach of its implied promise to disburse funds only on Martin's authority;
it is not difficult for an unauthorized person to add themselves to an account under the Credit Union's existing policies and procedures;
the 60-day notice provision in the deposit agreement was not conspicuous;
the 60-day notice provision was vague;
*896 the 60-day notice provision was ambiguous;
Martin never agreed to the 60-day notice provision; and
Martin did not intentionally relinquish his right to a one-year notice provision.
In addition, the Credit Union challenges the following conclusions of law:
the deposit agreement provisions modifying Martin's statutory notice provision were vague, ambiguous, and inconspicious;
Martin did not knowingly waive his statutory one-year notice period;
the Credit Union breached the contract with Martin;
the Credit Union could not require Martin to comply with additional terms of the contract; and
the Credit Union breached its implied promise to recognize Martin's signature on documents or instruments.
To clarify the distinction among the Credit Union's points, in points one and two, the Credit Union contended Martin's claim was barred under former section 4.406(d)failing to notify the Credit Union within an absolute notice period. In points three and four, the Credit Union contends that Martin failed to exercise reasonable care in examining his statements and to promptly notify the Credit Union within a reasonable time as required by 4.406(b).
Former section 4.406(b)(1) provided:
[i]f the bank establishes that the customer has failed with respect to an item to comply with the duties imposed on the customer by Subsection (a) [prompt examination and reporting of unauthorized signatures] the customer is precluded from asserting against the bank... [the] unauthorized signature or alteration on the item if the bank also establishes that it suffered a loss by reason of such failure....[12]
Thus, former section 4.406(b) charged a depositor with a duty of reasonable care to examine and promptly report the discovery of any unauthorized signature or any alteration. See La Sara Grain Co., 673 S.W.2d at 561; McDowell v. Dallas Teachers Credit Union, 772 S.W.2d 183, 188 (Tex.App.Dallas 1989, no writ). If the depositor failed to comply with this duty and the bank suffered a loss, then the bank was protected from the loss. See La Sara Grain Co., 673 S.W.2d at 561-62.
The Credit Union contends that Martin breached his duty; therefore, section 4.406(b)(1) protects it from loss. Again, we disagree. Martin's duty was to discover "unauthorized signatures" and as previously discussed, no unauthorized signature was used to effectuate either the telephone or in-person transfers. Therefore, the Credit Union suffered no loss as a result of an unauthorized signature. Consequently, the section 4.406(b)(1) defense is not available to the Credit Union. We overrule the Credit Union's third and fourth points.
REPEATER RULE
In point five, the Credit Union challenges the same findings of fact and conclusions of law as in points three and four but attacks them based on former section 4.406(b)(2). Former section 4.406(b)(2)[13] precluded a customer from asserting a claim against a bank based on:
an unauthorized signature ... by the same wrongdoer on any other item paid in good faith by the bank after the first item and statement was available to the customer for a reasonable period not exceeding fourteen calender days and before the bank receives notification *897 from the customer of any such unauthorized signature....[14]
The Credit Union contends that because Blair was the "same wrongdoer" on all of the underlying transactions, this defense is implicated and Martin was required to report the transfers within 14 days after his quarterly statements were made available. Because Martin failed to report the transfers within 14 days, the Credit Union contends that he is barred from asserting his claim. We disagree.
The Credit Union's repeater rule defense suffers the same defect as its absolute notice period defense. Like the absolute notice period defense, former section 4.406(b)(2) required that an unauthorized signature be used in obtaining the funds. Thus, former section 4.406's repeater rule defense is not available to the Credit Union. We overrule the Credit Union's fifth point.
In its sixth point, the Credit Union asserts that Martin failed to establish that the Credit Union did not exercise ordinary care in processing the transfers. The resolution of this point also affects whether former section 4.406 was an available defense to the Credit Union. Former sections 4.406(b)(1) and (b)(2) provided defenses to a bank's liability, but former section 4.406(c) acted as a counter-measure to either defense by requiring the bank to use ordinary care in paying items. Thus, if Martin established that the Credit Union did not exercise ordinary care, the Credit Union loses those defenses. Because the Credit Union's sixth point is predicated on the application of either former section 4.406(b)(1) or (b)(2)'s defense, and the Credit Union is not entitled to either, the Credit Union's sixth point is overruled.
CONTRACTUAL CLAIM OR NEGLIGENCE
In point seven, the Credit Union argues that even if it is not afforded a defense under section 4.406, Martin has failed to establish a contractual breach or a negligence-based cause of action sufficient to recover. Said another way, the Credit Union challenges the trial court's findings of fact and conclusions of law that establish the Credit Union breached the deposit agreement and its implied promise to disburse funds only in accordance with Martin's instructions.
The Credit Union is again challenging the identical findings of fact and conclusions of law as those challenged in its former section 4.406(b)(1)reasonable care and prompt examinationdefense.
The Credit Union's argument poses two possible interpretations. First, it may be interpreted as a challenge to both the legal and factual sufficiency of the evidence to support the court's finding that the Credit Union breached the deposit agreement. Second, it may also be interpreted as a challenge to the court's findings and conclusions that the absolute 60-day provision is not a contractual limitation on Martin's recovery, even if the Credit Union breached the deposit agreement. Although its argument suggests the latter, we will address both.
We begin by addressing whether the evidence both legally and factually supports the court's finding that the Credit Union breached the deposit agreement. Essential to the breach of contract issue are the court's findings that (i) Martin, as the sole owner of the account, did not authorize any of the transfers made by Blair, (ii) the Credit Union's conduct was a breach of its deposit agreement, and (iii) the Credit Union's conduct was a breach of its implied promise to disburse funds only upon Martin's authorization.
Findings of fact have the same force and dignity as a jury's answers to jury questions. See Anderson, 806 S.W.2d at 794. *898 Unchallenged findings of fact are binding unless the contrary is established as a matter of law or there is no evidence to support the finding. See McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex. 1986). Challenged findings of fact are reviewable for legal and factual sufficiency of the evidence to support them by the same standards that are applied in reviewing evidence supporting a jury's answer. See Ortiz, 917 S.W.2d at 772. However, conclusions of law may only be reviewed to determine their correctness based upon the facts. See Forbis, 833 S.W.2d at 319.
When a customer deposits funds in a bank, the bank impliedly agrees to disburse those funds in accordance with the customer's instructions. See La Sara Grain Co., 673 S.W.2d at 564 (citing former sections 3.404(a), 4.401(a)). The Credit Union did not challenge the court's finding of fact number 32, where the trial court found that Martin, the sole owner of the account, did not authorize any of Blair's transfers. This finding is supported by Martin's testimony that he never authorized Blair to be added to the account and he never authorized the transfers. Furthermore, the contrary of that fact is not established as a matter of law. Consequently, this finding of fact is binding on the Credit Union.
This finding supports the trial court's conclusions of law 6 and 9 that the Credit Union breached its contract by transferring the $49,800 and its implied promise to recognize signatures on documents and instruments concerning Martin's account.
The second possible interpretation is that the Credit Union is challenging the court's findings and conclusions that the contractual 60-day absolute notice provision does not limit Martin's recovery. In findings of fact 50 and 51, the court found that Martin never agreed to the 60-day notice provision and that he did not intentionally relinquish his known right to a statutory one-year notice provision. In conclusion of law number 5, the court held that Martin did not intentionally relinquish his known right of a one-year notice provision.
Waiver of a statutory right requires a knowing, voluntary, intentional relinquishment of that right. See Housing Auth. of City of Corpus Christi v. Massey, 878 S.W.2d 624, 627 (Tex.App.Corpus Christi 1994, no writ); Estes v. Wilson, 682 S.W.2d 711, 714 (Tex.App.Fort Worth 1984, writ ref'd n.r.e.). Moreover, a waiver provision must state specifically and separately the right or rights surrendered. See Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 893 (Tex.1991). Finally, waiver must be clearly proven. See Massey, 878 S.W.2d at 627; Estes, 682 S.W.2d at 714.
The Credit Union argues that it complied with Federal Regulations relating to the appropriate method of notifying Martin of the 1994 deposit agreement. See 12 C.F.R. § 707.4(c) & app. C. (1997) Likewise, it contends that the deposit agreement complies with the form established in those regulations. See 12 C.F.R. § 707.3(a)(2) & app. C (stating that Credit Unions are not required to use a particular type size or typeface, nor is any term required to be more conspicuous than any other). However, we do not believe that these arguments fully address the court's findings and conclusions.
Beverly Boldt, an expert for the Credit Union acknowledged that the provision does not mention former section 4.406, nor does it state that it modifies or waives any statutory provisions. In addition, Martin testified that he never received a copy of the 1994 deposit agreement that modified the statutory one-year notice period and that he never knowingly intended to modify or waive the statutory one-year notice period.
The court's findings and conclusions demonstrate that the court was also addressing the provision's failure to clearly and specifically state the rights it was attempting to modify. These findings and *899 conclusions are directed to the content of the provision and not the Credit Union's method of notice or the agreement's form. Thus, whether the Credit Union complied with regulations relating to form and notice does not preclude the court's findings and conclusions.
Based on the evidence, we find the evidence legally and factually sufficient to support the trial court's findings and conclusions that Martin did not agree to the 60-day notice provision; and therefore, he did not waive his statutory one-year notice provision. We overrule that portion of point seven dealing with breach of contract.
In addition to breach of contract, Martin pleaded that the Credit Union breached its duty to exercise ordinary care when it allowed Blair to fraudulently add herself to his account. We find the evidence sufficient to support a claim based on negligence.
Among its findings of fact, the trial court determined that the Credit Union customarily used temporary employees in signature verification, it did not adequately train its temporary or regular employees in its signature comparison, Martin's signature on the account change card is so dissimilar that anyone exercising reasonable care would question its authenticity, and the Credit Union failed to exercise ordinary care in handling and accepting the account change card. In finding of fact number 12, the trial court determined the Credit Union was negligent in accepting the signature on the account change card.[15] The court's findings that the Credit Union failed to adequately train its employees in signature comparison, and that it failed to exercise reasonable care in handling the account change card support the conclusion that the Credit Union was negligent in allowing Blair to add herself as co-owner.
Martin offered expert testimony that it was the accepted reasonable commercial standard in the banking industry to verify signatures on account change cards, and that experienced, trained personnel are used in signature verification. The witness further testified that even a cursory review of the signature, on the account change card, would cause a reasonably trained person to question its authenticity.
The Credit Union, on the other hand, provided expert testimony that several large national credit unions do not verify signatures at all when the ownership status of an account is changed. It contended that by simply undertaking any examination of the signatures it exceeded the reasonable commercial industry standards. Therefore, it contends to establish negligence Martin had to establish that the industry standards are unreasonable. See McDowell, 772 S.W.2d at 189.
The Credit Union argues that testimony as to the standards applied by large commercial banks is simply not applicable to credit unions. Thus, whether banks verify signatures on account change cards is immaterial. See, e.g., Qassemzadeh v. IBM Poughkeepsie Employees Fed. Credit Union, 167 A.D.2d 378, 561 N.Y.S.2d 795 (1990).
We begin by noting that either a bank's or credit union's procedure must reasonably relate to its duty to protect a customer's account, and any procedure that fails to do so can not be considered commercially reasonable. See McDowell, 772 S.W.2d at 191. Furthermore, we do not agree that the Credit Union established that it was general industry standard to accept account change cards without signature verification, or that its verification procedure with untrained temporary employees was commercially reasonable. Cf. McDowell, 772 S.W.2d at 185 n. 1 (banks and credit unions are often held to the same standards). The evidence supports the trial court's conclusion that the Credit Union was negligent in accepting the account *900 change card. Consequently, we overrule the remainder of point seven.
RE-OPENING THE RECORD
In its final point, the Credit Union argues that based on evidence presented two weeks after trial, the court should have re-opened the record. The Credit Union presented evidence establishing that Blair, immediately prior to these transfers, had also forged Martin's checks from a different institution's account. In its motion, the Credit Union contended that the additional evidence "strongly reflects on and supports [its] defenses based on Martin's negligence."
Whether to re-open a case for the purpose of admitting additional evidence is within the sound discretion of the trial judge, and his action refusing to permit a party to re-open should not be disturbed by an appellate court unless it clearly appears that there was an abuse of discretion. See Word of Faith World Outreach Ctr. Church, Inc. v. Oechsner, 669 S.W.2d 364, 366 (Tex.App.Dallas 1984, no writ).
In deciding whether to re-open a case, a court is to consider four factors: (1) whether the proffered evidence is decisive; (2) whether the reception of such evidence will cause any undue delay; (3) whether the court's refusal to reopen will do an injustice; and (4) whether a party exercised due diligence in obtaining the evidence. See id. at 366-67. Thus, we must consider whether the Credit Union's evidence in support of its motion to re-open was in fact material, relevant, and decisive, and if so, whether the trial court abused its discretion in denying the motion to re-open.
Because we found that the Credit Union was not entitled to assert any defenses under section 4.406, this additional information is immaterial. Further, evidence establishing that Blair had forged other checks, while probative of whether Martin had notice, is not probative of whether the Credit Union breached its contract or was negligent in accepting the account change card. Thus, it is also immaterial to these issues. Because it is immaterial, we hold the trial court did not abuse its discretion in refusing to re-open the record.
CONCLUSION
Because we find the trial court's conclusions of law, based on the underlying facts, are correct, we hold that no "unauthorized signature" was used to obtain funds. Therefore, the Credit Union is precluded from asserting any defense under former section 4.406 of the UCC. Furthermore, we find sufficient facts support the trial court's conclusion that the Credit Union breached its deposit agreement and its implied promise to disburse funds solely in accordance with Martin's instruction. Finally, because we hold that the Credit Union is unable to invoke section 4.406(b)(1) and (b)(2)'s protection, additional evidence regarding Martin's negligence is immaterial; therefore, the trial court did not abuse its discretion by refusing to re-open the record. The trial court's judgment is affirmed.
NOTES
[1] See Act of May 24, 1967, 60 TH Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2423 (amended 1995) (current version at TEX BUS. & COM.CODE ANN. § 3.401 (Vernon Supp.1999)); Act of May 24, 1967, 60 th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2423-24 (amended 1995) (current version at TEX BUS. & COM.CODE ANN. § 3.404 (Vernon Supp.1999)); Act of May 24, 1967, 60 th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2457 (amended 1995) (current version at TEX BUS. & COM. CODE ANN. § 4.401 (Vernon Supp.1999)).
Significant revisions were made to the Business and Commerce Code in 1995. Those revisions were not effective until January 1, 1996. See Act of May 28, 1995, 74 th Leg., R.S., ch 921, § 10, 1995 Tex. Gen. Laws 4582, 4643.
Section 9 of the 1995 amendatory act provides:
(a) This Act does not affect an action or proceeding that is commenced or a right that accrues before the effective date.
(b) An action or proceeding that is commenced or a right that accrues before the effective date of this Act is governed by the law in effect on the date the action or proceeding was commenced or the right accrued, and that law is continued in effect for that purpose.
TEX BUS. & COM.CODE ANN. § 3.101 historical note (Vernon Supp.1999) [Act of May 28, 1995, 74th Leg., R.S., ch. 921, § 9, 1995 Tex. Gen. Laws 4582, 4643].
Because the underlying events occurred in 1995, we will apply the then-existing UCC provisions.
[2] See Act of May 24, 1967, 60 th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2458-59 (amended 1995) (current version at TEX BUS. & COM.CODE ANN. § 4.406 (Vernon Supp.1999)).
[3] Whether an "unauthorized signature" is used to obtain funds and whether a contract is vague, ambiguous, or inconspicious are questions of law. See, e.g., Friendswood Dev. Co. v. McDade + Co., 926 S.W.2d 280, 282 (Tex.1996); Cate v. Dover Corp., 790 S.W.2d 559, 560 (Tex.1990). The trial court's findings provide that "[a]ny finding of fact which should be designated as a conclusion of law is hereby redesignated as a conclusion of law." We will redesignate these findings as conclusions of law and address them as such.
[4] Act of May 24, 1967, 60th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2458-59 (amended 1995).
[5] Act of May 24, 1967, 60th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2443 (amended 1995) (current version at TEX. BUS. & COM. CODE ANN. § 4.103 (Vernon Supp. 1999)).
[6] The parties do not address whether a period, other than the statutory one-year period, controlled prior to the 1994 deposit agreement.
[7] At the time Martin reported the variance, the following transactions had not appeared on any quarterly statement: (1) $1,000 transferred October 4, (2) $2,500 transferred October 12, (3) $1,300 transferred October 23, and (4) $500 transferred November 16.
[8] Based on the comment to UCC § 1.201(39) the Credit Union also contends that Martin's printed name on the vouchers satisfies the "signed" requirement. However, as with the tellers' initials, this symbol was generated by the Credit Union; thus, it requires that either Blair or Martin adopt it with a present intention to authenticate the writing. There is no evidence that either Blair or Martin adopted that "symbol" (Martin's printed name). Therefore, Martin's printed name on the journal vouchers does not satisfy the signed requirement.
[9] Although the court was analogizing the duty to examine a credit card statement to the duty to examine a bank statement created under New York's Uniform Commercial Code, that duty is substantially similar to that created under the Texas Uniform Commercial Code.
[10] Act of May 24, 1967, 60 th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2443-45 (amended 1995) (current version at TEX. BUS. & COM.CODE ANN. § 4.104 (Vernon Supp.1999)).
[11] Act of May 24, 1967, 60 th Leg., R.S., ch. 785, § 1, 1967 Tex Gen Laws 2343, 2408-10 (amended 1995) (current version at TEX. BUS. & COM.CODE ANN. § 3.104 (Vernon Supp.1999)).
[12] Act of May 24, 1967, 60 th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2458-59 (amended 1995)).
[13] Section 4.406(b)(2) is often referred to as the "repeater rule" because its provisions only become operative when a customer fails to discover the repeated actions of a wrongdoer.
[14] Act of May 24, 1967, 60 th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2458-59 (amended 1995).
[15] This is a question of law and we will treat it as such.
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/1533652/
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839 A.2d 1237 (2004)
Walter M. DeLUCA
v.
Linda Lee DeLUCA.
No. 2002-9-Appeal.
Supreme Court of Rhode Island.
January 23, 2004.
*1239 Colleen Crudale, Esq., Warwick, for Plaintiff.
Allen M. Kirshenbaum, Esq., for Defendant.
Present: WILLIAMS, C.J., FLANDERS, GOLDBERG, FLAHERTY, and SUTTELL, JJ.
OPINION
PER CURIAM.
In this divorce action, the defendant, Linda Lee DeLuca (wife), appeals from a Family Court order denying her motion to vacate the decision granting her and her husband a divorce pending entry of a final judgment. She also appeals from the order denying her motion for a new trial and other relief.
This couple was married for more than thirty years, during which they raised one child, who was over the age of majority when the Family Court ruled on this case. After problems in the marriage arose, plaintiff, Walter M. DeLuca (husband), filed a complaint for divorce in Family Court and the wife counterclaimed.
Initially, the parties were unable to agree on issues of spousal support and property distribution. When the Family Court reached the case for a contested trial, the parties' attorneys indicated to the court that substantial discovery remained to be completed. Specifically, the parties had not obtained an appraisal of their former marital domicile, and their depositions were not yet concluded. At a pretrial hearing held on May 3, 2001, the magistrate assigned to the case ordered an appraisal of the house to be scheduled during a Family Court recess, and he ordered that the wife be deposed immediately following the conclusion of the pretrial hearing. After that order, the parties recessed with the intent to appear for a contested trial that would begin the next day. But when they reconvened on May 4, 2001, the parties advised the court that the case had become nominal (that is, it no longer was a contested divorce), and the court proceeded with a nominal divorce hearing.
At the hearing, both parties indicated that they had reached an agreement with respect to distribution of their marital property, alimony, support of their adult child, and treatment of their debts. Both parties waived their rights to alimony. The husband also agreed to submit to a post-hearing deposition. The husband's attorney said he understood that the purpose of the deposition would be to determine whether the husband had failed to disclose any assets. The wife's attorney procured the husband's agreement that, if during the course of the deposition relevant "information comes out," the agreement logically would be altered in light of any new information about his assets.
At the conclusion of the nominal divorce hearing, the presiding magistrate was satisfied that a divorce should be granted on *1240 the grounds of irreconcilable differences that caused the irremediable breakdown of the marriage. In relevant part, he said:
"A certain agreements has been placed on the record. It is to be reduced to writing then properly signed freely and voluntarily by the parties. It will then be introduced to the Court and marked exhibit Number 1 * * *, to be incorporated but not merged herein.
"The Court is satisfied that based upon the testimony presented as well as its involvement within these proceedings that the agreement fairly and equitably disposes of the total martial estate. The agreement is to be reduced to writing, is to be on with full disclosure. Failing that, the parties would be entitled to reopen or otherwise."
The magistrate also said that the husband's attorney may include within the decision pending entry of final judgment "anything testified to by the parties under oath that the Court did not deal with by way of specificity in its decision." The husband's attorney then referred, on the record, to the wife's waiver of alimony.
The husband's deposition began on June 20, 2001, but the wife's counsel did not complete her questioning of him because the parties could not agree on the scope of the husband's testimony. Thereafter, the wife refused to sign the draft of a property settlement agreement that the husband's counsel prepared. It was only after the husband moved to enter the decision of May 4, 2001, pending entry of final judgment six months later that the wife moved to vacate the decision and to obtain a new trial and other relief.
In her motion, she asserted that the verbal orders that the court issued at the nominal hearing were subject to completing a post-trail deposition of plaintiff. Moreover, she understood that the court had suspended the hearing until she completed taking the husband's deposition. Thus, she objected to the finality of the "so-called agreements" reached at the nominal hearing. Finally, the wife asserted that at the time of the nominal hearing she had been under the influence of prescription drugs that clouded her understanding of what occurred. Thus, she alleged, she was unable to appreciate the consequences that would follow from the hearing, including her alimony waiver.
Based on his review of the transcripts from the previous proceedings, the magistrate ruled that there was no basis for the wife's request to vacate the proposed decision pending entry of final judgment. Thus, he denied the wife's motion to vacate as well as her motion for a new trial.
On appeal, we ordered the parties to show cause why we should not decide this case summarily. Because they have not done so, we proceed to resolve the appeal at this time.
The wife raises several issues. First, she alleges that the magistrate committed reversible error when he denied her an opportunity to introduce expert testimony to support her motions. Second, she contests the Family Court's so-called "rubber-stamp approval" of the alimony waiver because, she maintains, the magistrate did not specifically approve of the waiver or cite to any of the factors upon which he based his decision. Third, she objects to the matistrate's decision to proceed with a nominal hearing because the outcome of the husband's post-trial deposition could have affected the agreement that the court approved at the hearing. Finally, the wife alleges that the magistrate failed to fulfill his obligation to make specific factual findings pursuant to Rule 52 of the Family Court Rules of Procedure for Domestic Relation and that he inappropriately allowed entry of the decision pending entry of final judgment when the conditions upon which it was based never were satisfied.
An appeal from an order granting or denying a motion to vacate under the Rules of Procedure for Domestic Relations presents only the issue of the correctness of that order. Pari v. Pari, 558 A.2d 632, 637 (R.I.1989). Such an appeal does not raise questions concerning the propriety of the decision or judgment itself. Id. Furthermore, because both Rule *1241 60(b) of the Rules of Procedure for Domestic Relations and Rule 60(b) of the Superior Court Rules of Civil Procedure are nearly identical in wording and identical in purpose, Superior Court precedent may be consulted to interpret both rules. Pari, 558 A.2d at 634-35. "A motion to vacate a judgment rests within the sound discretion of the trial court and a trial court's ruling on such a motion will be reversed only upon a demonstrated and clear abuse of discretion." Id. at 634; see also Friendly Home, Inc. v. Shareholders and Creditors of Royal Homestead Land Co., 477 A.2d 934, 937 (R.I.1984).
The wife alleges that the magistrate committed reversible error when, at the hearing on the motion to vacate, he not only refused her offer to return to the court with expert medical testimony at some unspecified date in the future, but also he summarily denied her motion based only on the record transcripts. Her attorney sought the opportunity to present medical testimony at some time in the future, from a physician, to support the wife's contention that prescription drugs had impaired her cognizance of what occurred at the nominal hearing.
Rule 60(b) of the Rules of Procedure for Domestic Relations is almost identical in language to the corresponding Rule 60(b) of the Superior Court Rules of Civil Procedure, and allows a party to move for relief from a final judgment, order, or proceeding for a variety of reasons. Here, the wife contended that she was suffering from a mental defect when the nominal hearing occurred. As a result, she alleged that she did not fully understand the content or finality of the proceedings. Consequently, she argued, the decision pending entry of final judgment was void. Because this is a void decision, she concludes, she did not need to present any affidavits or other evidence to the magistrate at the hearing on the motion; rather, she was entitled to rely solely on the unsworn statements and allegations of her attorney to support her motion.
This argument is flawed for several reasons. First, a void judgment or decision is one in which the court entering the judgment lacked jurisdiction over the matter or when the court's action violated a procedural requirement so substantial that it amounted to "a plain usurpation of power constituting a violation of due process." Allstate Insurance Co. v. Lombardi, 773 A.2d 864, 869 (R.I.2001) (quoting Hoult v. Hoult, 57 F.3d 1, 6 (1st Cir.1995)). "For a judgment to be void * * * it must be determined that the rendering court was powerless to enter it." V.T.A., Inc. v. Airco, Inc., 597 F.2d 220, 224 (10th Cir. 1979). "A void judgment is from its inception a legal nullity." United States v. Boch Oldsmobile, Inc., 909 F.2d 657, 661 (1st Cir.1990). To preserve the finality of judgments, courts must construe the concept of voidness narrowly. Id.
Contrary to the wife's assertions, "`[a] judgment is not void merely because it is erroneous.'" Allstate Insurance Co., 773 A.2d at 869 (quoting Jackson v. Medical Coaches, 734 A.2d 502, 506 (R.I.1999) (per curiam)). Rather, a court will declare a judgment to be void only in "`rare instance[s] of a clear usurpation of power.'" Boch Oldsmobile Inc., 909 F.2d at 661-62.[1]
The wife does not allege that the Family Court lacked jurisdiction over her case. *1242 She does allege, however, a deprivation of due process resulting from the magistrate's denial of an evidentiary hearing on whether she was mentally competent during the nominal proceeding. The Family Court clearly has authority to grant or deny relief from its orders and proceedings under Rule 60(b) of the Rules of Procedure for Domestic Relations.[2] Here, the magistrate simply chose to deny the motion to vacate based on the facts submitted to him at the hearing on that motion. The wife does not allege that she received inadequate notice of the proceedings. On the contrary, she had the opportunity to present evidence to the magistrate about her mental-incompetence claim, but she simply failed to submit any such evidence on the date that the magistrate heard the motion. Given this failure by the wife to prove her alleged mental incompetence on the date of the hearing, the action of the magistrate in denying her motion to vacate did not amount to a deprivation of the wife's due-process rights, much less did it justify a finding that the decision pending entry of a final judgment was void.
Additionally, unsworn statements of counsel supporting a motion to vacate do not constitute evidence, nor are they a viable predicate to an evidentiary hearing. To trigger an evidentiary hearing supporting such a motion, the moving party should present affidavits, sworn testimony, or witnesses who are prepared to testify at the hearing thereon to grounds that, if found to be true, would support a vacation of the judgment, order, or decision in question. See State v. Whitmire, 791 So. 2d 1192, 1193 (Fla.Dist.Ct.App. 2001); BN1 Telecommunications, Inc. v. Cybernet Communications, Inc., 118 Ohio App. 3d 851, 694 N.E.2d 148, 151 (1997) (per curiam); Hatfield v. Hatfield, No. 94CA2046, 1995 WL 332234, at *2 (Ohio Ct.App. May 31, 1995); Housden v. Housden, No. CA90-08-160, 1991 WL 71986, at *2 (Ohio Ct.App. May 6, 1991); Havely v. Havely, No. E2000-02275-COA-R3-CV, 2001 WL 920220, at *3 (Tenn.Ct.App. Aug.15, 2001). But see Gore v. First National Supermarkets, No. 77026, 2000 WL 1231474, at *3 (Ohio Ct.App. Aug. 31, 2000); In re Wood, No. 97APE01-77, 1997 WL 467338, at *2 (Ohio Ct.App. Aug. 12, 1997). Other than the attorney's unsworn allegations contained in the motion to vacate, the magistrate only had the transcripts of the nominal proceeding upon which to rely in ruling on the motion.
The magistrate was satisfied that competent counsel represented both parties at the nominal hearing and that the parties were not entitled to "two bites at the apple." Nevertheless, he made clear on several occasions his willingness to consider all testimony and evidence properly before the court. But the wife appeared at the hearing on the motion to vacate without any supporting evidence, such as affidavits or expert witnesses, and she did not request a continuance at the hearing. Thus, the magistrate chose to consider the motion before him as presented and summarily denied the defendant's request for relief based only on the transcripts on record. In doing so, we hold, he did not err.
This Court decided an appeal based on similar facts in Van Thiel v. Albani, 736 A.2d 84 (R.I.1999) (mem). In Van Thiel, the parties had reached an agreement before trial, and the trial court heard the case as a nominal divorce. Id. At the hearing, the appellant testified about the *1243 agreement and acknowledged that he understood its terms, and that his approval was free and voluntary. Id. at 85. The Family Court incorporated but did not merge the agreement into its decision pending entry of final judgment. Id. The defendant-husband then appealed the decision, claiming that "he was suffering from some kind of a `nervous breakdown' when he approved of the settlement agreement, and that he never has had his day in court." Id. at 86. Because the parties reached this settlement agreement before trial and the divorce hearing was nominal, this Court ruled that the orders the husband later sought to challenge were subsumed within the decision pending entry of final judgment and they had become moot. Id. See also Gaccione v. Gaccione, 112 R.I. 676, 678, 314 A.2d 423, 424 (1974) (appeal of decision pending entry of final judgment denied for appellant who claimed to be "confused and did not realize that a divorce had been granted" at nominal divorce hearing, because appellant was present and represented by counsel).
Here, the parties also had reached an agreement before proceeding with the nominal hearing. Moreover, the trial transcript indicates that counsel represented the wife at the hearing, the wife was responsive to questioning, and she clearly articulated her intent to enter into the agreement. Thus, we conclude, the magistrate did not abuse his discretion when he denied the wife's motion to vacate because it was devoid of any evidentiary support.
The wife also contested the magistrate's supposed "rubber-stamp approval" of the alimony waiver. She requested a new trial on the basis that he should have ruled specifically on the waiver and stated what factors supported his decision. In considering a ruling on a motion for a new trial, this Court will overturn the outcome only "if the judge was obviously mistaken or has overlooked or misconceived material evidence." Lapre v. Ruggieri Brothers, Inc., 688 A.2d 1298, 1299-1300 (R.I.1997) (per curiam) (citing Ruggieri v. Big G Supermarkets, 114 R.I. 211, 330 A.2d 810 (1975)). Here, the husband correctly stated that the case proceeded as a nominal divorce hearing, not a contested trial on the merits. The magistrate did not sift through questions of fact or settle issues of law, but rather read into the record an agreement that the parties themselves already had reached.[3] Thus, a motion for a new trial was not the appropriate method for challenging the terms of this nominal divorce decision.
The defendant cites Reynolds v. Reynolds, 53 R.I. 326, 166 A. 686 (1933) and Ramsbottom v. Ramsbottom, 542 A.2d 1098 (R.I.1988) to support her argument that the parties' agreement, as read into the record, cannot trump the Family Court's jurisdiction to approve or order alimony. Reynolds and later cases, however, indicate that independent agreements entered into freely by the parties in divorce proceedings will be enforced if they appear to the court to be "reasonable and fair to the parties and not collusive." Reynolds, 53 R.I. at 329, 166 A. at 688; see also Masse v. Masse, 112 R.I. 599, 603, 313 A.2d 642, 645 (1974). Pursuant to G.L. 1956 § 15-5-16, some factors that the Family Court should consider in reviewing the alimony issue include the health, age, station, occupation, amount and source of income, vocational skills, and employability of the parties.
At the nominal hearing, both parties answered questions about their ability to support themselves, revealing where they *1244 worked, how much they were earning, and the extent of their education or job skills. When asked whether she thought she could support herself, the wife replied, "I'm trying to the best of my ability right now," and added that she was working toward earning a teaching certificate. She then waived alimony and said that she understood she could not change her mind in the future. Based on this testimony, the magistrate was satisfied that "the agreement fairly and equitably disposes of the total marital estate." In doing so, the magistrate, we hold, did not overlook or misconceive material evidence. Thus, we affirm the order denying the wife's motion for a new trial.
The wife's remaining issues are based upon her interpretation of what happened at the nominal hearing. First, she objects to the magistrate's decision to proceed with a nominal hearing because the post-hearing depositions could have affected the parties' agreement. In particular, she asserts that without full knowledge of the husband's assets, it was impossible for her to enter into an agreement knowing that it encompassed all the marital assets. Her attorney addressed this issue, however, when he procured the husband's assent that, if during the course of his deposition, relevant "information comes out," then the agreement could be altered in light of the new information. Moreover, the parties' agreement anticipated the existence of any potentially hidden assets by providing that the party from whom the asset was concealed "shall have right, title and interest to those assets." Finally, the magistrate stated that the parties' agreement should be reduced to writing with full disclosure, and "[f]ailing that, the parties would be entitled to reopen or otherwise." Thus, we hold that the provision for post-hearing discovery did not constitute reversible error and we affirm the magistrate's ruling in this respect.
Finally, the wife alleges that the magistrate inappropriately allowed entry of the decision pending entry of final judgment when the purported conditions upon which it was based were never satisfied. In particular, the wife alleges that entry of the decision was subject to a complete deposition of the husband and to a freely and voluntarily signed property-settlement agreement in accord with the agreement reached at the nominal hearing. Thus, the wife submits, the magistrate erroneously entered a decision that was not a final adjudication of the issues.
The magistrate addressed the wife's attorney about the purported conditions at the hearing on the motion to vacate. With respect to her discovery argument, a deposition of the husband would have no bearing on the agreement the parties had reached, even if additional assets were uncovered. As the magistrate stated, "[i]f [the assets] were uncovered * * * you don't even need depositions [because] if * * * there is something hidden by one [or] the other of the parties the other person [will] receiv[e] all of it." Furthermore, the magistrate clarified that he did not order the parties to execute the property settlement agreement; rather, the parties were to reduce it to writing and then sign it "freely and voluntarily." Therefore, our review of the transcript suggests that the post-hearing depositions and the parties' entry into a written property settlement agreement were not intended to function as conditions precedent placed on the entry of the magistrate's decision pending entry of final judgment.
Nevertheless, we caution the parties, their counsel, and the Family Court that we do not believe that proceeding in this piecemeal fashion constituted the best way to achieve a final resolution in this type of case. We fail to see how a purported property settlement agreement that was neither drafted nor signed and that may never be signed or agreed upon by the parties can be incorporated by reference into a decision pending entry of a final divorce judgment. By proceeding in this manner and by allowing the parties to engage in additional discovery from each other, the court was only inviting future *1245 disputes and motions to reopen the proceedings. Consequently, this practice should be discouraged.
As noted, the wife appears to be appealing from the denial of her motion to vacate, and we conclude that no grounds exist for reversing the magistrate's ruling. But even if we viewed her appeal as one from the decision pending entry of final judgment itself, we are of the opinion that she has failed to suggest any reason why that decision should be disturbed. For these reasons, we affirm the decision pending entry of the final judgment, the order denying the motion to vacate, and the order denying a new trial, and remand the papers in this case to the Family Court for further proceedings not inconsistent with this opinion.
NOTES
[1] This Court has found significant procedural defects amounting to a "clear usurpation of power" and a violation of due process when substantial defects in notice, service of process, and representation by counsel existed. See Nisenzon v. Sadowski, 689 A.2d 1037, 1049 (R.I.1997) (holding judgment was void as against individual partners in a business partnership because they were not named as parties to the suit, were not served with process, and did not waive service of the summons and complaint); May v. Penn T.V. & Furniture Co., 686 A.2d 95, 100 (R.I.1996) ("[F]undamental due-process considerations and bedrock principles of agency law prevent us from punishing an unserved party defendant for the misdeeds of a lawyer he never engaged in a lawsuit about which he was never notified.").
[2] Rule 60(b) of the Family Court Rules of Procedure for Domestic Relations provides:
"[T]he court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud * * *, misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment."
[3] Thus, the magistrate stated: "And what we are going to do is read [the agreement between plaintiff and defendant] into the record. It's going to be reduced to a contract which in fact will be a contract * * * [and] will remain an independent agreement outside of the orders of this [c]ourt."
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839 A.2d 908 (2004)
365 N.J. Super. 463
STATE of New Jersey, Plaintiff-Respondent,
v.
Damon L. HILL, Defendant-Appellant.
Superior Court of New Jersey, Appellate Division.
Submitted December 9, 2003.
Decided January 12, 2004.
*909 Yvonne Smith Segars, Public Defender, attorney for appellant (Robert L. Sloan, Assistant Deputy Public Defender, of counsel and on the brief).
Peter C. Harvey, Attorney General of New Jersey (Christopher A. Alliegro, Deputy Attorney General, of counsel and on the brief).
Before Judges PRESSLER, CIANCIA and ALLEY.
The opinion of the court was delivered by *910 CIANCIA, J.A.D.
Defendant Damon L. Hill was charged with various offenses arising out of the bludgeoning death of an eighty-four-year-old woman, Anne King, in her home. The indictment also set forth charges alleging that defendant on prior occasions burglarized and criminally trespassed on Ms. King's home. Defendant's first trial ended with a not guilty verdict on the charge of purposeful or knowing murder, but the jury was unable to reach unanimity on all remaining charges.
Defendant's second jury trial resulted in guilty verdicts on the following crimes: felony murder, N.J.S.A. 2C:11-3a(3); armed robbery, N.J.S.A. 2C:15-1; seconddegree burglary, N.J.S.A. 2C:18-2; thirddegree burglary (two counts), N.J.S.A. 2C:18-2; fourth-degree criminal trespass (two counts), N.J.S.A. 2C:18-3a; third-degree possession of a weapon for an unlawful purpose, N.J.S.A. 2C:39-4d; and fourth-degree unlawful possession of a weapon, N.J.S.A. 2C:39-5d.
Defendant was sentenced to thirty years imprisonment with thirty years parole disqualification for the crime of felony murder. A concurrent fifteen-year term was imposed for armed robbery, and a concurrent seven-year term was imposed for second-degree burglary. For the third-degree crime of possessing a weapon for an unlawful purpose, a concurrent four-year sentence was given. Another concurrent four-year term was imposed for one of the third-degree burglary convictions. All other convictions merged. Appropriate fees and penalties were imposed.
On appeal defendant contends:
POINT I
THE VOIR DIRE OF PROSPECTIVE JURORS WAS INADEQUATE BECAUSE THE JUDGE REFUSED TO DETERMINE IF THEY COULD BE FAIR AND IMPARTIAL DESPITE THE NATURE OF THE CRIME, IN VIOLATION OF DEFENDANT'S RIGHT TO DUE PROCESS OF LAW AND A FAIR TRIAL BY AN IMPARTIAL JURY. U.S. CONST. AMENDS. VI, XIV; N.J. CONST. (1947) ART. I, PARS. 1, 9, 10.
POINT II
IMPROPER SUMMATION REMARKS, CLAIMING THAT DEFENSE COUNSEL WAS TRYING TO DISTRACT THE JURORS FROM THE REAL ISSUES AND DEFENSE COUNSEL ALWAYS HAVE A RESPONSE NO MATTER WHAT THE EVIDENCE SHOWS, DEPRIVED DEFENDANT OF THE RIGHT TO DUE PROCESS OF LAW AND A FAIR TRIAL. U.S. CONST. AMEND. XIV; N.J. CONST. (1947) ART. I, PARS. 1, 9, 10. (Not Raised Below)
POINT III
DEFENDANT'S CONVICTIONS FOR BURGLARY, ROBBERY, AND POSSESSION OF A WEAPON FOR AN UNLAWFUL PURPOSE SHOULD HAVE BEEN MERGED INTO THE CONVICTION FOR FELONY MURDER.
With the exception of defendant's merger contentions, we find insufficient merit in defendant's issues to warrant reversal of his conviction.
Simply stated, the State's case showed that defendant and his girlfriend lived next door to the house occupied by the victim, Anne King. King was eighty-four years old but very active and she frequently left her home to participate in various activities. Although King went to extraordinary lengths to secure her home from intruders, access to the house was possible through an upper-story bedroom window. That window, as it happened, was a short space *911 away from where defendant was living. Defendant, according to the State's evidence, would wait for Ms. King to go out and then enter her home through the upper-story window. He would take what he wanted and then return to his residence. On the last such occasion, Ms. King was home and defendant beat her to death with a hammer. During the police investigation, some coins were found on an upper ledge of defendant's residence. While he was being held at the Youth Detention Center, defendant made statements to other persons indicating that he broke into an old, white lady's house to rob her.
Defendant's first issue centers on the trial court's refusal to ask the jury on voir dire the following questions requested by defense counsel:
Number 8. "The charges in this case involve murder, possession of a weapon for [an] unlawful purpose, namely a hammer or blunt object. Do you have any experiences, beliefs or feelings which would influence you involving such charges?"
....
Number 10. "Do you have any attitude[s], biases or views which would cause you to be biased against [a] defendant charged with the use of a hammer or blunt object in a murder?"
Number 11. "Have you or any family member or friends had any experience which would cause you to be biased against the defendant charged with the use of a hammer or blunt object?"
Number 12. "Is there anything about this case that may cause you to feel under pressure to convict?"
Although we perceive no reasons why those questions were not asked, we find that the jury voir dire, reviewed in its entirety, sufficiently explored areas of possible jury prejudice and resulted in a fair and impartial jury. We note that, although the bludgeoning of the victim with multiple blows from a hammer was a horrific crime, the questions suggested by defense counsel were not designed to reach possible jury bias arising from the nature of the attack. A hammer as a murder weapon, when divorced from the details of its use, is no more emotional than many other possible murder weapons.
Here, the trial judge asked the jury numerous questions, including seven suggested by defense counsel that explored possible prior knowledge of the offense or of fellow jurors, the ability to follow the law as given, any bias that was based on race, any prejudice for or against police officers, and any juror participation in neighborhood crime watch programs. Three times the jurors were asked if there was any reason whatsoever that prevented them from being fair and impartial. Jurors who expressed a reason were excused. The court excused sixteen prospective jurors for cause. Defense counsel used twelve of twenty peremptory challenges. The State made no challenges.
The trial judge has broad discretion in formulating voir dire questions. Suggested additional questions by counsel should be considered but need not be asked. R. 1:8-3(a); State v. Manley, 54 N.J. 259, 281-283, 255 A.2d 193 (1969); accord State v. Biegenwald, 106 N.J. 13, 27-30, 524 A.2d 130 (1987); State v. Loftin, 287 N.J.Super. 76, 104-105, 670 A.2d 557 (App.Div.), certif. denied, 144 N.J. 175, 675 A.2d 1123 (1996); State v. Lumumba, 253 N.J.Super. 375, 391-394, 601 A.2d 1178 (App.Div.1992). We find no abuse of discretion by the trial court in the nature and extent of voir dire conducted in the present case.
As a matter of plain error, defendant contends that portions of the prosecutor's summation improperly disparaged defense *912 counsel by claiming that defense counsel was attempting to distract jurors from the real issues. No objection was raised by defense counsel at the time of trial. The issue was apparently raised in some fashion, unspecified in the present record, on defendant's motion for a new trial that was heard and denied at the time of sentencing. It was the trial judge's recollection that the prosecutor had not said anything objectionable on summation. The absence of a timely objection ordinarily prevents a finding that the prosecutor's remarks were reversibly offensive. State v. Loftin, 287 N.J.Super. 76, 101, 670 A.2d 557 (App.Div.), certif. denied, 144 N.J. 175, 675 A.2d 1123 (1996).
This was a lengthy trial and the summations reflected that. The defense summation was approximately an hour and forty minutes and the prosecutor's almost two hours. Our review of the prosecutor's summation as a whole reveals no improprieties that were clearly capable of producing an unjust resulti.e., no conduct so egregious as to have deprived defendant of a fair trial. R. 2:10-2; State v. Josephs, 174 N.J. 44, 124, 803 A.2d 1074 (2002); State v. Robinson, 266 N.J.Super. 268, 281-282, 629 A.2d 103 (App.Div.1993), rev'd on other grounds, 136 N.J. 476, 643 A.2d 591 (1994). The prosecutor's comments were either directed at the evidence or responsive to statements made by defense counsel. State v. Williams, 317 N.J.Super. 149, 158, 721 A.2d 718 (App. Div.1998), certif. denied, 157 N.J. 647, 725 A.2d 1128 (1999); State v. Powell, 218 N.J.Super. 444, 449, 528 A.2d 39 (App.Div. 1987). We find no grounds for reversal. State v. Ramseur, 106 N.J. 123, 322-323, 524 A.2d 188 (1987).
Finally, defendant raises merger contentions. He asserts that the conviction for possession of a weapon for an unlawful purpose should have merged into felony murder. The State agrees, as do we. State v. Diaz, 144 N.J. 628, 642, 677 A.2d 1120 (1996).
The much more difficult issue is defendant's contention that his second-degree burglary conviction and his robbery conviction should have merged into the felony murder conviction because both the burglary and the robbery were predicate offenses. In State v. Lado, 275 N.J.Super. 140, 157, 645 A.2d 1197 (App.Div.), certif. denied, 138 N.J. 271, 649 A.2d 1290 (1994), we took "judicial notice that no issue consumes more of our time than merger, and none is more time consuming or perplexing than the question of merger with respect to possession of a weapon for an unlawful purpose and a substantive offense committed with that weapon." The present merger question is equally enigmatic.
There is no doubt that a predicate offense merges into felony murder because it is "a necessary component of the commission" of felony murder. State v. Brown, 138 N.J. 481, 561, 651 A.2d 19 (1994), overruled on other grounds, State v. Cooper, 151 N.J. 326, 377, 700 A.2d 306 (1997). The problem here is that the jury was never asked to specify what crime constituted the predicate felony for felony murder. The jury was told, in effect, that either burglary or robbery could constitute a predicate offense. That, of course, was a correct statement of the law, N.J.S.A. 2C:11-3a(3), but it resulted in a jury determination that defendant was guilty of felony murder without any specification of which crime was the predicate. Indeed, the jury could well have believed both burglary and robbery were predicate offenses. The record simply provides no insight.
Defendant points us to State v. Pantusco, 330 N.J.Super. 424, 750 A.2d 107 (App.Div.), certif. denied, 165 N.J. 527, *913 760 A.2d 781 (2000). There, defendant committed a series of robberies before fleeing and getting into a motor vehicle accident that resulted in the death of an innocent motorist. Again, the jury was not asked to specify which robbery or robberies defendant was fleeing from when the motorist was killed. Id. at 444, 750 A.2d 107. We concluded the trial court should have "merged all the robbery convictions into the felony murder as the record reflects no finding as to which constituted the underlying felony, and the jury may have concluded that it was all three." Ibid. (citations omitted). The same approach was taken in Lado, where we held that in the absence of a special verdict to clarify if possession of a weapon for an unlawful purpose was broader than the substantive offense or offenses for which defendant was convicted, "the possession of a weapon with an unlawful purpose conviction must merge into the substantive offense." Lado, supra, 275 N.J.Super. at 158, 645 A.2d 1197.
The State, in turn, directs our attention to State v. Soto, 340 N.J.Super. 47, 773 A.2d 739 (App.Div.), certif. denied, 170 N.J. 209, 785 A.2d 438 (2001), where defendant was convicted of, among other things, robbery, burglary, kidnapping, and felony murder but, again, there was no jury determination of which crime was the predicate. The trial court, without any reasons discernible from our opinion, merged burglary into felony murder, but sentenced separately for robbery and kidnapping. Id. at 53, 773 A.2d 739. Without discussion as to reasons, we found "no error," and cited to State v. Manning, 234 N.J.Super. 147, 164, 560 A.2d 693 (App.Div.), certif. denied, 117 N.J. 657, 569 A.2d 1351 (1989). Soto, supra, 340 N.J.Super. at 70-71, 773 A.2d 739.
Manning is not a great deal of assistance on the present facts. Manning was convicted on two counts of felony murder, one based on escape and one on robbery. Manning, supra, 234 N.J.Super. at 164, 560 A.2d 693. There was, however, only one death so there could only be one felony murder conviction. Ibid. The State conceded that escape, the lesser of the two possible predicate offenses, could be the surviving conviction. Ibid. We accepted the State's position. Ibid. In the present case, the State is not willing to concede that the lesser offense, second-degree burglary, survives merger. It argues, without any real logic, that robbery must survive merger so that defendant does not get a "free crime." Yet, the law is clear and the State does not dispute that the predicate crime should merge.
The facts of the present case provide little additional assistance. Defendant was primarily convicted on circumstantial evidence and statements he made to persons other than the police. It appears he entered the victim's house with the intent to commit a theft, came upon the victim, and beat her to death with a hammer. At some point, foreign coins belonging to the victim were taken.
There is no satisfactory answer to this merger question. We choose to follow Pantusco, and by analogy, Lado. Here, the jury could have found both offenses to have been the predicate to murder. It was free to do so. We have no rational basis to pick one crime over the other as the predicate. Accordingly, we merge both burglary and robbery into felony murder. We encourage trial courts in the future to use special verdicts to avoid the dilemma presented in this case. R. 3:19-1(b); Diaz, supra, 144 N.J. at 643-645, 677 A.2d 1120; Lado, supra, 275 N.J.Super. at 158 n. 10, 645 A.2d 1197; State v. Williams, 213 N.J.Super. 30, 37, 516 A.2d 265 (App.Div.1986), certif. denied, 107 N.J. 104, 526 A.2d 177 (1987).
*914 Defendant's convictions for third-degree possession of a weapon for an unlawful purpose, second-degree burglary, and first-degree robbery are vacated. His judgment of conviction is otherwise affirmed.[1] We remand for modification of defendant's sentence and entry of a corrected judgment of conviction.
NOTES
[1] Defendant's third-degree burglary conviction, based on conduct occurring in February 1996 (count eleven) and thus prior to the March 1996 murder, does not merge into felony murder.
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289 Md. 359 (1981)
424 A.2d 755
ELIZABETH ANN SUTTON
v.
STATE OF MARYLAND
[No. 132, September Term, 1979.]
Court of Appeals of Maryland.
Decided January 19, 1981.
*360 The cause was argued before SMITH, DIGGES, ELDRIDGE, COLE, DAVIDSON and RODOWSKY, JJ.
Nancy Louise Cook, Assistant Public Defender, with whom was Alan H. Murrell, Public Defender, on the brief, for appellant.
Thomas P. Barbera, Assistant Attorney General, with whom was Stephen H. Sachs, Attorney General, on the brief, for appellee.
DAVIDSON, J., delivered the opinion of the Court.
In this case, at the direction of the trial court, a plea of not guilty upon an agreed statement of facts was tendered. No defense was raised. A plea bargain was entered recommending probation. The question presented is whether, under these particular circumstances, the requirements of Maryland Rule 731 c are applicable.
Rule 731 c provides:
"The court may not accept a plea of guilty without first questioning the defendant on the record to determine that the plea is made voluntarily, with understanding of the nature of the charge and the consequences of the plea. The court may accept the plea of guilty even though the defendant does not admit that he is in fact guilty if the court is satisfied that there is a factual basis for the plea. If the court refuses to accept a plea of guilty, the court shall enter a plea of not guilty." (Emphasis added.)
In the Criminal Court of Baltimore, Elizabeth Ann Sutton, the petitioner, was charged with assault. After the case was called to trial, the following colloquy took place:
"MR. LEWIS [State's Attorney]: Your Honor the State at this time will call the case of State of Maryland versus Elizabeth Sutton.
*361 MR. HOFFMAN [Defense Counsel]: Miss Sutton step up. Your Honor this is the matter we have approached the bench on, would the Court wish to proceed by way of a guilty plea, on an Alford plea, or a not guilty statement of facts with the defendant not testifying and submitting.
THE COURT: Not guilty statement of facts. Bring the witnesses up.
MR. HOFFMAN: Miss Sutton please come up ma'am.
THE COURT: Come up here please?
THE CLERK: What is your age?
(There is no response from the defendant.)
THE CLERK: How old are you?
MISS SUTTON: Fifty seven.
THE CLERK: What is your birthday?
MISS SUTTON: April 3rd, 1921.
THE CLERK: Elizabeth Sutton under warrant 47818122, the State of Maryland charges you with assault. Counsel your name and plea for the record?
MR. HOFFMAN: George Hoffman, Assistant Public Defender, on behalf of Elizabeth Sutton. Miss Sutton has been advised of her right to a jury trial. I will explain that to her, I already have, that a jury is composed of twelve people selected from Baltimore, all of whom would have to agree unanimously beyond a reasonable doubt before she could be convicted. Miss Sutton indicates she understands what a jury is and wishes to waive her right to a jury trial. Is that correct Miss Sutton?
MISS SUTTON: Yes.
MR. HOFFMAN: In addition we would enter a not guilty plea and proceed on an agreed statement of facts. I have advised Miss Sutton by so doing she is waiving her constitutional right to confront the witnesses against her, giving up the right also to later testify and deny the allegation of assault.
*362 Miss Sutton further was advised there have been plea negotiations and that there has been a bench conference as well in relation to this particular case. That all parties in this case feel that there will be a recommendation of probation made, and a suspended sentence, the exact amount of time suspended is up to the Judge, and probation, whatever conditions the Probation Department provides will be left up to them or to the Judge. Do you understand that Miss Sutton?
MISS SUTTON: Yes.
MR. HOFFMAN: Further do you understand the Judge is not bound to give you any particular recommendation but the Judge has indicated that he will give you a probation in this case. Do you understand that?
MISS SUTTON: Yes.
MR. HOFFMAN: We are ready to proceed and the plea is not guilty.
THE COURT: Okay.
MR. LEWIS: The statement of facts would be as follows Your Honor, Mr. Davenport, if he were called to the stand, he is right next to me at trial table, he would testify that on May 17th it is pretty hard to read the facts on this charging document. That on May 17th, 1978, he was in the 2100 block of Saint Paul Street, City of Baltimore, State of Maryland. That at that time Mr. Davenport was sitting on a neighbor's porch. At that time he saw the defendant, at trial table, who he would identify as Elizabeth Sutton, on the corner of 21st Street and Saint Paul. At that time the defendant walked across the street. Mr. Davenport did not say a word to her. At that time the defendant approached Mr. Davenport and spat into his face. Of course Mr. Davenport would testify that he did not give her permission to do this. That he also did not get up from where he was sitting. This happened in the *363 City of Baltimore, State of Maryland Your Honor and that would be the statement of facts.
MR. HOFFMAN: Your Honor, that is an agreed statement of facts, as far as what we are stipulating this witness would have testified had he been called to testify. Is that the whole State's case?
MR. LEWIS: Yes.
MR. HOFFMAN: At this time, merely for the record, I would make a Motion for Judgment of Acquittal. Miss Sutton understands Your Honor part of the plea negotiation is that she is not going to testify and deny the allegations. Is that correct Miss Sutton?
MISS SUTTON: Yes. I live alone. I have no witnesses.
MR. HOFFMAN: That would be the defendant's case Your Honor. As we have no other evidence or any other witnesses to present, at this time we would renew our Motion for Judgment of Acquittal.
THE COURT: Motion is denied.
MR. HOFFMAN: Thank you.
THE COURT: I find her guilty of assault."
After finding the petitioner guilty of assault, the trial court subsequently fined her $250 and placed her on probation for one year. The petitioner appealed to the Court of Special Appeals which affirmed. Sutton v. State, No. 218, September Term, 1979, decided October 31, 1979, unreported. She then filed a petition for a writ of certiorari that we granted. We shall reverse the judgment of the Court of Special Appeals.
The petitioner contends that a plea of not guilty upon an agreed statement of facts is the practical equivalent of a guilty plea because when each of these pleas is tendered, essentially the same rights are waived. She maintains, therefore, that the requirements of Rule 731 c are applicable to a plea of not guilty upon an agreed statement of facts. She asserts that because the record does not affirmatively show *364 that her plea was voluntary and knowing, her conviction must be reversed.
The respondent contends that a plea of not guilty upon stipulated evidence is not the practical equivalent of a guilty plea because when such a not guilty plea is tendered, a trial on the merits results, and nonjurisdictional defects are preserved for appellate review. It maintains, therefore, that the requirements of Rule 731 c are not applicable to such a plea. Finally, it asserts that, in any event, because the record affirmatively shows that the petitioner's plea was voluntary and knowing, her conviction must be affirmed. We do not agree.
In Maryland an accused is permitted to plead guilty. Md. Rule 731 a.[1] An acceptable guilty plea is an admission of conduct that constitutes all the elements of a formal criminal charge. Boykin v. Alabama, 395 U.S. 238, 243 n. 5, 89 S. Ct. 1709, 1712 n. 5 (1969); McCarthy v. United States, 394 U.S. 459, 466, 89 S. Ct. 1166, 1171 (1969); Davis v. State, 278 Md. 103, 110, 361 A.2d 113, 117 (1976). An accused who pleads guilty waives any and all defenses. See Cohen v. State, 235 Md. 62, 68, 200 A.2d 368, 371, cert. denied, 379 U.S. 844, 85 S. Ct. 84 (1964). See also Palacorolle v. State, 239 Md. 416, 421, 211 A.2d 828, 830-31 (1965); Holloway v. State, 8 Md. App. 618, 626, 261 A.2d 811, 815 (1970). In addition, such an accused waives the right to a jury or court trial. Brady v. United States, 397 U.S. 742, 748, 90 S. Ct. 1463, 1469 (1970); Hudson v. State, 286 Md. 569, 599, 409 A.2d 692, 707 (1979). Thus, a plea of guilty, once accepted, is the equivalent of a conviction. Nothing remains but to give judgment and determine punishment. Boykin, 395 U.S. at 242, 89 S.Ct. at 1711-12; Gans v. Warden, 233 Md. 626, 628, 196 A.2d 632, 633 (1964); Biles v. State, 230 Md. 537, 538, 187 A.2d 850, 851, cert. denied, 375 U.S. 852, 84 S. Ct. 111 (1963). Of course, before a plea of guilty is accepted and judgment is rendered, a trial court must determine that the *365 acts admitted by the accused constitute the elements of the crime charged. Boykin, 395 U.S. at 244 n. 7, 89 S.Ct. at 1713 n. 7. See Hudson, 286 Md. at 599, 409 A.2d at 707; McCall v. State, 9 Md. App. 191, 200, 263 A.2d 19, 24, cert. denied, 258 Md. 729 (1970); Holloway, 8 Md. App. at 625, 261 A.2d at 814-15. See also Md. Rule 731 c.
Moreover, an accused who pleads guilty simultaneously waives several constitutional rights including the privilege against compulsory self-incrimination, the right to trial by jury, and the right to confront one's accusers. Boykin, 395 U.S. at 243, 89 S.Ct. at 1712; Davis, 278 Md. at 111, 361 A.2d at 117. Furthermore, although the propriety of the acceptance of a plea of guilty, measured by constitutional standards, is subject to appellate review, Davis, 278 Md. at 118, 361 A.2d at 121; Lowe v. State, 111 Md. 1, 14-16, 73 A. 637, 638-39 (1909); see Gleaton v. State, 235 Md. 271, 276, 201 A.2d 353, 356 (1964); see also English v. State, 16 Md. App. 439, 443, 298 A.2d 464, 467, cert. granted, 268 Md. 748 (1973), cert. dismissed as improvidently granted, July 3, 1973, an accused who pleads guilty ordinarily waives all nonjurisdictional defects in the proceedings. Treadway v. Warden, 243 Md. 680, 682, 220 A.2d 907, 908 (1966). See Stevenson v. State, 37 Md. App. 635, 638, 378 A.2d 209, 211 (1977). It is because of these significant consequences that before a guilty plea is accepted, an accused is entitled to a determination, affirmatively shown on the record, that the plea is voluntary and knowing. Boykin, 395 U.S. at 244, 89 S.Ct. at 1713; Davis, 278 Md. at 118, 361 A.2d at 121; Md. Rule 731 c.
Here the record shows that after the case was called to trial the attorney for the petitioner asked whether the trial court wished "to proceed by way of a guilty plea, on an Alford plea, or a not guilty statement of facts with the defendant not testifying and submitting." The trial court responded, "Not guilty statement of facts." In response to this direction, the attorney for the petitioner tendered a plea of not guilty upon agreed facts. The petitioner was advised that she was charged with assault. While she was not questioned by the trial court, she did indicate agreement with her attorney's *366 assertions that she was waiving her right to a jury trial, to confront witnesses, to testify, and to deny the allegations of assault. She further agreed with her attorney's assertion that she was advised of the terms of a plea bargain and was told that the trial court had indicated that she would be placed on probation although the trial court was not bound by that agreement.
The State then presented an agreed statement of facts that delineated conduct that showed an apparent assault and that raised no defense. At the close of the State's case, the petitioner, "merely for the record," made a motion for judgment of acquittal that was denied. Thereafter, she presented no evidence and renewed her motion for judgment of acquittal that was again denied.
Trying a case on an agreed statement of facts ordinarily does not convert a not guilty plea into a guilty plea. See Covington v. State, 282 Md. 540, 542, 386 A.2d 336, 337 (1978); Stevenson v. State, 37 Md. App. 635, 636, 378 A.2d 209, 210 (1977). But here the totality of the circumstances, and in particular, the facts that the petitioner's plea was entered at the direction of the trial court and that she was aware that she would be placed on probation, shows that the proceeding was not in any sense a trial and offered no reasonable chance that there would be an acquittal. Under these particular circumstances, the petitioner's plea was the functional equivalent of a guilty plea. As the Supreme Court stated in McCarthy, 394 U.S. at 472, 89 S.Ct. at 1174:
"It is, therefore, not too much to require that, before sentencing defendants to years of imprisonment, district judges take the few minutes necessary to inform them of their rights and to determine whether they understand the action they are taking."
Accordingly, we now hold that under circumstances such as these, the requirements of Rule 731 c are applicable. Under these limited circumstances, there must be an affirmative showing on the record that the trial court determined that "the plea is made voluntarily, with understanding of *367 the nature of the charge and the consequences of the plea." Courts in other jurisdictions that have considered the same or similar questions agree.[2]
The only remaining question is whether the record affirmatively shows that the petitioner's plea was made in accordance with the requirements of Rule 731 c. The record shows that it was the trial court and not the petitioner or her attorney that determined that the plea of not guilty upon agreed facts was to be tendered. In addition, the petitioner was not questioned on the record to determine whether her plea was made as a result of coercion, terror, inducements or threats. Boykin, 395 U.S. at 242-43, 89 S.Ct. at 1712; Lowe, 111 Md. at 14, 73 A. at 638. See Hudson, 286 Md. at 595, 409 A.2d at 705. While the petitioner was told that she was charged with assault, she was not told of the maximum permissible length of sentence. Boykin, 395 U.S. at 245 n. 7, 89 S.Ct. at 1713 n. 7. See Mathews v. State, 15 Md. App. 686, 688-92, 292 A.2d 131, 133-34 (1972); Duvall v. State, 5 Md. App. 484, 487, 248 A.2d 401, 403 (1968). These facts establish that there was not compliance with the requirement of *368 Rule 731 c that the record affirmatively show that the trial court determined that "the plea [was] made voluntarily, with understanding of the nature of the charge and the consequences of the plea."
Under the particular facts and circumstances of this case, the petitioner must be afforded the opportunity to plead anew. See McCarthy, 394 U.S. at 468-72, 89 S.Ct. at 1172-74. Accordingly, we shall reverse and remand for further proceedings consistent with this opinion.[3]
Judgment of the Court of Special Appeals reversed.
Case remanded to that court with directions to reverse the judgment of the Criminal Court of Baltimore, and to remand the case to that court for further proceedings in accordance with this opinion; pursuant to Maryland Rule 882 f, costs are not reallocated.
NOTES
[1] Rule 731 a provides in pertinent part:
"A defendant may plead not guilty, guilty, or, with the consent of the court, nolo contendere."
[2] Courts in several jurisdictions have recognized that when a not guilty plea procedure is the functional equivalent of a guilty plea, the requirements of rules analogous to Rule 731 c are applicable. See, e.g., United States v. Strother, 578 F.2d 397, 402-05 (D.C. Cir.1978); United States v. Dorsey, 449 F.2d 1104, 1107-08 (D.C. Cir.1971); United States v. Brown, 428 F.2d 1100, 1102-04 (D.C. Cir.1970); Julian v. United States, 236 F.2d 155, 156-59 (6th Cir.1956); State v. Encinas, 117 Ariz. 165, 571 P.2d 662, 663-64 (1977); State v. Woods, 114 Ariz. 385, 561 P.2d 306, 308-09 (1977); Bunnell v. Superior Court, 13 Cal. 3d 592, 119 Cal. Rptr. 302, 308-11, 531 P.2d 1086, 1092-95 (1975); In re Mosley, 1 Cal. 3d 913, 83 Cal. Rptr. 809, 813-17, 464 P.2d 473, 477-81 (1970); People v. Smith, 70 Cal. App. 3d 306, 138 Cal. Rptr. 783, 787-88 (Ct. App. 1977); Glenn v. United States, 391 A.2d 772, 773-76 (D.C. 1978); People v. Smith, 59 Ill. 2d 236, 242, 319 N.E.2d 760, 764 (1974); People v. Stepheny, 56 Ill. 2d 237, 238-40, 306 N.E.2d 872, 873-74 (1974); People v. Russ, 31 Ill. App. 3d 385, 388-93, 334 N.E.2d 108, 109-15 (1975).
Some Federal courts have stated that although a not guilty plea procedure may be the functional equivalent of a guilty plea, the requirements of Fed. R. Crim. P. 11 are inapplicable. While the inquiry prescribed by Fed. R. Crim. P. 11, which is far more extensive than that prescribed by Md. Rule 731 c, is not required, these courts do require some inquiry to be made to assure that an accused's waiver of constitutional rights is voluntary and knowing. See, e.g., United States v. Miller, 588 F.2d 1256, 1263-64 (9th Cir.1978); United States v. Lawriw, 568 F.2d 98, 105 (8th Cir.1977); United States v. Terrack, 515 F.2d 558, 560-61 (9th Cir.1975). See also Cox v. Hutto, 589 F.2d 394, 395-96 (8th Cir.1979). One State court reaches a similar result. Commonwealth v. Tate, 487 Pa. 556, 410 A.2d 751, 754 (1980).
[3] In view of our decision, we need not consider the petitioner's contention that there was not compliance with the requirements of Rule 735 d because there was no affirmative showing on the record that her waiver of her right to a jury trial was voluntary and knowing.
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839 F.2d 263
10 Employee Benefits Ca 1197,10 Employee Benefits Ca 1203,24 Fed. R. Evid. Serv. 1006Charles DANIEL, Plaintiff-Appellant,v.EATON CORPORATION, et al., Defendants-Appellees.
No. 86-5664.
United States Court of Appeals,Sixth Circuit.
Argued Dec. 4, 1987.Decided Feb. 9, 1988.On Motion for Reconsideration March 17, 1988.
Hollis L. Searcy, argued, Richard L. Masters, Louisville, Ky., for plaintiff-appellant.
John T. Ballantine, David A. Harris, Ogden, Robertson and Marshall, Louisville, Ky., Harry T. Quick, argued, Benesch, Friedlander, Coplan & Aronoff, Cleveland, Ohio, for defendants-appellees.
Before LIVELY, Chief Judge, KENNEDY, Circuit Judge, and PECK, Senior Circuit Judge.
LIVELY, Chief Judge.
1
The plaintiff, Charles Daniel, appeals from a judgment of the district court denying his demand for early retirement benefits from his former employer, defendant Eaton Corporation (Eaton). Because of the unsatisfactory state of the district court record, and procedural missteps, we must remand the case for further proceedings.
I.
2
Daniel was first hired by Shuler Axle Company of Louisville, Kentucky (Shuler) on January 5, 1953. After several breaks in his employment, Daniel returned to work at Shuler on May 3, 1954, and worked continuously until he was placed on layoff in December 1982. The Louisville plant was closed on February 6, 1983. Shuler employees were represented by the United Auto Workers union (UAW) when Daniel was hired and throughout his employment. Eaton purchased Shuler during Daniel's period of employment, and Daniel was covered by "Pension Plan A-1 of the UAW Master Division" (the Plan) at the time of the Louisville plant's closing. The Plan provided that an employee is eligible for early retirement benefits if he has thirty or more years of "credited service" at the time he elects early retirement.
3
After learning of the plans to close the Louisville plant Daniel applied to Eaton for early retirement benefits. Following discussions between UAW and Eaton, William C. Rommel, the administrator of pensions for Eaton, advised UAW that Daniel had 29.2 years of credited service as of February 6, 1983. Thus, Daniel was not eligible for early retirement benefits under the Plan. The letter from Rommel stated that Daniel was fully vested under the Plan for retirement benefits upon reaching the normal retirement age of 65. Daniel was 49 years old when the plant closed.
4
Daniel objected to Eaton's calculation of 29.2 years of credited service. On June 21, 1983, Richard T. Kennedy of Eaton's employee relations staff wrote Daniel's attorney. In this letter Kennedy enclosed a form for an appeal of Eaton's determination to the Central Board of Administration for the Plan, a body composed of two members appointed by Eaton and two appointed by the UAW. Kennedy also set forth in detail the calculation of Daniel's years of credited past, future and broken service and Eaton's construction of the credited service provisions of the Plan. This letter disclosed that Eaton treated Daniel as a new hire as of May 3, 1954, and that its records designated Daniel a "voluntary quit" as of February 17, 1954, when he had been off work for six months without making a written request to return.
5
On July 7, 1983, Daniel's attorney acknowledged Kennedy's letter and requested copies of the Plan and the collective bargaining agreement in effect between the union and Shuler on February 17, 1954. On April 10, 1984, after Daniel had commenced this action, Kennedy provided a copy of the Plan to Daniel's attorney and advised that he had been unable to locate a copy of the collective bargaining agreement in effect in 1954.
II.
A.
6
Daniel filed suit on April 6, 1984, naming Eaton Corporation, Mellon Bank, Trustee under the plan and Richard T. Kennedy as defendants. The only basis of jurisdiction set forth in the complaint is section 502(e) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Sec. 1132(e) (1982). Daniel recited his dispute with Eaton over credited service and alleged that after Eaton had denied his application for early retirement benefits, he submitted an appeal on September 1, 1983, to the Central Board of Administration, but that no action had been taken on his appeal. In the complaint, Daniel stated that Richard T. Kennedy "has been an administrator of Pension Plan A-1."
7
In Count I of the complaint Daniel sought recovery from Eaton and Mellon Bank of all past due benefits with interest, and an order requiring Eaton and Mellon "to instate" Daniel as a beneficiary with a monthly pension of $935 and all fringe benefits provided under the Plan. In Count II Daniel asked the court to require Eaton and Kennedy to pay him a penalty of $100 per day pursuant to Sec. 502(c)1 of ERISA for failure to furnish a copy of the Plan within 30 days of his request. He also prayed for an award of attorney's fees and a jury trial.
8
In their amended answer the defendants admitted that Daniel was first hired on January 5, 1953, and was a participant in the Plan, but denied any wrongful acts or that their calculations were incorrect. They admitted that Kennedy had been an administrator of the Plan, but stated that he was no longer administrator. The answer also asserted affirmative defenses based on the alleged requirements of the 1954 collective bargaining agreement between Shuler and UAW that an employee in layoff status must make a written request to return to work every six months, and the Kentucky Statute of Limitations.
B.
9
Section 502(a)(1)(B) of ERISA provides that a participant or beneficiary of a plan may bring a civil action "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan[.]" Although Daniel cited section 502(a)(1)(B) in Count I, it is clear that he sought to recover from Eaton as his employer, not as the Plan administrator. The only reference to the Plan administrator is in Count II. In effect, Daniel sought to recover from Eaton for breach of contract, and this was the basis of his demand for a jury. Daniel also argued in the district court that Eaton was estopped to deny his entitlement to early retirement benefits on the basis of alleged activities of Shuler representatives during his layoff between August 17, 1953, and May 3, 1954. This argument is repeated on appeal.
10
The Plan provides for administration by the Central Board of Administration, heretofore referred to, and a Local Pension Committee at each plant, also consisting of four members, two each named by Eaton and the union. On February 28, 1983, the Local Pension Committee of the Louisville plant calculated Daniel's credited service as 29.2 years and authorized a deferred vested pension of $531.44 per month at age 65. (Plaintiff's Exhibit 4). This reflected the decision referred to in Rommel's letter of February 17th. Daniel appealed the determination of 29.2 years of credited service to the Central Board of Administration, but the appeal was never acted upon.
C.
11
The complaint did not name either the Local Pension Committee or the Central Board of Administration as a defendant. In Barrett v. Thorofare Markets, 452 F.Supp. 880 (W.D.Pa.1978), an action against the plaintiff's former employer for wrongful denial of early retirement benefits was dismissed on the employer's motion as having named the wrong party defendant. The court held that the pension committee was the only proper defendant against whom relief could be granted. The committee was responsible for administering and interpreting the plan and was solely responsible for a denial of benefits. Id. at 884. Unless an employer is shown to control administration of a plan, it is not a proper party defendant in an action concerning benefits. Boyer v. J.A. Majors Company Employees' Profit Sharing Plan, 481 F.Supp. 454, 457-58 (N.D.Ga.1979). See also Foulke v. Bethlehem 1980 Salaried Pension Plan, 565 F.Supp. 882 (E.D.Pa.1983) (employer's motion to dismiss denied because of evidence that it had taken an active part in administration of the plan).
12
Eaton did not seek dismissal of Daniel's claims against it. Instead, it advised the district court in a trial brief that "the only proper defendant here is Eaton Corporation as Plan Administrator." Although the record contains no inkling of how administration of the Plan was taken over by Eaton from the local Pension Committee and the Central Board of Administration, the district court and the parties proceeded on the basis of treating Eaton as the administrator.
III.
A.
13
We consider the Count I claim first. To the extent that Daniel sought recovery from Eaton for breach of contract or on the theory of promissory estoppel, such claims are preempted by ERISA, since these claims "arise from the administration of [the Plan]." Blakeman v. Mead Containers, 779 F.2d 1146, 1151 (6th Cir.1985); Ellenburg v. Brockway, Inc., 763 F.2d 1091, 1095 (9th Cir.1985). With certain exceptions not material here, state law actions related to employee benefit plans are preempted by ERISA. Section 514(a), 29 U.S.C. Sec. 1144(a). Common law causes of action are preempted whether the state laws are specifically designed to affect employee benefit plans or not. Pilot Life Insurance Co. v. Dedeaux, --- U.S. ----, 107 S.Ct. 1549, 1553, 95 L.Ed.2d 39 (1987). ERISA embodies a comprehensive civil enforcement scheme with respect to claims for employment benefits which "represents a careful balancing of the need for prompt and fair claims settlement procedures against the public interest in encouraging the formation of employee benefits plans." 107 S.Ct. at 1556. The preemption provision is integral to this scheme.
14
In view of Eaton's acceptance of responsibility for denial of Daniel's claim, the district court treated the entire action as one under ERISA and Eaton as the Plan's fiduciary acting through the Local Pension Committee and the Central Board of Administration.2 However, instead of reviewing the denial of benefits by the administrator under an arbitrary and capricious standard, the district court granted the parties' request for a trial de novo. This was error. A plan administrator has broad discretion in deciding questions of coverage and eligibility for benefits. This court has held repeatedly that the appropriate determination in reviewing the decision of a plan administrator with respect to a claim for benefits is whether the decision was arbitrary, capricious, made in bad faith or otherwise contrary to law. E.g., Adcock v. Firestone Tire and Rubber Co., 822 F.2d 623, 626 (6th Cir.1987); Blakeman, 779 F.2d at 1149; Moore v. Reynolds Metals Co. Retirement Program, 740 F.2d 454, 457 (6th Cir.1984). We have specifically rejected arguments that de novo review is proper. Adcock, 822 F.2d at 626; cf. Crews v. Central States, etc. Pension Fund, 788 F.2d 332, 336 (6th Cir.1986).
15
The arbitrary and capricious standard of review is applied to these cases in order to avoid "excessive judicial interference with plan administration." Cook v. Pension Plan for Salaried Employees, 801 F.2d 865, 870 (6th Cir.1986) (quoting Miles v. New York State Teamsters Conference Pension and Retirement Fund Employee Pension Benefit Plan, 698 F.2d 593, 599 (2d Cir.), cert. denied, 464 U.S. 829, 104 S.Ct. 105, 78 L.Ed.2d 108 (1983)). As Judge Engel pointed out in Cook, this deferential standard is applied "in the interest of efficient pension administration." 801 F.2d at 871. Each application for benefits implicates the rights of other members of a plan, and the plan administrator views each case from this perspective. By upholding the decisions of an administrator that are rational in light of the plan's provisions and thus not arbitrary or capricious, the courts contribute to consistency and fairness in plan administration.
B.
16
The district court's agreement to the parties' request for a de novo trial was apparently grounded on the fact that the Central Board of Administration failed to render a decision on Daniel's appeal. Daniel sufficiently exhausted his administrative remedies by filing an appeal. However, the failure of the Central Board of Administration to act on his appeal did not give rise to a de novo action. Regulations of the Secretary of Labor promulgated pursuant to section 503 of ERISA, 29 U.S.C. Sec. 1133, contain the following provisions:
17
(h) Decision on review. (1)(i) A decision by an appropriate named fiduciary shall be made promptly, and shall not ordinarily be made later than 60 days after the plan's receipt of a request for review, unless special circumstances (such as the need to hold a hearing, if the plan procedure provides for a hearing) require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of a request for review.
18
29 C.F.R. Sec. 2560.503-1(h)(1)(i).
19
(4) The decision on review shall be furnished to the claimant within the appropriate time described in paragraph (h)(1) of this section. If the decision on review is not furnished within such time, the claim shall be deemed denied on review.
20
29 C.F.R. Sec. 2560.503-1(h)(4).
21
The Supreme Court stated in Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 144, 105 S.Ct. 3085, 3091, 87 L.Ed.2d 96 (1985), that this latter provision "enables a claimant to bring a civil action to have the merits of his application determined, just as he may bring an action to challenge an outright denial of benefits." When a review body fails to act and the claim is deemed denied on review, "[a] claimant's appropriate recourse is then to seek review of the denial by the district court." Folke v. Schaffer, 616 F.Supp. 1322, 1330 (D.Del.1985). However, the standard of review is no different whether the appeal is actually denied or is deemed denied. The role of the district court is the same in either event. That role was described by the court in Wardle v. Central States, Southeast and Southwest Areas Pension Fund, 627 F.2d 820, 824 (7th Cir.1980), cert. denied, 449 U.S. 1112, 101 S.Ct. 922, 66 L.Ed.2d 841 (1981), as follows:
22
A federal court is to focus on the evidence before the trustees at the time of their final decision and is not to hold a de novo factual hearing on the question of the applicant's eligibility. Phillips v. Kennedy, 542 F.2d 52, 54 (8th Cir.1976). As a general matter a court should not resolve the eligibility question on the basis of evidence never presented to a pension fund's trustees but should remand to the trustees for a new determination. See id. at 55 & n. 10; Sturgill v. Lewis, 372 F.2d 400 (D.C.Cir.1966); Pickett v. UMW Health & Retirement Funds, 467 F.Supp. 2 (E.D.Tenn.1978); Ruth v. Lewis, 166 F.Supp. 346, 349 (D.D.C.1958).
23
(Footnote omitted).
24
In addition to the formal action of the Local Pension Committee, the record before the district court included the detailed explanation of reasons for denial of Daniel's application contained in Kennedy's letter of June 21, 1983, together with Daniel's employment records, a copy of the Plan, and the 1954 collective bargaining agreement which Eaton filed during the district court proceedings, although it is not clear whether the latter document was considered by the Local Pension Committee in its initial determination. The denial should have been reviewed by the district court under an arbitrary and capricious standard, taking into account the entire record before the administrator at the time of the determination that Daniel was not entitled to early retirement benefits.
C.
25
Daniel argues on appeal that the district court erred in denying his demand for a jury and in admitting into evidence an unauthenticated copy of the collective bargaining agreement in force between Shuler and UAW at the time of Daniel's 1953-54 layoffs and return to work. Having determined that Daniel's common law claims were preempted by ERISA, we conclude that the district court properly denied Daniel's demand for a jury. Although there may be actions under ERISA in which a jury trial is proper, in actions for recovery of benefits under section 502, "there is no right to a jury trial." Crews, 788 F.2d at 338; Foulke, 565 F.Supp. at 883.
26
With respect to the collective bargaining agreement, if this agreement was not considered by the administrator in denying Daniel's claim, it should not have been considered by the court. If, however, the agreement was part of the record relied upon in making the original determination that Daniel did not qualify for early retirement benefits, we believe there were sufficient indicia of trustworthiness to make the copy admissible. Fed.R.Evid. 803(6) and (24).
IV.
27
The claim under Count II and the prayer for an attorney's fee were addressed to the district court's discretion. Section 502(c) provides that the administrator "may in the court's discretion" be liable to a plan participant or beneficiary "in the amount of up to $100 a day" for failure or refusal to comply with a request for information that the administrator is required to furnish. 29 U.S.C. Sec. 1132(c). Section 502(g) provides that a district court "in its discretion may allow a reasonable attorney's fee" in any action under the subchapter of ERISA which includes section 502.29 U.S.C. Sec. 1132(g).
28
The district court awarded Daniel $25 per day for 278 days ($6,950) for Eaton's failure to supply a copy of the Plan as he had requested. Eaton has not appealed this award, but Daniel maintains that he was entitled to the full amount authorized by the statute--$100 per day. The district court accepted Eaton's explanation that the failure to respond to Daniel's request was not deliberate, but resulted from neglect or misfeasance. Further, the record casts doubt on any claim of prejudice to Daniel by reason of the delay. The complaint was filed before the Plan was furnished, and after receiving the copy, the complaint was not amended. From this it appears that Daniel and his attorney had sufficient information to proceed without the copy. Obviously, Eaton should have responded promptly, and the district court assessed a penalty for Eaton's failure to do so. We cannot say that the district court abused its discretion in making an award that was below the statutory minimum.
29
The district court concluded that it would not be appropriate to award an attorney's fee since Daniel failed to prevail on his principal theory of recovery. Since we are remanding for a review of the record under a standard not originally applied by the district court, the result may be different on the Count I claim. Thus, we vacate the denial of an attorney's fee, and direct that this issue be reconsidered in light of the district court's determination of the Count I claim following remand.
30
Except for the award under Sec. 502(c), which is affirmed, the judgment of the district court is vacated and the case is remanded for further proceedings consistent with this opinion. Eaton will bear the costs of this appeal.
On Motion for Reconsideration
31
The appellees have filed a document styled, 'Motion for Reconsideration and BRIEF in Support of Appellee' in which they request the court to reconsider its original decision filed February 9, 1988, and issue an order remanding this case to the district court with directions to enter judgment in favor of Eaton Corporation. Upon consideration of the motion and brief, the court concludes that it neither overlooked nor misconstrued any issue in this case and, accordingly, the motion is denied. The fact that the district court applied a standard requiring greater deference to the administrator's determination than that directed to be applied by this court's decision is not determinative. The district court must apply the prescribed standard to a proper administrative record and its first duty on remand is to determine whether such a record exists, and if so, whether that record was before it upon the original submission.
32
The motion is denied.
1
Section 502(c), 29 U.S.C. Sec. 1132(c), provides:
(c) Administrator's refusal to supply requested information
Any administrator (1) who fails to meet the requirments of paragraph (1) or (4) of section 1166 of this title with respect to a participant or beneficiary, or (2) who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary (unless such failure or refusal results from matters reasonably beyond the control of the administrator) by mailing the material requested to the last known address of the requesting participant or beneficiary within 30 days after such request may in the court's discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such other relief as it deems proper.
2
Though designated as "trustee" in the Plan, Mellon Bank was actually only the depository of pension funds and the paying agent. It had no responsibility for determining entitlement to or amounts of benefits
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839 F.2d 269
Laura FARMER, Widow of Eugene Farmer, Deceased, Petitioner,v.Lawrence W. ROGERS, Director, Office of Workers'Compensation Programs, United States Department ofLabor, Respondent.
No. 86-4114.
United States Court of Appeals,Sixth Circuit.
Argued Oct. 22, 1987.Decided Feb. 11, 1988.
David M. Taylor (argued), Smith & Carter, Harlan, Ky., for petitioner.
Bruce A. McDonald (argued), Office of the Sol., U.S. Dept. of Labor, J. Michael O'Neill, Benefits Review Bd., U.S. Dept. of Labor, Washington, D.C., for respondent.
Before LIVELY, Chief Judge, WELLFORD, Circuit Judge, and BROWN, Senior Circuit Judge.
LIVELY, Chief Judge.
1
This case arises under the Black Lung Benefits Reform Act of 1977, Pub.L. 95-239, 30 U.S.C. Secs. 901 et seq. (1976 Ed. Supp. II). Section 2 of the 1977 Act amended Sec. 402(f)(1) of the original Black Lung Benefits Act to provide that the term "total disability shall have the meaning given it by regulations of the Secretary of Health and Human Services and the Secretary of Labor, with certain limitations. 30 U.S.C. Sec. 902(f)(1) (1982). The question is whether the Secretary of Labor misapplied the regulations promulgated pursuant to this authority, 20 C.F.R. Secs. 727.203 and 727.205, by placing a burden on the surviving widow of a deceased miner to establish that there were changed circumstances of employment indicating a reduced ability to work. The petitioner contends that such an application is inconsistent with the Act.
I.
2
Eugene Farmer died in a coal mine accident on July 26, 1976, and his widow, Laura Farmer, filed a timely claim for survivor's benefits. The claimant established that her husband had worked in coal mines for approximately 23 years. She also produced X-rays that were interpreted as showing that Eugene Farmer had coal worker's pneumoconiosis at the time of his death. After her claim was denied initially and upon reconsideration, Laura Farmer requested a hearing before an administrative law judge (ALJ).
3
At the hearing before the ALJ Mrs. Farmer produced evidence that her husband's breathing problems, which were of long standing, became much worse during the last months of his life. In June and July 1976 Eugene Farmer was evaluated by two specialists to determine the cause of his respiratory impairment. Dr. O'Neill of the medical faculty at the University of Kentucky concluded from Farmer's history and from reading an X-ray of good quality that the miner had pneumoconiosis. Dr. O'Neill testified by deposition that it was his advice on June 29, 1976, that Eugene Farmer should no longer expose himself to high concentrations of coal dust, and he expressed the opinion that Farmer should leave coal mine work. Dr. Anderson of the University of Louisville medical faculty concurred in the diagnosis of coal worker's pneumoconiosis.
4
Mrs. Farmer testified that her husband had been so weak and short of breath at the time of his visit to Dr. O'Neill that he was unable to do anything requiring exertion. After being told that he had pneumoconiosis, Farmer decided to quit work at the mine, and he informed his employer of his decision. He also hired an attorney to prepare a worker's compensation claim. At this time Farmer was working at a small mine, with no more than ten employees, and he agreed to continue working until the owner could find a qualified replacement. Farmer and the owner were the only employees of the mine qualified to operate the cutting machine, and the owner would need to search for someone to take Farmer's place. The mine was closed for vacation when Farmer made his decision to quit, and he agreed to continue to work temporarily when it reopened while the owner found his replacement.
5
Farmer worked one day after the mine reopened and then was off for a week because of a foot injury. He was killed in a mine accident on the day of his return the following week. Mrs. Farmer testified that her husband was working at his usual job at the time of the accident, and that it was one of the dirtiest in the mine. She stated that he really did not have the strength to work "in the end" and had been completely exhausted when he came home from work. She also testified that after Dr. O'Neill's advice her husband had decided that he could quit because their children were grown and the two of them could "survive" on what he would draw.
6
Mrs. Farmer produced copies of her husband's earnings statements for the years of his coal mine employment. In 1974 Eugene Farmer earned $10,761 and in 1975, $10,560. During the seven months that he lived in 1976, Farmer earned $3,625. Thus, during 1974 and 1975 Farmer had earnings of approximately $880 per month while his earnings fell to $518 per month in 1976. Mrs. Farmer offered this evidence in support of the claim that her husband's condition became progressively worse and that he was not able to carry on his previous activities during the last months of his life.
7
The respondent, the Director of the Labor Department's Office of Workers' Compensation Program (OWCP), offered no evidence at the hearing.
II.
8
The ALJ found that the X-ray evidence raised a presumption under 20 C.F.R. Sec. 727.203(a)(1) (the "interim presumption") that Eugene Farmer was totally disabled at the time of his death due to pneumoconiosis arising from his coal mine employment. However, the ALJ went on to find that this presumption was rebutted under 20 C.F.R. Sec. 727.203(b)(1) by reason of the undisputed fact that Farmer was working at his usual occupation when he was killed, and "[t]here were no changed circumstances of employment indicative of a reduced ability to perform coal mine work." The ALJ reached his conclusion by applying language in 20 C.F.R. Sec. 727.205(b) to this claim.
9
Laura Farmer petitioned the Benefits Review Board (BRB) for review of the ALJ's decision. The BRB agreed that the claimant was entitled to the interim presumption of total disability at the time of death, and that the presumption was rebutted. The BRB stated: "We also affirm the administrative law judge's finding that the evidence failed to establish the existence of changed circumstances resulting in the miner's reduced ability to perform his usual coal mine work under 20 C.F.R. Sec. 727.205."
10
In seeking review and reversal of the BRB decision Laura Farmer argues that 20 C.F.R. Sec. 727.205(b), as applied to a claim by a survivor of a deceased miner, is invalid because it contravenes congressional intent as expressed in the Act. Included in this argument is the contention that both the ALJ and the BRB placed the burden of producing evidence to rebut the interim presumption on the claimant rather than on the Director of OWCP. Mrs. Farmer's second argument is that even if Sec. 727.205(b) is valid, the determination that there was no evidence of changed circumstances of employment is not supported by substantial evidence.
III.
A.
11
Section 402(f)(1) of the original Black Lung Benefits Act, 30 U.S.C. Sec. 902(f)(1) (1970), contained a definition of "total disability" that was frequently construed by the Social Security Administration and some courts to preclude a finding that a miner was totally disabled if he was working as a miner or in comparable employment at the time he made a claim for benefits. The same construction was applied where a deceased miner was working at the time of his death. The Black Lung Benefits Reform Act of 1977 sought to correct this practice by requiring that regulations defining total disability specifically address the circumstance of a miner who continued to work while claiming disability due to pneumoconiosis. Thus, as amended, Sec. 402(f)(1), in pertinent part, provides:
12
(f)(1) The term "total disability" has the meaning given it by regulations of the Secretary of Health and Human Services for claims under part B of this subchapter, and by regulations of the Secretary of Labor for claims under part C of this subchapter, subject to the relevant provisions of subsections (b) and (d) of section 923 of this title, except that--
13
(A) in the case of a living miner, such regulations shall provide that a miner shall be considered totally disabled when pneumoconiosis prevents him or her from engaging in gainful employment requiring the skills and abilities comparable to those of any employment in a mine or mines in which he or she previously engaged with some regularity and over a substantial period of time;
14
(B) Such regulations shall provide that (i) a deceased miner's employment in a mine at the time of death shall not be used as conclusive evidence that the miner was not totally disabled; and (ii) in the case of a living miner, if there are changed circumstances of employment indicative of reduced ability to perform his or her usual coal mine work, such miner's employment in a mine shall not be used as conclusive evidence that the miner is not totally disabled;
15
30 U.S.C. Sec. 902(f)(1) (emphasis supplied).
16
After the adoption of the 1977 Reform Act it was clear that the interim presumption could not be rebutted by showing only that the miner continued to work in a coal mine at the time of his death. Consolidation Coal Co. v. Smith, 699 F.2d 446, 449 (8th Cir.1983).
17
Pursuant to the statutory direction the Secretary of Labor promulgated a regulation codified as 20 C.F.R. Sec. 727.203. As applicable to this case, Sec. 727.203 provides:
18
Sec. 727.203 Interim presumption.
19
(a) Establishing interim presumption. A miner who engaged in coal mine employment for at least 10 years will be presumed to be totally disabled due to pneumoconiosis, or to have been totally disabled due to pneumoconiosis at the time of death, or death will be presumed to be due to pneumoconiosis, arising out of that employment, if one of the following medical requirements is met:
20
(1) A chest roentgenogram (X-ray), biopsy, or autopsy establishes the existence of pneumoconiosis (see Sec. 410.428 of this title);
21
* * *
22
* * *
23
(b) Rebuttal of interim presumption. In adjudicating a claim under this subpart, all relevant medical evidence shall be considered. The presumption in paragraph (a) of this section shall be rebutted if:
24
(1) The evidence establishes that the individual is, in fact, doing his usual coal mine work or comparable and gainful work (see Sec. 410.412(a)(1) of this title);
25
* * *
26
* * *
27
However, the Secretary then dealt more specifically with the "current coal mine employment" problem in Sec. 727.205:
28
Sec. 727.205 Effect of current coal mine employment or coal mine employment at the time of death.
29
In the case of a miner who is working in coal mine employment or was employed in coal mine employment at the time of death, the following shall apply:
30
(a) A deceased miner's employment in a mine at the time of death shall not be used as conclusive evidence that the miner was not totally disabled. In the case of a deceased miner who was employed in a coal mine at the time of death, all relevant evidence, including the circumstances of such employment and the statements of the miner's spouse, shall be considered in determining whether the miner was totally disabled due to pneumoconiosis at the time of death. In the case of a living miner, if there are changed circumstances of employment indicative of reduced ability to perform his or her coal mine work, the miner's employment in a mine shall not be used as conclusive evidence that the miner is not totally disabled.
31
(b) Notwithstanding any other provision of this section, and except as provided in section 411(c)(3) of the act, no miner shall be found to be totally disabled if the miner is found to be doing his or her customary coal mine work or "comparable and gainful work" (see Sec. 410.412(a)(1) of this title) and there are no changed circumstances of employment indicative of reduced ability to perform coal mine work.
B.
32
The ALJ recognized that the fact of Farmer's employment in a mine at the time of his death could not be used as conclusive evidence that he was not disabled. However, applying Sec. 727.205(b) to this claim, he found this fact to be determinative because there was no evidence of changed circumstances of employment indicative of a reduced ability to perform his usual work in the mine. In responding before this court to Mrs. Farmer's argument that the ALJ had put the burden of rebutting the interim presumption on her rather than on the Director, counsel for the Director stated that Mrs. Farmer's own testimony established that there were no changed circumstances, and that this was sufficient to rebut the presumption.
33
Even if we were to conclude that the ALJ and the BRB properly applied Sec. 727.205(b) in this case to require a showing of changed circumstances, we would be constrained to reverse the decision because there is not substantial evidence to support it. The uncontradicted evidence of the claimant established that Eugene Farmer was impaired during the last months of his life by chest pains and breathing problems, and that two medical specialists had diagnosed coal workers' pneumoconiosis as the cause of his impairment. Further, Mrs. Farmer testified that her husband was not able to do his job, had decided to quit the mines and had informed his employer of his decision. Again, this testimony was uncontradicted. Mrs. Farmer testified further that her husband returned to work after receiving Dr. O'Neill's diagnosis only because his employer needed time to find a replacement. If any of this testimony was not true the defendant could have produced the employer or Farmer's co-workers to contradict it. Finally, the claimant produced records that showed a reduction in earnings of approximately 40% in the last seven months of Eugene Farmer's life. The defendant offered no evidence of a reason for this reduction other than the widow's contention that Farmer was unable, by reason of pneumoconiosis, to work as he had in previous years.
34
Mrs. Farmer explained that her husband continued to work at one of the dirtiest jobs in the mine because as a conscientious employee he did not want the mine to close and other miners to lose their jobs because of his decision to quit. Yet, the only evidence the defendant appears to rely on to support the finding that the interim presumption was rebutted is the fact that Farmer continued to work on the cutting machine. The finding that the evidence failed to establish changed circumstances of employment is not supported by substantial evidence on the record as a whole. However, we reverse the decision of the BRB for a more fundamental error.
IV.
35
The ALJ and the BRB erred by requiring evidence that there was a change in the circumstances of Eugene Farmer's employment. If Sec. 727.205(b) is interpreted to apply to a claim by the survivor of a deceased miner, this section would be invalid as contravening Sec. 402(f)(1)(B) of the Act, 30 U.S.C. Sec. 902(f)(1)(B) (1982). That section of the Act has two parts, one addressing claims by survivors of deceased miners and the other addressing claims by living miners. There is no reference in Sec. 402(f)(1)(B)(i), dealing with deceased miners, to changed circumstances of employment. That requirement is found only in Sec. 402(f)(1)(B)(ii), which relates to living miners. Thus Congress said without qualification that a deceased miner's employment in a mine at the time of death shall not be conclusive evidence that the miner was not totally disabled. On the other hand, in the case of a living miner, such employment at the time of claimed disability is conclusive unless there are changed circumstances of employment.
36
It was rational for Congress to require this element of proof from a living miner while not imposing the same burden on, the survivor of a deceased miner. Presumably, evidence of a change in circumstances of employment would be more available to a living miner. Mrs. Farmer's difficulties in describing her husband's actual duties in the mine indicate the hardship that would be imposed upon a survivor to show the existence of changed circumstances.
37
Although Congress included the changed circumstances requirement only in claims by living miners, both the ALJ and the BRB interpreted Sec. 727.205(b) as imposing it upon survivors of deceased miners. This was a clear error of law.
38
The very structure and language of Sec. 727.205 support the view that subpart (b) applies only to claims of living miners. The first sentence of Sec. 727.205(a) merely tracks Sec. 402(f)(1)(B)(i), and provides that a deceased miner's employment in a mine at the time of his death shall not be conclusive evidence that the miner was not totally disabled. The second sentence of Sec. 727.205(a) provides that all evidence shall be considered in the case of a deceased miner who was working at the time of his death. Both refer to a past event--the time of the miner's death. The third sentence shifts to the case of a living miner and tracks Sec. 402(f)(1)(B)(ii), with its provision that employment in a mine at the time of claimed disability shall not be conclusive evidence that the miner is not totally disabled, if there are changed circumstances. The present tense, not the past, is used here. There is no statutory counterpart to Sec. 727.205(b). However, this subsection does not refer to deceased miners and it is also written in the present tense.
39
The only way 20 C.F.R. Sec. 727.205(b) can be reconciled with 30 U.S.C. Sec. 902(f)(1)(B) and 20 C.F.R. Sec. 727.203(b) is to hold that its requirements may be applied only to claims by living miners, and not to those by survivors of deceased miners. There is no statutory authority for imposing upon the widow of a deceased miner the burden of proving changed circumstances of employment, since 30 U.S.C. Sec. 902(f)(1)(B) clearly attaches that requirement only to claims of living miners. The very purpose of the 1977 amendment would be thwarted by the ALJ and BRB's interpretation of the regulations.
40
Once the misapplication of Sec. 727.205(b) is discarded this becomes a simple case of a claimant's establishing entitlement to a presumption of total disability and the respondent's failing to rebut the presumption. Since the respondent has the burden of rebutting a presumption once triggered, and evidence of continued coal mine employment alone is legally insufficient to rebut the interim presumption, Mrs. Farmer was entitled to an award of benefits.
V.
41
One other comment is in order. There has been an unconscionable delay in handling this widow's claim. Eugene Farmer died on July 26, 1976, and Laura Farmer filed her claim on August 30, 1976. More than four years later, on September 5, 1980, the claim was initially denied. Although the claimant promptly sought reconsideration, another year passed before the second denial on December 16, 1981. Again, the widow moved promptly to request a hearing. That hearing was held two and one-half years later, on June 27, 1984. The ALJ did act promptly, rendering his decision on September 26, 1984. There was another two years between the claimant's appeal to the BRB and that body's decision on November 17, 1986.
42
It was never disputed that the claimant was entitled to the interim presumption that Eugene Farmer was totally disabled due to pneumoconiosis as a result of coal mine employment at the time of his death. The only question was whether that statutory presumption was rebutted. Throughout the administrative proceedings the ALJ and the BRB adopted a position that had the effect of placing upon the widow the burden of rebutting the presumption in her favor. This position was based on a misapplication of a regulation that placed the regulation at odds with the statute which set limits on the authority to promulgate regulations defining "total disability."
43
The petition for review is granted, the decision of the BRB is reversed, and the case is remanded with directions to enter a decision awarding widow's benefits to petitioner, Laura Farmer.
44
WELLFORD, Circuit Judge, concurring.
45
I concur in the decision that the Secretary's finding of no changed circumstances of employment is not supported by substantial evidence in light of the record in this case. The proof and reasonable inferences to be drawn therefrom would indicate changed circumstances, including the deteriorating ability of the deceased in attempting to carry out difficult and dirty mining duties after 1975.
46
I therefore concur in parts I, II, and III of the decision and in the result reached.
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01-03-2023
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08-23-2011
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https://www.courtlistener.com/api/rest/v3/opinions/552412/
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920 F.2d 538
3 Fed.Sent.R. 192
UNITED STATES of America, Appellee,v.Michael Joe OLESEN, Appellant.UNITED STATES of America, Appellee,v.Michael Gene LANDON, Appellant.
Nos. 90-1430SI, 90-1025SI.
United States Court of Appeals,Eighth Circuit.
Submitted Sept. 12, 1990.Decided Dec. 4, 1990.
David R. Stickman, Omaha, Neb., for appellant Landon.
Robert Kromminga, Des Moines, Iowa, for appellant Olesen.
Ronald M. Kayser, Des Moines, Iowa, for appellee.
Before WOLLMAN, Circuit Judge, FLOYD R. GIBSON, Senior Circuit Judge, and MAGILL, Circuit Judge.
MAGILL, Circuit Judge.
1
Michael Gene Landon and Michael Joe Olesen pleaded guilty to drug and related charges arising from the same indictment. Landon appeals the district court's amendment of his plea agreement with the government, arguing that the court did not have the authority to make any modifications. Olesen appeals the district court's two-point upward adjustment of his offense level, arguing that the district court erred in making factual determinations pursuant to the Federal Sentencing Guidelines Sec. 3B1.1(c). We reverse the district court's modification of Landon's plea agreement, order a reinstatement of the original agreement and affirm the district court's upward adjustment of Olesen's offense level.
I.
2
On January 19, 1989, the government filed a twenty-nine-count indictment naming Landon, Olesen and seven others. Landon was indicted on January 19, 1989; he entered into a plea agreement on September 6, 1989 in which he agreed to plead guilty to five of the original twenty-nine counts. The counts to which Landon pleaded guilty included possession with the intent to distribute approximately two pounds of cocaine; conspiracy to distribute cocaine; currency transaction violations; and money laundering violations. As part of the plea agreement, Landon agreed to cooperate with the authorities and forfeit all drug-related property he owned. The plea agreement was made pursuant to Rule 11(e)(1)(C) of the Federal Rules of Criminal Procedure. The agreement stipulated that Landon had a category I criminal history and that he had a combined offense level of 34. Therefore, according to the Sentencing Guidelines, the appropriate sentencing range was 151-188 months. The agreement also stipulated that "pursuant to Rule 11(e)(1)(C) that a term of imprisonment of 151 months and no fine would be an appropriate disposition in this case." Brief for Appellant at Add. 11 (emphasis in original).
3
The district court unconditionally accepted the plea agreement on September 7, 1989, ordered a presentence report to be disclosed by October 20, 1989, and scheduled sentencing for December 28, 1989. The Presentence Investigation Report stated that Landon had a category II criminal history and recommended that the district court sentence Landon from 324 to 405 months. The government accused Landon of breaching the plea agreement by refusing to provide certain testimony and failing to turn over drug-related assets. Landon petitioned for a writ of mandamus to compel the district court to enforce the original plea agreement; the Eighth Circuit denied the writ of mandamus.
4
On February 14, 1990, the district court issued findings of fact and an order reforming the plea agreement. In its conclusions of law, the court denied Landon's request for specific performance of the original plea agreement and modified the term of imprisonment portion of the agreement to reflect a category II criminal history. This modification resulted in an increase of seventeen months in the term of imprisonment. The district court gave Landon eight days to decide whether he would accept the reformed agreement and informed him that failure to accept the agreement would result in the court's rejection of his previous guilty plea and that the district court would then enter a not guilty plea and commence trial on March 9, 1990. On February 21, 1990, Landon accepted the court's reformed plea agreement.
5
Landon appeals the district court's modification of his plea agreement and seeks reinstatement of the original sentence of 151 months.
6
In Olesen's plea agreement, he pleaded guilty to one count of conspiracy to distribute cocaine. At Olesen's sentencing hearing, the district court found that Olesen deserved a two-point increase in his base offense level for his role as an organizer, leader, manager, or supervisor pursuant to Sentencing Guidelines Sec. 3B1.1. In support of this decision, the district court found that Olesen set his own prices, decided whom he would sell to and how much he would sell. The district court also noted that the circumstances surrounding Olesen's offense required a considerable amount of organization and that based on the quantities of cocaine he sold one could reasonably conclude that other people would resell the cocaine they bought from Olesen. The district court concluded:
7
[Olesen] supervised his own operation, managed his own operation and distributed to persons both for their own use and for further distribution. And that he was not directed and forced into such things, as pricing, by others. He could do that on his own.
8
....
9
And in addition, the fact that although he is in an organizational role, which aggravates it, it is a relatively close question on that, which is to say it wasn't a major organizational role, even though a supervisory role it was.
10
Sentencing Transcript at 44-46. Olesen now argues that these findings are erroneous and the subsequent two-point increase was therefore improper.
II.
A. Michael Gene Landon
1. Rule 11
11
Landon argues on appeal that the district court violated Rule 11 of the Federal Rules of Criminal Procedure when it modified a plea agreement after unconditional acceptance. Rule 11 specifically describes the appropriate procedure for accepting plea agreements. District courts are prohibited from participating in any plea-bargaining discussions. The rule states that when parties reach a plea agreement that defines a specific sentence as the appropriate disposition of the case, a district court may "accept or reject the agreement, or may defer its decision as to the acceptance or rejection until there has been an opportunity to consider the presentence report." Fed.R.Crim.P. 11(e)(2). Once a court has accepted an agreement, however, there is no provision in the rules that allows it to reject or modify the agreement. If the government or the court does not adhere to the terms of a plea agreement, a defendant has two remedies, namely, specific performance of the plea agreement or withdrawal of the plea. United States v. Jefferies, 908 F.2d 1520, 1526 (11th Cir.1990) (plea agreement that stipulates thirteen grams of cocaine in offense with governmental promise to make no attempt to influence court prohibits sentencing court from considering fifteen kilograms of cocaine mentioned in presentence report).
12
Appellate courts have consistently prohibited district courts from interfering in the plea bargaining process. In United States v. Werker, 535 F.2d 198 (2d Cir.1976), a district court was about to intervene in the plea bargaining process and tell the defendant what sentence would be imposed if the defendant pleaded guilty. Id. at 201. The government sought and obtained a writ of mandamus to prevent the district court from revealing this information. Id. at 200. The Second Circuit held that Rule 11 unequivocally prohibited the judge from intervening in this way. Id. at 202.
13
In United States v. Cruz, 709 F.2d 111 (1st Cir.1983), the court unconditionally accepted a plea agreement whereby the defendant pleaded guilty to a misdemeanor narcotics possession. Two months later the district court reversed itself and rejected the plea on the grounds that it was too lenient in light of the presentencing report. The First Circuit overruled the district court, saying "once the court accepted the agreement, thereby binding the defendant and prosecution, it could not simply change its mind based on information in the presentence report, at least where that information revealed less than fraud on the court." Id. at 114-15.
14
Courts have ruled, however, that there are circumstances where a district court may bypass the limits of Rule 11. In United States v. Partida-Parra, 859 F.2d 629 (9th Cir.1988), the court held that a district court may go beyond the bounds of Rule 11 when there is a fraud on the court. Id. at 632. The Ninth Circuit went on to distinguish factual mistakes from fraud: "We have found no authority that empowers the court to abrogate a plea agreement to relieve one party of its own mistake." Id. at 633. In this case, however, neither the government nor the court argues fraud, so the exception is not available.
15
Applying the reasoning of Jefferies, Werker, Cruz, and Partida-Parra, we hold that Rule 11 does not authorize a district court to intervene in the plea agreement process absent a showing of fraud.
2. Contract Law Analogy
16
To support the court's reformation of the plea agreement, the government relies on contract law doctrines. This comparison is not novel. Other courts have compared accepted plea agreements to contracts.1 In United States v. Weaver, 905 F.2d 1466 (11th Cir.1990), the court applied contract principles to a government letter granting immunity to a criminal defendant. In responding to the defendant's claim that there was a mutual mistake in the "contract," the court said:
17
[R]eformation of a written agreement is warranted only when the evidence demonstrates that the parties' mutual mistake resulted in a written document which does not accurately reflect the terms of their agreement. Consequently, reformation is generally, without more, not an available remedy where the evidence demonstrates mistake or change of mind of only one of the contracting parties.
18
Id. at 1472 (citations omitted). Applying this principle to Landon's plea agreement, there was no mistake in Landon's mind about the term of imprisonment. Landon is further justified in relying upon the specific time period in the plea agreement because the government had the Rule 11(e)(1)(B) option of agreeing to recommend a specific sentence; instead, the government chose to promise a specific term of imprisonment pursuant to Rule 11(e)(1)(C).
19
Plea agreements are like contracts; however, they are not contracts, and therefore contract doctrines do not always apply to them. United States v. Zweber, 913 F.2d 705, 711 (9th Cir.1990). In Zweber, the defendants pleaded guilty to possessing cocaine with intent to distribute. Pursuant to the plea agreement, the government agreed to recommend certain reductions to decrease their sentences. Id. at 707. At sentencing, the court granted no reductions or downward departures and denied the defendants' subsequent motion to withdraw their guilty pleas. Id. On appeal, the defendants argued that the plea agreement was void because both parties to the agreement were mutually mistaken about the law governing the Guidelines. Id. at 711. In rejecting this argument, the Ninth Circuit said that "[t]he fact that the mistake in this case was mutual does not support the defendant's claim.... Analogies to contract law in this setting are not perfect." Id.
20
This court has also acknowledged the inherent limits of the contract analogy. In United States v. Vogt, 901 F.2d 100 (8th Cir.1990), we applied contract principles to decide that the government waived its right to complain of the defendant's breach by waiting ten weeks before seeking to vacate the plea agreement. Vogt, 901 F.2d at 102. After applying the Restatement (Second) of Contracts, we noted that " 'contract principles provide a useful means by which to analyze the enforceability of plea agreements.' " Id. (emphasis added) (quoting United States v. Vogt, No. Cr. 88-39, Order at 2 (N.D.Iowa July 12, 1989)).
21
In United States v. Pelletier, 898 F.2d 297 (2d Cir.1990), the government used immunized testimony in arguing that the defendants' false testimony resulted in a breach of the agreement that granted their immunity. Id. at 301. Although the court recognized the strong influence of contract law principles on such agreements, it held that due process requires "that [the] government adhere to the terms of any plea bargain or immunity agreement it makes." Id. The court rejected the government's breach of contract argument stating that due process required a deviation from normal commercial contract law. Id. at 302.
22
In Partida-Parra, the Ninth Circuit specifically refused to apply the contract doctrine of mutual mistake to plea agreements. 859 F.2d at 634. Recognizing the limitation of the plea agreement/contract analogy, the court held that district courts could not "revisit an accepted plea to consider whether [a] 'contract' was formed (as distinct from considering whether it was breached)." Id.
23
When the district court told Landon that it would not have accepted the guilty plea had it known of the mistaken criminal history classification, it was attempting to "revisit" the original plea agreement because of a mutual mistake. Even though the contract law analogy may seem to invite such revisitations, they are simply not allowed.
3. Judicial Objectivity
24
The need to preserve judicial objectivity also militates against allowing district courts to modify plea agreements. Judicial involvement in plea negotiations could lead a defendant to believe that refusal of a court-supported plea offer would result in an unfair trial. The risk of not going along with the disposition that a judge apparently desires might lead a defendant to plead guilty even if innocent. Judicial involvement in the process also makes it more difficult for the judge to determine whether a plea was entered voluntarily. Furthermore, the unequal bargaining power of the judge and the accused raises obvious questions of fundamental fairness. The court is supposed to be an objective arbiter between the government and the individual. Participation in the plea bargaining process endangers the court's objectivity and thus could further undermine the criminal justice system.2
25
The government argues that even if the original plea agreement was breached, Landon accepted a subsequent agreement that cured the breach. In support of this argument, the government cites United States v. Holman, 728 F.2d 809 (6th Cir.1984), where the district court had unconditionally accepted a Rule 11(e)(1)(C) plea agreement. Id. at 811. Upon reading the presentence report, the district court decided to reject the plea agreement and give the defendant an opportunity to withdraw his plea. Id. The defendant withdrew his plea, and his subsequent motion to have the original plea reinstated was denied. Id. The defendant then entered into a new plea agreement, which the court accepted. Id. The Sixth Circuit held that even though the district court improperly rejected the original plea agreement, the defendant's second plea agreement was made with "a full understanding of the possible consequences [and therefore] cured any prejudice possible from the first proceeding." Id. at 813.
26
Although Landon did enter into a second plea agreement after the district court rejected the original agreement, the circumstances were significantly different. Because the second plea agreement was the result of the district court's improper reformation of the original plea agreement, the second plea agreement does not cure the problems of the original plea agreement. If the district court had merely rejected the agreement and allowed the parties to renegotiate, this court could have affirmed the sentence based on the subsequent plea agreement. When the district court modified the original plea agreement in its conclusions of law on February 14, 1990, it violated Rule 11. Furthermore, by telling Landon that he had eight days to make up his mind and that the district court would not accept Landon's former plea, the district court became even more of an advocate for its proposed reformation. Rule 11's absolute prohibition against judicial involvement in plea bargaining is specifically designed to prevent this loss of objectivity.
27
Therefore, since the district court did not have the authority under Rule 11 or under any of the relevant contract theories to modify Landon's original plea agreement, we reverse the district court and remand for reinstatement of the original plea agreement.
B. Michael Joe Olesen
28
Olesen argues on appeal that the district court improperly increased his criminal offense level by two points after finding he was an organizer, leader, manager or supervisor. This court reviews district court factual determinations pursuant to Sentencing Guidelines Sec. 3B1.1 under a clearly erroneous standard. 18 U.S.C. Sec. 3742(e)(4); United States v. Hoelscher, 914 F.2d 1527, 1544 (8th Cir.1990). Application Note 3 to Sec. 3B1.1 states:
29
Factors the court should consider include the exercise of decision making authority, the nature of participation in the commission of the offense, the recruitment of accomplices, the claimed right to a larger share of the fruits of the crime, the degree of participation in planning or organizing the offense, the nature and scope of the illegal activity, and the degree of control and authority exercised over others.
30
U.S.S.G. Sec. 3B1.1, comment. (n. 3) (Nov.1990). In United States v. Streeter, 907 F.2d 781 (8th Cir.1990), this court held that it was not clearly erroneous for the district court to find a leadership role when the defendant had exclusive control over the marijuana plants and other persons participated in the cultivation of the plants. Id. at 792. Here, the district court found that Olesen controlled both the pricing and distribution of cocaine and that his profits indicated he performed an aggravating role in a large conspiracy. Furthermore, the district court found that the amount Olesen sold to individuals made it reasonable to conclude that some of his buyers were reselling the cocaine they purchased from him. That not every reasonable person would necessarily reach the same conclusion is irrelevant. The district court's explanation of its conclusion is not clearly erroneous, and we therefore affirm.
III.
31
For the foregoing reasons, we reverse the district court's reformation of Landon's plea agreement and remand for specific performance of the original agreement. We affirm the district court's two-point increase in Olesen's sentence for his role as leader/manager/supervisor.
1
See United States v. Mandell, 905 F.2d 970, 973 (6th Cir.1990); United States v. Vogt, 901 F.2d 100, 102 (8th Cir.1990); United States v. Arnett, 628 F.2d 1162, 1164 (9th Cir.1979); see also Santobello v. New York, 404 U.S. 257, 262, 92 S.Ct. 495, 498-99, 30 L.Ed.2d 427 (1971) (when plea significantly rests on prosecutor's promise, promise is part of consideration). Using this approach, courts look to the reasonable beliefs of defendants at the time a plea is entered to determine whether a plea agreement has been breached. Mandell, 905 F.2d at 973. In this case, there is no question that Landon thought he was agreeing to a sentence of 151 months. Therefore, any reformation of Landon's plea agreement that changed the period of imprisonment would be a breach of the agreement. The remedy for such a breach is either specific performance of the original agreement or a withdrawal of the plea. Id.; see also Santobello, 404 U.S. at 262-63, 92 S.Ct. at 498-99
2
Some state jurisdictions disagree with this proposition. They believe that judicial involvement in the plea bargaining process increases the efficiency of the criminal justice system. See Ill.Rev.Stat.1973, ch. 110A, Sec. 402(d)(1) (allowing judicial participation in plea discussions disclosed in open court). This view is clearly contrary to the federal rules that prohibit such involvement
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991 S.W.2d 562 (1999)
338 Ark. 61
CITIZENS FOR A SAFER CARROLL COUNTY, Appellants,
v.
Billy Jean EPLEY, Linda Bristow, Susie Hutchinson, Klaus Kupfersberger, Bruce J. Matthews, Jeff Crockett and Quicker Liquor, Inc., Eric Wade Greer, Margaret Work, Virginia Ellis, and Jack Harp, Appellees.
No. 99-151.
Supreme Court of Arkansas.
June 10, 1999.
*563 Billy J. Allred, Huntsville, for appellant.
Marshall N. Carlisle, Fayetteville, and James D. Sprott, Harrison, for appellees.
RAY THORNTON, Justice.
Appellants Citizens for a Safer Carroll County are an organization of concerned citizens and church groups that circulated petitions for a vote on the sale and manufacture of intoxicating liquors in certain townships in Carroll County. They bring this appeal from the Carroll County Circuit Court's decision that certain signatures of persons on their petitions were invalid under Ark.Code Ann. § 3-8-205 (Supp.1997), with the result that in five precincts there were insufficient signatures on the petitions to place the issue on the ballot for the November 1998 general election. Having determined that appellants failed to timely file their notice of appeal within ten days of the decision of the circuit court, as required by Ark.Code Ann. § 3-8-205(e)(1), we dismiss their appeal.
On September 10, 1998, Shirley Doss, Carroll County Clerk, certified that petitions had been filed in her office having a sufficient number of signatures calling for a local-option election on whether alcoholic beverages could be sold in thirteen precincts in Carroll County. Appellees Billy Jean Epley, Linda Bristow, Susie Hutchinson, Klaus Kupfersberger, Bruce J. Matthews, Jeff Crockett and Quicker Liquor, Inc., Eric Wade Greer, Margaret Work, Virginia Ellis, and Jack Harp filed a complaint in Carroll County Circuit Court against the county clerk and the Board of Election Commissioners of Carroll County, challenging the sufficiency of the number of signatures. Appellants, who were responsible for the petitions, were allowed to intervene in the suit. On October 6, 1998, a trial was held and five precincts were struck from the ballot. The trial court found that signatures of persons who had registered to vote after June 1, 1998, were invalid and struck them from the petitions, leaving insufficient numbers of signatures on the petitions at issue in those five precincts. The trial court's order was dated October 15, 1998. The local-option issue did not appear on the ballots in those five precincts in the general election held on November 10, 1998. Appellants filed their notice of appeal on November 12, 1998, urging that the circuit court erred in ruling that Arkansas law required that only those qualified electors who had registered to vote before June 1, 1998, could be counted to determine whether a sufficient number of signatures had been certified to place the issue on the ballot, and requesting that we reverse the trial court and order the Board of Election Commissions of Carroll County to place the issue on the ballot for a special election.
*564 We decline to reach the merits of this appeal because appellants failed to timely file their notice of appeal. While the general appeal time as provided in our own rules, Rule 4(a) of the Rules of Appellate ProcedureCivil, is thirty (30) days, Arkansas Code Annotated section 3-8-205, which provides for the determination of sufficiency of petitions on local option issues, states that if an appeal is taken from the decision of the circuit court regarding the sufficiency of the number of signatures on a petition, "Any appeal from the final decision of the circuit court shall be taken within ten (10) days and shall be advanced and immediately determined by the Supreme Court." Ark.Code Ann. § 3-8-205(e)(1)(Supp.1997).
Appellants respond that the court rule and our rule-making power supersedes the statute's shorter appeal time, and we agree that as a general rule, statutes are given deference only to the extent to which they are compatible with our rules and conflicts which compromise those rules are resolved with our rules remaining supreme. Hill v. State, 318 Ark. 408, 887 S.W.2d 275 (1994). However, there is an exception to this general rule: when the statutory rule is based upon a fixed public policy which has been legislatively or constitutionally adopted and has as its basis something other than court administration. Curtis v. State, 301 Ark. 208, 783 S.W.2d 47 (1990). The principle has been recognized in many cases that when the Legislature fixes a short time for appeal in a particular type of case, and such time so fixed is reasonable, then the short time so fixed must govern rather than the long time allowed by the general appeal statute. Kansas City S. Ry. Co. v. Ark. Commerce Comm'n., 230 Ark. 663, 326 S.W.2d 805 (1959). See also Van Gundy v. Caudle, 206 Ark. 781, 177 S.W.2d 740 (1944); Garrett v. Andrews, 294 Ark. 160, 741 S.W.2d 257 (1987)(upholding limited time of appeal from county court to circuit court under prior law).
We note that the trial court expedited the hearing and its decision in accordance with the time limits established by the statute. The Legislature has adopted a shorter appeal time based upon the strong public policy in favor of resolution of such an issue prior to the time for the general election, and indeed, if appellants had filed their appeal within ten days, it is possible that this case could have been advanced and immediately determined by this court, prior to the general election in November. Rather, appellants did not file their notice of appeal until November 12, 1998, twenty-eight days after the hearing, eighteen days after the time for filing their appeal under the local option statute, and two days after the general election was held on November 10, 1998. Because appellants failed to appeal from the trial court's order within ten days as required by Ark.Code Ann. § 3-8-205, we conclude that their appeal was untimely and dismiss this appeal.
Dismissed.
BROWN, J., concurs.
ROBERT L. BROWN, Justice, concurring.
I agree with the opinion and write to encourage our Committee on Civil Practice to consider an amendment to Rule 4(a) of our Rules of Appellate PracticeCivil making reference to Ark.Code Ann. § 3-8-205(e)(1)(Supp.1997), as an exception to this rule.
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Mr. Justice Chattin
delivered the opinion of the Court.
Plaintiff-in-error, Van Allen . Beaver, hereinafter referred to as defendant, was indicted, tried and convicted *449of the crime of robbery and sentenced to a term of not more than ten years in the State Penitentiary.
Defendant has appealed and the matter is in this Court on the technical record and a narrative bill of exceptions.
Ember Smith was employed as an attendant at a service station located at Calhoun and Third Streets in the City of Memphis. The station was operated by the Spur Oil Company. On October 30, 1964, Smith’s shift was from eleven P.M., until seven A.M., the next morning. About one A.M., a colored man came to the station and stated he wanted a quart' of oil. When Smith went into the station to get the oil, the defendant followed him and hit him in the head. He did not know what defendant hit him with. Defendant took $45.00, Smith’s billfold and driver’s license. He also took a money changer from Smith.
Smith later called the Police and gave them a description of the defendant. He saw the defendant on November 9, 1964, at the Police Headquarters and identified defendant as being the robber. He also identified the money changer and billfold taken from him the night of the robbery. These items had been found in defendant’s apartment by officers pursuant to a search.
Alando Boyd, a Police Officer, went to the service station about one thirty A.M., and talked with Smith who had a knot on his head. He saw spots of blood on the floor of the station.
Lieutenant Donald W. Williams testified he and another officer of the Memphis Police Department arrested defendant on November 8, 1964, on another complaint.
When he was told he was under arrest for investigation, defendant told the officers he had been in the penitentiary and knew his rights; and that before the *450officers could arrest him, he would either hurt them or they would have to hurt him. They had considerable trouble in making the arrest.
After the arrest, a search warrant was obtained and read to the defendant. The officers searched defendant’s apartment and found the billfold and money changer which were later identified by Smith.
Lieutenant "Williams further stated that after finding the money and billfold, he and Inspector Zachary questioned defendant in the presence of Smith on November 10,1964. He stated prior to questioning defendant he was advised that he did not have to make a statement and that anything that he might say might be used against him in court.
Counsel for defendant objected to the admissibility of defendant’s confession. The trial judge promptly excused the jury and heard the following testimony which was ruled admissible by the court and later related by Lieutenant Williams to the jury.
Williams stated he advised defendant he did not have to make a statement, but did not advise him he had a right to Counsel before making the statement.
He further stated defendant admitted he robbed Smith. That defendant stated he went into the station and when Smith turned his head he hit him with his fist. He then took two billfolds from Smith’s pocket, the money and the money changer from his belt.
Anna Davis testified defendant rented the apartment from her. To her knowledge the defendant did not work. She was at home when the officers searched defendant’s apartment. They read the search warrant to her. She *451went into the apartment with them and the wallets were on the floor bnt she did not see the money changer.
The defendant testified in his own behalf and denied he robbed Smith. He stated he was at the Clnb Handy on.the night of the robbery from nine P.M., nntil four A.M., the next morning.
On cross examination he testified he had served nine months for larceny, fifty-nine days for interstate theft, and had received a sentence of three years for forgery. He also stated the Police mistreated him bnt he did not confess nor admit the robbery. He was asked the names of the people he was with at Clnb Handy on the night of the robbery and he replied: “I have forgotten.”
Defendant insists it was error for the trial judge to permit the introduction of the evidence relative to defendant’s confession before the jury. It is the contention of defendant the confession was inadmissible because he was not advised of and did not waive his constitutional right to Counsel before the statement was taken.
Counsel for defendant argues, since Smith had identified Beaver as the man who robbed him and the billfold and money changer had been found in Beaver’s apartment' and identified, the case against defendant had shifted from the investigatory to the accusatory stage, and it was a violation of his constitutional rights to fail to advise defendant of his right to Counsel in the absence of a waiver of his right to Counsel. Counsel relies upon the cases of Escobedo v. State of Illinois, 378 U.S. 478, 84 S.Ct. 1758, 12 L.Ed.2d 977; Campbell v. State, 215 Tenn. 95, 384 S.W.2d 4 (1964); and United States ex rel. Russo v. State of New Jersey, 351 F.2d 429 (3 Cir. 1965).
*452It lias long been the rule in this State the admissibility of a confession in a criminal case is a preliminary question to be determined by the trial judge. He must first determine there is credible evidence a confession has been made and whether it was made freely and voluntarily. Self v. State, 65 Tenn. 244 (1877); Wynn v. State, 181 Tenn. 325, 181 S.W.2d 332 (1944).
The failure of officers to advise one arrested for a crime he is entitled to Counsel and to remain silent are circumstances to be considered by the trial judge in determining the voluntariness of a confession. Hickson v. State, 196 Tenn. 659, 270 S.W.2d 313 (1954); Cordell v. State, 207 Tenn. 231, 338 S.W.2d 615 (1960).
If the one charged with a crime freely and voluntarily confesses to the charge without inducement, coercion or fear, he has not been fundamentally prejudiced, and by voluntarily making the statement he has waived his right to Counsel and to remain silent, although he has not been advised of these rights by the officers.
In the case of Haynes v. State of Washington, 373 U.S. 503, 83 S.Ct. 1336, 10 L.Ed.2d 513 (1963), the Supreme Court of the United States said :
“* * * ‘[T]he question in each case is whether the defendant’s will was overborne at the time he confessed,’ Lynumn v. [State of] Illinois, 372 U.S. 528, 534, 83 S.Ct. 917, 920, 9 L.Ed.2d 922. ‘In short, the true test of admissibility is that the confession is made freely, voluntarily, and without compulsion or inducement of any sort.’ (Citing authority). And, of course, whether the confession was obtained by coercion or improper inducement can be determined only by an examination of all the attendant circumstances.”
*453Unless the evidence heard by the trial judge at the preliminary hearing preponderates against the trial judge’s finding the confession was freely and voluntarily given, this Court cannot say the trial judge erred in admitting it into evidence. Taylor v. State, 191 Tenn. 670, 235 S.W.2d 818 (1950).
We do not think the Escobedo case has changed the foregoing rules or procedure. Nor do we think it is authority for the argument that no statement can be admitted as evidence in a criminal proceeding made by a defendant, after he has been arrested and charged with having committed a crime, tending to incriminate himself without being advised before making the statement he is entitled to Counsel. The decision in Escobedo was expressly limited to the facts of the case.
The specific holding in that case was:
“We hold, therefore, that where, as here, the investigation is no longer a general inquiry into an unsolved crime but has begun to focus on a particular suspect, the suspect has been taken into police custody, the police carry out a process of interrogations that lends itself to eliciting incriminating statements, the suspect has requested and been denied an opportunity to consult with his lawyer, and the police have not effectively warned him of his absolute constitutional right to remain silent, the accused has been denied ‘the Assistance of Counsel’ in volation of the sixth amendment to the constitution as ‘made obligatory upon the States by the Fourteenth Amendment, ’ Gideon, v. Wainwright, 372 U.S. [335], at 342, 83 S.Ct. [792], at 795 [9 L.Ed.2d 799] and no statement elicited by the police during the interrogation may be used against him at a criminal trial.”
*454This holding was approved by this Court in the case of Campbell v. State, supra. It is plain from reading the Escobedo case Escobedo was not advised by the officers of his constitutional right to remain silent. It is also clear Escobedo requested Counsel and was denied that right prior to making the statement.
. In the Itusso case, the Court in finding the confession inadmissible said:
“As to Russo, were we confronted only with the police activity at the police station we could conclude without difficulty that Russo’s statement there made, the equivalent of a confession, was voluntary. But we have more. There was a questioning of Russo at the hospital, the crucial portion of which was conducted by the two police detectives shortly after the operation had been performed and when he was shackled by his ankle to his bed. Russo admitted, as stated previously, his active participation in the attempted holdup. Interrogation of Russo under the circumstances seems repugnant to concepts of fairness. In addition there is the psychiatric testimony tending to show that Russo was susceptible to suggestions and unable to relate his present actions to future consequences. There is the additional problem that even when he was questioned at the police station Russo was in a weakened condition and his arm was still in a sling. These factors, when combined with the lack of any warning to Russo as to his constitutional safeguards to which he was entitled and his illegal detention, could create an inference that the confession was the product of an overborne mind.”
The Russo case also recognizes the rule a defendant may intelligently waive his right to Counsel, although at *455the- time' the confession is made the investigation has reached the accusatory stage.
In the instant case, the defendant told the officers when they arrested him he had been in court before and knew his rights. He was advised before making his statement he had the right to remain silent, but was not advised of his right to Counsel. He did not request Counsel nor was he denied Counsel. There is not one shred of evidence in this record that his statement was induced by hope or fear, or any other illegal means. The defendant testified he did not make the statement to the officers. His defense was an alibi. These issues were decided against him by the trial judge and the jury.
From the record before us, we are unable to say the evidence preponderates against the finding of the trial judge the confession was voluntary and admissible into evidence. Nor do we think the evidence preponderates against a finding the defendant intelligently waived his right to Counsel.
We have been unable to find any authority holding the mere fact that investigating officers failed to advise one charged with a crime he is entitled to Counsel before making an incriminating statement to them ipso facto renders the confession involuntary and inadmissible in evidence.
Defendant’s second assignment is the evidence preponderates against the verdict of the jury and in favor of his innocence.
To dispose of this assignment, we need only to quote the following from defendant’s brief:
“It is regrettable that the Police Officers went to such lengths and used such tactics to obtain a confession *456when the independent proof obtained prior thereto was so overwhelming and the confession was unnecessary to obtain a conviction. ’ ’
Thus, defendant admits that the evidence does not preponderate against the verdict and in favor of his innocence.
The assignments are overruled and the judgment of the trial court is affirmed.
Burnett., Chibe Justice, and White, Dyer, and Creson, Justices, concur.
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991 S.W.2d 308 (1999)
Mary M. STANKIEWICZ, Appellant,
v.
Jesus OCA, Appellee.
No. 2-98-346-CV.
Court of Appeals of Texas, Fort Worth.
April 1, 1999.
Rehearing Overruled May 6, 1999.
*310 Vial, Hamilton, Koch & Knox and Jamison Dean Newberg, Dallas, for Appellant.
Law Office of James M. Stanley and Alfred A. Pandolfi, Fort Worth, for Appellee.
Panel F: LIVINGSTON, DAUPHINOT, and RICHARDS, JJ.
OPINION
TERRIE LIVINGSTON, Justice.
The issue on this restricted appeal is whether appellee Jesus Oca failed to strictly comply with the rules relating to issuance of citation. Because he did not, we affirm.
Background
Oca sued appellant for injuries resulting from an automobile accident. Oca's five attempts to personally serve appellant failed. On Oca's motion for substituted service and supporting affidavit, the court ordered substitute service by leaving the citation at appellant's probable residence "with anyone over the age of sixteen (16) years of age."
According to the return, the process server served appellant personally on February 25, 1998 by "delivering to the within named Mary Stankiewiez [sic]-106 in person a true copy" of all relevant documents. Appellant failed to respond to the citation and, on December 18, 1997, the trial court awarded Oca a default judgment. Appellant challenges the default judgment by restricted appeal. See TEX. R.APP. P. 30.[1]
Appellant raises three issues. She contends that the manner and return of service are defective, that misspelling her name is a fatal defect, and that the citation had the incorrect address. According to appellant's arguments, these defects show that Oca failed to comply with the rules regarding service of citation.[2]
Scope and Standard of Review
In order to sustain a default judgment under direct attack, it is essential that there be strict compliance with the rules relating to the issuance of citation, the manner and mode of service, and the return of process. See Bannigan v. Market Street Developers, Ltd., 766 S.W.2d 591, 592 (Tex.App.Dallas 1989, no writ). The normal presumptions favoring valid issuance, service, and return of citation do not apply. See Primate Construction, Inc. v. Silver, 884 S.W.2d 151, 152 (Tex.1994). Finally, when a default judgment is attacked directly by a restricted appeal, it is essential that strict compliance be shown on the face of the record. See McKanna v. Edgar, 388 S.W.2d 927, 929 (Tex.1965).
Discussion
In her first issue, appellant complains of the manner and return of service. *311 She argues that Oca failed to strictly comply with the authorized manner of service, and that the return creates "inconsistencies and contradictions" rendering it defective.
Under the authority of Rule 106(b), the trial court authorized service to "be by Bubba Harville by leaving a true copy of the citation, the petition in this cause, and this order, with anyone over 16 years of age at 917 Del Paso, # 120, Euless, Tarrant County, Texas." The return reflects personal, rather than substitute service. Thus, appellant's challenge to the manner of service necessarily implies that she could not be personally served because the order authorized substitute service. We disagree.
Personal service is preferred to substitute service. See Mylonas v. Texas Commerce Bank-Westwood, 678 S.W.2d 519, 522 (Tex.App.Houston [14th Dist.] 1984, no writ). Because appellant unsuccessfully attempted to serve appellant in person, he followed the letter of the rule and sought substitute service under rule 106(b). As noted, the return reflects that service was by the preferred method, i.e., in person. Appellant would have us hold that the general rule requiring strict compliance would mandate substitute service when authorized by the court, even if the plaintiff fortuitously encounters the party to be served in person. We think the better rule is that if the trial court does not exclude a preferential method of service, that method of service is still available notwithstanding a properly sought and granted order for substitute service. Therefore, we hold that, unless the trial court's order authorizing substitute service expressly states that substitute service is the exclusive method, a preferential type of service remains available.
Here, the trial court's order authorizing substitute service does not expressly state that substitute service was the exclusive method. Under the rule announced above, we hold that personal service was still available to Oca. Therefore, we overrule appellant's first point insofar as it challenges the method of service.
Also under her first point, appellant challenges the return of service. She argues that the handwritten references to "Rule 106," combined with the trial court's order authorizing substitute service, renders the face of the record insufficient to show that Oca strictly complied with the rules regarding the return of citation. She contends that "106" does not indicate whether it means 106(a) or 106(b). Therefore, the return, she argues, is defective.
Rule 107 governs the return of service. When substitute service is authorized, it provides that proof of service "shall be made in the manner ordered by the court." TEX.R. CIV. P. 107. Here, the court ordered that the return "state when and hoe [sic] the citation was served, and be signed [sic] Bubba Harville or and [sic] sworn to by the person names [sic] above."
The return on the citation states, on its face, when appellant was served (February 25, 1998 at 3 p.m.), how appellant was served (by delivery in person) and is signed by Harville. The court's order required nothing more. Because the face of the return reflects that appellant strictly complied with the court's direction regarding proof of service, we overrule appellant's challenge to the return.
In her second point, appellant asserts that service was defective because appellant misspelled her name. Appellant sued and served "Mary Stankiewiez." Mary's last name is Stankiewicz. In her brief, appellant argues that Oca misspelled her name throughout this lawsuit. Further, she states that the postal service's May 7, 1998 return-to-sender label affirmatively shows the correct spelling of the defendant's name.
The face of record does not show error. In our review, we are limited to reviewing the record as it existed in the trial court at the time the default judgment was entered. See Laidlaw Waste *312 Systems, Inc. v. Wallace, 944 S.W.2d 72, 73 (Tex.App.Waco 1997, writ denied). The only evidence in the record that appellant's name is spelled differently than Oca's spelling is the post office's return-to-sender label. When the trial court clerk attempted to mail the default judgment to the appellant, it had the wrong address. The label with the alleged correct spelling was affixed to the envelope in which the default judgment was returned to the trial court. The label was not before the trial court at the time default judgment was entered, and we will not consider it. See id. Nothing else in the record reflects the alleged correct spelling of appellant's name. Accordingly, the face of the record does not reflect that Oca misspelled appellant's name. We overrule appellant's second point.
In her third and final point, appellant alleges that Oca misidentified appellant's address at all times during this proceeding, and that the misidentification renders service invalid. Oca alleged two different addresses. In his original petition, he alleged the Euless address. Accompanying his motion for default judgment, appellant filed a "Certificate of Last Known Address" which listed a Mansfield, Texas address. Finally, when the trial court clerk attempted to mail a copy of the default judgment to appellant, the clerk mailed it to the Euless address, rather than the Mansfield address. The post office returned the letter with a change of address label. According to the label, appellant lived in Fort Worth. Appellant contends that this consistent misidentification of her address shows a failure to strictly comply with the rules regarding service of process.
To substantiate appellant's claim that Oca had the wrong address when he initially tried to serve appellant in September 1997 and when he actually served appellant in February 1998, the record would have to contain evidence of appellant's address on those dates. The record contains no such evidence. We also note the appellant did not file a motion for new trial to adduce evidence of her address on those dates.
The rule permits substituted service on a motion supported by an affidavit stating the location of usual place of abode. See TEX.R. CIV. P. 106(b). The record contains a motion and supporting affidavit stating that the Euless address was appellant's usual place of abode. Thus, Oca strictly complied with the rule. There is nothing in the record to substantiate appellant's claim that appellant had the wrong usual place of abode. Thus, to sustain appellant's point, we would need to look to extrinsic evidence, i.e., evidence not before the court when default judgment was entered. This we cannot do. See Wallace, 944 S.W.2d at 73. We overrule appellant's third point.
The face of the record does not show that Oca failed to strictly comply with the rules regarding issuance of citation. Even though Oca does not challenge appellant's points on appeal, we cannot reverse the trial court's judgment absent reversible error. Because there is no reversible error, we affirm the trial court's judgment.
NOTES
[1] There are four prerequisites to bringing a restricted appeal. The appeal must: (1) be brought within six months after the trial court signs the judgment; (2) by a party to the suit; (3) who did not participate in the actual trial; and (4) the error complained of must be apparent from the face of the record. See TEX. R.APP. P. 30; DSC Finance Corp. v. Moffitt, 815 S.W.2d 551, 551 (Tex.1991). We note that Moffitt addressed the writ of error appeal found in former rule 45. However, rule 30 expressly provides that, "Restricted appeals replace writ of error appeals...." TEX.R.APP. P. 30. Appellant meets the first three requirements; our inquiry involves the fourth.
[2] Oca has declined to file a brief, but has filed a letter stating that he does not oppose reversal and remand for trial on the merits. Oca's acquiescence notwithstanding, we cannot reverse the trial court's judgment (cont.)
unless we find error that probably caused rendition of improper judgment. See Gee v. Liberty Mutual Fire Ins. Co., 765 S.W.2d 394, 396 (Tex.1989); New Braunfels Factory Outlet Center, Inc. v. IHOP Realty Corp., 872 S.W.2d 303, 310 (Tex.App.Austin 1994, no writ). Therefore, we must review appellant's points and the record to determine whether reversible error occurred in this case.
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991 S.W.2d 85 (1998)
In re PLEASANT GLADE ASSEMBLY OF GOD, Reverend Lloyd A. McCutchen, Rod Linzay, and Holly Linzay.
No. 2-98-222-CV.
Court of Appeals of Texas, Fort Worth.
October 22, 1998.
Rehearing Overruled December 3, 1998 and June 4, 1999.
*87 Fletcher & Springer, L.L.P. and David M. Pruessner, Dallas, for Relator.
Douglas, Wuester & Disney, P.C. and William O. Wuester, Fort Worth, for Real Parties.
Before CAYCE, C.J., and RICHARDS and BRIGHAM, JJ.
OPINION
BRIGHAM, Justice.
INTRODUCTION
In this mandamus proceeding, we are asked to decide whether claims attacking the propriety of a church's actions in casting out demons are barred as violative of the free-exercise clause of the First Amendment. Under the facts of this case, we hold that such claims are barred by this defense.
BACKGROUND FACTS
For purposes of this proceedings, we are assuming the truth of the following factual allegations. Laura Schubert and her parents Tom and Judy Schubert were members of Pleasant Glade Assembly of God. The Assembly of God religion believes in the literal teachings of the Bible with respect to spirits, demons, demon possession, and the "casting out" of demons. Tom is an ordained Assembly of God minister.
On Friday night, June 7, 1996, seventeen-year-old Laura was at Pleasant Glade with the youth group for an "all-nighter" to prepare for a church-sponsored garage sale. One of the youth, after going to pray in the church sanctuary, stated that he had seen a demon. The youth minister, Rod Linzay, and his wife, Holly, gathered all the youth and told them that demons were trying to get into the church. Rod had the youth find bottles of holy oil and anoint everything in the church in an effort to chase away the demons. All through the night, Rod, Holly, and the youth group prayed and tried to cast the demons out of the church. Finally, at around 4:30 a.m., Rod declared that all of the demons were gone and there was peace. After this all-night experience, the youth then had to work at the garage sale. These events scared Laura and made her stomach hurt.
On Sunday, June 9 at the evening church service, Laura gave testimony to the congregation about the demon experience of Friday night. Laura collapsed at the altar. The youth group was instructed to "pray over" Laura while holding her on the floor, to "rebuke the devil." Laura was then taken to another room where adult church members continued to pray over her. As a result of this event, Laura sustained bruises, scratches, and carpet burns.
On Wednesday, June 12 at the youth meeting, Laura "balled up" in a corner when Rod told the group to find a place to pray. When some of the youth approached her, Laura told them to leave her alone and to not pray for or touch her. Rod and Holly then had the group hold Laura down in a "spread eagle" position and "pray over her." They were telling the Devil to come out of Laura. The senior pastor, Lloyd McCutchen, came in and placed his hand on Laura's head and told her to "just say the word `Jesus.'" Finally, Laura's parents were called to come pick her up, which they did.
Tom talked with McCutchen as the senior pastor and wrote to him about his concerns regarding these events. The Schuberts withdrew their membership from Pleasant Glade. Tom also contacted the North District Council, the authority that supervises Pleasant Glade in the Assembly of God hierarchy, about the events. The Council decided not to discipline the Linzays, McCutchen, or Pleasant Glade. The Schuberts then sued Pleasant Glade, McCutchen, and the Linzays, raising the following claims:
▄ false imprisonment
▄ assault
▄ battery
▄ negligence
▄ gross negligence
*88 ▄ professional negligence
▄ negligent and intentional infliction of emotional distress[1]
▄ child abuse and child neglect under the Family Code
▄ Tom and Judy's loss of Laura's consortium
As the Shuberts' counsel stated at oral argument, their injuries arose out of the entire "course of conduct" from June 7 through 12. The Schuberts served discovery on McCutchen, and McCutchen objected to parts of the discovery based on his First Amendment right to the free exercise of his religion. The Schuberts asserted discovery should be allowed, "including discovery into the area of whether the beliefs of Defendants were sincerely held and whether the practices of the Defendants were outside the religious tenets of the church."[2] Pleasant Glade also filed a motion to dismiss based on its First Amendment defense. The trial court denied both the motion to dismiss and the motion for protective order.
In this mandamus, Pleasant Glade asserts that only the Schuberts' "religious" complaints are barred by its First-Amendment defense. Thus, Pleasant Glade does not argue that the false imprisonment, assault, and battery claims should be protected from the objectionable discovery or dismissed based on the defense.[3]
AVAILABILITY OF MANDAMUS RELIEF
Ordinarily, mandamus relief is not available for immediate relief from interlocutory orders such as the ones we are faced with in this case. However, the Texas Supreme Court has held that although mandamus may not be appropriate in every case in which constitutional rights are impaired, if we determine that Pleasant Glade "raises important issues related to constitutional protections afforded by the First Amendment [that] an appeal cannot adequately protect," mandamus is appropriate. Tilton v. Marshall, 925 S.W.2d 672, 682 (Tex.1996) (orig.proceeding); cf. Tilton v. Moye, 869 S.W.2d 955, 956, 958 (Tex.1994) (orig.proceeding) (holding discovery request violated freedom of association under the First Amendment and mandamus appropriate).
FREE EXERCISE AS A DEFENSE TO TORT LIABILITY
Article I, Section 6 of the Texas Constitution and the First Amendment of the United States Constitution provide broad protections to the free exercise of religion; however, they do not ipso facto bar all claims that may touch on religious conduct. See Marshall, 925 S.W.2d at 677. "[F]reedom to believe may be said to be absolute, freedom of conduct is not and conduct even under religious guise remains subject to regulation for the protection of society." Tex. Const. art. I, § 6 interp. commentary (Vernon 1997). The United States Constitution also differentiates between the freedom to believe, which is absolute, and the freedom to act, which "remains subject to regulation for the protection of society." Cantwell v. Connecticut, 310 U.S. 296, 303-04, 60 S. Ct. 900, 903, 84 L. Ed. 1213 (1940).[4] Although the freedom *89 to act is subject to regulation, this regulation only burdens purely secular activities that are nonreligious in motivation. See, e.g., Marshall, 925 S.W.2d at 679 (fraudulent misrepresentations that Tilton would perform concrete acts) (plurality op.); Jones v. Trane, 153 Misc. 2d 822, 591 N.Y.S.2d 927, 930 (N.Y.1992) (sexual misconduct of priest); Strock v. Pressnell, 38 Ohio St. 3d 207, 527 N.E.2d 1235, 1238 (1988) (minister had affair with plaintiff's wife while they were seeing minister for marital counseling); Hester v. Barnett, 723 S.W.2d 544, 559 (Mo.Ct.App.1987) (minister spread false accusations after family counseling); Christofferson v. Church of Scientology, 57 Or.App. 203, 644 P.2d 577, 601-02 (1982) (fraudulent misrepresentations that had a wholly secular basis), cert. denied, 459 U.S. 1206, 103 S. Ct. 1196, 75 L. Ed. 2d 439 (1983). We must decide whether the Schuberts' claims are barred by the First Amendment.
We find that the Shuberts' claims would involve a searching inquiry into Assembly of God beliefs and the validity of such beliefs, an inquiry that is barred by the First Amendment. Their claims involve not only the appropriateness of attempting to cast demons out of Laura, but they also involve how the Linzays' and McCutchen's prayers and comments about demons from June 7 to June 12 affected Laura. Whether they negligently or intentionally misapplied church doctrine to Laura during these events is not a justiciable controversy. See Baumgartner v. First Church of Christ, Scientist, 141 Ill. App. 3d 898, 96 Ill. Dec. 114, 490 N.E.2d 1319, 1326 (1986), cert. denied, 479 U.S. 915, 107 S. Ct. 317, 93 L. Ed. 2d 290 (1986).
Deciding whether McCutchen and the Linzays acted negligently, including their negligence per se claim based on Chapter 261 of the Family Code, would require an impermissible inquiry into whether they deviated from the standard of care of an ordinary Assembly of God practitioner. See Perry v. S.N., 973 S.W.2d 301, 306 (Tex.1998) (op. on reh'g) (holding when conduct that is also governed by common-law duty is criminalized by statute, standard of conduct is usually common-law reasonableness); Mobil Oil Corp. v. Ellender, 968 S.W.2d 917, 921 (Tex.1998) (holding gross negligence includes an examination of the events and circumstances from the viewpoint of the defendant at the time the events occurred, without viewing the matter in hindsight). Regarding negligent and intentional infliction of emotional distress, the First Amendment gives Pleasant Glade the right to engage in driving out demonsintangible or emotional harm cannot ordinarily serve as a basis for maintaining a tort cause of action against a church for religious practices. See Marshall, 925 S.W.2d at 681; Paul v. Watchtower Bible & Tract Soc'y, 819 F.2d 875, 883 (9 th Cir.) (holding claim of intentional infliction of emotional distress after church officially "shunned" member could not stand), cert. denied, 484 U.S. 926, 108 S. Ct. 289, 98 L. Ed. 2d 249 (1987). Also, the Schuberts' loss of consortium allegation is derivative of their other claims, which impermissibly look into whether church doctrine was negligently or intentionally misapplied as to Laura, and subject to the First-Amendment defense. See Whittlesey v. Miller, 572 S.W.2d 665, 666 n. 1 (Tex.1978); 5 TEXAS TORTS & REMEDIES § 82.03[1] (J. Hadley Edgar, Jr. & James B. Sales eds., 1998).
Additionally, all of the Schuberts' claims would involve an improper discussion of whether Laura was a true Assembly of God "believer" and, thus, exempt from any type of exorcism. See Baumgartner, 96 Ill. Dec. 114, 490 N.E.2d at 1324 (holding allegation of improper healing barred by First Amendment). In fact, Tom asserts in his affidavit that McCutchen and the Linzays never should have tried to cast demons out of Laura because she was a believer and, under church doctrine, could not be possessed by demons. Further *90 strengthening Pleasant Glade's position is the fact that the First-Amendment defense based on the free-exercise clause is particularly likely to succeed where, as here, the plaintiffs were or had been members of the religious group involved. Cf. Hester, 723 S.W.2d at 559 (stating decision that claims not barred by First Amendment rested on fact that Hesters were not members of the religion). See generally Alan Stephens, Annotation, Free Exercise of Religion Clause of First Amendment as Defense to Tort Liability, 93 A.L.R. Fed. 754, 774-77 (1989).
Thus, the complained-of conduct is inexorably intertwined with Pleasant Glade's religious beliefs, and any inquiry into the appropriateness of the conduct would necessarily involve an inquiry into the legitimacy of the underlying religious beliefs. This violates the First Amendment, which bars such claims. See Murphy v. I.S.K.Con. of New England, Inc., 409 Mass. 842, 571 N.E.2d 340, 346-48, 350 (1991) (holding First-Amendment defense applies if claim cannot stand in absence of testimony regarding church's religious beliefs), cert. denied, 502 U.S. 865, 112 S. Ct. 191, 116 L. Ed. 2d 152 (1991). Accordingly, any discovery relating to these matters would likewise be barred as irrelevant. See Marshall, 925 S.W.2d at 682-83.
CONCLUSION
Because the challenged claims would necessarily require an inquiry into the exact beliefs of Pleasant Glade and how they should have been applied to Laura, the First-Amendment defense applies, and the Schuberts' "religious" claims are barred. As such, any discovery regarding these claims would be barred. Accordingly, the trial court abused its discretion in denying Pleasant Glade's motion for protective order and motion to dismiss. These facts raise important issues related to constitutional protections afforded by the First Amendment that would be inadequately protected by an appeal; thus, mandamus is appropriate. We conditionally grant a writ of mandamus and will issue it only if the trial court fails to grant Pleasant Glade's June 5, 1998 motion to dismiss and motion for protective order regarding the Schuberts' claims for negligence, gross negligence, professional negligence, negligent and intentional infliction of emotional distress, child abuse and child neglect under the Family Code, and loss of Laura's consortium.
RICHARDS, J., concurs without opinion.
NOTES
[1] There is no independent cause of action for negligent infliction of emotional distress in Texas. See Boyles v. Kerr, 855 S.W.2d 593, 594 (Tex.1993) (op. on reh'g).
[2] According to Tom, in his capacity as an Assembly of God minister, a believer can't be possessed by a demonthey can only be outwardly oppressed by a demon; thus, the attempts to exorcize Laura were incorrect because she was a believer.
[3] Thus, any reference to the Schuberts' "claims" in the remainder of this opinion will not include false imprisonment, assault, or battery.
[4] Because Pleasant Glade does not address the Tucci or Edgewood factors in its brief regarding any differences between the Texas and United States Constitutions on this issue, we need not decide whether or not the Texas Constitution affords broader protection to religion and may assume that the state and federal free exercise guarantees are coextensive. See Marshall, 925 S.W.2d at 677 n. 6.
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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/1533907/
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839 A.2d 743 (2003)
154 Md. App. 241
Sheldon I. LANDSMAN
v.
MARYLAND HOME IMPROVEMENT COMMISSION.
No. 436, Sept. Term, 2002.
Court of Special Appeals of Maryland.
December 22, 2003.
*745 Sheldon I. Landsman, Potomac, for appellant.
Joel Jacobson (J. Joseph Curran, Jr., Atty. Gen., on brief), for appellee.
Argued before DAVIS, KRAUSER, and BARBERA, JJ.
*744 BARBERA, J.
We are asked to decide in this case whether the General Assembly's 2000 amendment to the Home Improvement Guaranty Fund, increasing by a third the maximum amount a homeowner can recover for actual loss due to the unsatisfactory work of a contractor, applies retroactively to contracts entered into before the effective date of that amendment. For the reasons that follow, we hold that it does.
BACKGROUND
The underlying facts are not in dispute. Appellant, Sheldon I. Landsman, entered into a contract for a home improvement project with David Somerville, t/a Somerville Construction, on January 19, 1997. At that time, Somerville possessed a Maryland *746 home improvement contractor's license.
Somerville completed some work on the project, but abandoned it on or about December 5, 1997, when he advised Landsman that he was moving to Arizona. Somerville refused to refund some of the monies that Landsman had paid him under the agreement, representing to Landsman that there was no money available. Somerville's contractor's license had expired on June 30, 1997.
Following enactment of Chapter 144 of the Maryland Session Laws of 2000, the maximum recovery under the Maryland Home Improvement Guaranty Fund ("Fund") was increased from $10,000.00 to $15,000.00. By express provision in the enacting legislation, the effective date was October 1, 2000. Nothing in the legislation indicated whether the statute should be applied retroactively.
On November 10, 2000, Landsman filed a claim against the Fund. The matter came on for a hearing in March 2001, before an administrative law judge ("ALJ"). Landsman represented himself at the hearing. The Fund was represented by counsel. Somerville was not present, and no representative appeared on his behalf.[1]
The ALJ thereafter issued his written proposed decision. The ALJ found as a fact that Landsman had incurred an "actual loss" of $42,395.41, and concluded that Landsman was entitled to recover the statutory maximum of $15,000.00 from the Fund.
In a proposed order, Panel B of the Maryland Home Improvement Commission, ("Commission"), appellee, approved the ALJ's proposed decision but reduced Landsman's award from $15,000.00 to $10,000.00. The panel concluded that "the $15,000.00 claim limit applies to contracts entered into on or after October 1, 2000 and that contracts entered into prior to October 1, 2000 are subject to the $10,000.00 claim limit." The panel's proposed order further stated that "the contractor's liability to the Guaranty Fund constitutes a penalty, and that an increase in such a penalty may not be applied retroactively to contracts entered into before the amendment to the law took effect."
Landsman filed exceptions to the proposed order. Following an exceptions hearing, the Commission entered a final order on July 24, 2001, affirming the proposed order.
Landsman thereafter filed a petition for judicial review in the Circuit Court for Montgomery County. After a hearing on the merits, the court affirmed the Commission's final order.
In an opinion and order entered on March 22, 2002, the court declared "that the Legislature's intent was clear not to make the amendment to Md. Ann.Code Art. Bus. Reg. § 8-405(e)(1) retroactive." Noting that the effective date "is expressly stated to be October 1, 2000" and that "[t]here is no express statement by the Legislature to the contrary," the court concluded that " § 8-405(e)(1) fits neatly into the general category of statutes, which carry the strong presumption against retroactivity." The Court rejected Landsman's argument that the 2000 amendment was remedial, stating that the increase in the maximum award "clearly creates new rights, new duties and new obligations thus effecting the substantive rights of the Petitioner and Somerville, a licensed contractor." The court reasoned that the 2000 amendment "gives the claimant *747 a new right to seek a higher monetary award from the Fund" and affects Somerville's substantive rights by increasing the "maximum penalty," thereby exposing Somerville to greater risk of license suspension for failure to reimburse the Fund the full amount of a claim.
Following entry of the court's order, Landsman filed this timely appeal raising five issues for our review, which we have consolidated into one:
Did the Commission err in concluding that, as a matter of law, the $15,000.00 claim limit applies only to contracts entered into on or after October 1, 2000, and that contracts entered into prior to October 1, 2000 are subject to the $10,000.00 claim limit?
DISCUSSION
In 1962, the General Assembly enacted the Maryland Home Improvement Law, now codified at Md.Code (1992, 1998 Repl.Vol., 2003 Supp.), § 8-101 et seq. of the Business Regulation Article.[2] This law, which had its genesis in a 1961 report of the Governor's Commission to Study the Home Improvement Industry in Maryland, is a regulatory scheme designed for the protection of the public. Shade v. State, 306 Md. 372, 377, 509 A.2d 664 (1986); Harry Berenter, Inc. v. Berman, 258 Md. 290, 294, 265 A.2d 759 (1970).
As the title of the original statute explained, the law was enacted, in part, "with the intention of `providing generally for the regulation of the home improvement business for all persons in the State,' and `establishing a system of licensing certain contractors and salesmen under a new administrative agency to be known as the Maryland Home Improvement Commission.'" Fosler v. Panoramic Design, Ltd., 376 Md. 118, 126, 829 A.2d 271 (2003). "The Commission's primary functions are to investigate complaints about home improvement contractors, and to administer the licensing of those contractors in this state." Brzowski v. Maryland Home Improvement Comm'n, 114 Md.App. 615, 628, 691 A.2d 699, cert. denied, 346 Md. 238, 695 A.2d 1227 (1997) (code citations omitted).
In 1981, the General Assembly enacted Subtitle 4 of the Home Improvement Law, establishing the Fund. The Fund was created to provide a remedy for homeowners who suffer an "actual loss that results from, [inter alia,] an act or omission by a licensed contractor." § 8-405(a); Fosler, 376 Md. at 131, 829 A.2d 271.[3]
*748 Subtitle 4 sets forth an administrative remedy before the Commission for claims against the Fund, and provides for a contested case hearing before the Commission and payments by the Commission to claimants. Fosler, 376 Md. at 131, 829 A.2d 271. As we have said, prior to 2000, the maximum amount that a homeowner could recover from the Fund for actual loss due to the unsatisfactory work of a home improvement contractor was $10,000.00. By Chapter 144 of the Acts of 2000, the General Assembly increased that amount to $15,000.00.[4] As amended, § 8-405(e)(1) reads: "The Commission may not award from the Fund [ ] more than $15,000 to 1 claimant for acts or omissions of 1 contractor."
At the heart of this appeal is whether Landsman, having established an actual loss resulting from Somerville's abandonment of the job in December 1997, is entitled to benefit from the increased maximum amount provided under the 2000 amendment. The answer to this question is dictated by whether the amendment is to be applied retrospectively or prospectively.[5]
As we undertake to answer that question, we note preliminarily that "[i]t is well settled that a reviewing court may not substitute its judgment for that of the administrative agency or make its own findings of fact when reviewing the decision of an ALJ." Maryland State Bd. of Pharm. v. Spencer, 150 Md.App. 138, 147-48, 819 A.2d 383, cert. granted, 376 Md. 49, 827 A.2d 112 (2003); accord Marzullo v. Kahl, 366 Md. 158, 172, 783 A.2d 169 (2001). Although "an administrative agency's interpretation and application of the statute which the agency administers should ordinarily be given considerable weight by reviewing courts," Marzullo, 366 Md. at 172, 783 A.2d 169, an agency's decision "is owed no deference ... when it is based on erroneous legal conclusions," Handley v. Ocean Downs, LLC, 151 Md. App. 615, 642, 827 A.2d 961 (2003). Therefore, "we `must substitute [our] judgment for that of the agency if our interpretation of the applicable legal principles is different.' " Spencer, 150 Md.App. at 148, 819 A.2d 383 (quoting Perini Servs., Inc. v. Maryland Health Res. Planning Comm'n, 67 Md.App. 189, 201, 506 A.2d 1207, cert. denied, 307 Md. 261, 513 A.2d 314 (1986)).
The question we decide in this case is one of statutory construction, not involving any special expertise of the Commission. Consequently, we owe no deference to the Commission's decision respecting the applicability of the amendment. Angelini v. Harford County, 144 Md.App. 369, 373, 798 A.2d 26, cert. denied, 370 Md. 269, 805 A.2d 265 (2002). Rather, we examine this purely legal question de novo.
*749 "Whether a statute operates retrospectively or only prospectively is in the first instance a question of legislative intent." Tyrone W. v. Danielle R., 129 Md. App. 260, 277, 741 A.2d 553 (1999), aff'd sub nom. Langston v. Riffe, 359 Md. 396, 754 A.2d 389 (2000). "`Because of the potential for interference with substantive rights, however, and because of the resulting prejudice against retroactive application,' a statute that affects substantive rights is presumed to operate prospectively." Id. (quoting State of Maryland Comm'n on Human Relations v. Amecom Div. of Litton Sys., Inc., 278 Md. 120, 123, 360 A.2d 1 (1976)).
When, however, a statute affects only a procedure or remedy, and not a substantive right, the presumption in favor of prospective application does not apply. Rawlings v. Rawlings, 362 Md. 535, 556, 766 A.2d 98 (2001); Langston, 359 Md. at 408, 754 A.2d 389. Indeed, "[a]bsent a contrary intent made manifest by the enacting authority, any change made by statute or court rule affecting a remedy only (and consequently not impinging on substantive rights) controls all court actions whether accrued, pending or future." Aviles v. Eshelman Elec. Corp., 281 Md. 529, 533, 379 A.2d 1227 (1977); accord State Admin. Bd. of Election Laws v. Supervisory Bd. of Elections of Baltimore City, 342 Md. 586, 601, 679 A.2d 96 (1996); Grandison v. State, 341 Md. 175, 257, 670 A.2d 398 (1995), cert. denied, 519 U.S. 1027, 117 S. Ct. 581, 136 L. Ed. 2d 512 (1996). These rules of construction apply equally to amendatory acts. Tyrone W., 129 Md.App. at 278, 741 A.2d 553.
Remedial statutes are "`those which provide a remedy, or improve or facilitate remedies already existing for the enforcement of rights and the redress of injuries,'" but do "`not affect substantive or vested rights.'" Langston, 359 Md. at 408-09, 754 A.2d 389 (citation omitted). If, however, the statute provides a new form of relief that itself constitutes a substantive right, it is not purely remedial, and will not be presumed to apply retroactively. Amecom, 278 Md. at 125, 360 A.2d 1.
The General Assembly did not expressly declare that its 2000 amendment of § 8-405(e)(1) was to be applied retrospectively. Neither is there anything in the scant legislative history of the amendment that indicates the legislative intent in this regard. We therefore follow the statutory construction principles laid out above to ascertain whether the amendment affects substantive rights or liabilities, in which case the strong presumption of prospectivity applies, or whether the amendment is purely procedural or remedial, in which case there is no presumption of prospectivity and the amendment will be applied retroactively. The Commission adheres to the position it took below, arguing that the 2000 amendment is neither procedural nor remedial in nature, and that it affects the substantive rights of home improvement contractors in this State. Landsman of course takes a contrary position. He does not argue that the amendment is procedural, but does argue that it is purely remedial.
The question whether the 2000 amendment to § 8-405(a)(1) is purely remedial is one that has not been resolved by either this Court or the Court of Appeals. Our decision in Brzowski, however, sheds some light on the issue because we had occasion in that case to construe portions of Subtitle 4 of the Home Improvement Law. In the course of doing so, we examined the legislative history of the subtitle.
Brzowski involved a contractor's challenge to the Commission's compensation of a claimant through the Fund pursuant to an arbitration award that did not comply with § 8-409(a)(2). That section requires *750 that an arbitration award contain a statement by the arbitrator that he "expressly found on the merits that the claimant is entitled to recover under § 8-405(a) of this subtitle." Brzowski, 114 Md.App. at 621-22, 691 A.2d 699.
After a thorough examination of the history of the Home Improvement Law, we concluded in Brzowski that the law was enacted for the protection of the public, and that the Fund provides "an additional remedy for homeowners who suffered actual loss" due to the actions or omissions of a contractor. Id. at 627, 691 A.2d 699.[6] We conclude, here, that the 2000 amendment increasing the maximum award that can be awarded from the Fund is likewise remedial in the sense that it improves a remedy "already existing for the enforcement of rights and the redress of injuries." Langston, 359 Md. at 408, 754 A.2d 389.
Our determination that the amendment is remedial in this sense does not end the inquiry, however, because we must also determine whether retrospective application of the amendment would "interfere with vested or substantive rights." Id. at 408, 418, 754 A.2d 389. As we consider this aspect of the issue, we bear in mind that "`[s]tatutes which do not destroy a substantial right, but simply affect procedure or remedies, are not considered as destroying or impairing vested rights, for there is no vested right in any particular mode of procedure for the enforcement or defense of the right.'" Rawlings, 362 Md. at 561, 766 A.2d 98 (quoting Winston v. Winston, 290 Md. 641, 650, 431 A.2d 1330 (1981)); accord Dua v. Comcast Cable of Maryland, Inc., 370 Md. 604, 625-26, 805 A.2d 1061 (2002).
In this case, the Commission interpreted the 2000 amendment to § 8-405(e)(1) to apply only to actions arising out of contracts entered into on or after October 1, 2000, because of the increased "penalty" to the contractor. In affirming that decision, the circuit court found that the 2000 amendment of § 8-405(e)(1) "clearly creates new rights, new duties and new obligations thus effecting the substantive rights" of both Landsman and the contractor. We of course do not review the decision of the circuit court; instead, we review that of the Commission. Mehrling v. Nationwide Ins. Co., 371 Md. 40, 57, 806 A.2d 662 (2002). Regardless, we do not agree with the court that the 2000 amendment created new rights, duties, or obligations of either Landsman or Somerville.
Indeed, insofar as Landsman is concerned, the Commission does not even discuss the extent to which, if at all, the amendment created a new substantive right of Landsman and comparably situated homeowners. In any case, Landsman did not have a vested, legally enforceable right to compensation from the Fund until July 24, 2001, the date on which the Commission determined that he was entitled to compensation. We so conclude by resort to our decision in McComas v. Criminal Injuries *751 Compensation Bd., 88 Md.App. 143, 594 A.2d 583 (1991).
In McComas, we addressed the question of whether an amendment to the Criminal Injuries Compensation Act, establishing for the first time a ceiling for the award of benefits under the Act, applied to claims that were pending prior to the effective date of the amendment. We said that rights created by the Criminal Injuries Compensation Act are purely statutory and, unless vested, may be amended or repealed "at the whim of the legislature." Id. at 150, 594 A.2d 583; see also id. at 149, 594 A.2d 583 (discussing cases). We also said that a crime victim does not have a substantive right to benefits under the Act. Instead, the victim has only an expectation of receiving benefits unless and until the Criminal Injuries Compensation Board determines that statutory requirements for the award of benefits have been met, at which time, but not before, the right to an award becomes vested. Id. at 150, 594 A.2d 583. Observing that amendments to purely statutory rights are not bound by the general rule that statutes are presumed to apply prospectively, id., we said, "[a]bsent a saving provision or some other clear expression by the legislature that it intends to protect claims that are pending on the date of enactment, an amendment of a purely statutory right affects all claims not yet vested," id. at 150-51, 594 A.2d 583.
We recognize that in the case sub judice we are dealing with an amendment that increases a statutory benefit, rather than reducing one, as was the case in McComas. We nevertheless find instructive the discussion in McComas identifying when a statutorily bestowed benefit vests. Like the right to compensation under the Criminal Injuries Compensation Act granted the crime victim in McComas, Landsman's right to compensation from the Fund is a creature of statute. Amendments to such rights are not bound by the usual presumption against retrospective application, and these rights are subject to change "at the whim of the legislature." Furthermore, McComas teaches that Landsman's right to an award under the Act vested only when the Commission determined that he was eligible to be compensated. By that time the amendment increasing the maximum award from the Fund had been in effect for nearly a year.
Nor do we agree with the Commission that the 2000 amendment affected any substantive rights or liabilities of Somerville. Among other arguments, the Commission contends that the amendment acted as an increased penalty to Somerville and other similarly situated contractors. We reject that argument, for several reasons.
First, it cannot be gainsaid that "there can be no vested right to do wrong." Randall v. Kreiger, 23 Wall. 137, 90 U.S. 137, 149, 23 L. Ed. 124 (1874); accord Tyrone W., 129 Md.App. at 289, 741 A.2d 553. Second, as Landsman points out, the right to seek an award from the Fund is in addition to Landsman's right to recover damages from Somerville by filing suit for the full loss resulting from Somerville's abandonment of the work that had been the subject of the parties' contract. Consequently, the remedy provided under the Home Improvement Law creates no financial liability on the part of the contractor beyond that which the contractor faces in a court of law.[7]*752 The Commission points out that an award from the Fund results not only in a monetary debt to the contractor, but also in a potential license suspension.[8] It is this "penalty," the Commission argues, that affects the contractor's substantive rights. We do not see the issue quite as the Commission does.
To be sure, we recognized in Brzowski that, "[w]hen the Commission orders payment from the Fund, serious repercussions can be visited upon the contractor responsible for the actual loss that the Fund payment sought to compensate." 114 Md. App. at 629, 691 A.2d 699. "[I]f the Commission pays any amount from the Fund on account of a contractor's conduct, the Commission may suspend the contractor's license if he fails to reimburse the Fund in full." Id. This, naturally, "can have dire consequences for a contractor," since "[a] person may not act as contractor in this state without a contractor's license." Id. And, once the Commission pays a claim against the Fund, the rights of the claimant against the contractor are subrogated to the Commission to the extent of the amount paid to the claimant from the Fund; consequently, the Commission may sue any contractor on whose account a claim was paid, if the contractor does not reimburse the Fund in full, including interest. Id. at 630, 691 A.2d 699.
Yet, nothing in the legislative history of the Home Improvement Law evidences an intent by the General Assembly to treat the Fund as a penalty to contractors. The Senate Economic and Environmental Affairs Committee construed an actual loss to mean, simply, "`the amounts paid or payable for the cost of "making good."'" Id. at 639, 691 A.2d 699 (quoting Senate Economic and Environmental Affairs Committee, Bill Analysis for Senate Bill 507 at 3 (1985)).
Moreover, there are safeguards in the Home Improvement Law to insure that the Commission does not treat the Fund as a means of penalizing contractors. As we explained in Brzowski,
Section 8-409 [[9]] of the Act serves as a check on the Commission's ability to use *753 the Fund as a club to punish contractors who are on the losing end of arbitration awards or judicial decisions. To this end, the section specifies the requirements that must be met before the Commission may order payment of a claim against the Fund.
Id. We went on to state:
When the Commission conducts its own hearing on whether a claimant should be compensated from the Fund, it is presumed that the Commission is aware of the Fund's limited purpose, to compensate for actual loss as defined by section 8-401. Thus, any award the Commission makes from the Fund must be for actual loss, because the Commission is presumed to know the scope of its authority, and act within those bounds.
Id. at 631, 691 A.2d 699.
In short, the potential for a license suspension does not create "a penalty" for contractors. Cf. State v. Jones, 340 Md. 235, 251-54, 666 A.2d 128 (1995) (explaining that professional license suspensions and revocations generally serve remedial, not punitive, purposes).
The Commission also argues that the award of a license creates a substantive right, presumably in retention of that license. The Commission cites a treatise, which states that
[o]nce the state issues a license, the continued possession of and the right to operate under the authority of the license may be essential to the livelihood of the licensee. Suspension or revocation of a license by the state necessarily involves state action that affects an important interest of the licensee.
WILLIAM OTIS MORRIS, REVOCATION OF PROFESSIONAL LICENSES BY GOVERNMENTAL AGENCIES, § 2-1, at 15-16 (1984) (emphasis added).
We, however, draw a distinction between "an important interest" and "a substantive right." The Administrative Procedure Act defines a license as "all or any part of permission that: (1) is required by law to be obtained from an agency; (2) is not required only for revenue purposes; and (3) is in any form, including: (i) an approval; (ii) a certificate; (iii) a charter; (iv) a permit; or (v) a registration." Md.Code (1984, 1999 Repl.Vol.), § 10-202(f) of the State Government Article. See BLACK'S LAW DICTIONARY at 931 (7th ed.1999) (defining a license as "[a] revocable permission to commit some act that would otherwise be unlawful").
It has thus been said that a professional license is not "an absolute vested right," but is at most "only a conditional right which is subordinate to the police power of the State to protect and preserve the public health" and welfare. Dr. K. v. State Bd. of Physician Quality Assurance, 98 Md.App. 103, 120, 632 A.2d 453 (1993), cert. denied, 334 Md. 18, 637 A.2d 1191, cert. denied, 513 U.S. 817, 115 S. Ct. 75, 130 L. Ed. 2d 29 (1994). Because a license is only the grant of permission to act, the Commission's authority to suspend a contractor's license for non-repayment into the Fund does not interfere with a substantive or vested right of the contractor.
The Commission asserts that "[r]etroactive application of the increased award limit to a January 1997 contract would raise serious due process issues, because it would impose additional liability upon a contractor that he could not reasonably have foreseen at the time of the contract, in January 1997." The Commission specifies that at the time the home improvement contract was entered into, neither Landsman nor Somerville "could have had the slightest inkling the General Assembly was preparing to increase the Guaranty Fund limit to $15,000 some 44 months *754 later." The Commission further argues that Somerville entered into the contract in 1997 under the belief that the extent of its liability to the Fund was $10,000.00; therefore, a statutory increase of $5,000.00 to the contractor's maximum liability, without notice or reasonable expectation, constitutes a due process violation.
Landsman responds that applying the 2000 amendment in this case would not deprive Somerville of any vested right in the additional $5,000.00, because the Commission itself has already determined that Landsman has incurred an actual loss of more than $42,000.00 due to Somerville's abandonment of the home improvement project. We agree with Landsman.
"The Constitution of Maryland prohibits legislation which retroactively abrogates vested rights. No matter how `rational' under particular circumstances, the State is constitutionally precluded from abolishing a vested property right or taking one person's property and giving it to someone else." Dua, 370 Md. at 623, 805 A.2d 1061. The Court of Appeals stated in Dua that
[i]t is clear that retrospective statutes abrogating vested property rights (including contractual rights) violate the Maryland Constitution.... [T]he particular provisions of the Constitution which are violated by such acts are Article 24 of the Declaration of Rights and Article III, § 40, of the Constitution.... A statute having the effect of abrogating a vested property right, and not providing for compensation, does "authorize private property, to be taken ..., without just compensation" (Article III, § 40). Concomitantly, such a statute results in a person or entity being "deprived of his... property" contrary to the "law of the land." (Article 24).
Id. at 629-30, 805 A.2d 1061. We discern no such due process concerns in this case.
Of relevance here is the principle that "`[c]laims contrary to justice and equity cannot be regarded as'" vested, because "`[t]he only right taken away is the right dishonestly to repudiate an honest contract or conveyance to the injury of the other party.'" Tyrone W., 129 Md.App. at 289, 741 A.2d 553 (quoting Randall, 90 U.S. at 149). Landsman and Somerville contracted for Somerville to undertake a home improvement project for Landsman at an agreed upon price. Somerville abandoned the project before completion and refused to repay Landsman for the work that Somerville failed to complete. The actual loss to Landsman was $42,395.41.
It is plain that the only deprivation of property at issue is that of Landsman. Somerville simply does not have a vested right in being shielded from the additional $5,000.00 owing to the Fund upon payment of Landsman's claim. Consequently, Somerville was not entitled to either notice or a reasonable expectation of retaining that sum.
The Commission also intimates some due process problem attendant to the potential for license suspension upon a contractor's failure to reimburse the Fund the full $15,000.00 in a situation comparable to the one presented by this case.[10] To the extent the Commission makes such an argument, we reject it.
We fail to see how a contractor is entitled to a license where there has been a determination by the Commission that the contractor's acts or omissions have caused *755 actual loss to a claimant. A license is essentially a privilege, not a "vested right." We therefore conclude that suspension of a contractor's license pursuant to § 8-411 does not infringe upon a property right protected by the Maryland Constitution.
For the reasons we have discussed, we conclude that the 2000 amendment to § 8-405(e)(1) is a remedial act that does not interfere with a vested or substantial right of either the homeowner or the contractor. We shall therefore apply the rule that such acts will be construed as having retrospective application unless the legislature has made it clear that the legislation be prospective. Aviles, 281 Md. at 533, 379 A.2d 1227.
The enacting legislation provides that the effective date of the Act is October 1, 2000. Aside from that, the General Assembly did not expressly declare in the enacting legislation (or, for that matter, indicate in any way in its legislative history) that the maximum award provided by the amendment to § 8-405(e)(1) would be prospective only.[11] We hold, therefore, that the Commission erred when it refused to apply the increased maximum recovery from the Fund to Landsman's claim.
JUDGMENT OF THE CIRCUIT COURT FOR MONTGOMERY COUNTY VACATED. CASE REMANDED TO THAT COURT WITH INSTRUCTIONS TO REMAND TO THE MARYLAND HOME IMPROVEMENT COMMISSION FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS OPINION.
COSTS TO BE PAID BY APPELLEE.
NOTES
[1] Proper notice was twice sent to Somerville's address of record with the Commission. Both notices were returned, marked "undeliverable."
[2] Sections 8-405 and 8-409 are found in the 2003 Supplement to the 1998 Replacement Volume of the Business Regulation Article. With the exception of references to those statutes, all statutory references, unless otherwise indicated, are to the 1998 Replacement Volume of the Business Regulation Article.
[3] Subsection 8-405(a) reads in its entirety: "Subject to this subtitle, an owner may recover compensation from the Fund for an actual loss that results from an act or omission by a licensed contractor or a violation of § 8-607(4) of this title as found by the Commission or a court of competent jurisdiction."
Subsection 8-607(4) provides, in pertinent part: "A person may not ... fail to give the written notice required under § 8-501(c)(2) and (3) of this title." Subsections 8-501(c)(2) and (3), in turn, provide:
(2) If payment for work performed under the home improvement contract will be secured by an interest in residential real estate, a written notice in not smaller than 10 point bold type that is on the first page of the contract shall state in substantially the following form: "This contract creates a mortgage or lien against your property to secure payment and may cause a loss of your property if you fail to pay the amount agreed upon. You have the right to consult an attorney. You have the right to rescind this contract within 3 business days after the date you sign it by notifying the contractor in writing that you are rescinding the contract."
(3) The notice under paragraph (2) of this subsection shall be independently initialed by the homeowner.
[4] Chapter 144 included several other changes to the Home Improvement Law. The Act extends the termination provisions relating to the statutory and regulatory authority of the Commission, from October 1, 2002, to October 1, 2012. The Act also requires that the Commission and the statutes and regulations related to it be evaluated, and a report be submitted to the Department of Licensing and Regulation on or before July 1, 2011.
[5] For purposes of this opinion, the terms "retroactive" and "retrospective" are deemed synonymous. "Both words `describe acts which operate on transactions which have occurred or rights and obligations which existed before passage of the act.'" Rawlings v. Rawlings, 362 Md. 535, 540 n. 2, 766 A.2d 98 (2001) (quoting NORMAN J. SINGER, 2 STATUTES AND STATUTORY CONSTRUCTION § 41.01, at 337 (5th ed.1993)).
[6] We note that, in Brzowski, the Commission took a position that is seemingly at odds with the position it takes in the present appeal. The Commission asked there that we "apply a liberal construction to the Act in light of its remedial purpose," and urged that deference be paid to the Commission's "previous liberal constructions of the statute in which it has sought to achieve the remedial purposes sought by the legislature's enactment of the Statute." Brzowski v. Maryland Home Improvement Comm'n, 114 Md.App. 615, 625-26, 691 A.2d 699, cert. denied, 346 Md. 238, 695 A.2d 1227 (1997). As we have said, the Commission argues in the case sub judice that the amendment is neither procedural nor remedial.
[7] We have said that § 8-405(a) of the Home Improvement Law dictates that an award under the Fund can only be approved to the extent of an "actual loss" by the claimant. Under § 8-401, "actual loss" includes "the costs of restoration, repair, replacement, or completion that arise from an unworkmanlike, inadequate, or incomplete home improvement." In calculating a claimant's actual loss, the Commission may not include consequential or punitive damages, personal injury, attorney's fees, court costs, or interest. COMAR 09.08.03.03B. If the claimant seeks compensation for those items that fall outside the scope of actual losses, the claimant must seek relief either through the courts or arbitration. Brzowski, 114 Md.App. at 631-32, 691 A.2d 699.
[8] Both before and since the 2000 amendment to § 8-405(e)(1), the Home Improvement Law has provided that a contractor is required, on pain of license suspension, to repay the Fund for the full amount, with interest, of any claim paid from the Fund. Specifically, § 8-411(a) provides:
Except as provided in subsection (b) of this section, if the Commission pays a claim against the Fund based on an act or omission of a contractor, the Commission may suspend the contractor license until the contractor reimburses the Fund in full for:
(1) the amount paid from the Fund; and
(2) interest on that amount at an annual rate of at least 10% as set by the Commission.
For purposes of this case, the exceptions to § 8-411(a), as set forth in subsection (b), do not apply.
[9] Section 8-409(a) provides:
In general.The Commission may order payment of a claim against the Fund only if:
(1) the decision or order of the Commission is final in accordance with Title 10, Subtitle 2 of the State Government Article and all rights of appeal are exhausted; or
(2) the claimant provides the Commission with a certified copy of a final judgment of a court of competent jurisdiction or a final award in arbitration, with all rights of appeal exhausted, in which the court or arbitrator:
(i) expressly has found on the merits that the claimant is entitled to recover under § 8-405(a) of this subtitle; and
(ii) has found the value of the actual loss.
[10] We have said that Somerville's license expired in June 1997. The Commission states that this fact does not foreclose the Commission from raising the license suspension argument. Landsman does not argue differently. We therefore assume, without deciding, that the expiration of Somerville's license does not preclude the Commission's argument.
[11] Certainly, when the legislature intends statutory increases in benefits to be merely prospective, it knows precisely how to make that intent evident. See 1973 Md. Laws, ch. 671 (amending the workers' compensation statute to allow injured workers to continue collecting benefits under a permanent total disability award for as long as they remain permanently disabled, as determined by the Workers' Compensation Commission, and expressly providing that this new, higher "cap" is not applicable to claims involving accidental injuries sustained before the effective date of the amendment); Waters v. Pleasant Manor Nursing Home, 361 Md. 82, 104-05, 760 A.2d 663 (2000) (discussing same).
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5 B.R. 684 (1980)
In re Mark Thomas VERTICH, fdba Mark Vertich Insurance Agency and Financial Services, Winner, SD, Soc. Sec. # XXX-XX-XXXX, Emp. I.D. # XX-XXXXXXX and Elizabeth Jean Vertich, aka Jeanne Vertich, dba The Decor Store, fdba Jeanne's Interiors, Inc., Winner, SD, Soc. Sec. # XXX-XX-XXXX Emp. I.D. # XX-XXXXXXX, Debtors.
BEN-DAK INVESTMENT CO., INC., Plaintiff,
v.
Mark Thomas VERTICH, fdba Mark Vertich Insurance Agency and Financial Services and Elizabeth Jean Vertich, aka Jeanne Vertich, dba The Decor Store, fdba Jeanne's Interiors, Inc., Defendants.
Bankruptcy Nos. 380-00001, 380-00002, Adversary No. 380-0001.
United States Bankruptcy Court, D. South Dakota.
August 22, 1980.
*685 John J. Simpson, Winner, S.D., for plaintiff.
Gordon Verne Goodsell, Wilson, Bottum, Olson, Goodsell & Nash, Rapid City, S.D., for defendants.
Thomas M. Maher, Pierre, S.D., Trustee in Bankruptcy.
MEMORANDUM DECISION
PEDER K. ECKER, Bankruptcy Judge.
Defendants, Mark Thomas and Elizabeth Jean Vertich, Debtors, filed Chapter 7 Bankruptcy and Plaintiff filed a Complaint Seeking Relief from the Automatic Stay. Debtors' attorney advised the Court that Debtors no longer claim any right, title, or interest to the property in question. The Trustee filed an Answer objecting to the relief sought by Plaintiff. The Court held a hearing and requested briefs from the parties.
Based on the briefs, the pleadings, and facts supplied to the Court at the hearing, this Bankruptcy Court holds that Plaintiff is entitled to relief from the Automatic Stay. The Court made this decision based on the following findings of fact and conclusions of law.
On September 24, 1976, Plaintiff sold Debtors real estate under a Contract for Deed for the price of $67,000.00. Before defaulting on the Contract for Deed in May of 1979, Debtors paid Plaintiff $16,985.63 in principal and $9,673.00 in interest.
Upon Debtors' failure to make payments as required by the Contract for Deed, Plaintiff commenced a foreclosure action in state court. Prior to filing bankruptcy, Debtors relinquished possession of the property to Plaintiff. Debtors filed bankruptcy and under 11 U.S.C. Section 362 the foreclosure action was stayed.
The Trustee did not assume or reject the Contract for Deed within sixty (60) days from the date Debtors filed their Chapter 7 Petition. However, the Trustee has apprised the Court that several appraisals placed the current value of the property between $90,000.00 and $110,000.00.
In the briefs submitted by the parties, both Trustee and Plaintiff agree that the Contract for Deed is an executory contract governed by the provisions of 11 U.S.C. Section 365(d)(1) as follows:
"In a case under Chapter 7 of this title, if the trustee does not assume or reject an executory contract or unexpired lease of the debtor within 60 days after the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such contract or lease is deemed rejected."
Trustee admits and agrees that by his failure to assume the Contract for Deed within the 60-day period, the Contract for Deed is rejected. However, the Trustee *686 objects to the Court granting relief to Plaintiff from the automatic stay on the grounds that the Trustee has an interest in the property of: (1) any redemption right granted to Debtors under South Dakota law; (2) a possible vendee's lien against the property under South Dakota law; and (3) an equitable interest in the property since the value of the property considerably exceeds the amount that was due under the Contract for Deed.
The issue presented to the Court is whether a creditor should be granted relief from the automatic stay and allowed to foreclose on the Contract for Deed when the Trustee rejected the contract but retained for the estate any interest in the property granted to debtors under equitable or state law as a result of the contract being terminated and the subsequent foreclosure.
The rationale behind a Trustee assuming an executory contract in a Chapter 7 case is that possibly the contract might be sold by the trustee for a profit. Here, the Trustee elected to reject the Contract for Deed. The rejection of the contract, however, did not waive any interest in the property debtors had under equitable or state law as a result of the contract being terminated and the subsequent foreclosure, the trustee succeeding to any such rights of the debtors.
This Court holds that Plaintiff is granted relief from the automatic stay and allowed to proceed to foreclose on the Contract for Deed. The Trustee should treat whatever interest the estate may have in the property as an asset of the estate and handle that asset through the normal course of his administration of the estate. The Trustee can adequately protect his interest by intervening in the state foreclosure action and asserting whatever legal rights the Trustee may have under equitable or state law. The Trustee can also protect the interest the estate may have in the property by intervening in the state foreclosure action and then selling the property in bankruptcy free and clear of liens by satisfying Plaintiff's lien on the property.
Plaintiff's counsel shall submit an order consistent with the foregoing. This Memorandum Decision will constitute Findings of Fact and Conclusions of Law.
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839 A.2d 550 (2004)
Alma SANTIAGO, By and Through her mother and natural guardian, Alma MARTINEZ
v.
FIRST STUDENT, INC., et al.[1]
No. 2003-41-Appeal.
Supreme Court of Rhode Island.
January 15, 2004.
Michael A. DelSignore, for Plaintiff.
John A. Caletri, for Defendant.
*551 Present: WILLIAMS, C.J., FLANDERS, GOLDBERG, FLAHERTY and SUTTELL, JJ.
OPINION
PER CURIAM.
In a case suitable for television's "Unsolved Mysteries,[2] the plaintiff, Alma Santiago (plaintiff), who claimed she was injured in a phantom bus crash with an unidentified car on an unknown date at an unspecified location with no witnesses, appeals from a summary judgment entered in favor of the defendant bus company, First Student, Inc., d/b/a/ Ryder Student Transportation Services (defendant). This case came before the Supreme Court for oral argument on October 29, 2003, pursuant to an order directing the parties to appear and show cause why the issues raised in this appeal should not summarily be decided. After hearing the arguments of counsel and examining the memoranda filed by the parties, we are of the opinion that cause has not been shown, and proceed to decide the appeal at this time. For the reasons indicated herein, we affirm the judgment of the Superior Court.
I
Facts and Travel
This personal injury action arises out of an alleged motor vehicle accident that occurred between November 17 and November 21, 1997. The plaintiff alleges that, between 3:30 p.m. and 4:30 p.m. on an unspecified day, she was injured when defendants school bus, in which she was a passenger, collided with an unidentified vehicle. At the time of the accident, plaintiff was returning to her home from school, where she was in the eighth grade. According to her complaint, the accident occurred "at or about Charles Street and/or a street along her bus route in Providence between her school * * *" and her home.
When plaintiff was deposed as part of pretrial discovery in this case, she testified that she could not remember the street or the neighborhood where the accident occurred. She also admitted that she "could [not] find [the] street today if [she] wanted to." The plaintiff did, however, offer a brief description of her recollection of the events. She remembered that the bus was driving on a one-way street approaching a stop sign. According to plaintiff, she saw the unidentified vehicle approaching the intersection, coming toward the bus from the right. She was then jerked forward when the bus driver applied the brakes and the bus collided with the unidentified vehicle. As a result of the collision, plaintiff says, the right side of her face hit the seat in front of her. Police did not respond to the accident and, consequently, there is no police report describing the incident.
Admitting that she did not see the collision occur, plaintiff was unable to offer any details about it. She was unable to say whether the unidentified car had a stop sign. She did not know whether the bus was damaged or the extent of the damage to the other vehicle, other than that its side mirror was knocked off. Although she rode the bus every school day, plaintiff was unable to remember the names of other students who rode the bus with her, except one girl whom she knew only as Daiquiri. Unfortunately, plaintiff has not spoken with Daiquiri in three years and Daiquiri has since moved away. To identify the bus driver, all plaintiff could provide was his physical description and the fact that he was from the Dominican Republic and did not speak English. Additionally, *552 plaintiff did not know any witnesses to the accident.
The defendant moved for summary judgment, arguing that there was no evidence to establish negligence on its part. To support its motion, defendant provided an affidavit prepared by its safety coordinator asserting that there were no company records confirming that an accident had even occurred in the vicinity of Charles Street in November 1997. The motion justice concluded that plaintiff had failed to provide any evidence of defendants negligence and, accordingly, granted summary judgment in favor of defendant. The plaintiff timely appealed.
II
Summary Judgment
This Court reviews de novo the grant or denial of a motion for summary judgment and applies the same standards as the hearing justice. Heflin v. Koszela, 774 A.2d 25, 29 (R.I.2001). In ruling on a motion for summary judgment, the evidence is reviewed in the light most favorable to the nonmoving party. Id. Summary judgment is appropriate if there are no genuine issues of material fact remaining and the moving party is entitled to judgment as a matter of law. Id. The moving party bears the initial burden of demonstrating the absence of material questions of fact. Id That burden may be satisfied by "submitting evidentiary materials, such as interrogatory answers, deposition testimony, admissions, or other specific documents, and/or pointing to the absence of such items in the evidence adduced by the parties." Id. (quoting Doe v. Gelineau, 732 A.2d 43, 48 (R.I.1999)). If the moving party satisfies this initial burden, the nonmoving party then must identify any evidentiary materials already before the court or present its own evidence demonstrating that factual questions remain. Id.
Arguing that it is entitled to summary judgment, defendant points to an absence of any evidence of its negligence. Thus, to withstand defendant's motion for summary judgment, plaintiff was obligated to provide competent evidence to show that defendant breached a duty of care owed to her. See Forte Brothers, Inc. v. National Amusement Inc., 525 A.2d 1301, 1302 (R.I.1987). This Court has held that "the mere occurrence of an accident, without more, does not warrant an inference that a defendant has been negligent." Hernandez v. Fernandez, 697 A.2d 1101, 1103 (R.I.1997). Rather, a party's negligence must affirmatively be established by "competent evidence and may not be based on conjecture or speculation." Skaling v. Aetna Insurance Co., 742 A.2d 282, 288 (R.I.1999).
Reviewing the evidence in the light most favorable to plaintiff, we must accept her assertion that she was injured in an accident. To assign negligence to defendant based on the evidence in the record, however, would impermissibly cross the line from reasonable inference and venture into the realm of rank speculation. The plaintiff admitted that she did not see how the collision occurred. Although she testified that a stop sign controlled the flow of traffic coming from the bus's direction, she does not allege that the bus driver failed to stop at the sign as directed. The plaintiff is unable to describe any actions on the part of the driver of the unidentified vehicle or unidentified bus driver relating to the accident. Indeed, there is no evidence of the interaction between the bus and the unidentified car, except that the two vehicles collided. Furthermore, plaintiff can provide no other witnesses capable of offering a meaningful description of the accident.
*553 The plaintiffs tenuous description of the accident left the defendant virtually unable to conduct discovery to help its defense. The plaintiff attempts to justify a lack of evidence to support her case by pointing to the nature of the accident. According to her, because this accident involved a childladen school bus and no police were called to the accident scene, it is understandable that there is no police report describing the accident. The fact that the plaintiffs case may be extremely difficult to prove, however, does not relieve her of the burden of presenting sufficient evidence to demonstrate the existence of a material question of fact. The plaintiff has not met that burden in this case and the defendant, therefore, is entitled to judgment as a matter of law.
Conclusion
For the reasons stated herein, the judgment of the Superior Court is affirmed. The papers in the case shall be remanded to Superior Court.
NOTES
[1] This case was brought originally against the City of Providence, Providence School Department and Stephen T. Napolitano, in his capacity as Finance Diretor of the City of Providence (collectively referred to as the city) as well as First Student, Inc. The plaintiff, however, dismissed the city from her appeal.
[2] Unsolved Mysteries (Lifetime television broadcast).
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471 S.W.2d 390 (1971)
John HARRIS, Jr., Appellant,
v.
The STATE of Texas, Appellee.
No. 43821.
Court of Criminal Appeals of Texas.
May 26, 1971.
Rehearing Denied July 14, 1971.
Second Rehearing Denied October 26, 1971.
Monroe K. Walter, Houston, for appellant.
Carol S. Vance, Dist. Atty., Phyllis Bell and Vic Pecorino, Asst. Dist. Attys., Houston, *391 and Jim D. Vollers, State's Atty., Austin, for the State.
OPINION
ODOM, Judge.
This appeal is from a conviction for the offense of attempted burglary; the punishment, enhanced under Art. 63, Vernon's Ann.P.C., life.
Appellant alleges two grounds of error.
First, contention is made that the trial court committed reversible error by refusing to grant motion for a directed verdict of acquittal on the grounds that there was a fatal variance between the allegation of ownership in the indictment and the proof thereof.
The indictment was presented and filed April 23, 1970, and alleged: "* * * that on or about the 9th day of June, A.D., 1969 * * * John Harris, Jr. * * * did attempt to break and enter a house then and there under the actual care, control and management of Ray Chung * *."
Ray Chung testified as follows:
"Q. (By the Prosecutor) Did you own that business on June 9, 1969?
"A. Yes, sir."
* * * * * *
"Q. Mr. Chung, did you give this Defendant, John Harris, Jr., or anyone else consent and permission to enter or attempt to enter your premises there at that location?
"A. No. I did not."
And on cross-examination:
"Q. Is your father presently living?
"A. No. He passed away in September.
"Q. September, 1969?
"A. Yes, sir.
"Q. Who owned the business then in June, '69?
"A. It was my father's.
"Q. Have you since inherited the business or a portion of it?
"A. Yes, sir. Both me and my mother now.
"Q. It is yours and your mother's now?
"A. Yes, sir."
The evidence is sufficient to support a finding that the witness was the owner, or joint owner, on the date the offense was committed. However, if the evidence was not sufficient, the record reflects that when the indictment was returned the father was deceased. Article 21.08, Vernon's Ann. C.C.P., provides that "When the property belongs to the estate of a deceased person, the ownership may be alleged to be in the executor, administrator or heirs of such deceased person, or in any one of such heirs. * * *" (Emphasis supplied)
We hold that in either event, i. e., if Ray Chung was an owner in common, or jointly, with his father on the date of the offense; or, if he was an heir on the date the indictment was returned, it was not error to allege in the indictment that he was the owner of said property. See Kelley v. State, 44 Tex. Crim. 187, 70 S.W. 20.
Ground of error number one is overruled.
By his other ground of error, contention is made that the judgment of the trial court recites that the appellant was guilty of the offense of burglary. We agree. There is a recitation in the judgment that the appellant is "guilty of the offense of burglary with intent to commit theft."
*392 The said judgment is reformed to read "Attempted Burglary," to conform to the indictment and the verdict of the jury.
There being no reversible error, the judgment, as reformed, is affirmed.
OPINION
ON APPELLANT'S MOTION FOR REHEARING
ROBERTS, Judge.
Appellant strongly urges that the Court erred in holding that the evidence was sufficient to support a finding that the son was the owner or joint owner on the date of the alleged offense. Ray Chung, on direct examination testified without objection that he owned the business on the date alleged in the indictment, to wit, June 9, 1969. On cross-examination it was developed that his father owned the business on that date and that he had "since inherited the business or a portion of it." He testified on cross-examination that he had worked around the store for almost seven years or since he was fifteen years of age, that he had gone down many times to answer and investigate a burglar alarm that was ringing. The jury, being the trier of the facts, had sufficient evidence to and did conclude that the son, Ray Chung, was the owner at the date alleged under the charge of the court.
The ownership must be established as of the date of the offense rather than the date of the indictment. That part of Art. 21.08, V.A.C.C.P., referred to in the original opinion, is for the purpose of pleading where the property is owned by an estate of a deceased person at the time of the commission of the offense.
Remaining convinced that no reversible error has been shown, the appellant's motion for rehearing is overruled.
ONION, P. J., not participating.
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97 B.R. 182 (1989)
JOHN L. MOTLEY ASSOCIATES, INC.
v.
Robert RUMBAUGH, Norman H. Beck, Jr., and Beck Rumbaugh Associates, Inc.
Bankruptcy No. 85-00917 K, Adv. No. 85-0924 K, Misc. No. 86-0073.
United States District Court, E.D. Pennsylvania.
February 27, 1989.
James Scarpone, Scarpone & Edelson, Newark, N.J., for debtor.
Paul R. DeFilippo, Crummy, Del Deo, Dolan, Griffinger & Vecchione, Newark, N.J., for John L. Motley Assocs. Inc.
Fred Lowenschuss, Burlington, N.J., for Robert Rumbaugh.
Paul J. Winterhalter, Ciardi Fishbone & Di Donate, Philadelphia, Pa., for Anthony Barone, trustee.
Joseph W. Chandler by Paul I. Guest, Jr., King of Prussia, Pa., for defendant.
*183 MEMORANDUM AND ORDER
SHAPIRO, District Judge.
This interpleader action arises from claims of Beck-Rumbaugh Associates, Inc. ("Debtor Corporation")[1] and Robert Rumbaugh ("Rumbaugh"), for commissions due from John L. Motley Associates, Inc. ("Motley Associates") and John L. Motley ("Motley"). Motley also demanded payment from the Debtor Corporation, Rumbaugh, and Norman H. Beck, Jr. ("Beck") for failure to pay for services performed. Rumbaugh counterclaims and crossclaims for conspiracy to defraud and conversion, and he crossclaims to enforce two default judgments against Beck.
This case began with an interpleader action filed by Motley in the District Court of New Jersey in April, 1983. Motley, a manufacturer's representative for various office supply companies, had reached an agreement with Norman H. Beck, Jr., President of the Debtor Corporation. Pursuant to that agreement, if Motley made sales to certain prior customers of the Debtor Corporation, a percentage of commissions (on a sliding scale) derived from those sales would be paid to the Debtor Corporation for a period of five years. During the time that Motley performed under that agreement, Beck and Rumbaugh were litigating their respective interests in the Debtor Corporation in the United States District Court for the Eastern District of Pennsylvania before the Honorable John B. Hannum. Motley commenced the interpleader action after Rumbaugh claimed he was entitled to the commissions which Motley had been paying to the Debtor Corporation. In that interpleader action, Rumbaugh obtained a default judgment against Beck. Rumbaugh also claims a second default judgment against Beck resulting from a 1984 Court of Common Pleas of Philadelphia action.
Subsequently, on March 13, 1985, the Debtor Corporation filed a voluntary Chapter 7 petition in the United States District Court for the Eastern District of Pennsylvania. The Trustee removed the New Jersey interpleader action to the Bankruptcy Court for the District of New Jersey and then moved to transfer the removed interpleader action to the Eastern District of Pennsylvania. The case was transferred to the United States Bankruptcy Court for the Eastern District of Pennsylvania. This court, having also been assigned appeals from decisions in the matter of Beck-Rumbaugh Associates, Inc., Debtor, later withdrew the reference for the interpleader action. In the meantime, Judge Hannum decided certain post-trial motions pending in the case between Beck and Rumbaugh and entered a judgment against Beck in favor of Rumbaugh.
I. BACKGROUND
On June 30, 1976, Beck and Rumbaugh incorporated the Debtor Corporation in the Commonwealth of Pennsylvania to sell office equipment and supplies as manufacturers' representatives. Beck and Rumbaugh were 51% and 49% shareholders of the corporation respectively; Beck was Chairman of the Board, President and Treasurer, and Rumbaugh was Vice-President and Secretary.
On June 30, 1979, Beck agreed to purchase Rumbaugh's interest in the Debtor Corporation. Rumbaugh subsequently alleged corporate mismanagement, improper and wrongful actions and breach of the purchase agreement by Beck; Civil Action No. 79-3849, assigned to the Honorable John B. Hannum. On January 7, 1983, in response to interrogatories entitled "Plaintiff's Claim for Damages in the Nature of Payment for his Interest in the Corporation," a jury determined that: Rumbaugh voluntarily ceased to be active in the corporate business on June 30, 1979; there was an agreement for the purchase of Rumbaugh's shares in the corporation; Beck unilaterally breached the agreement; and Rumbaugh was entitled to $135,109 for breach of the agreement from Beck personally. The jury also determined that Rumbaugh *184 was entitled to additional damages in the amount of $5,000 from Beck personally and $28,000 from the Debtor Corporation. Judgment was entered in favor of Rumbaugh against Beck in the amount of $135,109 and $5,000 and against the Debtor Corporation in the amount of $28,000 less a set-off in favor of the Debtor Corporation against Rumbaugh in the amount of $8,154.
The district court granted Beck's post-trial motion to require Rumbaugh to surrender his shares in the corporation in order to execute on the $135,109 judgment against Beck, because "the award necessarily includes the price that was agreed for the sale of the stock from Beck to Rumbaugh, as well as any consequential damages resulting from the breach. Therefore if [Rumbaugh] collects the award of $135,109 plus any interest owing, he will have been paid for his interest in the Debtor Corporation, Inc. and to retain his stock will result in double recovery." Rumbaugh v. Beck, No. 79-3849 (E.D.Pa. June 1, 1983) (Hannum J.), aff'd. mem., No. 87-1509, Slip Op. (3d Cir. February 25, 1987). The award entitled Rumbaugh to his interest in the corporation as of June 30, 1979. The district court determined that Rumbaugh retained legal ownership of 49% of the shares in the corporation until payment, but that Beck acquired equitable ownership of these shares on June 30, 1979, the date of the agreement. Rumbaugh has not yet executed on this final judgment, but it is clear from the trial court decision, affirmed on appeal, that on payment of the judgment he relinquishes legal as well as equitable title to the shares.
In 1981, Motley Associates and Motley entered into an oral agreement with Beck, on behalf of the Debtor Corporation, to serve as a manufacturer's representative for manufacturers then represented by the Debtor Corporation. At first, commissions were remitted by the manufacturers to the Debtor Corporation, but later, manufacturers sent earned commissions directly to Motley. These commissions, which now total $184,384.08 were deposited by Motley into court when it became unclear to him whether he should pay the commissions to the Debtor Corporation or to Rumbaugh who claimed entitlement. Rumbaugh, individually and as a shareholder, claimed the commissions on the ground that Beck and Motley conspired to waste the assets of the Debtor Corporation and deprived him of his interest in it. The Debtor Corporation claimed the commissions under the oral contract between Beck and Motley. On August 2, 1988, Motley Associates withdrew all claims against the Debtor Corporation, as well as against Rumbaugh and Beck.
II. DISCUSSION
In this complex interpleader action, Rumbaugh, owner of bare legal title to 49% of the stock of the Debtor Corporation, asserts claims against Motley, individually, and Motley Associates, for converting business assets and business opportunities of the Debtor Corporation to the detriment of Rumbaugh. Rumbaugh also alleges that Motley and Motley Associates engaged in a scheme with Beck, owner of legal and equitable title to 51% of the Debtor Corporation, to defraud Rumbaugh by transferring certain business opportunities from the Debtor Corporation to Motley Associates. Motley has collected the commissions at issue pursuant to an oral contract with Beck and/or the Debtor Corporation to sell accounts of the Debtor Corporation. Rumbaugh can assert these claims against Motley and Motley Associates only in his capacity as a shareholder of the Debtor Corporation, not in his individual capacity. The commissions earned were the property of the corporation and not any individual shareholder. 11 U.S.C. § 541. A cause of action for tortious impairment or destruction of a corporation is vested in the corporation; individual shareholders do not have standing to assert such claims on their own behalf. Nagle v. Commercial Credit Business Loans, Inc., 102 F.R.D. 27 (E.D. Pa.1983). Although the shareholders may be affected by the wrong, they do not have an individual right to redress, but only the right to bring a derivative action on behalf of the corporation itself. Id. at 30.
*185 The Debtor Corporation filed for bankruptcy under Chapter 7 of the Bankruptcy Code on March 13, 1985. Rumbaugh's counterclaim and cross-claim in this action against Motley and Motley Associates were filed May 23, 1986. When a corporation files for bankruptcy, all corporate causes of action pass to the bankrupt estate and are enforceable only by the trustee in bankruptcy. Mitchell Excavators v. Mitchell, 734 F.2d 129 (2d Cir.1984); 11 U.S.C. § 541; See also Pepper v. Litton, 308 U.S. 295, 306-07, 60 S. Ct. 238, 245-46, 84 L. Ed. 281 (1939) (fiduciary obligations of officers, directors and shareholders that normally are "enforceable directly by the corporation or through a stockholder's derivative action [are,] in the event of bankruptcy of the corporation, enforceable by the trustee."). Therefore, whatever rights Rumbaugh may have had prior to the bankruptcy as a shareholder with legal but not equitable title, after the bankruptcy he could not pursue claims against Motley for conversion and fraud of corporate assets as an individual shareholder. Only the trustee has the right to pursue such claims of the corporate debtor.
Rumbaugh, as a shareholder of the Debtor Corporation, also claims the interpleaded funds on deposit with the court. The basis of this claim is unclear from the pleadings but the proposition is incorrect as a matter of law. Rumbaugh contends that so long as he retains legal title to shares of the Debtor Corporation, he remains entitled to his share of the corporate income.
First, his status as holder of bare legal title to shares of the Debtor Corporation does not make him a creditor of the Debtor Corporation. Any right he may have as a shareholder will be recognized only when any remaining assets of the corporation are distributed to shareholders after all claims are resolved.
Second, the jury verdict (in Civil Action No. 79-3849) that Rumbaugh voluntarily ceased to be active in the Debtor Corporation as of June 30, 1979 collaterally estops him from asserting any ownership interest in the Debtor Corporation other than that arising from his entitlement to have his judgment paid plus interest, even if we assume, arguendo, that Rumbaugh retained his full rights as a shareholder after the entry of judgment, a prerequisite to standing to assert this claim. See generally, e.g., Haize v. Hanover Insurance Co., 536 F.2d 576, 579 (3d Cir.1976) (stating requirements for collateral estoppel effect to be given effect to a prior action); In re Gaebler, 88 B.R. 62, 66 (E.D.Pa.1988) (same).
If the equitable distribution of the bankrupt estate is sufficient to fully satisfy Rumbaugh's judgment against Beck, Rumbaugh will ipso facto lose his legal title to the shares of the Debtor Corporation. He will no longer have standing as a shareholder or any claim on funds left after all creditors of the Debtor, including himself, have been satisfied. If, on the other hand, the assets of the bankrupt estate are insufficient to satisfy the judgment, there will be nothing left for the shareholders anyway. Thus, Rumbaugh's claim to the funds on deposit can be satisfied only by their distribution in the bankruptcy.
The bankrupt estate is the only party with legal claim to the funds on deposit; the money will be turned over to the estate for equitable distribution. The lien of Rumbaugh's judgment against Beck,[2] attaches to Beck's share of the distribution and must be satisfied to the extent possible. At the time and to the extent the lien is satisfied, Rumbaugh loses legal title to the shares of the Debtor Corporation. While it is clear that Rumbaugh retains legal title to the shares to protect his right to recover his judgment, it is equally clear that he may not vitiate the finality of a judgment by refusing to execute on it.
When the funds on deposit with the court have been turned over to the bankrupt estate for distribution, the two claims for conversion having been dismissed, the RICO claims asserted by Rumbaugh as a *186 counterclaim in his answer to the amended complaint remain to be litigated. The court will dispose of these counterclaims according to the schedule established in the attached order.
ORDER
AND NOW, this 27th day of February, 1989, for the reasons set forth in the court's Memorandum entered February 27, 1989, it is ORDERED that:
1. The funds on deposit with the court in the amount of $184,384.08 are an asset of the bankrupt estate available for distribution in the bankruptcy court.
2. By reason of the final judgment in Civil Action No. 79-3849, Rumbaugh has a final judgment against the Debtor Corporation for $19,846 with interest compounded annually from January 10, 1983.
3. Rumbaugh also has a final judgment against Beck in the amount of $140,109 plus interest compounded annually from January 10, 1983 that is a lien on Beck's interest in the Debtor Corporation.
ORDER
AND NOW, this 27th day of February, 1989, for the reasons set forth in the foregoing Memorandum, it is ORDERED that:
1. Robert Rumbaugh's counterclaim for conversion against John L. Motley, Individually, is DISMISSED for lack of standing.
2. Robert Rumbaugh's third-party claim for conversion against John L. Motley Associates, Inc. is DISMISSED for lack of standing.
3. Robert Rumbaugh shall file the attached RICO case statement, subject to the requirements of Rule 11, on or before March 10, 1989. The other parties shall file any motions on or before March 24, 1989. If there are no motions filed, the court will set a discovery schedule at that time.
RICO CASE STANDING ORDER
18 U.S.C. §§ 1961-1968
The above-captioned case contains a civil RICO claim, which has been filed in this court pursuant to 18 U.S.C. §§ 1961-1968. This Standing Order has been designed to establish a uniform and efficient procedure for processing this case.
The plaintiff shall file, within twenty (20) days hereof, a RICO case statement. This statement shall include the facts the plaintiff is relying upon to prove this RICO claim. In particular, this statement shall be in a form that uses the numbers and letters as set forth below, and shall provide the following information:
1. State whether the alleged unlawful conduct is in violation of 18 U.S.C. § 1962(a), (b), (c), and/or (d).
2. List each defendant and state the alleged misconduct and basis of liability of each defendant.
3. List the alleged victims and state how each victim was allegedly injured.
4. Describe in detail the pattern of racketeering activity or collection of unlawful debts alleged for each RICO claim. A description of the pattern of racketeering shall include the following information:
a. List the alleged predicate acts and the specific statutes that were allegedly violated;
b. If the RICO claim is based on the predicate offenses of wire fraud, mail fraud, or fraud in the sale of securities, the "circumstances of fraud or mistake shall be stated in particularity";
c. Describe how the predicate acts form a "pattern of racketeering activity"; and
d. State whether the alleged predicate acts relate to each other as part of a common plan. If so, describe.
5. Describe in detail the alleged enterprise for each RICO claim. A description of the enterprise shall include the following information:
a. State the names of the individuals, partnerships, corporations, associations, or other legal entities that allegedly constitute the enterprise;
*187 b. Describe the structure, purpose, function and course of conduct of the enterprise;
c. State whether any defendants are employees, officers or directors of the alleged enterprise;
d. State whether any defendants are associated with the alleged enterprise; and
e. State whether you are alleging that the defendants are individuals or entities separate from the alleged enterprise, or that the defendants are the enterprise itself; or members of the enterprise.
6. Describe the alleged relationship between the activities of the enterprise and the pattern of racketeering activity. Discuss how the racketeering activity differs from the usual and daily activities of the enterprise, if at all.
7. Describe the effect of the activities of the enterprise on interstate of foreign commerce.
8. If the complaint alleges a violation of 18 U.S.C. § 1962(a), provide the following information:
a. State who received the income derived from the pattern of racketeering activity or through the collection of an unlawful debt; and
b. Describe the use or investment of such income.
9. If the complaint alleges a violation of 18 U.S.C. § 1962(b), describe the acquisition or maintenance of any interest in or control of the alleged enterprise.
10. If the complaint alleges a violation of 18 U.S.C. § 1962(c), provide the following information:
a. State who is employed by or associated with the enterprise; and
b. State whether the same entity is both the liable "person" and the "enterprise" under § 1962(c).
11. If the complaint alleges a violation of 18 U.S.C. § 1962(d), describe the alleged conspiracy.
12. Describe the alleged injury to business or property.
13. Describe the direct causal relationship between the alleged injury and the violation of the RICO statute.
14. Provide any additional information that you feel would be helpful to the court in trying the RICO claim.
IT IS SO ORDERED.
NOTES
[1] On March 13, 1985, Beck-Rumbaugh Associates Inc. filed a voluntary petition in bankruptcy under Chapter 7.
[2] This district court and the bankruptcy court have taken judicial notice of the civil judgment entered on January 10, 1983. Rumbaugh v. Beck, No. 79-3849, Slip Op. (E.D.Pa. filed July 28, 1987) [1987 WL 14853].
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471 S.W.2d 822 (1971)
Virginia Mildred TROTTER, Appellant,
v.
The STATE of Texas, Appellee.
No. 44168.
Court of Criminal Appeals of Texas.
October 26, 1971.
*823 Arthur N. Bishop, Detroit, Mich. (On Appeal Only), for appellant.
Henry Wade, Dist. Atty., and James S. Moss, Asst. Dist. Atty., Dallas, and Jim D. Vollers, State's Atty., Austin, for the State.
OPINION
ONION, Presiding Judge.
This is an appeal from a conviction for driving a motor vehicle upon a public highway while intoxicated. The punishment, assessed by the jury, was 7 days in the county jail and a fine of $75.00.
The sufficiency of the evidence is not challenged. Suffice it to say the record reflects that the appellant was arrested by Dallas Police Officer Parrish at 12:20 a.m. on December 20, 1969, while driving a Chevrolet automobile which he described as speeding, weaving, etc., and being driven without headlights.
Initially appellant contends that she was deprived of the effective assistance of trial counsel in violation of her constitutional rights.
The record reflects that the appellant was represented by retained counsel whom she had employed on the morning of her arrest.
We have carefully examined the record and cannot conclude there was ineffective assistance of counsel. This record does not support or reflect any willful misconduct by an employed counsel without appellant's knowledge which amounts to a breach of the legal duty of an attorney. See Lawson v. State, Tex.Cr.App., 467 S.W.2d 486, and cases there cited. Further, counsel being retained, any claimed incompetency or lack of effective assistance on the part of such counsel cannot be imputed to the State. Howard v. Beto, 5th Cir., 375 F.2d 441; Lawson v. State, supra.
Appellant's present counsel claims, among other things, that trial counsel failed to "seek a writ of coram nobis" to properly establish the true facts or to advise appellant of her appellate rights. He makes no further explanation of this contention.
He urges there was an "utter failure to cross-examine the two police officers on their substantive testimony" when the record reflects the contrary. He points to a failure to move to suppress the fruits of an illegal search but does not designate what fruits he has in mind. He suggest trial counsel should have on several occasions moved for a mistrial, but we find no basis for any such motion. He calls attention to the failure to request "favorable instructions" but does not designate what instructions he has in mind.
It is true that the record reflects that trial counsel did not in open court request the offense report for the purpose of cross-examination and possible impeachment after the arresting officer testified, but there is no showing counsel had not previously seen the report or just how appellant was, in fact, harmed.
On direct examination trial counsel did elicit from the appellant she had been previously convicted of driving while intoxicated three years before and had been granted probation. He prefaced his question with the statement, "Now, they are gonna bring this out, so we might as well do it." Certainly, at least, at the penalty stage of the trial such testimony would have been admissible. See Article 37.07, Vernon's Ann.C.C.P. We cannot say that its introduction at the guilt stage was not a part of the trial strategy to demonstrate that the appellant, mother of a number of *824 children, was a forthright, candid woman whose version of the facts rather than that of the police officers should be accepted by the jury.
In Williams v. Beto, 5th Cir., 354 F.2d 698, the Court said:
"The practice of law is an art as well as a science. As no two men can be exactly alike in the practice of the profession, it is basically unreasonable to judge an attorney by what another would have done, or says he would have done, in the better light of hindsight."
And in MacKenna v. Ellis, 280 F.2d 592, the Fifth Circuit Court of Appeals also stated:
"We interpret the right to counsel as the right to effective counsel. We interpret counsel to mean not errorless counsel, and not counsel judged ineffective by hindsight, but counsel reasonably likely to render and rendering reasonably effective assistance." See also Fletcher v. State, Tex.Cr.App., 396 S.W.2d 393.
Appellant's first contention is overruled.
Next appellant complains deprivation of due process because the prosecution got into evidence the fact she had refused to take a blood test.
On direct examination of the arresting officer it was established that the appellant had been examined by a medical doctor before being placed in jail. Upon objection no further testimony on this matter was developed. On cross-examination the appellant, who claimed she had only "a couple of beers" and was not intoxicated, was asked:
"Q. And, did the medical doctor not give you an examination, medical examination?
"A. He was asleep, and they woke him up and he asked me if Iif I knew if I had a right to refuse and I did if I wished and I said I refused.
"Q. What do you mean?
"A. Well, to take a blood test. He said I could, I didn't have to if I didn't want to and I could if I wanted to.
"Q. And, what did you do in answer to that?
"A. I said no.
"Q. You refused to take one?
"A. I refused."
It is observed that the first question could have been answered simply "Yes" or "No." The answer given was not responsive to the question and the appellant volunteered additional information which lead to the other questions to which there was no objection. Failure to object to inadmissible evidence normally results in a waiver of the objection. 56 Tex.Jur.2d, Trial, Secs. 158, 159, 160; Wockenfuss v. State, Tex.Cr.App., 382 S.W.2d 939. See also Bolton v. State, Tex.Cr.App., 383 S.W.2d 608 (where no objection was made).
We have reviewed appellant's other claims of due process deprivation and find no merit in them.
The judgment is affirmed.
ROBERTS, J., not participating.
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97 B.R. 837 (1988)
In re Marshall Eugene QUINN, SSN: XXX-XX-XXXX, Debtor.
Andrea Quinn SHANNON and Tracy Quinn, Plaintiffs,
v.
Marshall Eugene QUINN, Defendant.
Bankruptcy No. C-B-87-693, Adv. No. 87-0212.
United States Bankruptcy Court, W.D. North Carolina, Charlotte Division.
December 14, 1988.
Fred Hicks of Tucker, Hicks, Hodge and Cranford, Charlotte, N.C., for plaintiffs.
Craig Whitley of Leonard, McNeely, MacMillan & Durham, Charlotte, N.C., for defendant.
MARVIN R. WOOTEN, Bankruptcy Judge.
This matter came on to be heard for a bench trial to determine whether the defendant's obligations to his former spouse are excepted from the defendant's Chapter 7 discharge under 11 U.S.C. § 523(a)(5)(B). After reviewing the record and hearing the arguments of counsel, the court, pursuant to Bankruptcy Rule 7052, makes the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
Plaintiff Andrea Quinn (hereinafter Mrs. Shannon) and defendant Marshall Quinn were married in April, 1977. Shortly thereafter, Marshall Quinn adopted plaintiff, Tracy Quinn, Andrea Shannon's daughter from a prior marriage.
Over the course of the marriage, the relationship deteriorated and the parties ultimately separated for the last time in May of 1984 and divorced on October 2, 1986. The plaintiff, Andrea Shannon initially retained attorney Nelson M. Casstevens, Jr. and later Mr. David Kern to represent her in resolving the claims arising out of the marital relationship. Although there were numerous attempts to settle the matters between the parties, they were unsuccessful and on June 6, 1986, Mrs. Shannon filed an action in the Mecklenburg County District Court alleging an entitlement to alimony pendente lite, permanent alimony, child custody, child support and attorney's fees.
As a basis for the entitlement to recover alimony, the plaintiff alleged that the defendant *838 (1) had engaged in an unnatural or abnormal sex act with the minor child Tracy; (2) had constructively abandoned the plaintiff and the minor child; (3) had maliciously turned the plaintiff and minor out of doors; (4) had offered indignities to the plaintiff; (5) had willfully failed to provide plaintiff with the necessary subsistence according to his means and ability.
The alimony hearing was scheduled on October 2, 1986, in Mecklenburg County District Court. Mr. Kern had prepared to try the matter, but also had prepared a contract of separation which the parties ultimately signed on October 2, 1986. The agreement was executed by the parties in the presence of their attorneys and a notary in a room adjacent to the courtroom. After the contract was signed and in accordance with the terms of the agreement, Mr. Kern dismissed the alimony and child support action.
After the parties separated in May, 1984, but before the final agreement was signed in October, 1986, the parties made many attempts to negotiate a settlement. At the trial, the plaintiffs produced several letters and proposals that went back and forth between the parties during this time. In one letter, written on June 10, 1985, from Mr. Quinn to Mrs. Shannon, Mr. Quinn wrote to Mrs. Shannon, "I will pay to you $1,000.00 per month alimony as long as you don't remarry thru June, 1992, when I reach 62. This $1,000.00 will be free of all taxes," and "I will pay $250.00 per month child support for Tracy as long as she conti[nues] her education." (emphasis added) (Plaintiff's Exhibit # 21).
Another letter dated September 23, 1986, from Mrs. Shannon to Mr. Quinn, stated that Mr. Quinn was to pay $500 a month alimony tax free starting the first day of October, 1986. The payments were to be made until Mr. Quinn retired regardless of her status. (emphasis added) (Plaintiff's Exhibit # 8). In a letter dated September 25, 1986, from Mr. Quinn to his attorney, Mr. Tom Cannon, Quinn wrote in reference to the above term, "Agreed."
On June 13, 1986, Mr. Tom Cannon, wrote a letter to Mr. Kern setting forth a number of items which he contended were in dispute and offered, "[i]n order to resolve the controversy, Mr. Quinn will pay his wife $500 per month as permanent alimony, together with lump sum payments of $3,000 on July 1, 1986, and on July 1, 1987." (emphasis added) (Plaintiff's Exhibit # 6).
The agreement that the parties signed on October 2, 1986, in the Mecklenburg County Courthouse does not use the term "alimony" or "support" but reads as follows:
PAYMENTS TO WIFE:
A. Effective with the month of October, 1986 Husband shall pay directly to Wife, the cash sum of $500.00 per month due and payable on the first day of each month. Such payments shall continue until the first of the following events:
a) Husband's death;
b) The arrival of October 1, 1994;
c) Wife's death.
B. On or before May 15, 1987 Husband shall deliver to Wife cash or certified funds in the amount of $5,000.00.
C. The parties agree that the cash payments described above shall not be considered alimony and shall not, for tax purposes, be deductible by Husband or reported as income by Wife. On the contrary, the payments provided herein shall be considered as payments in settlement of property rights. The amounts provided herein shall not be subject to modification by way of increase or decrease, notwithstanding a change of circumstances or condition of either or both parties. . . . (Plaintiff's Exhibit # 11).
The agreement also contained a provision that Mr. Quinn would transfer title and possession of the Cadillac to Mrs. Shannon and that he would pay all insurance, monthly payments, taxes and other expenses until the note is paid in full. The same type provision was made with respect to Tracy's car. Mr. Quinn also agreed to pay $100.00 per month to Tracy for college expenses and these would continue "for the time necessary for Tracy to complete the course of study which she has undertaken, not to exceed four (4) years." (Plaintiff's Exhibit # 11).
*839 The plaintiff, Tracy Quinn was enrolled at Louisburg College in Louisburg, North Carolina as of the date of the agreement. However, she withdrew from Louisburg in the Fall of 1987.
After the parties executed the contract, Mr. Quinn made the payments as called for under the terms of the agreement until June 1987, at which time the defendant refused to make further payments, filed bankruptcy and asserted therein that the payments required under the agreement were part of a property settlement and therefore dischargeable in bankruptcy.
DISCUSSION AND CONCLUSIONS OF LAW
I. Mr. Quinn's Obligation to Andrea Shannon
A. The Burden and Standard of Proof.
At a trial on a complaint objecting to a discharge, the plaintiff has the burden of proving his objection. Bankruptcy Rule 4005; In re Long, 794 F.2d 928, 930 (4th Cir.1986). In a recent opinion involving an objection to discharge, based on the contention that the payments were alimony, the Fourth Circuit stated that,
"the analysis of dischargeability under Section 523 must begin with the assumption that dischargeability is favored under the Code unless the complaining spouse, who has the burden of proof, demonstrates that the obligation is actually in the nature of alimony, maintenance or support."
Tilley v. Jessee, 789 F.2d 1074, 14 C.B.C.2d, 1376, 1379 (4th Cir.1986). Because the plaintiff has to overcome the presumption of dischargeability, it would seem that the standard of proof in § 523 cases would be higher than the normal "preponderance of the evidence" standard. However, the Fourth Circuit declined to adopt the higher standard of "clear and convincing evidence" in an opinion involving 523(a)(6), despite the many cases which hold that standard as the appropriate one. Noting that the Bankruptcy Code is silent as to the standard of proof necessary to establish exceptions to a discharge in § 523, the Fourth Circuit applied the preponderance of the evidence standard. Combs v. Richardson, 838 F.2d 112 (4th Cir.1988).
Nevertheless; in the present case, the court finds that it is clearly convinced that the parties intended the payments as alimony. Thus, whether the standard of proof is clear and convincing or a preponderance of the evidence, this court concludes that the plaintiff has proved her case and the debt is therefore non-dischargeable.
B. The Court is Allowed to Look Beyond the Parties Final Agreement in Order to Determine the Intent of the Parties.
The Bankruptcy Reform Act of 1978 as amended, Section 523(a) Exceptions to Discharge provides that a discharge of debts under the Act does not discharge any debt:
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with state or territorial law by a governmental unit, or property settlement agreement, but not to the extent that . . .
(B) such debt includes a liability designated as alimony, maintenance or support . . .
11 U.S.C. § 523(a)(5)(B). The issue for the court to decide is whether Marshall Quinn's obligation to make certain payments to his former wife pursuant to their agreement "is actually in the nature of alimony, maintenance or support." The determination of whether alimony is for the recipient's maintenance and support for purposes of a bankruptcy dischargeability is a matter of federal and not state law. In re Long, 794 F.2d 928 (4th Cir.1986) and see Shaver v. Shaver, 736 F.2d 1314, 1316 (9th Cir.1984).
In an opinion decided under the 1898 Bankruptcy Act, the Fourth Circuit set out the federal standard used to ascertain whether an obligation to a former spouse is *840 alimony or a property settlement. In Melichar v. Ost, 661 F.2d 300 (4th Cir.1981), Theodore Melichar and his former wife, now Mrs. Ost, executed a settlement agreement in which Mr. Melichar was to pay $66,550 in monthly installments of $550 for a period of 121 months. In the event of Mrs. Melichar's remarriage, Mr. Melichar's liability for further payments would end after 108 months and in the event of the death of either party, liability for further payments would abate. Id. at 301-302.
The Court of Appeals agreed with the district court judge and found that the agreement contained elements of both a straight property settlement and an alimony agreement. The court noted that the hybrid nature of the agreement does not automatically destroy the nature of the payments as alimony. Id. at 303. The court concluded that "the proper test of whether the payments are alimony lies in the proof of whether it was the intention of the parties that the payments are for support rather than a property settlement." Id. Thus, Melichar holds that when an agreement to pay a former spouse contains elements of both a property settlement and alimony payments, the court must look beyond that agreement and determine the intent of the parties at the time the agreement was made.
Another Fourth Circuit opinion, Tilley v. Jessee, 789 F.2d 1074, 14 C.B.C.2d 1376 (4th Cir.1986) reviewed the Melichar decision and narrowed the scope of that decision stating that "although the true intent of the parties rather than the labels attached or the application of state law controlled, we did not thereby preclude an examination of the written agreement as persuasive evidence of intent." Id. at 1379. The agreement in Tilley exhibited a structured drafting which dealt with the separate issues of property settlement and alimony in distinct sections of the document. Id. When the court found nothing in the record which supported a finding that the parties intended anything other than what was expressed in the written agreement, the court relied exclusively on the terms of the agreement. The court found that the payments entitled "Property Interest of Wife" were in fact a property settlement and not alimony and thus, the debt was found to be dischargeable.
The agreement in question, like the agreement in the Melichar case, contains elements of both a property settlement and of an alimony agreement. The condition that Mr. Quinn's monthly payments would cease upon the death of either party is a characteristic of alimony payments. Presumably, Mrs. Shannon would not need any support after her death and Mr. Quinn could not provide any support after his death. However, the agreement also contained the condition that the payments were to continue only until October 1, 1994, whether or not the plaintiff remarried or either party had a change in status. The payments were also expressly non-modifiable. These two conditions are not normally found in an alimony agreement because presumably, the recipient spouse's needs could change upon remarriage, before or after any fixed termination date and the payee spouse's ability to pay could also change at any time. Thus, alimony payments which are usually based on one spouse's need and the other spouse's ability to pay are also usually modifiable.
The Quinn's agreement is a hybrid one and as the court held in Melichar, the non-alimony terms do not defeat characterization of the payments as alimony. They do allow the court to look beyond the labels and terms the parties have expressed in their written agreement. The terms contained in the Quinns' agreement unlike the terms of the Tilley agreement, do not conclusively show that the parties intended that the payments be for support nor do they show the parties intended them to be a property settlement. Thus, the court is not required to confine its determination of the parties' intent to the terms of the parties' final written agreement, as the Tilley court did.
Further support for the need to go beyond the document is found in the law of contracts. This agreement clearly states in one section that the "payments to wife shall not be considered alimony," and that they are considered as payments in settlement *841 of property rights. However, in the "Life Insurance" segment of the document, which directs the reader to the "Payments to Wife" section, the Payments are referred to as "Husband's cash support obligations" (emphasis added). Thus, the document is ambiguous. When a contract is unambiguous and it contains a merger clause, the parole evidence rule prohibits a court from looking at prior or contemporaneous negotiations to prove terms contrary to those in the document itself. Such is not the case with this agreement and thus, the court is free to examine all other evidence of the parties' intent.
C. The Evidence Shows That The Parties Both Intended The Payments To Be Alimony Payments.
The Fourth Circuit held in Tilley v. Jessee, 789 F.2d 1074, 14 C.B.C.2d 1376 (4th Cir.1986) that mutual intent is the threshold question that must be crossed in a case which determines dischargeability under 523(a)(5). Once this court looks beyond the written agreement it finds clear and convincing evidence that both the parties intended the payments as support money for Mrs. Shannon.
1. Mrs. Shannon's Intent
When Mrs. Shannon and Marshall Quinn were married, Mr. Quinn had a salary of approximately $100,000 a year. Mrs. Shannon worked for one year of their seven year marriage. Once the parties separated, Mrs. Shannon did not find work right away and the jobs she ultimately found paid $12,000 to $18,000 a year; a much lower income than she was accustomed to when living with Mr. Quinn. Mr. Quinn sent Mrs. Shannon some monthly support payments during the first year of their separation when Mrs. Shannon did not have a job and Mrs. Shannon testified that she used the money and loans from her family for her subsistence. In the letters and proposals that went back and forth between the parties during the period before the final agreement, Mrs. Shannon always referred to Mr. Quinn's payments as "support" or "alimony." She never wanted any part of the marital home and felt there was little or no equity to divide. The payments that are referred to in the final agreement are no different from the payments she received before the agreement. Mrs. Shannon intended that all the payments be for support and they were in fact used by her to support herself and her daughter.
2. Mr. Quinn's Intent
Mr. Quinn testified that he never intended the payments in the final agreement to be characterized as alimony because "he did not believe in alimony for a former wife who has no minor children." However, in the letters and proposals that were sent back and forth between the parties and their lawyers, Mr. Quinn himself called the payments "alimony" (Plaintiff's Exhibit # 21). When Mrs. Shannon proposed a payment from Mr. Quinn to her of $500 a month "alimony," Mr. Quinn wrote, in reference to that paragraph, in a letter to his attorney, "Agreed." Mr. Quinn testified that during the time the parties were separated, but before the final agreement was signed, he gave Mrs. Shannon money "in order to help her out."
There is no evidence to show why Mr. Quinn would intend to help his wife out for a few months and then once the agreement was signed intend the payments as a property settlement. Further, there is no evidence whatsoever to show that the parties ever discussed a property settlement or that Mr. Quinn wanted the payments to be treated as such. Instead, the facts show that Mr. Quinn was uncooperative with Mrs. Shannon and refused to pay her until he realized that she would actually file suit and the allegations in her complaint would become public. It is clear that Mr. Quinn signed the agreement out of fear of his wife's accusations and not because the final agreement, which Mrs. Shannon's attorneys drafted, omitted the words alimony and support.
3. The Payments Were Not Intended to Be A Property Settlement:
Mr. Quinn wants the court to believe that he intended the monthly payments to Mrs. Shannon as a property settlement. If the amount of the monthly payments until 1994 is totaled, the sum is approximately $48,000. *842 However, Mr. Quinn's testimony indicates that there is very little equity in the home and the personal property of the parties was worth $30,000 at best. Thus, it seems very unlikely that Mr. Quinn would intend this as a property settlement when the parties did not have property worth $96,000 to divide.
D. The Payments were Labeled "Property Settlement" in the Agreement Because the Parties did not want the Payments to be Modified.
Although it is clear to the court that Mrs. Shannon and Mr. Quinn intended the payments to be used as support for Mrs. Shannon, it is not quite as clear why Mrs. Shannon's attorneys took such pains to disguise the nature of these payments when they drafted the agreement. The payments are not called support payments and the agreement explicitly states that they are not modifiable. However, Mr. Kern, Mrs. Shannon's domestic law counsel, testified that a recent North Carolina family law decision held that a separation agreement, which was incorporated into a divorce judgment, may be modified with respect to its alimony provisions despite language in the agreement that prohibits modification without the consent of the parties. Acosta v. Clark, 70 N.C.App. 111, 318 S.E.2d 551 (1984).
Mr. Kern explained that although the parties intended the payments as support, they both wanted the payments to continue unchanged for a certain period of time. Thus, Mrs. Shannon's attorneys used labels to avoid the result in Acosta, and to allow the parties the certainty they both wanted. While the non-modifiability aspect makes the payments look somewhat unlike alimony, the Fourth Circuit in Melichar stated that "the hybrid nature of the agreement does not automatically destroy the nature of the payments as alimony." 661 F.2d at 303. The court is clearly convinced that despite the labels and non-modifiability aspect, the parties intended them as support and they are thus non-dischargeable.
II. Mr. Quinn's Obligation to Tracy Quinn
Under the October 2, 1986, agreement between the parties, Mr. Quinn is also obligated to pay child support to Tracy Quinn, his adopted daughter. Because these payments are in the nature of support and are labeled as such, they are not dischargeable in bankruptcy. The terms of the agreement state, concerning Tracy's automobile, that "Husband shall continue to be responsible for and shall pay all monthly payments, insurance, taxes and other expenses associated with the vehicle until the note is paid in full." (p. 12). Further, Mr. Quinn is to pay all insurance premium payments until the note is paid unless Tracy is still in college, then he shall make all insurance premiums until she finishes college. Under the "Cash Child Support" heading, the agreement states that Husband shall pay Tracy $100.00 a month for her college expenses until she has completed her course of study, not to exceed four (4) years. Further, Mr. Quinn is to maintain health insurance for Tracy through his employer until she completes her college education.
It is clear from the agreement that Mr. Quinn is obligated to pay all monthly payments, insurance premiums and taxes on Tracy's car, whether or not she is enrolled in school. Mr. Quinn is also required to pay Tracy $100.00 a month for college expenses "until she completes her course of study." Tracy has withdrawn from school at this time but she has not completed her course of study. Thus, Mr. Quinn is not obligated to make the monthly payments to Tracy at this time, but is required to make them should Tracy return to school, and owes to her any past payments he did not make while Tracy was attending school. Mr. Quinn must also maintain health insurance coverage for Tracy during the time she is in school.
III. Conclusion
This court finds that the October 2, 1986, agreement between the parties was unclear and ambiguous and thus the court is not limited in its investigation to that agreement alone. Therefore, the intent of the parties is controlling on the issue of whether *843 certain payments from Marshall Quinn to Mrs. Shannon are in the nature of alimony and thus non-dischargeable under 523(a)(5). The testimony of the parties, the prior negotiations between the parties and the relative position of the parties all show that both Mr. Quinn and Mrs. Shannon intended the payments as support. The debt to Mrs. Shannon is not dischargeable as a result of Mr. Quinn's bankruptcy and he now owes her all past due monies as well as those continuing under the agreement. Mr. Quinn is also obligated to Tracy Quinn for past due child support and will be obligated to pay her monthly support if and when she returns to school.
It is therefore ORDERED that the debts are determined to be alimony and support payments and are non-dischargeable.
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97 B.R. 121 (1989)
In re 1736 18TH STREET, N.W., LIMITED PARTNERSHIP, Debtor.
GOLDSTEN REAL ESTATE, Plaintiff,
v.
RENT ADMINISTRATOR RENTAL ACCOMMODATIONS AND CONVERSION DIVISION DISTRICT OF COLUMBIA DEPARTMENT OF CONSUMER AND REGULATORY AFFAIRS, et al., Defendants.
Bankruptcy No. 84-00406, Adv. No. 87-0084.
United States Bankruptcy Court, District of Columbia.
February 17, 1989.
Richard C. Deering, Washington, D.C., for plaintiff.
Frederick D. Cooke, Jr., Richard L. Aguglia, Denise Dengler, Washington, D.C., for defendants.
*122 DECISION RE MOTION FOR ORDER TO SHOW CAUSE WHY DEFENDANT DISTRICT OF COLUMBIA SHOULD NOT BE HELD IN CRIMINAL AND CIVIL CONTEMPT AND RE MOTION FOR PRELIMINARY INJUNCTION
S. MARTIN TEEL, Jr., Bankruptcy Judge.
This decision addresses the plaintiff's motions for a preliminary injunction and for contempt sanctions.
1. Facts
The Debtor, 1736 18th Street, N.W., Limited Partnership, owns an apartment building and has employed the plaintiff, Goldsten Real Estate ("Goldsten"), as its rental agent. In June of 1984 certain tenants of the Debtor commenced a proceeding ("the rent case"), before the Rental Accommodations and Conversion Division ("the RACD") headed by the defendant, the Rent Administrator of the District of Columbia,[1] suing the Debtor and Goldsten for a refund of rents based on certain alleged violations of the District of Columbia's rental laws.
On August 10, 1984, the Debtor filed its voluntary petition in this Court under Chapter 11 of the Bankruptcy Code.
Despite the pendency of the Debtor's bankruptcy case, the RACD heard the rent case and issued a decision. The Debtor and Goldsten appealed to the District of Columbia Rental Housing Commission ("the Commission") and argued on appeal that the automatic stay of 11 U.S.C. § 362(a) applied and required the appeal to be stayed. The Commission rejected that contention, citing 11 U.S.C. § 362(b)(4) and observing that the stay did not apply to Goldsten. The Commission remanded the matter to the RACD for a hearing de novo. On remand, on March 11, 1986, the RACD set a further hearing in the rent case.
The Debtor and Goldsten then moved this Court to hold the tenants, the Rent Administrator and the Chairperson of the Commission in contempt. After a hearing and by an Order entered May 28, 1986, this Court (the Honorable George F. Bason, Jr.) found that the conduct of the Rent Administrator and the Chairperson of the Commission was willful and contemptuous, but concluded, based on In re Omega Equipment Corp., 51 B.R. 569 (D.D.C.1985), that the Court had no power to hold those persons in contempt. The minutes of the hearing reflect that the Court also announced that it would deny a motion by the tenants for relief from the automatic stay seeking to allow them to prosecute the rent case.
The Rent Administrator then set a further hearing for December 7, 1987. Despite being advised by the tenants, the Debtor and Goldsten that the automatic stay of 11 U.S.C. § 362(a) barred the Rent Administrator from conducting a hearing, the Administrator ordered the hearing to go forward on December 7, 1987. Goldsten filed this adversary proceeding on December 15, 1987, to obtain an injunction prohibiting the Rent Administrator from conducting any further hearings in the rent case. On December 18, 1987, this Court issued a temporary restraining order in this adversary proceeding, but the order expired on December 25, 1987. The District of Columbia moved for denial of Goldsten's motion for preliminary injunction as moot based on the District's representations that the RACD "agrees not to schedule any further hearings as to [the rent case] until the bankruptcy court rules on the 11 USC Section 362 `Automatic Stay'" and that the District would "file an adversary proceeding requesting a ruling by the court that the Rental Accommodations and Conversion Division hearings as to this tenant petition are excepted from the automatic stay pursuant to 11 USC Section 362(b)(4)." Upon consideration of the District's motion, this Court (the Honorable George F. Bason, Jr.) entered an order on January 6, 1988, denying Goldsten's motion for a preliminary injunction "as moot at this time, without prejudice."
With the complaint initiating this proceeding on December 15, 1989, there was also filed a motion for contempt. No ruling has been made on that motion.
*123 By an Order of December 1, 1988, the bankruptcy case was converted to a case under Chapter 7.
On February 1, 1989, Goldsten renewed both its motion for preliminary injunction and its motion for contempt, styling the renewed contempt motion as a "Motion for Order to Show Cause Why Defendant District of Columbia Should Not be Held in Criminal and Civil Contempt." The renewed motions recite the same grounds as the previous motions but additionally bring to the Court's attention that by an order dated December 21, 1988, the Rent Administrator (through the Chief of the Adjudication Branch of the RACD) entered an Order in the rent case setting a hearing in the rent case for February 28, 1989, based on his determination that the automatic stay did not apply to the case pending before him.
On February 9, 1989, this Court entered an Order in the main bankruptcy case granting a renewed motion of the tenants for relief from the automatic stay to proceed with the rent case. The Trustee consented to the motion.
2. Denial of Injunctive Relief
In seeking injunctive relief, Goldsten only relied upon the harm to the estate but the Trustee has now consented to the rental case proceeding. Because the Court has permitted the rent case to go forward, with the consent of the Trustee who represents the interests of the estate, there is no further need for a preliminary injunction to protect those interests.
3. Denial of Contempt Motion
The rent case is not, within the meaning of § 362(b)(4), an "action or proceeding by a governmental unit to enforce" the rental laws but, rather, is a proceeding brought by private individuals before a governmental unit to enforce private rights arising under the rental laws. Therefore, the tenants' rent case against the Debtor does not come within the exception of 11 U.S.C. § 362(b)(4) to the automatic stay of 11 U.S.C. § 362(a). Compare In re Revere Copper and Brass, Inc., 29 B.R. 584, 587-88 (Bankr.S.D.N.Y.), aff'd, 32 B.R. 725 (S.D.N.Y.1983) (action by private environmental group did not come within exception even though fines would be payable to the Government) with In re Berry Estates, Inc., 812 F.2d 67 (2d Cir.), cert. denied, ___ U.S. ___, 108 S. Ct. 77, 98 L. Ed. 2d 40 (1987) (action by governmental unit to recover excess rent came within exception).
The case of Saravia v. 1736 18th St., N.W., Ltd., Partnership, 844 F.2d 823 (D.C.Cir.1988), relied upon by the Rent Administrator did not even involve § 362(b)(4) and furnishes no support for his position. If the Rent Administrator is asserting that his role in the rent case is an affirmative enforcement role, his assertion must be rejected as inconsistent with his status in the rent case as a dispassionate adjudicator.
But the very fact that the rent case is an adjudicatory proceeding before the Rent Administrator is fatal to Goldsten's request for contempt sanctions against the Rent Administrator. When sitting as an adjudicator, the Rent Administrator has jurisdiction to determine whether a proceeding before him is subject to the automatic stay. In re Baldwin-United Corp. Litigation, 765 F.2d 343, 347 (2d Cir.1985); N.L.R.B. v. Edward Cooper Painting, Inc., 804 F.2d 934, 939 (6th Cir.1986); Brock v. Morysville Body Works, Inc., 829 F.2d 383, 387 (3d Cir.1987). The Rent Administrator plainly is not in contempt for reaching an erroneous determination in exercising that jurisdiction.[2]
*124 The Rent Administrator insists that Goldsten, which the tenants contend may have a right of contribution from the Debtor, lacks standing to seek contempt sanctions for violation of the automatic stay. The Court need not decide that issue. See In re Kroh Bros. Development Co., 91 B.R. 525, 540 (Bankr.W.D.Mo.1988) (creditor allowed to sue for damages for violation of automatic stay).[3]
CONCLUSION
Based on the foregoing, both the motion for preliminary injunction and the motion for contempt sanctions shall be denied.
NOTES
[1] See D.C.Code Ann. § 45-2513 (1981).
[2] As noted in Baldwin-United Corp., 765 F.2d at 347, "[w]hether [the non-bankruptcy forum] ought to exercise its authority to make such a determination, however, is a different question." Here, the previous Bankruptcy Judge handling this case had already opined that the automatic stay barred the rent case from going forward and the District of Columbia had already announced that the Rent Administrator would not schedule hearings and that it would seek a determination by the Bankruptcy Court whether the automatic stay applied. In these circumstances, this Court cannot help but observe that the Rent Administrator, at the very least, ought to have questioned whether equity warranted his refraining from determining whether the stay applies. Cf. Baldwin-United Corp., 765 F.2d at 348, 349; In re Republic Oil Corp., 59 B.R. 884, 886 (Bankr.W.D.Ky.1986). By proceeding with the rent case in 1986, 1987 and 1988, the Rent Administrator took the risk that, upon a later determination that the automatic stay did apply, the rent case hearings against the Debtor "would be void ab initio as an act taken in violation of the stay" (unless the automatic stay was annulled by the Bankruptcy Court). Edward Cooper Painting, Inc., 804 F.2d at 940 (citations omitted); CPI Crude, Inc. v. U.S. Dept. of Energy, 77 B.R. 320, 322 (D.D.C.1987). In addition, he subjected the parties to the rent case to the risk that they might be held in contempt for proceeding based on his plainly erroneous determination. See Baldwin-United Corp., 765 F.2d at 347 n. 2.
[3] The automatic stay did not apply to protect Goldsten itself from the automatic stay. Teachers Ins. and Annuity Ass'n of America v. Butler, 803 F.2d 61 (2d Cir.1986). The Rent Administrator could properly continue to hear the proceeding against Goldsten even if the automatic stay barred the continuance of the proceeding against the Debtor. See Marcus, Stowell & Beye v. Jefferson Inv. Corp., 797 F.2d 227, 230 n. 4 (5th Cir.1986) (court proceeded to decide appeal because it could proceed against debtor's co-defendant). At most, Goldsten could seek to bring contempt proceedings to prevent harm to the Debtor's estate, assuming Goldsten had standing to do so, not to recover for the harm it suffered independently in being forced to defend the rent case hearings.
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97 B.R. 170 (1989)
In re B.K.B. ENTERPRISES, INC. t/a North Tarrytown Car Wash, Debtor.
Bankruptcy No. 88 B 20277.
United States Bankruptcy Court, S.D. New York.
March 7, 1989.
*171 Nathan Horowitz, White Plains, N.Y., for debtor.
Jeffrey L. Sapir, Hartsdale, N.Y., for landlord.
DECISION ON ORDER TO SHOW CAUSE FOR ORDER TO ASSUME EXECUTORY LEASE AND TO CURE ARREARS
HOWARD SCHWARTZBERG, Bankruptcy Judge.
This Chapter 11 debtor, B.K.B. Enterprises, Inc., seeks to assume a lease between the debtor and its landlord in accordance with 11 U.S.C. § 365. The lease relates to premises formerly occupied as a car wash, gas station and tire shop. The premises are now occupied by the debtor solely as a car wash. The landlord, Anthony Varvaro, ("Landlord") opposes the relief sought by the debtor on the ground that there is no lease to assume, because a state court judge has entered a judgment against the debtor, awarding possession to the landlord. The state court ruled that the debtor breached two provisions in the lease. It was found that the debtor sublet a portion of the premises without the landlord's consent. It was also found that the debtor ceased pumping gas at the premises, thereby giving the landlord the right to exercise a termination option in the lease. A warrant of eviction was issued, although the debtor remains in possession of the premises because an appeal has been filed and a bond pending such appeal has been posted by the debtor.
FINDINGS OF FACT
1. On December 29, 1982, the debtor, as tenant, and Anthony Varvaro, as landlord, entered into a written lease for premises in North Tarrytown, New York for use as a car wash, garage and gas station. Paragraph # 29 of the lease gave the tenant the right to assign or sublet a portion of the *172 premises upon the express written consent of the Landlord, which consent would not be unreasonably withheld. Paragraph # 7 of the rider to the lease provided: "In the event that Tenant ceases to pump gas, Landlord will have the option to terminate this lease."
2. On August 20, 1986, the Landlord filed a petition with the Justice Court of the Village of North Tarrytown, State of New York, to recover possession of the premises covered by the lease. The landlord alleged that the debtor violated Paragraph # 29 of the lease in that the debtor assigned a portion of the premises without obtaining the Landlord's consent. The Landlord also charged that the debtor violated Paragraph # 7 of the rider to the lease in that the debtor was not pumping gas at the premises.
3. Pursuant to a decision and order dated August 10, 1987, the Justice Court granted judgment to the Landlord based on a petition for possession of the property on the grounds that Paragraph # 29 of the lease and Paragraph # 7 of the rider to the lease were breached by the debtor, which failed to cure these defaults after notice.
4. On September 24, 1987, the Justice Court of North Tarrytown issued a warrant of eviction and entered a judgment awarding possession of the premises to the Landlord.
5. The debtor then appealed the decision and judgment of the Justice Court of North Tarrytown pursuant to a Notice of Appeal dated February 8, 1988 and filed a bond pending appeal, which has the effect of staying the execution of the eviction warrant. The appeal is now pending in the Supreme Court, State of New York, Appellate Term.
6. On May 17, 1988, the debtor filed with this court its petition for relief under Chapter 11 of the Bankruptcy Code. The debtor has continued to operate its business as a debtor in possession pursuant to 11 U.S.C. § 1108. The debtor has remained in possession of the premises covered by the lease in question. The only prepetition monies owed by the debtor to the Landlord, namely $1931.00, are monies due for a property tax bill which was served upon the debtor just as the Chapter 11 petition was filed.
7. The debtor claims that he has never pumped gas on the leased premises. The debtor's failure to pump gas at the leased premises raises the issue as to whether the debtor may cure this alleged default under the lease because the current North Tarrytown zoning regulations, which would have allowed the pumping of gas at the premises as a nonconforming use, do not now permit the pumping of gas at the premises other than as a nonconforming use.
8. The only way for the debtor to sustain its right to possession is through a successful appeal of the Justice Court's decision to the Appellate Term of the New York Supreme Court, because the Justice Court has ruled that the debtor has breached substantial obligations of the tenancy and has failed to cure such defaults after notice. Absent a reversal, the Justice Court's judgment is binding upon the parties.
DISCUSSION
The Landlord argues that there was no stay in effect when the warrant of eviction was issued, with the result that the landlord-tenant relationship terminated upon the issuance of the warrant of eviction to the sheriff. Hence, the Landlord reasons that the lease may not be revived by this court and the debtor may not assume a lease which has been terminated and which cannot be cured. The debtor argues that the filing of a bond pending appeal of the Justice Court's judgment stays the execution of the warrant of eviction and that the landlord-tenant relationship may not be extinguished unless and until the Justice Court's judgment is upheld.
The debtor's objective is to assume its lease with the Landlord in accordance with 11 U.S.C. § 365(a) which authorizes a debtor to assume an unexpired lease. If there has been a default in the lease, the debtor may not assume the lease unless at the time of the proposed assumption the debtor cures, or provides adequate assurance that *173 it will promptly cure such defaults as required by 11 U.S.C. § 365(b) and provides adequate assurance of future performance, as well as compensation for any actual pecuniary loss as a result of such default. Apart from the unpaid tax bill in the sum of $1931.00, which the debtor says it will pay as part of the cure requirement, the debtor may not be able to cure the failure to pump gasoline at the premises because local zoning requirements now ban the pumping of gasoline at the premises unless this activity continued as a nonconforming use. The debtor's failure to pump gasoline at the leased premises for more than one year may have eliminated the nonconforming use possibility. Therefore, the debtor's right to possession hinges on the outcome of its appeal from the Justice Court's judgment terminating its lease for breaches of substantial obligations of the tenancy and a determination as to the zoning regulations enabling the debtor to cure any defaults under the lease. Hence, the landlord reasons that the debtor may not assume a lease which has been judicially terminated or that may not be cured.
In determining the measure of a debtor's interest in property, a Bankruptcy Court must look to state law, which creates and defines property rights. Butner v. United States, 440 U.S. 48, 55, 99 S. Ct. 914, 918, 59 L. Ed. 2d 136 (1978); Chicago Board of Trade v. Johnson, 264 U.S. 1, 10, 44 S. Ct. 232, 234, 68 L. Ed. 533 (1924). Section 749(3) of the New York Real Property Actions and Proceedings Law provides:
The issuing of a warrant for the removal of a tenant cancels the agreement under which the person removed held the premises, and annuls the relation of landlord and tenant, but nothing contained herein shall deprive the court of power to vacate such warrant for good cause shown prior to the execution thereof.
(Emphasis supplied).
The execution of the warrant of eviction was stayed by the debtor's posting a bond pending appeal in and amount fixed by the Justice Court. This stay is authorized under New York Civil Practice Law and Rule 5519(a)(6), which reads:
Stay of enforcement.
(a) Stay without court order. Service upon the adverse party of a notice of appeal or an affidavit of intention to move for permission to appeal stays all proceedings to enforce the judgment or order appealed from pending the appeal or determination of the motion for permission to appeal where:
6. The appellant or moving party is in possession or control of real property which the judgment or order directs be conveyed or delivered, and an undertaking in a sum fixed by the court of original instance is given that the appellant or moving party will not commit or suffer to be committed any waste and that if the judgment or order appealed from, or any part of it, is affirmed, or the appeal is dismissed, the appellant or moving party, shall pay the value of the use and occupancy of such property, or the part of it as to which the judgment or order is affirmed, from the taking of the appeal until the delivery of possession; if judgment or order directs the sale of mortgaged property and the payment of deficiency, the undertaking shall also provide that the appellant or moving party shall pay any such deficiency.
In light of the fact that under applicable state law, the debtor has some residual interest in the lease because the State Appellate Term retains the power to vacate the warrant of eviction issued by the Justice Court, it follows that the debtor has not completely lost its right to assume the lease. In re W.A.S. Food Service Corp., 49 B.R. 969 (Bankr.S.D.N.Y.1985). The debtor's residual interest in a lease for purposes of assumption under 11 U.S.C. § 365 differs from the Landlord's right to modify the automatic stay imposed under 11 U.S.C. § 362 after the issuance of a warrant of eviction which cancels the lease. Where a lease has been terminated upon the issuance of a warrant of eviction, the Landlord is entitled to relief from the automatic stay in order to proceed with the execution of the warrant of eviction. In re GSVC Restaurant Corp., 3 B.R. 491 *174 (Bankr.S.D.N.Y.1980), aff'd 10 B.R. 300 (S.D.N.Y.1980); In re Darwin, 22 B.R. 259 (Bankr.E.D.N.Y.1982). This is so because the debtor's interest in leased premises after the issuance of a warrant of eviction is regarded as too uncertain for the purpose of satisfying its burden of providing adequate protection for the landlord. In re Richards Pontiac, Inc., 6 B.R. 773 (Bankr. E.D.N.Y.1980).
In the event that the Appellate Term fails to sustain the Justice Court's termination of the debtor's lease and, instead, reinstates the lease as not having been breached by the debtor, the landlord-tenant relationship will be revived. In such case, the debtor would be in a position to pursue its assumption of the lease in accordance with 11 U.S.C. § 365(a). However, at this posture in the case, the debtor's prospects for a restoration of the landlord-tenant relationship are too insufficient to allow it to assume the lease. Therefore, the debtor will be permitted to remain in possession of the leased premises, provided that it pays its rent currently, and will continue to have the benefit of the stay pending appeal, as authorized under C.P.L.R. 5519(a)(6), until its appeal is resolved. The debtor's motion to assume its lease is denied without prejudice to a renewal in the event of a favorable determination of the appeal.
CONCLUSIONS OF LAW
1. This court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a). This is a core proceeding in accordance with 28 U.S.C. § 157(b)(2)(A).
2. The debtor's motion to assume its lease with the landlord is denied as too speculative, but without prejudice to a renewal in the event that the warrant of eviction is vacated on appeal.
SETTLE ORDER on notice.
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97 B.R. 258 (1988)
In re KORA & WILLIAMS CORPORATION, Debtor.
KORA & WILLIAMS CORPORATION, Plaintiff,
v.
C.J. COAKLEY COMPANY, INC., et al., Defendants.
Bankruptcy No. 88-41402-PM, Adv. No. 88A-0237PM.
United States Bankruptcy Court, D. Maryland.
November 10, 1988.
Nelson C. Cohen, Baltimore, Md., Renee Franklin Hill, for plaintiff.
Patrick M. Pike, Christopher J. Heffernan, Smith, Somerville & Case, Baltimore, Md., for Ins. Co. of North America.
Jack Rephan, Sadur and Pelland, Washington, D.C., for C.J. Coakley Co., Inc.
James J. Tansey, Washington, D.C., for E.C. Ernst, Inc.
Larry Harris, Saul, Ewing, Remick & Saul, Washington, D.C., for Grunde Steel Fabricators.
*259 Gerald I. Katz, Julia A. Crossland, Katz & Stone, Vienna, Va., for Kogok Metal and Roubin and Janeiro.
Christopher M. Kerns, Joseph F. Giordano, Mitchell B. Rosenfeld, McNeily & Rosenfeld, Washington, D.C., for North Carolina Granite Corp.
Mitchell H. Stabbe, Holland & Knight, Washington, D.C., for Opportunity Concrete, Inc.
Herman M. Braude, Michael J. Cohen, Braude & Margulies, Washington, D.C., for Potomac Iron Works, Inc. and Westlind Corp.
Kenneth I. Levin, Michael A. Ceramella, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for Dywidag Systems Intern., Inc.
S. Scott Morrison, Lyon & McManus, Washington, D.C., for Westinghouse Elec. Corp.
DECISION RE MOTION FOR PRELIMINARY INJUNCTION
S. MARTIN TEEL, Jr., Bankruptcy Judge, Sitting by Designation.
Kora & Williams Corporation ("Debtor"), the plaintiff, was the contractor for the Union Station Bus/Parking Garage and Rail Access project in Washington, D.C. The Insurance Company of North America ("INA"), which has intervened in support of the Debtor's position, issued a payment bond, as surety, on behalf of the Debtor, as principal, in connection with the project. The $2.5 million penal sum of the payment bond was the maximum required pursuant to the terms of the so-called District of Columbia Little Miller Act. The Debtor executed an agreement of indemnity in favor of INA for any loss, cost and expense incurred by INA on the bond. After the filing of the bankruptcy case, the Debtor brought this action to enjoin suits against INA on the bond by unpaid subcontractors who performed on the Union Station project. The Debtor asserts that Debtor's principal has been unable to assist in the defense of the various suits and, accordingly, that an injunction is necessary to ensure that the suits are adequately defended such that INA's indemnity claims against the estate reflect the true losses suffered by the subcontractors instead of inflated claims allowed simply because the Debtor's principal is not able to assist in litigation.
APPLICABLE STANDARDS
By reason of United States ex rel. Central Bldg. Supply, Inc. v. William F. Wilke, Inc., 685 F. Supp. 936 (D.Md.1988), the presence of a Little Miller Act bond in this case requires this Court to conclude that 11 U.S.C. § 362(a)(1) of the Bankruptcy Code may not be extended to apply here in the fashion that it was extended in A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994 (4th Cir.), cert. denied, 479 U.S. 876, 107 S. Ct. 251, 93 L. Ed. 2d 177 (1986). By logical extension, this applies as well to foreclose application of the rationale of Piccinin under § 362(a)(3) of the Bankruptcy Code.[1]
Accordingly, if an injunction is to be issued here, it must be issued pursuant to traditional equity standards, as discussed in Piccinin, 788 F.2d at 1002-04, either under 11 U.S.C. § 105 or under the Court's inherent equity powers. The Court must first balance the relative hardships to the two parties. L.J. By and Through Darr v. Massinga, 838 F.2d 118 (4th Cir.1988), cert. denied, ___ U.S. ___, 109 S. Ct. 816, 102 L. Ed. 2d 805 (1989) (reaffirming the test of Blackwelder Furn. Co. v. Seilig Mfg. Co., Inc., 550 F.2d 189 (4th Cir.1977)). In addition, the public interest is a factor that must be taken into account. Blackwelder, 550 F.2d at 195, 196. Finally, the plaintiff must show its entitlement to injunctive relief by clear and convincing evidence. Piccinin, 788 F.2d at 1003.
*260 APPLICATION TO THE FACTS
On or about June 19, 1987, the Government of the District of Columbia terminated Debtor for alleged defaults in connection with the Union Station project. Before and after the termination, INA and the Debtor received various claims from subcontractors against the Debtor and against INA's payment bond. The claims fell generally into two categories: those which the Debtor agreed were due and payable; and those for which the Debtor felt that valid defenses and, in some cases, counterclaims might exist. INA, as surety, paid those claims that Mr. Steinberg indicated were due and payable and for which no viable defenses existed. With respect to the remaining, contested claims, INA did not make payment. Eventually, twelve claimants, the Defendants herein, filed suit against INA. (To the extent that the Debtor was named as a defendant in those suits, the automatic stay of 11 U.S.C. § 362(a) now applies to bar prosecution of the suits against the Debtor.)
The Debtor's bankruptcy case was commenced by the filing of an involuntary petition for relief under Chapter 7 on or about May 16, 1988. The Debtor withdrew a motion to dismiss the involuntary petition and filed a motion to convert the case to a Chapter 11 case on July 7, 1988.
From the date of the Debtor's voluntary conversion to the current time, numerous applications for authority to examine the Debtor and the Debtor's documents have been filed. As Mr. Ira Steinberg, President of the Debtor, testified before this Court on October 7, 1988, various auditors and attorneys have had, essentially, constant access to the business records of the Debtor. Additionally, Mr. Steinberg has spent considerable time as a deponent pursuant to various Rule 2004 requests. The Creditors' Committee has recently filed a Motion to convert the case to Chapter 7, which the Debtor is defending.
On or about September 14, 1988, INA filed a Complaint for Interpleader in the case and requested expedited hearing on that Complaint. On or about October 19, 1988, the Clerk issued a Hearing Notice scheduling a Pre-trial Conference for December 20, 1988.
On or about September 17, 1988, the Debtor filed its Complaint for Injunction commencing this adversary proceeding.
At a hearing of October 7, 1988, the Court granted the Debtor's Motion for Temporary Restraining Order.
Representatives of INA and INA's attorneys have made requests that Mr. Steinberg meet with INA and its representatives and provide INA with appropriate documentation in support of the Debtor's defenses and counterclaims.
Mr. Steinberg testified that although he believes good faith defenses and/or counterclaims exist with respect to each and every claim of the Defendants in this proceeding, he has been unable to render substantial assistance to INA in establishing and documenting these defenses and counterclaims. Mr. Steinberg's unavailability has been occasioned by the necessity that he be involved on a daily basis in matters related to the Debtor's reorganization, in assisting the Creditors' Committee and its attorneys and auditors in reviewing the Debtor's records, in completing five ongoing construction projects, in attempting to locate additional work for the Debtor, in administering the Debtor's business operations, and, perhaps most importantly, in attempting to move forward with Kora & Williams' claim against the District of Columbia for the improper termination of Kora & Williams on the project. Mr. Steinberg testified that in order to assist INA effectively in defending the payment bond claims at issue herein, in attempting to move forward with the prosecution of Kora & Williams' claim against the District of Columbia and in participating in the Creditors' Committee's investigation, he must deal with some 40,000 documents relating to Kora & Williams' work on the project over a period of 1,100 days performance time. Only one complete set of project documents exists. In addition, Kora & Williams is now down to a "skeleton staff" as a result of its financial difficulties. For these reasons generally, Mr. Steinberg has been unable to review the Debtor's files *261 himself in order to assist INA in the defense claims, despite his continued belief that valid defenses and counterclaims exist.
Mr. Steinberg's testimony, however, failed to establish that representatives of INA could not themselves go through the records of the Debtor to establish what defenses exist.[2] Mr. Steinberg was not the Debtor's on-site manager at Union Station and did not establish that he will be a necessary witness as to the construction disputes (save perhaps the relatively minor task of authenticating the Debtor's records as their custodian). The Court is not convinced by Mr. Steinberg's testimony that the nature of the disputes would require substantial involvement of Mr. Steinberg in preparation and presentation of INA's defenses. The record is thus not "clear and convincing" that there will be a substantial inability for INA to defend while Mr. Steinberg is devoting his primary energies to other matters in the Debtor's bankruptcy case.[3]
The Court must balance the potential harm to the Debtor against the potential harm to the defendants. The claims in this case concern material and labor furnished as early as 1985. INA's payment bond was given to insure prompt payment of the subcontractors. To delay the adjudication of the defendants' lawsuits and their recovery of judgments that they can enforce against the bond will work to their disadvantage because the bond is not bearing interest. INA has not deposited the funds into an interest-bearing account in the interpleader suit. Moreover, for the subcontractors a provision of interest alone might not adequately compensate for the loss of use of the funds in their ongoing businesses and could defeat the protection of prompt payment the Little Miller Act was designed to insure. Delay could also work to the disadvantage of the subcontractors because of the time already expended in prosecuting their actions. Delay can only result in memories fading as well. While the bond fund may be inadequate to pay all claims, the pending interpleader suit will be the appropriate suit in which to address that concern. The Court in that suit may also determine a means of adjudicating the disputed claims that fairly balances the interests of all parties.
To grant an injunction here would be contrary to the public policy adopted by the Little Miller Act (as a counterpart to the Miller Act) "to foster immediate payment to those supplying government projects in order to prevent financial embarrassment that might result to them from a protracted delay in payment." United States ex rel. Baruch v. Paul Hardeman, Inc., 260 F. Supp. 723, 728 (M.D.Fla.1966). This is an additional factor to weigh in determining this case. Blackwelder, 550 F.2d at 195, 196.[4]
CONCLUSION
The harm to the Debtor in not granting an injunction does not outweigh harm that would be caused to the defendants if an injunction were granted. The public interest *262 additionally weighs in favor of denial of an injunction. Accordingly, the motion for preliminary injunction must be denied.
An appropriate order will be entered.
NOTES
[1] The Court does not view Piccinin as holding that the automatic stay may apply to suits against third parties but only as holding that the policies of the automatic stay may warrant enjoining such suits. The Court in Central Building Supply may have viewed Piccinin as holding that only the harm to the Debtor need be considered in extending the automatic stay to suits against third parties. In this Court's view, that was not the intent of Piccinin and the granting of injunctive relief on any of the theories set forth in Piccinin requires consideration of all relevant factors, including the hardship to the plaintiffs suing the third parties.
[2] Indeed, some of the suits present issues requiring no factual development. Defendant Westlind Corporation's suit is an action to confirm an arbitration award and presents only issues of law. See 9 U.S.C. § 10. Two of the defendants are concededly owed substantial parts of their claims but the Debtor's suit would even deprive them of seeking judgment as to the undisputed amounts. Another defendant, E.C. Ernst, no longer even makes any claim against INA.
[3] Most of the construction work the Debtor is now engaged in is substantially completed; the Debtor has been unable to secure bonds for new jobs. Essentially Mr. Steinberg is devoting himself to the claim against the District of Columbia and procedural aspects of the Chapter 11 case. Although these are important, any assistance Mr. Steinberg will have to give to INA is relatively less demanding than if the Debtor were actively engaged in substantial new business.
[4] In In re McLean Trucking Co., 74 B.R. 820, 828 (Bankr.W.D.N.C.1987), the Court criticized the theory that the Debtor advances here because it "would establish precedent enabling every prospective debtor to shield its sureties, guarantors, co-makers, letter of credit banks and similarly situated parties, merely be offering to collateralize the debtor's reimbursement obligation to such third party." The Court emphasized that a surety bond is an independent and primary obligation. Id. at 829. This Court need not decide whether upon a proper factual showing the Debtor's theory would nevertheless have to be rejected under the reasoning of McLean Trucking.
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97 B.R. 227 (1989)
In re Manuel SANTOS Louise Santos, Debtors.
Manuel & Louise SANTOS, Plaintiffs,
v.
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT and Edward Sparkman, Trustee, Defendants.
Bankruptcy No. 87-03443F, Adv. No. 88-0438F.
United States Bankruptcy Court, E.D. Pennsylvania.
March 13, 1989.
*228 Roger V. Ashodian, Delaware County Legal, Chester, Pa., for debtors/plaintiffs, Manuel Santos and Louise Santos.
Michael M. Baylson, U.S. Atty., Virginia R. Powel, Asst. U.S. Atty., Philadelphia, Pa., for defendant, U.S. Dept. of Housing and Urban Development.
Edward Sparkman, Philadelphia, Pa., defendant/standing Chapter 13 trustee.
OPINION
BRUCE I. FOX, Bankruptcy Judge:
The instant adversary proceeding challenges a proof of claim filed by the Department of Housing and Urban Development (HUD). In so doing, it raises difficult questions regarding the effect of a chapter 13 proceeding on the mortgage assignment program operated by HUD.
On July 9, 1987 the debtors filed a voluntary petition in bankruptcy under chapter 13. Thereafter, HUD filed a proof of claim, in accordance with local Bankr.R. 3001.1(b), which stated that the amount needed by the debtors to cure their prepetition mortgage arrearage was $25,110.88 and the amount needed to pay the secured debt in full was $50,499.01. (Ex. G-18.) In Count I of their complaint, the debtors contend that both of the figures are inflated; in Count III of their complaint, the debtors seek equitable relief which would direct HUD to comply with certain directives connected with HUD's mortgage assignment program.[1]
I.
After a two day trial, I make the following findings of fact:
1. On June 26, 1978, the debtors purchased the real property located at 1198 Taylor Drive, Folcroft, Pennsylvania.
2. In order to purchase this property, debtors borrowed $27,350.00 from Fidelity Bond and Mortgage Co. A mortgage agreement (Ex. G-1) was entered into between these parties to secure the loan. The mortgage agreement was later assigned to the Commonwealth of Pennsylvania School Employees' Retirement Fund.
3. This mortgage agreement was insured by HUD pursuant to section 221 of the National Housing Act. (Ex. G-2.)
4. Under the terms of the mortgage, the debtors were to pay $220.00 per month, plus escrow for taxes and fire insurance (as well as a service charge), for thirty years, with a mortgage interest rate of 9%.
5. By January 1980, the debtors were no longer making mortgage payments as required by their security agreement. They were informed by the mortgagee that they could request that HUD take an assignment of their mortgage; if an assignment *229 were granted, it might assist them in avoiding foreclosure.
6. The debtors made such a request, and on September 5, 1980 they were informed that HUD accepted the mortgage assignment.
7. On September 24, 1980, Commonwealth of Pennsylvania School Employees' Retirement Fund assigned the mortgage to HUD.
8. On September 9, 1980, the debtors entered into a "Forbearance Agreement" with HUD, to cover the period October 1, 1980 through March 1, 1981. Under the terms of this contract, inter alia, HUD agreed to accept $150.00 per month from the debtors. If these payment were made, then HUD could not foreclose, despite the mortgage delinquency. The agreement also stated that "all rights and obligations of the original note and mortgage, except as changed by this Forbearance Agreement, remain in full force."
9. On August 10, 1981, HUD and the debtors entered into another forbearance agreement, identical to the initial agreement, except this contract covered the period September 1, 1981 through June 1, 1982.
10. On August 16, 1982, the debtors and HUD entered into a third forbearance agreement, identical to the previous two, covering the period September 1, 1982 through October 1, 1983.
11. Although there were gaps in the periods covered by these three agreements, the parties do not dispute that it was the intention of HUD and the debtors that between October 1, 1980 and October 1, 1983, the debtors were obligated to pay HUD only $150.00 per month, and if such payments were made, HUD agreed not to foreclose.
12. Although not all payments were made timely, the debtors did pay to HUD $5,400.00 during the life of these three forbearance agreements, which represents 36 payments of $150.00 each.
13. When HUD accepted assignment of this mortgage, the debtors had been credited with 17 mortgage payments, i.e., payments through December 1, 1979. Thus, on the date of assignment, the debtors had an unpaid mortgage balance of $27,078.30. (Ex. G-20.)
14. During the life of those three forbearance agreements, HUD continued to accrue interest on the unpaid principal balance of $27,078.30 at the contract rate. Therefore, interest accrued at a monthly rate in excess of $150.00 per month. Thus, by HUD's calculations, the unpaid balance due HUD for principal and earned interest was increasing during the terms of the forbearance agreements.[2]
15. The method by which HUD credited forbearance payments received was confused and confusing. First, no credit was applied until at least a total of one full regular monthly mortgage payment was received. Thus, credit for payments received was made only after two forbearance payments were in hand, as the normal monthly mortgage payment was, with escrows, approximately $294.00 (N.T. Oct. 12, 1988 at 118-119).
16. In addition, HUD initially credited the forbearance payments "horizontally" to unpaid advances (e.g. taxes, insurance), arrears, interest and principal. In January 1983, HUD began to credit payments "vertically," first to unpaid escrow advances, then to escrow, interest, and principal.
17. After the third forbearance agreement expired, HUD entered into another "forbearance agreement"[3] dated August 17, 1983. (Ex. G-8.) Under the terms of this agreement, the debtors were to resume full monthly mortgage payments (including escrows) of $294.09 on September 1, 1983, and to pay this monthly amount through *230 August 31, 1984.[4] Again, this agreement stated that "all rights and obligations of the original note and mortgage, except as changed by this Forbearance Agreement, remain in full force."
18. Under this agreement the debtor paid to HUD only $948.50 (N.T. Nov. 21, 1988 at 71), rather than the total due of $3,529.08.
19. On October 1, 1984, the debtors signed another "forbearance agreement" for the period October 1, 1984 through August 31, 1985 (Ex. G-10) (identical to the agreement labelled Ex. G-8), which required monthly payments of $295.00. No payments under this agreement were made.
20. Due to a shortage of HUD personnel, no consultation between HUD and the debtors occurred before or after the forbearance agreements dated August 17, 1983 and October 1, 1984 were signed (N.T. Nov. 21, 1988 at 65-66).
21. HUD has accrued interest on the unpaid loan principal and loan advances made since accepting this assignment in September 1980.
22. On October 24, 1985 HUD sent a letter to the debtors stating that they were "12 months delinquent," and requesting that the debtors communicate with HUD to make arrangements "to bring [their] account current." (Ex. G-11.) The debtors did not communicate with HUD.
23. On November 12, 1985, HUD sent the following letter to the debtors:
November 12, 1985
CERTIFIED MAIL #
RETURN RECEIPT REQUESTED
Manuel & Louise Santos
1198 Taylor Drive
Folcroft, PA 19032
Dear: Mr. & Mrs. Santos:
Subject: Final Notice
Defaulted Secretary Held Mortgage
FHA Case # XXX-XXXXXX-XXXX
Log No. P-638
Account No. XX-XXXXXX-X
We are writing you for the last time concerning your defaulted mortgage account. No payment has been credited to your account since Oct., 1984 and the total delinquency is now $3988.40 under the terms of your Forbearance Agreement.
We will regret being forced to take so drastic an action as foreclosure; but your indifference to your obligation may leave us with no alternative. In view of the above, you have two options to avoid foreclosure:
1. You may remit your total delinquency under the terms of your Forbearance Agreement in the amount of $3988.40 to this office within five days.
2. You may offer a voluntary deed to your property to this office for consideration. Under certain circumstances, we may be able to accept your deed rather than institute foreclosure action against you.
You have seven (7) days from the date of this letter in which to contact Ms. Skinner at (215) 597-3414 regarding these options. You may contact us anytime between 8:30 am and 5:00 pm Monday through Friday.
THIS IS A FINAL NOTICE
Sincerely,
Joseph Russell
Chief
Loan Management Branch
(Ex. G-12.)
Again, the debtors did not respond.
24. On December 2, 1985, HUD sent the following letter to the debtors:
Dec. 2, 1985
Manuel & Louise Santos
1198 Taylor Drive
Folcroft, PA 19032
SUBJECT: NOTICE OF INTENTION
TO FORECLOSE AND ACCELERATE
MORTGAGE BALANCE
*231
PHA CASE No: XXX-XXXXXX-XXXX
MORTGAGED PREMISES: 1198 Taylor
Dr., Folcroft, PA
19032
LOG #: P-638
THRIFT #: XX-XXXXXX-X
Dear: Mr. & Mrs. Santos:
1. The Secretary of Housing and Urban Development is the holder of the first mortgage (and Note) on the above premises.
2. As of the date of this notice, THE MORTGAGE IS IN DEFAULT STATUS. The amount required to place the account current as of Dec. 1, 1985 is $17703.93.
3. The amount of money that you will have to remit to prevent foreclosure is $17703.93. The payment must be in the form of cashier's check or certified check made payable to the Secretary of Housing & Urban Development and must be received at our office shown above not later than THIRTY (30) days from the date of this letter.
4. In the event payment as specified in paragraph 3 is not made WITHIN THIRTY (30) days from the date of this letter, it is the intention of the holder to accelerate (declare the entire mortgage due and payable immediately) the mortgage obligation and all other lawful charges, and instruct our attorney to institute mortgage foreclosure proceedings. We would consider accepting a deed in lieu of foreclosure providing the property is free from any liens or encumbrances.
5. (a) If you wish to cure the default within thirty (30) days from the date of this letter, you must pay the TOTAL AMOUNT DUE stated above, plus an additional monthly installment if payment is made after the 1st day of next month, plus an additional late charge if one is due at time of payment and not included above.
(b) If payment is made after thirty (30) days from the date of this letter, but before foreclosure proceedings have been started, the amount you will have to pay will also include the regular monthly installments and late charges then due, and any title report costs. The exact amount which has been incurred can be obtained by contacting this office.
Should you have further questions with regard to this matter, feel free to contact Ms. Skinner at (215) 597-3414.
Sincerely,
/s/ Joseph Russell
Chief
Loan Management Branch
(Ex. G-13.) The debtors did not respond to this correspondence.
25. The only attempts by HUD to communicate with the debtors after October 1, 1985 were the three letters mentioned above, and two attempted visits to the debtors' house by HUD employees on January 16, 1986 and January 29, 1986. No one apparently was home during these attempts to meet with the debtors; nor did the debtors respond to a note left at the premises by the HUD employees. (The debtors did not have telephone service in January 1986.)
26. On February 12, 1986, HUD prepared a document which reflected the following information: the then current principal balance was $26,864.44, which reflected payments credited to this loan account through December, 1980 (Ex. G-15). This information remained unchanged through October 1986 (Ex. G-16) and August 27, 1987 (Ex. G-17).
27. Even though Ex. G-13 stated that the mortgage agreement was accelerated, HUD testified that there was an office policy which gave HUD employees the discretion to accept less than the payment of the full delinquency demanded in Ex. G-13 and to restore the mortgagors to payments under the forbearance agreement both during and after the 30 day period specified in Ex. G-13. (N.T. Nov. 2, 1988 at 39-40, 106-128).
28. Debtors at all times have remained current in their chapter 13 plan payments.
II.
I reach the following legal conclusions:
1. To the extent the terms of the HUD forbearance agreements signed by *232 the debtors differ from and are more stringent than the terms of the HUD assignment program as detailed in the HUD regulations or HUD Handbook 4330.2, the terms of the forbearance agreements are not enforceable due to the consent decree signed by HUD in the class action lawsuit known as Ferrell v. Pierce.
2. HUD may accrue interest on the unpaid mortgage principal balance after accepting assignment of the mortgage during the forbearance period but only to the extent that the interest accrued does not exceed the debtors' required payments during the forbearance period.
3. Debtors may cure any delinquencies which arose under their forbearance or repayment agreements, pursuant to 11 U.S.C. § 1322(b)(3), (5), when the chapter 13 petition is commenced after HUD has sent notice that the mortgage balance is accelerated but prior to HUD's taking any other foreclosure action.
III.
The two narrow questions raised by the instant objection to HUD's proof of claim are: whether HUD can accrue interest on the mortgage principal balance (plus loan advancesviz., tax payments) during the 36 month forbearance period, and whether a chapter 13 debtor, whose mortgage was assigned to HUD prepetition, can regain the benefits offered by the assignment program by using chapter 13 to cure a prepetition default when HUD has demanded the entire delinquency (including preassignment delinquency) but has not obtained a foreclosure judgment. In order to resolve these two questions, it is essential to consider the unusual origin and nature of the HUD assignment program.
As part of the National Housing Act, 12 U.S.C. §§ 1701 et seq., which entrusts HUD with achieving the national goal of providing decent, affordable housing to all citizens, see, e.g., Federal Nat'l Mortgage Assoc. v. Rathgens, 595 F.Supp. 552, 553 (S.D. Ohio 1984), HUD insures certain mortgage loans. By rendering these loans virtually risk free, see, e.g., In re Madison, 60 B.R. 837, 838 (E.D.Pa.1986), this insurance encourages lenders to issue mortgages to low income individuals who would not otherwise qualify for a home mortgage. See Butler v. U.S. Dept. of Housing & Urban Dev., 595 F.Supp. 1041 (E.D.Pa.1984). The low income of the mortgagors, though, makes these mortgages more susceptible to default on the advent of illness, unemployment, or other misfortune. See, e.g., Ferrell v. Pierce, 743 F.2d 454, 456 (7th Cir. 1984); Harris v. United States Dept. of Housing & Urban Dev., C.A. # 85-489, slip op. (E.D.Pa. April 8, 1986) [1986 WL 4331] (Fullam, J.); Brown v. Lynn, 385 F.Supp. 986, 1000 (N.D.Ill.1974). While the loan risk is protected by insurance, HUD has sought to limit in two distinct ways the possibility of quick foreclosure judgments whenever the homeowners fall behind in mortgage payments. First, HUD issues instructions to lenders which directs lenders to communicate with mortgagors and work with these borrowers, if possible, to avoid foreclosure; this is termed "servicing" the mortgage. In addition, HUD can direct that the lenders assign the mortgage to HUD and thereby allow HUD to deal directly with the mortgagors to avoid foreclosure, if possible.
In 1973, certain homeowners initiated a class action lawsuit against HUD and certain mortgage lenders claiming that, as HUD was not enforcing the servicing directive, quick and inappropriate foreclosures were occurring on mortgages insured by HUD. Brown v. Lynn. The district court resolved various motions to dismiss by concluding that these allegations, if proved, demonstrated a violation by HUD of the National Housing Act; however, it also concluded that these servicing directives, found in a HUD authorized "handbook," were not mandatory or binding upon the lenders. Thus, the claims against the mortgage lender defendants were dismissed. Id. See also Brown v. Lynn, 392 F.Supp. 559 (N.D.Ill.1975).[5]
*233 As a settlement of this lawsuit, HUD entered into a consent decree in 1976, modified in 1979, which, in effect, created a detailed mortgage assignment program. Ferrell v. Pierce, 560 F.Supp. 1344 (N.D.Ill. 1983), aff'd, 743 F.2d 454 (7th Cir.1984). Under the terms of this consent decree, HUD agreed to take assignments of HUD insured mortgages and to operate the assignment program in accordance with HUD Handbook 4191.2, later renumbered HUD Handbook 4330.2 ("Handbook").[6]Ferrell v. Pierce, 560 F.Supp. at 1348. Two paragraphs of the consent decree have been of particular significance. As quoted in Ferrell v. Pierce, 560 F.Supp. at 1349:[7]
The Amended Stipulation, which is the focus of both motions, provides in paragraph 3 for HUD's operation of a mortgage assignment program consistent with the terms of the Handbook. Paragraph 3 provides:
HUD Handbook 4191.2 attached hereto as Appendix A, shall constitute binding instructions for implementation of the assignment program subsequent to the entry of this order. The Department shall administer the assignment program substantially in accordance with the terms of said Handbook. . . . The provisions of the Handbook may be modified in accordance with the Department's usual procedures. However, during the term of this Amended Stipulation the Department will not make any modification which would curtail the basic rights of mortgagors under the program now in existence. The Department will give notice to plaintiffs' counsel prior to final action on any modification.
The duration of the obligations created by the Amended Stipulation is set out in paragraph 14 of that agreement, which provides:
Except as provided in this paragraph, the rights and obligations created by this Amended Stipulation shall terminate five years from date of execution. The termination of the Department's specific obligations under this Amended Stipulation shall not diminish or compromise the Department's obligation construed under the National Housing Act as amended, and Section 2 of the Housing Act of 1949 and Section 2 of the Housing and Urban Development Act of 1968 to provide foreclosure avoidance relief for mortgagors in temporary financial distress, and the Department shall provide assistance or relief in the form of the present assignment program or an equivalent substitute to permit mortgagors in default on their mortgages to avoid foreclosure and to retain their homes during periods of temporary financial distress.
Accord, Ferrell v. Pierce, 743 F.2d at 457-58.
In sum, HUD agreed to comply with the terms of its own Handbook for five years and further agreed to provide "foreclosure avoidance relief" subsequent to the five year period (after 1984) on terms no harsher for the mortgagor than those set out in the Handbook. Moreover, HUD consented to bind itself to follow the Handbook. Ferrell v. Pierce. Accord, Federal Nat'l Mortgage Assoc. v. Rathgens, 595 F.Supp. at 557 ("These guidelines are mandatory on HUD. . . ."). See also Armstead v. United States Dept. of Housing & Urban Dev., 815 F.2d 278, 282 (3d Cir.1987) (Handbook is relevant in deciding whether HUD properly refused to accept a mortgage assignment).
The assignment program set out in the Handbook,[8] and outlined in regulations, 24 *234 C.F.R. §§ 203.650 et seq. (1988), may be summarized as follows. Individuals facing foreclosure are informed of their right to request that HUD take an assignment of their mortgage. HUD then decides whether the mortgagor qualifies for an assignment by applying certain stated criteria. If an assignment is granted, HUD becomes the mortgage holder and affords the borrower up to 36 months of forbearance relief. During this forbearing period, the homeowners need not pay more than an established percentage (35%) of net income to HUD, taking into account relevant expenses. It is assumed that the borrower will then be able to tender a full mortgage payment, including escrows, at the conclusion of the forbearance period. Therefore, at the conclusion of the forbearance period HUD and the mortgagor establish a repayment program which requires at least full monthly mortgage payments. If the mortgagors' finances allow, greater than normal mortgage payments may be required. HUD, in turn, may extend the maturity date of the mortgage up to ten years in order to allow the homeowner to repay the mortgage loan in full. 24 C.F.R. §§ 2030.650 et seq.; Handbook 4330.2 chapter 5, at 5-1 through 5-4. See Ferrell v. Pierce; In re Zaidi, 78 B.R. 410 (Bankr.E.D.Pa.1987).
Cases involving HUD mortgage assignments have almost exclusively discussed challenges by individual homeowners to HUD's decision not to accept an assignment of their mortgage. See, e.g., Armstead v. United States Dept. of Housing & Urban Dev.; Miasel v. Pierce, 650 F.Supp. 21 (D.Minn.1986); In re Madison; In re Huderson, 96 B.R. 541 (Bankr.E.D.Pa. 1989). Since the instant dispute involves issues arising after the assignment has been taken, such decisions are of limited assistance in resolving the debtors' objections. One decision, though, which examines the assignment program more broadly is Ferrell v. Pierce.
Ferrell v. Pierce concerned, in part, a challenge by the mortgagor parties to the consent decree mentioned above to HUD's attempt to reduce or eliminate the assignment program. HUD desired to implement different "foreclosure avoidance relief" which would involve direct mortgage subsidy payments by HUD to lenders, and which was called TMAP ("Temporary Mortgage Assistance Payments"). These payments were to be considered loans to the mortgagor which must be repaid and which were secured by a second mortgage. Although the TMAP regulations were officially promulgated in the Federal Register in final form, 47 Fed.Reg. 33252-33258 (August 2, 1982), they have not yet been made effective. 24 C.F.R. §§ 203.640 et seq. (1988). Their implementation was successfully challenged in 1983 on the basis that the foreclosure avoidance benefits provided by TMAP were not as generous as those provided by the mortgage assignment program, as detailed in the Handbook, and therefore were violative of the consent decree, ¶ 14. Ferrell v. Pierce, 743 F.2d 454 (7th Cir.1984).
IV.
The debtors cite to the district court Ferrell decision as supporting their position that HUD cannot accrue interest during the forbearance period. HUD argues that Ferrell is inapposite as it refers to the TMAP program, and that there is nothing in the forbearance agreement or mortgage agreement between HUD and these individual debtors which precludes the accrual of interest during this period. Indeed, as noted above, the forbearance agreements expressly stated that all rights under the note and mortgage were to remain unimpaired.
HUD is correct that Ferrell dealt with the TMAP program. The issue, though, was whether individual aspects of the TMAP program were less beneficial than the assignment program then in effect. If so, the 1979 consent decree precluded HUD from implementing a more restrictive program. On the issue of accruing interest *235 during forbearance periods, the Ferrell court stated:
The plaintiffs' second attack on the above-quoted provisions of the proposed [TMAP] regulations concerns their alleged inconsistency with the current Handbook procedure of not charging interest on the amount of forbearance until after the period of reduced or suspended payments. See Handbook, Appendix 6. The proposed regulations provide that interest will begin to accrue on the amount of assistance payments or forbearance as of the dates thereof. HUD does not suggest that the plaintiffs have misstated the practice of forgiveness of interest under the current Handbook or misconstrued the intent and effect of the proposed regulations.
The imposition of an additional interest obligation on assisted mortgagorsone that is not required and, in all probability, not contemplated by the amendments to section 230, see Section 230(a)(5) and (b)(2)results in a more onerous payment burden for those assisted, more probability of future default and foreclosure, and may also limit eligibility for assistance because higher repayment obligations may preclude certain mortgagors from satisfying the "reasonable prospect" criterion. Therefore, insofar as [24 C.R.F.] §§ 203.633 and 203.649 require interest on assistance to accrue from the date of the assistance, those sections of the proposed regulations do not preserve basic rights under the Amended Stipulation and may not be implemented.
Ferrell v. Pierce, 560 F.Supp. at 1364-65, aff'd, 743 F.2d at 459. As a result of this decision, HUD amended its proposed TMAP regulation to reflect that interest does not begin to accrue on TMAP direct payments to lenders until the forbearance period ends. Proposed 24 C.F.R. § 203.644(a).[9]
TMAP was proposed as the functional equivalent of assignment, allowing HUD to avoid becoming the mortgagee and thus avoid paying the lender the full balance due on the mortgage. Ferrell v. Pierce, 743 F.2d at 458-59. The direct mortgage assistance payments made by HUD to the lender are thus to be viewed as equivalent to that portion of the monthly payment which the homeowner does not pay during the forbearance period after the mortgage is assigned. In 1983, the Ferrell court understood that interest did not accrue, on the forborne portion only, during the forbearance period. HUD has revised its TMAP repayment regulation accordingly.
Thus, despite the language of the forbearance contracts themselves, and pursuant to HUD's agreement in 1979, I conclude that a portion of the debtors' objection shall be sustained. That is, interest continues to accrue during the forbearance period but only to the extent that it does not exceed the homeowner's forbearance payments. If interest on the unpaid principal balance (plus loan advances, if such interest is permitted by the mortgage instrument) is less than the monthly forbearance payment, principal is reduced accordingly. If the interest is greater, the difference is forgiventhere is no negative amortization. However, interest does fully accrue once the forbearance period expires. Here, since the debtors paid all their forbearance period payments to HUD during their 36 month period, the principal balance due at the end of that period should have been the same as when the forbearance period started, except to the extent that escrow advances were made (as these advances may be added to the principal sum due).[10]
*236 V.
The second question presented flows from the debtors' proposed plan to cure their prepetition mortgage default pursuant to 11 U.S.C. § 1322(b)(5). HUD does not contest the debtors' right to cure but argues that "curing" this mortgage default requires the debtor to repay: all missed mortgage payments prior to assignment; that portion of the normal mortgage payment which was not required to be paid during the three year forbearance period; and all monthly prepetition mortgage payments that were due since the conclusion of the forbearance period. The debtors contend that only this last aspect of their delinquency need be cured. That is, they assert that chapter 13 allows them to bring current all missed payments due under the HUD assignment program which, in this instance, is only the regular mortgage payments due after the forbearance period endedas they made all required forbearance payments.[11] In essence, HUD believes that it has already terminated these debtors from the assignment program, while the debtors contend that they are still entitled to benefit from that program.
Resolution of this question is made difficult by the origin of the assignment program (viz., a consent decree), which offers little statutory or regulatory guidanceor even legislative history. Moreover, there are no reported decisions discussing the interplay of chapter 13 and the provisions of the HUD program. The parties correctly note that this is an issue of first impression.
In this circuit, a discussion of a chapter 13 cure must start with Matter of Roach, 824 F.2d 1370 (3d Cir.1987). In Roach, the Court of Appeals rejected the notion expressed by the Sixth Circuit in In re Glenn, 760 F.2d 1428 (6th Cir.1985), cert. denied, 474 U.S. 849, 106 S.Ct. 144, 88 L.Ed.2d 119 (1985). The Glenn court had concluded that 11 U.S.C. § 1322(b)(3), (5) represented federal substantive rights which were to be interpreted uniformly, irrespective of state foreclosure law. The Roach court, following the principles expressed in Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979), concluded that the right to cure a mortgage default in chapter 13 is defined with reference to non-bankruptcy law, generally state law. See also In re Brown, 75 B.R. 1009 (Bankr.E.D.Pa.1987). Once non-bankruptcy law determines that the mortgage agreement itself is terminated, there is no federal right to resurrect the agreement through a bankruptcy filing. Roach, 824 F.2d at 1377-1379. Compare In re Triangle Laboratories, Inc., 663 F.2d 463 (3d Cir.1981) (lease is unassumable in bankruptcy if it was terminated prepetition.)
The rights of the instant parties, at least insofar as the mortgage assignment program is concerned, are defined by federal non-bankruptcy law. It is that source which must be considered, with the focus being on the point at which the mortgagor's rights under the HUD assignment program terminate.
Unfortunately, neither the HUD regulations, the Handbook, nor decisional law address this issue. Clearly, though, a homeowner whose mortgage has been assigned to HUD has repayment obligations. The failure to comply with those obligations may result in foreclosure by HUD and the loss of the mortgagor's home. While those obligations are reflected in the annual repayment agreements signed by the mortgagors, Ex. G-8 and G-10, the mortgagors' rights and responsibilities are not defined solely by the contracts. For example, although the parties here did not enter into a repayment agreement after August 31, 1985, Ex. G-10, in November 1985 HUD was demanding immediate payment of only $3,988.40, which represented missed regular *237 mortgage payments from October 1984 through November 1985.
HUD contends that it fully terminated the debtors' rights under its assignment program on December 2, 1985 when it sent a "Notice of Intention to Foreclose and Accelerate the Mortgage Balance," Ex. G-13, which notice demanded payment of $17,703.93. This communication must be contrasted with Ex. G-12 which was sent on November 12, 1985 and which demanded payment of only $3,988.43. Thus, HUD asserts that the debtors' right to cure the post assignment delinquency under chapter 13 ended with the issuance of Ex. G-13.
My difficulty with HUD's contention is twofold: first, Roach held that, under state law, a chapter 13 debtor may deaccelerate a mortgage after the lender had declared the entire balance due and owing prior to foreclosure judgment. 824 F.2d at 1374-77. Although no internal regulations were offered, HUD's witness testified that HUD policy afforded employees the discretion to deaccelerate a delinquency demand after a notice equivalent to Ex. G-13 had been sent. (Finding of fact # 27.) Accepting that testimony as true, the issuance of Ex. G-13 could not automatically terminate any rights of the debtors under the assignment program. Compare In re DeSantis, 66 B.R. 998, 1002-1003 (Bankr.E.D.Pa.1986) (although a lease terminated prepetition may not be assumed under 11 U.S.C. § 365, agreement of lessor may preserve lessee's right to cure and thus to assume).
Second, the premise behind HUD's various "foreclosure avoidance relief" mechanisms is a realization that low income homeowners with HUD insured mortgages will, by virtue of their economic status, find it proportionately more difficult to remain current under their mortgage agreements than other homeowners. Ferrell v. Pierce, 743 F.2d at 456. This difficulty does not end when the mortgage is granted; nor does it necessarily end when the assignment is granted. Consistent with the goal of decent and affordable housing for all is the recognition that if the mortgagor can repay HUD all missed prepetition payments under the assignment program and remain current on requisite postpetition payments, both HUD and the homeowner benefit. HUD's benefit stems from avoiding the costs associated with foreclosing, as well as owning property often left vacant and vandalized. See Ferrell v. Pierce, 743 F.2d at 458. The mortgagor benefits by retaining decent housing.
This policy is better realized by concluding that the mortgagor's assignment program rights are irrevocably lost later rather than earlier in the foreclosure process. Exactly where in the process this would occur I need not decide; I need only conclude, as did HUD's own witness, that the loss of rights does not occur with the first acceleration notice.
As HUD took no further steps toward foreclosure prepetition after sending Ex. G-13, the debtors' rights under § 1322(b)(5) remain. Thus, the debtors' objection to HUD's proof of claim shall be sustained.
VI.
A complete resolution of this dispute would determine precisely HUD's allowed secured claim as well as the prepetition arrearage under the assignment program which must be paid under any plan proposed under § 1322(b)(5). See local Bankr. R. 3001.1(b). Unfortunately, the record presented is insufficient for me to make such determinations with any precision. I shall do so only by approximation.
The debtors filed their chapter 13 petition in July 1987, and their forbearance period ended October 1, 1983. HUD agrees that all forbearance payments were made. The first annual repayment agreement beginning September 1, 1983 called for monthly payments of $295.00 (which included escrows for taxes and insurance). Ex. G-8. The second annual repayment agreement through August 1985 called for the same payments. HUD, in its proof of claim, stated that it paid $6,038.35 in real estate taxes prepetition on the debtors' behalf and the debtors do not challenge this assertion. Principal and interest due under the original mortgage agreement total $220.17 per month.
*238 Assuming that the taxes paid represent all prepetition taxes due from the date of assignment, October 1, 1980, through the bankruptcy filing, July 1987, and assuming that there were no advances made for insurance, then the debtors would have me conclude that the amount needed to cure this assignment delinquency was $15,808.12.[12] This figure contains a significant assumption which may be correct. The debtors assume that the monthly payments to be made by them in the time between the end of the forbearance period and the commencement of this bankruptcy case were the minimum requirednormal monthly mortgage payments. However, depending upon the debtors' financial circumstances, larger than normal payments may have been required.
It is for the agency, HUD, to analyze the mortgagors' financial condition in the first instance and determine the appropriate repayment terms. Cf. In re Huderson (bankruptcy court remands to HUD dispute over whether mortgage assignment should be granted). Certainly, HUD determined that the minimum payments were appropriate though September 30, 1985. Ex. G-8, G-10. I have no basis, though, to decide whether such minimum payments should continue through July 1987. As HUD never made such a determination, it will be given thirty days within which to do so and file an amended proof of claim.
Similarly, the debtors assume that postpetition mortgage payments due in accordance with 11 U.S.C. § 1322(b)(5) are also the minimum permitted under the assignment programthe normal mortgage payment escrows for taxes and insurance. Again, HUD must determine initially whether this assumption is correct by reviewing the debtors' current financial circumstances. It will have thirty days to do so.[13]
The allowed secured claim submitted by HUD, Ex. G-18, is derived from an analysis set out in Ex. G-17. Of that sum claimed, $7316.00 represents interest improperly accrued on principal during the three year forbearance period.[14] The sum of $404.04 represents improperly accrued service charges during this same period. Approximately $300.00 of the interest on the taxes paid during this period would also be improper. Thus, the approximate allowed secured claim would be $42,478.87. HUD will have thirty days to amend its proof of claim and recalculate figures.
An appropriate order shall be entered.
ORDER
AND NOW, this 13th day of March, 1989, for the reasons set forth in the accompanying Opinion, it is hereby ORDERED that judgment is entered in favor of the debtors and against HUD on Counts I and III of the complaint.
It is further ORDERED that the proof of claim filed on September 18, 1987 by HUD stating that a prepetition arrearage existed in the amount of $25,110.88 and asserting an allowed secured claim of $50,499.01 is disallowed. HUD shall have thirty days to file an amended proof of claim consistent with the accompanying Opinion.
It is FURTHER ORDERED that, upon the debtors' payment of the prepetition mortgage assignment arrearage and maintenance of postpetition payments due under the terms of their plan pursuant to 11 U.S.C. § 1322(b)(5), the debtors' rights under the HUD mortgage assignment program are reinstated.
NOTES
[1] Count II, which requested recoupment for alleged violations of the federal Truth-in-Lending Act, 15 U.S.C. §§ 1601 et seq., was dismissed upon pretrial motion. In re Santos, Adv. # 88-0438, mem. (Bankr.E.D.Pa., September 16, 1988).
[2] Interest was accruing at approximately $203.00 per month. Thus, according to HUD, the debtors were falling behind $53.00 per month even though they were substantially complying with the forbearance agreements. The debtors termed this "negative amortization" in their posttrial submissions.
[3] Although labelled a "forbearance agreement," the HUD witnesses also referred to it as a "repayment agreement" to distinguish this agreement from earlier ones which allowed the debtors to pay less than normal mortgage payments.
[4] This period overlaps with the earlier forbearance agreement by one month.
[5] Although the servicing guidelines were viewed as nonbinding for purposes of affirmative federal relief, state courts have begun to accept the failure of a lender to properly service the mortgage as an appropriate defense to foreclosure in state court. See, e.g., Fleet Real Estate Funding Corp. v. Smith, 366 Pa.Super. 116, 530 A.2d 919 (1987).
[6] This Handbook was offered into evidence as Ex. P-8.
[7] The debtors have attempted to offer into evidence the entire consent decree by attaching a copy to their posttrial submissions. As it was never properly offered into evidence, I have not reviewed that attachment.
[8] HUD witnesses referred to a different Handbook, No. 4335.2, as providing guidelines for operating the mortgage assignment program after the assignment has been accepted. However, this Handbook was not offered into evidence and I cannot determine whether its provisions are consistent with the terms of the consent decree.
[9] Pennsylvania has recently enacted a mortgage assistance program patterned on the HUD program called the Homeowner's Emergency Mortgage Assistance Program (HEMAP), 35 Pa.S.A. §§ 1680.401c et seq.; 16 Pa.Code §§ 40.201 et seq. Pa.Legislative Journal-House, June 29, 1983, at 929, 932 (remarks of Rep. Kokovich). HEMAP also treats its mortgage assistance payment as a loan upon which interest begins to accrue after the forbearance period expires. 35 Pa.S.A. § 1680.406c(5).
[10] I recognize that the debtors did not pay timely all monthly payments due during the forbearance period. This defect is more than offset, though, by HUD's improper failure to credit monthly payments when received as opposed to when the payments, totaled together, reached a full normal mortgage payment. The mortgage instrument itself does not permit the mortgagee's receipt of funds without crediting such funds; neither does the Handbook, nor the forbearance agreement.
[11] The debtors assume that their prepetition, and postpetition, financial circumstances allow them to repay this HUD held mortgage at the lowest possible post-forbearance ratei.e., a regular monthly mortgage payment. As will be discussed below, I am unable to pass upon the correctness of this assumption.
[12] The arrearage is calculated as follows: payments of principal and interest between October 1, 1983 and July 7, 1987, plus repayment of taxes paid, plus service charge of $384.01, less $948.50 repaid after October 1983. There is no need to reimburse HUD for insurance since there were no insurance outlays.
[13] If the debtors are uncooperative, which seems unlikely, HUD may consider utilizing Bankr.R. 2004.
[14] This is calculated on an unpaid principal balance of $27,078.30 at time of assignment at 9% interest, as set forth in Ex. G-20.
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273 B.R. 277 (2001)
In re Randell PADGETT, Debtor.
No. 01-11462-9P3.
United States Bankruptcy Court, M.D. Florida, Tampa Division.
September 26, 2001.
*278 Debtor: Padgett, Randell F., Arcadia.
Phillip J. Jones, Port Charlotte, FL, for Debtor.
G. Craig Soria, Sarasota, FL, for Sorrells.
Terry E. Smith, Bradenton, FL, Chapter 13 Trustee.
ORDER ON MOTION OF SORRELLS GROVES, INC. FOR RELIEF FROM AUTOMATIC STAY (DOC. NO. 5)
ALEXANDER L. PASKAY, Chief Judge.
The matter under consideration in this Chapter 13 case is a Motion by Sorrells Groves, Inc., (Sorrells) who seeks relief from the automatic stay. The Motion is not based on the usual grounds for relief, which is lack of adequate protection. Rather, in its Motion, Sorrells contends that the Plan proposed by the Debtor is impermissible because it would modify the rights of Sorrells. Sorrells holds a valid, properly recorded mortgage encumbering the principal residence of the Debtor, which mortgage was foreclosed by the entry of a Final Summary Judgment (Final Judgment) on May 10, 2001, by the Circuit Court of DeSoto County, Florida. The Final Judgment ordered the property to be sold at a foreclosure sale on June 20, 2001.
It is without dispute, that the Debtor has not furnished any adequate protection to Sorrell since June 19, 2001, the date he filed his Petition for Relief under Chapter 13.
In support of its Motion, Sorrells contends that the Debtor's Plan which proposes to pay the money owed represented by the Final Judgment entered by the Circuit Court in installments is contrary to the provisions of 11 U.S.C. § 1322(b)(2), which prohibits the modification of the rights of holders of secured claims secured only by a lien on the principal residence of the Debtor.
It is the Debtor's contention that, notwithstanding the anti-modification provisions set forth in Section 1322(b)(2), Section 1322(c)(2) permits the curing of a default on a mortgage encumbering the principal residence of the Debtor if the last payment on the original payment schedule is due before the date on which the final payment under the Plan is due.
In support of this proposition, the Debtor cites the cases of: In re Eubanks, 219 B.R. 468 (6th Cir. BAP 1998); In re Perry, 235 B.R. 603 (S.D.Tex.1999); and In re Lobue, 189 B.R. 216 (Bankr.S.D.Fla.1995).
Whether or not a Chapter 13 Debtor is permitted to deal with a mortgage encumbering his principal residence, which mortgage became fully matured and due prior to the commencement of the case, has been considered by several Bankruptcy Courts, albeit some of them in a different context.
In the case of In re Eubanks, supra, the Sixth Circuit BAP decided that when the last payment on the original payment schedule comes due before the final payment under the Plan, the narrow exception to the Bankruptcy Code's anti-modification provisions concerning mortgages on a principal residence of a debtor is permissible.
The same was considered by the Southern District of Florida by Chief Judge Cristol in the case of In re Lobue, supra. In Lobue, the Court held that the Chapter 13 plan of the debtor under which the debtor proposed to pay the entire balance due on the principal residence mortgage in *279 installments over a 53-month period in a 60-month plan was not an impermissible modification of the mortgage, notwithstanding that the balloon payment on the mortgage matured prepetition.
Both in Lobue and Eubanks, the courts agreed that in spite of the introductory term "notwithstanding" found in Section 1322(c)(2) there is clear indication that the provisions of this subclause override conflicting provisions of any other section, including the prohibition against modification by a debtor in a Chapter 13 case of a mortgage secured only by his or her principal residence.
This Court is in agreement with Eubanks and Lobue and is satisfied that the Motion of Sorrells should be denied provided, however, that pending confirmation, the Debtor do the following: (1) furnish adequate protection to pay the interest on the final judgment accruing monthly; (2) provide proof of complete insurance on the property; (3) pay all real estate taxes; and (4) allow the creditor the right of reasonable inspection of the property, with proper advanced notice.
This order should not be construed to be an approval or a determination that the Plan proposed by the Debtor is feasible. Neither is it a determination that the Debtor's Chapter 13 Plan otherwise meets the requirements of confirmation set forth in Section 1325 of the Code, especially Section 1325(a)(5).
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion of Sorrells Groves, Inc., for Relief from the Automatic Stay be, and the same is hereby, denied, without prejudice. It is further
ORDERED, ADJUDGED AND DECREED that, pending confirmation of the Debtor's Chapter 13 Plan, the Debtor shall do the following: (1) furnish adequate protection to pay the interest on the final judgment accruing monthly; (2) provide proof of complete insurance on the property; (3) pay all real estate taxes; and (4) allow the creditor the right of reasonable inspection of the property, with proper advanced notice. It is further
ORDERED, ADJUDGED AND DECREED that in the event of a default of the adequate protection provisions of this Order, Sorrells is entitled to file an affidavit of default and give 48 hour notice for response to counsel for the Debtor. If no response or request for hearing is filed by the Debtor, the stay shall be lifted without any further notice or hearing.
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97 B.R. 208 (1989)
In re Elijah BELL, Debtor.
Elijah BELL, Plaintiff,
v.
PHILADELPHIA HOUSING AUTHORITY and James J. O'Connell, U.S. Trustee, and Edward Sparkman, Trustee, and Marilyn Lowney and Gregory Kern, Executive Director and E.R. Wingate, Defendants.
Bankruptcy No. 89-10331S, Adv. No. 89-0048S.
United States Bankruptcy Court, E.D. Pennsylvania.
March 10, 1989.
*209 Michael Donahue, Community Legal Services, Inc., Philadelphia, Pa., for plaintiff/debtor.
James J. O'Connell, Ass't. U.S. Trustee, Philadelphia, Pa., defendant, U.S. Trustee.
Terri W. Claybrook, Philadelphia Housing Authority, Philadelphia, Pa., for defendant/Philadelphia Housing Authority.
Edward Sparkman, Philadelphia, Pa., defendant, standing Chapter 13 trustee.
OPINION
DAVID A. SCHOLL, Bankruptcy Judge.
A. INTRODUCTION
The instant adversary proceeding, reminiscent of two proceedings that we recently decided together in In re Adams, Adams v. Philadelphia Housing Authority, and In re Bowens, Bowens v. Philadelphia Housing Authority, 94 B.R. 838 (Bankr.E.D.Pa. 1989) (hereinafter cited as "Adams"), raises the issue of whether the Philadelphia Housing Authority (hereinafter referred to as "PHA") deprived a debtor-tenant of due process in an eviction proceeding. In issue here is the utilization of a judgment, entered by agreement in 1985 on the basis of rent delinquencies existing at that time, as a means to evict the tenant in 1989 for post-judgment rent delinquencies.
We find that the procedures utilized by the PHA here conflict with the requirements that a tenant must (1) receive prior notice of the particular lease violation which may result in the eviction; (2) be advised of an opportunity for a grievance hearing as to that violation; and (3) thereafter, be subject to a court judgment as to the particular violation, before the tenant may be evicted. We also find that these requirements cannot be waived. Further, we question whether a special Philadelphia Municipal Court (hereinafter "PMC") policy for handling only PHA evictions, which is an unwritten exception to the duly-adopted PMC Rules of Civil Procedure (hereinafter "PMCRCP"), deprives PHA tenants of due process. Therefore, as in Adams, we find a violation of due process and the pertinent federal Regulations pertaining to evictions to be present, and we are obliged to restore the Debtor, with certain conditions attached, to public housing tenancy.
B. PROCEDURAL HISTORY
The Chapter 13 bankruptcy case and the instant adversary proceeding were filed by the Debtor, ELIJAH BELL, simultaneously on January 26, 1989. At the time of these filings, the Debtor also filed a motion for a preliminary injunction, seeking to immediately recover possession of a scattered-site PHA house at 6014 West Summer Street, Philadelphia, PA 19139 (hereinafter "the Premises") from which he had been evicted the day before, January 25, 1989. We scheduled a hearing on the motion on Friday, January 27, 1989, at 2:00 P.M.
After conducting a rather rushed hearing at the indicated date and time, we orally indicated an intention to grant only limited provisional relief to the Debtor. As memorialized in an Order of January 30, 1989, we directed that the PHA immediately cooperate fully in returning the Debtor's personal property removed from the Premises. However, as the debtor had obtained emergency shelter at no cost through March 30, 1989, and we were disinclined to find that his probability of success to obtaining restoration of a PHA tenancy was certain, we denied other relief at this time. We did, however, expedite the disposition of the matter by scheduling a final hearing on February 16, 1989, and directed the parties to file Briefs supporting their respective positions in the interim, on or before February 10, 1989.
On February 16, 1989, having incorporated the substantial record received at the hearing on January 27, 1989, see Bankruptcy Rule (hereinafter "B.Rule") 7065 and Federal Rule of Civil Procedure (hereinafter "F.R.Civ.P.") 65(a)(2), we took brief additional testimony. At the close of that hearing, we indicated an intention to issue an Order ultimately entered on February 17, 1989, directing the storage company which had the Debtor's personalty, as well as the PHA, to release same to him forthwith without any charges. We denied a *210 request by the PHA to admit into the record an Affidavit of Richard Simpson (hereinafter "Simpson"), Deputy Court Administrator of the PMC. This Affidavit and exhibits thereto, attached to its Brief, constituted almost the entire PHA submission on February 10, 1989. This ruling prompted the PHA to request that we keep the record open to receive direct testimony from Simpson. We granted this request, and received extensive testimony from Simpson on February 21, 1989.
The matter is now ripe for decision. Pursuant to B.Rule 7052 and F.R.Civ.P. 52(a), we present the said decision in the required form of Findings of Fact, followed by Conclusions of Law which are headnotes to a Discussion of each relevant point of law.
C. FINDINGS OF FACT
1. The Debtor is a 69-year-old man, separated from his wife, who had resided in the Premises since 1961, and was, at the time of his eviction, its only resident. The only other regular occupants are his son, who is presently a student at Pennsylvania State University and resides in the Premises only during school breaks; and his uncle, who stays there periodically. The Debtor, whose sole source of income is social security benefits of $478.00 monthly, appeared to be adversely afflicted both physically and mentally by age. While his recitations were subjectively credible, he appeared to be disorganized and not a totally reliable historian.
2. In 1985, the Debtor became in arrears in his rent to PHA, then ranging between $156.00 and $171.00 monthly. Consequently, the PHA filed a Landlord & Tenant Complaint in PMC on January 22, 1985, at LT-85-1-22-1611. Therein, possession of the Premises was sought, per the Complaint form, on the basis of item "A," i.e., non-payment of rent, in the amount of $561.00; and item "B," i.e., "termination of the term which ended on," after which is typed in "termination of lease."
3. The PHA Complaint in the PMC was resolved on March 6, 1985. At that time, the Debtor was represented by Peter D. Schneider, Esquire (hereinafter "Schneider"), of Community Legal Services, Inc. (hereinafter "CLS"), the legal program providing free legal services to indigent persons in civil matters, which program also represented the Debtor in this proceeding. The resolution was effected by the execution of a form "Landlord Tenant Agreement." In that Agreement, the Debtor agreed to entry of a judgment for possession and back rent of $644.00. The parties further agreed, per paragraphs 4 and 5 of the form, as follows:
4. Plaintiff PHA agrees not to proceed with the eviction as long as:
a. Defendant [Debtor] pays the sum of $200.00 on or before 4-8-85 to Plaintiff PHA and,
b. Defendant pays the current rent due each month thereafter, plus $50.00 per months on the balance due (delinquent rent) to Plaintiff PHA, beginning in May, 1985.
5. Defendant tenant hereby waives the Philadelphia Municipal Court six (6) month rule in reference to evictions, and agrees that PHA may evict at anytime during the next five years if this agreement is broken and the rent due is not paid (emphasis added).
It does not appear that this Agreement was approved by a judge of the PMC.
4. Thereafter, the Debtor made his regular rent payments to PHA in sporadic fashion (about half of the payments due were remitted) throughout the period from 1985 to 1988. At no time did the Debtor pay the extra $50.00 monthly and, by November, 1988, he had amassed a rent delinquency, according to the PHA, in excess of $3,300.00.
5. Although the Debtor claimed, in less than totally coherent fashion, that his present rent of $200.00 monthly was calculated excessively in light of his income, and that the Premises developed certain defects which justified rent abatements, none of these claims were successfully developed, and we therefore assume that the PHA's rent claims were accurate.
6. In September, 1988, Edward R. Wingate (hereinafter "Wingate"), the assistant manager of PHA's scattered-site program, visited the Debtor at his home to attempt *211 to resolve the problem of his "astronomical" rent balance. In this meeting, Wingate explained to the Debtor that he would most likely be entitled to certain rebates from the gas and electric suppliers to the units, which could be offset against his rent bill. He requested the Debtor to sign "release forms" to allow these rebates to be paid to the PHA as credit on his bill, which the Debtor proceeded to do.
7. Wingate's recollections of the specifics of his conversation with the Debtor were hazy. He conceded that he did not indicate to the Debtor that the PHA was planning to initiate eviction proceedings against him.
8. The PHA records indicate that, on November 3, 1988, apparently pursuant to one of the "release forms," a gas rebate of $1,005.00 was received by the PHA and deducted from the Debtor's account.
9. Wingate testified that, after this meeting, he left several notes for the Debtor at the Premises, a copy of only one of which was produced and which read as follows: "YOUR P.H.A. MANAGER WAS HERE TO SEE YOU. PLEASE CONTACT ME AT THE FOLLOWING NUMBERS: (1) 978-1104 OR (2) 978-1100. Prior to going to Court Please contact me between 2:00 & 4:30 o'clock. THANK YOU, E.R. Wingate."
10. When this and apparently other notes were unanswered, Wingate or some other PHA employee, without notifying the Debtor, apparently initiated proceedings in the PMC to evict the Debtor for failing to adhere to the terms of the Landlord Tenant Agreement of March 6, 1985.
11. As explained by Simpson, PMCRCP 126d provides that "[a]n alias writ of possession may not be issued after six (6) months from the date of the judgment without leave of court." However, Simpson further stated that an unwritten policy of the PMC, which the Board of Judges expressly refused to add to the Rule despite a written proposal by Simpson to do so, allows only the PHA to have an alias writ issued for five (5) years after a judgment of possession without leave of court, instead of within six (6) months, as per PMCRCP 126d.
12. Simpson stated that the procedure of the PMC regarding any alleged breach of a Landlord Tenant Agreement, also not set forth in the PMCRCP, is as follows:
a. No proceedings to enforce Agreements are entertained unless and until the landlord files an Affidavit indicating the specifics of an alleged default of an Agreement with the PMC.
b. If the judgment is obtained on the basis of only item "A" on the Complaint form, i.e., non-payment of rent, and the tenant has paid a sum equal to or more than the amount adjudicated due subsequent to the agreement, the landlord is required to file a new Landlord & Tenant Complaint to obtain possession or the premises, even if the tenant is allegedly delinquent on post-Agreement rent.
c. However, if the tenant has allegedly violated an Agreement and has not paid a sum equal to the amount adjudicated due in the judgment, or if the judgment is exclusively or alternatively obtained on the basis of item "B" on the Complaint form, i.e., termination of the lease term, or item "C" on the Complaint form, i.e., breach of lease condition other than non-payment of rent, then the PMC adheres to the following (again unwritten) procedure:
(1) A letter is sent by regular mail to the tenant advising that an Affidavit that the Agreement was broken has been filed, which may result in eviction, and that, if the tenant "disagrees" with the affidavit (which is not itself sent to the tenant), the tenant should "report to Room 1216, City Hall Annex within five (5) working days of service of these papers."
(2) If no response is received to this letter in the specific time-period, the landlord is permitted to obtain the issuance of a writ alias for possession of the premises and may evict the tenant. The only notice that the tenant will receive thereafter, prior to physical eviction, is a copy of the writ of possession, issued on behalf of the landlord seeking issuance of the writ alias for possession.
*212 (3) If a response to the letter is received by the PMC from the tenant, in any form, the matter is set down for a hearing before the court prior to the issuance of a writ alias for possession.
13. In the instant case, the PHA filed an Affidavit of default of the Agreement in the PMC at some indeterminate date, alleging that the Debtor "failed to pay rent plus arrears in Feb. Mar. Apr. May, 1988."
14. Since item "B" was checked on the Landlord & Tenant Complaint in the case in issue, a letter, pursuant to Finding of Fact 12(c)(1) supra, was sent, on November 30, 1988, to "Elizah [sic] & Wilhelmena [the Debtor's estranged wife] Bell" 6012 ("4" written over "2") Summer St., Scattered Sites, Phila., PA 19139." In addition, the PHA also filed a Praecipe for Writ of Possession in the case, stating merely "Issue writ of possession" of the premises in issue, on November 30, 1988, which was approved by the court and was to be served on the Debtor.
15. The Debtor testified that he received a copy of the writ of possession, but did not receive a copy of the letter from the PMC. Therefore, he never contacted the PMC. Nor did he contact his CLS counsel. Instead, upon receipt of the writ, he went to the PHA office to see Wingate concerning the apparent agreement he had made with Wingate. Unable to see Wingate, the Debtor showed "the bills and the paper and all that stuff" to an unidentified woman in the PHA office. The Debtor understood this woman to tell him that, after the gas and electric rebates were credited to his account, he would owe $600.00 to bring his account current.
16. PHA records verify that, on December 13, 1988, the Debtor paid $600.00 to PHA, supporting his testimony that he remitted this sum to the PHA pursuant to his discussions with the unidentified woman in the PHA office.
17. The Debtor's counsel contended that an electric-company rebate of about $1,400.00 was forthcoming, which would have been credited to the PHA pursuant to the other "release form" executed by the Debtor. The deduction of the $1,005.00 gas rebate, the $600.00 payment, and the $1,400.00 prospective electric rebate would still leave a rent balance due, as of January, 1989, of $748.00, according to PHA records. It should be noted that, except for the $600.00 payment, the Debtor made no remittance of any amount to the PHA, including his regular rent of $200.00 monthly, since August, 1988.
18. On January 25, 1989, without the PHA's providing any notice of any kind to the Debtor subsequent to his payment of $600.00 to it in December, 1988, the Debtor was physically evicted from the Premises pursuant to the issuance of an alias writ of possession as a result of the Praecipe of the PHA to issue same dated January 3, 1989.
19. The Debtor is presently residing in an apartment in the vicinity of 48th Street and Baltimore Avenue at the cost of some undesignated governmental agency, through March 30, 1989.
D. CONCLUSIONS OF LAW/DISCUSSION
1. This Court Has Jurisdiction Over this Proceeding and May Determine it, Since it is a Core Proceeding.
The Complaint sets forth claims pursuant to 11 U.S.C. §§ 542, 543, and 547, which it is further alleged that the Debtor may invoke pursuant to 11 U.S.C. §§ 522(g)(1), (h). No averment is included, as is required by B.Rule 7008(a), as to whether or not this is contended to be a core proceeding.
The PHA denied all of the jurisdictional averments, apparently due to a contention articulated by its counsel, at the January 27, 1989, hearing, that the completion of the eviction of the Debtor terminated his lease and deprived this court of power to reinstate him to residency in the Premises. See, e.g., In re Sudler, 71 B.R. 780, 785 (Bankr.E.D.Pa.1987); and In re Mason, 69 B.R. 876, 881 (Bankr.E.D.Pa. 1987). However, following In re Morales, 45 B.R. 314 (Bankr.E.D.Pa.), aff'd, C.A. No. 85-1159 (E.D.Pa. April 25, 1985), we conclude that, where it may be established that a tenant is wrongfully dispossessed prior to a bankruptcy filing, the bankruptcy court does have jurisdiction of a proceeding *213 to recover possession of a leasehold of which the debtor-tenant was allegedly wrongfully deprived pre-petition.
While the Debtor did not undertake to establish the elements of 11 U.S.C. § 547,[1] it appears that this proceeding is, indeed, properly maintained to obtain turnover of specific property belonging to his estate pursuant to 11 U.S.C. § 542(a). See generally In re Koresko, 91 B.R. 689, 694-97 (Bankr.E.D.Pa.1988). It also seems clear that the Debtor is empowered to invoke § 522(g)(1), as the "transfer" of his leasehold was not voluntary and the Premises was not concealed by the Debtor. See In re Aikens, Aikens v. City of Philadelphia, 94 B.R. 869, 872-73 (Bankr.E.D.Pa.1989); and Mason, supra, 69 B.R. at 881-82.
We therefore conclude that this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E). Compare In re Windsor Communications Group, Inc., 67 B.R. 692, 697-98 (Bankr.E.D.Pa.1986) (accounts receivable action seeking monetary relief instead of recovery of specific property may even be a core proceeding under 28 U.S.C. § 157(b)(2)(E)). Furthermore, alternative bases to classify this matter as core may arise from 28 U.S.C. §§ 157(b)(2)(A), (M), or (O). Compare Adams, supra, 94 B.R. at 845-846.
We therefore conclude that we not only have jurisdiction over this proceeding, but that it is a core proceeding which we can finally determine. See 28 U.S.C. § 157(b)(1).
2. We Are Not Convinced By the Debtor's Contentions That We Can Rule in His Favor on the Alternative Grounds That the Parties Entered into a Novation; That the PHA Waived the Debtor's Breaches of the 1985 Agreement and should be Estopped from Enforcing it; or That the Debtor "Satisfied" the 1985 Agreement.
In his Brief filed on February 10, 1989, the Debtor advances several arguments which failed to convince us that they supported the Debtor's contention that we should revive the Debtor's right to a PHA leasehold.
The first contention is that, either in his discussions with Wingate in September, 1988; or in his discussions with the unidentified woman at the PHA in December, 1988; or, considering both together, the parties effected a novation which extinguished PHA's rights under the March 6, 1985, Agreement. We do not agree. In order to establish a novation, inter alia, "the plaintiff has the burden of proving that the parties intended to discharge the earlier contract." Publicker Industries, Inc. v. Roman Ceramics Corp., 603 F.2d 1065, 1071 (3d Cir.1979). Accord, United States to Use of Par-Lock Appliers of N.J., Inc. v. J.A.J. Constr. Co., 137 F.2d 584, 587 (3d Cir.1943); In re Yoder 48 B.R. 744, 748 (W.D.Pa.1984); and First Pennsylvania Bank v. Triester, 251 P.A.Super. 372, 381-84, 380 A.2d 826, 830-32 (1977). The recitations of both the Debtor and Wingate regarding any specific agreements made in their conversation are extremely vague. The Debtor is not much clearer in relating his dealings with the unidentified woman in the PHA office. It is questionable whether the Debtor has met his burden of proving any specific agreement whatsoever regarding his future tenancy in these encounters. However, nowhere does he so much as allege that, in any of these discussions, the 1985 Agreement even came up, let alone allege that the PHA parties to any of these discussions ever agreed to discharge the 1985 Agreement in exchange for the Debtor's promise to pay the $600.00 and remit his utility rebates to the PHA.
The second argument appears driven by two separate rather vaguely-advanced contentions: (1) that, by failing to enforce the 1985 Agreement for over three *214 years, the PHA waived its right to do so; and (2) having recently received the gas rebate and the $600.00 payment and having agreed to accept the electric rebate only shortly before the Debtor's eviction, the PHA should have been estopped from enforcing the Agreement and evicting the Debtor at that time. The waiver argument is very difficult to sustain. It is clear that merely failing to strictly enforce an agreement from the outset does not in itself constitute a later waiver of strict enforcement of its terms. See Warren Tank Car Co. v. Dodson, 330 Pa. 281, 285-87, 199 A. 139, 142 (1938); and Matevish v. Ramey Borough School District, 167 Pa.Super. 313, 319-20, 74 A.2d 797, 801 (1950). It is not at all clear that the Debtor changed his position to his detriment in reliance of the fact that PHA failed to strictly enforce the 1985 Agreement, as the court, in Warren, suggests is necessary to successfully advance such an argument. 330 Pa. at 285-87, 199 A. at 142. The Debtor simply failed to make the payments under the 1985 Agreement, or even to make his regular rental payments, for reasons he never undertook to explain. There is no suggestion on his part that the PHA's failure to enforce the Agreement motivated his actions.
Somewhat more appealing is an apparent contention that the Debtor changed his position to his detriment, i.e., he paid at least $600.00, in reliance upon the PHA's willingness, coupled with his cooperation in allowing the PHA to recover his rebates, to allow him to remain a tenant. However, the theory of equitable estoppel which is articulated in such contentions is difficult to maintain in any factual setting. Equitable estoppel can be successfully invoked only where there is clear proof that the party sought to be estopped has acted or failed to act in a manner which it knew or should have known would be relied upon by the party seeking to invoke estoppel to the latter's detriment. See, e.g., Schifalacqua v. CNA Insurance, 567 F.2d 1255, 1258 (3d Cir.1977); GAF Corp. v. Amchem Products, Inc., 399 F. Supp. 647, 657-59 (E.D.Pa.1975), rev'd on other grounds, 570 F.2d 457 (3d Cir.1978); and In re Franks, 95 B.R. 346, 353-54 (Bankr.E.D.Pa.1989). In addition, reasonable reliance on the representations made and a change of position on the part of the party seeking to invoke estoppel must be established. Here, there is no evidence that the Debtor dramatically changed his position as a result of reliance on his discussions with PHA personnel. He paid $600.00, but this sum was merely the equivalent of rent otherwise due (and unpaid since August, 1988), for November and December, 1988, and January, 1989. There is no evidence that he could have or would have received the utility rebates as direct cash payments if he had not released his right to receive them to the PHA. Therefore, he may not have been giving up anything of real value to him in signing the "release forms." Most problematically, evidence that either Wingate or the woman in the PHA office meant to mislead him or should have suspected that they did so regarding the status of the 1985 Agreement is not provided. It was not established that either of these parties even mentioned that Agreement when they spoke with the Debtor.
Finally, the Debtor argues that paragraph 5 of the Agreement, see Finding of Fact 3, page 210 supra, should be read, construing ambiguities against the PHA, which drafted it, to only continue until the Debtor paid off the sum of $644.00 recited in the Agreement, and not thereafter. This contention is supported by Schneider's testimony that this was his understanding of the Agreement. In one sense, the Agreement is ambiguous. It is not clear that, if the Debtor paid off the entire sum of $644.00, strictly according to the terms of the Agreement, the sword of the judgment should be held over his head for up to five years thereafter. We would be disinclined to so read it.
However, here, the Debtor broke the terms of the Agreement immediately after it was made, and never made any attempts to cure his default. The "rent due" under the Agreement is the $200.00 lump-sum payment, which was made, and payments of current rent plus $50.00 monthly on the balance due, which were not ever made. We certainly do not think that the Debtor *215 was in any way misled, or acted differently in reliance of some misunderstanding of the meaning of the Agreement, in failing to make his post-Agreement payments. The Debtor knew that he had to pay his regular rent, plus $50.00 monthly toward the delinquency, and simply failed to do so, for reasons unexplained by him. Therefore, he violated the Agreement and, by its terms, placed himself in jeopardy of an eviction on the basis of the judgment agreed to thereby for five years.
In all probability, the Debtor was truthful when he testified that he never noticed paragraph 5 of the Agreement, had no subjective awareness of its contents, and never dreamed that it bore possible relevance to his 1988-89 rent delinquency. However, he was represented by competent counsel totally conversant with the wording and meaning of the Agreement. We cannot and will not assume that counsel failed to explain its ramifications to him. Rather, given our observation of the Debtor, it is highly likely that explanations were given to him by counsel at the time, which he now simply does not recall.
We therefore reject the Debtor's arguments that creation of a novation, waiver, estoppel, or performance of what he reasonably believed to be his undertaking in the 1985 Agreement are viable theories upon which the Debtor is entitled to relief.
3. The Debtor's Contention That His Due Process and Other Federal Rights Were Violated by the Course of the Termination of His PHA Tenancy is Meritorious.
We are left with the Debtor's contention that the procedures utilized by the PHA in the termination of his tenancy violated the Debtor's rights to due process of law and other rights to which he is accorded by federal Regulations applicable to public-housing tenants. In Adams, we carefully considered the parameters of these rights, and concluded that the PHA's policy of summarily evicting alleged remaining members of tenant families, as described by its own Director of Housing Management, deprived the debtor alleged tenants of these rights. 94 B.R. at 845-49. Here, we have a record describing the PMC procedures provided by the completely disinterested, extensive, and extremely enlightening testimony of Simpson. We have no doubt whatsoever that the PMC procedures operate precisely in the manner that they were described by Simpson. We conclude that, in general, these procedures are of doubtful legality and that, as applied to the Debtor, his due process and other federal rights were unquestionably violated by operation of those procedures.
The basic underpinnings of the rights of public housing tenants in instances where a public housing authority seeks to terminate their lease and evict them are set forth in Adams, supra, at 845-46, as follows:
It cannot be gainsaid that all parties who are tenants of public housing are entitled to a full measure of due process before they may be evicted from their premises. See, e.g., Escalera v. New York City Housing Authority, 425 F.2d 853, 861-64 (2d Cir.), cert. denied, 400 U.S. 853 [91 S. Ct. 54, 27 L. Ed. 2d 91] (1970); Noble v. Bethlehem Housing Authority, 617 F. Supp. 248, 251 (E.D.Pa. 1985); Staten v. Housing Authority of City of Pittsburgh, 469 F. Supp. 1013, 1015 (W.D.Pa.1979); and In re Sudler, 71 B.R. 780, 786 (Bankr.E.D.Pa.1987).
The skeletal due process rights set forth in these decisions have been fleshed out in federal Regulations, binding upon every public housing authority, as to how evictions are to be carried out. A tenant must be provided with written notice before a housing authority commenced evictions proceedings and be advised therein that the housing authority's grievance procedures can be invoked to contest this proposed action. See 24 C.F.R. § 966.4(1); Noble, supra, 617 F.Supp. at 251-52; and Staten, supra, 469 F.Supp. at 1015-16. An opportunity to invoke mandatory internal housing authority grievance procedures, as set forth in 24 C.F.R. §§ 966.50, et seq., must be accorded to the evictee. See Noble, supra, 617 F.Supp. at 251-52. Then, only after the grievance procedure, if invoked by the evictee, runs its course, *216 may the housing authority proceed to evict the tenant in accordance with state law. See Noble, supra, 617 F.Supp. at 252; Staten, supra, 469 F.Supp. at 1016; and McMichael, [v. Chester Housing Authority,] 325 F.Supp. [147,] at 149-50 [E.D.Pa.1971].
Our first observation is that the procedures utilized by the PHA in 1988-89 in reference to the Debtor, which resulted in his ultimate eviction, did not conform, in any sense, to the requirements of 24 C.F.R. §§ 966.4(1)(2) and (3), which provide as follows:
(1) Termination of the lease. The lease shall set forth the procedures to be followed by the PHA and by the tenant in terminating the lease which shall provide:
(1) That the PHA shall not terminate or refuse to renew the lease other than for serious or repeated violation of material terms of the lease such as failure to make payments due under the lease or to fulfill the tenant obligations set forth in § 966.4(f) or for other good cause.
(2) That the PHA shall give written notice of termination of the lease of:
(i) 14 days in the case of failure to pay rent;
(ii) A reasonable time commensurate with the exigencies of the situation in the case of creation or maintenance of a threat to the health or safety of other tenants or PHA employees; and
(iii) 30 days in all other cases.
(3) That the notice of termination to the tenant shall state reasons for the termination, shall inform the tenant of his right to make such reply as he may wish and of his right to request a hearing in accordance with the PHA's grievance procedure.
The eviction of the Debtor here was preceded by no written notice except the note left at his home by Wingate in November, 1988, see Finding of Fact 7, page 211 supra, simply telling him to contact Wingate "prior to going to court." Clearly, this note was not sufficient to constitute a notice of termination of the lease. Further, no mention of the Debtor's right to a grievance hearing, pursuant to 24 C.F.R. §§ 966.50, et seq., is imparted therein. The language of the note, suggesting that it is being dispatched "prior to going to court" is, moreover, affirmatively misleading, as it strongly suggests that a court hearing will be accorded to the Debtor prior to his eviction. As it developed, no court hearing was provided, since the PMC allowed the PHA to employ the truncated procedure allowable when there is an alleged "termination of a lease," as well as a prior default in rent, alleged in a complaint which leads to an Agreement.
The response of the PHA to this argument is that the Debtor received all of the notices required by § 966.4(1) over three years before in 1985. Implicit in this position is the argument that, in entering into the March 6, 1985, Agreement, the Debtor waived the right to any further notice of termination or right to a grievance hearing.
At this point, the reasoning in our prior decision in In re Burch, 88 B.R. 686, 692-94 (Bankr.E.D.Pa.1988), citing to a case which is factually analogous to the instant proceeding, Berlin v. Aluisi, 57 Md.App. 390, 470 A.2d 388 (1984), becomes relevant. There, we pointed out, 88 B.R. at 693, the due process deficiencies inherent in
[u]tilizing a judgment previously obtained on the basis of certain defaults ... as a basis for remedying the alleged post-judgment defaults which a court has not determined are actionable.
We likened such a process to an attempt "to enforce a pre-default `confessed judgment' against the Debtor." Id. See In re Souders, 75 B.R. 427, 432-38 (Bankr.E.D. Pa.1987) (use of confessed judgments in Pennsylvania is violative of debtors' due process rights and is hence unconstitutional).
The Berlin case involved a situation almost identical to that here. A judgment for back rent and possession of a premises was entered. 470 A.2d at 389. The tenant paid the amount deemed owed per the judgment. Id. The landlord contended that the defendant-sheriff wrongfully refused to evict the tenant because she owed additional post-judgment rent. Id. The court upheld the sheriff's actions, inter alia on the *217 ground that to interpret the law as the landlord suggested would violate the tenant's due process rights. Id. at 392.
The testimony of Simpson indicated sensitivity to the issue raised in the Burch and Berlin cases. He stated that, if a landlord has a judgment for non-payment of rent only, payment of rent equal to the amount of the judgment forecloses further judicial action on that judgment. The landlord must then file an entirely new proceeding and obtain a new judgment if the landlord wishes to evict the tenant on the basis of a new default.
In the same way, the Debtor is entitled to a new notice of an attempt to terminate his lease and of his right to grieve a claim of a subsequent default of an Agreement reached in the PMC. Here, the Debtor's colorable defenses based upon the incorrect calculation of his rents, and the waiver and estoppel issues discussed here, may have resulted in a halt of the eviction process had the Debtor been accorded the full opportunity to which he was entitled to raise them.
At bottom, the PHA's argument is a contention that the Debtor, by the act of his and Schneider's signing the March 6, 1985, Agreement form, waived the procedural protections otherwise accorded to the Debtor. Compare Burch, 86 B.R. at 692 (court there rejects any possibility that the debtor and counsel actually meant to waive their due process rights). We disagree. The requirements of 24 C.F.R. § 966.4(1) are mandatory. See, e.g., Noble, supra, 617 F.Supp. at 251-52. They cannot be waived. Lease provisions such as clauses allowing use of confession of judgment or a waiver of any legal notices or proceedings to which a public-housing tenant is otherwise entitled are prohibited. 24 C.F.R. §§ 966.6(a), (d), (e).
The aforesaid Regulations are also relevant in discounting the significance of a crucial distinction made here by Simpson, i.e., allowing the PHA to use the truncated proceeding rather than filing a new complaint because, on the Landlord & Tenant Complaint, the PHA checked item "B," i.e., termination of the term of the lease. It must be recalled that public housing leases can be terminated only for "good cause." 24 C.F.R. § 966.4(1)(1); and Sudler, supra, 71 B.R. at 787. Therefore, unlike a private-housing leasehold, a public-housing leasehold is perpetual, as long as the tenant does not voluntarily terminate same, provide "good cause" for eviction, or otherwise become ineligible therefor. Hence, it was improper for the PHA to complete item "B" of the Complaint form as if the Debtor had a private-housing lease which may have ended as of a certain date. It was also an error on the part of the PMC to treat a checking of item "B" in a matter concerning a public-housing lease as it would have treated a checking of this item in the context of a private-housing lease, which clearly may have come to an end despite full compliance with its terms by the tenant. The PMC should treat all public-housing matters, except those where judgment is based upon "item C," i.e., other lease violations,[2] precisely as it does private-housing matters where only item "A" is checked on the form.
Finally, we should note our concern that the entire procedure utilized by the PMC in enforcement of Agreements is subject to due-process challenge. One questionable aspect is its unwritten policy to treat the PHA differently than any other landlord-litigants. There would seem to be little, if any, basis for treating any particular litigant differently than the rules of a court allow. If PMCRCP 126d prohibits issuance of an alias writ more than six (6) months after a judgment is entered, then this Rule not only should, but must, be applied to the PHA, as well as to other litigants. The fact that CLS or any other organization allegedly speaking for tenants stipulated to the contrary should not be relevant. A court cannot change its own rules as written simply because certain litigants wish to *218 or even agree to employ different procedures.
Furthermore, we question whether the unwritten, truncated procedure recited by Simpson and set forth at Finding of Fact 12, pages 211-12 supra, can withstand constitutional muster in any event. First, the procedure is not codified by Rules, which renders its employment suspect. More substantively, it seems to us that, if a party wishes to transform an executory agreement into a totally-enforceable judgment, that party must be obliged to present a motion, after reasonable notice to the adverse party, which comes before the court for disposition. We note that, in Mathews v. Eldridge, 424 U.S. 319, 345, 96 S. Ct. 893, 907, 47 L. Ed. 2d 18 (1976), the Supreme Court held that the following three elements must be considered to determine whether particular procedures satisfy the requirements of due process in the context of a given fact situation:
first, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.
Accord, Adams, 94 B.R. at 846-48.
The private interest here is very strong, since the outcome will result in loss of shelter to a person likely to be of very limited means. Sensitivity to this issue has undoubtedly motivated the PMC to establish some procedure short of merely accepting the landlord's ex parte Affidavit as a basis for proceeding. This procedure, however, featured the following notice requirements: (1) a single, regular-mail letter, which (2) fails to set forth or even summarize the contents of the Affidavit of default, and (3) which provides only five days to respond, and (4) even then, to respond in a manner which is not officially to the court and hence of which no record can be made. A more reliable form of notice and a procedure which better guarantees an opportunity of the tenant to a judicial determination of whether an Agreement is violated would seem necessary. The present procedure creates a risk of an erroneous deprivation of a leasehold to a tenant. Establishment of a procedure, according to specific rules, which assures judicial oversight of the agreement-enforcement process would not appear to be unduly burdensome.
We were also impressed with that portion of Simpson's testimony which indicated that, being regulated only by unwritten rules, the PMC procedure for enforcing agreements tends to be ad hoc and, consequently, arbitrary. The crucial distinction as to whether the landlord alleging a violation of an agreement can use the truncated procedure, must file a new complaint, or where the PMC sets up a hearing after receipt of the landlord's Affudavut if defaulta third variation which Simpson introduced near the end of his testimony as appropriate when the court administrator has a question as to whether "an agreement was good or bad"appears to be made by non-judicial personnel on the basis of subjective factors. While it is well and good to allow court procedures to be flexible, there is sometimes a lack of distinction between flexibility and total lack of procedural form, which constitutes a denial of procedural due process.
These observations cast additional layers of doubt upon a procedure which already, as to this particular Debtor, evinces serious due process deficiencies. We therefore conclude that the compromise of the Debtor's due process rights in the termination of his PHA tenancy in the PMC process in issue requires that we accord him certain relief.
4. The Debtor Should be Entitled to be Reinstated to a Public-Housing Tenancy, Although His Lack of Certain Equities Shall Make This Relief Conditional on His Accepting a Unit Appropriate to His Family Size and Conditional on His Remittance of His Utility Rebates to the PHA and Forfeiture of His Right to Recover Preferences.
Although we are prepared to grant significant relief to the Debtor, we find this *219 proceeding to be a rather close case, due to the lack of certain equities in favor of the Debtor. Even allowing for his age, the Debtor was grossly negligent in allowing a substantial rent delinquency in excess of $3,300.00 to accumulate against him. Also, he responded only sporadically to PHA communications and never returned to CLS for assistance until, apparently, after he was evicted. Had it not been for the testimony of Simpson, which unintentionally portrayed the due process flaws in the utilization of the truncated PMC Agreement-enforcement procedure, we may well have ruled against the Debtor. The Debtor's presentation was not sufficiently impressive to cause us to grant him substantial preliminary relief. Therefore, as in the case of the two young women whose somewhat-doubtful claims to tenancies we considered in Adams, we shall reinstate the PHA tenancy of the Debtor only on certain conditions.
First, we observe that the Debtor is, for the most part, an "empty-nester," as his only dependent at present is an apparently upwardly-mobile college student. We do not believe that the Debtor's shelter needs merit a entire house, especially when such a unit is undoubtedly needed by larger, homeless families. As in the case of Vera Adams in the Adams matter, we shall therefore order only that the PHA offer the Debtor a suitable unit which is the appropriate size for his "family."
Secondly, we shall require the Debtor to choose between reinstatement of a public-housing tenancy and an attempt to recover his previous $600.00 rental payment and utility rebates as preferential payments. We do not find that this Debtor, whose own negligence was certainly a substantial factor contributing to his eviction, should be entitled to recover both.
Relief is granted only as to the PHA, and not to the individual Defendants, and no monetary relief is awarded. The record does not support a conclusion that any of the individual Defendants are legally responsible for the violations of the Debtor's rights. The PHA followed procedures authorized by the PMC. In light of his own negligence, the Debtor is fortunate to recover so much as a tenancy in housing appropriate to his needs from PHA.
E. CONCLUSION
An Order consistent with the foregoing Opinion will be entered.
ORDER
AND NOW, this 10th day of March, 1989, after trial of the above-entitled proceeding on January 27, February 16, and February 21, 1989, and upon consideration of the parties' Briefs, it is hereby ORDERED as follows:
1. Judgment is entered in part in favor of the Debtor-Plaintiff, ELIJAH BELL (hereinafter referred to as "the Debtor"), and against Defendant PHILADELPHIA HOUSING AUTHORITY (hereinafter "PHA") only. All claims against any other Defendants are DISMISSED in their entirety.
2. The PHA is declared to have violated the right of the Debtor to due process of law, as provided by the Fourteenth Amendment of the United States Constitution; 42 U.S.C. § 1983; and as provided by the applicable federal Regulations appearing, inter alia, at 24 C.F.R. §§ 966.4(1) and 966.50, et seq., in the termination of the lease of the Debtor.
3. The PHA is ordered to provide the Debtor with a suitable public housing unit of sufficient size for his family, and relocate him from his present place of residence at no cost to him, on or before March 30, 1989, on the condition that the Debtor withdraws all monetary claims against all Defendants.
4. The Debtor shall advise the PHA, on or before March 17, 1989, by letter, copy to PHA's counsel and the court, whether he accepts the conditions set forth in paragraph 3 of this Order.
5. In addition, and irrespective of whether the Debtor accepts the terms set forth in paragraph 3 supra, or not, it is permanently ORDERED that the PHA and IRA S. DAVIS MOVING & STORAGE CO. (hereinafter referred to as "Davis") are *220 directed to continue to cooperate fully in allowing the Debtor to recover any of his personal property left in the premises of 6014 Summer Street, Philadelphia, Pennsylvania 19139, and now or previously stored at Davis' facility at 3939 Germantown Avenue, Philadelphia, Pennsylvania, without any charges whatsoever to the said Plaintiff, as long as same are recovered by him on or before May 1, 1989.
NOTES
[1] The Debtor apparently contended that the $600.00 payment (and possibly the crediting to it of the utility rebates), were preferential payments. See In re Richardson, 94 B.R. 56 (Bankr. E.D.Pa.1988); and Mason, supra. In our discussion at page 219 infra, we dispose of the Debtor's potential claim to recover rentals and rebates obtained by PHA in the preference period.
[2] Counsel for PHA stated, in a colloquy at the end of the proceedings on February 21, 1988, that its intractability in this matter was due to the fact that it had unarticulated "additional grounds" for wanting to evict the Debtor. It is, however, axiomatic that, if the PHA has other grounds for wanting to evict the Debtor, it must allege and prove them before evicting him. It cannot justify a defective judgment for possession and cling to same on unproven and unarticulated "other" grounds.
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839 A.2d 993 (2003)
365 N.J. Super. 601
Mary FERRANTE, Plaintiff,
v.
Thomas J. SCIARETTA, in his individual and official capacities, the Borough of Bernardsville, a municipal corporation, and the Bernardsville Police Department, Defendants.
Superior Court of New Jersey, Law Division.
Decided August 14, 2003.
Lisa Manshel, Millburn, for plaintiff (Francis & Manshel).
*994 Dennis A. Cipriano, West Orange, for defendant Thomas J. Sciaretta.
Timothy Beck for defendants The Borough of Bernardsville and The Bernardsville Police Department (Bateman, Coley, Yospin, Kunzman, Davis & Lehrer).
BERNHARD, J.S.C.
This is plaintiff's post-judgment motion seeking a ruling to reflect the negative tax consequences of a lump sum award of economic damages. The application for this relief presents a question of first impression in New Jersey. Whether adverse tax consequences to a successful plaintiff in a discrimination case constitute "such damages" under N.J.S.A. 10:5-3 has not been decided by courts of New Jersey.
After a six week trial the jury returned a verdict in favor of plaintiff, Mary Ferrante, affirming that she was the victim of sexual harassment by Thomas Sciaretta, the former Police Chief of the Borough of Bernardsville, while she was an employee of that municipality's police department. The jury determined that the Borough of Bernardsville failed to take reasonable steps to prevent the sexual harassment. The jury also found the actions of Chief Sciaretta and the Borough of Bernardsville created a sexually hostile work environment and resulted in a constructive discharge of the plaintiff. It was also determined that the plaintiff was deprived of her rights to exercise free speech by the defendants.
The plaintiff recovered economic damages in the amount of $340,659, which included an award of back pay and front pay. She also received $26,250 in damages for emotional distress and suffering. Pre-judgment interest in the amount of $72,298.16 and $895,025.77 for counsel fees and disbursements were awarded.
To decide this issue, it is necessary to first examine the statutory framework of New Jersey's Laws Against Discrimination. N.J.S.A. 10:5-13 states in pertinent part:
... All remedies available in common tort actions shall be available to a prevailing plaintiff. These remedies are in addition to any provided by this Act or any other statute.
And also N.J.S.A. 10:5-3 states:
The Legislature finds and declares the practice of discrimination against any of its inhabitants because of ... sex ... are matters of concern to the Government of the state and that such discrimination threatens not only the rights and proper privileges of the inhabitants of the state but menaces the institution and foundations of a free democratic state...
The Legislature further declares its opposition to such practice of discrimination when directed against any person by reason of ... sex ... in order that economic prosperity and general welfare of the inhabitants of the state may be protected and insured.
The Legislature further finds that because of discrimination people suffer personal hardships and the state suffers grievous harm. Personal hardships include economic loss, time loss, physical and emotional stress...
Such harms have under the common law given rise to legal remedies, including compensatory and punitive damages. The Legislature intends that such damages be available to all persons protected by this act and this act shall be liberally construed in combination with other protections available under the laws. (Emphasis added.)
The Supreme Court in Fuchilla v. Layman, 109 N.J. 319, 324, 537 A.2d 652 (1988) stated:
*995 ... the clear public policy of this state is to abolish discrimination in the work place. Indeed, the over arching goal of the law is nothing less than the eradication `of the cancer of discrimination.' Jackson v. Concord, 54 N.J. 113, 124, 253 A.2d 793 (1969).... The public interest in making a discrimination free work place infuses the inquiry. David v. Vesta Co., 45 N.J. 301, 327, 212 A.2d 345 (1965).
The nature of compensatory damages in discrimination cases ... include money damages awarded to a plaintiff `by way of compensation to make up for some loss that was not, originally, a money loss but one that ordinarily would be measured in money.' Dan B. Dobbs, Remedies, "Principles of Damages," (Section 3 at 135, 3rd Ed.1973). In an employment discrimination case such damages include back pay provided `to make the discriminatee whole by reimbursement of economic loss suffered' and front pay to compensate the employee for future lost wages attributable to the employer's misconduct. Baker v. National State Bank, 353 N.J.Super. 145, 158, 801 A.2d 1158 (App.Div.2002).
The statutory goal is to end discrimination; the victims want a discrimination-free work environment, not lawsuits. But when unlawful discrimination does occur, the secondary fallback purpose is to compensate the victims for their injuries. In other words "to make the victims of unlawful discrimination whole by restoring them, so far as possible ... to a position where they would have been were it not for the unlawful discrimination." (Emphasis added). Ford Motor Co. v. E.E.O.C., 458 U.S. 219, 230, 102 S. Ct. 3057, 3065, 73 L.Ed.2d 721 (1982).
The term "such damages" in N.J.S.A. 10:5-13 refers to compensatory damages in the preceding sentence. Black's Law Dictionary defines actual damages as "the amount awarded to a complainant in compensation for his actual and real loss ... synonymous with compensatory damages..." Compensatory damages are defined in part as "... such as will simply make good or replace the loss caused by the wrong or injury.... The rationale behind compensatory damages is to restore the injured party to the position he or she was in prior to the injury." Black's Law Dictionary, pp. 390 (6th Ed.1990).
The thrust of compensatory damages, as well as the underlying philosophy of the New Jersey anti-discrimination laws, make it clear that the statute should not only be liberally construed but broadly applied. In O'Neill v. Sears, Roebuck & Company, 108 F.Supp.2d 443 (E.D.Pa.2000), the court noted that front pay money has already been reduced to present value on the assumption that the plaintiff can invest the money and receive a return equivalent to the lost income. The court concluded that if the plaintiff must pay a higher tax on the present value of his earnings, then this leaves less for investment. Thus "the plaintiff will not, in fact, realize an investment gain large enough to equal the future wages [she] is not getting as a result of defendant's discriminatory conduct." The court referred to a television advertisement which stated "It's not how much money you make, it's how much money you keep," and expressed that it was the statutory goal to allow the plaintiff to keep the same amount of money as if he had not been unlawfully terminated, and decided that this goal requires reimbursement for the reduced amount of front pay money that the plaintiff has to invest as a result of higher taxes, as well reimbursement for higher taxes he must pay on his back wages caused by getting his money in a lump sum. O'Neill, supra 447.
The Washington Court of Appeals also considered this issue in Blaney v. Int'l *996 Assoc'n. of Machinists and Aerospace Workers, 114 Wash.App. 80, 55 P.3d 1208 (2002). To avoid the adverse tax consequences of a lump sum award the court analyzed the broad scope of that state's statutory term, "actual damages" as well as the state's legislative policy to "deter and eradicate discrimination" and to make the matter a public policy of the "highest priority." The policy of construing the anti discrimination statute liberally to effect its purpose, and the grant of this type of relief in other federal cases, construing similar discrimination laws, O'Neill, supra and Sears v. Atchison, Topeka & Santa Fe Ry., 749 F.2d 1451 (10th Cir.1984), all support the conclusion that adverse federal income tax consequences triggered by the payment of a judgment for a violation of the (statute) are within the scope of the term "actual damages." Blaney, supra, 55 P. 3d at 1216-17. The court also realized the practical aspect of the tax impact on such an award would be a substantial reduction of damages award. The federal income tax would undercut the award which has been identified as "a public policy of the highest priority." Blaney, supra, 55 P.3d at 1216-17. The court concluded that plaintiff would share her award with the Internal Revenue Service and not receive its full benefit, therefore, would not be made whole which is the philosophy of the statute.
The logic of O'Neill and Blaney applies equally to New Jersey Laws Against Discrimination. As pointed out, the legislature mandated in order to effectuate the policies underlying LAD, the damage provision of that statute "shall be liberally construed". N.J.S.A. 10:5-3. Therefore, under the "make whole" policies of the statute, defendants will be required to compensate plaintiff for the negative tax consequences of receiving the lump sum award.
Defendants oppose plaintiff's request for relief on procedural and evidentiary grounds. Defendants contend that there is no support for this post-trial award under our rules and that the reports on which plaintiff bases her tax loss are net opinions.
Defendants argue that Rule 4:49-1 and Rule 4:49-2 do not provide a basis for modifying plaintiff's judgment. I have determined earlier in this opinion that such relief is directly authorized under the statutory authority of New Jersey Law Against Discrimination, N.J.S.A. 10:5-3. Furthermore, Rule 4:50-1(f) does authorize a motion for relief from a judgment or order "for any other reasons justifying relief from the operation of the judgment or order." Two courts have previously ruled that negative tax consequences should be determined by the trial judge on a post-trial motion. See O'Neill v. Sears Roebuck and Co., supra and Blaney, supra, 114 Wash.App. 80, 55 P.3d 1208. The issue of negative tax consequences is not the primary relief sought by the plaintiff as a result of defendant's unlawful conduct, but is a supplemental issue similar to post-trial applications for pre-judgment interest and applications for attorney's fees and costs. It is not until after a jury returns a favorable verdict that the plaintiff becomes entitled to pre-judgment interest on the verdict. It is the same with a negative tax consequence. The plaintiff does not suffer those damages at the inception of the trial, but only after the jury awards lump sum economic damages.
The negative tax consequences of a jury award is not an issue that is readily subject to determination by a jury. This is true because the precise amount of the award is unknown until the verdict. The jury would not have the expertise to project the tax liability on their award, that is, to apply the appropriate tax rates *997 and/or the alternate minimum tax computations. These calculations require expert analysis. Therefore, post-trial application is the only viable procedural mechanism to consider this issue.
This court's May 22, 2003 Order of Judgment included the following language:
ORDERED that plaintiff's application for attorney's fees, costs and expenses, for an award to reflect the negative tax consequences of the verdict, and for pre-judgment interest shall be determined by further motion to the Court ...
Plaintiff advised the defendants that she was seeking negative tax consequences in the event she received a lump sum award for back and front pay as early as December 5, 2000 when she provided defense counsel with a copy of a report by her expert, Donald Welsch. On December 10, 2002, plaintiff again provided defendants with a revised report providing the same type of calculations and background information but revising the dollar amount for negative tax consequences. These reports included all calculations as to back pay, front pay, pension loss and for the negative tax impact. On March 3, 2003, shortly before trial, defendants were again notified that plaintiff intended to serve a revised report from Donald Welsch to apply to the actual jury award amount, if she was successful.
Donald Welsch was called by the plaintiff as an expert. Prior to his testimony both defense counsel consented to redacting the negative tax figure in Table 2 so his report and calculations could be admitted in evidence. Counsel agreed that the redacted number could only be used on a post-trial motion. This information was conveyed to the court and defendants were well aware that plaintiff was proceeding under the methodology set forth in Donald Welsch's expert report. Neither defendant objected to plaintiff proceeding on the premise that a post-trial application was appropriate. Defendants' contention that such relief could not be awarded post-verdict lack merit and furthermore, by defendants' conduct in consenting to the Order of Judgment they have waived their right to object to this procedure.
As plaintiff accurately points out, the Rules of Evidence state:
RULE 705. DISCLOSURE OF FACTS OR DATA UNDERLYING EXPERT OPINION; HYPOTHESIS NOT NECESSARY
The expert may testify in terms of opinion or inference and give reasons therefore without prior disclosure of the underlying facts or data, unless the court requires otherwise. The expert may in any event be required to disclose the underlying facts or data on cross-examination. (Emphasis added).
It is clear from this Rule and prevailing case law that when an expert report is furnished, "the expert's testimony at trial may be confined to the matters of the opinion reflected in the report." However, testimony about the predicates and conclusions set forth in the report are not foreclosed. McCalla v. Harnischfeger Corp., 215 N.J.Super. 160, 171, 521 A.2d 851 (App.Div.1987). When a net opinion is given by an expert his adversary is permitted to discover the basis of the expert's opinion by depositions or other discovery techniques. The court, in McCalla supra, concluded that a party cannot "eschew discovery and then object to the admission of the materials that were fairly attainable through ... depositions which logically flowed from the expert report already provided." McCalla, supra. 172
Defendants had Donald Welsch's calculations as early as December 5, 2000, and his revised calculations on December 10, 2000. The report provided to defendants *998 on April 30, 2003, after the jury verdict, was not a previously undisclosed report but rather a revised report showing the precise calculations based upon the jury award, which, of course, was an amount different than used in Donald Welsch's pre-trial projections. Furthermore, defendants had plaintiff Mary Ferrante's tax returns from 1993 to 2001. The only additional information was her tax return for 2002 which was not available until after the trial was concluded in April. As plaintiff points out in her brief, defendants never sought or conducted the deposition of Donald Welsch, defendants never asserted any deficiencies in plaintiff's interrogatory answers or document production of Donald Welsch's earlier reports, opinions and supporting documents. Nor did defendants ever identify a rebuttal expert on economic damages or negative tax consequences.
As a result, this court concludes that defendants have no standing to assert a net opinion objection to Donald Welsch's conclusion that plaintiff's negative tax impact as the result of the jury award was $107,000. The Order of Judgment of May 22, 2003 will be modified to award this sum.
In addition, plaintiff's counsel will be awarded counsel fees for this additional application and hearing in the amount of $5,223, which represents 17.41 hours of additional work resulting from defendant's impermissible late objection to her original application and second hearing. She will also be awarded $146 in disbursements.
I direct Ms. Manshel to prepare the appropriate order. *999-1005 [Editor's Note:]
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839 A.2d 102 (2004)
365 N.J. Super. 325
J.M.J. NEW JERSEY PROPERTIES, INC., a New Jersey Corporation, Plaintiff-Appellant,
v.
Magdy M. KHUZAM, individually, Mohamed N. Selin, individually, Said Said, individually, Maria Auguillera, individually, Carmen Rosaria, individually, Maher Abdeo, individually, Manidouh Holim Ragheb, individually, Fawzy Fahmy, individually, Nara Gamal, individually, Mahamed Ahmed, individually, Defendants-Respondents.
Superior Court of New Jersey, Appellate Division.
Argued December 3, 2003.
Decided January 9, 2004.
*104 William I. Strasser, Paramua, argued the cause for appellant (Strasser & Associates, attorneys; Mr. Strasser, of counsel; Mr. Strasser, Conrad M. Olear, and Robert A. Gorman, on the brief).
Anthony F. Gralewski, Jersey City, argued the cause for respondents Said, Ragheb, Fahmy, Gamal and Ahmed.
Respondent Magdy H. Khuzam did not file a brief.
Before Judges KESTIN, CUFF and WINKELSTEIN.
*103 The opinion of the court was delivered by WINKELSTEIN, J.A.D.
Plaintiff is a landlord and defendants are residential month-to-month tenants. On May 1, 2001, the landlord notified the tenants to vacate the leased premises by November 1, 2002, because the landlord intended to retire the building from residential use. See N.J.S.A. 2A:18-61.1(h); N.J.S.A. 2A:18-61.2d. Subsequently, on January 25, 2002, the landlord provided the tenants with another noticeto increase their rent, effective March 1, 2002. The tenants accepted the rent increase and continued in occupancy. In so doing, they claimed a new tenancy was created, which nullified the landlord's initial notice to terminate their tenancies by November 1. The Law Division agreed. The court concluded that because a new tenancy was created when the tenants paid the rent increase and remained in possession, the previously furnished eighteen-month notice of the landlord's intention to permanently retire the building from residential use was rendered invalid. We reverse. The tenancies created when the tenants held over at the new rent were limited in their term by the May 1, 2001 notice terminating the tenants' right to possession as of November 1, 2002.
The facts are not in dispute. Plaintiff is the owner of a nine-unit apartment building in Jersey City. Defendants occupy the building without written leases. Plaintiff intends to permanently retire the building from residential use and convert it to a day care center. Consequently, on May 1, 2001, each tenant was sent a notice that stated, in part:
2. Termination of Lease. Your lease is TERMINATED (ended) as of November 1, 2002.
3. Demand for possession. You must leave and vacate this rented property on or before that date (November 1, 2002). This means you must move out and deliver possession for me, your Landlord.
4. Reason. Your lease is terminated because
Pursuant to N.J.S.A. 2A:18-16.1(h) "the owner seeks to permanently retire the building from residential use." The owners of the property at 110 Romaine Avenue seek to demolish the building in order to erect a day care center.[1]
*105 A week later, plaintiff sent another notice to each tenant, the only change from the May 1 notice being that plaintiff's name was corrected from J.M.J. New Jersey Investments, Inc., to J.M.J. New Properties, Inc. Furthermore, because some of the tenants did not receive the May 1, 2001 notice until May 9, 2001, plaintiff sent a subsequent notice to each tenant extending the deadline to vacate the property to December 31, 2002.[2]
Between the date the first notice was sent on May 1 and the expiration of the eighteen-month notification period, plaintiff decided to raise the tenants' rent. Accordingly, on January 25, 2002, plaintiff notified each tenant of a 1.8% rent increase effective March 1, 2002, representing the amount permitted under the Jersey City Rent Control Ordinance. The notice, in part, stated:
2. PURPOSE OF NOTICE. Your Landlord wants to increase your rent. In order to do this your Landlord must terminate (end) your tenancy and offer you continued tenancy until November 1, 2002 at an increase in rent. Your Landlord may also make other reasonable changes in your tenancy.
3. TERMINATION OF TENANCY. Your present tenancy is terminated as of February 28, 2002. You must quit and vacate the property as of that date (date of termination). This means you must move out and deliver possession to your Landlord.
4. RENT. You may rent this property after the date of termination for $617.93 per month. Your rent is payable in advance, on the first day of every month beginning on March 1, 2002. This amount is the rent you are currently paying ($607.00) plus an additional 1.8%. This increase of 1.8% is the allowable rent leveling increase per Jersey City Rent Control Ordinance § 260-3.
5. OTHER CHANGES IN YOUR TENANCY. Term of TenancyYour tenancy is now Month to Month until November 1, 2002. On that date the building will be permanently retired from residential use pursuant to N.J.S.A. 2A:18-61.1(h). You were given notice of this on May 1, 2001.
6. ACCEPTANCE. If you remain in possession of this rental property after the termination date of February 28, 2002, it will mean that you accept and agree to this rent increase and all other changes to your lease.
The tenants paid the requested rent increase and continued in possession, but claimed that by holding over at the new rent a new tenancy was created, which negated the prior notice that required them to vacate the property. Upon being informed of this position, plaintiff filed a verified complaint and order to show cause asking the court to declare that defendants must vacate their apartments by December 31, 2002. On the return date of the order to show cause, the Law Division found that neither the incorrect name of plaintiff nor extending the time for the tenants to vacate the premises until December 31, 2002, rendered the May 1, 2001 notice ineffective. Neither of these decisions is challenged on appeal. Rather, the primary focus of this appeal is the court's holding that the landlord would need to serve the tenants with a new eighteen-month *106 notice before the landlord could retire the premises from residential use.
In arriving at this decision, the judge reasoned that when the tenants held over as of March 1, 2002, after paying the increased rent, new tenancies were created, rendering void the prior eighteen-month notice to remove the dwelling from the residential market. See N.J.S.A. 2A:18-61.2d. We agree with the judge that holding over and paying the increased rent created new tenancies. However, we differ with the court's conclusion as to the effect the new tenancies had on the previously provided notice to the tenants terminating their right to possession as of November 1, 2002.
In response to a rental housing shortage, the Anti-Eviction Act, N.J.S.A. 2A:18-61.1 to -61.12(Act), limited evictions of tenants to reasonable grounds on suitable notice. Morristown Mem'l Hosp. v. Wokem Mortgage & Realty Co., Inc., 192 N.J.Super. 182, 186, 469 A.2d 515 (App. Div.1983); Bradley v. Rapp, 132 N.J.Super. 429, 432-33, 334 A.2d 61 (App.Div. 1975). Prior to its enactment, a landlord had a right to possess its leased property without good cause, subject to certain procedural limitations. 25 Fairmount Ave., Inc. v. Stockton, 130 N.J.Super. 276, 283, 326 A.2d 106 (1974). The Act limited a landlord's right to possession of the leased premises, restricting the landlord to "good cause" before a tenant could be dispossessed. Id. at 283-84, 326 A.2d 106. It provided a tenant with the right to "remain in possession of the rented property until there is `good cause' for him to be removed." Id. at 284, 326 A.2d 106.
Our "`courts have been insistent upon the landlord's punctilious compliance with all statutory eviction procedures,' including notice provisions." Weise v. Dover Gen. Hosp. & Med. Ctr., 257 N.J.Super. 499, 504, 608 A.2d 960 (App. Div.1992) (quoting Sacks Realty, supra, 248 N.J.Super. at 426, 591 A.2d 660). The Act "provides substantial protections to a residential tenant." Starns v. Am. Baptist Estates of Red Bank, 352 N.J.Super. 327, 331, 800 A.2d 182 (App.Div.2002). Indeed, the effect of the Act "`is to create a perpetual tenancy, virtually a life interest, in favor of a tenant of residential premises covered by the Act as to whom there is no statutory cause for eviction under N.J.S.A. 2A:18-61.1.'" Ibid. (quoting Center Ave. Realty, Inc. v. Smith, 264 N.J.Super. 344, 350, 624 A.2d 996 (App.Div.1993)). Yet, being in derogation of a landlord's common-law right of ownership, the Act must be strictly construed. Morristown Mem'l Hosp., supra, 192 N.J.Super. at 188, 469 A.2d 515; Terhune Courts v. Sgambati, 163 N.J.Super. 218, 223, 394 A.2d 416 (1978), aff'd, 170 N.J.Super. 477, 406 A.2d 1330 (App.Div.1979), certif. denied, 84 N.J. 418, 420 A.2d 331 (1980).
At the time plaintiff sent the May 1, 2001 notice to defendants, each defendant was a month-to-month tenant. "A month-to-month tenancy is a continuing relationship that remains unabated at its original terms until terminated by one of the parties." Harry's Village, Inc. v. Egg Harbor Township, 89 N.J. 576, 583, 446 A.2d 862 (1982); Stamboulos v. McKee, 134 N.J.Super. 567, 570-71, 342 A.2d 529 (App.Div.1975); Skyline Gardens, Inc. v. McGarry, 22 N.J.Super. 193, 195-96, 91 A.2d 621 (App.Div.1952). "To increase the rent of a month-to-month tenant, the landlord must serve a notice to quit terminating the old tenancy and another notice offering a new tenancy at an increased rent." Harry's Village, supra, 89 N.J. at 583, 446 A.2d 862. After receiving proper notice to quit and notice of rent increase, if a tenant holds over, a new tenancy is *107 created at the increased rent. Ibid.; Stamboulos, supra, 134 N.J.Super. at 571, 342 A.2d 529.
In this case, the Law Division, based on the new tenancy created when the tenants held over at the new rent, determined that a new eighteen-month notice would be necessary before the landlord could retire the premises from residential use. We find this interpretation of the effect the new tenancy would have on the pre-existing landlord-tenant relationship to be too broad. The result of the trial judge's decisionto preclude a landlord from receiving a rent increase during the eighteen-month notification perioddoes not, in our opinion, foster the purposes of the Act. On the contrary, the decision to deny the landlord the right to a rent increase during the eighteen-month notification period called for by N.J.S.A. 2A:18-61.2d does an injustice to the landlord without providing additional benefit to the interests of the tenants.
When a court interprets a legislative enactment, it may "properly consider both language of the [A]ct and the object sought to be attained by the legislation." 2A Sutherland Statutory Construction, § 45:08 (6th ed.2000). Construing a statute, we look to its legislative purpose and give the words "a common-sense meaning within the context of that purpose." In re T.S., 364 N.J.Super. 1, 6, 834 A.2d 419 (App.Div.2003). Legislation must be read so as to give effect to all of its provisions and to the legislative will, while "[a]t the same time we should strive to avoid an anomalous, unreasonable, inconceivable or absurd result." Bradley, supra, 132 N.J.Super. at 433, 334 A.2d 61. Not the words, but the internal sense of the statute controls. In re T.S., supra, 364 N.J.Super. at 7, 834 A.2d 419. Statutes are to be construed by the "common sense of the situation ... rather than [with] `scholastic strictness.'" Bradley, supra, 132 N.J.Super. at 433, 334 A.2d 61.
Here, bringing these principles to bear against the facts presented, we do not find that a new eighteen-month notice was needed to terminate defendants' tenancies as of November 1, 2002, as extended to December 31, 2002. Although we are mindful that a new tenancy is created when a month-to-month tenant holds over and pays an increased rent, what effect the new tenancy has on the existing landlord-tenant relationship is another matter. Doubtlessly, certain covenants and obligations of both parties continue from the old tenancy to the new. For example, a landlord continues to have an obligation to furnish the tenants with heat, and perhaps other utilities, and provide the tenants with the right to quiet enjoyment of the leased premises, while a tenant continues to be bound by its own prior obligations, which may include, for instance, not keeping pets on the premises, not acting disorderly, and not otherwise interfering with the other tenants' rights to quiet enjoyment. Cf. Trust Co. of New Jersey v. Doherty, 117 N.J.L. 433, 435, 189 A. 54 (E. & A.1937) (when tenant holds over with consent of landlord, tenancy presumed to be upon same terms as original lease); Center Ave. Realty, supra, 264 N.J.Super. at 348, 624 A.2d 996 (when tenancy for stated term of year or more converted to month-to-month tenancy by reason of expiration of written lease, holdover tenant subject to terms and conditions of written lease other than its durational term); Heyman v. Bishop, 15 N.J.Super. 266, 269, 83 A.2d 344 (App.Div.1951) (holdover tenant on same terms as original lease); but cf. Sheild v. Welch, 4 N.J. 563, 568, 73 A.2d 536 (1950) (month-to-month tenancy created at expiration of one-year lease not a renewal or extension of one year term and sales commission provision of one-year *108 lease collateral and not enforceable after lease expired).
Under the facts here, the remaining term of the old tenancy, which required the tenants to deliver possession to the landlord by December 31, 2002, was not abrogated by the rent increase. The notice of the rent increase the landlord provided to the tenants specifically informed them that the term of the new tenancy would continue to be month-to-month "until November 1, 2002," when "the building will be permanently retired from residential use pursuant to N.J.S.A. 2A:18-61.1(h). You were given notice of this on May 1, 2001." Thus, when the tenants held over and accepted the new tenancy, they were aware that the new tenancy, although month-to-month, would terminate on November 1, 2002, later extended to December 31, 2002, and they continued in possession subject to this condition. Just as certain obligations implicit in the old tenancy continued to be applicable to the new tenancy, this restriction in the tenants' right to continue to indefinitely occupy the landlord's property also remained effective under the new tenancy.
Although we have uncovered no case directly addressing this issue, our analysis in Bradley, supra, 132 N.J.Super. 429, 334 A.2d 61, is instructive. With the intent to live in the home with his wife and five children, the plaintiff purchased a two-family dwelling in West Orange. Id. at 431, 334 A.2d 61. The defendant lived in one unit with his mother and another tenant lived in the other. Ibid. Because the Act excludes from its coverage owner-occupied dwellings with no more than two rental units, N.J.S.A. 2A:18-61.1, the issue was whether the dwelling was automatically exempt from the Act because the plaintiff intended to take personal occupancy of the premises, or, whether the plaintiff would have to wait to take occupancy for the occurrence of a "good cause" situation as defined under the Act. Id. at 432-33, 334 A.2d 61. We concluded that "one who purchases a two-family premises for the express purpose of immediately residing therein renders the premises `owner-occupied' within the meaning and intendment of that phrase as used in N.J.S.A. 2A:18-61.1." Id. at 434, 334 A.2d 61. We reasoned that even though the statute was silent on the issue, the Legislature could not "reasonably be deemed to have intended that such a purchaser [would be] precluded from [taking possession of the premises] except upon permanently retiring the newly purchased premises from the rental housing market [pursuant to N.J.S.A. 2A:18-61.1(h)], or running the risk and vagaries of a not `unconscionable rent increase' [pursuant to N.J.S.A. 2A:18-61.1(f)], or waiting for a `good cause' situation to arise." Id. at 433-34, 334 A.2d 61.
We apply a similar analysis here. Although the Act is silent on the issue, we can conceive of no reason why the Legislature would have intended to preclude a landlord from receiving a rent increase to which it was otherwise entitled simply because it had previously notified the tenants it would be removing the premises from the residential market in eighteen months. A purpose of a notice to quit is to give a tenant time "to decide whether to accept changes in the rental terms or to seek alternate living arrangements." Harry's Village, supra, 89 N.J. at 584, 446 A.2d 862. It "assures tenants of time to consent to changes in their tenancy and protects them from arbitrary, unilateral changes imposed by landlords." Ibid. Nothing in the landlord's January 25, 2002 notice of a rent increase undermined these goals. The 1.8% rent increase was not imposed to force the tenants to surrender possession of the property prior to the expiration of the eighteen-month notification *109 period. The notice of rent increase did not reduce the time previously afforded to the tenants to adjust their affairs and find new housing before the building would be retired from residential use; significantly, the notice, in bold print, reminded the tenants that although they would continue to be month-to-month tenants, they would still need to vacate the property by November 1, 2002. The intent of the Actto protect the tenants against arbitrary, unilateral action by the landlordwas not adversely affected.
Conversely, a landlord should not be required to secure a rent increase to which it is otherwise entitled only in return for giving up the right to enforce a previously served notice to remove the property from the residential housing market by a certain date. Such a policy would dissuade a landlord, when in a position to do so, from giving a tenant more than the minimum eighteen months notice when it intends to remove a property from the housing market. Additionally, should the landlord be denied its right to an otherwise permissible increase, an argument could be made that the landlord was being required to subsidize the housing needs of its tenants, which could be subject to a constitutional challenge as not providing the landlord the ability to obtain a "just and reasonable" return on its investment. See Helmsley v. Borough of Fort Lee, 78 N.J. 200, 223, 394 A.2d 65 (1978), clarified by 82 N.J. 128, 411 A.2d 203 (1980); Troy Hills Village v. Township Council of the Township of Parsippany-Troy Hills, 68 N.J. 604, 620, 629, 350 A.2d 34 (1975). Neither of these alternatives is sound public policy.
Defendants point out that the Legislature permits landlords to request rent increases during the three-year notice period when converting a rental unit to a condominium pursuant to N.J.S.A. 2A:18-61.31, and argues that if the Legislature had intended to allow a rent increase to be requested under N.J.S.A. 2A:18-61.1(h), it could have done so. Although that argument has some facial appeal, this principle, generally referred to as the expressio unius doctrine, "is merely an aid in determining legislative intent, not a rule of law" and is applied with "great caution." Allstate Ins. Co. v. Malec, 104 N.J. 1, 8, 514 A.2d 832 (1986). Consequently, in exercising this caution, we chose not to apply it in the context of this case. Rather, we are guided by a corollary axiomthat it is "unrealistic to assume that whenever the legislature passes a statute it has in mind all prior acts relating to the same subject matter." 2A Sutherland, supra, § 51.01.
Doing so, we are not persuaded that simply because the Legislature expressly gave a landlord who chose to convert its property to a condominium form of ownership the right to seek a rent increase during the three-year notice period, by implication the Legislature did not intend to provide a landlord seeking to remove a property from the residential housing market with the same right. As we noted previously, the Act, being in derogation of a landlord's common law rights, must be construed strictly. And the language of the Act does not preclude a landlord from seeking a rent increase during the statutory eighteen-month notice period. To construe the Act as did the trial court, would create restrictions on a landlord's rights to its property beyond those imposed by the Legislature. We should enforce the Act as written, and not supply a provision not included by the Legislature. See Stamboulos, supra, 134 N.J.Super. at 573, 342 A.2d 529.
In summary, we disagree with the court's interpretation of the effects of the new tenancies created when defendants held over at an increased rent. We are satisfied that the holdover tenancies *110 were limited in term by the original eighteen-month notice to quit, as extended to December 31, 2002. Accordingly, the decision of the Law Division is reversed.
Because the date for the tenants to vacate the property has passed, we remand to the Law Division to fix a date for plaintiff to take possession of the property. If the court deems it necessary, it may hold a plenary hearing to determine a reasonable time for the tenants to relocate. The Law Division shall render its decision no later than forty-five days from the date of this opinion.
Reversed and remanded. We do not retain jurisdiction.
NOTES
[1] Plaintiff also notified the Department of Community Affairs and the local rent control board. See N.J.S.A. 2A:18-61.1c and61.1d; Sacks Realty Co. v. Batch, 248 N.J.Super. 424, 425, 591 A.2d 660 (App.Div.1991).
[2] On October 25, 2001, plaintiff, in error, mailed another notice to the tenants, to terminate the tenancies as of November 30, 2001. No tenant vacated the premises, nor did plaintiff take any action to remove any of the tenants, based on this notice.
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991 S.W.2d 30 (1998)
In the Matter of the MARRIAGE OF Donald Ray RICHARDS and Teresa Jean Richards.
No. 07-98-0038-CV.
Court of Appeals of Texas, Amarillo.
July 15, 1998.
David Moody, Lubbock, for appellant.
Mark E. Fesmire, Lubbock, for appellee.
Before BOYD, C.J., and DODSON and REAVIS, JJ.
ON MOTION TO REVIEW APPEAL BOND
PER CURIAM.
By motion filed pursuant to Texas Rule of Appellate Procedure 24.4, appellant Teresa Jean Richards (Teresa) asks us to review an appeal bond set by the trial court.
The underlying appeal arises from a divorce decree rendered by the trial court on January 23, 1998. That decree dissolved the parties' marriage and divided the community estate. The decree did not provide for any payment of cash or transfer of tangible property in the possession of one party to the other. Teresa gave notice of appeal from the decree on February 5, 1998.
Shortly after Teresa's notice of appeal, Donald Ray Richards (Donald) filed a motion asking the trial court to set an appeal bond. In his motion, Donald alleged the appeal "was not made in good faith nor warranted by a good faith argument for extension, modification or reversal of existing law." He also asserted the appeal would leave him "in marital limbo, neither married nor divorced" and, without stating any basis, he estimated that being in that state would damage him in the amount of *31 $20,000. Citing Texas Rule of Appellate Procedure 24.2(a)(3), Donald requested an appeal bond in the amount of $24,150 be set by the trial court. Teresa responded by alleging Donald's motion had no basis in law or by extension of existing law and seeking sanctions pursuant to Chapter 10 of the Civil Practices and Remedies Code.
The trial court heard both motions on March 6, 1988 and, as a result of the hearing, set a "cost bond" in the amount of $2,000. When queried as to what the bond would cover, the court's response was that it was for "the cost of the record on appeal, the transcript, paying the court reporter, and all that stuff." The court declined to rule upon Teresa's motion for sanctions. In our review, Teresa asks us to declare the court's order setting the cost bond invalid and to grant her motion seeking sanctions.
Prior to September 1, 1997, Texas Rule of Appellate Procedure 46 required most appellants in civil cases to post a cost bond of $1,000 or another amount if required to do so by the trial court. The purpose of this bond was to pay costs incurred by the appellee if the appeal was unsuccessful. Rule 47 of the former rules permitted an appellant to suspend the appellee's execution on the trial court's judgment by filing a bond in the amount of any money judgment, in an amount equal to the value of a judgment for property or in an amount set by the trial court of other types of judgment.
However, effective September 1, 1997, extensive changes were made in the Rules of Appellate Procedure. Under the new rules, the cost bond provisions of old Rule 46 were abandoned and under the new rules, no cost bond is required to perfect an appeal, nor do the current rules authorize the imposition of a cost bond on appeal.
The provisions of former Rule 47 were carried forward in present Rule 24 and Donald argues that the bond set by the trial court was authorized by Rule 24. Specifically, he cites Rule 24.2(a)(3), which provides that when a judgment is for something other than money or an interest in property "the trial court must set out the amount and type of security that the judgment debtor must post. The security must adequately protect the judgment creditor against loss or damage that the appeal might cause." Tex.R.App. P. 24.2(a)(3) (emphasis added).
The plain language of the rule reveals its inapplicability. We initially note that the title of the rule is "Suspension of Enforcement of Judgment Pending Appeal in Civil Cases." The rule begins by providing that a "judgment debtor" may supersede the judgment pursuant to the procedure prescribed in the rule. In this case, Donald is not a judgment creditor and Teresa is not a judgment debtor. This is so even as to the assessment of costs because the decree provided that each party was responsible for their own costs. Because Donald did not, indeed could not, presently have a judgment for the costs on appeal, he is not a judgment creditor for those costs.
The trial court's judgment is one declaring the status of the parties and title to specific community property. In its current status, there is nothing upon which Donald could obtain a writ of execution. Moreover, Rule 24 delineates the three events under which a surety on a bond issued pursuant to the rule would be liable. They are: 1) when the debtor does not perfect an appeal or the appeal is dismissed and the debtor does not perform the trial court's judgment; 2) the debtor does not perform an adverse judgment that becomes final on appeal; or 3) if the judgment is for an interest in property and the debtor does not pay the creditor the rent or revenue value of the property during the pendency of the appeal. In the type of judgment before us which simply declares the status of the parties and divided community property, there was no judgment for Teresa to perform. Consequently, the bond could never become payable *32 and its attempted imposition is an exercise in futility.
Our conclusion is supported by older authority holding that when supersedeas is not available because the decree is declaratory, such as a divorce judgment, the common law rule that the judgment is suspended when the appeal is perfected is applicable. Cooper v. Decker, 21 S.W.2d 70, 71 (Tex.Civ.App.Dallas 1929, no writ). It is also worth notice that even if supersedeas was available, a holding we specifically do not make, Teresa's failure to provide a bond in conformity with the order would have no effect on her right to appeal. The only effect of a party's failure to provide a Rule 24 bond is that the other party may attempt to execute on the trial court's judgment. When, as here, the judgment merely approves a property division agreement entered into by both parties and does not provide for the recovery of money or property in the possession of the other party, there really is nothing for Donald to execute nor is there any reason Teresa would have any need to supersede an attempt by Donald to execute on the divorce decree. For the reasons we have stated, the order requiring the bond in question was not authorized. Thus, the order must be, and is, hereby reversed.
Teresa also asks us to grant her motion for sanctions. As we have noted, she seeks those sanctions pursuant to Chapter 10 of the Civil Practice and Remedies Code. Tex. Civ. Prac. & Rem.Code § 10.001-006 (Vernon Supp.1998). In relevant part, section 10.001 of that statute provides that the signing of a pleading or motion by a signatory constitutes a certificate that to the signatory's best knowledge and belief after reasonable inquiry, each claim in the motion is warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law. A court is authorized by section 10.004 to impose sanctions when pleadings or motions are signed in violation of section 10.001. In seeking imposition of sanctions, Teresa contends that Donald's motion for an appeal bond amounted to a violation of the statute.
As we have discussed, a cost bond such as that sought by Donald is not authorized by the Rules of Appellate Procedure. In deciding whether Donald's action in seeking such a bond deserves the imposition of sanctions, we are mindful of the fact that the motion was granted by the trial court. In view of that action, we cannot say that Donald's belief that such a bond was properly available was so unreasonable as to merit the imposition of sanctions. Teresa's request for sanctions is overruled.
In summary, the trial court's order requiring a cost bond is reversed, the bond voided and any sureties on the bond released from liability.
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839 A.2d 914 (2004)
365 N.J. Super. 472
A.H. ROBINS COMPANY, INC., a Delaware Corporation, Plaintiff-Appellant,
v.
DIRECTOR, DIVISION OF TAXATION, Defendant-Respondent.
Superior Court of New Jersey, Appellate Division.
Argued December 10, 2003.[1]
Decided January 12, 2004.
*916 Charles M. Costenbader and Michael A. Guariglia, Newark, argued the cause for appellant (McCarter & English, attorneys; Mr. Costenbader, of counsel; Mr. Costenbader and Margaret C. Wilson, on the briefs).
Margaret A. Holland and Mala Narayanan, Deputy Attorneys General, argued the cause for respondent (Peter C. Harvey, Attorney General, attorney; Patrick DeAlmeida, Deputy Attorney General, of counsel; Ms. Holland and Ms. Narayanan, on the briefs).
Before Judges STERN, A.A. RODRIGUEZ and KIMMELMAN.
*915 The opinion of the court was delivered by STERN, P.J.A.D.
Plaintiff A.H. Robins Co., Inc. ("new Robins" or "Robins II"), successor through merger and bankruptcy reorganization of A.H. Robins Inc. ("old Robins" or "Robins I"), appeals from the Tax Court's order of February 25, 2002, granting summary judgment to defendant, Director of the Division of Taxation, and dismissing plaintiff's claims for the refund of "net operating losses" ("NOLs") that were transferred to plaintiff from the predecessor corporation as part of the bankruptcy reorganization. See A.H. Robins Company, Inc. v. Director, Division of Taxation, 20 N.J. Tax 338 (2002). Plaintiff argues that it is entitled to the NOLs for the period 1989-1994 because (1) it was "created solely to reorganize Robins I and neither changed the Robins I line of business nor brought with it any business of its own," and (2) this was a "single entity bankruptcy reorganization" and, therefore, the Supreme Court's opinion in Richard's Auto City Inc. v. Director, Division of Taxation, 140 N.J. 523, 659 A.2d 1360 (1995), and its interpretation of the regulation involved in that case, N.J.A.C. 18:7-5.13, do not apply here. Plaintiff also argues that the regulation of state tax law cannot preclude use of the net loss carryover because "the Bankruptcy Court ... already determined what had been the central issue in Richard'swhether New Jersey law would allow the transfer of NOLs from a company merged out of existence to the merger survivor," and ordered that the NOLs be transferred to the new Robins.
In its original brief filed on this appeal, plaintiff specifically argued that Richard's Auto City "did not address a single entity bankruptcy reorganization" and that "N.J.A.C. 18:7-5.13(b) is invalid here," and that "the Tax Court's decision contravenes the Bankruptcy Court's prior plan and order."[2] The defendant Director responded *917 by indicating that Richard's Auto City held that the survivor of a corporate merger may not utilize the pre-merger net operating losses of the merged corporation and that the regulation is applicable here notwithstanding the Bankruptcy Court order, that "there is no preemption because there is nothing in the Bankruptcy Code which explicitly or inferentially indicates a Congressional intent to preempt State tax laws after a reorganization has been concluded, nor does the disallowance of the NOLs conflict with the purpose of the Bankruptcy Code."[3] Moreover, defendant Director insisted that the Bankruptcy Court expressly declined to pass upon state tax court implications of the merger and left that to the state courts. See In re A.H. Robins Co., Inc., 251 B.R. 312, 321-22 (Bankr.E.D.Va.2000). In any event, the defendant argued that the reorganization plan, approved by the Bankruptcy Court, did not address state (as opposed to federal) use of the net operating losses and that New Jersey had no obligation to participate in the bankruptcy proceedings in order to challenge a plan which did not purport to affect the impact of NOLs under state law.[4]
While this appeal was pending, we granted plaintiff's motion to remand the matter to the Tax Court for reconsideration after adoption of the Business Tax Reform Act ("BTRA"), P.L. 2002, c. 40, which was enacted and became effective on July 2, 2002. On the remand, the Tax Court found that the adoption of N.J.S.A. 54:10A-4.5, as part of the BTRA, "merely codifies that which was the applicable law set forth under N.J.S.A. 54:10A-4(k)(6), as specifically described by the Supreme Court in Richard's Auto City ... and [as] interpreted in N.J.A.C. 18:7-5.13(b)," and made no change to New Jersey law regarding the carryover of NOLs.
In its remand opinion of May 21, 2003, the Tax Court restated and adhered to its original holding:
This court determined that the appellant (taxpayer) was not entitled to carry over net operating losses (NOL) for the following reasons: 1) nowhere in New Jersey law does it state that NOL carryovers may be utilized when they emanate from a merged corporation; 2) there is nothing in the United States Bankruptcy Code that indicates a Congressional intent to preempt state taxing statutes with regard to post-reorganization income tax liabilities of a nondebtor entity; 3) the case at bar does not fit under the Bankruptcy Code's exemption provided in 11 U.S.C. § 1446(d) that certain transfers made pursuant to a reorganization would be exempt from state taxation; and 4) the Director's regulation, N.J.A.C. 18:7-5.13(b), and the New Jersey Supreme Court's holding in Richard's Auto City Inc. v. Director, Division of Taxation, 140 N.J. 523, 659 A.2d 1360 (1995), prohibit the *918 carryover of NOL for use by a corporation other than the corporation which incurred the losses.
In the remand opinion, the Tax Court supplemented its original order by additionally holding that, because the new statute, N.J.S.A. 54:10A-4.5, merely "restates existing law," and "is not retroactive," its application is not unconstitutional as applied in this case. For this reason, the court rejected the "due process" and "separation of powers" argument. The court further concluded there was a "rational basis" "to codify existing law" and "to limit NOL carryovers" even if the statute is retroactive. The court also concluded the new Act was not "directed at the plaintiff or other similarly situated taxpayers, and, therefore, is not special legislation" or violative of the "separation of powers" doctrine. The Tax Court therefore adhered to its original order granting summary judgment and dismissing the complaint.
In its supplemental brief to us, plaintiff relies on its original arguments and further contends "that the Tax Court erred in failing to hold that: (1) the retroactive enactment of NOL legislation is unconstitutional; (2) the retroactive amendment of the law applicable to this case evidences that prior law did not support defendant's flawed position and (3) plaintiff must be permitted to conduct discovery into the intent of the New Jersey Legislature in adopting retroactive changes to the NOL law."
The plaintiff acknowledges that it cannot prevail if the new BTRA controls, which it says "contains a completely new prohibition on the carryover of NOLs following reorganizations." Plaintiff asserts that section 33 of the BTRA makes section 27 retroactive to affect this case and that "the 18 year retroactivity provision found in section 33 must be excised from the BTRA, and section 27 applied prospectively only." On the premise that the new BTRA is unconstitutional or is otherwise inapplicable, plaintiff asserts that the prior statute, N.J.S.A. 54:10A-4(k)(6)(D), did not prohibit NOL carryovers by a surviving corporation following a merger, and that the regulation, which is still in effect,[5] cannot be deemed applicable or dispositive to prevent them here because here, unlike in Richard's Auto City, the plaintiff did not change the business of Robins I which suffered the NOLs. Generally stated, under N.J.S.A. 54:10A-4(k)(6)(D), there could be no NOL carryover when there was a change in more than 50% of the corporate ownership by sale or redemption of stock and "the corporation changes the trade or business giving rise to the loss" or "the corporation was acquired ... for the primary purpose of the use of its net operating loss carryover." According to plaintiff, the new statute cannot be applied here, the old statute permitted the NOL carryover, and the regulations cannot be utilized to limit or prevent application of the former statute in effect for the tax years in question.
I.
Chapter 40 of the Laws of 2002, the BTRA, amended the Corporation Business Tax Act ("CBTA"). Section 33 of the BTRA provides that the Act "shall take effect immediately and apply to privilege periods and taxable years beginning on or after January 1, 2002, provided however that section 26 shall apply to privilege periods ending after June 30, 1984." See *919 P.L. 2002, c. 40, § 33; 2002 Session Law Service at 203. While section 33 refers only to section 26 in terms of retroactivity, and not to section 27, which became N.J.S.A. 54:10A-4.5, the parties refer to the legislative history and, in any event, agree that section 27 was made retroactive. In light of the language of section 27, N.J.S.A. 54:10A-4.5, there can be no doubt of that fact.[6] That section, which was added to the CBTA, provides:
Notwithstanding any provision of subsection (k) of section 4 of P.L.1945, c. 162 (C.54:10A-4) or of the federal Internal Revenue Code, including but not limited to 26 U.S.C. s.381 or any successor or equivalent provision, that permits a corporation to use the net operating losses of another for federal income tax purposes following certain transactions, including but not limited to those qualifying as reorganizations under the provisions of subparagraphs (A), (C), (D), (F) or (G) of paragraph (1) of subsection (a) of section 368 of the federal Internal Revenue Code, 26 U.S.C. s.368, a net operating loss for a privilege period ending after June 30, 1984, may be carried over and allowed as a deduction only by the corporation that sustained the loss; provided however, that in the case of a merger of two or more corporations pursuant to statute of this State or any other jurisdiction, the net operating loss may be carried over only by the corporation that sustained the loss and that is also the surviving corporation following the merger. The net operating loss may not be carried over by a taxpayer that changes its state of incorporation. No net operating loss shall be allowed as a deduction by a corporation resulting from a consolidation pursuant to statute of this State or of any other jurisdiction.
It is clear that the statute is modeled after N.J.A.C. 18:7-5.13(b) which provides:
[T]he net operating loss may only be carried over by the actual corporation that sustained the loss. The net operating loss may, however, be carried over by the corporation that sustained the loss and which is the surviving corporation of a statutory merger. The net operating loss may not be carried over by a taxpayer that changes its state of incorporation or is a part of a statutory consolidation. Section 4(k) of the Act defines entire net income in terms of a specific corporate franchise.
II.
We agree with the Tax Court's disposition of the Supremacy Clausepreemption issue, substantially for the reasons expressed in Judge Roger Kahn's opinion of February 21, 2002. A.H. Robins Co., Inc., supra, 20 N.J. Tax at 344-48. We recognize that the Tax Court made no detailed analysis of the plan of reorganization and that the Robins Bankruptcy Court has noted that "the interpretation and application of State Tax laws" "must be determined by the State courts," and that, after so doing, "it will be necessary for those courts to assess whether their respective interpretations of State tax laws, as applied to the NOL, are in conflict with the property rights which Robins II obtained under the Plan and Confirmation Order." The Bankruptcy Court, upheld by the District Court, further stated that the interpretation and application of State law may ultimately "be appealed to the Supreme Court of the United States," because of the federal jurisdiction "to review *920 the decision of the State taxing authorities to determine whether, in applying State tax law, the taxing authorities properly deferred to the now-incontestable results of the Confirmation Orders and the Plan." In re A.H. Robins Co., Inc., supra, 251 B.R. at 321-22. We are satisfied that the Tax Court's analysis of the Supremacy Clause and preemption issues recognized its proper obligation.
We therefore must decide the state tax law issue involved in this dispute.
III.
There is much merit in the Tax Court's original disposition of the matter under Richard's Auto City and N.J.A.C. 18:7-5.13(b), and notwithstanding the contest as to their application on the merits, there is no dispute that the case can be disposed by reference to them if the new statute would be unconstitutional if applied retroactively or is read to be prospective only. However, the parties agree that if the statute can constitutionally be applied retroactively, the contest will come to an end on statutory grounds, and that other cases await the result. Moreover, the parties also appear to agree that, unless unconstitutional, that statute is now dispositive. Therefore, and because contests on returns now being prepared and processed should be kept to a minimum, and some finality brought to the issue which can affect carryovers on returns for the next several years, we address the statutory issue.[7]
As already developed, the "BTRA" added a new provision to the CBTA, N.J.S.A. 54:10A-4.5, regarding the deduction of net loss carryovers for privilege periods or tax years after June 30, 1984, a subject previously limited by the regulation, N.J.A.C. 18:7-5.13(b). The first question is whether the new statute and the old regulation are consistent, because if they are, there would be no retroactive change in the law as a result of the new statute, thereby avoiding a question of the constitutionality in terms of its retroactive application to losses which accrued prior to the new enactment. A related question, therefore, is whether Richard's Auto City controls the interpretation of the regulation as related to the facts of this case because of its impact on the question of retroactivity.
We reject the constitutional attack on N.J.S.A. 54:10A-4.5 and its application to the order under review in this case, substantially for the reasons expressed by Judge Kahn in his unpublished opinion on the remand proceedings we ordered following adoption of the BTRA, and for the reasons developed herein.
"A statute does not operate `retrospectively' merely because it is applied in a case arising from conduct antedating the statute's enactment ... or upsets expectations based in prior law." Landgraf v. USI Film Products, 511 U.S. 244, 269, 114 S.Ct. 1483, 1499, 128 L.Ed.2d 229, 254-55 (1994). "Rather, the court must ask whether the new provision attaches new legal consequences to event completed before its enactment." Id., 511 U.S. at 269-70, 114 S.Ct. at 1499, 128 L.Ed.2d at 254-55. If so, statutes with retroactive provisions are subject to scrutiny under the due process clause of the Fourteenth Amendment and Article I, par. 1 of the New Jersey Constitution, and can be enforced only if supported by a "rational basis." Nobrega v. Edison Glen Associates, 167 *921 N.J. 520, 539, 544, 772 A.2d 368 (2001). Independently, we must determine "[w]hether the affected party relied, to his or her prejudice, on the law that is now to be changed as a result of the retroactive application of the statute, and whether the consequences of this reliance are so deleterious and irrevocable that it would be unfair to apply the statute retroactively". Gibbons v. Gibbons, 86 N.J. 515, 523-24, 432 A.2d 80 (1981). See also Nobrega, supra, 167 N.J. at 536, 545-46, 772 A.2d 368 (applying the "manifest injustice" standard); Edgewater Inv. Assoc. v. Borough of Edgewater, 103 N.J. 227, 239, 510 A.2d 1178 (1986) (analyzing the statute under the "manifest injustice" standard).
In Richard's Auto City, the Supreme Court held that because N.J.A.C. 18:5-7.13(b), adopted effective February 3, 1986, was consistent with the provisions of the governing statute, N.J.S.A. 54:10A-4(k)(6), as it provided from the time of adoption in 1985, see 140 N.J. at 529, 659 A. 2d 1360, "the regulation applie[d] retroactively to the effective date of the statute" and applied to any tax year commencing after June 30, 1984. Id. at 543, 659 A.2d 1360. Hence, from the effective date of the statute, April 22, 1985 (see id. at 533, 659 A.2d 1360), net operating loss carryovers could be taken only "by the actual corporation that sustained the loss" and not, independently, by one that, as here, "changes its state of incorporation." Id. at 529-30, 659 A.2d 1360; N.J.A.C. 18:7-5.3(b). While we recognize, as Robins argues, that Richard's Auto City did not expressly consider the state of incorporation provision of the regulation, we can find nothing in that opinion to suggest that portion of the regulation would be invalid. Moreover, we can find nothing in Richard's Auto City, in which two separate entities were merged and the survivor corporation was not the one that had sustained the pre-merger losses, to suggest, as does Robins, that the result would be different where only one entity existed before the merger or reorganization, and the survivor, a new entity, continued the business of the former corporation.[8]
The CBTA, as amended by N.J.S.A. 54:10A-4.5 in 2002, therefore codifies the same rule that applied since the adoption of N.J.S.A. 54:10A-4(k)(6) in 1985. There is no substantive difference in any of the language, and so long as the interpretation is consistent, there is no legitimate issue of retroactivity which flows from the adoption and application of the amended statute. Hence, there is no constitutional or due process concern.
Moreover, there is no "vested right" in the old law and no due process problem on that ground, given the "rational basis" for any retroactive application, Nobrega, supra, 167 N.J. at 544, 772 A.2d 368; Phillips v. Curiale, 128 N.J. 608, 620, 608 A.2d 895 (1992); Greenberg v. Kimmelman, 99 N.J. 552, 563-70, 494 A.2d 294 (1985), and the regulation in effect during the time of the bankruptcy proceedings which commenced in 1985,[9] when New *922 Robins was incorporated in 1987, when the bankruptcy plan was approved in 1988, and on the effective date of the reorganization in 1989, see A.H. Robins Co., Inc., supra, 20 N.J. Tax at 341, 348, provided notice of the impact of New Jersey law. See Richard's Auto City, supra, 140 N.J. at 543, 659 A.2d 1360.
Nor can N.J.S.A. 54:10A-4.5 be deemed special legislation in violation of art. IV, section 7 par. 9 of the New Jersey Constitution or a violation of the separation of powers clause. N.J. Const., art. III, § 1; Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 224-27, 115 S.Ct. 1447, 1455-57, 131 L.Ed.2d 328 345-47 (1995); Newark Superior Officers Ass'n v. Newark, 98 N.J. 212, 222-26, 486 A.2d 305 (1985); Vreeland v. Byrne, 72 N.J. 292, 298-301, 370 A.2d 825 (1977). The statute applies to all corporations which seek to carryover net operating losses and not merely to plaintiff and the other corporations whose cases were before the courts at the time of adoption, including those corporations whose appeals have been stayed pending this appeal. Moreover, particularly given the impact of the regulation interpreted in Richard's Auto City and employed by the Tax Court in this case, it is hard to accept an argument that the statute, enacted over four months after the Tax Court's adverse decision, was designed to affect this case. See Nobrega, supra, 167 N.J. at 538-39, 772 A.2d 368.
IV.
The judgment of the Tax Court is affirmed.
NOTES
[1] The appeal was originally submitted on November 5, 2003. However, we subsequently granted a late request for oral argument based on a reasonable misunderstanding that the matter would be listed for argument after the remand proceedings were completed. However, requests for argument must be filed pursuant to R. 2:11-1(b).
[2] Plaintiff also argued that "the Director's concession [in the Tax Court] that the Robins I NOLs were transferred to Robins II leaves no basis for denying deductibility." The Director asserts that the concession was for purposes of the summary judgment motion and recognizes that the NOLs were transferred to Robins II and did become its property. See In Re A.H. Robins Co., Inc., 251 B.R. 312, 314-15, 321 (Bankr.E.D.Va.2000). However, that is a different issue than deductibility of the NOLs for state tax purposes, notwithstanding that N.J.S.A. 54:10A-4.5 and N.J.A.C. 18:7-5.13(b) both talk in terms of "carryover," and not deductibility, which they obviously address as tax laws. In any event, there was no material concession as evidenced by the ongoing litigation.
[3] For present purposes, we disagree with the Director's suggestion that New Jersey's entire controversy doctrine can be used in New Jersey to avoid what may be required under the Supremacy Clause if it is required in light of the bankruptcy law and/or order of the Bankruptcy Court.
[4] Although the Director did not appear in the Bankruptcy Court to challenge the Plan or Confirmation Order, the Director or State of New Jersey did appear in proceedings before the Bankruptcy Curt in which Robins II sought a declaration that it was entitled to claim the NOLs on its New Jersey state returns, and successfully moved to dismiss the proceeding on Eleventh Amendmentsubject matter jurisdiction grounds. In re A.H. Robins Co., Inc., supra, 251 B.R. at 314, 321-22.
[5] In its argument before us, Robins II acknowledges that the regulation would control if the new statute were unconstitutional or otherwise could not apply retroactively and, therefore, is inapplicable. It continues to assert, however, that the regulation does not apply to preclude the NOL carryover.
[6] Section 27 became N.J.S.A. 54:10A-4.5. See P.L. 2002, c. 40, § 27; 2002 Session Law Service at 200 n. 27.
[7] We have stayed, at the parties' request, five unbriefed appeals from other decisions of the Tax Court. We have nevertheless been provided with a copy of Judge Harold Kuskin's oral opinion in those cases. While we have had the benefit of that opinion, we cannot cite it as precedent. See R. 1:36-3.
[8] Robins contends that, pursuant to the plan of reorganization, as a "single entity," it is both "the actual corporation that sustained the loss" and the "surviving corporation." See N.J.A.C. 18:7-5.13(b).
[9] As noted, N.J.S.A. 54:10A-4(k)(6) became effective on April 22, 1985, see Richard's Auto City, supra, 140 N.J. at 533, 659 A.2d 1360, prior to filing of the bankruptcy complaint on August 21, 1985. However, we do not suggest that date is material, notwithstanding Richard's Auto City holding on retroactivity, because the Bankruptcy Court did not confirm the plan until March 28, 1988, the plan implemented the merger agreement dated March 21, 1988, and the merger did not take effect until December 15, 1989, all after adoption of the regulation in 1986. See A.H. Robins Co., Inc., supra, 20 N.J. Tax at 341, 348.
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424 A.2d 301 (1980)
Bruce DONOPHAN, Defendant, Appellant,
v.
STATE of Delaware, Plaintiff, Appellee.
Supreme Court of Delaware.
Submitted June 9, 1980.
Decided September 23, 1980.
Supplemental Order December 11, 1980.
Dennis A. Reardon, Dover, for defendant-appellant.
Dana C. Reed, Deputy Atty. Gen., Dover, for plaintiff-appellee.
Before HERRMANN, C. J., DUFFY and QUILLEN, JJ.
*302 DUFFY, Justice:
This is an appeal by Bruce Donophan (defendant) from Superior Court convictions following a non-jury trial on charges of Theft, 11 Del.C. § 841; Burglary in the Second Degree, 11 Del.C. § 825; Possession of a Deadly Weapon by a Convicted Felon, 11 Del.C. § 1448; and Possession of a Deadly Weapon During the Commission of a Felony, 11 Del.C. § 1447.
I
The pertinent facts are these:
Alan Hunn reported to the Delaware State Police that his home had been burglarized and that a collection of thirteen guns, eleven of which were antiques, was missing. The next day, Detective Kane of the Delaware State Police informed State Detective Brown that he had recovered a .22 caliber Great Western pistol and a .22 caliber Sears Roebuck and Co. rifle, both of which he believed might be from the Hunn collection. Thereafter, Police Detective Schueler delivered those two weapons to Detective Brown. Some seven weeks later, defendant was arrested[1] and taken to a State Police station where, in response to police questioning, he admitted burglarizing the Hunn residence and stealing the gun collection.
Both before defendant's arrest and again at trial when the weapons were introduced into evidence, Mr. Hunn identified the Great Western pistol and the Sears rifle as guns from his collection. At trial, evidence was also admitted that, although unloaded at the time of the crimes, each weapon was capable of firing a shot on the day of trial and on the day it was stolen from Mr. Hunn's home.
After sentencing, defendant docketed this appeal.
II
Defendant makes four arguments which we consider seriatim.
A.
First, defendant asserts that the Trial Court erred in denying his motion to dismiss the charge of possession of a deadly weapon by a convicted felon.[2] An essential element of § 1448 is that the person charged had been previously "convicted" of a felony. Donophan argues that the State attempted to introduce into evidence a record showing that he had been "sentenced" for the crime of Burglary in the Second Degree and, continues defendant, that does *303 not comply with the statutory requirement of a prior "conviction." Cf. State v. Robinson, Del.Supr., 251 A.2d 552 (1969).
Our review of the record indicates that the following events occurred at trial: the State offered into evidence court records showing that defendant "had been convicted of Burglary in the Second Degree"; defendant objected on the ground that the record showed that he had been sentenced for that offense but did not show a "conviction," as required by § 1448; argument was heard on the admissibility issue and the Court then reserved "decision on it since this is a nonjury matter." Thereafter, the Court filed a letter opinion finding defendant guilty "on all charges." But we are unable to find any ruling by the Court on the evidence issue.
Counsel have not been heard on this issue, which must be resolved before we address defendant's arguments as to whether proof of a sentencing meets the requirements of § 1448. For that reason, decision is reserved on defendant's first contention and counsel will be given an opportunity to supplement their respective briefs.
B.
Turning now to defendant's second argument, he says that it was error to admit the two weapons into evidence because the State failed to establish a proper chain of custody. Specifically, defendant says that the State did not fully account for the whereabouts of the weapons from the time they came into police possession to the time they were introduced into evidence.
Clough v. State, Del.Supr., 295 A.2d 729 (1972), is dispositive of the chain-of-custody issue. In Clough, this Court concluded that "[t]he test is reasonable probability that no tampering occurred," and we noted that even if adequate safeguards had not been used, an item would be admitted "in the absence of evidence tending to show tampering." Id. at 730. See also Tatman v. State, Del.Supr., 314 A.2d 417 (1973), and Goldsmith v. State, Del.Supr., 405 A.2d 109 (1979). Thus, defendant's argument is not persuasive because there was no evidence of tampering to rebut Mr. Hunn's identification of the guns at trial.
We hold that the State met its burden under Clough and sufficiently established a proper chain of custody. It follows that the Trial Judge did not err in admitting the weapons into evidence.
C.
Defendant's third contention is that the Trial Judge committed error in not dismissing the charge of possession of a deadly weapon during the commission of a felony[3] because § 1447 is not applicable to the facts in this case. Specifically, he says that the Statute does not apply to possession secured by a theft of the weapon during the burglary.
Donophan argues that the Statute is aimed solely at one who possesses a weapon in order to assist or facilitate the commission of a crime, not to one who carries it away from the crime scene. We find no justification for this narrow interpretation; indeed, a reading of the Statute makes clear that possession[4] alone constitutes the offense when supported by proof of the underlying felony. See Commentary, Delaware Criminal Code (1973), 11 Del.C. § 1447, p. 466. Furthermore, when construing § 468A, the predecessor of § 1447, in Mack v. State, Del.Supr., 312 A.2d 319 (1973),[5] we *304 stated that "[o]ne clear purpose of the Statute is to prevent a `nonviolent' felony from becoming a violent one." Id. at 321. See also Davis v. State, Del.Supr., 400 A.2d 292 (1979). We hold that this principle is equally applicable here. In our view, defendant's possession of the deadly weapons rendered his presence and retreat from the Hunn residence more dangerous to others, a situation clearly contemplated by § 1447.
Defendant next contends that because the guns were not loaded at the time he possessed them, they could not have caused injury if fired, and thus, they were not "deadly weapons" as required by § 1447. A majority of courts, however, in construing a statute directed at the possession rather than the use of deadly weapons, hold that whether the weapon is loaded is immaterial. See Annot., 79 A.L.R. 2d 1412, 1430 (1961). Compare State v. Quail, Del.Gen.Sess., 5 Boyce 310, 92 A. 859 (1914).[6]
A deadly weapon is defined by 11 Del.C. § 222(5), for purposes of our Statute, as "any weapon from which a shot may be discharged ...." That language plainly compels the conclusion that § 222(5) focuses on whether the gun was capable of being fired, rather than on the result if it were fired. Thus, the evidence that the two weapons in defendant's possession were capable of being fired is controlling, not the evidence that they were unloaded. Accordingly, the Trial Judge did not err in refusing to dismiss the charge of possession of a deadly weapon during the commission of a felony.
D.
Finally, Donophan contends that his confession was inadmissible because he was not given the Miranda warnings before he was questioned and because the confession was not voluntary. The State proffered evidence to the contrary, creating issues of fact which the Trial Judge determined in its favor. We hold, on the basis of the record, that this finding is reasonably supported by competent evidence, Fullman v. State, Del. Supr., 389 A.2d 1292, 1297 (1978), and there was no reversible error.
Affirmed in part; decision reserved in part.
SUPPLEMENTAL ORDER
This Eleventh day of December 1980,
It appears to the Court that:
(1) Under date of September 23, 1980, the Court filed an opinion ruling on all issues raised in the appeal except those pertaining to the charge of possession of a deadly weapon by a convicted felony. 11 Del.C. § 1448.
(2) Thereafter, counsel filed letter memoranda on the issue reserved in the opinion.
(3) In the interest of justice, the case should be remanded to the Superior Court so that the Trial Judge may make a ruling on the documents which were offered into evidence and on any other issue related thereto.
NOW, THEREFORE, IT IS ORDERED as follows:
(1) This case is remanded to the Superior Court so that the Trial Judge may enter upon the record his ruling on the offer in evidence by the State of Court records showing that defendant "had been convicted of Burglary in the Second Degree"; the Superior Court shall also consider the relevance, if any, of State v. Robinson, Del.Super., 251 A.2d 552 (1968), to the charge.
(2) On remand, the Superior Court is authorized to make any ruling which it deems *305 appropriate and which is not inconsistent with this Court's opinion of September 23, 1980.
(3) Jurisdiction is reserved.
NOTES
[1] Defendant was arrested for a burglary which is not involved in nor connected with the case before us.
[2] The Statute, 11 Del.C. § 1448, states:
"Any person, having been convicted in this State or elsewhere of a felony or a crime of violence involving bodily injury to another, whether or not armed with, or having in his possession any weapon during the commission of such felony or crime of violence, or any person who has ever been committed for a mental disorder to any hospital, mental institution or sanatorium (unless he possesses a certificate of a medical doctor or psychiatrist licensed in this State that he is no longer suffering from a mental disorder which interferes with or handicaps him in the handling of a firearm), or any person who has been convicted for the unlawful use, possession or sale of a narcotic, dangerous drug or central nervous system depressant or stimulant drug as those terms were defined prior to the effective date of the Uniform Controlled Substance Act in January 1973, or of a narcotic drug or controlled substance as defined in Chapter 47 of Title 16, who purchases, owns, possesses or controls any deadly weapon is guilty of a class E felony."
[3] The Statute, 11 Del.C. § 1447, provides in pertinent part:
"(a) A person who is in possession of a deadly weapon during the commission of a felony is guilty of possession of a deadly weapon during commission of a felony."
[4] "Possession" of a deadly weapon for purposes of § 1447 requires a showing that "it is physically available or accessible to [defendant] during the commission of the crime." Mack v. State, Del.Supr., 312 A.2d 319, 322 (1973). See also Canty v. State, Del.Supr., 394 A.2d 215, 216-17 (1978), and Wilson v. State, Del.Supr., 343 A.2d 613, 618 (1975).
[5] In Mack, defendant was convicted of possession of a narcotic drug with intent to sell, 16 Del.C. § 1425 (1972 Supp.), and possession of a deadly weapon during the commission of a felony. Because defendant's gun, which was in a chest of drawers in his bedroom, was available and accessible to defendant while he conducted the unlawful narcotic activity in his apartment, defendant had "possession" within the meaning of the Statute. 312 A.2d at 322.
[6] In Quail, defendant was convicted of unlawfully carrying a concealed deadly weapon. The Court stated:
"The manifest policy and intent of this law is to prevent carrying concealed a revolver or other weapon which may be used for a deadly purpose. We think it quite immaterial whether the revolver be loaded or not, because such an instrument is commonly regarded as a deadly weapon without regard to its condition."
92 A. at 859.
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weaver
IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-91-129-CV
MARK WEAVER AND CITIZENS AGAINST PORNOGRAPHY, INC.,
APPELLANTS
vs.
AIDS SERVICES OF AUSTIN, INC.,
APPELLEE
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 250TH JUDICIAL DISTRICT
NO. 433,683, HONORABLE W. JEANNE MEURER, JUDGE PRESIDING
Mark Weaver and Citizens Against Pornography, Inc. (CAP) challenge a summary
judgment rendered in favor of Aids Services of Austin, Inc. (ASA) in which the trial court ruled
that ASA was not a state actor when it excluded Weaver from its "safer-sex" workshops. The
trial court subsequently issued an injunction permanently barring Weaver and other CAP
members (1) from attending or otherwise interfering with ASA's safer-sex workshops, and from
entering the premises of the Metropolitan Community Church while ASA is occupying the
premises. We will affirm the trial-court judgment.
I. BACKGROUND
ASA is a private, nonprofit corporation created to provide services to people with
AIDS, and to educate both the general public and target groups about AIDS prevention.
Beginning in 1987, ASA contracted with Travis County and the City of Austin to perform a
number of AIDS-education services, as well as public health and welfare services for persons with
AIDS and their families. The contract called for ASA to conduct safer-sex workshops to provide
information on AIDS, to teach safe-sex techniques, and to encourage healthy lifestyles.
Weaver is a well-known and vocal opponent of homosexuality. Because of
concerns that Weaver's presence would discourage others from participating, ASA representatives
contacted Weaver and requested that he not attend the workshops. On November 20, 1987,
Weaver nonetheless tried to attend a safer-sex workshop held at the Metropolitan Community
Church. When Weaver arrived at the church, an ASA representative asked him to leave; Weaver
refused and the representative called the police. A police officer arrived, and asked Weaver to
leave; when Weaver refused, the officer arrested him for criminal trespass. Nothing in the record
suggests that Weaver engaged in any disruptive conduct at the church. Weaver has stated that his
intent was to observe the workshop activities so that he could "inform the general public about
how its public officials were spending public funds."
After his expulsion from the November 20th workshop, Weaver threatened to
attend a workshop scheduled for the following month. Consequently, ASA initiated this
declaratory judgment suit, seeking both a declaration of its rights to exclude Weaver and an
injunction to prevent Weaver from attending future workshops, trespassing on premises where
workshops are being held, publicizing the identities of those attending the workshops, and
otherwise interfering with the workshops. See Uniform Declaratory Judgments Act, Tex. Civ.
Prac. & Rem. Code Ann. §§ 37.001-.011 (1986 & Supp. 1992). Weaver filed a counterclaim
under title 42, sections 1983 and 1988, alleging that by excluding him from the workshops, ASA
violated his federal and state constitutional rights of free speech, assembly, and association under
color of state law. See U.S. Const. amend. I; Tex. Const. art. I, § 8; 42 U.S.C. §§ 1983, 1988
(1988).
The parties filed cross-motions for summary judgment. The district court denied
Weaver's motion and granted ASA's motion, ruling that ASA is a private entity and,
consequently, is entitled to exclude Weaver from its workshops and premises. The trial court also
issued a permanent injunction prohibiting Weaver from further interfering with the workshops or
trespassing on the premises of the Metropolitan Community Church. Finally, the trial court
awarded ASA $37,200 in attorney's fees.
II. DISCUSSION
In his first three points of error, Weaver argues that the trial court erred as a matter
of law (2) in finding insufficient state action and, thus, granting summary judgment for ASA because
(1) the workshop was a limited public forum, (2) ASA and the State were joint participants in
depriving Weaver of his constitutional rights, and (3) the evidence demonstrates that ASA engaged
in state action under the Texas Constitution.
Weaver contends that ASA was so substantially involved with state activity that its
actions in removing him from the safer-sex workshops, having him arrested, and seeking a
restraining order and injunction against him constitute state action for the purposes of
constitutional adjudication. ASA responds that the trial court properly granted summary judgment
in its favor because ASA is a private entity, not a state actor, and consequently was entitled to
exclude Weaver from its workshops. We agree.
"[A] private actor cannot actionably suppress first amendment rights." Albright
v. Longview Police Dept., 884 F.2d 835, 841 (5th Cir. 1989). Because the constitutional
protection of free speech applies only to actions of governmental entities, this Court can grant
Weaver's requested relief only if it finds state action. See Lugar v. Edmondson, 457 U.S. 922,
936 (1982); Flagg Bros. v. Brooks, 436 U.S. 149, 156 (1978). Therefore, we must decide
whether the claimed infringement of Weaver's constitutional rights is fairly attributable to the
State.
Although the United States Supreme Court has not formulated a precise test for
identifying what degree of state involvement is sufficient to convert a private person's conduct into
state action, three lines of state-action doctrine emerge from the Supreme Court cases: the
"symbiotic relationship" doctrine, the "public function" doctrine, and the "nexus theory."
The Supreme Court has applied the "symbiotic relationship" doctrine to cases in
which the government has "so far insinuated itself into a position of interdependence [with the
private entity] that it must be recognized as a joint participant in the challenged activity." Burton
v. Wilmington Parking Auth., 365 U.S. 715, 725 (1961). Under the "public function" doctrine,
when the state entrusts a private individual or group with the performance of functions that are
traditionally governmental in nature, the acts of the individual or group become clothed with state
action. See Flagg Bros. v. Brooks, 436 U.S. 149 (1978). And under the "nexus theory," if the
government is sufficiently involved in, encourages, or benefits from the actor's conduct, the
private party's conduct will be deemed a state act subject to governmental review. Jackson v.
Metropolitan Edison Co., 419 U.S. 345, 351 (1974).
Although these doctrines guide our resolution of this cause, we note that the
Supreme Court indicated in Burton that whether state action exists in a particular situation can be
determined only "by sifting facts and weighing circumstances." 365 U.S. at 722. Accordingly,
we must sift the facts and weigh the circumstances in the present cause to determine whether
ASA's actions with respect to Weaver involve state action.
Weaver bases his claims of state action on his arrest for criminal trespass, the
injunctions against him, and ASA's contractual relationship with the City of Austin and Travis
County. (3) First, Weaver claims that the State participated with ASA in assisting and encouraging
Weaver's arrest for criminal trespass and in obtaining the injunction against him. He contends
that these actions establish a nexus between the State and ASA's discriminatory conduct. Weaver
makes these assertions, however, without pointing to any evidence that any government official
coerced, encouraged, or even suggested the actions taken by ASA representatives. Thus, we
reject Weaver's contention.
Weaver next points to the existence of the contracts between ASA, the City of
Austin, and Travis County as evidence of state action. The first contract between ASA and these
governmental entities was effective from May 1, 1987, through September 30, 1988, and provided
ASA with $136,579 of city and county funds. The second contract was effective from October
1, 1988, through September 30, 1989, and it increased funding to $234,836.
The contracts spell out the services that ASA contracted to perform for the city and
county, one of which is the safer-sex workshop at issue in this cause. In addition to listing
services to be performed by ASA, the contracts discuss program objectives, funding and budget
matters, and require ASA to maintain records of expenses related to the contract. The contracts
also require ASA to submit documents such as an operational plan and quarterly progress reports
to the funding agencies for review.
Although the contracts regulate ASA in many ways, they impose virtually no
conditions on how to structure or run the workshops. With respect to the safer-sex workshops,
the 1987 contract states only the following:
5. Conduct safe sex workshops.
Target groups: All.
Note: For gay and bisexual men and women, workshops will focus on
safe sex techniques and encourage healthy lifestyles. For
heterosexual men and women, information on AIDS will be
provided within a larger context of human sexuality and/or
contraception issues.
The 1988 contract speaks to the safer-sex workshops only in terms of the number of workshops
ASA must offer during the contract's term.
In Rendell-Baker v. Kohn, 457 U.S. 830 (1982), the Supreme Court found no state
action in a situation factually similar to the one in this cause. In that case, the Court held that a
private, nonprofit school whose income was derived ninety percent from public funding, and
which public authorities regulated, did not commit state action when it fired a counselor. 457
U.S. at 831. That school had contracts with both the state and city to provide individualized
education for adolescents with drug, alcohol, and emotional problems. Id. at 833.
After discussing public funding, the extensive state regulation involved in the case,
the public function that the school served, and the relationship between the school and the state
government, the Court concluded that the school's act of firing an employee was not the act of
the State. Id. at 839-43. The Court stated that "[t]he school . . . is not fundamentally different
from many private corporations whose business depends on contracts to build roads, bridges,
dams, ships, or submarines for the government. Acts of such private contractors do not become
acts of the government by reason of their significant or even total engagement in performing
public contracts." Id. at 840-41 (emphasis added).
The purpose of the state-action requirement is "to assure that constitutional
standards are invoked only when it can be said that the State is responsible for the specific conduct
of which [a party] complains." Blum v. Yaretsky, 457 U.S. 991, 1004 (1982) (emphasis in
original). "[A] State normally can be held responsible for a private decision only when it has
exercised coercive power or has provided such significant encouragement, either overt or covert,
that the choice must in law be deemed to be that of the State." Rendell-Baker, 457 U.S. at 840
(citing Blum, 457 U.S. at 1003) (emphasis added).
Nothing in the record indicates that ASA's decision to exclude Weaver from its
workshops can be ascribed to a governmental decision. Neither contract directs ASA to admit or
exclude certain persons from its workshops, and ASA submitted summary judgment proof that
it independently exercised its discretion in deciding to exclude Weaver from the safer-sex
workshops. We conclude that no state action entered into in ASA's decision to exclude Weaver.
Absent state action, ASA cannot be said to have violated Weaver's constitutional rights.
In addition to the arguments made above, Weaver contends that ASA engaged in
state action under article I, section 8 of the Texas Constitution because Texas requires a lower
threshold of public activity for a finding of state action. Weaver supports his argument with Jones
v. Memorial Hospital System, 746 S.W.2d 891 (Tex. App. 1988, no writ), in which a nurse
alleged that a hospital infringed her right of freedom of speech when it terminated her employment
for writing a controversial newspaper article. The Jones court enunciated a test for state action
in which it looked at whether the hospital system was "so involved with state and federal activity
that its actions should be treated as those of a public entity for the purposes of constitutional
adjudication." (4) Id. at 895. The Jones court remanded that cause for a trial on the merits because
the court could not conclude as a matter of law that the hospital was a state actor despite the fact
that the hospital received federal and state grants, reported to thirty-one governmental agencies,
had cooperative education programs with numerous public entities, operated a county-owned
hospital, was regulated and licensed by the state, and had the power of eminent domain. Id. at
895-97. Jones does not alter our conclusion that ASA is not a state actor, since ASA's public
involvement is much less extensive than that present in Jones.
Because we conclude that there was no state action present in ASA's decision to
exclude Weaver from the safer-sex workshops, we overrule Weaver's first three points of error.
In his fourth point of error, Weaver complains that the trial court erred in awarding
ASA attorney's fees under the Uniform Declaratory Judgments Act. See Tex.Civ. Prac. & Rem.
Code Ann. § 37.009 (1986). The Act states that "[i]n any proceeding under [the Uniform
Declaratory Judgments Act], the court may award costs and reasonable and necessary attorney's
fees as are equitable and just." Id.
First, Weaver contends that ASA is seeking a declaratory judgment that he
committed a trespass. Since trespass is a cause of action sounding in tort, he reasons that ASA
is manipulating the Act in order to recover attorney's fees. Weaver further argues that ASA's
request for declaratory judgment does not support a recovery of attorney's fees because it adds
no coercive relief in addition to that sought through ASA's trespass claim and injunction.
We agree that a party may not recover attorney's fees by requesting a declaratory
judgment on a tort claim. See Barnett v. City of Colleyville, 737 S.W.2d 603, 606-607 (Tex.
App. 1987, writ denied) (disallowing attorney's fees in a suit to abate a public nuisance); First
Nat'l Bank v. Anderson Ford-Lincoln-Mercury, 704 S.W.2d 83, 85 (Tex. App. 1985, writ ref'd
n.r.e.) (no recovery of attorney's fees for successfully prosecuting a negligence action).
However, we reject Weaver's attempt to characterize this cause as a request for declaratory
judgment appended to a mere trespass claim for the purpose of providing an "avenue to attorney's
fees." Although the event that triggered this entire controversy was Weaver's attendance at the
November 20th workshop and his subsequent arrest for criminal trespass, this cause is not about
an individual's liability in a tort action. The record does not indicate that ASA has a trespass suit
pending against Weaver.
ASA asked the trial court for a declaration of ASA's rights to conduct its
workshops and other programs constituting its performance of its contracts with the City of Austin
without Weaver's interference. The Uniform Declaratory Judgments Act states that a court "has
power to declare rights, status, and other legal relations whether or not further relief is or could
be claimed." Tex. Civ. Prac. & Rem. Code Ann. § 37.003(a) (1986). The right to exclude
Weaver necessarily hinges on ASA's status as a private actor, the proper construction of ASA's
contract with the city and county, and a judicial determination of the effect of ASA's receipt of
public funding on its right to control participation in its workshops. ASA sought affirmative
declaratory relief on these issues from the outset of this cause.
We conclude that the trial court properly settled general controversies regarding
ASA's status as a private rather than state actor. The Uniform Declaratory Judgments Act states
that "[f]urther relief based on a declaratory judgment or decree may be granted whenever
necessary or proper." Tex. Civ. Prac. & Rem. Code Ann. § 37.011 (1986). Thus, ASA
correctly combined its request for declaratory relief with a request for an injunction. See Davis
v. Pletcher, 727 S.W.2d 29, 35 (Tex. App. 1987, writ ref'd n.r.e.). Accordingly, we overrule
point of error four.
In his fifth point of error, Weaver contends that the trial court's final judgment is
erroneous because it includes judgment against a separate entity, the American Family Association
of Texas (AFAT). He argues that AFAT was neither served nor made a party before the
summary judgment hearing and final judgment in this cause.
The final judgment rendered in this cause runs against Mark Weaver and CAP
doing business as AFAT. Although ASA's original petition makes no mention of AFAT, the
record in this cause shows that ASA amended its petition in September 1989 to sue CAP in both
names. The amended petition states that "[s]ince approximately December 1987, C.A.P. has also
been known as the 'American Family Association of Texas.'"
Texas Rule of Civil Procedure 28 states that a plaintiff may sue a corporation in
its assumed or common name for the purpose of enforcing against it a substantive right. Tex. R.
Civ. P. Ann. 28 (Supp. 1992). If a party objects to the name under which it is being sued, it is
required to raise the objection either by motion under Rule 28 or by verified pleading under Rule
93. Id.; Tex. R. Civ. P. Ann. 93(2), (4) (Supp. 1992). The record does not reflect that CAP
ever complained of any defect of parties or of a lack of capacity to be sued as "d/b/a American
Family Association of Texas." Consequently, AFAT is bound by the trial court's judgment.
Moreover, if appellants are correct in contending that AFAT is an entity wholly
separate from CAP, then Weaver and CAP lack standing to assert AFAT's rights. Only the
person whose primary legal right has been breached may complain on appeal. Sherry Lane Nat'l
Bank v. Bank of Evergreen, 715 S.W.2d 148, 152 (Tex. App. 1986, writ ref'd n.r.e.). Instead,
AFAT must assert its own objections to the judgment in a collateral attack. See Browning v.
Placke, 698 S.W.2d 362, 363 (Tex. 1985).
We conclude that the trial court properly rendered judgment against "CAP d/b/a
AFAT." Accordingly, we overrule this point of error.
Disposition
We affirm the judgment of the trial court.
Jimmy Carroll, Chief Justice
[Before Chief Justice Carroll, Justices Aboussie and B. A. Smith]
Affirmed
Filed: August 12, 1992
[Publish]
1. For simplicity, we will refer to appellants collectively as "Weaver."
2. Summary judgment is appropriate only when there exists no genuine issues of
material fact and one party is entitled to judgment as a matter of law. See Nixon v. Mr.
Property Management, 690 S.W.2d 546, 548 (Tex. 1985). Weaver does not contend that
disputes as to material facts exist, but the parties sharply disagree about the inferences to be
drawn from the evidence.
3. Weaver contends that these factors establish state action under both the state and
federal constitutions.
4. In enunciating this test, the Jones court noted that no state precedent exists to
determine whether particular conduct is state action under the state constitution. The court
stated that because Texas courts are not restricted to the same tests used by federal courts, it
was free to adopt a test that requires a lower threshold of public activity. The court then
applied its newly formulated test in light of a number of factors federal courts had used in
deciding whether a private hospital functions as a public entity. Jones, 746 S.W.2d at 894-95.
Although the Jones court implies that its test requires a lower threshold public activity, it does
not distinguish its test from federal precedent. We are not persuaded that the Jones court
articulated a test that differs substantially from federal precedent.
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